#### BANCO SANTANDER, S.A. #### ANNUAL REPORT #### FOR THE YEAR ENDED 31 DECEMBER 2021 TABLE OF CONTENTS [Part 1.- Consolidated directors’ report, auditor's report and consolidated financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_67) [3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_67) [Part 2.- Supplemental information](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9056) [811](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9056) ### Part 1. ### Consolidated directors´ report, auditor's report and consolidated financial statements 2021 #### 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_79) [6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82) [Business model and strategy](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82) [15](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Responsible banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) #### Consolidated non-financial statement [23](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634806) Our approach [33](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_106) [Doing things the right way](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_34) [71](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10209) [Promoting inclusive and sustainable growth](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10209) [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154) [Key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154) [131](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_160) [Further information](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_160) [131 Non-financial information Law content](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_163) [index](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_163) [136](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_166) [UNEP FI Principles for Responsible Banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_166) [reporting index](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_166) [144](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_169) [Global Reporting Initiative (GRI) content](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_169) [index](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_169) [164](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_172) [Sustainability Accounting Standards Board](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_172) [(SASB) content index](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_172) [166](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634843) Stakeholder Capitalism Metrics content index [172](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634878) SDGs contribution content index [175](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_175) Independent verification report [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Corporate Governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [182](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_187) [2021 Overview](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_187) [188](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_211) [Ownership structure](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_211) [193](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_232) [Shareholders. Engagement and general](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_232) [meeting](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_232) [200](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_253) [Board of directors](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_253) [247](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_307) [Management team](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_307) [249](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310) [Remuneration](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310) [273](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_334) [Group structure and internal governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_334) [276](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_343) [Internal control over financial reporting (ICFR)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_343) [284](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_367) [Other corporate governance information](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_367) [320](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Economic and financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [322](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_394) [Economic, regulatory and competitive context](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_394) [325](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_397) [Group selected data](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_397) [327](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_400) [Group financial performance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_400) [368](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_418) [Financial information by segments](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_418) [410](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_496) [Research, development and innovation](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_496) [(R&D&I)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_496) [412](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_499) [Significant events since year end](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_499) [413](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_502) [Trend information 2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_502)022 [421](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_505) [Alternative performance measures (APM)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_505) [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [Risk management and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [432](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_511) [Risk management and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_511) [439](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_523) [Risk management and control model](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_523) [446](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_544) [Credit risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_544) [466](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_577) [Market, structural and liquidity risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_577) [480](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_604) [Capital risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_604) [483](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_616) [Operational risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_616) [489](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_628) [Compliance and conduct risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_628) [496](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_637) [Model risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_637) [498](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_646) Strategic risk [499](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661) Climate and environmental risk [Auditor's report and consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661) [514](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Auditor's report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [524](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Consolidated financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [540](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Notes to the consolidated financial](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [767](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) [504](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_655) [Glossary](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_655) [808](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1078) [General information](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1078) ## 2021 consolidated directors’ report #### This reportwasapproved unanimously by our board of directors on 24 February 2022 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'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) 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. Auditors’ reviews As required by law, contents of our 2021 consolidated directors’ report has been subjected to three types of reviews by our independent statutory auditors, PricewaterhouseCoopers Auditores, S.L., summarized as follows: – PricewaterhouseCoopers Auditores, S.L. has verified that the information in this report is consistent with our consolidated financial statements, and that its contents comply with the applicable regulations. For more details, see ‘Other information: Consolidated management report section of the ['Auditor’s report'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) within ['Auditor's report and consolidated annual accounts'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661). – PricewaterhouseCoopers Auditores, S.L. has issued a verification report, with limited assurance, on the non-financial and diversity information required by Spanish Act 11/2018 included in this report. To read that report, see the ['Independent verification report'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_175) in the ['Responsible banking'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) chapter. – PricewaterhouseCoopers Auditores, S.L. has issued an independent reasonable assurance report on the design and effectiveness of Banco Santander's internal control over financial reporting, found in section [8.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_361) of the ['Corporate governance'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) chapter. 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'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 4 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); –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. XHTML electronic format and XBRL tags This annual report has been prepared in eXtensible HyperText Markup Language (XHTML) format, and the consolidated financial statements it includes have been tagged with eXtensible Business Reporting Language (XBRL), in accordance with Directive 2004/109/ EC and Commission Delegated Regulation (EU) 2019/815. To view the XBRL tags, you must open this document using an appropriate viewer. You can find this document with an XBRL viewer on Banco Santander's corporate website. 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 5 ### Business model and strategy We followThe Santander Way: For more information see the ['Responsible banking'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) chapter. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 6 Our business model | Our customer focus, global scale and diversification are the foundations for generating value for our shareholders 01. Customer focus Deepening the relationships with our customers through a simpler value proposition, superior customer experience and our digital proposition → We have increased our number of customers over the last seven years, and notably in 2021, with balanced growth by region and business. → Our aim is to further enhance our customers' experience and satisfaction. → We also help a new generation of customers with new ways to interact with their finances, which is reflected in an increase in digitalization (54% digital sales / total sales in 2021). Total customers 153 mn +5 mn in 2021 +32 mn since 2015 Top 3 Customer satisfactionA #### 8 countries A. NPS (Net Promoter Score)  – Customer Satisfaction internal benchmark of individual customers' satisfaction audited by Stiga / Deloitte in H2'21. 02. Our scale Local scale and global reach → Regional and global scale based on three geographic regions, where we maintain leadership positions in our core markets. → Worldwide reach through our global businesses and PagoNxt, enabling greater collaboration across the Group to generate higher revenue and efficiencies. #### Top 3 A in 10 of our markets #### DCB A. Market share in lending as of Sep-21 including only privately-owned banks. UK benchmark only covers the mortgage market (source: central banks). Digital Consumer Bank (DCB) refers to auto financing market shares in the majority of our Europe footprint  (source: information from local auto associations and market intelligence reported by SCF units). 03. Diversification Underlying attributable profit by region A Our geographic and business diversification makes us more resilient under adverse circumstances → We have a diversified geographical footprint which is well balanced between emerging and developed markets. → Business diversification between customer segments (individuals, SMEs, mid-market companies and large corporates). → This diversification remains a source of great strength and earnings stability. A.2021 underlying attributable profit by region. Operating areas excluding Corporate Centre. Group net operating income (Pre-Provision Profit) EUR billion Our strong model is reflected in the resilience of our business. It is a competitive strength that continues to differentiate us. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 7 #### 2021 results:growth, profitability, strength and shareholder value creation Over the last seven years, we have laid the foundations to deliver great value and service to our customers, while increasing profit, improving profitability and strengthening our capital base. In 2021, we delivered an all-time record profit before tax (PBT) of EUR 15.3 billion, reflecting strong business momentum across the Group. We improved our efficiency, cost of risk and profitability, reached our capital target and improved our shareholder value creation by 11% in 2021. #### Strong operating performance in 2021: EUR 8.7bn of underlying profit 2021 (vs. 2020) #### Growth #### Profitability #### Strength Total customers 153mn (+5mn) RoTE B 12.7% (+529bps) FL CET1 C 12.0% (+7bps) Total revenue A #### EUR 46.4bn (+7%) Efficiency ratio 46.2% (-86bps) Cost of credit D 0.8% (-51bps) #### 2021 Shareholder value creation: +11% E A.Changes in constant euros. In euros: +4%. B. Underlying RoTE. Statutory RoTE: 12.0%. C. Including acquisition of  SC USA minority interest which closed on 31 January 2022 and the announced acquisition of Amherst Pierpont which is subject to completion, regulatory approval and other conditions. D. Provisions to cover losses due to impairment of loans in the last 12 months / average customer loans and advances of the last 12 months. E. TNAV per share + cash DPS of EUR 7.6 cents paid in calendar year 2021. #### Geographical and business diversification delivers growth and profitability 2021 (vs. 2020) EUR billion LoansA Customer fundsB Revenue Underlying profit % of Group’s customer loans % of Group’s underlying profitC +4% YoY +6% YoY +7% YoY +78% YoY Europe 576 712 16.3 3.0 60% 28% North America 134 137 11.0 3.1 14% 29% South America 129 162 15.4 3.3 14% 31% Digital Consumer Bank 117 58 5.3 1.3 12% 12% Note: YoY changes in constant euros. A.Gross loans and advances to customers excluding reverse repos. B. Customer funds: customer deposits excluding repos + marketed mutual funds. C. Underlying contribution as a % of operating areas and excluding the Corporate Centre. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 8 #### Looking ahead Thanks to our scale, geographic footprint and business diversification, we have numerous opportunities to grow, which should allow us to remain our customers' first choice. To make the most of those opportunities, our focus is on implementing plans that enhance the existing connectivity across all the geographies and businesses, and improve the profitability of our core businesses through disciplined capital allocation. We will do this while delivering on our commitment to offer our customers financial products and services in a Simple, Personal and Fair way, and creating value for our shareholders. #### Our focusand2022 goals #### 2022 Group goals #### Growth #### Profitability #### Balance Sheet #### Strength #### Shareholder #### Remuneration B #### Mid-single digit A #### Revenue growth C/I45% #### RoTE>13% #### FL CET1 12% #### Payout 40% A.Constant EUR. B. For the 2022 results the shareholder remuneration policy that the board intends to apply is a total remuneration of approximately 40% of the group's underlying profit, split in approximately equal parts between cash dividends and share buybacks, thus continuing the policy applied with respect to 2021 results. The implementation of the shareholder remuneration policy is subject to future corporate and regulatory decisions and approvals. #### Improving customer service and increasing connectivity #### Investing in Tech … #### … and building common solutions Tech investment to transform the business… #### EUR 2bn / year …and help customers transact online. In 2021: → PagoNxt: common tech backbone for payments of Santander customers and open market. → One Santander: •Regional Consumer Finance platform in South America. •Common App and Regional Business Owners in Europe. •T&O shared services in North America. •Global Financial Crime & Compliance solutions. → Digital Consumer Bank: re-platform auto, consumer and retail. 76% #### digital transactions of our core banks (vs 55% in 2019) 54% #### digital sales / total sales (vs 36% in 2019) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 9 Continuing to execute ourthree strategic priorities: 1. One Santander The aim is to create a better bank for our customers that is more efficient, profitable and sustainable. This project incorporates improved customer service, our omni-channel strategy and a common operating model in each region. #### 2.PagoNxt Our common tech backbone that will unify the payments of all Santander customers. 3. Digital Consumer Bank The combination of our auto and consumer businesses, leveraging the technology of Openbank – Santander’s full service native digital bank - to accelerate the tech transformation of our Consumer Finance business to maintain its high profitability and growth. #### 1.One Santander #### Europe 2021 Key data Loans #### EUR 576bn ↑ +3% Customer funds #### EUR 712bn ↑ +6% Efficiency 51.0 % ↓ -5.4pp Cost of credit 0.39 % ↓ -19bps Profit #### EUR 3.0bn ↑ +110% RoTEA 7.4 % ↑ +3.8pp 2022 Strategic focus Profitable growth from individual customers. SME value proposition leveraging PagoNxt. Disciplined capital allocation; growing Santander Corporate & Investment Banking and Wealth management & Insurance. Common operating model to drive EUR 1bn run-rate savings by end 2022. Cost of credit normalization. Note: 2021 data and year-on-year changes (underlying profit, loans and funds in constant euros). A.Underlying RoTE. RoTE adjusted based on Group’s deployed capital calculated as contribution of RWAs at 12% would be 9.9% (+5.4pp). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 10 #### North America 2021 Key data Loans #### EUR 134bn ↑ +4% Customer funds #### EUR 137bn ↑ +9% Efficiency 45.6 % ↑ +1.8pp Cost of credit 0.93 % ↓ -199bps Profit #### EUR 3.1bn ↑ +109% RoTEA 13.1 % ↑ +6.2pp 2022 Strategic focus Positioned to deliver above cost of capital returns across core businesses. •Refocusing US on our market leading consumer franchise. •Simplifying: disciplined capital allocation. Exit home lending / Review certain Corporate & Investment segments. •Synergies from 2021's strategic investments; (Amherst Pierpont / SC USA minorities)B. 8 pp increase in digital transactions from 47% to 55%; digital sales up from 62% to 70% driven by greater customer focus & tech investment. Note: 2021 data and year-on-year changes (underlying profit, loans and funds in constant euros). A.Underlying RoTE. RoTE adjusted based on Group’s deployed capital calculated as contribution of RWAs at 12% would be 24.6% (+13.8pp). B. Acquisition of SC USA minority interest closed on 31 January 2022. The announced acquisition of Amherst Pierpont is subject to completion, regulatory approval and other conditions. #### South America 2021 Key data Loans #### EUR 129bn ↑ +12% Customer funds #### EUR 162bn ↑ +9% Efficiency 35.0 % ↓ -1.0pp Cost of credit 2.60 % ↓ -72bps Profit #### EUR 3.3bn ↑ +24% RoTEA 20.3 % ↑ +2.6pp 2022 Strategic focus Double-digit growth in retail segments. Leading regional Consumer Finance. Accelerate connectivity in Corporate and Santander Corporate & Investment Banking segments. Proven risk management capabilities able to control cost of credit. Fee businesses and transactional services on the back of Group´s payments platforms will drive "recurrence" growth from our current 70% to ~80%. Note: 2021 data and year-on-year changes (underlying profit, loans and funds in constant euros). A  Underlying RoTE. RoTE adjusted based on Group’s deployed capital calculated as contribution of RWAs at 12% would be 26.0% (+3.9pp). Building a more responsible bank by embedding ESG in our strategic priorities In 2021, One Santander focused on helping customers in the transition to a green economy, jointly developing green products and services across regions, while promoting the financial health of our diverse customer base, especially the most vulnerable. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 11 2. #### PagoNxt 2021 Revenue performance A Merchant acquiring Santander banks with Getnet 6 Total payments volume (TPV) B #### EUR 116bn ↑ +50% Total active merchants 1.2 mn International Trade Santander banks with One Trade 8 One Trade active SMEs and corporates >8k Ebury revenue growth C +30 % 2022 Strategic focus Continue to expand our global platforms. Consolidating our retail leadership positions with Getnet. Deploy One Trade's international payments services. Implement the instant functionality of Payments Hub in various markets. Continue the gradual migration of our global payments services and financial inclusion platform of  Superdigital in Latin America. A.Constant EUR mn and YoY changes in constant euros. B. TPV: Total Payments Volume. C. Changes in constant euros (estimated fiscal year from May’21-April’22 vs May’20-April’21). Management accounting data. Building a more responsible bank by embedding ESG in our strategic priorities In 2021, PagoNxt continued to develop consumer solutions, such as Superdigital, to tackle financial exclusion in Latin America, while supporting entrepreneurship with solutions for merchants, such as Getnet. #### 3.Digital Consumer Bank 2021 Key data Loans #### EUR 117bn ↓ -1% Customer funds #### EUR 58bn ↑ +10% Efficiency 45.0 % 0.0pp Cost of credit 0.46 % ↓ -38bps Profit #### EUR 1.3bn ↑ +16% RoTEA 14.0 % ↑ +2.3pp 2022 Strategic focus To become the largest digital consumer bank leveraging SCF’s footprint in auto and consumer finance, profiting from Openbank's technology stack and reinforcing leadership position with strategic alliances. Auto: Strengthening auto financing leadership by reinforcing mobility solutions with focus on leasing and subscription. Consumer (non-auto): Gaining market share in consumer lending, with focus on e-commerce checkout lending and buy now, pay later (BNPL). Simplification for efficiency: maintaining high speed digitalization in order to transform the business and improve efficiency. Note: 2021 data and year-on-year changes (underlying profit, loans and funds in constant euros). A. Underlying RoTE. RoTE adjusted based on Group’s deployed capital calculated as contribution of RWAs at 12% would be 14.8% (+2.5pp). Building a more responsible bank by embedding ESG in our strategic priorities In 2021, Digital Consumer Bank focused on developing green finance solutions (both in auto and consumer loans), while making progress in measuring the emissions financed in our loan portfolio. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 12 #### Global businesses (SCIB and WM&I)enhance our local scale with global reach and collaboration Our global businesses built on their 2020 results, reporting outstanding performance in 2021, with double- digit profit growth. SCIB and WM&I continue to bring connectivity across the Group to generate higher revenue and efficiencies. #### Santander Corporate & Investment Banking 2021 Key data Revenue #### EUR 5.7bn ↑ +10% Fee income #### EUR 1.8bn ↑ +16% Profit #### EUR 2.2bn ↑ +26% RoTE 18.1 % ↑ +2.5pp 2022 Strategic focus Santander CIB supports corporate and institutional customers, offering tailored services and value-added wholesale products suited to their complexity and sophistication. Continue the business transformation to partner with our clients as strategic advisors, strengthening our value-added services, with an increased focus on ESG and Digital solutions. Our aim in Europe is to become one of the top wholesale banks in the region, while strengthening our leadership position in LatAm and to up-tier our franchise in the US to compete on a level playing field. Note: 2021 data and YoY changes (underlying profit, revenue lines and commercial activity  in constant euros). #### Wealth Management & Insurance 2021 Key data Assets under management #### EUR 399bn ↑ +8% Commercial activity (Flows) #### EUR 11.7bn Private Banking #### EUR 8bn Santander Asset Management Insurance Premiums A +12 % 2022 Strategic focus Our aim: to become the best responsible wealth and insurance manager in Europe and the Americas. Private Banking: continue to build our global platform, expand and develop our product and service proposition, and deploy the best digital tools. We aim to renew or improve our top 3 position as Best Global Private Bank according to EuromoneyC. Fee contribution #### EUR 3.4bn ↑ +12% 32% of Group total fees RoTE 59.7 % ↑ +5.6pp Profit #### EUR 907 mn ↑ +13% Contribution to Group's profit B #### EUR 2.3bn ↑ +12% SAM: continue to be the preferred funds partner for our retail network by completing the creation of the global hubs, expanding the One Investments model and methodologies, and working to complete the implementation of our digital funds distribution platforms. Insurance: optimize our customer service by completing our digital proposition using customer data; manage our portfolio to extend policy life; and increase customer base penetration. ESG transversal across our businesses: offer sustainable investment management in our private banking platform, expand our ESG range to help reach our commitment of EUR 100bn AuM by 2025, work towards our Net Zero commitments and create a sustainable insurance value proposition. Note: 2021 data and YoY changes (underlying profit, revenue lines and commercial activity  in constant euros). A. Protection business. B. Including fees generated by asset management and insurance transferred to the commercial network. C. Clients up to USD 250 million. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 13 ESG commitments: we are creating value for our shareholders by focusing on delivering profitable growth in a responsible way In 2021, we continued to deliver on our ESG commitments, #### supporting our customers’ green transition and financially empowering more people #### Supporting the green transition #### Building a more inclusive society #### With a talented and diverse team #### EUR 66bn Green finance since 2019A 7.5mn People financially empowered since 2019 6 Geographies where we are Top 10 company to work for >200% YoY green finance in retailB #### >EUR 550mn Credit allocated to microfinance in 2021 >26% Women in senior leadership positions #### EUR 27bn AuM in Sustainable fundsC 1.4mn Microentrepreneurs supported since 2019 #### ESG Metrics included in executives' incentives #1 Financial advisor in Project Finance renewablesD 8 Countries with microfinance initiatives underway #1 Bank in Bloomberg Gender Equality Index Note: audited data. A.Only SCIB global business. B. All segments excluding SCIB and WM&I. C. AuMs classified as Article 8 and 9 funds (SFDR) from SAM, plus third-party funds and other ESG products according to EU taxonomy from Private Banking. We apply equivalent ESG criteria to SAM's funds in Latin America. D. Banco Santander, S.A. emerged as the top financial advisor for renewable energy project financing in 2021, with a total deal credit of USD 10.3 billion and a market share of 28%, according to Bloomberg NEF’s H2’21 Clean Energy League Tables. We continued to progress towards our 2025 ESG commitments and in our Net Zero target by 2050. In 2021 we set the first decarbonization targets to support the green transition: → Reduce our thermal coal exposure to zero. → Align our power generation portfolio to the Paris Agreement by 2030. For more information see the ['Responsible banking'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) chapter. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 14 # Responsible banking #### Consolidated Statement of Non-Financial #### Information 2021 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 15 #### About this chapter GRI 102-45, 102-46, 102-48, 102-49, 102-50, 102-51, 102-52, 102-54 and 102-56 This chapter is the consolidated non-financial statements of Banco Santander, S.A. and subsidiaries. It provides detailed information in accordance with Art. 49, sections 5, 6, 7, 8 and 9 of the Spanish Commercial Code as amended by Ley (“Act”) 11/2018, which transposes into Spanish law 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 covers the core activities of Banco Santander and its subsidiaries in Europe, the United States and Latin America from 1 January to 31 December 2021 (for more details, see Notes [3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_739) and [52](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_979) to the consolidated financial statements and Sections [3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_400) and [4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_418) of the Economic and financial review). It gives economic, social and environmental information according to the bank’s accounting criteria. Significant criteria differences from the 2020 Responsible banking chapter are explained in the related section as well as in the [Global Reporting Initiative (GRI) Content Index](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_169). International standards considered in preparing this Responsible banking chapter Banco Santander follows international standards to prepare sustainability reports. This chapter meets the GRI Standards (comprehensive option), the GRI G4 guidelines on financial services disclosures, the Sustainability Accounting Standards Board’s (SASB) 2018-10 industry standards, and the World Economic Forum's Stakeholder Capitalism Metrics. It shows Santander's progress with respect to the UN Principles for Responsible Banking, the TCFD recommendations, the 2030 Agenda and the UN Sustainable Development Goals. It also takes into account the European Taxonomy regulation (Regulation (EU) 2020/852 and Commission Delegated Regulations 2021/2139 of 4 June and 2021/2178 of 6 July). Material aspects and stakeholder involvement Banco Santander maintains active dialogue with its stakeholders to understand their expectations. It conducts a materiality assessment of ESG matters and closely monitors questionnaires and recommendations of Dow Jones, FTSE4Good and other major sustainability indices, as well as the World Business Council for Sustainable Development (WBCSD) and other international sustainability initiatives it takes part in. This chapter illustrates the sustainability of the bank’s local and global operations, especially in terms of internal and external impact. For details on its preparation and on materiality assessment findings, see section 'What our stakeholders tell us'. External verification This report has been verified with limited assurance  by PricewaterhouseCoopers Auditores, S.L., an independent firm that also audited Banco Santander, S.A.’s financial statements for 2021. The use by Banco Santander S.A. 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 S.A. 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 16 [2021 overview](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780) [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780) #### Our approach [23](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634806) [What our stakeholders tell us](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853) [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853) Our ESG priorities [27](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634820) Governance [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827) [Doing things the right way](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_106) [33](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_106) [A strong and inclusive culture](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109) [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109) [Conduct and ethical behaviour](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151) [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151) [A talented and motivated team](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112) [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112) [Acting responsibly towards customers](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115) [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115) [Responsible procurement](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118) [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118) [Shareholder value](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121) [69](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121) [Promoting inclusive and sustainable growth](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10209) [71](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10209) [Supporting the green transition](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216) [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216) Financial inclusion and empowerment [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183) Sustainable investment [104](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635190) Support to higher education and other local initiatives [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197) [Key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154) [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154) [Further information](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_160) [131](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_160) [Non-financial information. Law content index](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_163) [131](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_163) [UNEP FI Principles for Responsible Banking reporting index](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_166) [136](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_166) [Global Reporting Initiative (GRI) content index](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_169) [144](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_169) [Sustainability Accounting Standards Board (SASB) content index](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_172) [164](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_172) Stakeholder Capitalism Metrics content index [166](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634843) SDGs contribution content index [172](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634878) [Independent verification report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_175) [175](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_175) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 17 #### 2021 overview Helping people and businesses prosper #### People #### Customers EUR 11,216 million Staff costsA EUR 972,682 million loans outstanding (net) EUR 542,339 million to households EUR 22,152 million to government agencies EUR 323,475 million to companies EUR 86,716 million to othersB #### Shareholders #### Communities #### Suppliers #### Tax contribution 40% of ordinary profit intended for their remunerationC EUR 152 million invested in communities EUR 6,757 million paid to suppliersD EUR 7,617 million Total taxes paid by the group Building a more responsible bank by embedding ESG #### Environmental Social Governance → Embedding a climate strategy to deliver net zero by 2050 2.1% of exposure to sectors with decarbonization targets against total lending on the balance sheet 38% of credit risk exposure with decarbonization targets against SCIB exposure to climate concerning sectors → Creating a workplace that attracts and retains diverse talent 54% women in our workforce 98% workforce with a permanent contract; and 9.8% promoted → Promoting our culture, the Santander Way 84% of employees said they felt proud to work for Santander and are motivated to build a bank that is even more Simple, Personal, Fair. → Helping our customers transition to a low-carbon economy EUR 32.3 bn in green finance mobilized in 2021 EUR 27 bn in sustainable AuM → Fostering financial inclusion and empowerment EUR 571 million credit disbursed  to #### 1 million micro-entrepreneurs → Ensuring sound corporate governance and risk management 66.7% independent directors 93% of employees can identify risks in their job every day → Minimizing our environmental footprint 39% reduction of CO2 emissions; Carbon neutral by offsetting 118,517tn CO2 emissions → Supporting our communities 162k  Scholarships and grants through Santander Universities 2.1 million people helped through social action programmes → Acting responsibly towards customers and suppliers 65% of complaints are resolved in less than 15 days, 85% in less than 30 days. 94% of our total services are locally sourcedD A.From Group consolidated financial statements. B.Including financial business activities and customer prepayments. C.Pay-out of approximately 40% of ordinary profit, equally divided between a cash dividend and a share buyback D.Data refers exclusively to purchases negotiated by Aquanima, our procurement global entity. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 18 #### Meeting our public commitments The 11 public commitments Banco Santander announced in 2019 reflect our responsible banking ambitions and help embed environmental, social and governance (ESG) criteria in operations. They are “SMART” (Specific, Measurable, Achievable, Realistic and Time-bound) to fulfil the UN Sustainable Development Goals and the targets set out in the Paris Agreement on climate change. In 2021, we met (or exceeded) all our commitments for 2019-2021 and made progress on all our targets. Our new public commitments include initial decarbonization targets for the power industry for 2025 and 2030, which measure emission intensity. 2018 2019 2020 2021 #### Target Top 10 company to work forA 4 5 6 6 Top 10 in 6 countries by 2021 Women board members 33% 40% 40% 40% 40-60% by 2021 Women in senior positionsB (%) 20% 22.7% 23.7% 26.3% 30% by 2025 Equal pay gapC 3% 2% 1.5% 1% ~0% by 2025 Financially empowered peopleD (cumulative) 2.0mn 4.9mn 7.5mn 10mn by 2025 Green finance raised and facilitatedE (cumulative)(EUR) 19bn 33.8bn 65.7 bn 120bn by 2025 220bn by 2030 Electricity used from renewable energy sourcesF 43% 50% 57% 75% 60% by 2021 100% by 2025 Carbon neutral in our own operationsG since 2020 Reduction of unnecessary single-use plastics in corporate buildings and branchesH 75% 98% 100% 100% by 2021 Scholarships, internships and entrepreneurship programmes (cumulative)I 69k 225k 388k 325k by 2021J People helped through our community programmes (cumulative)K 1.6mn 4.0mn 6.1mn 4mn by 2021 Cumulative target From… to… A.According to Great Place to Work, Top Employer, Merco and other external indices in each country B. Senior positions make up 1% of the total workforce C. Equal pay gap based on same jobs, levels and functions D. Unbanked, underbanked and financially vulnerable individuals who receive tailored finance solutions and become more aware and resilient 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 verify electricity from renewable sources at Banco Santander properties G. In our core geographies (G10) H. For G10. Does not account for Covid-19 measures that might have involved plastic I. Students given a scholarship through Santander Universities who will do an internship at an SME or take part in Santander-endorsed entrepreneurship programmes J.The initial target of 200k beneficiaries was reached in 2020 and therefore the bank committed to offer 125k additional scholarships by 2021 K. Does not include Santander Universities or financial education initiatives Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 19 #### Our progress in 2021 E → Commitment to net zero emissions by 2050. Founding member of UNEP FI’s Net Zero Banking Alliance. First decarbonization targets set. → SAM joined the Net Zero Asset Managers initiative, becoming the first asset manager in Spain to commit to net-zero emissions by 2050 and halve emissions on 50% of its AUMs. → New sustainable finance classification system setting the criteria to offer, manage and report sustainable financing. → Beyond the 32.3bn mobilized by SCIB in green finance, our third green bond raised EUR 1 billion in an eight-year non-preferred senior debt issue that will finance wind and solar power projects. → Santander Universities launched the Santander X Environmental Challenge to support innovative companies worldwide and promote a low-carbon economy. S → We ranked in the Top 3 in NPS in 8 markets, up from 6 in 2020. → Santander Chile, Santander Colombia and Santander Perú launched new microfinance programmes for entrepreneurs, while we continued to expand Prospera in Brazil and TUIIO in Mexico. → We have worked to develop a new global health and well-being policy.A → Santander Universities launched the Santander X Global Challenge | Finance For All to find innovative solutions that ensure access to banking products and services. G → ESG criteria are included in the short-term variable remuneration scheme that generally applies to Group employees. We also approved the inclusion of ESG criteria in long-term incentives for senior executives. → ESG course available to all employees and three-level ESG training model adapted to our employees’ needs. → New ESG certification by Aquanima (our global procurement entity). → ESG disclosure enhanced. In addition to the Global reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB), this report includes Stakeholder Capitalism Metrics (IBC-WEF). Improved position in key ESG ratings such as DJSI, MSCI, CDP, Shareaction, Sustainalytics, FTSE4Good and BGEI. A.This policy will be approved in 2022. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 20 #### Awards and recognition #### One of the world’s best places to work For the third consecutive year, Great Place to Work named Banco Santander one of world's 25 best workplaces, out of more than 10,000 organizations worldwide that foster exceptional employee experiences centred on trust and fair treatment. We were the only bank in the ranking. #### Best Bank for Financial Inclusion and Best Bank for Sustainable Finance  in Latin America Euromoney named Banco Santander “Best Bank for Financial Inclusion” and “Best Bank for Sustainable Finance in Latin America”. It highlighted our efforts to make financial services more accessible and financially empower people and businesses through programmes in Latin America, Europe and the US. It also commended our work to promote digital channels (especially among the elderly) during the pandemic and aid the transition to a low-carbon economy. #### Top Employers 2021 Santander received its fifth consecutive Top Employers Europe certification in recognition of its excellent working conditions and contribution to employee development. We received the certificate in three of our core markets in Europe (Spain, Poland and the UK) as well as for our Santander Consumer Finance units in Germany, the Netherlands, Austria, Poland, France and Belgium. #### One of the 100 most valuable brands in the world Our work to help communities prosper in a way that is Simple, Personal and Fair earned us recognition as the biggest bank in the eurozone and sixth globally in Interbrand’s 2021 Best Global Brands ranking. #### ESG indices and analysts → Featured in the Dow Jones Sustainability Index for the 21st year in a row, with top marks in financial inclusion, environmental reporting, operational eco-efficiency and social reporting. Santander was also included in the 2022 S&P Sustainability Yearbook, receiving a silver class award for its performance during 2021. → MSCI increased our rating from BBB (2020) to AA (2021), recognizing our efforts to capitalize on financial access opportunities; our cyber security and privacy plans; and our board’s commitment to consider climate matters in our long- term strategy. → CDP rating category up from B to A-, putting us among leading financial institutions. → Sustainalytics also recognized our progress, raising our score from 27.1 to 23.9 → We are members of the FTSE4Good Index, and improved from 4.3 in 2020 to 4.5 out of 5 in 2021. → We increased our score in the Bloomberg Gender-Equality Index (BGEI) from 85 to 90 and were the highest-ranked bank and second highest company. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 21 #### Local Awards → Eikon Award in the Sustainability/ Education category for the 2021 Financial Education Campaign → Top 3 best company to work for and Top 4 best company for women to work for by GPTW → Outstanding leadership in sustainable finance in Latin America by Global Finance → ALAS 2021: excellence in information disclosure, Líderes Sustentables 2021. → Members of DJSI Chile, DJSI MILA and DJSI Emerging Markets. → Golden CSR Leaf of Polityka for the fifth time for consistent implementation and development of CSR. → Santander Bank Polska joined the Diversity IN Check, the list of the most inclusive and diversity-friendly companies → Top Employers Polska 2021 award → Equal Company Certificate 2021, awarded by Forbes Women magazine → Top Employers: Ranked first in Spain in 2021 → Santander awarded most innovative entity in digital banking by ‘The Banker’ for its financial inclusion initiatives. The magazine highlights the agreement between Santander and Spain’s public postal service to provide rural areas with basic financial services → Santander received an "A for Excellence" rating in its Empresa Familiarmente Responsable ("Family-responsible company" or EFR) from Fundación MásFamilia → Top 10 best Company to work for and Top 10 Best Company to work for the LGBTQI+collective by GPTW → The American Chamber of Commerce gave us the ECO Award for Brazil's most innovative company in sustainability. → Melhores do ESG – Exame: Exame magazine recognised Santander as the best ESG Financial Institution → In a special award for the 10th anniversary of the Época Negócios 360° yearbook, Santander Brasil was named company of the decade in sustainability → Índice de Sustentabilidade Empresarial: for the 12th consecutive year we are in the Índice de Sustentabilidade Empresarial (ISE) portfolio. Promoted by B3 - Brasil, Bolsa, Balcão → Social Mobility Employer Index 2021: Top 20 in the index for UK employers who have taken the most action to improve social mobility in the workplace (first bank) → Our partnership with the Alzheimer's Society received 6 awards for our strategic work, support to the charity and for making Santander be a better bank for people affected by Alzheimer's and dementia → Best Sustainable Finance Bank for SME in Latin America by Euromoney Magazine → Best Financial Inclusion Bank and Best Socially Responsible Bank by International Finance → Outstanding Leader in Sustainable Finance in Latin America by Global Finance Magazine → Tuiio recognized as an outstanding practice to end poverty in Mexico by Global Compact → Santander the only bank in Mexico included in the S&P Global Sustainability Yearbook 2021. Member of the Dow Jones Sustainability Index MILA Pacific Alliance Index (DJSI MILA 2021) for the second year in a row → Expansión named Santander México a “Top company for women” for its work to support talented women → Top Workplaces USA 2021 & 2022: Santander Consumer → Top 4 best Company for women to work for by GPTW Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 22 #### Our approach By delivering on our purpose to help people and businesses prosper, we grow as a business while helping address society’s challenges. #### Our strategy is.... E Deliver our net zero carbon ambition by 2050 by setting decarbonization targets, helping our customers transition and remaining carbon neutral in our own operations. S Support inclusive growth through financial empowerment; support education, enterprise and employment; and building a diverse, talented workforce. G Embed behaviours, processes, policies and governance to ensure we are acting responsibly, listening to our stakeholders, and treating them in a Simple, Personal and Fair way – all based on solid governance and prudent risk management. #### By being responsible we build loyalty People Customers Communities Shareholders #### I'm loyal to Santander because… … Santander does things the right way 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. … Santander promotes inclusive and sustainable growth We focus on areas where our activity can have a major impact on helping people and businesses prosper. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 23 #### What our stakeholders tell us Listening to our stakeholders and creating value GRI 102-15, 102-21, 102-23, 102-24, 102-25, 102-26, 102-36, 102-37, 102-40, 102-41, 102-42, 102-43 and 102-44 We run surveys and ‘speak-up’ channels for employees, as well as interactive platforms for customers. We assess externalities to identify risks and opportunities and appraise our impact on the community. We respond to demands from top analysts, investors and indices interested in ESG matters; keep pace with new regulation and best practices worldwide; and take part in consultations with authorities, trade bodies and other organizations that influence policymaking on sustainable development. We’re 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’). For more information, see 'International and local initiatives that Santander supports' in the 'Governance’ section of this chapter. For more information, see '[Economic, Regulatory](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_394) [and Competitive Context](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_394)' in the 'Economic and Financial Review'. Key dialogue channels for stakeholders GRI 102-44 #### People 86% employees participated in the 2021 Global Engagement Survey 4,338 complaints received through ethical channels #### Customers #### +4 millions of surveys to measure customer satisfaction +45,000 banked individuals surveyed about Santander being Simple, Personal and Fair 478,586 complaints received #### Shareholders 15,260 shareholders surveyed about Santander being Simple, Personal and Fair 18,695 shareholders and investors participated in studies and quality surveys 139,301 queries handled by email, phone, WhatsApp and online 116 meetings with minority shareholders and 942 contacts with institutional investors #### Communities 997 universities and academic institutions with agreementsA +1,400 partnerships with social institutions and entities +300 social media profiles +25 million followers A.This figure only includes universities that have an agreement with Santander Universities. Adding Universia´s data, the total figure is 1,415 universities and academic institutions in 28 countries Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 24 Materiality assessment: Identifying the issues that matter GRI 102-47, 103-1 Our in-depth materiality review included direct stakeholder input (internal and external interviews and surveys on the bank’s ESG priorities), in line with best practice. Following the proposed Corporate Sustainability Reporting Directive (CSRD) and leading ESG reporting standards, we applied the principle of double materiality: (1) financial materiality (how ESG issues impact financial performance); and (2) environmental and social materiality (how ESG action impacts society and the environment). #### Basics for 2021 materiality assessment → Phase 1 Based on the external landscape, key trends and our own operations, we drew up a preliminary list of 15 ESG topics and placed them into three categories: E, S and G. → Phase 2 We ran workshops, surveys and one-to-one interviews to set priorities; and gathered feedback from customers, employees, senior managers, investors and NGOs. → Phase 3 We gave topics a score and weighted them to produce a ranking in order of importance to Banco Santander. #### Analysis inputs #### Global and sector-based → Regulators' and international institutions' requirements (such as EU taxonomy) → Sustainability frameworks and standards (such as UN Sustainable Development Goals, UN Principles for Responsible Banking,Task force on Climate-related Financial Disclosures, Global Reporting Initiative, Sustainability Accounting Standards Board,…) → ESG analysts' and indexes' expectations → Banking sector reporting trends (peer banks) #### Stakeholder opinion Customers 9,000 surveys in 9 countries Employees 500 surveys in each country and HQ (more than 1,800 responses) Senior management Specific session to discuss materiality in our annual senior management leadership meeting. One-to-one interviews with heads of corporate areas and representatives of businesses and regions. Investors Interviews with major investors NGOs One-to-one interviews with international NGOs Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 25 Group material topics matrixA #### Conclusions and changes since 2020 #### Environmental #### Social #### Governance ‘Green finance’ and ‘ESG in risk management’ are now crucial topics. ‘Portfolio alignment with net zero by mid-century’ is a major topic. In 2020, ‘Climate strategy’ had medium importance and ‘ESG products & services’ low/medium. ‘Customer experience’ remains highly material. ‘Customer financial wellbeing’ and ‘Financial inclusion and empowerment’ are now among the crucial topics. In 2020, ‘Customer satisfaction’ was also one of three high priority topics. ‘Culture, conduct & ethical behaviour’ (crucial topic) and ‘Privacy, data protection and cyber security’ (major topic) increased in importance. In 2020: ‘Compliance and risk management’ had medium importance and ‘Cybersecurity and data protection’ had low importance. A. Issues such as food waste, light and noise pollution are not material to the Group. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 26 Our ESG priorities Our materiality assessment identified 15 ESG topics we should focus on. #### Crucial topics — #### Customer experience and satisfaction Supporting customers and local economies with products and services that meet their needs. Giving them services and products that are Simple, Personal and Fair. Innovating and using digital technologies to maximize access to products and services. — #### Financial inclusion and empowerment Designing, developing and delivering products and services that ensure access to the financial system and meet credit needs. Building resilience through financial education. — #### Green Finance Supporting our customers in their transition to a low- carbon economy by embedding environmental factors in products and risk analyses, and by supporting the growth of sustainable financial product markets. — #### ESG in risk management, embedding climate Ensuring our risk management framework incorporates customers’ and operations’ environmental (e.g. climate) and social (e.g. human rights) risks, and outlining them in policies and procedures. — #### Culture, conduct & ethical behaviour Ensuring exemplary conduct by everybody: being Simple, Personal & Fair in all we do; and embedding Risk Pro, ethical channels and best-in-class policies and controls on employees’ internal conduct, transparency towards customers and ethical behaviour. #### Major topics — #### Privacy, data protection and cybersecurity Managing the risks from collecting, retaining and using personal information. — #### Portfolio alignment to net zero achieved by mid century Analysing our portfolios’ carbon footprint and aligning them with the Paris Agreement by taking actions to steer them to net zero, applying climate methodologies, and setting targets. — #### Equality, diversity, inclusion & wellbeing Ensuring equality, fairness, health, emotional and financial wellbeing and respect among employees, with zero tolerance for harassment and discrimination. — #### Operational and business resilience Adapting to a changing environment (including adverse events), maintaining the resilience of the business and building on strategic priorities (One Santander, Digital Consumer Bank and PagoNxt). — #### Corporate #### Governance Guarantee effective corporate governance to continue creating value for shareholders, allocating capital efficiently and ensuring profitable growth in a responsible way that meets our stakeholders' expectations. Introduce ESG standards in variable pay schemes. — #### Talent management and development Attracting, engaging and retaining a productive and talented workforce with benefits and development opportunities. Ensuring meritocracy. #### Relevant topics — #### Operational footprint Reducing direct operational and indirect value chain impacts through energy and water management; the use and recycling of materials; and green building design (incl. initiatives for employees to assess and reduce their footprint). — #### Responsible procurement Assessing ESG in our supply chain to manage associated reputational and service-level risks. — #### Education and support to communities Leveraging Santander Universities to provide education, employability and entrepreneurship opportunities and to connect startups and SMEs with talent, clients, training and other resources. Supporting community wellbeing and improving the lives of people at risk of exclusion. — #### Biodiversity Managing the impact of our financial products and services on ecosystems and biodiversity through whom we lend to, including (but not limited to) natural resource extraction, cultivation and project development. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 27 Our 2021 materiality assessment led to an ambitious action plan for 2022-2025. Our Goals Priority Action Plans E Deliver our net zero carbon ambition by 2050 by setting decarbonization targets, helping our customers transition and remaining carbon neutral in our own operations → Execute our climate strategy towards net zero by 2050 → Measure and develop our green transition and sustainable finance value propositions across units → Embed environmental, social and climate criteria into risk management S Support inclusive growth through financial empowerment; support for education, enterprise and employment; and building a diverse, talented workforce. → Continue to promote a diverse & inclusive workplace that fosters employee wellbeing → Continue improving customer experience and satisfaction → Enhance our financial empowerment and inclusion proposition G Embed behaviours, processes, policies and governance to ensure we are acting responsibly, listening to our stakeholders, and treating all our stakeholders in a Simple, Personal and Fair way – all based on solid governance and prudent risk management → Foster culture, conduct and ethical behaviour. The Santander Way behaviours refresh → Engage with external stakeholders (ESG analysts, indexes, NGOs,...) #### RB Public commitments ahead 2021 figure Target Period 1. Electricity from renewable sources (%) 75% 100% by 2025 2. Thermal coal-related power & mining phase out €7bn 0 exposure by 2030 3. Reduce emission intensity in power generation portfolioA 0.23 tCO2e/MWh 0.18 tCO2e/MWh 0.11 tCO2e/MWh by 2025 by 2030 4. Green Finance raised and facilitated (cumulative)B €65.7 bn €120 bn €220 bn 2019-2025 2019-2030 5. Sustainable investment (€bn AUM under ESG funds) €27 bn €100 bn by 2025 6. People financially empowered (millions)(cumulative)B 7,5 M 10 M 2019-2025 7. Women in senior positions 26.3% 30% by 2025 8. Equal Pay Gap 1% 0% by 2025 Maintain commitments achieved: → Be carbon neutral in our operations → Eliminate use of single-use plastics in our buildings and offices → Have a board of directors with 40-60% women members A.The 2021 figure of 0.23 tCO2e/MWh corresponds to the latest available portfolio data (2019). B.The 2021 figure is a cumulative figure from 2019. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 28 Governance GRI 102-14, 102-16, 102-31, 102-34, 103-2, 103-3, FS1, FS2 and FS3 Our principles, frameworks and policies ensure we behave responsibly in all we do. We strengthened our responsible banking governance to continue doing things the right way and promote inclusive and sustainable growth. Responsible banking corporate framework Created in 2021, the framework's common principles, roles and responsibilities, key processes and governance to drive us towards a more sustainable business model that delivers on our purpose to help people and businesses prosper. It also reinforces our commitment to Agenda 2030: the UN Sustainable Development Goals (SDGs), the Paris Agreement and the Principles for Responsible Banking. The corporate framework is approved by the Board. Policies and guidance The Group's policies and guidance set the standard for all units. We systematically review the scope of policies relating to the integration of ESG criteria to ensure compliance with international best practice. In 2021, the Responsible Banking function was made part of the policy approval process to embed sustainability criteria in all policies. #### Core policies that integrate ESG criteria into our business model, to make us a more responsible bank A General code of conduct Corporate culture policyB General sustainability policy Brings together the ethical principles and rules of conduct our employees must follow and is central to our compliance function. Establishes the guidelines and standards to ensure a consistent group culture. Outlines our sustainability principles and voluntary commitments to generate long-term value for our stakeholders. Human rights policy Environmental, social & climate change risk management policy Sensitive sectors policy 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 risks, in oil and gas, energy, mining and metals, and in soft commodities. Provides guidelines for assessing and determining our involvement in industries that pose a reputational risk. #### Other policies that support our responsible banking strategy Consumer protection policyC Code of conduct in security markets Cybersecurity policy Third-party certification policyD Tax policyE Conflicts of interest policy Financing of political parties policy Policy on contributions for social purposeF Global mobility policy A. These policies are approved by the board of directors and are available on our corporate website (except the Sensitive sectors policy). B. Includes Banco Santander's Diversity & Inclusion Principles and the Corporate Volunteering Standard. C. Includes financial consumer protection principles. D. Includes principles on the responsible behaviour of suppliers. These principles are publicly available on our corporate website. E. Our tax strategy and an extract of our Tax policy are available on our corporate website. F. Updated and available on our corporate website. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 29 #### Decision-making and oversight bodies #### Board of directors Approves and supervises the implementation of general policies and strategies relating to our corporate culture, values, responsible business practices and sustainability. It also makes sure all the Group‘s employees are aware of codes of conduct and act ethically, and ensures compliance with the laws, customs and good practices of the industries and countries where we operate. #### Responsible banking, sustainability & culture committee (“RBSCC”) (meets at least four times a year) Supports the board and oversees the Group's responsible banking agenda and strategy. For more details, see [4.9 ´Responsible banking,](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) [sustainability and culture committee activities in 2021´](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) in Corporate governance chapter #### Responsible banking forum (meets at least six times a year) Executes the responsible banking agenda across the Group, drives decision-making on responsible banking issues and ensures the execution of any mandates from the RBSCC, other board committees and the board of directors. It also ensures alignment on key issues, including the review and escalation of reports to the RBSCC. #### Implementation bodies #### Management meeting Chaired by the CEO, discusses responsible banking agenda progress, including climate change, with a special focus on TCFD and ESG business opportunities. In 2021, the meeting was informed four times on the progress of the responsible banking agenda. #### Corporate responsible banking unit Coordinates and drives the responsible banking agenda. A senior adviser on responsible business practices supports this unit and reports directly to the executive chairman. #### Responsible banking network Our subsidiaries' sustainability and culture units execute responsible banking agendas according to our corporate strategy and policies. They are led by a senior manager, who is part of the group-wide Responsible banking network, which meets every two months. We issue guiding principles for subsidiaries and global business units to embed our responsible banking agenda across the Group. The corporate responsible banking unit and local units hold regular bilateral meetings. Working groups on financial education, training, sustainable finance, microfinance and climate change help agree actions and align efforts. In 2021, the network held six virtual meetings to discuss progress on the Group´s agenda. 10 bilateral meetings focused on each units’ ESG agenda. The network also ran the third Responsible Banking workshop, which representatives from all businesses and geographies attended over three days (one day for each initial: E, S and G). Core topics addressed in 2021 In 2021, we addressed five ESG core topics: Climate change and green finance; diversity and inclusion; our culture, “The Santander Way”; Santander’s materiality assessment; and policies related to responsible banking. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 30 Helping society tackle global challenges: 2030 agenda Our activity and investments contribute to several United Nations' Sustainable Development Goals and support the Paris Agreement. We analysed our agenda’s contribution to the SDGs and determined the most relevant goals to Banco Santander’s activity, commitments and strategy. For more details, see the ´Banco Santander and the SDGs´ brochure on our corporate website. #### The SDGs on which Banco Santander has the greatest impact Our skilled and committed team enables us to respond to customers' needs; help entrepreneurs create businesses and jobs; and strengthen local economies. We tackle climate change by reducing our own carbon footprint and environmental impact, while helping our customers transition to a sustainable economy. We promote transparency, the fight against corruption and robust institutions for sustainable development. We have policies and codes of conduct  that regulate our activity and behaviour and steer our commitments towards a more responsible banking system. #### Other SDGs on which Banco Santander also has an impact 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. 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. We promote an inclusive and diverse workplace, ensuring equal opportunity as a strategic priority. We also run initiatives to drive diversity. We're the global leader in renewable energy financing, and finance energy efficiency projects; low-emission, electric and hybrid vehicles; and other cleaner transport solutions. 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. We finance sustainable infrastructure and promote access to affordable housing to guarantee basic services and inclusive economic growth. We are firmly committed to reducing our environmental footprint, implementing energy efficiency plans and promoting the use of renewable energies, as well as offsetting the consumption of our internal operations. We participate in prominent local and international initiatives and working groups. For more details on how Banco Santander supported the UN Sustainable Development Goals in 2021, see the `SDGs contribution content index`at the end of this chapter Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 31 Partnerships to promote our agenda GRI 102-12 and FS5 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. In 2021, we continued participating in Phase III of the UNEP FI project on the TCFD's recommendations for banks. World Business Council for Sustainable Development (WBCSD) Our Group Executive Chair, Ana Botín, completed her tenure on the WBCSD's executive committee. In 2021, we participated in the Banking for Impact on Climate in Agriculture (B4ICA). United Nations Global Compact We've been part of the Global Compact network since 2002 and member signatory of the United Nations Global Compact's gender equality programme since 2020. 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. Glasgow Financial Alliance for Net Zero, Net Zero Banking Alliance and Net Zero Asset Management In support of our Net Zero ambition, we joined the Glasgow Financial Alliance for Net Zero, Net Zero Asset Management and were co-founders to the Net Zero Banking Alliance. Within GFANZ, we co-led the Net Zero Public Policy and their call to action launched in October. 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. #### Other international and local initiatives that Santander supports → UN Women's Empowerment Principles → The Valuable 500 → UN Principles for Responsible Investment → CDP (Carbon Disclosure Project) → UN Global Investors for Sustainable Development (GISD) Alliance → Green Recovery Alliance of the European Union → Equator Principles → Consultative Group of the Taskforce on Scaling Voluntary Carbon Markets → Partnership for Carbon Accounting Financials (PCAF) → International Wildlife Trade Financial Taskforce → Round Table on Responsible Soy → Working group on Sustainable Livestock → Climate Leadership Council → The Wolfsberg Group Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 32 #### Doing things the right way #### To meet the new business environment, we’re focusing on... #### Our strong and inclusive culture: The Santander Way #### A strong corporate culture is critical to succeeding in today’s competitive, fast-moving environment. #### Conduct and ethical behaviour #### We conduct our business in compliance with the highest standards of conduct and ethical behaviour. #### A talented and engaged team The more prepared and motivated our workforce is, the stronger its commitment to helping people and businesses prosper will be. Our team reflects the diversity of the communities where we operate. #### Acting responsibly towards 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 helps us devise long- term strategies to safeguard the interests of our shareholders and broader society. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 33 A strong and inclusive culture: #### The Santander Way Corporate culture: Values and behaviours GRI 102-16 The Santander Way is our purpose, our aim and how we do business. It's the bedrock for building a more responsible bank. By fulfilling our purpose of helping people and businesses prosper, our business grows and creates value for everyone. To live The Santander Way and be Simple, Personal and Fair in everything we do, we have eight corporate behavioursA 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 strengthen our relations with our broad base of stakeholders, making sure we are fully inclusive. #### The Santander Way Our purpose Our "how" Our values Simple | Personal | Fair To help people and businesses prosper. Corporate behavioursA Show respect Truly listen Talk straight Keep promises Our aim To be the best open financial services platform by acting responsibly and earning the lasting loyalty of our people, customers, shareholders and communities. Actively collaborate Bring passion Support people Embrace change Leadership commitments Being open and inclusive Inspiring and executing transformation Encouraging the team to prosper Leading by example A. In 2021, we updated our corporate behaviours, which we'll implement across the Group during 2022. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 34 Cultural transformation: an ongoing journey GRI FS5 Since 2015, we've strived to ensure everything we do for our customers, employees, shareholders and communities is Simple, Personal and Fair. The standards we uphold across Santander are a clear indication of our ambition. Guided by clear governance, our talented and engaged workforce enabled us to make great strides in strengthening our culture and values. In 2021, employee commitment was 4 pp above the industry average at 80% (-2 pp from 2019 but up +10 pp from 2014). 78% of employees recommended working at Santander (-3 pp from 2019 and +7 pp from 2014). 88% feel their work has clear purpose (+1 pp from 2019),10 pp above the industry average.A A.Figures from the 2021 Global Engagement Survey. In 2020, the unusual circumstances caused by covid-19 led us to run a pulse survey with a sample of employees #### Culture plan 2021 B Diversity and inclusion To foster a workplace where our people can be themselves and reflect the diverse society we live in •We instituted global minimum parental leave of 14 weeks for one parent and 4 weeks for the other. •26.3% of senior positions are held by women, up 2.6pp on 2020. Furthermore, 40% of members of the board of directors are women. •We revised cultural diversity standards to get detailed insights into demographics and personal aspects. •We carried out a gender pay gap analysis to draw up action plans in each subsidiary. •We held global events for International Women’s Day, International LGBT+ Pride Day and the International Day of Persons with Disabilities, which leaders and employees from many regions participated in. •Santander featured as the world’s highest-scoring bank in the 2022 Bloomberg Gender-Equality Index and was ranked among the 25 best companies to work for by Great Place to Work. Speaking up To make active listening our most effective tool •We implemented the policy on Canal Abierto, our ethical channel, in the Group's core geographies. Acting responsibly towards our customers To provide our customers with the best service and leading the banking industry in customer satisfaction. Enhancing our responsible business practices and our service model for vulnerable customers •We strengthened our “customer-obsession” culture and reviewed our pricing techniques to check if they were cost-effective, resilient to risk and useful. •We continued to implement our model for managing vulnerable customers across the Group. We created working groups to share best practices. •We instituted special indicators for the entire Group to monitor conduct risks with customers as part of our Excellence plan for recoveries. •We enhanced our process for validating ESG products. Responsible procurement To strengthen our commitment by continuing to review our suppliers based on ESG standards •We conducted an ESG review of the top 200 high-risk suppliers in our geographies and developed special plans to work with each one and aid its ESG transition. •We approved the plan to broaden our review pool to 1,000 suppliers. •We began to adopt ESG standards in sourcing products and services. #### Objectives #### Achievements B. For more details on diversity and inclusion and speaking up, see section '[A talented and engaged team](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)'. Further information on the Simple, Personal and Fair approach towards customers and suppliers can be found under the '[Acting responsibly towards customers](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)' and '[Responsible procurement](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)' sections respectively. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 35 Risk Pro: our risk culture SASB FN-CF-230a.2, FN-CF-230a.3 The Group's risk culture is called Risk Pro (known as “I AM RISK” in the UK and the US). It’s a core element of both our corporate culture, The Santander Way, and our purpose to help people and businesses prosper. Risk Pro makes risk management “Everyone’s business” (the initiative’s motto). It's the responsibility not just of the Risk and Compliance and conduct functions but of all employees as well. The risks Santander employees must manage everyday can relate to finance, operations, conduct, compliance, cyber security, reputational, fraud, financial crime and climate. It's everyone’s responsibility to stay alert and know how to recognize, control and report them. Our performance review system, MyContribution, assigns Santander employees a common risk objective, which is 10% of their review. Promoting and enhancing our risk culture Our risk culture is embedded in all stages of the employee cycle (hiring and onboarding, career development, daily tasks, reward and recognition). Constant communication, leading by example, support from senior management and speaking up are key to assimilating Risk Pro within the Group. In 2021, all subsidiaries made progress with implementing the Target Operating Model for risk culture. Created in 2020, it draws on best practices to strengthen our risk culture. In November, we celebrated Risk Pro Month at the Corporate Centre; we also had our first global Risk Pro Week with the participation of the top management and our main geographies and global businesses to raise employees’ awareness of the importance of risk management in their day-to-day. We also ran training activities to develop the required skills of our employees on strong risk culture behaviours. The Group launched Dojo, a new learning platform that will significantly boost employees’ understanding about risks. To better assess the strength of our risk culture across the Group, we also revised questions on the risk profile assessment (RPA) and the Global Engagement survey as well as the indicators on the Risk Pro dashboard to enhance them. Aside from our globally distributed e-magazine, Risk and C&C e-zine, we set up a Risk Pro community on Santander Now and opened many risk-themed channels (such as Supplier risk management and Credit Planet) to boost awareness of the importance of risk management. For more details on environmental and social risks, see section [10. Climate and environmental risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661)  in the 'Risk Management and compliance' chapter. For more details on our prevention of corruption, bribery, money laundering and terrorism financing, see [section 7.2. 'Compliance and conduct risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634)' in the 'Risk management and compliance' chapter. For more details on MyContribution model see 'Performance review and remuneration' in '[A](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112) [talented and motivated team](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)' section. Active listening GRI 102-17 Speaking up and truly listening are integral to our corporate culture. Our ethical channel, Canal Abierto, is the main tool in our active listening strategy for all our stakeholders. It is available in our core geographies and enables us to learn about potential financial and accounting mistakes, or violations of our corporate behaviours, internal regulation or the law, which our employees, customers, shareholders and member of the community can report to us anonymously and confidentially. It’s accessible online or by phone, in several languages and available 24 hours a day, seven days a week. In addition to Canal Abierto, the Group practices active listening through its customer assistance and complaints channels, employee and supplier surveys and other tools. Active listening is effective in our cultural transformation, where ethics, honesty and responsibility should always characterize everything we do. More details on our employee active listening  in '[A talented and motivated team](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)' section. More details on our customer active listening in ['Acting responsible towards customers'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115) section. More details on our supplier active listening in ['Responsible Procurement'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118) section. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 36 #### Conduct and ethical behaviour General code of conduct The General code of conduct (GCC) sets out the ethical principles and values all Santander employees must demonstrate. They include equal opportunity, diversity and non-discrimination, respect for people and collective rights, work-life balance, and social and environmental responsibility. The Compliance and conduct function is in charge of administering the code and promoting a culture of ethics and compliance within the organization. The Internal audit function regularly reviews compliance with the GCC's rules and procedures. Furthermore, it acts independently to verify that the code and its locally-adapted versions are appropriate and effective. Training Every year, all our employees undertake mandatory training on the GCC. In 2021, we launched a new course called “Your conduct matters”. Employees can brush up on the conduct rules they must follow in their day-to-day and learn why their conduct matters in helping the Group avoid criminal liability; managing conflicts of interest; and receiving courtesies from third parties. We also have “Corporate defense”, a programme to prevent criminal risks to the Group. Every year, each Compliance unit conducts a risk assessment on whether the actions employees take on the Group’s behalf are unethical or infringe internal or external regulation and become a liability to the Group. It considers inherent risks and the unit’s control environment with recommendations or action plans for specific areas for improvement. We also launched a programme in our core units about competition. It is based on international standards and best practices recommended by competition authorities. Key initiatives To strengthen and promote our ethics and compliance culture, we ran these initiatives: •#yourconductmatters: Employee awareness campaigns via email, Intranet and other means to boost understanding of the General code of conduct and its implementing regulation. •Answering employees’ queries on ethics and rules in the GCC. •Analysing and managing conflicts of interest between employees or directors and the Group, and giving recommendations to avoid them. •Handling complaints received through our ethical channel, Canal Abierto, enhancing processes based on lessons learned. •Setting common principles and guidelines on receiving courtesies or invitations from third parties, including the obligation to register them. No courtesy should be worth more than 150 euros. Procurement management policy Santander's Procurement management policy sets out the principles and lines of action employees who procure goods and services and negotiate with suppliers must follow. It requires, at all times, transparent, objective and balanced decision-making, avoidance of conflicts of interest; and protection of confidential information. For more details see section [7.2. 'Compliance and conduct](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634)' in the `Risk management and compliance' chapter Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 37 Code of Conduct in Securities Markets Santander’s Code of Conduct in Securities Markets (CCMV) is our main policy on market abuse risk management and control. It sets out the standards board members, directors and employees must abide by when handling sensitive information or trading in securities markets on their own behalf. It outlines the necessary controls and transparency to safeguard the interests of the Group’s investors as well as market integrity. The last updated version that the board of directors approved in June 2020 includes the minimum market abuse risk standards our units trading in securities markets must consider. Our core units have tools to help detect potential market abuse and ensure the consistent management of those risks across the Group. According to CCMV guidelines, those subject to it receive regular training on market abuse. Furthermore, once a year they verify their understanding of key obligations and the penalties that Santander and its employees could face if they fail to fulfil them. Financial Crime Compliance (FCC) GRI 103-1, 103-2, 103-3 and 205-2 SASB FN-AC-510a.1, FN-CB-510a.1, FN-IB-510a.1 FCC on vulnerable customers The new Financial Crime Compliance Customer Lifecycle Due Diligence Procedure, approved in late 2020 and transposed across the Group in 2021, includes a section on vulnerable customers. The procedure reinforces the Group's commitment to "reducing the stigma associated with the provision of financial services to vulnerable customers" and provides a compliance framework for Santander business units to follow in meeting this commitment while mitigating financial crime risk responsibly. FCC on anti-bribery and corruption In 2021, the board of directors approved a more extensive FCC Corporate Framework. Its scope of financial crime risk includes bribery and corruption. It sets out essential details of the Group’s anti-bribery and corruption (“ABC”) programme, including required processes and controls to manage bribery and corruption risk with third parties, sponsorships, charitable and political donations, joint ventures and principal investments, travel, gifts and courtesies, marketing, employment, and work experience. FCC on training As part of the Group’s strategic FCC transformation plan, we redesigned the required computer-based introductory training module. It features case studies on compliance challenges regarding product innovation and international sanctions; lessons on environmental crime, human trafficking and child exploitation online, drug trafficking, and terrorist financing. Also, as part of the more extensive FCC Corporate Framework, we launched an upskilling initiative for the corporate FCC function, with several in-depth, face-to-face (virtual) training sessions with external and internal experts in bribery and corruption, tax evasion, complex ownership structures and payments infrastructure and other areas. Our courses have a self-assessment to ensure understanding of key financial crime risks and policy requirements. In 2021, 164,547 employees were trained. For more details on financial crime compliance, see section [7.2. 'Compliance and conduct](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634)'  in the 'Risk management and compliance' chapter Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 38 Environmental and social risk management GRI 102-11, 413-2, FS10 and FS11 We embed environmental and social standards in risk management to support sustainable and inclusive growth, uphold human rights, preserve the environment and aid the transition to a low-carbon economy. Our Environmental, social and climate change risk management policy sets out the standards for investing in, and providing financial products and services to, companies and customers who engage in sensitive activities in the oil and gas, power generation, mining and metals, and soft commodities industries (especially retail customers involved in farming and ranching in the Amazon). We review customers in credit risk, insurance, advisory, equity and asset management transactions (especially in the corporate and investment banking (SCIB) segment). We analyse customers subject to the policy with a detailed questionnaire that their assigned banker completes before a team of analysts conducts an overall assessment of their environmental and social (E&S) risks (which we update every year). We also analyse one- off, project-related transactions in accordance with the Equator Principles and such international regulations as the IFC Performance Standards. Following our environmental and social due diligence of projects, we set out corrective measures based on their risk rating. We apply our Environmental, social and climate change risk management policy in conjunction with our Human rights policy. In addition, the Social and environmental risks and Compliance departments carry out extra due diligence on cases with red flags. In 2021, we ran extra due diligence on customers in an industry and region with human rights concerns (namely forced labour). The findings, which provide further input for decision-making, are submitted to risk approval committees. In 2021, we began to consider social and environmental components in our credit quality analyses of customers in the SCIB segment. We created a multidisciplinary team to help enhance the identification, remediation and mitigation of social and environmental risks (including human rights), analyse customer engagement throughout their relationship with us, spot deficiencies and implement action plans. Moreover, the Group follows the precautionary principle, analysing and managing key environmental risks throughout the value chain as well as considering the direct impact on the assets where we operate and the indirect impact stemming from our activity. For more details on environmental and social risk management and climate risks, see '[Risk management and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)' chapter of this report. Our environmental, social and climate change risk management, human rights and sustainability policies are available on our corporate website www.santander.com. Equator Principles We have applied the Equator Principles to all project-related transactions (especially project finance) since 2009 and promote them through the Equator Principles Association working groups to make sure every project we’re involved in meets the expected sustainability standards. In 2021, we analysed 63 projects that fall within the scope of the Equator Principles (see table with the categorization of projects according to the Equator Principles in the '[Key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)' section of this chapter). Tackling environmental crime The principle of nature conservation extends to all the Group's units. The Financial crime compliance function understands the importance of recognizing that “behind every environmental crime there is a financial network”, not only because of the large sources of revenue that organized crime draw from these activities, but because crimes like illegal deforestation have a significant impact on carbon sequestration. Industries we consider "restricted" due to exposure to environmental crime risk include (but are not limited to) logging, pulp and paper mills, palm plantations, commercial fishing, trapping and transport of live animals and waste management. Given their "restricted" status, Santander entities that provide services to companies in those industries must respond to their elevated financial crime risk by implementing enhanced controls. Furthermore, our customer screening tools include specific terms on environmental crimes to help us flag issues and conduct assessments, and our global and in-person senior management training also includes environmental crime case studies and trends. We engage in several public-private partnerships as part of our commitment to detect, disrupt and deter environmental crime. In 2021, our Financial crime compliance function was the chair of the United Nations Office on Drugs and Crime's (UNODC) Private Sector Dialogue on Disruption of Financial Crimes Related to Forestry Crimes, which brought together financial institutions, authorities, investigative law enforcement units and supranational governmental bodies to discuss intelligence sharing, typologies and policy strategies on disrupting the financial crime networks behind illegal deforestation. The inter-governmental Financial Action Task Force (the FATF – the “global money laundering and terrorist financing watchdog”) also asked the function to represent the private sector in an awareness-raising, global webcast on environmental crime. Santander also remains an active member of the United for Wildlife’s Financial Taskforce against illegal wildlife trade. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 39 Santander and the Brazilian Amazon GRI 304-3 Santander is committed to protecting the Amazon rainforest, while helping promote sustainable development and practices. Deforestation in the Brazilian Amazon has been taking place over several decades: logging, mining, property speculation, lack of clear land titles and large infrastructure projects in the region have all played a role. Given the growing concerns about climate change and biodiversity conservation; our global policy on environmental, social and climate change risk management; and our commitment to the Equator Principles, we take additional care when lending to Brazilian clients with operations in the Amazon: ◦  All loan requests by farmers and ranchers to Santander Brasil are checked for embargoes issued by the government because of illegal deforestation. In the first quarter of 2022, we will have the capability to check, on a daily basis, whether there was deforestation on the farms and ranches to which we had granted loans. This daily verification will last for the duration of each loan, which will also be screened to make sure the properties do not overlap with indigenous peoples' officially-recognized land. ◦ Clients’ practices in Brazil are reviewed regularly. We conduct annual ESG reviews of more than 2,000 customers, including beef processors, soy traders and logging companies. ◦ Looking ahead, we expect beef processing clients in the Amazon to have a fully traceable supply chain that is deforestation-free by 2025, including indirect suppliers of cattle, as a prerequisite for granting credit. Find more information about our "Santander and the Brazilian Amazon", on our corporate website www.santander.com Human rights protection GRI 412-2 Santander commits to respecting and upholding the human rights of our employees, customers, partners and communities when doing business. As a financial institution, we operate according to our internal framework on human rights as well as the international standards we are subject to. Our board-approved Human rights policy, based on the highest international standards (especially the 2011 United Nations Guiding Principles on Business and Human Rights), sets out our responsibilities in terms of commitment, due diligence, access to remedy and claim. Our Human rights policy is consistent with our General code of conduct, Consumer protection policy, Corporate culture policy and Environmental, social and climate change risk management policy. It sets out Santander’s standards and commitments to uphold and defend these human rights: •Zero tolerance towards employee, customer and supplier discrimination, forced labour and child exploitation. •Freedom of association, collective bargaining, health and satisfactory employment conditions. •Support to communities in collaboration with government agencies, civil associations and other organizations to ensure a clean, healthy environment and help stamp out corruption. In 2021, we launched an introductory course on sustainability and ESG for all Santander employees that highlights the importance of human rights. In addition, we embed ESG criteria in all our processes and activities and make sure our policies uphold human rights. Our human rights policy is available on our corporate website www.santander.com. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 40 Principles of action in tax matters GRI 103-1, 103-2, 103-3, 207-1, 207-2, 207-3 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. For more details on Grupo Santander's tax strategy, visit our corporate website www.santander.com. #### Core principles of 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.A → Maintain a good working relationship with tax authorities based on the principles of transparency and mutual trust to avoid disputes and minimize litigation. A. By the end of 2021, we had one subsidiary and three branches in offshore jurisdictions, having liquidated a subsidiary in Isle of Man. See detailed information on offshore entities in note [3 c)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_751) to the consolidated financial statements. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 41 Tax contribution To contribute to the communities in our geographies, we pay all taxes borne directly by the Group (taxes paid by the GroupB) and collect others' taxes originating from our business operations (taxes from third partiesC). In 2021, our tax contribution totalled EUR 16,178 million, including EUR 7,617 million in taxes directly paid by the Group. For every 100 euros in total income, EUR 34 are taxed, including: •EUR 16 in taxes paid directly by Santander. •EUR 18 in taxes collected from third parties; The taxes recorded in our annual income statement mainly stem from corporation tax accrued during the accounting period (EUR 4,894 million in 2021, which represents an effective rate of 33.6%, or, deducting the extraordinary results, EUR 5,076 million, which represents an effective rate of 33.3%D). They also include non- recoverable VAT, employers' social security contributions and other charges, including those that are exclusively levied on banks and financial transactions (such as in Spain, the UK, Poland, Portugal, Brazil and Argentina). These taxes are recorded as they are generated, irrespective of when payment is made. The taxes Santander pays directly (see table below) are included in the cash flow statement. The tax rate when comparing the corporate income tax paid (EUR 4,012 million) with the Group’s pretax profit is 27.6%. Additionally, total taxes paid directly by the Group amounts to 52% of the profit before tax. 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. For more details on the country by country report requested on GRI 207-4, see ‘[Key Metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)’ in this chapter. B. 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. C. Including net payments for salary withholdings and employees' social security contributions, recoverable VAT, tax deducted at source on capital, non-resident taxes and others. D. See notes [27](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_856) and [51c](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_976) of the consolidated annual accounts. Tax disclosure by jurisdiction EUR million 2021 Jurisdiction Corporate income taxE Other taxes paid Total taxes paid by the GroupF Third-party taxes Total contribution Spain 399 1,308 1,707 1,341 3,048 UK 525 458 983 475 1,458 Portugal 17 202 219 281 500 Poland 206 198 404 134 538 Germany 204 53 257 175 432 Rest of Europe 329 259 588 54 642 Total Europe 1,680 2,478 4,158 2,460 6,618 Brazil 1,385 363 1,748 1,712 3,460 Mexico 207 248 455 699 1,154 Chile 180 66 246 274 520 Argentina 115 272 387 2,626 3,013 Uruguay 27 76 103 27 130 Rest of Latin America 32 6 38 8 46 Total Latin America 1,946 1,031 2,977 5,346 8,323 United States 376 94 470 749 1,219 Other 10 2 12 6 18 TOTAL 4,012 3,605 7,617 8,561 16,178 E. The Group's income taxes for the year 2020 amounted to EUR 2,946 million F. Total own taxes paid for all these concepts amounted to EUR 7.6bn, broken down as EUR 4,012 mn in Corporate Income Tax, EUR 1,048 mn in non-recoverable VAT and other sales taxes, EUR 1,380 mn in employer-paid payroll taxes, EUR 142 mn in property taxes, EUR 304 mn in bank levies and EUR 731 mn in other taxes. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 42 Ethical channels GRI 205-3 and 406-1 Canal Abierto is our global ethical, anonymous and/or confidential, channel for reporting misconduct. It protects whistleblowers by expressly prohibiting reprisals or any negative consequence against them. Every unit in the Group administers its own ethical channel in its local language according to the common standards of the corporate Canal Abierto. Minimum standards include: •subsidiary CEOs’ endorsement of the ethical channel; •employees’ awareness of the importance of using the channel; •reporting to the Group about management, action and improvement plans; •guarantee of easy platform access and anonymity (if desired); •use of external platforms to receive reports according to best practice; •mechanisms in place to manage conflicts of interest in internal investigations of reported cases; and •internal audits of the channel. These standards are included in our Canal Abierto policy, which we approved in 2020 and implemented in our core markets in 2021. Canal Abierto is mainly set up to receive reports from employees; however, it’s open in some subsidiaries to third parties (e.g. suppliers, customers, investors and other interest groups), who cannot use it to submit complaints or queries. All incidents reported through Canal Abierto are handled appropriately, even if they are found to be unsubstantiated. Canal Abierto and its common standards help create an environment where employees can feel free to speak up and report what is not up to par so appropriate action can be taken to handle it. Thus, the implementation of Canal Abierto standards and the many actions taken correlate with the better Speak Up results from the Global engagement survey. In 2021, we received 4,338 reports on the Group’s channels. Of the 3,628 that had been well founded to merit investigation, 1,196 led to disciplinary action and 312 resulted in dismissal. The average processing time was 42 days. By category, the main concerns were related to corporate values (SPF) and behaviours and to labour regulations, followed by internal fraud, workplace harassment and marketing of products and services. In 2021, 79 equal opportunity and non-discrimination complaints were received in the Group, 8 of which resulted in disciplinary action, including 3 dismissals. We received reports of five alleged cases of corruption in the year. Following a subsidiary-wide investigation, the allegations were deemed unfounded, resulting in no disciplinary or other actions. TYPES OF ISSUES RECEIVED Marketing of products and services Privacy/security and confidentiality of information Internal fraud Workplace harassment SPF + labour regulations 2021 2020 Issues received 4,338 4,390 Issues deemed well-founded for investigation 3,628 3,787 Disciplinary actions 1,196 1,083 which led to dismissal 312 315 Relations with political parties Santander is committed to 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 board executive committee-approved policy on financing political parties (available on our corporate website) has applied to all our subsidiaries worldwide. It prohibits making monetary or in-kind election donations and contributions. In commercial relationships, Santander prohibits full or partial debt forgiveness for political parties and their affiliates. Even though they can negotiate the terms of debt, the interest rate can never be below market rate. Furthermore, the policy applies to political parties’ electoral candidates to the extent local laws provide. Santander did not make any donations or contributions to political parties in 2021. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 43 #### A talented and motivated team #### We want to be an employer of choice because of our purpose, culture and responsible way of achieving great results. Our strategy is based on three pillars. ó ó ó #### Promoting a diverse and inclusive workplace that fosters employee wellbeing Focusing on the employee is pivotal to our cultural transformation and our strategy #### Ensuring we have the right talent and skills Attracting and retaining the best talent and encouraging our people to learn and develop enables us to provide a better service #### Providing work-life balance and job efficiency solutions Delivering the best work experience boosts our efficiency and productivity #### Our goal #### Achievement in 2021 Treating our employees responsibly builds stronger teams willing to go the extra mile for our customers and guarantees the returns our shareholders expect. That way, we can invest more in our communities while making our people proud to be part of Santander in a virtuous circle of loyalty that drives our success. In 2019, we set out to be among the top 10 companies to work for in 6 of our geographies by 2021.A #### 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, Argentina, Uruguay, Mexico, Brazil and Chile, using the latest publications. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 44 A diverse and inclusive workplace We focus on creating a diverse and inclusive workplace that promotes employee experience and well-being. We listen to their concerns and measure our performance through engagement surveys and external ratings. Santander, a great company to work for Santander ranked for the third consecutive year among the world’s 25 Best Workplaces by Great Place To Work (GPTW). The bank stood out from over 10,000 companies in 92 countries that foster exceptional employee experiences centred on trust and fair treatment. Santander, coming in at number 24, is the only bank in the ranking. GPTW recognized Santander as the best company to work for in Chile and ranked us in the top 3 in Argentina and top 6 in Uruguay. Santander Argentina was ranked among the top companies for women, while Santander Brasil was named the best employer for the LGBT+ community. Santander also received the Top Employers Europe 2021 certification for the fifth consecutive year. It acknowledges excellence in the working conditions the bank provides for its employees and its contribution to their personal and professional development. Only four banks in the world, including Santander, have been awarded the European certificate. Santander received the certificate in three of its main markets in Europe (Spain, Poland and the UK) and its Santander Consumer Finance units in Germany, the Netherlands, Austria, Poland and Belgium. It also obtained this distinction in Chile. Diversity and Inclusion GRI 103-1, 102-35, 102-38, 102-39, 103-2, 103-3, 405-1, 405-2 SASB FN-AC-330a.1, FN-IB-330a.1 In line with the diversity, equity and inclusion (DE&I) strategy we defined in 2020, we continue to cultivate a workplace where our people can be themselves and reflect the diverse society we live in. Our structure enables us to manage diversity properly, ensure compliance with policies on this matter and promote these initiatives: •Global executive DE&I working group, which brings together senior positions from all our geographies regularly to review results, propose initiatives and drive internal change. •Global DE&I team, which draws up global initiatives, coordinates the teams involved and acts as liaison for the subsidiaries and businesses. •Local DE&I teams in each subsidiary and business, which are responsible for implementing strategic plans and initiatives locally as well as sharing best practice. Through them, we followed these strategic pillars in 2021: •Involving our leaders: Their commitment to openness, inclusion and diversity will help strengthen a diverse and inclusive culture. In 2021, our directors received DE&I global mandatory training and 31% connected to webinars that delved deeper into those topics. •Raising awareness: Promoting diversity through global standards and actions, such as flexiworking, parental leave, training, employee networks and celebrating international days. •Promoting equality: Special focus on increasing the number of women in senior positions and on development programmes. 54% of employees are women +0.7 pp vs 2020 26.3% of senior positions are held by womenA,+2,6 pp vs 2020 38.6 Average age of the workforce, -0.6 pp vs 2020 1.9% of employees have a disabilityB, +0,01 pp vs. 2020 Data at year end. A. Senior positions 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 2019.C C. 2021 Global Engagement survey. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 45 #### Initiatives and achievements in 2021 #### Gender → 26.3% of Group senior positions are held by women, up 2.6 pp from 2020. For this, we focused on our talented women pipeline with a large group destined for future promotion. → We introduced a new Faro executive hiring process to ensure a diverse candidate pool and selection panel. 51% of employees promoted to the Faro category were women. → Santander Women Network has around 5,500 members in 10 countries and is rolling out to another seven. In Spain and at the Corporate Centre, the number of men in the network climbed 140%. → Our succession plans now include “bias champions” to make sure unconscious bias does not affect decision- making. → 8,600 people in nine countries connected to our International Women's Day event, which they rated 8.8 out of 10. → We ran women's mentoring and development programmes in almost all our geographies. → In our Corporate Centre, we launched Liderazgo Responsable (Responsible leadership) to raise executives’ awareness of the importance of promoting diversity and inclusion in their teams, among other key aspects. Participants were diverse in terms of gender, length of service, generation and role. → In Brazil, “Promoting Women's Leadership” helped sharpen women managers’ and executives’ leadership skills. The programme focused on boosting their careers at Santander, creating a talent pipeline and paving the way to gender equality in senior management. Close to 200 women took part in 2021. → In Poland, we ran the "IT with a female eye" initiative to encourage women to take on roles in tech. #### Cultural diversity → We published several videos featuring senior managers to highlight cultural diversity in decision-making and business as well as how unconscious bias can impact on our actions and decisions. → At the Corporate Centre, we ran BeKind, a programme for 300 employees to help make Santander a place where everyone can be themselves and make the most of their potential. → In the UK, launched the first "Accelerating You: Black Talent Programme" as part of our plan to double the number of Black managers. →  In the US, we continued to run “Through our eyes” events for employees to share experiences and ideas on racial and social injustice. → Also in the US, we have several employee networks: Bold for Black employees; AAPPI for Asian-American and Pacific Islander employees; and Conexión for Hispanic employees. They all held numerous events in 2021. #### LGTB+ → Santander's network for LGTB+ employees, Embrace, has been active in Brazil, Mexico, Argentina, the UK, the US and at the Corporate Centre for several years. In 2021, we rolled it out to Santander Portugal, Santander Polska and to Santander España, which took second prize in the TOP LGTB+ Diversity Company category at the INTRAMA diversity and inclusion awards. We ran these initiatives in 2021: → 2,850 employees joined our global Pride Day event, which representatives of the Embrace network from four countries helped organize. We also ran local events in our geographies to celebrate Pride Week. → At the Corporate Centre, a Guide to leave for pregnancy, birth and child adoption was created for employees. → During Pride Week, we held events and issued communications in Argentina, Mexico, Spain, Poland, Portugal, UK and the US as well as at SCF, Openbank and the Corporate Centre. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 46 #### People with disabilities → Global mapping to share subsidiaries' best practices for people with disabilities. → Recruitment targets for people with disabilities and internship programmes to spot talented people early. → Hiring of people with neurodiversity. → Volunteering and mentoring for people with disabilities. → Scholarships to increase access to education for students with disabilities. → Creation of networks for employees with disabilities. → Awareness campaigns. → Conformance with WCAG 2.0 Level AA accessibility standards for approving Santander websites and apps. For more details on our D&I initiatives, see the Diversity and Inclusion report in our corporate website. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 47 Gender equality Santander fosters equal opportunity between men and women. While women make up 54% of our workforce, their presence in senior positions is less. We're taking action to have more women at all levels of senior positions. In 2021 we instituted global minimum parental leave of 14 weeks for one parent and 4 weeks for the other. We're also taking measures to fight sexual harassment, which our code of conduct addresses explicitly, and have an equality plan in Spain with rules to prevent sexual harassment and gender-based disparities. Equal pay GRI 102-35 In 2021, we adapted our global equal pay policies to make them neutral and eliminate gender-based disparities. We also amended our policies on remuneration, performance management and succession planning. Our strategy attaches importance to equal pay between men and women, which we measure in terms of pay gap and equal pay for equal work. Women members on our board Women in senior positionsA Equal pay gap Our target: 40-60% in 2021 Our target: 30% in 2025 Our target: 0% in 2025 Our progress: 40% Our progress: 26.3% Our progress: 1% A. Senior positions are 1% of total headcount. Grupo Santander features in the Bloomberg Gender-Equality Index and is its highest-scoring bank #### Gender pay gap: 32.3% 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 focused on addressing), while more women work in retail banking and support roles. We calculate the gender pay gap as the difference in the median 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 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 was slightly wider than last year (31.7% in 2020) because of the greater pay difference between new hires and leavers' owing to the general under-representation of women in STEMA fields and to our higher ratio of women to men selected to fill non-executive and support roles. #### Equal pay gap: 1% What it measures: The equal pay gap gauges the difference "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 and background. Our progress: Santander set up fair pay programmes to reduce the equal pay gap (our target is 0% in 2025). 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 1.5% in 2020, declined this year as a result of our strong commitment and wide-ranging action plans across the organization. We continued to make progress in standardizing the criteria of our approach in all geographies and increasing the headcount of the segment we analysed. We will continue conducting robust reviews and analyses of pay data to detect, understand and act on any gaps. A. STEM: Science, Technology, Engineer and Mathematics. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 48 People with disabilities GRI FS14 Our diversity, equality and inclusion strategy sets two objectives for the inclusion of people with disabilities: •To meet (or exceed) the legal quota for employees with disabilities, raising their 2019 headcount by 1% in countries without a legal quota by 2025A. •To comply with local accessibility laws and make sure all new digital products meet the Web Accessibility Initiative’s (WAI) WCAG 2.0 Level AA standards. Santander has networks for employees with disabilities in Argentina, Mexico, Spain, the UK, the US and our Corporate Centre. In 2021, on top of local celebrations in our geographies, we held a global event to mark International Day of Persons with Disabilities, with employees from Argentina, Brazil, Spain, Portugal and the UK. 954 people connected to our global event. A.This objective exempts countries where it is not legal to collect disability data. In 2021, despite the organizational changes that the Group has implemented in some geographies, the number of employees with disabilities remained at 1.9%. Fundación Universia is a core partner in Santander's efforts to include people with disabilities. We work closely to make Banco Santander a more diverse and inclusive bank. We also collaborate through volunteering in other programs of guidance for people with disabilities: Speaking without frontiers, InMentoring Programme, Digital Mentoring, Families helping families, adapted bicycles. For more details on our D&I initiatives, see the Diversity and Inclusion report in our corporate website. For more details on Fundación Universia see 'Supporting higher education' or 'Support to higher education and other local initiatives' in this chapter or go to www.fundacionuniversia.net. #### 2021 Initiatives In Brazil, #Diversiprática helps university students with disabilities and the Black community through a foundation course for the CPA10 and CPA20 financial market certificates. We also launched an engagement plan that includes a welcome toolkit for employees with disabilities and their managers, as well as mentoring and training programmes. Santander España devised an onboarding plan for people with disabilities at its branches and other plans for technology-based roles. It helped 30 people with disabilities join us in 2021. In Argentina, the Inclúyeme (“Include me”) programme promotes the employability of people with disabilities and assists companies in implementing social and labor inclusion strategies. Moreover, we hold 10 financial education talks for 200 people. We began using the Háblalo (“Talk about it”) app at our branches to remove communication barriers, and undertook basic sign language training. Santander Portugal renewed its partnership with Associação Salvador. Its "Destination: Employment" project promotes the employability of people with disabilities through guidance and empowerment of candidates, raising awareness among companies and identifying job opportunities. Five people were hired through the project. The Bank also collaborates with the Portuguese Asperger's Syndrome Association (APSA) to promote the social and professional integration of people with Asperger's syndrome, hiring two people from it. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 49 Employee wellbeing GRI 102-35, 403-2, 403-3, 403-5, 403-6,403-9 In 2021, we appointed a global head of health and well-being to help draw up a strategy and implement it across our footprint. We also have local teams with around 60-70 members with their own organizational structure and resources that coordinate all our well- being initiatives. We drafted our Global health and well-being policy, which will be available to the public in 2022. To ensure enforcement of the policy and to fulfil our strategic priorities, we began working on a global guide that will set standards on mental and emotional health, digital balance and other priority areas to be implemented by subsidiaries. Covid-19 As part of our Covid-19 response, we continued to enforce these prevention measures to make sure our employees stayed healthy: •Masks, gloves and protective screens handed out to office and branch employees. We imposed strict personal hygiene policies and rearranged work spaces to accommodate social distancing. •Remote working, especially for our most vulnerable employees in accordance with domestic and international authorities’ recommendations. We offer equipment (e.g. office chairs, computer monitors and keyboards) and training (on ergonomics and stress) to make remote working more comfortable. •Employee testing (153,000 in Spain alone) as part of our monitoring and back-to-the-office procedures. •Information and training on Covid-19 prevention. Our corporate Intranet and all subsidiary and divisional platforms have a section for Covid-19 updates. •Corporate monitoring plan in all our geographies in accordance with local authorities’ guidelines, including employee health screening through apps, tests and questionnaires. Progress with the plan was reported to global and local executive and management committees. 92% of employees believe everyone in their work environment is taking responsibility to comply with Covd-19 measures and proceduresA A. 2021 Global Engagement Survey Since the outbreak of the pandemic, we’ve worked on several public and private initiatives (providing funding, resources and expertise) as a leader in the response to Covid-19. The public vaccination centre we opened at Santander Group City in July, August and September to benefit the Region of Madrid administered 57,575 vaccines with utmost care (NPS=97). The bank and its partners provided all human and material resources to the centre. Occupational health GRI 103-1, 103-2, 103-3 On top of the measures we took to protect our employees, our collective bargaining and other industry and bank agreements include provisions on employee health and occupational risk prevention, such as check ups and testing on a regular basis or following prolonged absence. We also work with employees’ legal representatives regularly to 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 prevention measures when designing, procuring or acquiring offices, furniture, equipment, products and IT equipment; •work safety procedures, which the occupational risks prevention team perform alongside other units to spot potential risks to employees’ health and to implement prevention measures. •information and continuous learning for employees; •embedding occupational risk prevention in all operations that may impact on employees' health and safety. We have certifications on the security, quality and sustainability of our work environments based on national standards (e.g. Gold-level LEED O+M certification for our corporate offices in the US and ISO 14001 certification in Brazil). In 2021, we started the process to obtain ISO 45001 certification for our corporate centre, the Santander Group City. 2.8% 9,519 0.04 absenteeismA,B thousand hours missed due to non-occupational illness and accidentsB Accident rateC 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. Worked hours are theorical. In-itine accidents are included For more details on absenteeism data, see the '[Key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)' section in this chapter. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 50 #### BeHealthy We’re committed to being one of the world's healthiest companies. Our employees receive health and wellness benefits. We also raise awareness through our global BeHealthy programme, which celebrated its fifth year in 2021. Its four pillars are: know your numbers; eat well; move; and be balanced. Every year, we set health and well-being objectives and priorities with an activities calendar and global strategies for our subsidiaries to implement. In April, we held BeHealthy Week, with daily, in-person and virtual events that covered the programme’s four pillars. The #SantanderBeHealthy campaign, launched by Executive Chair Ana Botín, top executives and our ambassador, Rafa Nadal, generated two million impressions on over 25 corporate accounts and through hundreds of employees. Health was a key component of Santander Week in September, where all our subsidiaries ran initiatives to remind employees of the importance of health and well-being according to our four BeHealthy programme pillars. We celebrated Global Mental Health Week in October, with all our subsidiaries and divisions taking part. 1,600 employees joined an online event with Yale University professor Laurie Santos, creator of the online course “The Science of Happiness”. All Group employees can access health-related platforms (like "Gympass" to use gyms) and apps for nutrition, mental health, physical health, exercise, meditation and other services free of charge or at bargain rates. 85% of employees say Santander is taking appropriate steps to ensure employees stay safe and healthyA A. 2021 Global Engagement Survey Speak up - Active listening GRI 406-1 SASB FN-AC-510a.2, FN-CB-510a.2, FN-IB-510a.2 We listen to our employees and encourage them to speak up. We act on their feedback, data and experiences and develop plans that will effect change. The many internal listening actions we take involve global and local employee surveys; performance reviews; exit interviews; incident monitoring; and our ethical channel, Canal Abierto. Our active listening programme covered several topics in 2021, such as financial crime and Covid-19. Furthermore, 86% of our employees took a global engagement survey (GES) about the corporate purpose, the employee net promoter score (eNPS), Covid-19, streamlining processes and cooperation. We received poor marks on streamlining processes, cooperation and ways of working. Still, it showed employees are committed to our purpose of helping people and businesses prosper; they feel Santander responded effectively to economic and business challenges in the pandemic with the right measures to ensure safety; and they recognize the strength of our risk culture and the flexibility Santander offers them to work remotely. In 2021, we revised our global engagement survey and decided to conduct it every quarter. 86% of employees agree Santander's response to economic and business challenges has been effective during the pandemicA 168,456 employees surveyed, of which 86% respondedA A. 2021 Global Engagement Survey For more details, see ‘Ethical channels' in '[Conduct and ethical](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151) [behaviour](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)' in this chapter. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 51 Volunteering 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 also promote several initiatives to enable employees to participate in, and contribute to, social programmes and initiatives that the Group already supports. We hold two important group-wide volunteering events for employees each year: 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. In 2021, many of our collaborations continued to focus on alleviating the effects of the pandemic on the most vulnerable. We continued to run our usual volunteer programmes, always under the strictest sanitary measures. When we couldn't run them face-to-face, we delivered them virtually. +28,000 employees participating in community activities +46,000 hours volunteered For more details on our social contribution to communities, see the 'Support to higher education and other local initiatives' section in this report. #### Volunteering initiatives In Uruguay, we continued to help clear beaches of plastic during the holiday season in Montevideo. Employees, their children and families were invited to lend a hand. Finanzas para Mortales had 155 volunteer trainers from the bank; reinforced its digital activity; increased its training content; and broadened the groups to which it provides knowledge in basic finance. In total, it closed 2021 benefiting 75,320 people, 15% more than the previous year). For the fourth time, employees of the Northern macro-region, in cooperation with the Santander Foundation, organized the "North Helps" run. 2,009 people, including employees, their children and friends, António Simões, the polish management board and the bank's senior management, took part. We raised a total of PLN 68,104.74. In Chile, volunteers took part in the Santander Presente initiative to coach and mentor more than 120 adults in the process of passing their school-leaving exams. In Argentina, the circa 300 employees who form part of the Financial Educators Network trained to be volunteers and give lectures on financial education to young people, entrepreneurs, adults, people with disabilities and other groups. In Mexico, in collaboration with Fideicomiso Por los Niños de México, Todos en Santander, and through HR Virtual Volunteering, more than 5,000 people benefited from educational activities focused on the integral development of children. these activities are managed by the organizations the Fideicomiso supports. In Portugal, 56 employees participated in the Junior Achievement programme, sharing their knowledge and experience with 997 students from the 1st to the 12th grade on topics such as citizenship, financial literacy and entrepreneurship. In addition, 11 employees participated in the Legal pro bono programme, providing free legal assistance to the non-profit organization Terra dos Sonhos. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 52 Ensuring we have the right talent and skills Managing our talent lifecycle is critical to our business strategy. To understand future skills gaps and needs, we implemented the Strategic Workforce Planning (SWP) tool to help us to re-train and develop employees on a near constant basis. We also launched Dojo, our continuous learning ecosystem available to all employees, and reached almost 100% in our roll-out of Workday. Talent attraction GRI 103-1, 103-2, 103-3, 401-1 and 404-1 In 2021, Santander filled 35,000 vacancies worldwide (45% with women). We prioritized the career development of our people, filling over 70% of vacancies with internal candidates. We digitalized and automated hiring processes through the “Selection” module on Workday in all our geographies (except at our US subsidiary, which will implement it from 2022). Having a single system enabled us to standardize hiring, share best practices and ensure a greater candidate experience. It also meant we could list vacancies in all the countries where we operate on our Global Job Posting portal, a new search engine that makes it easier to see the positions available in each country. We promote geographic and in- company relocations as a key means of cultivating talent. Attracting tech and digital professionals Our recruitment teams prioritized the attraction of talented tech and digital professionals to help with the transformation of our businesses. In 2021, the Group filled over 8,500 STEM vacancies after running brand awareness campaigns on social media and in forums. We ran the “Be Tech” programme with our IT and Communications divisions to position Santander as an attractive employer for STEM candidates. Among its stand-out initiatives were: • “Be Tech Up”, where 50 junior employees in digital roles became brand ambassadors through social media to promote the Group’s technology projects. The contents they posted helped us gain thousands of followers on such networks as LinkedIn. •“Women in Tech”, which focused on attracting women to technology-based roles. The inaugural Women in Tech summit had over 1,000 participants. Talent management figures 2021 2020 Total employees (thousand)A 197 191 % employees with a permanent contractA 97.6 97.9 % employees working full timeA 94.3 94.9 Employees joining/leaving (turnover)B 20.0 12.6 % of workforce promoted 9.8 6.7 Average length of service (years)A 11.3 10.2 % coverage of collective agreementsA,C 70.7 71.6 A.At year end B. The increase in the external turnover rate is due to the restructuring processes carried out in 2021 in some of the Group's geographies. C.The figure of % of employees covered by collective bargaining agreements in 2020 has been recalculated, considering SCF employees in the United States not covered by collective bargaining agreements. For more details, see the ‘[Key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)’ section in  this chapter. Our partnerships with the world’s leading universities and technical schools enabled us to introduce future professionals to our value proposition. They are a key source of the talented young people we find in our scholarship and internship programmes. We ran webinars, bootcamps, hackathons, training programmes and specialized talks by employees and senior managers at more than 70 universities and schools specializing in tech and digital learning. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 53 Career development Continuous learning drives our transformation. We encourage employees to take charge of their career development. We provide them with the means to draw up their own personal development plan based on their ambitions. We strive and review all our diversity parameters to promote optimum diversity on our talent programmes. Our main career development programmes in 2021 were: •Talent reviews to assess employees’ potential and support the professional growth of the most promising ones. For Europe, we carried out our "European Talent Review". •Succession planning: Our strategic approach enables us to identify potential successors to key roles and provide them with career development opportunities, ensuring our future sustainability and success. •Top Talent, to promote the development of over 130 managers with high potential. Participants assessed their skills and potential as leaders to come up with a career development plan. We’re working on development plans for every Promontorio successor (over 230 talented people with high potential). •Young Leaders 2, with185 talented young employees from all our geographies and a diversity rating of 52%. It aims to create a strong talent pool, teach skills needed for the future and promote diversity and inclusion. It will last nine months and take place in the Young Leaders Smart City, a virtual, immersive space where they’ll come up against several challenges. •Elevate, is the new global learning ecosystem the Group launched in 2021 for all Faro and Solaruco executives. It is a hybrid executive education experience with first-rate activities led by renowned international experts to promote continuous learning and cooperation towards a common culture that will strengthen Santander’s leadership. •In addition, other local programs such as Open Mentoring at the Corporate Centre, Light your skills at Santander Consumer Finance Germany and Futuro in Poland were implemented. Corporate mobility Driven diverse experiences are the best way to shore up skills and form diverse teams and multicultural leaders, so we promote geographical and functional re-location across our footprint. Though the pandemic affected international mobility in 2021, we sought to offer viable alternatives. Our mobility initiatives were: •Global Job Posting offers employees the chance to apply for jobs in other countries, companies and divisions of Santander. •Global career strategy. We’re working on a global career strategy to enhance our internal talent development, harness our worldwide presence and meet our businesses’ challenges successfully. •Mundo Santander has been one of Santander's flagship talent programmes since 2008. It supports the development of over 2,000 employees who have taken part in strategic assignments in other countries for 3 to 6 months. It promotes the sharing of best practice and the broadening of participants’ global outlook. In 2021, we redesigned Mundo Santander so participants could work on international projects virtually. Though the programme will remain virtual in 2022, participants will be able to undertake a project in another country should public health conditions allow. •We also launched an awareness campaign to promote employees’ international mobility, with videos of real examples told by the people involved. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 54 Learning and development GRI 103-1, 103-2, 103-3, 404-2 We value continuous learning so our employees can adapt to an ever-changing environment and help accelerate our transformation. Our global learning and development policy sets the standards for designing, reviewing, launching, overseeing and enhancing training and development programmes to: •support our business and cultural transformation in accordance with Santander’s governance standards; and, •foster innovation, knowledge sharing and transfer, and the skills employees need to perform their duties successfully as part of global talent management. The three pillars of our employee upskilling and reskilling are strategic workforce planning (SWP), our current skill model and the strategic global business and countries needs. We review them every year to recognize common, high-impact skills and design  learning solutions for our employees. We promote our learning solutions on our digital ecosystem, Dojo, through study plans and “roadmaps” for learning. Dojo facilitates informal, interactive and structured ways of learning, combining many formats, settings and tools so every employee can choose what, when, how and how much to learn. It's designed to produce “lifelong learners”. Furthermore, each subsidiary’s Learning and Development team pinpoints specific learning needs relating to its geography and designs training courses consistent with Dojo’s standards. After launching in 2020, Dojo had reached 63,700 employees in our main geographies by the end of 2021. It has four academies: Agile, Engineering Excellence, Cloud and Commercial (launched in 2021). It also offers 22 certifications, 26 channels and 24 learning programs launched in 2021covering topics such agile, data, leadership, customer experience, cloud and digital transformation. Today, Dojo covers 252 skills with more than 72,560 learning activities. Main Group data 2021 2020 Millions euros invested in training 75.1 61.3 Investment per employee (euros) 381.3 320.7 % employees trainedA 99.0 100.0 Hours of training per employeeA 30.6 30.9 Employee satisfaction (over 10) 8.5 8.2 A. Calculated considering the staff at the end of each year. The incorporation of both employees and entities to the Group at the end of 2021 fiscal year has a signification impact on the result of this indicator in comparison to 2020. For more details, see the ‘[Key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)' section in this chapter. #### Global training Main initiatives: → The Risk Pro Banking School promotes a strong, uniform risk culture. It runs the Advanced Executive Risk Programme, Key risks and Risk pro Insights workshops and specialized courses. → The Global Internal Audit School offers practical solutions designed to adapt to business and regulatory changes. → The Technology and Operations School continued to enhance its three key areas — Technology, Operations and Cyber security — (updated to key position programmes) and made its core contents available to the entire Group on Dojo (Agile Academies, Engineering Excellence and Cloud, Channels and Badges). → Mandatory global online training ensures we deliver a high level of service, and helps us comply with financial regulation and avoid penalties from external regulators. It’s available across our footprint and part of performance and incentive plans. The topics that courses cover relate to the Group’s external and internal regulation and strategy. In 2021, Risk Pro: Everyone’s Business, Cyber Heroes and courses on the General code of conduct, corporate defence, conduct risk in the marketing of products and services, financial crime and market abuse were prominent. To complement mandatory global training, each subsidiary has required courses about local law and regulation. → In Responsible banking, we are working on three training modules we set with global businesses and subsidiaries: •The first is multidisciplinary and common for all employees. We launched a global, mandatory module to familiarize them with sustainability and its relevance to the Group. •The second is for all functions involved in our sustainability agenda and consists of an introduction to sustainability/ESG, ESG Talks (to be broadcast live across our footprint), internal certification and special programmes for each business and function. •The third includes the appropriate certifications for each business according to its needs (e.g. CFA, EFPA, GARP and others). Some subsidiaries and global businesses provided additional training on climate change, sustainability, sustainable finance, sustainable investment, diversity and inclusion. In 2021, we also trained our employees on diversity and inclusion, health and safety, customer and supplier relations, the environment and anti-corruption. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 55 Performance review and remuneration GRI 404-3 Our comprehensive remuneration framework combines fixed and variable schemes based on employees and the company's 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). We also have pension plans, banking products and services, life insurance, medical insurance and other corporate benefits our employees can choose. Fixed remuneration schemes reflect local market conditions. To set pay, we strictly abide by the practices, regulations and collective agreements in force in each country and region. Our remuneration policy for all Group employees forbids differential treatment that is not based on a review of performance and corporate behaviours. It also promotes equal pay between men and women. To comply with EU regulations on remuneration, we identified 1,018 employees subject to a deferred variable pay policy because their decisions can have a material impact on Banco Santander’s capital. 300 employees fewer vs 2020, mainly due to the entry into force of the new CRD V regulation. The policy 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"). #### Key initiatives in 2021 → The inclusion of share options as part of variable pay (which was previously paid in shares) and the update of multi-annual target metrics will be put to a vote at the next AGM in 2022. The proposal includes keeping the relative total shareholder return and adding the return on tangible equity and metrics linked to responsible banking commitments. → Under the succession policy, senior managers must make sure the successor pool is strong and diverse (especially in terms of gender diversity). → Progress in monitoring the gender pay gap calculation and analysis methodology. → The remuneration policy added the principle that remuneration must be free of gender-based bias and help eliminate disparities that could result. For more details on remuneration data, see the ‘[Key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)’ section of this chapter. For more details on board remuneration, see [section 6 of](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310) [the 'Corporate governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310) [chapter'.](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310) #### 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 all employees 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 56 Corporate benefits GRI 401-2 We offer several benefits to our employees in all geographies. Each subsidiary has programmes that adapt to local circumstances. Benefits range from free services for employees and their families to discounts on products and services. We focus on well-being to help employees stay in sound physical and mental shape, to support their families and to adapt health cover to new circumstances and needs. In Spain, our Santander Contigo programme provides assistance with daily tasks, legal and computer support, and other services. In other geographies, services and financial aid for childcare and support for elderly relatives in their charge are also substantial. For more details on our initiatives promoting employees' wellbeing, see "Employee wellbeing" in this section #### Corporate benefits in Mexico Santander México offers these benefits to employees: → Family: Nursery subsidies, scholarships for employees' children, support talks and digital tools. → Health: Plans for all employees, with permanent access to doctors, dentists, psychologists, social welfare officers and other healthcare professionals. → Financial products: Reduced interest rates, credit cards without extra fees, mortgages with special rates, favourable lending conditions for car and motorcycle purchases, etc. → Discounts and insurance: Reduced rates on glasses, at sports facilities and on other products as well as for life and car insurance. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 57 Work-life balance and job efficiency The way we work We continue to promote our employees' work-life balance through flexible working, health and well-being programmes and office safety measures. FlexiWorking At Santander we promote flexiworking and we believe our diverse organization must adapt to the  needs and characteristics of its teams. We redesigned our global flexiworking framework to address where, when and how much we work: •'Where': Possibility of home/remote working. •'When': Intensive day, flexible start/end and break times and alternative shifts. •'How much': Part-time working, special leave, flexible holidays, job sharing and other measures. We have empowered our managers with the decision regarding the best flexible working model for their teams. In this way, each area and business unit has implemented new ways of working based on the characteristics and needs of the team and its performance expectations. Since the pandemic is not over, we must remain cautious and flexible. In 2020, our return to the office depended on the severity of the pandemic developments and local regulations. In 2021, most of our branch teams have now returned, although in many cases we still operate under a hybrid working model. To support our employees who work remotely, we provide material such as office chairs to improve their conditions, as well as training on ergonomics and stress. We continued to implement tools to drive digitization and collaboration, which helped our employees perform well and manage remote working effectively as well as to maintain their right to disconnect, preventing them from sending emails or holding meetings outside working hours. Listening to employees, understanding the situation and attending to their needs is essential to identify and facilitate managers to adopt measures that can achieve a balance between work and professional life, while guaranteeing productivity, corporate culture and our attractiveness as an employer. Agile methodologies We’re implementing agile methodologies and organizational structures in our Technology and Support functions in several countries. In 2021, we continued to transform and bring more teams from our subsidiaries and global functions into the Agile environment (our subsidiaries in Spain, Mexico and Argentina were key to boosting implementation) for better customer focus, more collaboration between IT and the businesses, faster decision-making and different ways of working that will heighten employees’ sense of accountability for the end product. 82% of employees say Santander is providing the appropriate flexibility they need to be effective and productive.A 86% of our employees believed Santander’s response to the pandemic's challenges was effective .A A. 2021 Global Engagement Survey #### 5 principles of New Ways of Working → The customer comes first. Customers must always be at the heart of everything we do. → Many ways of working (where, when and how much). Employees will be assessed on their experience, effectiveness and efficiency. → Workspace is no longer just a workplace → Testing and learning through continuous listening → Flexibility, fairness, inclusion and equal opportunity are guiding principles in decision- making. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 58 Social dialogue and restructuring In 2021, we continued to guarantee freedom of association and the right to collective bargaining. Our Human rights policy considers forming or joining unions and other representative bodies a basic right of workers in accordance with Article 10 of our General code of conduct. We also ensured respect for freedom of association, trade union activity, collective bargaining and protections for employees’ representatives under the laws of each country where we operate. We continued to promote and comply with the International Labour Organization’s Fundamental Conventions. We also remained in constant dialogue with employees’ legal representatives through bilateral and special committee meetings where all parties discussed reporting, queries and negotiations about work conditions and employee benefits. Meetings we held in 2021: •Occupational health and safety committees •Equality plan follow-up committee •Santander Employees pension plan control committee •Training committee •Other meetings: 2021 engagement survey results; Banco Santander mass redundancy agreement follow-up committee (five meetings as well as regular information exchange); meetings with subsidiaries’ business committees ◦Bilateral meetings with trade union representatives Agreements entered into: •Capitalization of pension supplements for Banco Popular beneficiaries + extension •Capitalization of pension supplements for Banco Santander beneficiaries (from October 2020) •Increase in employer contributions to the Santander Employees pension plan •Integration of working conditions for Santander España Technology & Operations staff •Integration of working conditions for Santander Consumer Finance staff •Implementation of the Grupo Santander Consumer collective bargaining agreement and 2022 salary review •Santander Global Operations equality plan •24th Collective bargaining agreement for the banking industry (members of the industry negotiation committee) We considered the risk of failing to uphold employees’ rights low as our labour relations had proved effective in every country. Restructuring In recent years, amid staff reductions in Spain, Portugal, Poland, the UK and other core geographies, we have consistently applied internal and external flexibility measures to support employees' transition to new employment while maintaining dialogue with their trade unions and legal representatives. In Europe, we also abide by the principles of the Joint declaration on workforce restructuring that our management representatives signed in 2016 with the European Works Council. We take these steps to ensure the best possible outcome: → We prioritize voluntary employment termination. → We hold informal meetings with workers’ legal representatives to find alternatives that will reduce the impact of losing jobs and to uphold their rights before formal proceedings commence. → We consider particularly vulnerable employees’ personal circumstances (e.g. disabilities, severely ill children, victims of gender-based violence, etc.). → We help employees with outplacement either in Santander or in other companies through internal and external flexibility measures. → We pay severance above the amount required by law, in keeping with agreements with trade unions. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 59 Restructuring processes we carried out: In 2021, we began to reduce our workforce on organizational, production-based and economic grounds. Following informal discussions with workers’ legal representatives to explain our reasons, we entered into formal negotiations that ended with an agreement with most trade unions (82.99%) All of the measures agreed with the European Works Council to align workforce restructuring with socially responsible practices were in the restructuring agreement.  The alternative measures we proposed included geographic and in-company relocations to lower the number of potential lay-offs. Our workforce reduction gave priority to voluntary employment termination and was considerate of workers’ vulnerable circumstances. We reduced the number of terminated contracts substantially (from the initial 5,072 to 3,572) and outplaced 1,500 workers in the Group. In addition to relocating employees geographically, 70% of the lay-offs involved early retirement agreements with either guaranteed temporary pay until full retirement or compensation packages above the amount provided by law, with social security contributions up to 63 years old in order not to interrupt the contribution period of employees over 50 years of age who met length-of-service requirements. We also hired a specialized relocation agency free of charge to help affected employees (and their relatives) who wanted to find a new job, through advice and training, entrepreneurship initiatives, job searches and other activities. There have been no class action or law suits filed by trade unions to contest the redundancy programme nor any rulings against Santander. Within a common movement to most banks in Europe, addressing the change in banking consumers' habits and based on an intense process of digital transformation, Santander Portugal has been reducing the number of branches and digitalizing processes, with the correspondent reduction of its workforce in 2021. Our preferred approach was to reach individual settlements according to Portuguese law. Therefore, the process was conducted in constant contact with trade unions and the legal representative unit and the settlement offers included increased severance benefits, health plans, outplacement programs and early retirement proposals. We hired an independent legal adviser to review negotiations and contact with the employees. In addition, we also created the Nova Etapa programme to support people in the transition to new personal and professional ventures. This set of measures made it possible to reach agreements with around 96% of the workers covered by the workforce reduction. Having exhausted all individual agreement negotiations, the collective dismissal process was concluded involving 49 employees, which represent only around 4% of the overall workforce reduction undergone by the Bank. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 60 #### Acting responsibly towards customers Our customers are at the centre of everything we do ó ó ó Providing the best experience Strengthening our customer- obsessed culture Introducing consumer protection principles into our practices ó ó ó Designing products to meet their needs and aid their sustainable transition Protecting privacy and personal data and using them appropriately Cyber as a culture driver to protect our customers’ information Customer experience and satisfaction GRI 102-16 and 102-34 Transforming customer experience In 2021, we continued to promote our customer experience (CX) strategy to give the best service. We created local, regional and global initiatives, which our executive committees monitor closely. Supported by our multicultural and multidisciplinary team, we prioritize customer experience enhancement initiatives with the greatest impact on customer satisfaction and potential to scale up. The CX team focused on four areas in 2021: 1.Strategy: To unify our vision, we came up with common CX guidelines to enhance customers' journeys and touchpoints, and keep them at the centre of our efforts. We also created a Customer Experience Observatory to monitor trends and learn from successful cases in the banking and other industries. 2.CX plans: We helped our subsidiaries devise and execute local plans to improve customer experience. In 2021, we launched initiatives in several geographies. Applying behavioural economics, we ran a range of use cases for new product design, procedures, communications and pricing strategy. 3.Culture: We strive to foster a productive environment for our customers that strengthens our “Customer obsession” culture across our footprint. In 2021, we created global and local CX training courses and certifications for our employees. 4.Community: Working as one team helps us serve our customers better. In 2021, we continued to streamline our global CX community to bring about synergies and share best practices, knowledge and tools across the Group. Our Consumer protection function shares best practices across the Group through CuVo (Customer Voice), a monthly global working group formed of all our customer-facing areas. In 2021, we ran these initiatives: •In Spain, we improved the terms and conditions of the ONE account and launched the “Porque Tú, Porque Te” campaign as part of our quest to be number one for our customers. •In Europe we have been working on a new unique app that will be launched for all 4 countries: One Europe App. So far it has been launched in Spain and Portugal, and the plan is to launch it in Poland and the UK in 2022. •In Chile, we separated infrastructure to make sure any issue on a digital channel did not cross over to another. We also enhanced our banking app to give a better digital experience. •In Argentina, we focused on better customer service through workshops and e-learning courses to promote our “Customer obsession” culture. •In Uruguay, we migrated all our customers to Supernet, reducing waiting times and incident numbers. •In Brazil, we launched Dial My App, which connects our remote customer service lines to our app, giving customers who call our contact centre a fully digital experience. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 61 Customer satisfaction Our strategy sets out to inspire loyalty among our customers. In 2021, we conducted more than four million surveys to monitor their feedback about Santander and find out how we can improve our products and services and, ultimately, their experience. To measure customer loyalty and satisfaction, Santander uses the NPS, an indicator of our relations with customers. This methodology is based on service, image, and products and pricing, which are the three core areas we constantly work to improve on.1 In 2021, we ranked in the top 3 in NPS in 8 of our markets, up from 6 of the previous year. We also improved our position in most countries, most notably in the categories of Personal and Fair (which form part of our values). By region: •As leaders in NPS in Brazil and Chile and climbing the rankings elsewhere, we're well positioned in South America and continue to set ourselves apart from our peers. •The closure of branches and changes to contractual terms and conditions make for testing times in Europe’s banking industry. In 2021, we ranked second in Spain and broke into the top 3 in the UK and Poland. •We're setting our action plans on North America. In Mexico, with a declining market, we have maintained our position in 2021 and in the U.S. we have improved our position compared to the previous year. In 2022, we’ll continue working on our Simple, Personal and Fair values and our customer service channels. In 2021, as fewer customers visited our branches, their changing perceptions and habits meant our digital channels and their impact on the NPS grew. #### Top 3 8 of 9 countriesA A.Due to its business model, Santander US's objective is distinct and does not account for the metric. South America EuropeB North America 2019 4º 2º 2º 2º 3º 4º 3º 2º 4º 9º 2020 3º 2º 1º 3º 2º 4º 1º 6º 4º 9º 2021 2º 1º 1º 2º 2º 3º 3º 3º 4º 8º NPS to measure customer satisfaction, audited by Stiga/Deloitte. Key peers by country: Argentina: Galicia, BBVA, ICBC, HSBC, Banco Macro, Banco de la Nación; Brazil: Itaú, CEF, Bradesco, Banco do Brasil; Chile: BCI, Banco de Chile, Itaú, Scotiabank, Banco Estado; Uruguay: Brou, Itaú, BBVA, Scotiabank; Spain: BBVA, Caixabank, Sabadell, Bankia, Unicaja; Poland: ING, Millenium, MBank, Bank Polski, Bank Pekao, BNP Paribas; Portugal: BPI, Millenium BCP, CGD, Novo Banco; UK: Nationwide, Barclays, Halifax, NatWest, Lloyds, HSBC, TSB, RBS; Mexico: Scotiabank, Banorte, HSBC, Banamex; US: JP Morgan, Bank of America, Capital One, PNC, M&T Bank, TD Bank, Citigroup, Citizens, Wells Fargo. B. The 2020 figure for Poland was revised during the financial year 2021, the final result being 4th. #### We monitor all drivers that have an impact on Santander NPS SERVICE Branch General service, waiting times, branch assistance, layout Channels Mobile, internet, ATM, CDM, contact centre, personal manager Personal Personal attention, kindness, employee professionalism Simple User-friendliness, speed and agility Communications Clear statements, information on offers and deals, coherent information Problems Perceived issues Others Data protection IMAGE Strong and sound, socially responsible, innovative, trustworthy, transparent PRODUCT & PRICE Simple product and service proposition, fees and charges, benefits, credit cards #### Group NPS by channel C 64 43 58 69 #### Branch #### Contact Centre #### Internet #### Mobile Internet: Excluding Chile, the UK and Uruguay. C. Internal NPS (last info available): Obtained from customer surveys issued within 48 hours of their contact with the bank via any channel. Weighted average of active Group customers. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 62 1This index is based on customer recommendations, using a scale from 0 to 10. Depending on their score, these are: promoters (9-10); neutral (7-8) or detractors (0 to 6). The NPS is calculated by subtracting the percentage of promoters from the percentage of detractors. Product governance and consumer protection Product, service and consumer protection framework Being responsible means offering our customers products and services that are Simple, Personal and Fair (SPF). Our daily operations must be brilliant, and do more than what the law requires, to give our customers an exceptional experience. Our Product, service and consumer protection framework sets out the principles that promote a strong SPF relationship with customers and establishes the basics for managing and mitigating conduct risk in design, sales, post-sales and services. Consumer protection policy and principles The Compliance and conduct function abides by our Consumer protection policy, which sets out the highest ethical standards we expect our teams to uphold towards customers. We report on our consumer protection principles in all our geographies to make sure we embed them in our day-to-day. We use our customers’ voice and business indicators to spot unsatisfactory customer service, fee-related issues, incidents at ATMs and other areas for improvement, and to come up with plans to address them. We’re working on adding artificial intelligence to our reporting for greater insight into how we can better protect our customers. In order to identify risks that stem from new regulations or problems with products and services, we conduct thematic reviews for the entire Group, assess them and make decisions on how to improve and mitigate the risks identified. In 2021, our review focused on such responsible business practices as pricing techniques and fair value for our customers. We also carried out a more detailed price comparison of Santander Asset Management España's investment funds and pensions against industry figures; we plan to extend that study to our other geographies in 2022. We followed up on the thematic reviews from 2020 on responsible business practices in account packages, revolving cards and overdrafts. We checked that 26 local plans on transparency, disclosure to customers, sales, fees and credit conditions were consistent with best practice. They will be implemented in 2022. We ran product governance and customer protection awareness campaigns and workshops in line with our strategic priorities. Product and services design GRI 416-1, 417-1 and FS15 Product governance Santander’s governance structure enables it to safeguard customers' interests. Our product governance forum ensures the products and services that we market meet the needs of identified target segments and are reasonably and clearly priced. In 2021, we enhanced our ESG product validation and passed nine proposals that impact on this matter. Treat customers fairly Complaints handling Consideration of special customers' circumstances and prevention of over- indebtedness Data protection Customer-centric design of products and services Responsible pricing Financial education Transparent communication Responsible innovation Safeguarding of assets #### Consumer protection principles Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 63 Sales processes Salesforce cultural transformation Our product and service disclosures throughout the entire customer cycle are transparent and comprehensive. We apply robust quality and conduct control standards to marketing and sales material, brochures and contracts according to Santander’s internal regulation. That's why all our employees undertake a mandatory, annual course on the management of conduct risks in sales and consumer protection. We run special training programmes for our sales teams to arm them with the knowledge and skills that will enable them to sell our products and services properly. Those programmes and our sales methods ensure we offer products and services that will meet each customer’s needs and preferences. That way, we avoid inappropriate practices like product and service bundles that don’t add value for customers. Remuneration schemes (where customer satisfaction and quality bear significant weight) are key to transforming our sales practices and promoting sustainable business. In 2021, at least 40% of our salesforce’s variable pay was linked to customer satisfaction and quality measures, an area where we enhanced best practices through continuous monitoring. We worked on a global project to give branches a conduct and quality rating. While it will impact on employees’ pay, they’ll have access to metrics for better awareness and management of conduct-related risks. We broadened the scope of our remuneration reviews and monitoring for teams in charge of loans and credit origination, and collections and recoveries to embed conduct and quality in their culture and objectives. Vulnerable customers GRI FS14 In 2021, we worked on an instruction manual about our vulnerable customer and special case management model, and set a roadmap for its roll-out among subsidiaries. This will ensure a consistent, Group-wide approach to identifying and managing vulnerable customers in such high-impact procedures as collections and fraud management. We offered monthly training courses, ran an awareness campaign at the Corporate Centre and shared the manual across our footprint. Our subsidiaries also made progress with the roll-out of vulnerable customer management: We used big data to identify potentially vulnerable customers and provide them with a personalized, priority service through our contact centre. This service, which has served 500,000 customers, is rated with an NPS 2.5 times higher than the standard service. We developed a methodology based on advanced data analytics and algorithms for our collections teams to spot potentially vulnerable retail customers. We took a 1,478 sample of the customers we identified as vulnerable and proactively offered tailor-made solutions to the 293 we had found to be "extremely vulnerable”. We also waived account fees for a further 100,000 vulnerable customers. Openbank also identified 387 vulnerable customers and registered them in the CRM system to offer personalized services. We continued to roll out our new customer support function. It keeps a record of vulnerable customers’ support needs so our employees are aware of their situation. During the year, close to 30,000 new notes were added to our systems. Post-sales management Conduct in collections and recoveries In 2021, we implemented metrics to monitor conduct risks in all our geographies as part of our Recoveries excellence plan. They helped enhance control over the ethical standards we established last year and over customer contact, disclosures and transparency, data protection, vulnerable customers and training for employees who work in these teams. They consist of: •quality control for calls to make sure scripts and standards are followed; •number of customer complaints about the managed portfolio and in relation to the thresholds established in view of historical data and the current situation; and •the percentage of employees who have completed mandatory training. Each month, we saw positive metric results, with no areas of concern and a significant decline in complaints within set thresholds. Though results showed good quality control of calls, we have revised scripts and are working with the subsidiaries to enhance them and make sure conduct guidelines are appropriate and holistic. For more details on product governance, consumer protection and conduct and collection & recovery, see section [7.2. 'Compliance and conduct risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634)' in the 'Risk management and compliance' chapter. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 64 Complaints management GRI 102-34 Handling customer issues and complaints proactively and effectively is a vital component of customer experience and highly valuable to the business. Our complaints management and root-cause analyses are consistent with the Group’s Simple, Personal and Fair strategy and set standards for all geographies to properly handle complaints and offer the best service. We use our findings to enhance our products and services and have an early warning system to identify risks. In 2021, we continued to focus on resolving complaints at the first point of contact with customers and on opening digital channels like Gent& in Brazil and the complaints section of our app in Chile and Mexico for quicker, alternative access to feedback mechanisms. We also came up with a root-cause analysis methodology that uses artificial intelligence. It helps us apply customer voice algorithms and get the most out of the structured and unstructured data on our systems. We’re testing our initial findings in Brazil and Mexico. We heightened the monitoring and reporting of customer issues in areas that are considered critical due to the knock-on effects of the pandemic. Having implemented conduct standards during recovery in 2020, we continued to monitor pandemic-related complaints each month. While we saw improvement in most countries, Santander México (the subsidiary with the highest volume of cases) dropped from 40 complaints per 10,000 customers in Q1 2021 to 12 in Q4. We also track management of fraud-related complaints in all geographies according to special taxonomies. Our local units’ customer-centric management includes a “trust payment” of the stolen amount in most fraud cases while they are under investigation. They are informed that it’s a temporary refund that Santander will not claim back if the investigation finds in the customer’s favour. Cases are falling significantly in Mexico (where fraud accounts for 70% of complaints), thanks to a new task force and the measures we're taking. In 2021, the over 300 complaints prevention and mitigation measures we worked on included enhanced ATM features; customer communication and disclosure; Service Level Agreements; and operations to optimize customer experience with digital channels and account closure. For more details on complaints management, see section [7.2. 'Compliance and conduct risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634)' in the `Risk management and compliance' chapter and our Culture report in our corporate website. TYPE OF COMPLAINTSA,B (%) Banking procedures Loans Investments Payments methods Others Insurance AVERAGE RESOLUTION TIMEA,B  (%) 1 - 5 days 5 - 10 days 10 - 15 days 15 - 30 days More than 30 days RESOLUTIONA, B (%) 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 the uphold ratio, the UK has been fully excluded. B. Complaints metric follows the criteria established by the Group (homogeneous in all geographies). #### Process enhancement In H1'21, we launched Gent& for individuals and businesses. It's a chatbot based on artificial intelligence to resolve queries and complaints as well as give customers more autonomy. As of June, it clocked 9.3 million users and over 100 million interactions on our retail customer app, our business app, Way, WhatsApp, WhatsApp business and Portal Santander. It covered 21 services, including electronic credit card bills, bill amounts, expiry dates, credit limits and debt restructuring requests. In July, we launched the “Txumani” digital card project, which we expect to reduce e-commerce fraud. Complaints about unrecognized transfers fell from 400 to 100 per day. We implemented a new protocol for customers over the age of 80 to prevent them falling victim to scams. After registering their biometric data at a branch, they will be able to make changes to their personal details and use online banking. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 65 Privacy, data protection and cybersecurity Privacy and data protection At Santander we are committed to providing our customers with a high degree of trust and security in relation to their personal data. Our standards afford people greater control over their data, ensuring we only use their data strictly necessary and for the specific purposes for which it is collected. That's why we only process personal data that are appropriate, relevant and necessary to the purpose for which they’ve been collected, throughout the data’s entire life cycle and in accordance with the law. We apply all reasonable measures to erase or rectify data that are impertinent, inaccurate or incomplete. We only store personal data for as long as strictly necessary for their legitimate use. Our security measures ensure the unwavering confidentiality, integrity, availability and resilience of our data processing systems and services. Our compliance programme guarantees robust management of data protection risks. It includes: •corporate-based criteria as general lines of action to meet regulatory requirements. •local subsidiaries’ responsibility to abide by the General Data Protection Regulation (GDPR) and local regulation on data protection. •a solid governance model consisting of: ◦corporate and local policies; ◦a data protection officer (DPO) and managers in each unit. We formally disclosed appointees to local authorities; ◦a corporate oversight programme based on management KPIs; annual reviews; and an annual monitoring forum chaired by the Group Chief Compliance Officer, where subsidiaries report on compliance status and other key data protection matters. Other items that bolster our commitment to personal data protection are: •a homogeneous monitoring and reporting model among units that includes performance indicators; •work with third-party service providers that must comply with data protection regulation; •data protection compliance embedded in the annual internal audit programme; •data protection management tools to maintain a group-wide register of processing activities (some 6,000), regular KPI reports and security incidents management; •promotion of corporate initiatives and the exchange of best practices among units, including workshops and online training courses; •special training on data protection for DPOs and data controllers; •constant monitoring of regulatory developments to update and consolidate criteria, methodologies and documents; and •employee training and awareness Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 66 Cybersecurity At Santander we have embedded cyber security in our culture. The objective is to promote behaviours to protect our customers’ information and the Group. Our employee performance review includes cyber security within its Risk component. In 2021, we give training and advice to our payment operators, information technology (IT) technicians, developers, executives and board members, with an updated mandatory training course on cyber security. Our campaigns to spread awareness on digital channels help our customers and society stay safe online. In 2021, we launched a new cyber security campaign through our corporate sponsorship of Rafael Nadal to reinforce messages of confidence in online banking and good online habits. We continue to spread awareness through special websites, social media campaigns, targeted announcements and online workshops. We’re working with public- and private-sector organizations to promote knowledge sharing and cooperation on cyber security. In 2021, Santander showed leadership and went beyond basic information exchange in the fight against cyber crime: •We headed the Ransomware Threat Cell working group as part of the World Economic Forum's (WEF) public-private Partnership Against Cybercrime initiative; •We were co-leaders of the Cyber Experts working group to share cyber intelligence at the European Financial Services Roundtable (EFR); •We officially joined Europol’s NoMoreRansom initiative that offers free resources to ransomware victims; and •We provided resources and specialist training (e.g. on forensic engineering) to help government agencies and conducted joint operations with the police. In 2021, we also updated our Cyber security and IT conduct policy, which sets out the acceptable uses of Santander’s IT equipment and services in order to protect the bank. The policy explains risk areas, misuse and how to avoid, mitigate and manage reputational and commercial risks according to our cyber security rules. It also dictates how the Group and subsidiaries should manage the technology, work implements and information provided to employees in order to prevent legal, reputational or cyber-related incidents. #### Cybersecurity is the responsibility of everyone at Santander For more details on employees' cybersecurity training, see the section '[A talented and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112) [motivated team](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)' in this chapter. For more details on our cybersecurity plan, see section '[6.2 Operational risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_622) [management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_622)' in the 'Risk management and compliance' chapter. 93% 93% 78% 81% of employees can identify risks in their job every day of employees see cyber security as a top priority of employees feel encouraged by managers to report important information, even bad news of employees say they can report unethical conduct without fear of reprisal Source: Global engagement survey 2021 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 67 #### Responsible procurement GRI 102-9, 102-10, 103-1, 103-2, 103-3, 204-1, 308-1, 308-2, 414-1 and 414-2 #### Being responsible also involves our suppliers ó Third-party certification policy Responsible behaviour principles for suppliers Risk control Whistleblowing channels Our third-party certification policy provides a common methodology for subsidiaries to select, approve and evaluate their suppliers. Its responsible conduct principles set out standards for all Group- certified suppliers  in regard to usual service issues (like price and service quality) as well as diversity, inclusion, human rights and sustainability. Santander has three supplier control and audit processes to uphold the policy and our corporate values. In 2021, we reaffirmed our commitment to responsible purchasing and set two initiatives in motion to assess our suppliers’ compliance with environmental, social and governance (ESG) standards. •ESG standards in procurement: We surveyed the top 200 high-risk suppliers in our geographies (in particular, Spain, Portugal, the UK, Poland, the US, Mexico, Brazil, Argentina and Chile) to spot ESG risks. The survey had 18 questions that addressed such topics as carbon footprint, gender inclusivity, disability, flexible work schemes, minimum wage and good corporate governance practices. It covered 74% of selected providers, as the rest did not provide answers. Of those, we recognized a high number carried potential ESG risks (49%). Thus, we created remediation plans that must be implemented to attain a level of risk the Group can tolerate. The main weaknesses we found in the supply chain are the lack of environmental policy, certification (such as the ISO 14001) and greenhouse gas (GHG) reduction targets; in good governance, they were each organization’s lack of proof of remuneration policies and missing content in their codes of conduct. As a result, in 2022 we will introduce ESG standards into critical supplier hiring. We expect to expand the initiative to our Top 1,000 high-risk suppliers. •ESG supplier standards: We use questionnaires from business tenders to compile additional information on the corporate governance and the social and environmental impact of our suppliers in service categories involving intensive labour (such as travel and energy). We support the local economy. Santander has 6,976 certified suppliers (-19% from 2020)A and 26.9% of all new suppliers in 2021 were certified with the inclusion of environmental and social criteria. Through AquanimaB, we delivered 8,401 contracts (-5% compared to 2020) to 4,808 suppliers (+5% compared to 2020). 93.7% are based in the same location where we procure services and account for 95.8% of our total purchasing (-0.7 pp from 2020). We plan to roll out our ethical channels for suppliers in our core markets to our other geographies next year. In 2021, we tailored our response to suppliers (especially those most vulnerable) to meet their most urgent needs. To ensure our suppliers’ income remained steady during the crisis, we continued to pay them for basic services, extended credit lines to provide them with liquidity, paid invoices early and shortened payment periods (among other measures). In particular, Santander España and Corporate Centre reduced payment periods from 11.2 days in 2020 to 9.7 days in 2021, delivering on the Group's commitment to supporting its suppliers. We prepared and closely monitored several recommendations based on best practice to make sure measures will be applied consistently across the Group. #### Risk control → In 2021, we set up our supplier risk management platform in our core markets.B Designed to rationalize and combine supplier management and critical reporting, it enables us to consolidate certification information for all suppliers. → Last year, we expanded our supplier risk assessment team. It reviews our essential suppliers’ cyber security, business continuity, physical security, facilities and data protection. In 2022, we will add new topics for evaluation (e.g. ESG, ABC, etc.). → We list our core suppliers of goods and services by region according to the risks previously mentioned. → We closely monitor and report regularly on our suppliers to senior management and banking regulators (e.g. ECB, PRA and OCC). In 2021, indicators for supplier risk and our ability to identify and mitigate them improved considerably. A.In 2021, we lowered total volume after revising and consolidating suppliers. B. Except for Poland, which has its own system. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 68 #### Shareholder value GRI 102-23, 102-24, 102-27, 102-28, 102-36 and 102-37 Shareholder engagement As a responsible bank, we seek to match our interests with our shareholders’ expectations, create long-term value and inspire their and broader society’s lasting loyalty. We demonstrate our commitment to transparency for shareholders through constant, fluid communication with them to make sure managers and governing bodies will hear their opinions. Shareholder remuneration GRI102-36, 102-37 Following the European Central Bank’s (ECB) announcement that it would lift its recommendation to limit shareholder remuneration until 30 September 2021, the board of directors approved a cash dividend and share buyback worth 1.7 billion euros (40% of first-half underlying profit) as shareholder remuneration from 2021 profits. The board of directors voted to submit a resolution at the 2022 Annual general meeting to approve a final cash dividend in the gross amount of 5.15 eurocents per share, worth approximately 865 million euros, in addition to a a Second Buyback Programme worth 865 million euros that must be approved by the ECB. Banco Santander stock Banco Santander shares trade in Spain, Mexico, Poland, the US (as American depository shares) and the UK (as CREST depository interests). >3.9 #### million shareholders (-81,895 vs 2020) For further details on Santander's shareholder engagement, see sections '[1.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_202) [Engagement with our shareholders in 2021](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_202)' and [3. Shareholder. Engagement and general](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_232) [meeting'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_232)in the Corporate Governance chapter. For more details on Santander's shareholder remuneration, see section '[3.3 Dividends and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_241) [shareholder remuneration](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_241)' in the Corporate Governance chapter. For more details on the Santander share, see section '[2.6 "Stock market information](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_229)'in the Corporate Governance chapter. SHARE CAPITAL OWNERSHIP GEOGRAPHICAL DISTRIBUTION OF SHARE CAPITAL For more details, see section [2.1.](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_214) ['Share capital](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_214)' in the Corporate Governance chapter. BoardA Retail shareholders Institutional investors Americas Europe Rest 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259) and subsection A.3 in section [9.2 'Statistical information on corporate governance required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) of the 'Corporate Governance' chapter. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 69 #### Communication with shareholders, investors and analysts GRI FS5 Shareholder and investor relations priorities in 2021: → Digital transformation and better shareholder experience. Continued enhancement of online communication and assistance channels. Streamlining the general meeting proxy and voting platform on the website so shareholders could exercise their rights at the 2021 AGM according to Directive (EU) 2017/828; and holding virtual events to report on the Group’s strategy and results. → Regular communication with shareholders, investors, analysts and ratings agencies to earn their trust. → Reporting on the Group, its shares, and shareholder benefits. → More personalized shareholder assistance on the channels that best fit their needs, and higher satisfaction based on shareholder surveys. → Simple products and exclusive benefits on santander.com and our shareholder and investor app, plus university scholarships for shareholders and family members with disabilities — 60 grants awarded in 2021 — and other initiatives. → A stronger image in the Group's markets. Our Investor and shareholder relations team was recognized by such prestigious magazines as IR Magazine and Institutional Investor, and by Asociación Española de Expertos en la Relación con Clientes (Spanish association of customer relations experts or “AEERC”) and OZ for our efforts to integrate new channels through WhatsApp Business. We are the first IBEX company to receive AENOR's Good Corporate Governance Index certification, achieving the highest score. It measures such aspects as the board of directors (from different angles); participation at the general shareholders' meeting; transparency, anti-corruption and fraud; sustainability and Environmental, Social and Governance (ESG) criteria. 18,695 responses from shareholders and investors through studies and qualitative surveys 942 engagements with institutional investors (including 85 meetings focused on ESG) 116 events with shareholders 139,301 queries answered via email, telephone, WhatsApp and video conference >1,000 communications (mainly on digital channels) For more details, see sections  [3.1 'Shareholder](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235) [engagement’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235)  in the Corporate Governance chapter. #### ESG indices and analysts GRI 102-12 For 21 years in a row, Santander has featured in the Dow Jones Sustainability World Index (DJSI World), which comprises 242 companies, including 24 banks. Our score in 2021 was 85 points out of 100, just four points below the highest (13th place among banks). We achieved top marks in materiality, environmental reporting, financial inclusion, social reporting and operational eco-efficiency. Our performance was recognized by S&P Global with an upgrade to Silver Class (from Bronze) in its Sustainability Yearbook (published in 2022). MSCI also raised Santander’s ranking considerably, from BBB to AA. In 2021, our CDP score improved from B to A-, putting us among the leading groups of financial institutions and above the Financial Services sector average, which was B. Sustainalytics also improved our rating, raising our score from 27.1 to 23.9 with higher-than-average corporate governance, product governance, resilience, human capital management and data privacy and security. We retained our "advanced" classification in the Vigeo Index with 61 points, beating the industry average on environmental and corporate governance matters. We featured in the Bloomberg Gender-Equality Index (BGEI) for the seventh year running. Our score improved significantly from 85.13 points to 90.26, which is above  the industry average (72.69). We are the highest-ranked bank in the Index and the second company overall. The bank obtained the maximum score in the disclosure component and in Pro-Women Brand. We also improved from 4.3 in 2020 to 4.5 points out of 5 on the FTSE4Good Index. ISS-ESG once again awarded us its prime badge for companies with an ESG performance above the sector-specific “Prime” threshold. ESG ANALYST RATINGSA Score 2020 Difference 2021 Versus industry average DJSI 83 p 85 97th percentile, 13th out of 242 banks MSCIB BBB p AA 3% AAA 29% AA among 191 banks SustainalyticsC 27.1 p 23.9 26th percentile, 268th of 1045 banks Vigeo Eiris (V.E) 62 = 61 11th of 31 diversified banks ISS-ESG C = C Decile rank of 1 CDP B p A- Among 20% of banks with best score BGEI 85.13 p 90.26 1st bank and 2nd overall Shareaction 57 p 89 20 points above industry average A. Source: Latest score available to each analyst in 2021. B. Read the MSCI disclaimer on page 16. C. Sustainalytics risk rating: the lower, the better. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 70 #### Promoting inclusive and sustainable growth #### Supporting the green transition We're fully committed to helping meet the objectives of the Paris Agreement while supporting our customers' transition to a low-carbon economy #### 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 #### Sustainable investment We embed ESG in our decision-making, offering a sustainable value proposition for customers, and an active ESG engagement #### Support for higher education and other local initiatives 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 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 71 #### Supporting the green transition Tackling climate change is a key objective at Santander. We support the Paris Agreement goals and our ambition is to be net zero carbon emissions by 2050. Our main lines of action are: GRI FS7, FS8 ó ó ó ó #### Aligning our portfolio to meet the Paris #### Agreement goals Align portfolios to contribute to limiting temperature increases to 1.5ºC in line with NZBA and NZAMi #### Supporting our customers in the green transition Help our customers transition to a low carbon economy #### Reducing our environmental impact Remain carbon neutral and source electricity from renewable energy by 2025 #### Risk Integrate climate considerations into risk management frameworks. Ensure we meet regulatory and supervisory expectations #### Target #### Progress 2018 2019 2020 2021 2025/2030 target Green finance raised and facilitated1 19 bn 33.8 bn 65.7 bn 120 bn by 2025 220 bn by 2030 Thermal coal-related power & mining phase out 7.0 bn 0 by 2030 Emission intensity of power generation portfolio 0.23 0.18 tCO2e/MWh in 2025 0.11 tCO2e/MWh in 2030 We set the green finance target to aid our customers' transition to a green economy. We aim to raise or facilitate the mobilization of EUR 120 bn between 2019 and 2025, and EUR 220 bn between 2019 and 20301. Our exposure to sectors with decarbonization targets published in 2021 (power generation and coal) is about 2.1% of total lending on the balance sheet and represents  around 38% of SCIB credit risk exposure to SCIB's climate concerning sectors (see 'Metrics and Targets')2 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 72 1 In 2021 SCIB's contribution to the green finance target includes: Project Finance (MLA): 4.5bn (based on data available on Dealogic League Tables as of 22 February 2022), Project Finance (financial adviser): 9bn, Green bonds (DCM): 7.6bn, Project bonds: 0.3bn; Export Finance (ECAs): 0.1bn; M&A: 8bn; Equity Capital Markets: 2.9bn. For a total of 32.3bn. 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. During the 2021 financial year, an internal audit identified a duplicate project in the TXF table for Export Finance and Dealogic for Project Finance (MLA), thereby reducing the cumulative figure at year-end 2020 by EUR 371 million. 2 “Exposure to sectors with decarbonization targets” metric measured in terms of drawn amounts, as of June 2021. "Concerning sectors exposure in the SCIB segment" measured in credit risk exposure, in line with the Climate materiality assessment, as of June 2021. Our approach In February 2021, the Group's board of directors approved the ambition to be net-zero in carbon emissions by 2050. This applies to the Group’s operations (which have been carbon neutral since 2020) and emissions from our lending, advisory and investment services. We're working to align our climate relevant portfolios with the Paris Agreement goals and set decarbonization targets for the climate- material sectors in our portfolio. We are committed to: i.Ending financial services to power generation customers by 2030 if over 10% of their revenues depend on coal; ii.Cutting our exposure to thermal coal mining to zero by 2030. iii.Reducing the emissions intensity of our power generation portfolio from 0.23tCO2e/MWh in 2019 to 0.18tCO2e/MWh by 2025 and to 0.11tCO2e/MWh by 2030 In April 2021, we became a founding member of the Net Zero Banking Alliance (under the United Nations Environment Programme Finance Initiative, NZBA), committing to: i.transition operational and attributable greenhouse gas (GHG) emissions from lending and investment portfolios towards pathways to net-zero by mid-century; ii.set intermediate targets for priority GHG-emitting sectors for 2030 (or sooner); and iii.prioritize client engagement with products and services that facilitate the necessary transition in the real economy. We are working on our decarbonization action plans, defining and implementing the risk and business levers needed to deliver on our portfolio net zero targets. Santander's climate change project is one of our strategic projects. Progress is reviewed every quarter at the Responsible Banking Forum and at least twice a year by the Responsible Banking, Sustainability and Culture Committee. Also, at a senior management level, the strategy committee and the management meeting, chaired by the CEO, also conduct a progress check several times a year. Santander Asset Management (SAM) joined the global Net Zero Asset Managers initiative (NZAMi) in March 2021 as part of its commitment to fighting climate change. To deliver on this commitment, SAM set an interim target to halve net emissions for 50% of its AUM in scope 3 by 2030. It is also participating in investors’ climate initiatives as a tool for driving change, delivering on its engagement plan, defining a sectoral strategy to reduce pollution, shifting portfolio construction gradually towards net zero, developing climate investment solutions and maintaining leadership in climate stewardship and advocacy in its core markets. Disclosing our approach is key to helping markets and other stakeholders assess how we embed climate in our processes and policies and report on our climate-related performance. We use the Task force on Climate-related Financial Disclosures (TCFD) as reference. Our Climate finance report 2020-June 2021 included information about, and expanded on, TCFD. See our latest update on the TCFD's four-pillar framework (Strategy, Governance, Risk management and Metrics & Targets) below. More details on our Climate Report 2020-June 2021 available on our corporate website See more details of the SAM strategy at "Our net zero strategy" in the Sustainable Investment section. Our strategy At Santander, we want to play our part in supporting our customers and the global economy to be net zero by 2050. We are offering our customers decarbonization solutions to help them fulfil their climate goals. We are aligning our portfolios with the Paris Agreement Goals and keeping our operations carbon-neutral. Integrating climate within our risk management is key to delivering our plan. We have a four-pronged climate strategy and public commitments to: 1)align our portfolio with the Paris Agreement Goals and set sector- portfolio alignment targets in line with the NZBA and with NZAMi: to ensure projected carbon emissions will help limit warming to a 1.5ºC rise above pre-industrial levels. 2)help customers transition to a low-carbon economy, with the commitment to raise EUR 120bn in green finance between 2019 and 2025 and EUR 220bn by 2030; offer our customers guidance, advice and specific business solutions; and enable them to invest in a wide-ranging ESG proposition according to their sustainability preferences. 3)reduce our impact on the environment by remaining carbon neutral and sourcing all our electricity from renewable energy by 2025. 4)embed climate in risk management; understand and manage the sources of climate change risks in our portfolios. Santander Asset Management operates in 10 countries and aims to achieve net zero greenhouse gas emissions with its assets under management by 2050, and it was the first asset manager in Spain and Latam (excluding Brazil) to join the NZAMi. This is consistent with Santander’s push for leadership in sustainability and the Group commitment to be net zero in carbon emissions by 2050. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 73 3 Assets in scope are assets with a defined Net Zero methodology, which currently amount to 54% of total AUM. For c.50% of those, SAM has carbon metrics available today. This objective might be reviewed upwards depending on data availability. #### 2021 highlights → To help deliver on our green finance target, we raised or facilitated EUR 32.3bn (EUR 65.7bn since 2019) and harnessed climate finance opportunities through several initiatives. (For more details see  "Supporting our customers in the green transition" section.) ◦ The volume of greenfield renewable energy projects we have financed or advised represents enough installed capacity to power 9.2 million homes in a year and avoids 251 million tons of CO2 emissionsA during the useful life of those projects. ◦ As well as our existing Green Book products, we developed the sustainable finance classification system (SFCS), which enables us to identify lending towards economic activities that contribute to climate change mitigation and adaptation and to track these volumes consistently across the Group. ◦ We issued our third EUR 1 billion green bond to finance and refinance renewable wind and solar power. → We're expanding our range of ESG products in Wealth Management. As of December 2021, we had over €27bn AuM, €11bn in Santander Asset Management and €16bn from third party funds in Private Banking. → We reduced and offset CO2 emissions from our own operations, after becoming carbon neutral in 2020. Furthermore, 75% of our electricity comes from renewable energy sources. (For more details,  see 'Environmental Footprint'). → Climate change risks and opportunities assessments are part of our financial planning (three-year time horizons) and strategic processes (five years). In 2021, our financial planning considered our decarbonization targets as well as the green finance target and the volume of AuMs under sustainable funds. This enabled us to measure three-year projections as a key component to support the delivery of our commitments. → Santander's employee pension funds manager recognize the magnitude of the challenges that climate and energy transition pose to governments, companies and civil society. The pension funds manager are also aware of their impact on the ability to comply with their fiduciary duty to provide long-term risk- adjusted returns to their members. They initiated the necessary actions to consider employee pension plans' alignment to net zero, showing their full support for Santander's vision and its commitment to sustainability and climate change. → We continue to fight deforestation and its damage to climate and biodiversity (especially in the Amazon). Protecting the Amazon rainforest is critical to tackle climate change (for more details, see our webpage on "Santander and the Brazilian Amazon") → We consider biodiversity a material topic (see our materiality assessment). Further progress in the sector is needed. Santander participated in the Taskforce for Nature related Financial Disclosures and a  proof of concept soy pilot coordinated by Global Canopy and UNEP FI. → Santander UK was a founding member of the UK National Parks ‘Net Zero with Nature’ project. It seeks to attract funding to scale up peatland and woodland restoration across the UK. The project will generate verified high quality carbon credits and biodiversity units. A.Emissions to be avoided over the lifetime of projects, which we have financed or advised on in 2021. Emission factors from the International Energy Agency (source updated in 2021 with 2019 data) have been used. The estimated share attributed to Santander is 66.7 million tonnes of CO2. For more details on the Brazilian Amazon, see section '[Environmental and Social risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151) [management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)', and "Santander and the Brazilian Amazon"in our corporate website Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 74 Governance GRI 201-2, FS1, FS2, FS3 #### Governance bodies of Banco Santander involved in climate change management #### and frequency on which climate change is presented (in brackets) Board level Board of directors (as required) RBSCC Board risk committee Executive committee (at least twice a year) (as required) (as required) Executive level Management meeting (several times per year) Fora RB forum (at least twice a year) Climate-project support Climate steering group (each two months) Core group Extended group (monthly) (quarterly) Co leads meeting (weekly) •The internal audit function conducted the first review of the climate change project in 2021. It proposed new control measures to reinforce governance. •The responsible banking, sustainability and culture committee (RBSCC) reviews and challenges climate change strategy and other environmental considerations. It’s an advisory body that assists the board with overseeing the climate change-related components of the responsible banking strategy. It contributes to more informed board decisions and enhanced strategic focus based on the related risks and opportunities. In 2021, the RBSCC held four meetings, including three on climate change (at least two meetings covering climate are required). The committee discussed climate change project updates; climate- related financial risks and opportunities; roadmaps to fulfil TCFD and ECB expectations; discussions to approve the net zero ambition and fulfilment of the bank’s net zero commitments; Santander’s sustainable finance proposition to help our customers’ transition to a low-carbon economy; plans for business lines; and progress on our carbon footprint and green finance commitments. •To streamline our governance, we created the Responsible banking forum (RB Forum). It executes the responsible banking agenda across the Group, drives decision-making on responsible banking issues and ensures the execution of any mandates from the RBSCC, other board committees and the board of directors. It also ensures alignment on key issues, as well as the review and escalation of reports to the RBSCC. The RB Forum meets at least six times per year. It reviews climate change and net zero strategy before discussion at the RBSCC. In 2021, the RB Forum met four times and addressed such climate- related topics as net zero strategy, sustainable finance and carbon offsetting. •The Group management meeting, chaired by the CEO, receives progress reports on the responsible banking agenda and on climate change several times a year. •Specialist working groups cascade Santander’s climate change agenda. It includes such matters as TCFD implementation, supervisors’ expectations, climate commitments and governance, throughout the Group. The climate project and working group, co- led by SCIB, Risk and Responsible Banking with members from several functions and geographies, meets weekly to monitor and drive progress with the climate change project roadmap; monthly with the corporate areas involved to ensure headway; and quarterly with all subsidiaries and areas. •A climate steering group meets every two months. Its members are the Group chief credit officer, the global head of Enterprise- wide risk management, the chief of staff to the global head of Santander Corporate and Investment Banking, the global head of Responsible banking, the head of the chair’s office, the director of group strategy and the senior adviser on responsible business practices to the executive chair; and receives feedback from executive directors as part of the RB Forum. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 75 •Santander has several working groups that meet regularly to drive the climate change agenda: Santander Spain's climate change project, coordinating all local climate initiatives; Santander UK's climate leadership group, supporting the UK's senior leaders ambition to be a leader in climate matters; the public policy sustainability working group, advising on climate, regulatory developments and the Group's positioning in policy debates; the footprint working group, in charge of how we measure and reduce our internal carbon footprint; and the sustainable bond working group, overseeing the issuance of sustainable bonds. •In 2021,  the short-term variable pay that generally applies to Group employees took into account the progress made in towards ESG objectives (e.g. green finance and climate change goals). •For 2022, the board proposed (resolution at the 2022 AGM) the inclusion of ESG metrics in the long-term incentives of senior executives. They include green finance and decarbonization targets consistent with our commitments: namely setting targets for ten sectors before 2024 to fulfil NZBA requirements; and aligning our Power Generation portfolio gradually to ensure delivery on our mid-term target for 2025. For more details on the RBSCC, see section 4.9 '[Responsible banking, sustainability and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) [culture committee'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) in the Corporate governance chapter. For more details on our policies and governance, see the 'Governance' section of this chapter. For more details on the RB Forum, see our Climate Report 2020-June 2021 available at our corporate website. Our General sustainability policy is available on our corporate website www.santander.com #### Management and staff training GRI FS4 In January 2022, the board of directors completed a third climate change training programme. It included modules on the Paris Agreement, net zero, portfolio alignment and climate risk management. In 2021, the Santander UK board and senior executives took part in exercises on climate risk and stress tests. Santander España's board and senior executives received climate change training. We launched "Climate Dialogues" for senior managers to discuss critical climate-related topics in four sessions with renowned experts Alzbeta Klen (IFC Director and Global Head of Climate business), Andy Marsh (President and CEO of Plug Power Inc.), Hakan Samuelsson (President and Chief Executive of  Volvo Cars) and David Antonioli (Verra CEO). In March, we held a CDP-sponsored workshop on climate change for risk analysts. Over 182 attendees talked about the physical and transition risks of climate change. A follow-up CDP webinar on climate change (held in April with around 80 attendees) delved deeper into the TCFD's reporting standards and recommendations. In December, the chairs of the responsible banking, sustainability and culture committee from the group’s geographies attended a special session on climate change and net zero. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 76 Risk management GRI 102-15, 102-29, 102-30, 201-2 ▪We continue to make progress with embedding climate and environmental risks in our key risk management processes. In 2021, we developed a quantitative metric for our risk appetite statement. ▪We made significant progress with the credit granting process and with developing a more restrictive risk policy on sensitive sectors and activities that could damage our reputation. All SCIB corporate customers (groups) now have a climate assessment as part of the internal credit ratings. ▪In 2021, we adapted our risk appetite to include specific limits regarding our exposure to coal customers. This will ensure the fulfilment of the decarbonization targets for coal-mining and coal- related power generation customers as well as aiding climate risk management. (see 'Metrics and targets') ▪In early 2022, the new version of the Environmental, social and climate change risk management policy was approved with new restrictions that will help us decarbonize our portfolios and reduce climate-related risk, including new criteria which prohibits financing and advising on new oil upstream clients, except for transactions for the specific financing of renewable energy, and direct financing of oil upstream greenfield projects. ▪We launched initiatives to meet regulatory requirements, such as the CBES in the UK and the SSM stress tests for 2022. Furthermore, senior managers were more involved in overseeing risks associated with climate change. ▪Santander’s Economic research department analyses the impact of climate change based on the published scenarios from the Network for Greening the Financial System, the 2021 Biennial Exploratory Scenario and other external sources. ▪We introduced a climate change rationale into Santander’s baseline scenario to assess macroeconomic impacts on our portfolios. We also developed alternative scenarios to measure the impact other climate assumptions have on economic variables. Our climate scenarios model impacts on different economic sectors. ▪We align climate scenario development with supervisory expectations as reflected in the ECB guide on climate-related and environmental risks published in November 2020. ▪We conduct regular materiality assessments to identify the most climate material portfolios. They cover more than 80% of our balance sheet and include assessments of residual value, strategic, market and liquidity risks. ▪Our Risk taxonomy and heat maps, based on TCFD and UNEP FI programmes, form the basis of a qualitative classification of portfolios and their potential exposure to climate risks. The internal climate change risk taxonomy recognizes sectors that are directly exposed to physical and transition climate risks. ▪We use materiality assessment findings as inputs to monitor, measure and report on financial impacts and to develop new metrics for risk management, credit policies and business strategy. ▪We are developing internal tools and models to assess climate- related risks and impacts in our portfolios: ▪KLIMA tool: To manage climate-related risks at corporate and unit level, considering transition and physical risks, taxonomy and heatmaps for different sectors and geographies. It is a key element to manage climate-related risk in the short, medium and long term following climate scenarios. ▪Advanced models: Santander performs internal climate scenario analysis and stress tests using a platform acquired from an external vendor, which follows a UNEP FI methodology supplemented with external information and scenario expansion. The platform is complemented by the materiality assessment exercises and heatmaps related to physical and transition risk. MATERIALITY ASSESSMENT - CLIMATE RISK ANALYSIS  AND HEAT MAPPING OF PORTFOLIOS September 2021 - Billions euros TR PR SCIB Other segments Power (conventional) 25 2 of which power generation clients with > 10% of revenues coming from coal 4 0 Power (Renewables - Project Finance) 12 0 Oil & Gas 19 0 Mining & metals 9 2 of which Coal Mining 4 0 Transport 27 94 Real Estate 6 361 Agriculture 3 4 Construction 20 7 Manufacturing 33 14 Water supply 3 1 Climate sectors 157 484 Other sectors 59 161 Total portfolio 216 646 Low    Moderately low    Medium    High    Very high TR: Transition Risk. PR: Physical Risk SCIB : REC (on and off balance sheet lending + guarantees + derivatives PFE), Other  segments : Drawn amount Other sectors= SCIB and Corporate NACES outside of risk taxonomy perimeter // Individuals and  SCF: Cards and Other Consumer Other segments include Individuals, SCF, Corporates and Institutions. For more details on our risk management approach and progress, see section 10 '[Climate and Environmental risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661)' of the Risk management and compliance chapter. For more details on our Climate Report 2020- June2021, see our corporate website. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 77 Metrics and targets Santander aims to achieve net zero carbon emissions within its own operations and customers’ financed emissions by 2050, focusing initially on the most material sectors to climate risk like power generation, and oil and gas. We’ve been publishing the PACTA analysis of our power generation portfolio since 2019. In April, Santander became a founding member of the Net Zero Banking Alliance (NZBA). We committed to set and disclose decarbonization targets for the most GHG intensive sectors. In 2022, we will engage with NZBA working groups to help set specific guidance and further develop NZBA guidelines. We disclose performance data on scope 1, 2 and 3 emissions (see 'Environmental footprint'), along with other climate relevant metrics (e.g. energy consumption). We also report on our renewables and carbon neutrality targets. We have been carbon neutral in our own operations since 2020 by reducing and offsetting own emissions and increasing the use of renewable energy. Regarding our scope 3 emissions (category 15 related to financing), we began to disclose the financed emissions from our customers in 2021, following the Partnership for Carbon Accounting Financials (PCAF, which we became a member of in September 2021) standard. This means we can assess the GHG emissions linked to our portfolios and devise alignment strategies. We are setting alignment strategies and practical decarbonization targets using emissions data from our customers, which need to be accurate enough to monitor real progress. We are working on improving these data through external databases and model developments using information from our customers. As we set and publish future decarbonization targets, we will disclose financed emissions progressively starting with the most concerning sectors, in line with the roadmap described below. Beyond portfolio alignment, we are also working to obtain financed emissions for our balance sheet, albeit with lower-quality emissions- related data to support also different disclosure requirements. Below we provide information about our third PACTA exercise and more details about decarbonization targets as part of our TCFD disclosures. Portfolio Alignment Santander publicly supports the Paris Agreement on climate change. We joined the UN Collective Commitment to Climate Action (CCCA) when it was launched in September 2019. We announced our ambition to be net zero in carbon emissions by 2050 in our 2020 Annual Report. We were founding members of the NZBA in April 2021 to help us progress in our net zero ambition. The most carbon-intensive sectors for Santander, as identified in the climate materiality assessment, are power generation, oil and gas, transport and mining and metals. We analysed how our customers in those sectors are positioned in terms of current and expected emissions from their activities to align with the Net Zero pathway towards 2050. Progress on the Collective Commitment to Climate Action To fulfil UNEP FI Net Zero Banking Alliance (NZBA) commitments, we need to set and publish sector-specific, scenario- based targets to align our portfolio with the Paris Agreement goals. We follow NZBA guidelines and recommendations and consider our climate materiality assessment to prioritize the most carbon intensive sectors where data and methodologies are available. Our methodology relies on financial information from our customers (total equity, total debt, total assets, company valuation, etc.), as well as emissions and production data. Where no public emissions data exist, we estimate emissions based on a proxy (average emissions by industry, country, etc.). Once we have an idea of our customers' total emissions, we can apply our attribution factor in line with the PCAF approach to determine the emissions Santander financed. Roadmap for delivery on Net Zero The ambition for many sectors to have net zero emissions by 2050 depends on several exogenous factors. Data and methodologies need to be more widely available and reliable before we can accurately measure emissions and set decarbonization targets. For the most concerning sectors identified in the materiality assessment (power, oil and gas, mining and metals, and transport), we’ve been measuring the GHG emissions from our customers’ activities and Santander's share of emissions, per PCAF guidelines. Those sectors are considered to have more GHG emissions directly or indirectly linked to their activities and value chains as well as the most potential to reduce emissions and help achieve the  Paris Agreement goals. We plan to set decarbonization targets based on emissions metrics for: oil and gas, mining and metals (coal-related) and aviation within our transport portfolio by September 2022 or earlier in line with our NZBA commitment. Those decarbonization targets must be compatible with helping our customers transition to a greener economy. Subject to the availability of data and methodology, we will set decarbonization targets for mortgages, commercial real estate, auto manufacturing, auto lending, cement, agriculture and some sub- sectors before the end of March 2024. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 78 Power generation: focus on SCIB corporate customers Production capacity across technologies (%). June 2021 2021 2020 A.  Corporate Economy: 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 We're committed to aligning our power generation portfolio with the Paris Agreement by 2030. We're ending financial services to power generation clients by 2030 if over 10% of their revenue depends on thermal coal. Power generation is responsible for a significant part of the anthropogenic greenhouse gas (GHG) emissions causing global temperatures to rise. The power sector relies on technological alternatives that produce varying levels of emissions: coal, oil and gas-fired power plants produce significantly high emissions as opposed to renewable energy sources (wind and solar). Therefore, the technology mix of our power generation clients – and of our portfolio – is significant. As of June 2021, our SCIB power generation portfolio total exposure including corporates and project finance was around EUR 34.7 billion. Our project finance portfolio in renewables accounted for EUR 11 billion. As explained above, the technology mix of our power generation corporate clients is key to track our progress on reducing emissions. We conducted a PACTA exercise, as we had done last year, to calculate the technology mix of our SCIB corporate clients in the power generation sector (as shown in the graph above). The percentage of production capacity of renewables financed by Santander grew 2.92 percentage points and coal fell 2.46 points. Gas technology increased 3.36 points, offsetting the -4.09 p.p. reduction in coal and hydro technology, which was mainly due to intense droughts in Brazil. We estimated the current and future emissions of our power generation portfolio and proposed the first GHG decarbonization targets for 2025 and 2030. In setting our targets, we considered the expected trajectory of our portfolio and how it compares with the latest recognized scenario to achieve net zero emissions by 2050: “International Energy Agency (IEA) – Net Zero Emissions”. We based the pathway on the SDA and the convergence ambition approach. The SDA assumes global convergence of key sector’ emissions intensity by 2050. Based on 2019 portfolio data, the emissions intensity of our power generation portfolio stands at 0.23 tCO2e/MWh. Our commitment is to reduce it to 0.18 tCO2e/MWh by 2025, and to 0.11 tCO2e/ MWh by 2030, in line with the Paris Agreement. Gas will play a relevant role in the transition of power generation in many countries, enabling them to avoid using more polluting production alternatives (such as coal-fired power plants) while deploying renewables capacities in line with their Nationally Determined Contributions (NDCs). That's why we're drawing up internal guidance for acceptable gas power generation projects to work with, aimed at reducing the GHG of our portfolios. Our approach aims to support a fair transition in those countries and including the general energy market situation of that country; energy mix pathway (based on NDCs); to lower average emissions of the energy-mix in the geography so it replaces production assets with higher emission levels; the use of advanced, low-emissions technology; and, in developed economies, preparedness to transition in the future (Hydrogen readiness; carbon capture modules; etc). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 79 Coal In February 2021, in our 2020 Annual Report we committed to cutting our worldwide exposure to thermal coal mining to zero by 2030. To meet the coal targets, in 2021 we did the following: •Customer engagement:  In 2021 we engaged with our customers impacted by the two coal decarbonization targets to analyse and assess their coal exit-plans. There are only 7 coal-mining customers (representing €4bn in risk exposure) and only 18 power generation customers with more than 10% revenues coming from thermal coal (representing €3bn in risk exposure, with an average weighted revenue from coal of 34.8%). In our engagement we are offering them help to transition and decarbonize. The majority of the customers we engaged with have transition plans and are receiving our support to close, transform or divest the coal mines or coal-fired power plants. •Risk Appetite: We set new limits to monitor and manage our exposure to customers impacted by our coal commitments. These limits will ensure we meet the two coal decarbonization targets by 2030, although the exposure to these customers may not have a linear decreasing trend as we work with them to help them decarbonize. •Environmental, social and climate change risk policy: We outlined new criteria regarding thermal coal to ensure the decarbonization of our portfolios (for more details, see the 'Risk management' section). •Long-term incentives: We added the power generation portfolio decarbonization target (% of emissions intensity reduction for power generation) to the remuneration scheme for Santander's most senior executives (for more details, see the '[Remuneration](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310)' section). Oil and gas The oil and gas sector represents a significant amount of the GHG emissions produced worldwide, and needs a clear transition pathway to decarbonize. Many economic activities (power generation, transport, manufacturing, etc.) are still heavily dependent on oil and gas. The risk limits for SCIB oil and gas customers have been adjusted to consider their climate change transition plans. As a result, a tiering has been established and risk management limits have been modified accordingly, while a strict monitoring of transition plans' execution is being implemented. Further actions and levers are being explored within the current work to set alignment targets for this sector. In early 2022, we updated the ESCC risk policy to include new restrictions that will help us decarbonize our oil and gas portfolio, which prohibits financing and advising on new oil upstream clients, except for transactions for the specific financing of renewable energy, and direct financing of oil upstream greenfield projects. Mortgages and Real estate This sector is material to Santander's exposure. Residential and commercial buildings generate a significant amount of GHG emissions, given their overall energy consumption in this sector adds up to a significant amount of GHG emissions. Accounting for the emissions associated to the collaterals and assets that Santander finances requires extensive data collection (energy efficiency labels, property surface area in sqm, etc.). To fulfil our net zero ambition within this sector, we're progressing with the most material portfolios to assess the emissions baseline with enough data quality to set decarbonization pathways, strategies and effective commercial plans. We're working on our mortgage portfolios in the UK and Spain, which respectively comprise over 63% and 16% of the Group's mortgage exposure. To measure the energy efficiency of mortgage collaterals, we have been working on gathering energy performance certifications (EPC): EPCs are not comparable across geographies4, as it is a measurement scale defined locally, and depends among other things on local policy and weather conditions. Therefore, each letter label corresponds to different levels of emissions per surface area per geography or EPC standard. In many geographies there is a significant lack of EPCs, and EPC data should be estimated with real data and supplemented with estimation models. The first breakdown of the energy efficiency labels (EPCs) of UK mortgage collaterals, according to the UK's local EPC scale, is ("A" being the best performance, and "G" the worst): "B" for 13%,"C" for 23%, "D" for 42%, "E" for 17%, "F" for 4%, "G" for 1%. At Santander España, the estimations of the portfolio EPC distribution, according to the Spain's EPCs local scale, is: "A" for 1% ,"B" for 2%,"C" for 4%, "D" for 14%, "E" for 63%, "F" for 8%, "G" for 8%. Both in the UK and Spain the breakdown of EPCs in our mortgage portfolio are broadly aligned with each geography EPCs' profile. Transport The automotive sector is material to the bank's exposure and emissions. SCF's Consumer business division is working on assessing the carbon footprint of our auto-loan portfolios. In H2'21, SCF UK began measuring 'green assets' financed within the portfolio and created a CO2 emissions financed dashboard that identifies the green assets financed. We're helping auto-manufacturers invest in new technologies to produce more efficient vehicles and reduce the average grCO2/km of the ones they produce. We'll also set an alignment target as part of our NZBA commitment and will be analysed along with auto lending as the two are related. (Please see the agreement signed with Ferrari below) Aviation is also a relevant sub-sector that accounts for a significant amount of emissions within the transport sector. We're assessing transition plans and carbon footprint to set decarbonization targets by September 2022. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 80 4 According to PCAF databases, as an example, the "D" EPC rating in England has an estimated emissions intensity of 0.03045 tCO2/m2, while the "E" EPC rating in Spain has an estimated emissions intensity of 0.023739 tCO2/m2. Metals Metals manufacturing, which produces a significant amount of GHG emissions should be decarbonize replacing some of the current technologies used for combustion and electricity. We have been assessing our steel and iron portfolio to understand its level of emissions and decarbonization plans. It is on the right track towards  net zero. As indicated in our target roadmap published in our Climate finance report, we will be publishing our target for that sector no later than September 2022. Though we have few customers and a very little exposure to aluminium. We'll keep working with our customers in that sub- sector to help them decarbonize their operations. Agriculture Agriculture is a key sector on the path to net zero; however, it is also one of the most challenging in terms of data and alignment methodologies. We participate alongside other major banks in the Banking for Impact on Climate in Agriculture (B4ICA) initiative coordinated by WBCSD in partnership with UNEP FI and PCAF. #### NZBA and GFANZ engagement and the collective commitment to climate action We remain engaged with the UNEP FI on climate. Since 2018, we have participated in TCFD recommendations pilots I & II, making headway with an internal methodology to assess climate change- related impacts on our credit risk exposures. As part of the Collective Commitment to Climate Action and the Net Zero Banking Alliance, we participate in working groups aimed at strengthening the initiative and further developing other initiatives. We're also in the Glasgow Financial Alliance for Net Zero (GFANZ), which is the umbrella organization for the finance industry from the 2021 COP in Glasgow and beyond. Our Group Executive Chair is a member of the Principals Group that sets the strategic direction for GFANZ. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 81 Supporting our customers in the green transition SASB FN-IB-410a.2, FN-IB-410a.3 As one of the world’s largest banks we have a responsibility and an opportunity to support the green transition and encourage more people and businesses to go green. Enhancing our sustainable finance proposition across all our divisions and regions is critical to meet our climate ambition. To help us achieve this, we developed in 2021 the Sustainable Finance Classification System (SFCS), an internal guide that enables us to recognize sustainable finance activities and measure them consistently throughout the Group. Corporate and Investment Banking Building on our strong track record of renewable energy finance and advisory services, SCIB aims to introduce ESG and sustainability into all sectors and products in response to increasing demand from corporates and investors and in pursuit of Santander's own commitments. Our ambition is to become the leading financial platform for energy transition-enabling technologies by supporting our clients in achieving their sustainability objectives and transitioning towards more responsible, social and environmentally sustainable business models. In 2021, SCIB  appointed a Global Head of ESG. The team is focused on three main areas: •ESG solutions, covering ESG analytics, sustainable capital markets/ financing and ESG product development •Corporate Finance •ESG Factories, to partner with the Group’s businesses to develop specific solutions for other segments. Financing renewable energies For the last 10 years, we've been leading the banking industry in renewable energy finance. We are among the top 3 banks in terms of number of deals and the top 5 in deal value globally. The greenfield renewable energy projects that we have financed or advised in 2021 have a total installed capacity of 13,604 MW, and prevent the emission of 251 million tons of CO2 A. We also helped expand, improve and maintain renewable energy brownfield projects that have a total installed capacity of 1,776 MW (more details in the graphs below). Our renewable energy greenfield and brownfield portfolio totalled more than EUR 12.9 billion by the end of the year. Spread over 326 transactions, it accounts for approximately half of our project finance portfolio. Santander Corporate & Investment Banking (SCIB) aims to be a leading bank in providing sustainable finance and ESG solutions. GLOBAL RENEWABLE ENERGY PROJECT FINANCE VOLUME BY MLA  -  FY 2021A Rank Mandated Arranger Vol. (USDm) Nº. %share 1 Bank 1 6,421 82 6.6 2 Bank 2 5,534 68 5.7 3 Banco Santander 5,280 129 5.4 4 Bank 3 4,228 64 4.3 5 Peer 1B 3,504 63 3.6 6 Bank 4 3,084 40 3.1 7 Bank 5 3,071 40 3.1 8 Bank 6 3,003 40 3.1 9 Peer 2 2,796 53 2.8 10 Bank 7 2,703 30 2.8 A. In the lead arranger category of Dealogic and Bloomberg New Energy Finance league tables for project finance B. Peers are  BBVA, BNP Paribas, Citi, HSBC, ING, Itaú, Scotia Bank and UniCredit, which are similar in size to Santander. The generation capacity of the renewable energy projects we have financed or advised in 2021 amounts to the yearly consumption of 9.2 million households.B A. Emissions prevented over the projects' useful lifespans, we have financed or advised, in 2021 based on: emissions factors figures from the International Energy Agency (updated in 2021 with data from 2019). 66.7 million tons of CO2 is the estimated part allocated to Santander. B. Based on final electricity consumption data published by the International Energy Agency (updated in 2021 with data from 2019). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 82 GREENFIELD FINANCE5 (MW financed)C BROWNFIELD FINANCE6 (MW financed)C BREAKDOWN OF FINANCED MW BY TYPE OF RENEWABLE ENERGY #### Wind energy 77% 35% 77% 46% 58%  26% 2019 2020 2021 #### Solar energy 22% 54% 18% 33% 39%  64% 2019 2020 2021 #### Others D 1% 11% 5% 21% 3%  10% 2019 2020 2021 Greenfield  Brownfield BREAKDOWN OF GREENFIELD AND BROWNFIELD FINANCE BY COUNTRY IN 2021E 5,400 MW 61 MW 3,212 MW 1,225 MW 2,119 MW 1,286 MW 156 MW 900 MW 267 MW 264 MW 318 MW USA Spain Brazil United Kingdom Germany Poland Italy Mexico Greenfield  Brownfield C.  Of the megawatts attributable to Banco Santander in 2021, 33% were from greenfield finance and 36% were from brownfield finance. D. Includes hydropower in 2019, solar and wind energy in 2020 and battery energy storage, mix solar-biomass and energy from waste in 2021 E. Other greenfield finance: Chile (81 MW), Portugal (53 MW) and France (24 MW). Other brownfield finance: Portugal (18 MW) #### Renewable energy projects financed and advised in 2021 Santander was the sole financial advisor and green loan coordinator in a landmark transaction to finance Vineyard Wind I, an 800 MW offshore wind project off the coast of Massachusetts and the first large scale offshore wind farm in the US. Santander was mandated lead arranger in the financing of Dogger Bank C, a 1.2 GW wind farm being built off the coast of Yorkshire. It is the largest offshore wind project financing to date, and is due to be the largest offshore wind farm globally. Each phase will produce enough electricity to supply 5% of the UK’s energy demand. Santander advised on the financing of enfinium Ltd, a waste to energy (WtE) firm which is a leading operator in the sector, with an annual waste capacity of 2.3 million tonnes and gross capacity of 265MW. Santander was mandated lead arranger in the financing for the Darwin Project, a 900MW offshore wind farm, to be built in the German North Sea, close to the Netherlands and some 72km from mainland Germany. It is the first offshore wind transaction with private PPAs in Germany and continental Europe. Santander acted as Financial Advisor for the company, leading also the structuring and bookrunning of the institutional tranche in the refinancing of Project Ares, a portfolio of two concentrated solar power plants with a total installed capacity of 99.8 MW owned by Celeo. Santander acted as Mandated Lead Arranger of Provence Grand Large's first floating offshore wind farm being financed by commercial banks globally. The 24 MW project is located in France and is supported by three key entities with track record in the French offshore wind market. Santander was mandated lead arranger and hedge provider in the financing of the Alpino Project, to build and operate two ground- mounted solar PV projects in Lazio with a combined capacity of 118MW. The project will be a key milestone in the Italian renewable space, since it will be one of the first corporate PPA- backed projects in the country. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 83 5 New projects to be built. 6 Projects already existing and producing electricity at the financing date. M&A advisory in renewable energy We supported Grupo Enel in the restructuring of its Latin American business, including advisory on two landmark transactions: first, the merger of Enel Green Power Latam with Enel Americas, the largest listed pan-American utility company; and second, the integration of Enel Green Power Central America into Enel Colombia, Enel’s joint- venture with Grupo Energia de Bogotá for the business in Colombia and Central America. Partnering with clients on their transition In the first ESG corporate finance advisory role in Hydrogen, Santander acted as sole financial advisor to Plug Power, a US-based global leader in fuel cell systems and hydrogen related services, in the launch of a 50-50 joint venture with Groupe Renault. The resulting company, “Hyvia” will lead the way towards a complete ecosystem of fuel cell powered light-commercial vehicles, green hydrogen and refuelling stations across Europe. Santander also acted as exclusive financial advisor to Plug Power in its partnership with Acciona, a Spain-based global renewable energy operator, to create a leading green hydrogen platform in Spain and Portugal. We advised the French start-up Verkor on the creation of a strategic partnership with Renault Group. Renault Group and Verkor will co- develop and manufacture low-carbon and high-performance battery cells to foster the emergence of a competitive, sovereign and sustainable battery supply chain in Europe. As part of Santander’s new alliance with Scuderia Ferrari, we aim to offer Formula 1’s most successful team a wide range of advice and support to help them become carbon neutral by 2030. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 84 Developing new solutions We have developed new sustainable products, such as our sustainability-linked supply chain finance offering and our sustainability-linked swaps offering. In recent years, we have created various frameworks to develop our ESG product offering such as: → Sustainable Guarantees Framework, with second party opinion from Vigeo Eiris (2019) → Social Loans Framework in Argentina, with second party opinion from Sustainalytics (2020) → Sustainable Finance Classification System, reviewed by Sustainalytics (2021) #### Landmark deals in 2021 #### First large scale EV charging network transaction in Europe #### First sustainability linked bond in Mexico #### First social project bond in Latin America Santander was mandated lead arranger and hedge provider, leading the first project finance for a large-scale electric vehicle (EV) charging network in Europe, due to be powered entirely by green energy and installed across select Carrefour hypermarkets in France by 2023. Santander was the Sustainability Co- ordinator for Coca-Cola FEMSA in the first sustainability-linked bond in the local debt market in Mexico. Santander was the sole structuring agent for Latin America's first social project bond issuance, which is linked to the Puerta de Hierro-Cruz del Viso roadway project in Colombia. First UK retailer to offer sustainability-linked supply chain finance Sustainability coordinator for one of the largest sustainability-linked facilities Santander partnered with Tesco PLC to offer sustainability-linked Supply Chain Finance (SCF) to their supplier base. Tesco suppliers will be offered preferential financing rates via Santander's market leading SCF platform which incentivizes suppliers to make to positive changes to their business while tracking performance and creating a culture of continuous improvement. Santander acted as Joint Sustainability Coordinator in one of the largest ever sustainability-linked revolving credit facilities (RCF) for Anheuser-Busch InBev and the first of its kind among publicly listed companies in the alcohol beverage industry. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 85 Retail and commercial banking As one of the top retail and commercial banks, we have the responsibility to support the development of inclusive and sustainable societies. Building on our existing Green and Social Book offering of ESG- oriented products (launched in 2019), we continue to reinforce our sustainable finance proposition with dedicated purpose lending and sustainability-linked loans. Focusing on green finance, our products and services are designed around five key verticals adapted to the specific needs of our customers in all geographies. #### Green solutions for our individual, SME and corporate customers #### What do we finance? #### What do our customers need? #### Green buildings Purchase, construction and renovation of energy-efficient buildings. Renewable power system installation and refurbishments that use 30% less energy. Developer loans, private solar panel installation, smart meters, energy-efficient lighting, mortgages with an A or B energy rating. #### Clean mobility Clean transport and infrastructure. Leasing of electric and hybrid vehicles (<50 g CO2 per passenger- km) and financing of charging stations and bicycle lanes. #### Renewables Renewable energy production and transportation. Energy storage. Financing of solar panels, wind farms and battery and storage battery production. #### Agro Sustainable and protected agriculture. Land and forest conservation. Sustainable farming. Financing of greenhouses, reduced irrigation systems, efficient machinery, reforestation and reduced fertilizer use. #### Circular economy Activities to adapt to, or mitigate, climate change; preserve biodiversity; and boost the circular economy. Financing of water, waste and soil treatment; greater energy efficiency; lower emissions; and conservation. #### Sustainability is part of what we do As part of our commitment to renewable energy, in 2021 we invested in the El Escudo wind farm project in Cantabria, Spain. The licence for the 105MW farm, which will be the region’s biggest renewable energy initiative, is expected for 2022. It will also provide the region with the means to execute a rural development plan, drive energy transition to reduce CO2 emissions by 45,000 tons per year and generate enough energy to power 95,000 homes. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 86 In 2021, we became sustainable finance leaders in our markets thanks to several new partnerships, products and projects. In particular: Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 87 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 88 #### Other initiatives #### Banking Environment Initiative (BEI) SCIB deepened its engagement with clients in key sustainability topics such as sustainability strategy and ESG ratings. Our collaboration with The University of Cambridge Institute for Sustainability Leadership’s (CISL) Banking Environment Initiative on a new guide to bank-client engagement aims to address the need for a market-wide transformation of how banks and corporate clients interact. Let’s Discuss Climate: The essential guide to bank-client engagement focuses on the customer service model to enable bankers to have meaningful conversations with large corporate clients about their decarbonization plans and associated financing needs. #### Carbon markets and nature-based solutions Santander announced a new and exciting partnership with UK National Parks to support their “Net Zero with Nature” initiative. Together with SCIB, Santander UK is helping fund the restoration of 220 hectares of damaged peatland in Scotland's Cairngorms National Park. Furthermore, with global impact firm Palladium, Santander will explore the role it can play in the carbon and biodiversity credit market. #### Other partnerships Santander also hosted conferences on the topic of carbon markets, such as “The Future of the Carbon Market in Brazil” and “The Role of Voluntary Carbon Markets” ( co-hosted by Verra), to discuss the challenges and opportunities for businesses. In 2021, we joined a pioneering project promoted by Repsol Foundation along with Sylvestris Group to drive CO₂ offsetting through reforestation. We will finance the creation of three forests that will cover more than 300 hectares. Thanks to its contribution, Santander will be able to offset the emission of 82,000 tons of CO2; contribute to protecting biodiversity and the fight against climate change; and support rural development and job creation. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 89 Sustainable finance classification system (SFCS) Sustainable finance is key to meeting our ambition to be net zero by 2050. That’s why we developed our Sustainable finance classification system (SFCS), an internal guide that outlines harmonized criteria to consider an asset green, social or sustainable in all the Group’s units and businesses. The SFCS, reviewed by Sustainalytics, draws on such international industry guidelines, standards and principles as the EU Taxonomy, ICMA, LMA Principles, UNEP FI framework and Climate Bond Standards. It also ensures a consistent approach to sustainable finance across Santander that will enable us to track activities, support product development, mitigate the risk of greenwashing and reinforce our transparency and commitment to promote and increase our green, social and sustainability-linked activity. #### International industry guidelines, standards and principles that the SFCS draws upon EU taxonomy ICMA Green/ Social Bond Principles LMA Green Loan Principles LMA Sustainability Linked Loan Principles ICMA Sustainability Linked Bond Principles Febraban taxonomy (Brazil) UNEP FI framework Climate Bond Standards #### Eligible products Dedicated purpose Sustainability linked financing → Transaction proceeds go towards eligible green or social projects → Eligibility criteria: Specific activities and thresholds, based on industry principles and guidelines (ICMA, LMA, Climate Bond Standards) and the EU Taxonomy → Sustainability-linked transactions designed to incentivize customers to set and work towards ambitious ESG targets → Transaction structured according to pre-determined sustainability performance targets (KPIs and/or ESG ratings) → Alignment with recognized industry principles and guidelines (ICMA and LMA) #### Added value Green and social finance standards aligned with international standards Green alternatives to the most in-demand traditional products Ability to meet growing demand for ESG products and services New product development Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 90 Information about Article 8 of the EU Taxonomy Regulation In 2020, the European Parliament adopted the Taxonomy Regulation. It identifies activities deemed sustainable. It states that companies subject to the Non-Financial Reporting Directive (NFRD), including financial corporations, must disclose how operations align with the Taxonomy. The primary indicator of alignment is the green asset ratio (GAR), which companies must publish from 2024. It shows the extent to which financed activities meet the Taxonomy’s technical standards.7 It’s the ratio of an entity’s Taxonomy aligned assets to balance sheet assets (excluding exposure to sovereigns, central banks and the trading portfolio). The ratio numerator comprises exposure to these four portfolios: 1.Financial corporations. 2.Non-financial corporations. 3.Households. 4.Local governments. From 2022, companies must make their eligibility ratio public before calculating and publishing the GAR in 2024. The eligibility ratio is calculated like the GAR. The only difference is that the eligibility ratio numerator covers activities included in the Taxonomy but doesn’t determine if they meet the technical criteria that it establishes to consider an activity "green" (environmentally sustainable). The European Commission has two approaches to calculate the eligibility ratio: mandatory reporting based on information that is publicly disclosed by counterparties; and voluntary reporting, which is an estimate based on proxies when no information about eligibility has been made public by counterparties. Taking into account its definition, the eligibility ratio has the following limitations: –Because the numerator and denominator consider different portfolios, it is not possible to reach 100% eligibility. The numerator covers minor exposure because it doesn’t include certain portfolios the denominator does. –The EU Taxonomy does not currently cover every activity that companies perform and banks finance. Therefore, financed activities that it does not assess (e.g. activities under one of the four other environmental objectives in the future) will only be included in the ratio's denominator. Furthermore, activities not included in the Taxonomy are not necessarily deemed harmful to the environment or unsustainable. They are not included because of the Taxonomy’s current scope. This report provides a ratio calculated exclusively on the household portfolio (which includes home equity loans, building renovation loans and auto loans), plus a voluntary ratio with proxies about the remaining portfolios: financial corporations, non-financial corporations and local governments. We consider proxies to meet, in the best possible way, the requirements of the Disclosures Delegated Act published in December and the FAQs the European Commission published on 20 December 2021 and 2 February 2022, and make interpreting them easier. We will broaden the scope of mandatory reporting as more data from our counterparties becomes available. As of this report’s publication date, no public information is available about our customers’ eligibility ratios.8 We supplemented the mandatory approach with a voluntary approach to offer the most complete eligibility ratio estimation possible. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 91 7 For now, the EU Taxonomy covers only two environmental objectives (climate change mitigation and climate change adaptation). However, in order to quality as substantially contributing to these two objectives, the activity must cause no significant harm to the remaining four environmental objectives pending to be developed by the EU Taxonomy (sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; and protection and restoration of biodiversity and ecosystems). Additionally, minimum social safeguards criteria must be met- 8 The requirement to disclose the ratio of Taxonomy-based eligible and non-eligible economic activities will take effect for financial and non-financial corporations at the same time. Therefore, as of this report’s publication date, we do not have information from non-financial corporations How did we calculate our proportion of eligible activities?9 #### Santander's eligibility ratio is 35% according to mandatory reporting and 43 #### % according to voluntary reporting; however, our balance sheet’s potential eligibility ratio is 74% . Numerator To meet regulatory requirements, we calculated two numerators: Mandatory reporting: includes information on the household loan portfolio (residential property loans, building renovation loans and vehicle loans). Voluntary reporting: supplements the initial calculation with Santander's exposures to local governments and to financial and non-financial corporations. It includes non-financial corporations that are subject to, or exempt from, the Non-Financial Information Disclosure Directive, in line with the considerations of the Platform on Sustainable Finance10 on voluntary reporting. In voluntary reporting, we apply these proxies to exposures: –Financial corporations: We only consider 5% of our global exposure, based on the European Central Bank's Investments in EU taxonomy-eligible activities, EU-taxonomy-aligned activities and activities exposed to transition risk study. –Non-financial corporations: We consider eligible 33% of our exposure to non-financial corporations subject to the Non-Financial Reporting Directive (NFRD) and 23% to those not subject to it. We came up with this proxy based on counterparty data in our internal records. Denominator Pursuant to the Disclosures Delegated Act, we calculated the eligibility ratio for 90% of the balance sheet. The 10% excluded comprises exposure to sovereign debt, central banks and the trading book. Eligibility ratios As explained above, the mandatory ratio, which is the household exposures in the numerator divided by the denominator, as required by the Disclosures Delegated Act, is 35%. The voluntary ratio, which includes exposures to financial and non- financial corporations and to local governments to supplement that mandatory quotient, is 43%. In addition, exposure to the four numerator counterparties (e.g. financial corporations, non-financial corporations, households and local governments) was 74% of the balance sheet (over the previously mentioned 90%). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 92 9 Article 10.3 (d) of the Disclosures Delegated Act: To meet EU Taxonomy disclosure obligations, we reviewed our activities according to Article 10 of Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021 (the “Disclosures Delegated Act”). The information we disclosed within the scope of prudential consolidation in accordance with Title II, Chapter 2, Section 2 of Regulation (EU) 575/2013 comprises the full balance sheet for the 2021 fiscal year. 10 The platform takes the place of the Technical Expert Group (TEG) on Sustainable Finance. Under Art. 20 of the Taxonomy Regulation, it will advise the EC on implementing technical selection criteria, revising the Taxonomy Regulation, drafting sustainable finance policy and dealing with social and other sustainability objectives. It will also perform monitoring tasks. Our exposures reported under the Disclosures Delegated Act Eligible activities under Article 10, 3 (a) of the Disclosures Delegated Act Lending11 Proportion of eligible economic activities Proportion of non-eligible economic activities Coverage %12 EUR bn %13 EUR bn %14 Mandatory approach 35% 495.70 65% 920.50 90% Voluntary approach 43% 613.40 57% 802.90 Potentially eligible portfolios 74% 1,050.90 26% 365.30 Other exposures to report under Articles 10.3 (b) and (c) of the Disclosures Delegated Act Counterparty Proportion of exposure to total assets % EUR bn Exposure to central governments, central banks and supranational issuers 7% 103.3 Exposure to derivatives 4% 59.1 Exposure to companies exempt from disclosing non-financial information pursuant to Article 19 bis and 29 bis of Directive 2013/34/EU 14% 200.2 Trading portfolio 4% 62.6 Interbank lending 1% 9.8 How do our financial strategy, product design and relations with customers and counterparties comply with Regulation (EU) 2020/852? Our objectives are consistent with the EU Taxonomy. Our sustainable finance proposition to support our customers' transition considers the standards and enhancements of the EU Taxonomy. See 'Supporting the green transition'. For more information on how do our financial strategy, product design and relations with customers and counterparties comply with the EU Taxonomy, please see section '[Supporting the green transition](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 93 11 We identified relevant counterparties according to the breakdown of financial assets by instrument and industry of the Financial Reporting (FINREP) counterparties we use in other reports. 12 Of the total assets included in the ratio calculation. 13 Of the total assets included in the ratio calculation. 14 Of the total assets of balance sheet. Environmental footprint GRI 103-1, 103-2, 103-3 Santander's group-wide strategy is to reduce the ecological impact of our operations to protect and conserve our environment in line with our principles. To ensure we correctly recognize and deal with our impact, our internal environmental management stands on these three pillars: •Reducing and offsetting CO2 emissions. •Reducing and managing waste responsibly. •Raising employees’ and other stakeholders’ awareness of environmental issues. We’ve been measuring our environmental footprint (energy consumption, waste and emissions) since 2001. Since then, our strict energy efficiency and sustainability initiatives aims to ensure we have the lowest possible impact on the environment. Upon completing our Year-to-year plan (the 2015-2017 Plan and the 2019-2021 Plan)15 : •we reduced electricity consumption by 26%; •we reduced CO2 emissions by 88%; and •we reduced paper consumption by 78%. This significant drop in emissions was mainly due to our substantially lower electricity use and energy from renewable sources15. 2021 saw the end of the 2019-2021 Energy efficiency and sustainability plan Santander had executed, with projects to improve energy consumption; use raw materials in buildings; optimize space; and raise employees' awareness of the importance of reducing our environmental footprint inside and outside the office. That plan alone reduced our electricity consumption 4% and our atmospheric emissions by 2%. We're working on our 2022-2025 energy efficiency and sustainability plan. Some of its +90 measures are: •using more renewable energy (mainly solar) through self- consumption installations and long-term purchase agreements under which Santander is the end consumer; •purchasing renewable electricity in every country where it's possible to certify its origin16; •installing the latest temperature control and highlighting technology at our branches and office buildings; •optimizing our use of space; •creating more parking spaces at our buildings for electric and plug- in hybrid vehicles, and subsidizing electricity costs for our employees; •using ISO 14001 as the basis for our environmental policies and objectives to reduce consumption, waste and emissions; •obtaining LEED or BREEAM certification for our buildings; and •raising awareness among employees in our 10 core markets (where we can confirm our electricity comes from renewable sources). All of those measures are consistent with Santander's public commitment to be carbon neutral from 2020 by investing in emissions offsetting projects and by sourcing 100% of its electricity from renewable energy. Carbon neutral In 2021, Santander set an ambitious goal to achieve carbon neutrality in all our internal operations. After, we offset the rest of emissions we were not able to cut, and each subsidiary was responsible to pay its share of emissions. In 2021, we selected four projects that obtained enough carbon credits to offset the Scope 1, 2 and 3 emissions we could not previously reduce through other means. They cover renewable energy and reforestation, and are certified under some of the industry's most well-known standards. The Group brought together its core subsidiaries and several areas to demonstrate its strong commitment to reducing its ecological footprint and fighting climate change. Use of energy from renewable sources 75% of the energy our buildings consume comes from renewable sources; in Germany, Spain, Mexico, Portugal and the UK, that figure is 100%. We continue working on achieving 100% group-wide by 2025. By buying green energy, we reduced emissions from electricity consumption by 56% and total emissions by 37%. #### Carbon offset projects #### Reforestation in Galicia Proyecto #### Oaxaca III #### Hydroelectric power production #### Forest conservation in the Madre de Dios region 35-year project in Borela (Pontevedra), Spain to reforest 78.34 hectares of land with native species. 120 MW wind farm in Juchitán de Zaragoza, Oaxaca on the Isthmus of Tehuanetepec in Mexico. 10,656 MWh hydroelectric power plant to reduce greenhouse gases from fossil fuel electricity production in Nova Marilândia, Mato Grosso in Brazil's mid-west. Project to prevent deforestation and protect degradation in areas in the Tambopata National Reserve and Bahuaja-Sonene National Park in Peru's Madre de Dios region. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 94 15 The Covid-19 pandemic caused most of our environmental footprint indicators to plummet, as low building occupancy and travel cancellations pared down energy consumption and emissions. 16 In countries where electricity from renewable sources can be verified. Implementation and certification of Environmental Management Systems An environmental management system can make sure a building's ecological impact is being handled properly. Santander aims to get the main buildings that it occupies in its core markets ISO 14001- certified.17 Santander also has these certifications: ▪LEED PLATINUM for three buildings in Poland: Atrium I, Warszawa Atrium II and Business Garden Poznan. ▪LEED GOLD for 10 buildings in Germany (Santander Platz and An der Welle 5), Brazil (Torre Santander and the Campinas data processing centres), Spain (Tripark, Abelias, Luca de Tena and the Santander North data centre) and Poland (Robotnicza, 11 Street). •Zero Waste for the Santander Group City and for the first time, in the headquarters of Santander España. Other buildings are also being reviewed for similar certifications. Other initiatives18 In 2020, we began to remodel our Pereda and Hernán Cortés buildings in the city of Santander. Both buildings’ design achieved BREEAM certification. We installed 150 additional electric car charging stations at our corporate centre, the Santander Group City in Boadilla del Monte (Madrid, Spain), bringing our total to 340. In Portugal, UK, and the US some of our buildings also have electric car charging stations. Furthermore, some buildings in Chile and Brazil began to generate their own renewable power directly. We also distributed 2,544,161 Eco-cards (made out of materials such as PVC and PLA19) in 16 geographies, and expect to issue more in the next few years. Single-use plastics As part of our public responsible banking commitments, we also set out to remove all unnecessary single-use plastic from offices and buildings in our core markets in 2021. By the end of the year, we had achieved that aim and are now guaranteeing that the materials used in the Group's dining areas, vending machines and delivery service are environmentally friendly. Climate awareness Santander organizes local and global awareness campaigns to impress on employees the importance of reducing consumption and waste. Each subsidiary posts news and topics of interest relating to the environment and the Group's environmental initiatives on their internal portals. For the twelfth year running, we took part in the Earth Hour, switching off the lights at our most emblematic buildings. #### 2021 Environmental footprint 15 20 GRI 301-1, 301-2, 302-1, 303-3, 303-5, 305-1, 305-2, 305-3, 306-2, 306-3 Diff. 2020-2021 (%) Diff. 2020-2021 (%) 1,808,668 m3 water consumed from the supply system –12.4% 118,517 #### tonnes CO2 #### equivalent total emissions (market based) –39.0% 903 #### million kWh total electricity 75% renewable energy –1.9% #### Scope 1 25,672 #### tonnes CO2 #### equivalent direct emissions 7,345 T total paper consumption . 82% recycled or certified paper –18.1% #### Scope 2 57,425 T CO2 indirect emissions from electricity (market based) 6,323,866 KG paper and card waste 6.7% 269,615 #### tonnes CO 2 #### equivalent indirect emissions from electricity (location based) 3,714,227 GJ total internal energy consumption –1.2% #### Scope 3 35,420 #### tonnes CO 2 #### equivalent indirect emissions from employee travel Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 95 17 We have ISO 14001-certified buildings in Argentina, Brazil, Chile, Spain, Mexico and the UK. 18 Light and noise pollution, however, are not considered significant given the nature of Banco Santander's business. 19 PLA: Polylactic acid is a biodegradable polymer extracted from lactic acid. 20 A two-year environmental footprint table, showing employee consumption and emissions is available under the [Key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154) section in this chapter. #### Financial inclusion and empowerment #### Santander Finance for All is our initiative to support financial inclusion and empowerment. We financially empower people in three ways: ó ó ó #### Access We help people access and use basic financial services through simple payment platforms and cash-in/cash-out services in remote and small communities. #### Finance We provide tailored finance to individuals and SMEs with lower access to credit or which are in financial distress. #### Resilience We help people gain financial knowledge, making economic concepts more understandable and enabling them to make better financial decisions. 860k people financially empowered in 2021 1.1 mn people financially empowered in 2021 1.3 mn people financially empowered in 2021 #### Our goal #### 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 7.5 mnB 10 mn 2019 2021 2025 Since 2019, we have financially empowered: 2.2 mn people through access initiatives; 2.5 mn people through finance initiatives; and 2.8 mn people through resilience initiatives. A. To assess our contribution to financial inclusion, we use a methodology with principles, definitions and criteria for counting people who have been financially empowered through our initiatives, products and services. B. Cumulative since 2019. 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 it. In the regions where we operate, we target unbanked and underserved individuals and SMEs who have higher barriers in accessing credit, have limited financial knowledge or are in financial distress. Euromoney named Santander "Best Bank for Financial Inclusion" and "Best Bank for Sustainable Finance in Latin America". Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 96 Access GRI FS7 and FS14 We aim to make sure everyone can access the basic financial products and services they need, and know how to use them. Promoting digital access We help people access the banking system through digital platforms so they can make payments; use basic, tailored financial services; take greater control of their finances; and make faster and more secure transactions. 860k people financially empowered in 2021 through initiatives that promote access to the financial system. Superdigital: Banking without a bank Superdigital is Santander's flagship mobile platform for financial inclusion in Brazil, Mexico and Chile. It enables the unbanked and underserved to make cash deposits, withdrawals and payments. With smartphone ownership growing and network coverage improving in Latin America, it helps communities through basic, user-friendly products and offers a unique banking experience supported by our own technology. Superdigital enables people without a bank account to: •make online transactions; •split bills with others; •get automated alerts about their finances. Superdigital aims to serve 5 million customers by 2023 in Latin America. So far, it has financially empowered 245k people. 21 Getnet: Accelerating commerce for merchants and their connected ecosystem Getnet is a global acquiring franchise developed to create opportunities for merchants worldwide. It improves the simplicity, speed, and safety of payments for merchants. The service is currently present in Brazil, Mexico, Chile, Argentina, Uruguay and Europe, and supports 875k SMEs as of 2021. Additionally, long-tail customers, operating in large part in the informal sector, had an average TPV (Total Payment Volume) growth of 20% YoY. Getnet has developed pioneering contactless payments solutions for Spain and Mexico public transport network, essential for those with lower income. And with many stores still closed, our Pay by Link solution allows small retailers to continue their day-to-day activities uninterrupted. Getnet  actively collaborates with Prospera, Santander's microfinance proposal in Brazil. It gives microentrepreneurs access to credit, and gives them financial inclusion solutions. This partnership has resulted in 22k active clients. They have increased their TPV by 14%, moving local economies. #### Cuenta Life #### Empowering the base of the pyramid In 2021, we developed the "Life cycle" to customize our offer to support people financially at different stages of life. Our clients, having contracted Life products, are part of the Meritolife program, which has a special focus on education, actively encouraging good financial behaviour by rewarding people's efforts. So far, this initiative has enabled more than 900k  people get access to the financial system. Santander Mexico's banking services financially empower the elderly and retirees. They tailor products and services to their needs, including consumer credit with custom insurance, fraud monitoring, and a separate credit admission policy and sales channel. This has enabled Santander to empower 3,221 elderly persons and retirees with income of less than MXN 11,000 a month (EUR 440). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 97 21 Only Superdigital customers with a reported income below the country's minimum wage are considered financially empowered. Promoting access to the financial system GRI FS13 We offer financial support to special groups so customers will not only have access to basic products, but also know how to use them. Also, our agreements with private and state-run entities widen our footprint to ensure underserved communities can get cash anywhere. #### Branches in underbanked and remote regions #### Financial inclusion branches and remote agents #### Branches in sparsely populated regions #### Branches in low income, small or isolated regions Products designed for local communities help unbanked people access the financial system, providing inclusion and growth opportunities. Financial inclusion branches have already empowered more than 30k people. 830 agent offices, 518 branches and ATMs provide access to finance and fight social exclusion in communities with under 10k inhabitants. We have 54 branches in low income, small or isolated communities. They benefit over 105k people, especially in Madeira and the Azores Islands. where 19 branches facilitate access to financial services to over 39k people. #### Support to our senior customers #### Partnerships to reach underserved communities #### Alzheimer’s Society #### Correos Cash We encouraged customers with dementia to inform us of their diagnosis through a partnership with Alzheimer's Society. After that, we customized our services for these customers with products adapted to vulnerable customers, such as the Carers Card. This campaign has enabled us to help  6,654 customers so far. Customers can withdraw and deposit cash at 4,675 post offices and rural help desks  in Spain. Likewise, postmen and postwomen can deliver cash to all houses in Spain. Through this partnership, we've helped 2.483 people. #### DefineProject #### Partnered retailers Thanks to an agreement with Universidad de Alicante and co- financed by the European Union, Santander helped the elderly increase their digital finance literacy to use online tools and avoid erroneous transactions and fraud. Santander's partnerships with retailers enable customers to make basic transactions at more than 22,086 convenience stores, such as 7 Eleven and Oxxo. #### Here & Now In order to support elderly customers (+65), especially those unfamiliar with digital channels, we launched the “Here & Now” service. In 2021, more than 85k customers were helped in the programme's second run. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 98 Finance GRI 413-1 and FS7; SASB FN-CB-240a.1, FN-CB-240a.3, FN-CB-240a.4, We seek to provide tailored finance to people with less access to credit. We offer solutions to unbanked and underserved groups. Finance for SMEs and entrepreneurs We aim to foster social mobility by helping low-income and underbanked entrepreneurs set up and grow their businesses. Santander Microfinance Our microfinance programmes provide finance to unbanked and underbanked entrepreneurs in eight counties. In 2021, we launched new programmes in Colombia, Peru and Chile. The programmes include tailor-made micro-loans that help micro- entrepreneurs 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 have access to financial services in developing countries Our microfinance programmes benefit from a hybrid model of in- person and online agents, with disbursements in less than 24h and paperless, and the support of commercial agents, which enhances customer experience. Every programme is highly regarded, as it is reflected in the program's NPS, above 80. #### 1 million microentrepreneurs supported in 2021 #### EUR 571 million total credit disbursed to micro-entrepreneurs in 2021 EUR 323 million in outstanding credit at the end of 2021 72% of microentrepreneurs supported in 2021 are women #### Our micro-finance programmes in Latin America #### MEXICO Launch: 2017 EUR 86 million disbursed in 2021 264k microentrepreneurs supported. #### PERU Launch: 2021 EUR 3.2 million disbursed in 2021. 10k microentrepreneurs supported. #### ARGENTINA Launch: 2018 EUR 98k  disbursed in 2021. 173 microentrepreneurs supported. #### CHILE Launch: 2021 Recent launch. 100% based on digital channels. Tailors credit to customers' financial habits. \*These initiatives don't contribute towards our microfinance group results. #### EL SALVADOR Launch: 2006 EUR 70 million disbursed in 2021.\* 54k microentrepreneurs supported.\* #### COLOMBIA Launch: 2021 EUR 3.3 million disbursed in 2021. 5.4k microentrepreneurs supported. #### BRAZIL Launch: 2002 EUR 473 million disbursed in 2021. 744k  microentrepreneurs supported. #### URUGUAY Launch: 2019 EUR 4.4 million disbursed in 2021. 6.7k microentrepreneurs supported. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 99 #### Sílvio Neves Sílvio Neves, from Icoaraci in Belém, Pará state (Brazil), has been an artisan for 45 years. His products include traditional ceramic vases, which cost between BRL 10 and 350. He makes them in a wooden shed, where he couldn't install a kiln to finish production. "I used to have to travel far to get access to a kiln, but then I managed to get a loan", says Sílvio. "With the loan from Prospera, he replaced the wooden shed with stone and installed the kiln." The loan came in 2021, when a micro-finance agent knocked on his door offering financing. With other professionals from the Icoaraci Artisans Association, BRL 20,000 was raised, and half of the amount went to Silvio to remodel his space. "I had tried to get loans before, but the rates were too high. Now I have one I can repay." #### Luz Mary Luz Mary is a single mother of three in Zipaquira, Colombia. She describes herself as a tireless fighter, and a forward-looking, optimistic person. She owns livestock and needed financing to cure her cattle of illness. She turned to Prospera to get a line of credit and continue her business. When Luz Mary talks about Prospera, she tells of the trust and friendship between her and the people who work there. She says "I can only say thank you to Banco Santander for checking on me and being this supportive, and thank you, life, for letting me meet such charming people." #### Virginia Álvarez Castillo Virginia lives in Valle del Chalco, Estado de México. When demand fell as the pandemic broke out, she had to give up selling shoes from a catalogue. Thanks to Tuiio, she became a seamstress and started making and selling masks at MXN 15 each, helping her overcome the economic hardship the Covid crisis had caused. Furthermore, Virginia's new job enabled her to deal with a greater loss: her parents. Now, she dreams of having a bigger business. About Tuiio, she says: "If it were a person, I would say to them "Thanks, friend. Thank you for supporting me when I needed it most". #### Feliciana José Albino Feliciana is an indigenous woman who lives the Agua Zarca region in Pueblo Nuevo, Mexico. Thanks to Tuiio's financial education tool, she is able to bring help with savings to her community in their native language, Mazahua. #### Other local initiatives to support SMEs and entrepreneurs #### Small business loans #### Loans to SMEs at their risk limit To continue to support small business customers impacted by the Covid-19 pandemic, Santander granted more than 7,900 Paycheck Protection Programme loans to small businesses in 2021, saving over 58k jobs. EUR 90 million were lent to small businesses operating in low- to moderate- income communities across the bank's footprint. They include such alternatives to support SMEs as "Fondo Smart" and "Préstamos ICO". They have enabled Santander to support 185k SMEs since 2019. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 100 Financing low-income households' basic needs We offer products and services that enable low-income households to access housing and meet other basic financial needs. #### Affordable housing programmes #### Social housing fund As part of Santander US's Inclusive Communities plan, housing and home improvement programmes support people through low- interest mortgages and paid mortgage insurance for low-income homebuyers. This initiative has enabled Santander to help more than 130k people since 2019. Banco Santander gave 1,100 homes to the "Fondo Social de Viviendas", including 1,008 to rent to low-income individuals. In addition, Banco Santander has 573 homes to rent at affordable rates. A total of 1,581 rental agreements are signed with lower income customers. Special programmes for SMEs and individuals in financial distress #### Supporting customers in arrears #### IRIS solutions to manage impairments #### Agreement with multilateral organizations Helping vulnerable customers get out of arrears with self-service tools and direct colleague support. This initiative enabled Santander UK to support 103k customers in financial distress in 2021. We review customers who are struggling financially and lend them a hand to support them in  meeting their payment obligations. Since 2019, we have renegotiated the debt of 30k customers and given payment holidays to 51k customers. Santander signed agreements in Brazil, Spain, Poland and Portugal with the EIB, EIF and IFC to offer lines of credit with advantageous conditions that help mitigate the effects of the pandemic. During 2021, those bodies continued the COVID-19 relief initiatives they started in 2020. Promoting Tresmares Capital - an independent alternative financing platform for SMEs Tresmares takes ESG criteria into account in its investment decisions, both in the private equity and in the direct lending division. It seeks to foster growth in SMEs with a positive ESG footprint, and to increase ESG awareness and consciousness in management teams. To date, Tresmares has invested more than EUR 600 million in Spanish SMEs in such sectors as education, preventive healthcare, sustainable agriculture and recycling solutions, and hopes to continue promoting significant changes in the Spanish economy. Further collaboration: investing in fintechs Mouro Capital, the successor to Santander Innoventures, helps startups grow with business models that target people at risk of financial exclusion. Through Mouro, we allocated EUR 340 million to the fund to invest in 42 fintech companies. We remain committed to deploying capital in such a fast growing space. Mouro Capital is a responsible investor, incorporating ESG in its investment, and an active signatory of the UN PRI and UN Global Compact, promoting sustainability and diversity initiatives within the VC space. Some financial inclusion initiatives we've supported are ePesos and Payjoy. In our commitment to helping people and businesses prosper and to continue to support our fintech partners, we look for new partners to strengthen and expand our lines of action. Some of the new initiatives we've supported are: Decent: Low-cost health insurance for self-employed individuals only operating in the US. Upgrade: A US-based mainstream credit platform that's developing a more responsible credit product to help customers get out of persistent cycles of debt. For more details, see 'Meeting the needs of everyone in society' in this chapter. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 101 Promoting financial education GRI FS7 y FS16 Our goal is to promote better financial health and market stability by making financial concepts easier to understand and helping people make better choices. Financial education is one of the 10 principles of our  consumer protection policy. We use apps and other digital channels to make financial education more accessible and maximize the impact of our initiatives by promoting: → basic financial concepts → better use of products and services → better management of personal finance → the use digital banking → responsible consumption and fraud prevention → entrepreneurship/training for SMEs → sustainable finance → behavioural economics We strengthened our financial education proposition and created common principles for the Group that are consistent with the Organisation for Economic Co-operation and Development (OECD) . As they apply to all initiatives, they guarantee the transparency and quality of our programmes and promote accessible, interactive education and sound decision-making. 79 Initiatives supported in 2021 #### 1.3 million People financially empowered from financial education initiatives in 2021 #### 2021 Highlights #### Global financial education site It offers content about financial education events. On top of that, it holds information on all of our financial education initiatives. #### Financial Literacy for All (FL4ALL) A group of companies, business leaders, sports professionals, NGOs and entertainment groups dedicated to integrating financial education into US culture. #### The Numbers #### Game Promoting financial education through a series of football-based challenges to reinforce the development of mathematical ability. Finanzas para Mortales- #### Educational justice Alongside Instituciones Penitenciarias (Spain’s prison authority) and the UCEIF foundation, the Santander Financial Institute (SANFI) ran employee-led basic finance courses to integrate people deprived of liberty. Employees taught prisoners ample economic and financial concepts to enable them to make responsible and informed decisions about daily personal and household finances. #### Universia financial education for higher education students Using digital channels and developed by the Pontificia Universidad Católica de Chile, it aims to empower students from Instituto Profesional AIEP through tools to manage their finances. #### Financial education talks During National financial education week, Santander México gave more than 20 financial education lessons, focusing on the responsible use of financial products and services. #### "Tempo é Dinheiro” Financial education podcasts on such topics as savings, investment, responsible consumption and fraud prevention in the digital era. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 102 Partnerships to boost financial inclusion Getnet and Prospera Without GetDay initiative, we are present in 35 cities, around 21 Brazilian states, ensuring access to our solutions throughout the country. We closed 2021 with 44k new entrepreneurs that count with Getnet to make their business grow and prosper. CEO Partnership for Economic lnclusion Founded by the United Nations Secretary-General's Special Advocate for Inclusive Finance for Development, Her Majesty Queen Maxima of the Netherlands, the CEOP brings together an influential group of CEOs from several industries to boost financial inclusion around the world. The collaboration of the CEOs and their companies represents the first high-level private-private partnership to further financial and economic inclusion. With a strong focus on finding sustainable solutions that can drive business growth, the group has agreed to develop partnerships and make specific commitments to expand inclusion among traditionally underserved customer groups such as women, farmers, migrants, and small business owners. For more details, see www.unsgsa.org/ceop Santander BEST Africa Santander BEST Africa (Building Equality through Sustainable Tourism) is the first development cooperation programme driven by Fundación Banco Santander. It's an initiative that aims to contribute to the social and economic development of Africa by supporting women entrepreneurs and their community in the tourism sector, which was greatly affected by the coronavirus crisis. The programme has supported business continuity and employment during the pandemic and promotes the training and education of, and knowledge sharing between, women entrepreneurs as an effective means of reinforcing economic sustainability in the sector post-Covid. One of the 34 projects that BEST Africa supports is the Women's Initiative The Gambia (WIG), led by Isatou Ceesay. She and four other women created a recycling centre in Gambia to help tackle the high amounts of waste that accumulate in their community. It acted as a catalyst for many other women to get involved, empowering them through participation in a sustainable and profitable initiative. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 103 #### Sustainable Investment SASB FN-CB-240a.1, FN-CB-240a.3, FN-CB-240a.4, ESG in Wealth Management & Insurance Sustainability is shaping our future and driving the opportunities we create for our clients. In 2021, we scaled up our push for sustainability, building on our initial ESG strategy from 2019 to become the best wealth and insurance manager in Europe and the Americas. We set the ambitious goal to reach 100 billion euros in sustainable AUM1 by 2025, we created a global ESG strategy team to coordinate the efforts of our three businesses and we strengthened SAM's ESG dedicated team. We are deploying ESG training programmes for all our teams, conscious that our employees’ engagement is crucial to the success of our strategy. We will continue working with our stakeholders on building a sustainable future through the strengthening of our ESG product offering across our three businesses. WMI SUSTAINBLE AuMs (€ BN) c. 40% CAGR Santander Asset Management 2021 was a crucial year for SAM and its ESG and climate-related commitments. In January, we joined Climate Action 100+, an investor-led collaboration that promotes cooperative dialogue to ensure the world's largest greenhouse gas emitters act on climate change. In March, SAM became the first asset manager in Spain and Latin America (minus Brazil) to sign up to the Net Zero Asset Managers initiative, pledging to become net zero by 2050 and setting the tentative goal of halving net emissions for 50% of our AUM (within the scope of net zero2) by 2030. As member of the Institutional Investors Group on Climate Change (IIGCC) and signatory to the Principles on Responsible Investment (PRI), in SAM we continue to keep the highest standards in the industry. We’re also proud to be the main sponsor of the Global PRI event to be held in-person in Barcelona in September 2022. A long-term commitment to sustainability and key achievements in 2021 1.AuMs classified as Article 8 and 9 funds (SFDR) from SAM, plus third-party funds and other ESG products according to the EU taxonomy from Private Banking. We apply equivalent ESG criteria to SAM's funds in Latin America. 2.Assets within the net-zero scope are 54% of all SAM assets that currently have a net-zero methodology (of which nearly 50% have carbon measurement ratios). This target could be scaled up as data becomes available. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 104 Our ESG product offering We offer a full line of ESG products. We have 11 billion euros in AUM in 29 ESG products and 80 mandates in six countries. We are focused on maximizing the number of Article 8 and 9 funds under SFDR and embedding ESG in our pension plans in Spain. Team, methodology and policies We are the first asset manager in Spain with a global team dedicated to ESG investment and we continue to improve our ESG methodology (also used by Private Banking and Insurance). Our database covers 25,000 companies and 190 governments, helping us rate SAM and third-party funds and guiding our insurance partners (as asset owners) in their investment mandates with ESG standards. We also integrated ESG criteria into our stewardship activities by increasing our focus and resources towards our engagement and voting strategy, promoting our global bilateral action with companies to increase their transparency and joining collaborative actions such as Climate Action 100+. Our new voting policy is consistent with our ESG principles. We aim to raise investors’ awareness on ESG through our “Rethink invEStinG” publications. During the past eight years our solidarity funds have donated 22.7 million euros  to more than 25 NGOs and specific projects related to social economy, training for employment, health and financial education among other causes. Special donations have been done to La Paz University Hospital in 2020 and Cruz Roja logistics centre in La Palma in 2021. Our Santander Solidario 1 fund was awarded Spain’s Best Solidarity Fund in 2021 by Expansion. SAM ESG product offering Best-in-class ESG products in our core geographies San Sostenible RF 1-3 San Sostenible Bonos 3 Pension Funds San Respons Solidario Inveractivo Confianza San Sostenible 1 San Sostenible 2 6 Pension Funds San Sost. Acciones San Equality Acciones 4 Pension Funds 80 Mandates San Ethical Ações Go Global Equity ESG SAM RV Global ESG SAM ESG Acciones Global Desarrollado San Sustentàvel San Sostenible RF 1-3 Go Global Equity ESG n  Fixed income      n  Balanced        n  Equity      n  Portfolios For more details on our performance on ESG issues, see www.santanderassetmanagement.com/ sustainability For more details on our net zero commitment, see www.santanderassetmanagement.com/ content/view/6924/file/NETZERO %20SAM\_NOV21.pdf Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 105 Private Banking In 2021 we rounded off our proposition of impact solutions with renewable energy funds, green bonds, social bonds and equity options. Our sustainable assets (including SAM and third-party funds) amounted to 18 billion euros by the end of the year. Additionally, we provided our bankers with better ESG communications and learning materials, we designated ESG experts in every country and we improved ESG advisory products and services. We also included sustainability topics in our Wealth Talks, our series of exclusive conferences with clients. Future Wealth, a thematic investment initiative we launched in 4Q’20, also considers the environment as part of its strategy to complement traditional investments with innovative and sustainable sources of growth and returns. By 2022 we aim to offer sustainable portfolio management (with ESG analysis and reporting) in all our geographies. In the coming months, we will continue to make our list of funds under advice more sustainable by increasing the number of article 8 and 9 funds (according to SFDR). For more details, see www.santanderprivatebanking.com 1.AuMs classified as Article 8 and 9 funds (SFDR) from SAM, plus third-party funds and other ESG products according to the EU taxonomy from Private Banking. We apply equivalent ESG criteria to SAM's funds in Latin America. Insurance We are working on rolling out a sustainable insurance proposition in all our markets by 2024. Based on our social responsibility and with the aim of protecting families and businesses, we want our proposition to focus on 3 dimensions: •Protect assets classified as sustainable (electric vehicles, green homes, etc.) •Support types of insurance that contribute to the ESG dimensions (microinsurance, health and life insurance designed for specific target groups, etc.) •Invest our insurance policies in sustainable assets (i.e. Life savings AUM invested under ESG) As part of our regular business, we will continue adopting the UN's Principles for Sustainable Insurance (PSI) in all of our joint ventures. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 106 #### Support for higher education and other local initiatives GRI 203-1, 203-2 and 413-1 2021 progress and 2019-2021 commitments ó ó #### Support for higher education #### Community investment 106 #### million euros invested 162,232 beneficiaries of scholarships, internships and entrepreneurial programmes 46 #### million euros investedA 2.1 #### million people helped Our 2019-2021 commitment To finance 325.000 scholarships/internships and entrepreneur programmesB → Results: Our 2019-2021 commitment To help four million people through various social action programmesC → Results: 387,651 beneficiaries of scholarships, internships and entrepreneurial programmes #### 6.1 million people helped ó More than 150 #### million euros in total community investment in 2021A Santander remains firmly committed to helping build an inclusive, equitable and sustainable society, with a higher education programme that we have been running through Santander Universities for over 25 years. So far, Santander Universities has helped more than 790,000 students, professionals, entrepreneurs and SMEs with over 2.1 billion euros and partnerships with more than 1,000 universities in 15 countries. A. In addition, Banco Santander made two extraordinary donations in 2021 to Fundación Banco Santander of 55,750,000 Banco Santander shares as financial support for it to bear (at least partially) the costs of fulfilling its founding purposes with the return on the shares. For more details, see 'Other community support programmes' in this section. Santander Portugal created a new foundation that will promote programmes with a high social, economic and environmental impact. The bank made a EUR 22,500,000 donation that will help the foundation begin operations, consolidate its financial base and cover the costs it will incur in pursuit of its founding purpose in the coming years. In the US, Santander Holdings USA, Inc. donated USD 50 million to Santander Consumer USA Foundation so it can fulfil its founding purpose in the coming years by working with, and investing in, organizations and other entities that make a positive social and cultural difference in the communities we serve. B. The initial target set for the period 2019-2021 was 200,000 beneficiaries of scholarships, grants and entrepreneurship programmes. At the beginning of 2021, and after meeting the target a year early,  Santander Universities committed to grant an additional 125,000 scholarships and grants.For more details on the calculation methodology, see  "Support for higher education" in this section. C. For more details on the calculation methodology, see  "Other programmes to support communities" in this section. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 107 #### Support for higher education 106 millions of euros to universities 997 partner universities and institutions in 15 countriesA 162,232 beneficiaries of scholarships, internships and entrepreneurial programmesA A.This figure only includes universities that have an agreement with Santander Universities. Adding Universia and Fundación Universia´s data, the total figure is 1,415 universities and academic institutions in 28 countries. We have been committed to higher education for 25 years. Santander Universities is a unique global programme that supports education, entrepreneurship and employability. We focus on three areas: ó ó ó #### Education We support access to higher education and academic mobility and encourage excellence and equal opportunity. #### Entrepreneurship We support emerging ventures through access to world-class resources such as training, visibility and funding. #### Employability We offer internships, training programmes and upskilling/ reskilling grants for students and professionals. 40,632 educational scholarship beneficiaries 23,120 entrepreneurship beneficiaries 98,480 employment, upskilling and reskilling scholarships beneficiaries #### Commitment #### Progress We believe education provides the basis for a fair society and strong economy. Through Santander Universities, we aim to award 325,000 scholarships, internships and entrepreneurship programmes between 2019 and 2021.B Scholarships, internships and entrepreneurship programmesC,D 387,651 . 2019 325,000 2021 B. The initial target set for the period 2019-2021 was 200,000 beneficiaries of scholarships, grants and entrepreneurship programmes. At the start of 2021, and after meeting the target one year ahead, Santander Universities is committed to awarding a further 125,000 scholarships and grants. C. Beneficiary measurement methodology, with procedures that are consistent with Banco Santander’s global reporting system in order to determine the reach and intensity of Santander Universities’ sponsorship policy in its areas of activity (e.g. education, employment and entrepreneurship). It provides a detailed view of the extent of Santander Universities’ sponsorship and a final number of its beneficiaries. It also is the basis for Santander Universities’ social impact assessment model. D. The covid-19 pandemic changed our roadmap for 2020 and 2021. Many traditional (face-to-face) and mobility grants were replaced by online grants with a much broader scope. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 108 Santander Scholarships We continued to deliver on our commitment to train people by helping them access higher education and academic mobility, boosting their employability and accompanying them in their lifelong learning, as well as encouraging excellence and equal opportunity. In 2021, we expanded our scholarships to include programmes open to all profiles and ages, paying special attention to new market needs. That's why we're adding two more concepts to our scholarship programmes: -Reskilling: Helping participants acquire new knowledge and skills in different areas, enhancing their professional versatility and increasing their career change options. -Upskilling: Providing training in soft and hard skills to drive more efficient adaptation to current roles at a time of deep transformation and digitalization within companies. Santander Scholarships has seven categories: → Santander Tech to promote learning about computer programming, blockchain, machine learning, cloud & DevOps and product design strategies. → Santander Skills to help develop the fundamental soft skills needed in today's workplace. → Santander Women to prepare women with career development, leadership training and negotiation skills. → Santander Studies to help students complete their studies with special aid to promote equal opportunity and academic excellence among low-income students. → Santander Language for professional foreign language training. → Santander Internship for university students' job training to provide recent graduates with quality entry-level job opportunities. → Santander Research to provide undergraduates, graduates and PhD students with material and financial support to start or continue their research. #### Scholarship platform The many scholarships we offer alongside universities and institutions around the world can be found on www.becas- santander.com, which closed the year with nearly 2,5 million registered users. Here are a few examples: Santander Scholarships Women | W50 Leadership - #### LSE & Santander Women | Emerging Leaders - LSE In both programmes, developed with LSE,  we continued to mould women leaders. W50 is intense training for women with leadership skills and the ambition to be top-level executives. Emerging Leaders is for the next generation of leading women. Santander Scholarships Tech | Digital Business - #### The University of Chicago To celebrate the 25th anniversary of Santander Universities, we worked with University of Chicago to create a special scholarship to teach new technologies and digital management models in highly competitive professional settings. Santander Scholarships Language I English for #### Professional development - University of Pennsylvania Language skills are a springboard to the international market. This programme, developed with University of Pennsylvania, gave participants the opportunity to explore their career path and improve their command of English to accomplish professional objectives. S #### antander Scholarships Studies | #### Santander Graduação A leading programme in Brazil, it targets underserved university students to provide them with financial aid to continue their studies (e.g. payment of enrolment fees, learning materials, food, transport and other costs). #### Santander Scholarships Studies | Erasmus The core purpose is to promote academic excellence through international experiences, equal opportunity, inclusion and recognition for young people. In its third year, it awarded 2,152 scholarships for courses at educational institutions in the EU, as well as international internships. Pamela Riquelme, beneficiary of Santander Scholarships Women | W50 Leadership - LSE “I not only felt closeness and support from professors and mentors at such a top-level school as the London School of Economics, but also joined a global, diverse network of exceptional women who shared, reflected and grew professionally and as women during the programme”. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 109 Entrepreneurship Santander Universities supports emerging ventures, through Santander X (www.santanderx.com), by providing training and connecting them with the resources they need to grow and prosper. Global initiatives In 2021 we set global challenges, ran another two Explorer programme´s editions and launched ´Santander X 100´, our global community of selected startups and scaleups from Santander X programmes that promotes innovation as a driver of productivity, economic growth and employment. Global Challenges We launched three global challenges to support the most promising solutions that can scale up globally and foster innovation with visibility and training. Santander X Environmental Challenge An initiative to support innovative companies worldwide and promote a low-carbon economy. It has two categories which encompass multiple challenges related to climate change. Over 350 startups from all over the world entered. The winners of the Be Mindful Category (to raise awareness about the importance of a small environmental footprint) were: → Xilinat (Mexico), whose sustainable processes turn farm waste into a natural sweetener. → Plastecowood (UK), which turns mixed plastic waste into durable and environmentally friendly plastic wood planks. → Breeze Technologies (Germany), which enables companies to monitor, manage and optimize air quality indoors, in cities and in industrial facilities. The winners of the Be Sustainable Category (to promote green finance and investment) were: →Cogo Connecting Good (UK), an app that shows consumers and companies their carbon footprint’s impact in real-time as well as how to reduce it. → ClimateTrade (Spain), a carbon-offset marketplace where companies looking to become carbon neutral choose green projects to invest carbon credits in. → Scoobic Urban Mobility (Spain), sustainable urban transport in the form of last-mile vehicles. Santander X Global Challenge | Helping Businesses Prosper We called upon startups and scaleups to submit innovative, scalable solutions that will help SMEs make the digital transition and be more efficient. Close to 500 companies took part. The winners of the Startup Category were: → Privasee (UK), a data protection platform that uses data mapping and self-updating privacy policies. → Social Piper (Mexico), a social media marketing solution for SMEs that uses artificial intelligence. The winners of the Scaleup Category were: → Whyline (Argentina/US), a customer relationship management (CRM) service and marketing channel that clears sources of traffic and data for faster experiences with daily tasks. → Alyne (Germany), a cyber-security and regulatory compliance solution that uses artificial intelligence. Santander X Global Challenge | Finance For All A new global challenge for startups and scaleups to submit innovative solutions with growth potential that enable all members of society to obtain banking products and services. Six companies emerged victorious from the over 250 that took part. The winners of the Startup Category were: → SympliFi (UK), which enables immigrants to help their unbanked family members in their home country access financing. → Mosabi (US), an e-learning business platform for better financial health. → Lana (Spain), an app that helps self-employed workers grow their business. The winners of the Scaleup Category were: → True Financial Link (US), a platform that empowers a trustworthy relative to protect family members from unwanted transactions. → Bankuish (EEUU), which gives freelancers and gig workers easy access to pre-approved loans. → Coinscrap Finance (Spain), which enables banks and insurers to understand their customers better and open up new sources of revenue. Francisco Benedito, CEO of ClimateTrade Winner of Santander X Environmental Challenge in the Be Sustainable Category “Top professionals from Banco Santander helped us develop and expand our green economy project. Initiatives such as the Santander X Environmental Challenge are, without a doubt, vital to promote and support green entrepreneurship". Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 110 Santander X 100 We launched 'Santander X 100', our global community of selected startups and scaleups from Santander X programmes that promotes innovation as a driver of productivity, economic growth and employment. It's a new way for top, advanced-stage projects from different countries to network and access advice, training, capital, clients, talent and other valuable resources they need to keep growing. Current members of Santander X 100 are from Argentina, Brazil, Chile, Germany, Mexico, Spain, the UK and the US. Explorer In 2021, we launched two new editions of Explorer programme in Spain to help turn business ideas into projects and solutions. It also touched down in Argentina, Brazil, Chile, Mexico and Portugal for the first time (in an online format). So far, we’ve given over 10,000 young entrepreneurs the tools to turn their ideas into viable and sustainable solutions. Local initiatives The Santander X local awards recognize and promote the best university entrepreneurial ventures in two categories: ´Launch´, for projects preparing to go to market; and ´Accelerate´, for high-impact startups preparing for accelerated and sustainable growth. The winning teams represented their countries and universities at the Santander X Global Awards. We held awards contests in Argentina, Brazil, Chile, Mexico, Spain and the UK, with almost 800 projects submitted. #### Santander X Argentina Award | Emprendedor X #### Santander X Brazil Award #### Santander X Chile Award | Ideas X #### Santander X Mexico Award #### Santander X Spain Award #### Santander X Entrepreneurship Awards Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 111 Universia Universia is the world's largest university network, with over 862 affiliated universities in 22 countries. It connects institutions, companies and talented people to create a large collaborative community that offers the best training and employability opportunities. Employability Universia aims to support talented young people through these three pillars: - Guidance: Personalized support for students that offers career and training advice to boost their employability. - Training: Opportunities to undertake courses (bootcamps and postgraduate studies) and training programmes that teach key job skills, with access to scholarships, discounts, ISAs, loans and other funding. - Employment: Connection with professional (internships or employment) and networking opportunities with companies through competitions, fairs and other events. The Universia Jobs platform (https://jobs.universia.net/) has more than 9,000 registered companies and 139 universities with a combined 2 million enrolled students. In 2021, the first Universia Virtual Employability Fair was held in Spain and Portugal, with 59 stands where companies and academic institutions promoted their job and learning opportunities. We received more than 6,700 registrations for the event, which brought together talented people, instructors and employers to engage in direct dialogue through 22 separate talks. Universia also organised the Universia STEAM+: eSports Competition, where Banco Santander, Atresmedia, Iberdrola, Indra, Naturgy, Nestlé and Securitas Direct were able to unearth fresh talent by testing the digital and interpersonal skills of almost 1,600 young people in an innovative environment. For more details, visit www.universia.net Fundación Universia At Fundación Universia we focus on inter-university communities; diversity, inclusion and equity; and new models of responsible financing for access to education. We are a leader in qualified employment and diverse talent development in companies that support inclusive, responsible and sustainable growth. At Banco Santander, we also act as a lever for cultural transformation, contributing to the inclusion of people with disabilities in education and employment. Since 2021, Fundación Universia has promoted alternative responsible financing models through Plan Circular and bootcamps that use experiential and digital learning to facilitate access to the most in-demand professions. Its strategic focus is centred on these UN Sustainable Development Goals (SDGs): Quality Education; Decent Jobs and Economic Growth; and Partnerships for the Goals. Digital transformation in universities In just three years, MetaRed (which is supported by the Fundación Universia) has become the largest university network of information and communications technology (ICT) managers, counting over 1,500 professionals and 1,100 universities from 14 countries in Ibero-America. It has facilitated training for more than 500 intermediate profiles, held over 75 top-level webinars and assessed the digital skills of some 20,000 university professors. #### Elianni Agüero, a story of progress Elianni Agüero is 26 years old. She’s from Cuba but lives in Madrid. After learning to walk again, adapting to living and studying in another country with a distinct culture, earning a technical degree and making it to Santander, “Overcoming” became her maxim at work and in life. A computer programming engineer with a master’s in Data mining and business intelligence from Universidad Complutense de Madrid, Elianni started as an intern on the Santander Start programme in 2021. By July, she was signing a contract to join Data Analytics in the Strategy & People Insight function of Santander's Human Resources Division. Fundación Universia supported Elianni in her job search and career development, while enabling Santander to attract the best talent. For more details, visit www.fundacionuniversia.net 420 #### scholarships for university students with disabilities 148 #### people with disabilities hired in companies 6,820 #### people benefiting from Fundación Universia's support 71 #### social ISAs under Plan Circular Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 112 #### Other community support programmes 46 million euros in social investment +1,400 joint initiatives with NGOs and social enterprises 2.1 million people helped +28,000 volunteersA A. For more details on volunteering, see 'Talented and motivated team' in this chapter. We promote several initiatives and programmes that improve people's access to education and foster culture and well-being within our communities. We focus on: ó ó ó #### Support for childhood education +790k children and young people helped to attain a well-rounded, quality education. #### Support for social welfare +1.3mn people helped amid the risk of social exclusion or vulnerability. #### Support for the arts and science We promote greater access for people to cultural events and programmes. #### Our commitment #### Our progress We believe we can play a major role in improving the lives of 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 programmes (millions) 6.1mn C . 2019 4mn 2021 B. Santander has a corporate approach tailored to its requirements and special model to contribute to society. Reviewed by an external auditor, it consists of principles, definitions and standards to track the people who have benefited from our community investment programmes. It does not count those who have benefited from art and cultural initiatives. C. Cumulative figure since 2019. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 113 Highlighted initiatives by country Latin America •TECHO: Together with TECHO Chile, we support the thousands of families that still live in slums in our country, and projects that are in line with the education and progress of the people: a) TECHO Para Aprender: during 2021 the headquarters number 30 was inaugurated. In these places children and adolescents find safe spaces to develop in educational issues (complementary to school). These spaces are self-managed by the community and supported by the Bank and the Foundation. •Belén Educa: for 21 years, we worked together Fundación Belén educa to support the children and adolescents from educational institutions through transversal academic programs. In 2021. •Capacitaciones de oficio: through the donation of training hours from the bank, courses for adults are carried out together with a certified educational institution. •Compromiso País: Santander has been part of this government initiative since 2018, whose objective is to reduce the high number of adults who have not completed their basic education. In 2021, we helped over 230,000 people in more than 40 community job and digital training programmes. •Education scholarships: We supported the scholarship programmes of Cáritas, Cimientos, Fundación León, Voy con Vos, Reciduca and other organizations. They help children, young people and families on their educational journey. 458 people benefited from Santander’s support in 2021. •Centro Educativo Pescar: We helped 40 young people aged 18 to 24 seeking support and opportunity get personal development and job skills training. We maintained our actions to support society and continued with our private social investment strategy with our programs to support children, teenagers, the elderly and entrepreneurs. •In the 19th edition of the Amigo de Valor Program, we raised R$ 19.8 MM to support 100 initiatives throughout the country, benefiting over 12 thousand people. •Campanha Brasil sem Fome (Brazil without Hunger Campaign): we accounted for the donation of 200,351 baskets of staple food. In total, we accounted for 542.545 thousand people impacted by our social actions, such as the Amigo de Valor, Parceiro do Idoso, Blood Donation Campaign and Volunteer Program. •Teletón is a flagship community support and social responsibility project that organizes fundraisers. Over 70% of civil servants take part in them to foster a culture of solidarity. In 2021, we raised over 186,000 euros, the highest of any company (for the second time). •Food drive: Through NGO Redalco, we donated 26,483 meals to the people who needed them most due to the food crisis brought on by the pandemic. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 114 Europe •Alzheimer’s Society. From 2019 – 2021 we focused on how to better support customers with dementia as we aim to become the UK’s best dementia-friendly bank. During 2021, we improved 16 Santander UK products and services, including creating a series of videos to help people affected by dementia understand complicated financial topics. Internally, we encouraged our colleagues to take our Dementia Friends e-training, fulfilling our guarantee that at least 50% of our employees are equipped to understand dementia. Our fundraising for Alzheimer’s Society also continues through charitable activities, raising over £2million. •Age UK. Since 2016, we’ve worked together with Age UK to increase the financial independence of older people. We’ve developed multiple initiatives such as awareness sessions to help prevent frauds and scams, delivered in local Age UK centres, as well as a programme to help older people learn and develop digital skills to make their lives easier and enable them to do more online. •Santander Foundation. During 2021 we  launched our new strategy for 2021 to 2024, helping people to become digitally and financially empowered. We want to provide grants to organisations in the UK, and support them in delivering digital and financial empowerment to people over the next three years. •Double the power to help”. Together with the Santander Bank Polska Foundation, we organised a collection to support the mental health of children and young people affected by the pandemic. PLN 2 million was donated to 16 hospitals. •"Memory Gym". We supported the Shipyard Foundation's "Memory Gym" project by co-financing the printing of a mind training for seniors guide. It comprises activities, exercises and worksheets for conducting cognitive function training for the elderly. It also includes educational material on online and mobile banking for seniors. This programme has helped 3280 people. • "Finansiaki". we support the development of competencies in the area of finance and entrepreneurship. The internet portal https:// finansiaki.pl/ includes materials containing ideas for building knowledge through playing with children and spending time together. The "Finansiaki" programme also includes lessons carried out by volunteers in schools and kindergartens. In 2021, 228 children participated in seven such meetings. •"Here I live, here I change EKO”. Santander Bank Polska S.A. Foundation´s grant programme enables local communities to change their environment with parks, gardens, plant murals, "green" bus stops and other eco-projects. Out of 1,062 organisations that applied the competition, 58 projects were selected and co-financed with a total amount of PLN 300 thousand. •We support Asociación Española Contra el Cancer (The Spanish association against cancer or "AECC") on its Mayores y Cáncer ("Senior citizens and cancer") initiative that promotes a comprehensive care model for patients over 65 and their families. •We help Banco de Alimentos (Spain's food bank) deliver food to vulnerable groups.  Employees volunteer as part of its annual Gran Recogida de Alimentos ("great food drive") campaign. •Fundación Banco Santander works to build a more equitable, inclusive and sustainable society. We develop projects that cover: culture, environment and research and social action. We help over 200 NGOs a year with digitalization, training and funding for projects aimed at those most affected by the pandemic. We also launched our new Santander for the Seas project, which funded marine biodiversity initiatives with 450,000 euros. The foundation is also in charge of preserving and publicizing the Banco Santander Collection. It is expected to play a part in operating the Pereda Building, our iconic headquarters that will soon become a modern space for culture and innovation following its refurbishment (now under way). In 2021, Santander made two extraordinary donations to Fundación Banco Santander for a total of 55,750,000 Banco Santander shares. Those donations are intended as financial support for the Foundation, so that the return on the shares allows it to bear (at least partially) the costs of fulfilling its founding purposes. We also continue to support the Best for Africa programme (see more information in the Financial Empowerment section). For more details visit www.fundacionbancosantander.com •#TodosJuntos campaign, to raise funds to give access to food and medicine to vulnerable people. €250.000 raised and 74,000 people helped. •Café Joyeux Portugal. This initiative, developed by Associação VilacomVida, aims to promote the employability and certified professional training of people with intellectual and developmental difficulties. •Santander Participatory Donation 2021: Santander employees chose 16 social and environmental institutions to be supported by the Bank. •“Santander Mais Comunidade” Prize. This prize aims to reward and recognize the work of social and environmental organizations chosen by the public, via Santander Portugal’s website. •Partnership with the Portuguese Rugby Federation - social inclusion initiatives through Rugby have been developed with children and teenagers. •21 Associação Sara Carreira Scholarships. This Association’s purpose is to support children and young people with limited resources, by granting them access to education. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 115 North America Santander’s charitable giving is focused on supporting not-for-profit organizations which help people prosper. 2021 contribution included: •$9 million to 207 nonprofit organizations focused on financial empowerment, through programming and services for financial education, workforce development, and career readiness for youth, students and adults •$4 million to 116 nonprofit organizations supporting small businesses and entrepreneurship, through programming and services providing technical assistance, business coaching and mentorship, education and capital grants •$5 million to 243 nonprofit organizations that increase access to affordable housing and create healthier neighbourhoods through programming and services providing education, housing preservation, and support to individuals and families lacking housing stability Charitable giving is a pillar of our Inclusive Communities Plan, an $11 billion, five-year commitment of lending, investments, and charitable contributions that began in 2017 and culminates at the end of this year. More than 16 years ago we started fundraising campaigns throughout our ATM network to support social and environmental causes. Some of them are: •UNICEF. To protect children's rights and the right to quality education. In 2021,  we raised $1,240,075 to help 12,807 indigenous children. We also made a LikeU seed donation of $1,000,000 that benefited 1,569 children to meet their educational needs after schools closed because of the pandemic. •Fideicomiso Por los Niños de México, Todos en Santander. We support children who are in a vulnerable economic and social condition by financing education, health and nutrition projects for them. In 2021,  $12,526,750 were donated via 85 projects that helped 13,683 children and teenagers. •Reforestamos ("We reforest"). In 2021 we raised $1,233,940 at ATMs, benefiting 6,800 people. The LikeU seed donation was $200,000 and benefited 102 people. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 116 #### Keymetrics Employees GRI 102-7, 102-8, 102-41, 202-1, 202-2, 401-1, 403-9, 403-10, 404-1, 405-1, 405-2 and G4-FS6 SASB FN-AC-330a.1, FN-IB-330a.1, FN0102-06 1. EMPLOYEES BY GEOGRAPHIES AND GENDERA N0 employees % men % women % graduates Geographies 2021 2020 2021 2020 2021 2020 2021 2020 SpainB 26,249 29,504 50 52 50 48 67 69 BrazilC 52,041 42,767 43 46 57 54 62 66 Chile 9,950 10,491 45 46 55 54 42 41 Poland 9,518 10,388 32 31 68 69 86 85 Argentina 8,525 9,058 52 53 48 47 39 53 MexicoD 25,957 21,572 46 45 54 55 38 56 PortugalB 4,818 6,015 53 54 47 46 63 57 UKB 17,578 20,945 44 43 56 57 17 18 USA 15,024 15,677 42 42 58 58 12 11 SCF 14,270 13,359 47 47 53 53 27 31 Others 13,140 11,413 57 53 43 47 47 49 Total 197,070 191,189 46 46 54 54 47 51 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 decrease in headcount in these geographies is due to the restructuring processes carried out in 2021. C. The increase in the number of employees in Santander Brazil was due to the high number of new hires, particularly in technology jobs. D. The increase in the number of employees in Santander Mexico was due to the integration of outsourcing as the Bank's own staff. 2.1 FUNCTIONAL DISTRIBUTION BY GENDER 2020A Senior managers 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 America 228 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 2.2 FUNCTIONAL DISTRIBUTION BY GENDER 2021A Senior managersB Other managers Other employees Men Women Total Men Women Total Men Women Total Europe 1,039 72.7% 390 27.3% 1,429 6,865 63.6% 3,926 36.4% 10,791 29,934 44.2% 37,773 55.8% 67,707 North America 223 78.8% 60 21.2% 283 1,181 67.0% 583 33.0% 1,764 18,299 44.1% 23,226 55.9% 41,525 South America 318 73.4% 115 26.6% 433 2,955 60.4% 1,934 39.6% 4,889 29,137 42.7% 39,112 57.3% 68,249 Group total 1,580 73.7% 565 26.3% 2,145 11,001 63.1% 6,443 36.9% 17,444 77,370 43.6% 100,111 56.4% 177,481 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 senior positions, which aims for 30% of senior managers to be women by 2025. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 117 3.1. 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 4,871 5.53% 17,996 20.44% 31,827 36.14% 13,484 15.31% 19,877 22.57% North America 4,704 12.26% 15,597 40.64% 9,317 24.28% 3,279 8.54% 5,481 14.28% South America 4,141 6.39% 29,498 45.55% 20,796 32.11% 5,072 7.83% 5,249 8.11% Group total 13,716 7.17% 63,091 33,00% 61,940 32.40% 21,835 11.42% 30,607 16.01% 3.2. WORKFORCE DISTRIBUTION BY AGE BRACKET 2021AB Number and % of total aged <= 25 aged 26 - 35 aged 36 - 45 aged 46 - 50 age over 50 Europe 3,764 4.71% 15,659 19.59% 29,730 37.20% 13,316 16.66% 17,458 21.84% North America 5,320 12.21% 17,817 40.89% 10,942 25.11% 3,505 8.04% 5,988 13.74% South America 10,989 14.94% 29,107 39.56% 22,378 30.42% 5,616 7.63% 5,481 7.45% Group total 20,073 10.19% 62,583 31.76% 63,050 31.99% 22,437 11.39% 28,927 14.68% A.Data at year end. B.The <25 age group increase due to the incorporation of a company in the Group's perimeter with a high number of employees in this age group. 4.1. 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 America 21 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 4.2. DISTRIBUTION BY TYPE OF CONTRACT  2021A,B Permanent / Full time Permanent / Part-time Men Women Total Men Women Total Europe 35,465 51.0% 34,119 49.0% 69,584 826 12.6% 5,706 87.4% 6,532 North America 19,222 45.5% 23,031 54.5% 42,253 119 21.0% 448 79.0% 567 South America 31,510 45.1% 38,398 54.9% 69,908 853 23.8% 2,725 76.2% 3,578 Group total 86,197 47.4% 95,548 52.6% 181,745 1,798 16.8% 8,879 83.2% 10,677 Temporary / Full time Temporary / Part-time Men Women Total Men Women Total Europe 1,398 42.0% 1,933 58.0% 3,331 149 31.0% 332 69.2% 480 United Kingdom 362 48.1% 390 51.9% 752 0 0.0% 0 0.0% 0 South America 47 55.3% 38 44.7% 85 0 0.0% 0 0.0% 0 Group total 1,807 43.4% 2,361 56.6% 4,168 149 31.0% 332 69.2% 480 A.Data at year end. B.  The increase in part-time permanent employees in South America is due to the addition of a company in the Group's perimeter with a high number of part-time permanent employees. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 118 5. ANNUAL RATE OF CONTRACTS BY GENDER 2021 2020 Men Women Total Men Women Total Employees with permanent /full time contract 84,724 92,308 177,033 85,796 94,435 180,231 Employees with permanent/part-time contracts 1,776 9,502 11,277 1,155 7,717 8,872 Employees with temporary/full-time contracts 1,158 1,776 2,934 1,441 2,291 3,732 Employees with temporary/part-time contracts 165 292 456 211 470 681 Group Total 87,822 103,878 191,700 88,603 104,913 193,516 6.1. 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 6.2. ANNUAL RATE OF CONTRACTS BY AGE BRACKET 2021 aged <= 25 aged 26-35 aged 36-45 aged 46-50 aged over  50 Total Employees with permanent /full time contract 10,725 56,373 60,418 21,699 27,818 177,033 Employees with permanent/part-time contracts 2,641 2,923 2,733 924 2,055 11,277 Employees with temporary/full-time contracts 800 1,299 541 137 157 2,934 Employees with temporary/part-time contracts 150 159 82 13 52 456 Group Total 14,317 60,754 63,774 22,772 30,083 191,700 7. ANNUAL RATE OF CONTRACT BY CATEGORY 2021 2020 Senior Managers Other Managers Other employees Total Senior Managers Other Managers Other Employees Total Employees with permanent /full time contract 2,118 17,194 157,720 177,033 2,150 18,911 159,169 180,231 Employees with permanent/part-time contracts 5 165 11,107 11,277 7 154 8,711 8,872 Employees with temporary/full-time contracts 16 81 2,836 2,934 13 83 3,636 3,732 Employees with temporary/part-time contracts 1 13 442 456 0 16 665 681 Total Grupo 2,141 17,454 172,105 191,700 2,170 19,164 172,182 193,516 8. EMPLOYEES WHO WORK IN THEIR HOME COUNTRYA,B % Managers Other employees Total 2021 2020 2021 2020 2021 2020 Europe 87.26 88.45 95.76 95.38 95.61 95.27 North America 91.52 91.01 99.74 99.75 99.69 99.69 South America 91.46 91.19 98.22 98.25 98.18 98.21 Group total 88.67 89.30 97.57 97.24 97.47 97.15 A.Data at year end. B. Data from US is not included as it is confidential information. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 119 9.1 DIFFERENTLY-ABLED EMPLOYEES RATIO BY REGIONA,B % 2021 2020 Europe 1.74 1.64 North America 0.24 0.21 South America 3.07 3.27 Group total 1.90 1.90 9.2. DIFFERENTLY-ABLED EMPLOYEESA,B Number of employees 2021 2020 Spain 408 386 Rest of the Group 3,295 3,191 Total Group 3,703 3,577 A. Data at year end. B. Data from Mexico not included as it is confidential information. 10. COVERAGE OF THE WORKFORCE BY COLLECTIVE AGREEMENTA 2021 2020 Countries % N0 Employees % N0 Employees Spain 99.92 26,228 99.80 29,444 Brazil 98.66 51,345 99.19 42,422 Chile 100.00 9,950 100.00 10,491 Poland 0.00 0 0.00 0 Argentina 73.78 6,290 72.64 6,580 Mexico 30.94 8,031 30.34 6,544 Portugal 99.42 4,790 99.14 5,963 UK 100.00 17,578 100.00 20,945 US 0.00 0 0.00 0 SCFB 51.73 7,382 56.89 7,600 Other business units 59.60 7,832 60.01 6,849 Total Group 70.75 139,426 71.57 136,838 A. Data at year end. B. SCF data for 2020 recalculated to consider its US-based employees not covered by the collective bargaining agreement. 11.1. DISTRIBUTION OF NEW HIRES BY AGE BRACKET 2020 % of total aged <= 25 aged 26-35 aged 36-45 aged over 45 aged > 50 Europe 25.93 39.57 23.55 6.13 4.82 North America 36.49 39.29 14.75 4.50 4.97 South America 19.67 50.67 22.18 3.97 3.51 Group total 28.84 42.05 19.58 4.95 4.58 11.2. DISTRIBUTION OF NEW HIRES BY AGE BRACKET 2021A % of total aged <= 25 aged 26-35 aged 36-45 aged over 45 aged > 50 Europe 27.57 40.68 21.92 5.84 3.98 North America 30.77 41.13 17.65 4.78 5.67 South America 32.33 46.57 16.68 2.61 1.80 Group total 30.84 43.24 18.00 4.09 3.82 A.The increase in new hires in South America was mainly due to the high number of new hires in Santander Brazil, especially in technology positions. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 120 11.3. DISTRIBUTION OF NEW HIRES BY GENDER 2021 2020 Men Women Total Men Women Total Europe 8.16% 7.34% 7.73% 7.79% 6.24% 6.97% North America 36.95% 32.88% 34.72% 18.14% 19.55% 18.92% South America 22.63% 17.04% 19.50% 9.03% 3.98% 6.34% Group total 19.68% 16.76% 18.09% 10.20% 8.25% 9.15% 12. DISTRIBUTION OF DISMISSALSA,C by gender 2021 2020 Men %B Women %B Total %B Men %B Women %B Total %B Senior managers 77 4.87% 18 3.19% 95 4.43% 30 1.81% 4 0.78% 34 1.56% Other managers 719 6.54% 341 5.29% 1,060 6.08% 470 4.07% 225 3.21% 695 3.75% Other employees 7,348 9.50% 9,237 9.23% 16,585 9.34% 4,267 5.66% 5,466 5.75% 9,733 5.71% Total Group 8,144 9.05% 9,596 8.96% 17,740 9.00% 4,767 5.38% 5,695 5.55% 10,462 5.47% by age 2021 2020 Men Women Total Men Women Total aged <=25 737 1,149 1,886 342 363 705 aged 26-35 1,961 2,535 4,496 1,502 1,878 3,380 aged 36-45 1,828 2,770 4,598 1,286 1,932 3,218 aged 46-50 743 863 1,606 499 553 1,052 aged >50 2,875 2,279 5,154 1,137 970 2,107 Total Group 8,144 9,596 17,740 4,766 5,696 10,462 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 increased due to restructuring in some of the Group's subsidiaries in 2021. 13. EXTERNAL TURNOVER RATE BY GENDERA,B % of total 2021 2020 Men Women Total Men Women Total Europe 17.62 17.32 17.46 8.71 9.46 9.11 North America 25.49 24.54 24.97 19.92 16.88 18.22 South America 21.03 18.94 19.86 14.54 14.11 14.31 Group total 20.53 19.51 19.97 12.77 12.51 12.63 A. Excludes temporary leaves of absence and transfers to other Group companies. B. The rate of rotation increased due to restructuring in some of the Group's subsidiaries in 2021. 14.1 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 26.36 10.58 6.17 5.48 10.58 9.11 North America 32.53 17.52 14.91 13.45 16.38 18.22 South America 15.50 14.15 12.96 12.91 20.88 14.31 Group total 25.20 13.83 9.76 8.40 13.38 12.63 A.Excludes temporary leaves of absence and transfers to other Group companies. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 121 14.2. EXTERNAL TURNOVER RATE BY AGE BRACKETA 2021 % of total aged <= 25 aged 26-35 aged 36-45 aged 46-50 aged over 50 Total Europe 38.63 18.70 11.04 8.62 29.27 17.46 North America 51.03 26.06 17.22 16.03 18.02 24.97 South America 25.73 20.87 16.90 13.51 21.36 19.86 Group total 34.87 21.67 14.18 11.00 25.45 19.97 A. Excludes temporary leaves of absence and transfers to other Group companies. 15. REMUNERATION BY FUNCTION, GENDER AND REGIONA Senior managers B Other managers C Men Women GPG ratio (Median) D GPG-SAB ratio (Median)E Men Women GPG ratio (Median) D GPG-SAB ratio (Median)E Europe 289,263 191,317 26.5% 21.1% 90,895 63,950 31.5% 26.5% North America 690,088 445,220 18.4% 5.5% 233,580 196,908 5.6% 1.8% South America 377,932 219,080 30.3% 17.3% 76,807 69,465 (4.4%) (2.2%) Group total 427,242 265,458 29.3% 21.6% 128,859 100,224 13.9% 12.1% Total remuneration (average)A 384,971 118,633 Group Total 2020 415,975 107,477 Variation 2021 vs 2020 (%) (7.5)% 10.4% Other employees C Men Women GPG Ratio (Median) D GPG-SAB ratio (Median)E Total employees Men Women Ratio GPG (Median) D GPG-SAB ratio (Median)E Europe 49,648 38,065 19.4% 18.0% 57,269 40,052 20.9% 19.1% 47,596 North America 44,960 33,121 23.3% 14.7% 64,777 38,344 29.7% 26.2% 49,975 South America 23,510 17,094 16.8% 22.9% 29,080 18,511 19.4% 25.7% 23,210 Group total 40,244 29,717 25.9% 27.0% 53,785 33,350 32.3% 30.0% 42,628 Total remuneration (average)A 34,352 53,785 33,350 32.3% 30.0% 42,628 Group Total 2020 34,602 55,151 34,476 31.7% 43,867 Variation 2021 vs 2020 (%) (0.7)% (2.5)% (3.3)% 2.0% (2.8)% By Age Brackets aged <= 25 aged 26-35 aged 36-45 aged 46-50 aged over 50 Total Total remuneration (average)A 11,819 23,394 42,250 59,824 66,958 42,628 Group Total 2020 16,140 26,943 47,253 64,868 69,482 43,867 Variation 2021 vs 2020 (%) (26.8)% (13.2)% (10.6)% (7.8)% (3.6)% (2.8)% A. Data at 2021 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. E. GPG Ratio - SAB (median) includes annual base salary paid in the year. 16. AVERAGE REMUNERATION SENIOR OFFICERS Thousands euros 2021 2020 Men Women Total Men Women Total Men Women Total Executive officersA 1 1 2 10,724 13,752 12,238 6,247 7,239 6,743 Non-executive officers 7 5 12 363 293 334 239 207 227 Senior officers 12 3 15 4,758 1,597 4,126 3,610 2,288 3,362 Diff. Male vs Female (66.4)% (36.6)% A.Sergio Rial excluded from the calculation of executive directors Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 122 16.1 RATIO BETWEEN THE BANK’S MINIMUM ANNUAL SALARY AND THE LEGAL MINIMUM ANNUAL SALARY BY COUNTRY AND GENDER 2020 % Legal Minimum Wage Men Women % 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% 16.2 RATIO BETWEEN THE BANK’S MINIMUM ANNUAL SALARY AND THE LEGAL MINIMUM ANNUAL SALARY BY COUNTRY AND GENDER 2021 % Legal Minimum Wage Men Women % legal minimum wage Germany 205.45% 205.45% 205.45% Argentina 375.62% 375.62% 375.62% Brazil 185.62% 185.62% 185.62% Chile 177.16% 145.36% 161.26% US 259.78% 262.31% 261.04% Spain 132.72% 155.44% 144.08% Mexico 165.01% 165.01% 165.01% Poland 100.00% 100.00% 100.00% Portugal 181.95% 181.95% 181.95% UK 206.58% 158.56% 182.57% 17. TRAINING 2021 2020 Total hours of training 6,030,787.47 5,913,435.04 % employees trainedA 99.05 100.00 Total attendees 5,578,255 5,939,158 Hours of training per employeeA 30.60 30.93 Total investment in training 75,138,476 61,304,729 Investment per employee 381.28 320.65 Cost per hour 12.46 10.37 % female participants 53.39 53.66 % of e-learning training attendees 91.42 91.97 % of e-learning hours 76.22 48.06 Employee satisfaction (up to 10) 8.46 8.18 A. Calculated considering the staff at the end of each year. The incorporation of both employees and entities to the Group at the end of 2021 fiscal year has a signification impact on the result of this indicator in comparison to 2020. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 123 18. HOURS OF TRAINING BY CATEGORY 2021 2020 Hours Average Hours Average Senior officers 60,804 28.35 65,274 29.97 ManagersA 695,353 39.86 940,619 50.7 Other employees 5,274,630 29.72 4,907,542 28.79 Group total 6,030,787 30.6 5,913,435 30.93 A. Fewer training hours due to downsizing. 19. HOURS OF TRAINING BY GENDER 2021 2020 Average Average Men 32.75 31.76 Women 28.8 30.21 Group total 30.6 30.93 20. ABSENTEEISM BY GENDER AND REGIONA,B ,C 2021 2020 Men Women Total Men Women Total Europe 2.50 5.12 3.90 2.60 5.00 3.89 North America 0.93 1.75 1.38 0.81 1.56 1.23 South America 1.50 2.92 2.27 2.07 3.99 3.12 Group total 1.83 3.63 2.80 2.08 3.97 3.11 A.Days missed due to occupational accidents. non-work related illness and non-work related accident 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. 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 2021. 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 % 2021 2020 Men Women Total Men Women Total Europe 0.04 0.10 0.07 0.04 0.12 0.08 North America 0.00 0.02 0.01 0.01 0.02 0.01 South America 0.01 0.02 0.02 0.02 0.05 0.04 Group total 0.02 0.05 0.04 0.03 0.07 0.05 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 2021 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 124 22. OCCUPATIONAL HEALTH AND SAFETYA,B 2021 2020 Men Women Total Men Women Total Frequency rateC 1 1 1 1 2 2 Severity rateD 0.03 0.08 0.06 0.03 0.1 0.07 No. of fatal occupational accidents 0 0 0 1 0 1 Work related illnessE 0 0 0 0 0 0 Total number of accidentsF 183 388 571 197 475 672 A. Occupational injuries that can be documented are reported, without exception for serious injuries. 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 2021. C. Number of accidents at work with leave for every 1,000 hours worked. The hours worked are theoretical hours. In itinere accidents are included. D. 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. E. 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. F. Refers to occupational accidents with sick leave. Including accidents on the way to and from work. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 125 Customers 23. GROUP CUSTOMERSA 2021 2020 var. Europe 45,899,479 47,122,309 (3)% Spain 13,571,008 13,970,512 (3)% Portugal 3,060,473 3,047,020 —% United Kingdom 23,569,326 24,516,785 (4)% Poland 5,430,274 5,213,476 4% Others EuropeB,C 268,398 374,516 (28)% South America 63,031,232 57,208,967 10% BrazilD 53,445,934 48,347,665 11% Chile 4,113,888 3,605,104 14% Argentina 4,152,335 3,913,086 6% Others South AmericaE 1,319,075 1,343,112 (2)% North America 24,494,428 24,314,248 1% México 19,592,102 18,898,106 4% United StatesF 4,731,155 5,136,495 (8)% Others North AmericaC,G 171,171 279,647 (39)% Digital Consumer Bank 19,436,550 19,610,511 (1)% Santander Consumer BankH 17,857,599 18,237,909 (2)% Openbank 1,578,951 1,372,602 15% Total 152,861,690 148,256,035 3% A.Figures corresponding to total customers, understood as the first holder of at least one product or service with a current contract. 2020 data has been redefined to accommodate 2021 reporting segments. B.Rest of Europe: BP Rest (Bahamas and Switzerland), SCIB (not included individually in each country) and PagoNxt. C.The changes in customers in these segments are due to changes in the scope of consolidation. D.Brazil: Private Banking: Decision groups; Santander Financiamiento: Financeira's exclusive customer data. E.Rest of South America: Uruguay (including customers of Paganza, Creditel and Retop), Peru, Colombia and PagoNxT. F.US includes BPI Miami G.Rest of North America: PagoNxT H.SCF includes customers in all European countries, including the UK. 24. DIALOGUE BY CHANNEL 2021 2020 Var .2021/2020 %. Branches Number of branches 9,879 11,236 (12.1)% Digital bankingA UsersB 47.44 42.36 12.0% A.Santander Consumer Finance not included. B.Counts once for users of both Internet and mobile banking. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 126 25. CUSTOMER SATISFACTION 2018 2019 2020 2021 Argentina 83 86 90 91 BrazilA 80 86 89 n/a Chile 86 86 87 90 Uruguay 95 94 93 96 Spain 87 86 87 84 Poland 98 98 99 96 Portugal 91 86 86 90 UK 97 96 94 95 Mexico 98 95 95 94 USA 83 88 87 88 Group 89 90 91 92 A.In 2021 Brazil has not measured the customer satisfaction indicator. It will measure it again in 2022. 26. TOTAL COMPLAINTS RECEIVEDA 2021 2020 2019 Spain 120,953 150,298 91,046 Portugal 3,570 4,036 4,655 United Kingdom 20,069 22,625 30,298 Poland 5,179 6,057 6,193 BrazilB 195,340 146,067 133,841 Mexico 82,033 80,031 75,459 Chile 8,009 8,328 6,474 ArgentinaC 5,013 3,512 4,106 US 3,205 4,292 4,097 SCF 35,215 39,064 30,535 A.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. B.Increase in Brazil due to the inclusion of claims that were handled independently last year and to the government’s enhancement of official channels. C.Increase in Argentina mainly due to fraudulent online purchases amid growing e-commerce since the outbreak of the pandemic. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 127 27. Equator Principles Project Finance Category A B C TOTAL 1 56 6 Sector Infrastructure 0 3 3 Oil & gas 0 2 1 Energy 1 51 2 Region Americas United States 0 18 0 Chile 0 1 0 Mexico 0 1 0 Brazil 0 1 0 Europe Spain 0 23 1 United Kingdom 0 3 0 France 0 1 0 Portugal 0 0 3 Germany 0 1 0 Italy 0 2 1 Poland 1 3 0 Type Designated countriesA 1 52 5 Non-designated countries 0 4 1 Independent review Yes 1 55 3 No 0 1 3 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. 28. Country by country report According GRI 207-4 TAX a country-by-country report of financial, economic, and tax-related information for each jurisdiction in which Santander operates is required. The information of profit/loss before tax, corporate income tax paid on a cash basis and number of employees, as well as the basis of calculation of this number, is already included in the appendix VI of the consolidated financial statements (Annual Banking Report): EUR million 2021 Jurisdiction Revenues from third-party salesA Revenues from intra-group transactions with other tax jurisdictionsA Tangible assets other than cash and cash equivalentsB Corporate income tax accrued on profit/lossC Germany 1,720 -56 2,015 184 Argentina 1,366 -2 640 75 Austria 180 -3 13 17 Bahamas 7 -2 1 0 Belgium 77 1 5 8 BrazilD 10,742 -158 1,621 1,710 Canada 61 -6 1 5 Chile 2,424 -13 389 13 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 128 China 22 0 4 -1 Colombia 49 2 3 3 United Arab Emirates 0 3 0 0 SpainE 6,448 1,137 12,312 66 United States 7,481 -54 14,732 391 Denmark 180 -4 36 25 Finland 82 36 49 13 France 818 6 89 90 Greece 0 0 1 0 Hong Kong 104 -10 5 4 India 0 1 0 0 Ireland 107 -144 970 1 Isle of Man 2 13 2 1 Italy 510 -2 32 71 Jersey -9 51 7 2 Luxembourg 175 3 49 56 Mexico 3,613 -32 1,425 181 Norway 240 15 15 37 The Netherlands 97 -2 5 51 Peru 112 -2 3 17 Poland 1,935 10 256 95 Portugal 1,381 6 653 113 Puerto Rico 4 0 0 -1 United Kingdom 5,809 -10 1,985 518 Singapore 12 0 0 1 Sweden 180 0 7 12 Switzerland 133 6 52 7 Uruguay 342 -3 38 34 Total Consolidated Group 46,404 787 37,415 3,799 A.The figure of revenues from intra-group transactions with other tax jurisdictions includes interest income, interest expenses, commission income and commission expenses for transactions between Group companies with residence in different tax jurisdictions, as well as intra-group income which elimination is reflected in the total income of the consolidated income statement as the counterparty expense is recorded in another item of the consolidated income statement not included in total income. B.Tangible assets: Composed by Tangible assets and Non-current assets held for sale, as well as Inventories. C.The accrued corporate income tax is current year expense, not including deferred taxes. D.Including the information relating to a branch in the Cayman Islands with Corporate income tax accrued of EUR 97 million. E.Includes Corporate Center. Reasons for the difference between corporate income tax accrued on profit/loss and the tax due if the statutory tax rate is applied to profit/loss before tax are mainly due the criteria for calculating taxes, which establishes temporary or permanent restrictions on the deduction of expenses, exemptions, etc., generating the corresponding differences between tax and accounting result. Thus, in addition to the temporary differences that generate deferred taxes, as main adjustments to the taxable income it should be noted the monetary correction in Chile and Mexico, the hyperinflation adjustments in Argentina, the deduction of juros and taxes on margins in Brazil and in some cases, such as in Poland, permanent adjustments due to non-deductible expenses like Bank Levy or some recognized provisions; with the rest of the Group's relevant jurisdictions at rates close to their nominal rates. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 129 Environment and climate change GRI 301-1, 301-2, 301-3, 302-1, 302-2, 302-3, 303-1, 303-3, 303-5, 305-1, 305-2, 305-3, 305-4, 306-2, 306-3, 306-4 and 306-5 29. ENVIRONMENTAL FOOTPRINT 2020-2021A 2021 2020 Var. 2020-2021 (%) ConsumptionB Water (m3)C 1,808,668 2,064,113 -12.4 Water (m3/employee) 9.76 11.07 -11.9 Normal electricity (millions of kwh) 227 395 -42.6 Green electricity (millions of kwh) 676 526 28.5 Total electricity (millions of kwh) 903 920 -1.9 Total internal energy consumption (GJ)D 3,714,227 3,758,183 -1.2 Total internal energy consumption (GJ/employee) 20.04 20.16 -0.6 Total paper (t)E 7,345 8,966 -18.1 Recycled or certified paper (t)E 6,020 7,336 -17.9 Total paper (t/employee) 0.04 0.05 -17.6 Waste — Paper and cardboard waste (kg)F,G 6,323,866 5,926,139 6.7 Paper and cardboard waste (kg/employee) 34.11 31.79 7.3 Greenhouse gas emissions — Direct emissions (CO2 teq)H,I 25,672 24,818 3.4 Indirect electricity emissions (CO2 teq)-MARKET BASEDJ,K 57,425 128.633 -55.4 Indirect electricity emissions (CO2 teq)-LOCATION BASEDJ 269,615 282.216 -4.5 Indirect emissions from displacement of employees (CO2 teq)L,M 35,420 40,708 -13.0 Total emissions (CO2 teq)- MARKET BASED 118,517 194,159 -39.0 Total emissions (CO2 teq/employee) 0.64 1.04 -38.6 Average number of employees 185,379 186,429 -0.6 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). B.  The decrease in consumption levels was partly due to the extension of the pandemic situation during the year, which has kept the occupancy of offices and branches at low levels throughout 2021, in contrast to the previous year, 2020, which recorded normal occupancy levels during the first months of that year. This was also the result of the Group's efforts to promote savings in the consumption of resources, especially paper. C. Information is provided exclusively on water withdrawal from the public network. D. It is also reported that the external energy consumption resulting from employee travel and business trips has been: 500,311GJ in 2021 and 579,155 GJ in 2020. E. The figure for total paper and certified or recycled paper for 2020 has been recalculated from that published in 2020 report, based on information provided by the USA. F. The data for 2019 and 2020 do not include waste from the commercial network in Brazil. The amount of paper and cardboard waste reported is managed in its entirety by authorised waste managers and is collected separately, which guarantees its proper recycling. Grupo Santander will work in the near future to ensure that all this waste undergoes recycling operations. G. The increase in managed paper and board waste is mainly a consequence of the branch concentration process carried out in the Spanish branch network in 2021. H. 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 2021 for 2021 and DEFRA 2020 for 2020 were applied I. The slight increase between 2020 and 2021 is mainly due to the implementation of measures to increase air recirculation in offices and branches in the context of the Covid-19 pandemic situation. J. These emissions include those derived from electricity consumption and correspond to the scope 2 defined by the GHG Protocol standard. In both 2021 and 2020 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, Mexico, 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 212,190 tons of CO2 equivalent in 2021 and 153,582 in 2020. 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). K. The reduction in indirect electricity emissions has been mainly due to the increase in the purchase of green energy in 2021 in the countries that make up the G10 L. 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 2021 for 2021 and DEFRA 2020 for 2020  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) - 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. M. 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, in contrast to 2020, where the number of displacement of employees remained at normal levels at the beginning of the year. The reduced occupancy levels in 2021 have also contributed to the lower GHG emissions recorded. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 130 #### Non-financial information #### Law content index Equivalent table of legal disclosure requirements under Spanish law 11/2018 Short description of the Group’s business model (it will include its business environment, its organization 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 (p. [6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82)), What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). GRI 102-1 GRI 102-2 GRI 102-3 GRI 102-4 GRI 102-6 GRI 102-7 GRI 102-14 GRI 102-15 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 (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)). Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risk analysis section). 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. Inclusive and sustainable growth (p. [71](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10209)). GRI 103-2 GRI 103-3 A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)). Acting responsibly towards customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)). 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 (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)). Acting responsibly towards customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)). Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risk analysis section). Risk management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). GRI 102-15 GRI 102-30 0. General Information 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/Other regulations Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 131 1. Environmental Information 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 (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)). GRI 102-29 GRI 102-31 GRI 201-2 GRI 103-2 (GRI of environmental dimension) Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint section). GRI 102-11 GRI 102-29 Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risks analysis section). GRI 102-11 At the end of the 2021 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 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. Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint section). 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. Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint section). GRI 103-2 (GRI 306) GRI 301-2 GRI 306-3 Sustainable use of resources: Use and supply of water according to local limitations Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint section). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). GRI 303-5 Consumption of raw materials and measures taken to improve the efficiency of its use. Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint section). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). 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 Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint section). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). 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) Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint section). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). 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 (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint section). 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. Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint section). 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. GRI 103-2 (GRI 304) Impacts caused by the activities or operations of protected areas 0. General Information 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/Other regulations Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 132 2. Social Employment: Total number and distribution of employees by gender, age, country and professional classification Key Metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). 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 (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). GRI 102-8 GRI 405-1 Number of dismissals by: gender, age and professional classification. Key Metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). GRI 401-1 Average remuneration and its progression broken down by gender, age and professional classification Key Metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). GRI 405-2 Salary gap and remuneration of equal or average jobs in society A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (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 (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). GRI 102-35 GRI 102-36 GRI 103-2 (GRI 405) Implementation of work disconnection policies A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (The way we work section). GRI 103-2 (GRI 401) Employees with disabilities Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). GRI 405-1 Organization of work: Organization of work time A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (The way we work section). GRI 103-2 (GRI 401) Number of absent hours Key Metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)).  A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Our wellbeing section). 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 (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (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 (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Our wellbeing section). GRI 103-2 (GRI 403) Occupational accidents, in particular their frequency and severity, as well as occupational illnesses. Broken down by gender. Key Metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)).  A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Our wellbeing section) GRI 403-9 GRI 403-10 Social relations: Organization of social dialogue (including procedures to inform and consult staff and negotiate with them) What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)).  A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Social dialogue and restructuring section). Acting responsibly towards customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)). GRI 103-2 (GRI 402) Percentage of employees covered by collective bargaining agreements by country Key Metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). 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 (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Our wellbeing section) GRI 403-1 GRI 403-4 Training: The policies implemented in the field of training A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Talent management section). GRI 103-2 (GRI 404) GRI 404-2 Total number of hours of training by professional categories. Key Metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). GRI 404-1 Accessibility: Universal accessibility of people A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (People with disabilities section). Acting responsibly towards customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)). Support to higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) (Fundación Universia section). GRI 103-2 (GRI 405) 0. General Information 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/Other regulations Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 133 2. Social 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 (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Diversity and Inclusion section). GRI 103-2 (GRI 405 and 406) Support to higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)). 3. Human Rights Application of due diligence procedures in the field of Human Rights Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)). Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risk analysis section). Responsible Procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). 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 committed Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)). Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risk analysis section). Responsible Procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). GRI 410-1 GRI 412-1 GRI 412-3 Complaints about cases of human rights violations A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Speaking up, active listening and taking action section) GRI 406-1 Promotion and compliance with the provisions of the fundamental conventions of the International Labour Organization regarding respect for freedom of association and the right to collective bargaining. A talented and motivated team, Social dialogue and restructuring section GRI 103-2 (GRI 406) Elimination of discrimination in respect of employment and occupation; elimination of forced or compulsory labour; and the effective abolition of child labour. Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risk analysis section) GRI 103-2 (GRI 406) 4. Fight against corruption Measures taken to prevent corruption and bribery Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)). Risk management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)) (7.2 Compliance and conduct risk management section) GRI 102-16 GRI 102-17 Measures to combat money laundering Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)). Risk management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)) (7.2 Compliance and conduct risk management section) GRI 103-2 (GRI 205) GRI 205-1 GRI 205-2 GRI 205-3 Contributions to non-profit foundations and entities Support to higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)). GRI 413-1 0. General Information 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/Other regulations Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 134 5. Information on the company Commitments of the company to sustainable development: The impact of the company’s activity on employment and local development Support to higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)). Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)). Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risk analysis). GRI 103-2 (GRI 203) GRI 203-1 GRI 203-2 GRI 411-1 GRI 413-1 The impact of the company’s activity on local towns and villages and in the country. Support to higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)). Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)). 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 (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). GRI 102-43 GRI 413-1 Association or sponsorship actions Support to higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)). GRI 102-12 GRI 102-13 Outsourcing and suppliers: Inclusion of social, gender equality and environmental issues in the procurement policy Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). GRI 103-2 (GRI 204, 308 and 414) Consideration in relations with suppliers and subcontractors of their responsibility Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). 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 thereof Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). GRI 103-2 (GRI 204) Consumers: Measures for the health and safety of consumers Acting responsibly towards customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)). Risk management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)) (7.2 Compliance and conduct risk management section) GRI 103-2 (GRI 416, 417 and 418) GRI 416-1 GRI 417-1 G4-FS15 Systems for complaints received and resolution thereof Acting responsibly towards customers. (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)) Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Risk management and compliance chapter, section 7.2 Compliance and conduct risk management.(p. [489](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634)) 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 country Auditor's report and 2021 annual consolidate accounts (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). Annex VI Annual banking report and Auditor's Report and 2020 annual consolidate accounts, Annex VI Annual banking report GRI 103-2 (GRI 207) Taxes on benefits paid Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Tax contribution section) Public grants received GRI content index (p. [144](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_169)). GRI 201-4 6. Other relevant information EU Taxonomy Information related to article 8 of EU Taxonomy EU Regulation 2020/852 and Commission Delegated Regulations 2021/2139 of 4 June and 2021/2178 of 6 July 0. General Information 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/Other regulations \*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, 306-1, 306-2, 306-4, 306-5, 307-1, 308-2, 401-2, 402-1, 403-2, 403-3, 403-5, 403-8, 404-3, 405-2, 414-2, 415-1, 417-3, 419-1. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 135 #### UNEP FI Principles for Responsible Banking reporting index 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: ◦Customer focus: Deepening the relationships with our customers through a simpler value proposition, superior customer experience and our digital proposition ◦Our scale: Local scale and leadership. ◦Diversification. Our geographic and business diversification allow us to overcome regional challenges in our footprint and business lines. Building on our technology to further strengthen our customers’ loyalty. 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 three SDGs in which the Group has the greatest impact (8, 13 and 16) and eight more to which we also make a very significant contribution through our activity and our social programmes (1, 4, 5, 7, 10, 11, 12, 13 y 17) Tackling climate change is a key objective at Santander. We support the Paris Agreement goals and our ambition is to be net zero carbon emissions by 2050. Our main lines of action are: a) align our portfolio with the Paris Agreement Goals and set sector portfolio alignment targets in line with the NZBA and with the NZAMi; b) help customers transition to a low-carbon economy; c) reduce our impact on the environment by remaining carbon neutral and sourcing all our electricity from renewable energy; d) embed climate in risk management; understand and manage the sources of climate change risks in our portfolios. Corporate website: www.santander.com •About us •Our approach Digital Annual review 2021 2021 Annual Report: •Our approach •[Business model and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82) [strategy](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82) Other references: Corporate website: •Financial report 2021 •2021 Earnings Presentation Corporate website: www.santander.com •Our approach - Our contribution to SDGs 2021 Annual Report: •Helping society tackle global challenges: 2030 agenda 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. Reporting and Self-Assessment Requirements High-level summary of bank’s response Reference(s)/ Link(s) to bank’s full response/ relevant information Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 136 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. Our in-depth materiality review included direct stakeholder input (internal and external interviews and surveys on the bank’s ESG priorities), in line with best practice. Following the proposed Corporate Sustainability Reporting Directive (CSRD) and leading ESG reporting standards, we applied the principle of double materiality: (1) financial materiality (how ESG issues impact financial performance); and (2) environmental and social materiality (how ESG action impacts society and the environment). Our materiality assessment identified 15 ESG topics we should focus on. Classified in crucial, major and relevant issues. Among crucial topics are: •Customer experience and satisfaction. Supporting customers and local economies with products and services that meet their needs. Giving them services and products that are Simple, Personal and Fair. Innovating and using digital technologies to maximize access to products and services •Financial inclusion and empowerment. Designing, developing and delivering products and services that ensure access to the financial system and meet credit needs. Building resilience through financial education. •Green finance. Supporting our customers in their transition to a low carbon economy by embedding environmental factors in products and risk analyses, and by supporting the growth of sustainable financial product markets •ESG in risk management, embedding climate. Ensuring our risk management framework incorporates customers’ and operations’ environmental (e.g. climate) and social (e.g. human rights) risks, and outlining them in policies and procedures •Culture, conduct & ethical behaviours. Ensuring exemplary conduct by everybody: being Simple, Personal & Fair in all we do; and embedding Risk Pro, ethical channels and best-in-class policies and controls on employees’ internal conduct, transparency towards customers and ethical behaviour. This annual report discloses information on progress and plans relating to addressing these and other topics. In particular, in 2021: •We committed to net zero emissions by 2050. We become founding member of UNEP FI’s Net Zero Banking Alliance. And first decarbonization targets set. •We develop our Sustainable finance classification system setting the criteria to offer, manage and report sustainable financing. •We mobilized more than 32bn in green finance, and launched our third green bond raised EUR 1 billion in an eight-year non-preferred senior debt issue that will finance wind and solar power projects. •We ranked in the Top 3 in NPS in 8 markets, up from 6 in 2020. •We strengthen Santander Finance for all programme. Santander Chile, Santander Colombia and Santander Perú launched new microfinance programmes for entrepreneurs, while we continued to expand Prospera in Brazil and TUIIO in Mexico. In addition Santander Universities launched the Santander X Global Challenge | Finance For All to find innovative solutions that ensure access to banking products and services. • 2021 Annual Report- Responsible banking chapter •[What our stakeholders](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853) [tell us](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853) •ESG priorities •[Supporting green](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216) [transition](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216) •Environmental and social risk analysis 2021 Annual Report Risk management and compliance chapter •[1.2 Santander Top and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_520) [emerging risks](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_520) Other references: •Climate finance reportA A. (This report is produced after the Annual Report and will be available throughout the month of July 2022 on our corporate website (currently available report 2020-June 2021) Reporting and Self-Assessment Requirements High-level summary of bank’s response Reference(s)/ Link(s) to bank’s full response/ relevant information Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 137 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. 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. •To be Top 10 company to work for in at least 6 countries •To have between 40-60% of women on our board by 2021 •To have at least 30% of women in senior positions by 2025. •To eliminate the equal pay gap by 2025. •To facilitate the mobilization of €120 billion of green finance between 2019 and 2025 •To financially empower 10 million people between 2019 and 2025 through increasing microfinance activities, financial education programmes and other tools that give access to financial services. •To be carbon neutral in our own operation by 2020 •To use 100% of our electricity from renewable sources in all countries by 2025. •To eliminate unnecessary single-use plastics in corporate buildings and branches •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. In 2021, we met (or exceeded) all our commitments for 2019-2021 and made progress on all our targets. Our new public commitments include initial decarbonization targets for the power industry for 2025 and 2030, which measure emission intensity. •Thermal coal-related power & mining phase out •Reduce emissions intensity of our power generation portfolio from 0.23 tCO2e/MWh to 0.18 tCO2e/MWh by 2025, and to 0.11 tCO2e/ MWh by 2030 •Sustainable investment: 100 billion euros in assets under management with ESG criteria by 2025. We'll continue to set decarbonization targets for the other sectors. Together with the targets for 2019-2025, they will form part of our new public commitments in the 2022-2025 agenda. 2021 Annual Report- Responsible Banking chapter [-2021 Overview](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780) - ESG priorities [-Supporting the green](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216) [transition](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216) Please provide your bank’s conclusion/statement if it has fulfilled the requirements regarding Target Setting. The bank has a set of SMART objectives focused on the areas where it can generate the most impact, in accordance with materiality analysis mentioned in the previous section. 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 forum and the Group's responsible banking, sustainability and culture committee are responsible for monitoring compliance with public commitments, together with other management and performance indicators in the area of responsible banking and sustainability. Commitments are embedded and part of the Group financial planning, which a three year plan with yearly forecast. 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. In addition,  the Bank's Management Control function has been involved to increase monitoring and quality of public commitments. This function is responsible for ensuring the consistency of information and provides regular monitoring of the various commitments. 2021 Annual Report- Responsible Banking chapter [- 2021 overview](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780) - Governance Reporting and Self-Assessment Requirements High-level summary of bank’s response Reference(s)/ Link(s) to bank’s full response/ relevant information Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 138 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. 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 regularly reports on the achievements and scope of its responsible banking strategy and targets. In 2021, we met (or exceeded) all our commitments for 2019-2021 and made progress on all our targets. Targets achieved: •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 2021: Top 10 in 6 geographies. •To have between 40-60% women on our board by 2021. In 2021: 40% •Carbon neutral in our own operations in 2020. In 2021 we have continued to implement measures to reduce our CO2 emissions, and have offset the remaining emissions. •To eliminate unnecessary single use plastic in our branches and corporate buildings by 2021. In 2021: 100% of reduction. •To fund 325,000 scholarships, internships and entrepreneur programmes between 2019 and 2021. Since 2019: 387,651 scholarships (+19% target) •To help four million people through our community programmes between 2019 and 2021. Since 2019: 6.1 million (+53% target Targets in progress: •To have 30% women in our senior positions by 2025. In 2021: 26.3% •To eliminate the equal pay gap by 2025. In 2021: 1% •To finance or facilitate mobilization of €120 billion between 2019 and 2025 to tackle climate change. Since 2019: 65.7 billion •To financially empower 10 million people between 2019 and 2025. Since 2019: 7.5 million •To use 100% of our electricity from renewable sources in our buildings by 2025. In 2021: 75% 2021 Annual Report- Responsible Banking chapter [- 2021 Overview](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780) Please provide your bank’s conclusion/statement if it has fulfilled the requirements regarding Progress on Implementing Targets In 2021, we met (or exceeded) all our commitments for 2019-2021 and made progress on all our targets. Reporting and Self-Assessment Requirements High-level summary of bank’s response Reference(s)/ Link(s) to bank’s full response/ relevant information Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 139 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. Our product, service and consumer protection framework sets out the principles that promote a strong SPF relationship with customers and establishes the basics for managing and mitigating conduct risk in design, sales, post-sales and services. The Compliance and conduct function abides by our Consumer protection policy, which sets out the highest ethical standards we expect our teams to uphold towards customers. We report on our consumer protection principles in all our geographies to make sure we embed them in our day-to-day. We use our customers’ voice and business indicators to spot unsatisfactory customer service, fee-related issues, incidents at ATMs and other areas for improvement, and to come up with plans to address them. Our product governance forum ensures the products and services that we market meet the needs of identified target segments and are reasonably and clearly priced. In 2021, we enhanced our ESG product validation and finally, 9 proposals were validated with impact on this matter That's why all our employees undertake a mandatory, annual course on the management of conduct risks in sales and consumer protection. We run special training programmes for our sales teams to arm them with the knowledge and skills that will enable them to sell our products and services effectively. In 2021, we worked on an instruction manual about our vulnerable customer and special case management model, and set a roadmap for its roll-out among subsidiaries, therefore ensuring a consistent, group-wide approach to identifying and managing vulnerable customers in such high-impact procedures as collections and fraud management In 2021, we continued to focus on resolving complaints at the first point of contact with customers and on opening digital channels for quicker, alternative access to feedback mechanisms. We heightened the monitoring and reporting of customer issues in areas that are considered critical due to the knock-on effects of the pandemic. All our activity is guided by policies, principles and frameworks to ensure we behave responsibly in everything we do. •The general sustainability policy sets out principles and commitments focused on adding value to our main stakeholders. •The environmental, social and climate change risk management policy details how we identify and manage risks, in oil and gas, energy, mining and metals, and in soft commodities. •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. We developed our sustainable finance classification system (SFCS), which sets out sustainable finance definition in the group. Consistent with this, we have a catalogue of sustainable products and a green book. We are a leader in renewable energy financing, and have a strong financial empowerment strategy - Santander Finance for All. We issued our third EUR 1 billion green bond to finance and refinance renewable wind and solar power. We're expanding our range of ESG products in Wealth Management. As of December 2021, we had over €27bn AuM. Corporate website www.santander.com •Policies Annual report 2021 - Responsible banking chapter •What our stakeholders tell us •Governance •[Acting responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115) [towards customers](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115) •[Support to the green](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216) [transition](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216) •Financial inclusion and empowerment •Sustainable investment 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. Reporting and Self-Assessment Requirements High-level summary of bank’s response Reference(s)/ Link(s) to bank’s full response/ relevant information Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 140 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 have followed closely  the adoption of the Taxonomy Regulation that sets the criteria for classifying economic activities as environmentally sustainable. It also dictates the information that financial and non- financial companies will have to disclose about the environmental impact of their activities. As a result, we have published our banking products' eligibility under the EU Taxonomy. We also designed our Sustainable Finance Classification System to make classifying, monitoring and reporting on sustainable financing easier. It also guides our development of sustainable products and services fully in the line with our customers' expectations and the strictest market standards. We are part of the main and most important local and global initiatives to support the inclusive and sustainable growth. Some examples are: UNEP FI.  We are a founding signatory to the United Nations Principles for Responsible Banking. In 2021, we continued participating in Phase III of the UNEP FI project on the TCFD's recommendations for banks. World Business Council for Sustainable Development (WBCSD). Banking Environment Initiative (BEI); UN Global Compact, CEO Partnership for Financial Inclusion; or Equator Principles. In 2021, in support of our Net Zero ambition, we joined the Glasgow Financial Alliance for Net Zero, Net Zero Asset Management and were co- founders to the Net Zero Banking Alliance. Within GFANZ, we co-led the Net Zero Public Policy and their call to action launched in October. Our performance is also assessed by leading analysts and ESG indices (DJSI, MSCI, CDP, sustainalytics). Participating in these indices and trying to improve our position in them helps us to continuously improve our processes. In 2021 we have improved our positioning in all of them. Finally, as a consequence of our commitment to transparency, we closely monitor all developments in ESG disclosure. In January 2021 we were one of the companies committed to implementing the World Economic Forum's Stakeholder Capitalism Metrics, and as a result this year we have taken this standard into account for the first time in the preparation of our Responsible banking chapter (Consolidated Statement of Non- Financial Information). Annual report 2021 - Responsible banking chapter • [What our](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853) [stakeholders tell us](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853) •Partnership to promote our agenda •[Shareholder value -](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121) [ESG indices and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121) [analyst](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121) •Supporting the green transition - Sustainable finance classification system (SFCS) •Supporting the green transition - Our banking products' eligibility under the EU Taxonomy •Stakeholder Capitalism Metrics content index Annual report 2021 - Economic and financial review • [Economic, regulatory](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_394) [and competitive](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_394) [context](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_394) Reporting and Self-Assessment Requirements High-level summary of bank’s response Reference(s)/ Link(s) to bank’s full response/ relevant information Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 141 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 (RBSCC) 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 RB forum, that executes the responsible banking agenda across the Group, drives decision-making on responsible banking issues and, ensures the execution of any mandates from the RBSCC, other Board committees and the board of directors. It also ensures alignment on key issues, including the review and escalation of reports to the RBSCC. 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. Created in 2021, our new Responsible banking framework's establishes common principles, roles and responsibilities, key processes and governance drive us towards a more sustainable business model that delivers on our purpose to help people and businesses prosper. It also reinforces our commitment to Agenda 2030: the UN Sustainable Development Goals (SDGs), the Paris Agreement and the Principles for Responsible Banking. The Group's policies and guidance set the standard for all units. We systematically review the scope of policies relating to the integration of ESG criteria to ensure compliance with international best practice. In 2021, the Responsible Banking function was made part of the policy approval process to embed sustainability criteria in all policies. 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. Corporate website: www.santander.com -About us -Our approach 2021 Annual Report- Responsible Banking chapter [-What our stakeholders](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853) [tell us](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853) -Governance [-A strong  and inclusive](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109) [culture](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109) 2021 Annual Report, Corporate Governance chapter [-Responsible Banking,](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) [sustainability and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) [culture, Committee](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) [activities report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) 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. Reporting and Self-Assessment Requirements High-level summary of bank’s response Reference(s)/ Link(s) to bank’s full response/ relevant information Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 142 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 2021 Annual report is our consolidated non-financial information statement. This is the eighteenth annual document the Santander Group publishes to disclose 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. And for the first time, also considering the WEF Stakeholder Capitalism Metrics. 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. 2021 Annual Report, [Responsible Banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [chapter](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) 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. Reporting and Self-Assessment Requirements High-level summary of bank’s response Reference(s)/ Link(s) to bank’s full response/ relevant information Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 143 #### Global Reporting Initiative #### (GRI) content index GRI 102-55 GRI Standards: GENERAL DISCLOSURES GRI 101: FOUNDATION GRI 102: GENERAL DISCLOSURES ORGANIZATIONAL PROFILE 102-1 Name of the organization Business model and strategy (p. [6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82)). - 102-2 Activities, brands, products, and services Business model and strategy (p.[6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82)). - 102-3 Location of headquarters Business model and strategy (p. [6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82)). - 102-4 Location of operations Business model and strategy (p. [6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82)). - 102-5 Ownership and legal form Business model and strategy (p. [6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82)). - 102-6 Markets served Business model and strategy (p.[6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82)). - 102-7 Scale of the organization Business model and strategy (p. [6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82)). Key Metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). - 102-8 Information on employees and other workers Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). 1 102-9 Supply chain Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). - 102-10 Significant changes to the organization and its supply chain Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). - 102-11 Precautionary Principle or approach Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)). (Environmental and social risk management policy section) - 102-12 External initiatives Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)) (Joint initiatives to promote our agenda section). Shareholder value (p. [69](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121)) (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 What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)) (Governance section). - 102-15 Key impacts, risks, and opportunities A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)) (Active listening section). What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)).  Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Risk management section). Risk management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). - ETHICS AND INTEGRITY 102-16 Values, principles, standards, and norms of behaviour Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)). A strong and inclusive  culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). Acting responsibly towards customers. (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)). - 102-17 Mechanisms for advice and concerns about ethics A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (section 1. Speaking up, active listening and taking action) Risk management and compliance (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). - GRI Standard Disclosure Page Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 144 GOVERNANCE 102-18 Governance structure Corporate Governance chapter of the annual report. (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). - 102-19 Delegating authority Corporate Governance chapter of the annual report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). - 102-20 Executive-level responsibility for economic, environmental, and social topics Corporate Governance chapter of the annual report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). - 102-21 Consulting stakeholders on economic, environmental, and social topics Corporate Governance chapter of the annual report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). Auditor's report and annual consolidated accounts (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)).  What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). - 102-22 Composition of the highest governance body and its committees Corporate Governance chapter of the annual report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). - 102-23 Chair of the highest governance body Corporate Governance chapter of the annual report. (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). Auditor's report and consolidated annual accounts (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). - 102-24 Nominating and selecting the highest governance body Corporate Governance chapter of the annual report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). Auditor's report and consolidated annual accounts (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). - 102-25 Conflicts of interest What  our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)).  Corporate Governance chapter of the annual report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). Auditor's report and consolidated annual accounts (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). - 102-26 Role of highest governance body in setting purpose, values, and strategy Shareholder value (p. [69](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121)).  Corporate Governance chapter of the annual report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)).  Auditor's report and consolidated annual accounts (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). - 102-27 Collective knowledge of highest governance body Shareholder value (p. [69](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121)).  Corporate Governance chapter of the annual report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)).  Auditor's report and consolidated  annual accounts (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). - 102-28 Evaluating the highest governance body’s performance Shareholder value (p. [69](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121)).  Corporate Governance chapter of the annual report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)).  Auditor's report and consolidated annual accounts (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). - 102-29 Identifying and managing economic, environmental, and social impacts Auditor's report and consolidated annual accounts (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)).  Risk management and compliance (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Risk management section). - 102-30 Effectiveness of risk management processes Supporting the green transition (p. [71](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10209)) (Risk management section). Risk management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). - 102-31 Omission of economic, environmental, and social topics Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)).Risk management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). Auditor's report and consolidated annual accounts (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). - 102-32 Highest governance body’s role in sustainability reporting Santander´s Board approved this report on February, 24th 2022 related to the 2021 period, and the Corporate Governance Chapter of the Annual Report published in 2022. - 102-33 Communicating critical concerns Auditor's report and consolidated annual accounts (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). - 102-34 Nature and total number of critical concerns Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)). Acting responsibly towards customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)) (Complaints management section). - 102-35 Remuneration policies A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). (Diversity and inclusion section, equal pay subsection)  Corporate Governance chapter of the Annual Report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). - 102-36 Process for determining remuneration What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)).  Shareholder's value (p. [69](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121)). Corporate Governance Chapter of the Annual Report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). Risk supervision, regulation and compliance committee activities in 2021 (p. [234](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292)). - 102-37 Stakeholders’ involvement in remuneration What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)).  Shareholder's value (p. [69](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121)). Corporate Governance Chapter of the Annual Report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). Risk supervision, regulation and compliance committee activities in 2021 (p. [234](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292)). - 102-38 Annual total compensation ratio – 2 102-39 Percentage increase in annual total compensation ratio – 2 GRI Standard Disclosure Page Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 145 STAKEHOLDER ENGAGEMENT 102-40 List of stakeholder groups What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). - 102-41 Collective bargaining agreements What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). - 102-42 Identifying and selecting stakeholders What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). - 102-43 Approach to stakeholder engagement What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). - 102-44 Key topics and concerns raised What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). - REPORTING PRACTICE 102-45 Entities included in the consolidated financial statements Further information section of this chapter (p. [131](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_160)).  Auditor's report and consolidated annual accounts (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). - 102-46 Defining report content and topic Boundaries Our approach (p. [23](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634806)).  Further information section of this chapter (p. [131](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_160)). - 102-47 List of material topics What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). - 102-48 Restatements of information About this chapter (p. [16](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634791)). - 102-49 Changes in reporting About this chapter (p. [16](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634791)). - 102-50 Reporting period About this chapter (p. [16](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634791)). - 102-51 Date of most recent report About this chapter (p. [16](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634791)). - 102-52 Reporting cycle About this chapter (p. [16](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634791)). - 102-53 Contact point for questions regarding the report General information chapter (p. [808](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1078)). - 102-54 Claims of reporting in accordance with the GRI Standards About this chapter (p. [16](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634791)). - 102-55 GRI content index GRI Content Index. (p. [144](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_169)). - 102-56 External assurance About this report (p. [16](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634791)). Independent verification report(p. [175](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_175)). - GRI Standard Disclosure Page Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 146 GRI Standards: Topic-specific disclosures ECONOMIC STANDARDS ECONOMIC PERFORMANCE Ethical behaviour and risk management / Compliance and adapting to regulatory changes Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). "Material aspect boundary" of GRI Content Index - - 103-2 The management approach and its components Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)). "Page" of the GRI 201: Economic Performance" - - 103-3 Evaluation of the management approach Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827))."Page" of the GRI 201: Economic Performance" - - € million 2021 GRI 201: ECONOMIC PERFORMANCE Economic value generated1 46,414 Gross income 46,404 Net loss on discontinued operations 0 Gains/(losses) on disposal of assets not classified as non-current held for sale 53 Gains/(losses) on disposal of assets not classified as discontinued operations -43 Economic value distributed 24,541 Dividends 836 Other administrative expenses (except taxes) 7,443 Personnel expenses 11,216 Income tax and other taxes2 4,894 CSR investment 152 201-1 Direct economic value generated and distributed Economic value retained (economic value generated less economic value distributed) 21,873 Group - 1. Gross income plus net gains on asset disposals. 2. Only includes income tax on profits accrued and taxes recognised during the period. Tax contribution section (Conduct and ethical behaviours) provides additional information on the taxes paid. 201-2 Financial implications and other risks and opportunities due to climate change Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)). 10. Climate and environmental risk section (p. [499](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661)) on  Risk management and compliance chapter. Group - 201-3 Defined benefit plan obligations and other retirement plans The liability for provisions for pensions and similar obligations at 2021 year-end amounted to EUR 3,185 million. Endowments and contributions to the pension funds in the 2021 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 government The Bank has not received significant subsidies or public aids during 2020 and 2021. The detail may be consulted in Auditor´s report and annual consolidated accounts. Group - Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 147 MARKET PRESENCE Attracting and retaining talent / Diversity / Community investment Internal GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). Column “Page” of the GRI 201: Economic Performance. - - 103-3 Evaluation of the management approach A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). Column “Page” of the GRI 201: Economic Performance. - - GRI 202: MARKET PRESENCE 202-1 Ratios of standard entry level wage by gender compared to local minimum wage Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group - 202-2 Proportion of senior management hired from the local community Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). 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 investment External GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)). Support to higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)). - - 103-3 Evaluation of the management approach Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)). Support to higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)). - - GRI 203: INDIRECT ECONOMIC IMPACT 203-1 Infrastructure investments and services supported Support to higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)). Group - 203-2 Significant indirect economic impacts Support to higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)). Group - PROCUREMENT PRACTICES Ethical behaviour and risk management External GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). - - 103-3 Evaluation of the management approach Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). - - Ethical behaviour and risk management External GRI 204: PROCUREMENT PRACTICES 204-1 Proportion of spending on local suppliers Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). Group 3 Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 148 ANTI-CORRUPTION Ethical behaviour and risk management / Compliance and adapting to regulatory changes / Corporate governance- transparency Internal and External GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components 2021 overview (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)). A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). - - 103-3 Evaluation of the management approach 2021 overview (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)). A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). - - GRI 205: ANTI- CORRUPTION 205-1 Operations assessed for risks related to corruption Risk management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). Group - 205-2 Communication and training about anti-corruption policies and procedures Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Finance crime compliance section). Risk management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). Group - 205-3 Confirmed incidents of corruption and actions taken Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Ethical channel section). Risk management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). Group 4 ANTI-COMPETITIVE BEHAVIOR Ethical behaviour and risk management / Compliance and adapting to regulatory changes Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components 2021 overview (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)). A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). Column “Page” of the GRI 206: Anti-competitive Behaviour. - - 103-3 Evaluation of the management approach 2021 overview (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)). A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). Column “Page” of the GRI 206: Anti-competitive Behaviour. - - GRI 206: ANTI- COMPETITIVE BEHAVIOUR 206-1 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. It is expected that the appeal will be resolved by Q1 2022. On 23 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. Santander Bank Poland has appealed the decision. Pending of the first hearing. Group 5 Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 149 Compliance and risk management / Ethical behaviour Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components 2021 overview (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)). A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). Column “Page” of the GRI 207:  Tax. - - 103-3 Evaluation of the management approach 2021 overview (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)). A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). Column “Page” of the GRI 207:  Tax. - - GRI 207: TAX 207-1 Approach to tax Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Principles of action in tax matters) Group - 207-2 Tax governance, control, and risk management Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Principles of action in tax matters) Group - 207-3 Stakeholder engagement and management of concerns related to tax Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Principles of action in tax matters) Group - 207-4 Country-by- country reporting Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)) (country-by-country report) - - ENVIRONMENTAL STANDARDS MATERIALS Internal environmental footprint Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). - - 103-3 Evaluation of the management approach Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). - - Internal environmental footprint Internal and external GRI 301: MATERIALS 301-1 Materials used by weight or volume Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group 6 301-2 Recycled input materials used Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)) (Environmental footprint). Group 6 301-3 Reclaimed products and their packaging materials Not applicable due to the type of Group financial activity. Group - ENERGY Internal environmental footprint Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). - - 103-3 Evaluation of the management approach Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). - - GRI 302: ENERGY 302-1 Energy consumption within the organization Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group 6 302-2 Energy consumption outside of the organization Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group 6 302-3 Energy intensity Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group 6 302-4 Reduction of energy consumption An 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 services Not applicable due to the type of Group financial activity. Group - Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 150 WATER AND EFFLUENTS Internal environmental footprint Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). - - 103-3 Evaluation of the management approach Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). - - GRI 303: WATER AND EFFLUENTS 303-1 Interactions with water as a shared resource Banco Santander manages its water consumption and supply following local limitations. Group - 303-2 Management of water discharge- related impacts Not applicable due to the type of Group financial activity. Group - 303-3 Water withdrawal Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)) Group 6 303-4 Water discharge Not applicable due to the type of Group financial activity. Group - 303-5 Water consumption Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). Group 6 BIODIVERSITY Biodiversity Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Context Index. - - 103-2 The management approach and its components Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risk management). - - 103-3 Evaluation of the management approach Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risk management). - - GRI 304: BIODIVERISTY 304-1 Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas Not applicable due to the type of Group financial activity. Group - 304-2 Significant impacts of activities, products, and services on biodiversity Not applicable due to the type of Group financial activity. Group - 304-3 Habitats protected or restored Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risk management) Group 9 304-4 IUCN Red List species and national conservation list species with habitats in areas affected by operations Not applicable due to the type of Group financial activity. Group - Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 151 EMISSIONS Internal environmental footprint Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)) . Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). - - 103-3 Evaluation of the management approach Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). - - Internal environmental footprint Internal and external GRI 305: EMISSIONS 305-1 Direct (Scope 1) GHG emissions Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group 6 305-2 Energy indirect (Scope 2) GHG emissions Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group 6 305-3 Other indirect (Scope 3) GHG emissions Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group 6 305-4 GHG emissions intensity Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group 6 305-5 Reduction of GHG emissions An 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 emissions Not applicable due to the type of Group financial activity. Group - WASTE Internal environmental footprint Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). - - 103-3 Evaluation of the management approach Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). - - GRI 306: WASTE 306-1 Waste generation and significant waste- related impacts Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). Group - 306-2 Management of significant waste- related impacts Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group - 306-3 Waste generated Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Environmental footprint). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). (Environmental footprint). Group - 306-4 Waste diverted from disposal Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)) (Environmental footprint). Group 6 306-5 Waste directed to disposal Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group 6 Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 152 ENVIRONMENTAL COMPLIANCE Ethical behaviour and risk management / Compliance and adapting to regulatory changes Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)) - - 103-3 Evaluation of the management approach A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)) - - GRI 307: ENVIRONMENT AL COMPLIANCE 307-1 Non- compliance with environmental laws and regulations The 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. Group 5 SUPPLIER ENVIRONMENTAL ASSESSMENT Ethical behaviour and risk management Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). - - 103-3 Evaluation of the management approach Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). - - GRI 308: SUPPLIER ENVIRONMENT AL ASSESSMENT 308-1 New suppliers that were screened using environmental criteria Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). Group 3 308-2 Negative environmental impacts in the supply chain and actions taken Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). Group 7 SOCIAL STANDARDS EMPLOYMENT Attracting and retaining talent / Diversity Internal GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Talent attraction section). - - 103-3 Evaluation of the management approach A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Talent attraction section). - - 401-1 New employee hires and employee turnover A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Talent attraction section). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group - GRI 401: EMPLOYMENT 401-2 Benefits provided to full-time employees that are not provided to temporary or part- time employees Benefits detailed in "A talented and motivated team"(p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)), section "Corporate benefits" are regarding only full-time employees. Group - 401-3 Parental leave Information breakdown is not available, work is under way to present this information. Group - Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 153 LABOUR/MANAGEMENT RELATIONS Attracting and retaining talent / Diversity Internal GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Column "Page" of the GRI 402: Labour/ Management relations" - - 103-3 Evaluation of the management approach Column "Page" of the GRI 402: Labour/ Management relations" - - GRI 402: LABOR/ MANAGEMENT RELATIONS 402-1 Minimum notice periods regarding operational changes Santander Group has not established any minimum period to give prior notice relating to organizational changes different from those required by law in each country. Group - OCCUPATIONAL HEALTH AND SAFETY Attracting and retaining talent / Diversity Internal GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). Column "Page" of the GRI 403: Occupational Safe and Safety. - - 103-3 Evaluation of the management approach A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). Column "Page" of the GRI 403: Occupational Safe and Safety. - - Attracting and retaining talent / Diversity Internal GRI 403: OCCUPATIONAL HEALTH AND SAFETY 403-1 Occupational health and safety management system Banco 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 investigation A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Employee wellbeing section). Group - 403-3 Occupational health services A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Employee wellbeing section). Group - 403-4 Worker participation, consultation, and communication on occupational health and safety At Banco Santander SA, the percentage of Representation in the Security Committee is 100%. Banco Santande r S.A. and SCF - 403-5 Worker training on occupational health and safety A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Employee wellbeing section). Group - 403-6 Promotion of worker health A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Employee wellbeing section). Group - 403-7 Prevention and mitigation of occupational health and safety impacts directly linked by business relationships Not applicable due to the type of Group financial activity. Group 403-8 Workers covered by an occupational health and safety management system 100% of Banco Santander employees are covered by health and safety management systems at work. Group 1 403-9 Work-related injuries A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Employee wellbeing section). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group 1 403-10 Work-related ill health Key metrics(p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group 1 Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 154 TRAINING AND EDUCATION Attracting and retaining talent / Diversity Internal GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). “Page” of the GRI 404: Training and education. - - 103-3 Evaluation of the management approach A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). “Page” of the GRI 404: Training and education. - - GRI 404: TRAINING AND EDUCATION 404-1 Average hours of training per year per employee A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Talent attraction section). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group - 404-2 Programs for upgrading employee skills and transition assistance programs Banco 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 (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Learning and development section). Group - 404-3 Percentage of employees receiving regular performance and career development omissions. A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Performance review and remuneration 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 criteria Internal GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Diversity and Inclusion section). - - 103-3 Evaluation of the management approach A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Diversity and Inclusion section). - - Attracting and retaining talent / Diversity / Incentives tied to ESG criteria Internal GRI 405: DIVERSITY AND EQUAL OPPORTUNITIES 405-1 Diversity of governance bodies and employees A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Diversity and Inclusion section). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Corporate governance chapter of the Annual Report (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). Group - 405-2 Ratio of basic salary and remuneration of women to men A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Diversity and Inclusion section). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Group - NON-DISCRIMINATION Ethical behaviour and risk management / Compliance and adapting to regulatory changes Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Diversity and Inclusion section). - - 103-3 Evaluation of the management approach A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Diversity and Inclusion section). - - GRI 406: NON- DISCRMINATION 406-1 Incidents of discrimination and corrective actions taken A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (Active listening section). Risk management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). Group - Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 155 FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING Not material Not applicable GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary Not material - - 103-2 The management approach and its components Not material - - 103-3 Evaluation of the management approach Not material - - GRI 407: FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING 407-1 Operations and suppliers in which the right to freedom of association and collective bargaining may be at risk Not material Group - CHILD LABOR Not material Not applicable GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary Not material - - 103-2 The management approach and its components Not material - - 103-3 Evaluation of the management approach Not material - - GRI 408: CHILD LABOR 408-1 Operations and suppliers at significant risk for incidents of child labor Not material Group - FORCED OR COMPULSORY LABOR Not material Not applicable GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary Not material - - 103-2 The management approach and its components Not material - - 103-3 Evaluation of the management approach Not material - - GRI 409: FORCED OR COMPULSORY LABOR 409-1 Operations and suppliers at significant risk for incidents of forced or compulsory labor Conduct and ethical behaviour (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)) (Environmental and social risk management) Group - SECURITY PRACTICES Ethical behaviour and risk management / Compliance and adapting to regulatory changes Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Column "Page" of the GRI 410: Security Practices. - - 103-3 Evaluation of the management approach Column "Page" of the GRI 410: Security Practices. - - GRI 410: SECUTIRY PRACTICES 410-1 Security personnel trained in human rights policies or procedures Santander requires to its Safety Services suppliers during the hiring process compliance with Human Rights Regulations Banco Santande r S.A. - Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 156 RIGHTS OF INDIGENOUS PEOPLES Ethical behaviour and risk management / Compliance and adapting to regulatory changes External GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Column "Page" of the GRI 411: Rights of Indigenous People - - 103-3 Evaluation of the management approach Column “Page” of the GRI 411: Rights of Indigenous People. - - GRI 411: RIGHTS OF INIDGENOUS PEOPLE 411-1 Incidents of violations involving rights of indigenous people The 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. Group 8 HUMAN RIGHTS ASSESSMENT Ethical behaviour and risk management / Compliance and adapting to regulatory changes External GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Column "Page" of the GRI 412: Human Rights assessment - - 103-3 Evaluation of the management approach Column "Page" of the GRI 412: Human Rights assessment - - Ethical behaviour and risk management / Compliance and adapting to regulatory changes External GRI 412: HUMAN RIGHTS ASSESSMENT 412-1 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. Group 8 412-2 Employee training on human rights policies or procedures Conduct and ethical behaviours (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Human rights protection). Group 9 412-3 Significant investment agreements and contracts that include human rights clauses or that underwent human rights screening All of Banco Santander's significant investment agreements and contracts made within the framework of the Equator Principles are subject to a social and environmental risk assessment (including HR aspects). Group 8 Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 157 LOCAL COMMUNITIES Community investment External GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. Group - 103-2 The management approach and its components Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)). Support to higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) (Community investment section). Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)). Group - 103-3 Evaluation of the management approach Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)). Support to higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) (Community investment section). Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)). Group - GRI 413: LOCAL COMMUNITIES 413-1 Operations with local community engagement, impact assessments, and development programs Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)) (Finance section), Support to  higher education and other local initiatives (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)). 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 communities Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risk analysis section). Group - SUPPLIER SOCIAL ASSESSMENT Control and management of risks, ethics and compliance Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). - - 103-3 Evaluation of the management approach Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). - - GRI 414: SUPPLIER SOCIAL ASSESSMENT 414-1 New suppliers that were screened using social criteria Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). Group 3 414-2 Negative social impacts in the supply chain and actions taken Responsible procurement (p. [68](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_118)). Group 7 PUBLIC POLICY Ethical behaviour and risk management / Compliance and adapting to regulatory changes Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components 2021 overview (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)). A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)). “Page” of the GRI 415: Public Policy. - - 103-3 Evaluation of the management approach 2021 overview (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)). A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)). “Page” of the GRI 415: Public Policy. - - GRI 415: PUBLIC POLICY 415-1 Political contributions The ties, 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 Conduct Group - Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 158 CUSTOMER HEALTH SAFETY Products and services that are transparent and fair GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Acting responsibly towards our customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115))(Product governance and consumer protection section). - - 103-3 Evaluation of the management approach Acting responsibly towards our customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115))(Product governance and consumer protection section). - - GRI 416: CUSTOMER HEALTH AND SAFETY 416-1 Assessment of the health and safety impacts of product and service categories Responsible business practices. The Commercialization 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 services The 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. Group 5 MARKETING AND LABELING Products and services that are transparent and fair Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Acting responsibly towards our customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115))(Product governance and consumer protection section). - - 103-3 Evaluation of the management approach Acting responsibly towards our customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115))(Product governance and consumer protection section). - - Products and services that are transparent and fair Internal and external GRI 417: MARKETING AND LABELING 417-1 Requirements for product and service information and labeling Responsible business practices. The Commercialization 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 resolution (€300.000) notified by the Spanish National Securities Market Commission, notified on 22 December 2020, for violation of the provisions foreseen in article 214 of the Spanish Securities Market Act, in relation to the information collected from retail clients for the suitability assessment.  An appeal has been filed before the Administrative Contentious Court. Sanctioning resolution from Junta de Andalucía notified on June 23 2021 (€1,03 million), in relation to the inclusion of abusive clauses in  contracts. On December 30, 2021 the President UOKIK (Office of Competition and Consumer Protection in Poland) issued a decision against Santander Consumer Bank Poland (SCB Poland) in the proceedings regarding individual offers and insurance, which states that SCB Poland uses practices that violate collective consumer interests. The decision imposes fines that amount to €9.8 million.  SCB Poland will appeal UOKIK´S decision. Group 5 417-3 Incidents of non-compliance concerning marketing communications The Bank hasn't received any sanctions concerning this matter. Additional information about Group's litigation and other risks can be found at the Auditor's report and 2021 consolidated annual accounts. Group 5 Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 159 CUSTOMER PRIVACY Measures taken for customer satisfaction Internal and External GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components Acting responsibly towards our customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)). - - 103-3 Evaluation of the management approach Acting responsibly towards our customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)). - - GRI 418: CUSTOMER PRIVACY 418-1 Substantiated complaints concerning breaches of customer privacy and losses of customer data The 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. Group 5 Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 160 SOCIOECONOMIC COMPLIANCE Products and services that are transparent and fair / Ethical behaviour and risk management Internal and external GRI 103: MANAGEMENT APPROACH 103-1 Explanation of the material topic and its boundary What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Column "Material aspect boundary" of GRI Content Index. - - 103-2 The management approach and its components 2021 overview (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)). A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). Acting responsibly towards customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)). Column “Page” of the GRI 419: Socioeconomic Compliance. - - 103-3 Evaluation of the management approach 2021 overview (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)). A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)). A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). Acting responsibly towards customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)). Column “Page” of the GRI 419: Socioeconomic Compliance. - - GRI 419: SOCIOECONOMI C COMPLIANCE 419-1 Non- compliance with laws and regulations in the social and economic area On 16 July 2021, the Territorial Delegation for Health and Families in Córdoba rendered a resolution against Openbank for the inclusion of allegedly abusive terms in mortgage loan contracts during the period 2017-2019. The Territorial Delegation alleges that the inclusion of these abusive terms may result in a serious infringement of the Defense and Protection of Consumers and Users Act 13/2003 of Andalucía.  Fine: €235.000. Openbank filed an administrative appeal. The proceeding is pending to final resolution. In 2018, the Massachusetts Supreme Court ruled that Notices of Intention to repossess or auction of a repossessed vehicles (NOIs) must expressly describe that any outstanding balance would be reduced by the “fair market value” of the vehicle; Santander Consumer USA (SC) revised its MA NOIs in September 2019. On February 2021, SC reached an agreement to resolve a putative class action filed in June 2019 alleging SC’s MA NOIs failed to expressly reference “fair market value” for $5.6 million, which was approved by the Court on 16 December. The Yunker class action settlement is limited to MA borrowers who did not have arbitration provisions in their contracts. On 4 June 2021, the Massachusets Attorney General issued a Civil Investigative Demand (CID) to SC seeking all NOIs provided to Massachusets residents from 30 March 2017 to the present.  The parties reached an agreement in principle to resolve the matter for $5.6 million. SC expects to reach a definitive agreement, including the issuance of an Assurance of Discontinuance in the first quarter of 2022. Sanctioning procedure received from Junta de Andalucía, alledging the establishment of abusive clauses in the contracts. SCF received the resolution on 21st of April 2021 imposing a  fine of 235.000 million euros.  Resolution has been appealed, and decision is pending. In addition, information on litigation and other Group contingencies can be found in Auditor’s report and annual consolidated accounts. Group 5 Identified material aspect Material aspect boundary GRI Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 161 GRI Standards - Financial services sector disclosures 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 value Internal and external FS1 Policies with specific environmental and social components applied to business lines Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827))., Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Corporate governance section). Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risks analysis section) Group - FS2 Procedures for assessing and screening environmental and social risks in business lines Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827))., Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Corporate governance section). Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risks analysis section) Group - FS3 Processes for monitoring clients´ implementation of and compliance with environmental and social requirements included in agreements of transactions Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827))., Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)). Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risks analysis section) Group - FS4 Process(es) for improving staff competency to implement the environmental and social policies and procedures as applied to business lines Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) (Management and staff training section). Group - FS5 Interactions with clients/ investees/ business partners regarding environmental and social risks and opportunities A strong and inclusive culture: The Santander Way (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109))(Cultural transformation: an ongoing journey). 2021 overview (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)). Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)) (Joint initiatives to promote our agenda section). Shareholder value (p. [69](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121)).Risk management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). Group - FS6 Percentage of the portfolio for business lines by specific region, size (e.g. micro/ SME/large) and by sector Acting responsibly towards customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)). Governance (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)) (Helping society tackle global challenges: 2030 agenda section). Key metrics (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)) Group - FS7 Monetary value of products and services designed to deliver a specific social benefit for each business line broken down by purpose Financial inclusion and empowerment  (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)) (Access and Promoting financial education sections). Sustainable Investment (p. [104](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635190)). Group - FS8 Monetary value of products and services designed to deliver a specific environmental benefit for each business line broken down by purpose Supporting the green transition (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)). Sustainable Investment (p. [104](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635190)). Group - Identified material aspect Material aspect boundary G4 Standard Disclosure Page Scope Omission Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 162 AUDIT Ethical behaviour and risk management / Compliance and adapting to regulatory changes Internal and external FS9 Coverage and frequency of audits to assess implementation of environmental and social policies and risk assessment procedures Every two years, the Group’s Internal audit function reviews the corporate Responsible banking function's governance, materiality analyses, control, procedures and risk culture. If it spots areas for improvement, it will give recommendations to mitigate any operational risks from the Responsible banking function's procedures. The last audit in 2021 ended with an overall rating of “acceptable”. Group - ACTIVE OWNERSHIP 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 value Internal FS10 Percentage and number of companies held in the institution´s portfolio with which the reporting organization has interacted on environmental or social issues Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risks analysis section) Group 8 FS11 Percentage of assets subject to positive and negative environmental or social screening Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) (Environmental and social risks analysis section) Group 8 FS12 Voting policy(ies) applied to environmental or social issues for shares over which the reporting organization hold the right to vote shares or advises on voting The 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 rights Group - FS13 Access points in low- populated or economically disadvantaged areas by type Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)). Group - FS14 Initiatives to improve access to financial services for disadvantaged people Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)) (Access section). A talented and motivated team (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) (People with disabilities section). Acting responsibly towards customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)) (Vulnerable customers section). Group - FS15 Policies for the fair design and sale of financial products and services Acting responsibly towards customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)) (Product and services design section).. Group - FS16 Initiatives to enhance financial literacy by type of beneficiary Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)) (Promoting financial education section). Group - Identified material aspect Material aspect boundary G4 Standard Disclosure Page Scope Omission 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 related to gifts and invitations/corruption and bribery. 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 top-200 risk suppliers are reported. 8. 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.  9.  Only qualitative information is disclosed.  10.  Information is provided on programmes and their direct impacts of the ten main countries of the Group, instead on centres. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 163 #### Sustainability Accounting Standards #### Board (SASB) content index This is the second 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 2021 fiscal year, unless otherwise is specified. Sustainability Accounting Metrics Data Security Commercial 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_841) of the Consolidated accounts in the Auditor's report and consolidated financial statements (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)' of this chapter (p. [34](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)).; and to ‘Relevant mitigation actions’ in section [6.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_622) of 'Risk management and compliance chapter' (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). Financial Inclusion & Capacity Building Commercial 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 [‘Acting responsibly towards customers‘](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115) section of this chapter (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)). For more detail see note 10. ‘Loans and advances to customers´ in the Auditor's report and consolidated financial statements (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). Additionally, all the information related to microfinance programmes are available on the ‘Financial inclusion and empowerment‘ section of this report (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)). 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 [3.3 'Key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_556)' section of the Risk management and compliance chapter. (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). Also refer to notes 2.g and 10.d of the consolidated accounts in the Auditor's report and consolidated financial statements (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). Commercial Banks Number 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 (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)). Commercial Banks Number of participants in financial literacy initiatives for unbanked, underbanked, or underserved customers. FN-CB-240a.4 In 2021, Grupo Santander has financially empowered 3.1 million people. For further information refer to ‘Financial inclusion and empowerment‘ section of this chapter (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)). Incorporation of Environmental, Social, and Governance Factors in Credit Analysis Commercial Banks Commercial and industrial credit exposure, by industry. FN-CB-410a.1 Refer to ‘Concentration risk‘ in section [3.5 'Other credit risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_574) [details](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_574)' of the Risk Management and compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). Commercial Banks Description 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 on Conduct and ethical behaviour (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)), and the [‘Climate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661) [and environmental risk‘](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661) (p. [499](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661)).section of the Risk management and compliance chapter For further information see our ‘General Sustainability Policy and our ‘Environmental, social & climate change risk management Policy’, both available on our corporate website. Topic Industry Accounting Metric Code Response Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 164 Incorporation of Environmental, Social, and Governance Factors in investment Banking & Brokerage Activities Investment 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  (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)). Investment Banking & Brokerage Description 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  (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)). For further information see our ‘General Sustainability Policy‘, and our ‘Environmental, social & climate change risk management policy‘, both available on our corporate website. 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 behaviour, anti-trust, and monopoly practices. For further information, refer to ’Litigation and other matters’ section on the Auditor's report and consolidated financial statements  (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112) [motivated team](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)' of this chapter  (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). For further information, see our ‘General Code of Conduct’, available on our website. Systemic Risk Management Commercial Banks Investment Banking & Brokerage Global Systemically Important Bank (G-SIB) score, by category FN-CB-550a.1. FN-IB-550a.1. According to the ‘2021 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 2021) According to the G-SIB Scores Dashboard from the Basel Committee on Banking Supervision (BCBS), Santander Group´s scores are (end-2020 data): •Score: 192 •Complexity: 106 •Cross-jurisdictional: 469 •Interconnectedness:  149 •Size: 183 •Substitutability: 56 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 activities FN-CB-550a.2. FN-IB-550a.2. Refer to ‘Capital planning and stress tests’ in the section [3.5 'Capital management and adequacy](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_415)' (p. [353](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_415)) of the Economic and Financial chapter. Employee Diversity & Inclusion Commercial 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 employees FN-AC-330a.1 FN- IB-330a.1 Refer to [‘Key metrics’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154) section of this chapter  (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). For further information, refer to ‘Diversity & Inclusion’ section of [‘A talented and motivated team’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112) this chapter (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). For further information about our diversity and inclusion principles, see our ‘Corporate Culture Policy’, available on our corporate website. Activity metrics Commercial 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  (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). 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  (p. [512](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_661)). Topic Industry Accounting Metric Code Response Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 165 #### Stakeholder Capitalism Metrics content index Stakeholder Capitalism Metrics Principles of governance Governing Purpose Setting Purpose: The company’s stated purpose, as the expression of the means by which a business proposes solutions to economic, environmental, and social issues. Corporate purpose should create value for all stakeholders, including shareholders. Our [Business model and strategy](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82) (p. [6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_82)) chapter reflects how we help people and businesses prosper whilst adopting ESG practices, and how we integrated ESG criteria on our 3 key priorities for profitable growth. Additionally, in Our approach (p. [23](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634806)) section on the Responsible Banking chapter, we detail in deep how we work to be a more sustainable bank. Purpose-led management: How the company’s stated purpose is embedded in company strategies, policies, and goals. Quality of Governing Body Governing Body Composition: Composition of the highest governance body and its committees by: competencies relating to economic, environmental, and social topics; executive or non-executive; independence; tenure on the governance body; number of each individual’s other significant positions and commitments, and the nature of the commitments; gender; membership of under- represented social groups; stakeholder representation. Refer to the Board of directors section on our [Corporate Governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) chapter (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). Progress against strategic milestones: Disclosure of the material strategic economic, environmental, and social milestones expected to be achieved in the following year, such milestones achieved from the previous year, and how those milestones are expected to or have contributed to long-term value. Refer to ´[2021 Overview](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)´  (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)) and Our ESG priorities (p. [27](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634820)) sections on our Responsible Banking chapter Remuneration: 1. How performance criteria in the remuneration policies relate to the highest governance body’s and senior executives’ objectives for economic, environmental and social topics, as connected to the company’s stated purpose, strategy, and long-term value. 2. Remuneration policies for the highest governance body and senior executives for the following types of remuneration: Fixed pay and variable pay, including performance-based pay, equity-based pay, bonuses, and deferred or vested shares, Sign-on bonuses or recruitment incentive payments, termination payments, clawback and retirement benefits. 1. Refer to ´Performance review and remuneration´ in [A talented and engaged team](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112) section on Responsible chapter 2. Refer to [´Remuneration´](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310) section (p. [249](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310))  in Corporate Governance chapter. Theme Metric Response Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 166 Ethical Behavior Anti-corruption: 1. Total percentage of governance body members, employees and business partners who have received training on the organization’s anti-corruption policies and procedures, broken down by region. 2. (a) Total number and nature of incidents of corruption confirmed during the current year but related to previous years and (b) Total number and nature of incidents of corruption confirmed during the current year, related to this year. 3. Discussion of initiatives and stakeholder engagement to improve the broader operating environment and culture, in order to combat corruption. 1. Refer to Financial Crime Compliance on [7.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [Compliance and conduct risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) section (p. [489](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634)) in the Risk management and compliance chapter All our employees receive mandatory training on the GCC on an annual basis. 2. Refer to ‘Litigation and other matters‘ in the [note](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_841) [25.e](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_841) (p. [647](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_850)) of the consolidated accounts 3. Refer to Financial Crime Compliance on [7.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [Compliance and conduct risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) section (p. [489](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634)) in the Risk management and compliance chapter Protected ethics advice and reporting mechanisms: A description of internal and external mechanisms for: 1. Seeking advice about ethical and lawful behaviour and organizational integrity 2. Reporting concerns about unethical or unlawful behaviour and organizational integrity Refer to pages 13-14 in our Code of Conduct (available in our corporate website) In addition see ´[7.2 Compliance and conduct risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634)´ (p. [489](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634)) in the Risk and compliance management section of our Risk management and compliance chapter. And ´Ethical channels´ on ´[Conduct and ethical behaviour](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)´ section (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) of our Responsible Banking chapter Monetary losses from unethical behaviour: Total amount of monetary losses as a result of legal proceedings associated with: fraud, insider trading, anti-trust, anti-competitive behaviour, market manipulation, malpractice, or violations of other related industry laws or regulations. Refer to ‘Litigation and other matters‘ in the note [25.e](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_850) (p. [647](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_850)) of the consolidated accounts Alignment of strategy and policies to lobbying: The significant issues that are the focus of the company’s participation in public policy development and lobbying; the company’s strategy relevant to these areas of focus; and any differences between its lobbying positions, purpose, and any stated policies, goals, or other public positions. Refer to ´Principles of action in our relationship with political parties´ in the Conduct and ethical behaviour section on Responsible banking chapter (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) Our Financing of political parties policy is available on our corporate website Risk and Opportunity Oversight Integrating risk and opportunity into business process: Company risk factor and opportunity disclosures that clearly identify the principal material risks and opportunities facing the company specifically (as opposed to generic sector risks), the company appetite in respect of these risks, how these risks and opportunities have moved over time and the response to those changes. These opportunities and risks should integrate material economic, environmental, and social issues, including climate change and data stewardship. Refer to Risk management and Compliance chapter (p. [430](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)). In addition, we report our progress in implementing TCFD recommendations (including Risk management) on Responsible Banking chapter (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) Our Environmental, social and climate change risk policy is available at our corporate website. Stakeholder Engagement Material issues impacting stakeholders: A list of the topics that are material to key stakeholders and the company, how the topics were identified, and how the stakeholders were engaged. Refer to What our stakeholder tell us section on Responsible Banking chapter (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)). Refer also to Our ESG priorities (p. [27](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634820)). Theme Metric Response Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 167 Planet Climate Change Greenhouse Gas (GHG) emissions: For all relevant greenhouse gases (e.g. carbon dioxide, methane, nitrous oxide, F-gases etc.), report in metric tonnes of carbon dioxide equivalent (tCO₂e) GHG Protocol Scope 1 and Scope 2 emissions. Estimate and report material upstream and downstream (GHG Protocol Scope 3) emissions where appropriate. Refer to ´Table 28. Environmental footprint 2020-2021´ in the  Key metrics section of the Responsible Banking chapter (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). •Total emissions (market based): 118.517 T CO2 teq •Scope 1: 25,672 CO2 teq •Scope 2 – market based: 57,425 T CO2 •Scope 2 – location based: 269,615 T CO2 teq •Scope 3: 35,420 T CO2 teq TCFD implementation: Fully implement the recommendations of the Task Force on Climate- related Financial Disclosures (TCFD). If necessary, disclose a timeline of at most three years for full implementation. Disclose whether you have set, or have committed to set GHG emissions targets that are in line with the goals of the Paris Agreement — to limit global warming to well-below 2°C above pre- industrial levels and pursue efforts to limit warming to 1.5°C — and to achieve net-zero emissions before 2050. Refer to Supporting the green transition section of the Responsible Banking chapter (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)), were we report our progress in implementing TCFD recommendations. In 2020, we became carbon neutral on our own operations. In 2021, we set our commitment to be net-zero in carbon emissions by 2050, and we set our first decarbonization targets. in addittion, refer to Climate and environmental risk section (p. [499](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661)) of the Risk management and compliance chapter. Paris-aligned GHG emissions targets: Define and report progress against time-bound science-based GHG emissions targets that are in line with the goals of the Paris Agreement — to limit global warming to well-below 2°C above pre-industrial levels and pursue efforts to limit warming to 1.5°C. This should include defining a date before 2050 by which you will achieve net-zero greenhouse gas emissions and interim reduction targets based on the methodologies provided by the Science Based Targets initiative if applicable. Refer to Supporting the green transition section (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)). of the Responsible Banking chapter. We set our first decarbonization targets. We're committed to aligning our power generation portfolio with the Paris Agreement by 2030. We are also ending financial services to power generation clients by 2030 if over 10% of their revenue depends on thermal coal. Fresh water availability Water consumption and withdrawal in water- stressed areas: Report for operations where material, mega litres of water withdrawn, mega litres of water consumed and the percentage of each in regions with high or extremely high baseline water stress according to WRI Aqueduct water risk atlas tool. Estimate and report the same information for the full value chain (upstream and downstream) where appropriate. Refer to Key metrics section on Responsible Banking chapter (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). In 2021, Santander consumed 1,808,668 m3 from the public network, equaling a consumption of 9.76 m3/ employee. (Information is provided exclusively on water withdrawal from the public network). We do not disclose data on water stress, due to our financial activities generating negligible impacts. Nature Loss Land use and ecological sensitivity: Report the number and area (in hectares) of sites owned, leased or managed in oradjacent to protected areas and/or key biodiversity areas (KBA). Not identified as a material aspect for the bank and its activity. Single-use plastics Report wherever material along the value chain: estimated metric tonnes of single-use plastic consumed. Disclose the most significant applications of single- use plastic identified, the quantification approach used and the definition of single-use plastic adopted. Refer to 2021 Overview section (p. [18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9780)) on Responsible Banking chapter. In 2021 we have met our goal of eliminating unnecessary  single-use plastics from our buildings and branches. Theme Metric Response Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 168 Prosperity Employment and wealth generation Absolute number and rate of employment: 1. Total number and rate of new employee hires during the reporting period, by age group, gender, other indicators of diversity and region. 2. Total number and rate of employee turnover during the reporting period, by age group, gender, other indicators of diversity and region. Refer to Key metrics section on the Responsible Banking chapter (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). 1. See: •Table 11.2. Distribution of new hires by age bracket 2021 •Table 11.3. Distribution of new hires by gender 2. See: •Table 13. External turnover rate by gender •Table 14.2. External turnover rate by age bracket 2021 Economic Contribution: 1. Direct economic value generated and distributed (EVG&D) — on an accrual basis, covering the basic components for the organization’s global operations, ideally split out by: a. Revenue b. Operating Costs c. Employee wages and benefits d. Payments to providers of capital e. Payments to government f. Community Investment. 2. Financial assistance received from the government. Total monetary value of financial assistance received by the organization from any government during the reporting period. 1. Refer to Global Reporting Initiative (GRI) content index on the Responsible banking chapter, and more specifically to GRI 201.1 Direct economic value generated and distributed (p. [144](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_169)). •Economic value generated in 2021: EUR 46,414 million •Economic value distributed: EUR 24,541 million •Economic value retained EUR 21,873 million 1.a Revenue: EUR 46,404 million 1.b Operating cost: EUR 21,415 million 1.c Employee wages and benefits: EUR 11,216 million 1.d Payments to providers of capital: N/A 1.e Payments to government: EUR 7,617 million (total taxes) 1.f Community investment: EUR 152 million Further detail for 1a-c refer to Group financial performance section on Economic and financial review chapter (p. [327](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_400)). Further detail for 1d refer to 3.3 Dividends in Shareholders section on Corporate governance chapter (p. [196](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_241)). Further detail for 1e refer to "Tax contribution" section on Conduct and ethical behaviour on  Responsible banking chapter (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)). 2. Grupo Santander did not receive public subsidies in 2021.  Refer to Annual banking report, e) (p. [804](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1072)). Wealth creation and Employment Financial investment contribution disclosure: 1. Total capital expenditures (CapEx) minus depreciation supported by narrative to describe the company’s investment strategy. 2. Share buybacks plus dividend payments supported by narrative to describe the company’s strategy for returns of capital to shareholders. 1.Refer to note 16.b Tangible assets – For own use section on the Auditor's report consolidated financial statements (p. [621](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_811)). Additionally, refer to - Operating expenses data on the Economic and financial review chapter (p. [320](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391)). - Note 47. Other general administrative expenses of consolidated annual accounts (p. [701](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_949)). 2. Refer to Shareholder value section on Responsible Banking chapter (p. [69](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121)). and 3. Shareholders. Engagement and general meeting section on Corporate Governance chapter (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). Community and social vitality Total tax paid: The total global tax borne by the company, including corporate income taxes, property taxes, non- creditable VAT and other sales taxes, employer-paid payroll taxes and other taxes that constitute costs to the company, by category of taxes. Refer to "Tax contribution" on Conduct and ethical behaviour of the Responsible Banking chapter (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)). Further detailed information see Annual banking report (p. [804](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1072)). Additional tax remitted The total additional global tax collected by the company on behalf of other taxpayers, including VAT and employee-related taxes that are remitted by the company on behalf of customers or employees, by category of taxes. Refer to 'Tax contribution' in the Conduct and ethical behaviour section of the Responsible Banking chapter (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)). Further detailed information see Annual banking report (p. [804](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1072)). Theme Metric Response Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 169 Total tax paid by country for significant locations Total tax paid and, if reported, additional tax remitted, by country for significant locations. Refer to 'Tax contribution' in the Conduct and ethical behaviour section of the Responsible Banking chapter (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)). Further detailed information see Annual banking report (p. [804](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1072)). Innovation in better products and services Total R&D expenses ($): Total costs related to research and development. 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 As in previous years, the latest European Commission ranking  (2021 EU Industrial R&D Investment Scoreboard, based on 2020 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 1,325 million. Refer to Research, development and innovation (R&D&I) section on Economic and financial review (p. [410](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_496)). Additional information refer to  note 18 on the Audit's report and consolidated financial statements (p. [627](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_817)) People Dignity and equality Diversity and inclusion (%): Percentage of employees per employee category, per age group, gender and other indicators of diversity (e.g. ethnicity). Refer to Key metrics section of the Responsible Banking chapter (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Additional information on how we promote D&I refer to ´Diversity and inclusion´ in A talented and motivated team section on Responsible Banking chapter (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). Pay equality: Ratio of the basic salary and remuneration for each employee category by significant locations of operation for priority areas of equality: women to men; minor to major ethnic groups; and other relevant equality areas. In 2021 our equal pay gap declined to 1% from 1.5% in 2020. We 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. Refer to ´Equal pay´ in A talented and motivated team section on Responsible Banking chapter (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). Wage level (%): 1. Ratios of standard entry-level wage by gender compared to local minimum wage 2. Ratio of CEO’s total annual compensation to median total annual compensation of all employees (excluding the CEO) 1. Refer to Key metrics section on Responsible banking chapter (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). Table ´16.2 Ratio between the Bank’s minimum annual salary and the legal minimum annual salary by country and gender 2021´ We take as a reference the Bank’s minimum annual salary in each country. 2. Refer to 6. Remuneration section on Corporate Governance chapter (p. [179](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181)). Risk for incidents of child, forced or compulsory labor: An explanation of the operations and suppliers considered to have significant risk for incidents of child labor, forced or compulsory labor. Such risks could emerge in relation to type of operation (such as manufacturing plant) and type of supplier; or countries or geographic areas with operations and suppliers considered at risk. Refer to ´Protecting human rights´ in "Environmental and social risk analysis" on Conduct and ethical behaviour of the Responsible banking chapter (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)). We have zero tolerance towards employee, customer and supplier discrimination, forced labour and child exploitation. We respect the provisions of the ILO convention and the legal minimum working aged established in countries. Further detail on our Human rights policy, available at our corporate website. Theme Metric Response Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 170 Discrimination and Harassment Incidents (#) and the Total Amount of Monetary Losses ($): Number of discrimination and harassment incidents, status of the incidents and actions taken and the total amount of monetary losses as a result of legal proceedings associated with (1) law violations and (2) employment discrimination. Refer to ‘Litigation and other matters‘ in note 25.e of the Auditor's report and consolidated financial statements (p. [647](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_850)). Freedom of Association and Collective Bargaining at Risk (%): 1. Percentage of active workforce covered under collective bargaining agreements 2. An explanation of the assessment performed on suppliers for which the right to freedom of association and collective bargaining is at risk including measures taken by the organization to address these risks. 1. Refer to Key metrics section on Responsible banking chapter (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). - Table 10. Coverage of the workforce by collective agreement Health and well being Health and Safety (%): 1. The number and rate of fatalities as a result of work-related injury; high-consequence work-related injuries (excluding fatalities); recordable work-related injuries, main types of work- related injury; and the number of hours worked. 2. An explanation of how the organization facilitates workers’ access to non-occupational medical and healthcare services and the scope of access provided for employees and workers. 1. Refer to Key metrics section on the Responsible Banking chapter (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). •Table 21. Accident rate •Table 22. Occupational health and safety 2. Refer to Our wellbeing in A talented and motivated team section on Responsible banking chapter (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)). Skills for the future Training provided (#, $): 1. Average hours of training per person that the organization’s employees have undertaken during the reporting period, by gender and employee category (total number of trainings provided to employees divided by the number of employees). 2. Average training and development expenditure per full time employee. Refer to Key metrics section on the Responsible Banking chapter (p. [117](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_154)). •Table 17. Training •Table 18. Hours of training by category •Table 19. Hours of training by gender •30,60 hours per employee •EUR 381.28 of investment per employee. Theme Metric Response Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 171 #### SDGs contribution content index We have identified eleven  SDGs and associated targets on which we have the greatest impact. #### Summary of SDG target #### Relevant reference in the 2021 ESG Report and appendix SDG 1 1.2 Reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions •Support for higher education and other local initiatives. Other community support programmes (p.[107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) 1.4 Ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services •Acting responsibly towards customers. Product Governance and consumer protection. Sales processes. Vulnerable customers (p. [61](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115)) •Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)) 1.5 Build the resilience of the poor and those in vulnerable situations and reduce their exposure and vulnerability to climate- related extreme events and other economic, social and environmental shocks and disasters •Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)) SDG 4 4.3 Ensure equal access for all to affordable and quality technical, vocational and tertiary education, including university. •Support for higher education and other local initiatives. Support for higher education (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) 4.4 Substantially increase the number of young people and adults with technical and vocational skills to access quality employment and entrepreneurial opportunities. •Support for higher education and other local initiatives. Support for higher education (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) 4.5 Eliminate gender disparities in education and ensure equal access to all levels of education and vocational training for persons with disabilities, indigenous populations and vulnerable children, among others. •Support for higher education and other local initiatives. Support for higher education (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) 4.6 Substantially increase the scholarships available to developing countries for enrolment in higher education, including vocational training and ICT, technical, engineering and scientific programmes •Support for higher education and other local initiatives. Other community support programmes (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) •Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)) SDG 5 5.1. End all forms of discrimination against all women and girls everywhere. •A talented and engaged team. A diverse and inclusive workplace. Gender equality (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) 5.5 Ensure women’s full and effective participation in, and equal opportunities for, leadership at all levels of decision making •A talented and engaged team. A diverse and inclusive workplace. Gender equality (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 172 SDG 7 7.1 Ensure universal access to affordable, reliable and modern energy services •Supporting the green transition.  Supporting our customers in the green transition. Corporate and Investment Banking. Financing renewable energies (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) •Supporting the green transition.  Supporting our customers in the green transition. Retail and commercial banking (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) 7.b Expand infrastructure and improve technology to provide modern and sustainable energy services •Supporting the green transition.  Supporting our customers in the green transition. Corporate and Investment Banking. Financing renewable energies (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) SDG 8 8.3 Promote development-orientated policies that support production, job creation, entrepreneurship, creativity and innovation, and promote the start-up and growth of micro, small and medium-sized enterprises through access to financial services and other means. •Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)) •Support for higher education and other local initiatives. Support for higher education. Entrepreneurship (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) •Supporting the green transition. Environmental footprint (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) 8.5 Secure wholesome and productive employment and decent work for all - most notably young people and persons with disabilities - and equal pay for work of equal value. •A talented and engaged team. A diverse and inclusive workplace. Gender equality (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) •A talented and engaged team. A diverse and inclusive workplace. People with disabilities (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) •Support for higher education and other local initiatives. Support for higher education. Fundación Universia (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) 8.6 Substantially reduce the proportion of youth not in employment, education or training •Support for higher education and other local initiatives. Support for higher education (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) 8.8 Protect labour rights and promote safe and secure working environments for all workers, including migrant workers, in particular women migrants, and those in precarious employment •Conduct and ethical behaviour. Ethical channel (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) •A talented and motivated team. A diverse and inclusive workplace. Employee wellbeing. Employee wellbeing (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) •A talented and motivated team. Work-life balance and job efficiency. Social dialogue and restructuring (p. [44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112)) 8.10 Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all •Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)) SDG 10 10.2 Strengthen and promote social, economic and political inclusion for all •Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)) •Support for higher education and other local initiatives. Other community support programmes (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 173 SDG 11 11.1 Ensure access for all to adequate, safe and affordable housing and basic services and upgrade slums •Financial inclusion and empowerment (p. [96](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635183)) 11.4 Strengthen efforts to protect and safeguard the world’s cultural and natural heritage •Conduct and ethical behaviour.  Environmental and social risk management (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) •Support for higher education and other local initiatives. Other community support programmes (p. [107](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011635197)) 11.6 Reduce the adverse per capita environmental impact of cities, including by paying special attention to air quality and municipal and other waste management •Supporting the green transition. Environmental footprint (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) SDG 12 12.2 Achieve the sustainable management and efficient use of natural resources •Supporting the green transition. Environmental footprint (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) 12.5 Substantially reduce waste generation through prevention, reduction, recycling and reuse •Supporting the green transition. Environmental footprint (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) 12.6 Achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value •see Responsible Banking chapter [p. [15](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85)] SDG 13 13.1 Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries •Supporting the green transition. Our approach (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) •Supporting the green transition. Risk management (p. [72](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10216)) SDG 16 16.5 Considerably reduce corruption and bribery in all their forms. •Conduct and ethical behaviour. General code of conduct (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) •Conduct and ethical behaviour. Financial Crime Compliance (p. [37](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)) 16.6 Develop effective, accountable and transparent institutions at all levels •About this report  (p. [16](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634791)) •Shareholder value. Communication with shareholder, investors and analysts  (p. [69](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121)) •Shareholder value.  ESG indices and analysts(p. [69](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_121)) •Further information (p. [131](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_160)) 16.7 Ensure responsive, inclusive, participatory and representative decision-making at all levels •What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)) SDG 17 •What our stakeholders tell us (p. [24](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9853)) •Governance. Partnerships to promote our agenda  (p. [29](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_24739011634827)) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 174 #### Independent verification report GRI 102-56 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 175 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 176 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 177 #### [THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY] Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 178 # Corporate governance Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 179 [1. 2021 Overview](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_187) [182](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_187) [Statement from Bruce Carnegie-Brown](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_190), lead independent director [182](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_190) [1.1  Board skills and diversity](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_193) [182](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_193) [1.2  Board effectiveness](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_196) [183](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_196) [1.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_199) Alignment of executive compensation with group strategy, investors and long term sustainability [184](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_199) [1.4  E](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_202)ngagement with our shareholders in 2021 [184](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_202) [1.5  Achievement of our 2021 goals](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_205) [185](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_205) [1.6  Priorities for 202](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_208)2 [2. Ownership structure](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_211) [188](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_211) [2.1  Share capital](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_214) [188](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_214) [2.2  Authority to increase capital](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_217) [188](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_217) [2.3  Significant shareholders](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_220) [189](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_220) [2.4  Shareholders' agreements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_223) [189](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_223) [2.5  Treasury shares](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_226) [190](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_226) [2.6  Stock market information](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_229) [192](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_229) 3. Shareholders. Engagement and general meeting [193](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_232) [3.1  Shareholder communication and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235) [engagement](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235) [193](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235) [3.2  Shareholder rights](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238) [195](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238) [3.3  Dividend](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_241)s and shareholder remuneration [196](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_241) [3.4  2021 AGM](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_244) [197](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_244) [3.5  Our next AGM in 2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250)022 [199](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250) [4. Board of directors](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_253) [200](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_253) [4.1  Our directors](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) [201](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) [4.2  Board composition](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259) [209](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259) [4.3  Board functioning and effectiveness](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) [215](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) [4.4  Executive committee activities in 202](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_280)1 [221](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_280) [4.5  Audit committee activities in 202](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283)1 [222](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283) [4.6  Nomination committee activities in 202](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286)1 [226](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286) [4.7  Remuneration committee activities in 202](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289)1 [230](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289) [4.8  Risk supervision, regulation and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292) [compliance committee activities in 202](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292)1 [234](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292) [4.9  Responsible banking, sustainability and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) [culture committee activities in 202](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295)1 [238](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) [4.10  Innovation and technology committee](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_298) [activities in 202](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_298)1 [242](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_298) [4.11  International advisory board](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_301) [244](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_301) [4.12  Related-party transactions and conflicts](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304) [of interest](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304) [244](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304) [5. Management team](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_307) [247](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_307) [6. Remuneration](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310) [249](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310) [6.1](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_313) Principles of the remuneration policy [249](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_313) [6.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316) Remuneration of directors for supervisory and collective decision-making duties: policy applied in 2021 [249](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316) [6.3  Remuneration of directors for executive](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) [duties](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) [252](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) [6.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) Directors' remuneration policy for 2022, 2023 and 2024 submitted to a binding shareholder vote [262](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [6.5  Preparatory work and decision-making](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_325) [process in relation to the remuneration](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_325) [polity, with a description of the participation](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_325) [of the remuneration committee](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_325) [270](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_325) [6.6  Remuneration of non-director members of](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_328) [senior management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_328) [271](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_328) [6.7  Prudentially significant disclosures](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_331) [document](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_331) [272](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_331) [7. Group structure and internal governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_334) [273](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_334) [7.1  Corporate centre](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_337) [273](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_337) [7.2  Internal governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_340) [273](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_340) [8. Internal control over financial reporting](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_343) [(ICFR)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_343) [276](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_343) [8.1  Control environment](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_346) [276](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_346) [8.2  Risk assessment in financial reporting](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_349) [277](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_349) [8.3  Control](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_352) activities [278](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_352) [8.4  Information and communication](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_355) [279](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_355) [8.5  Monitoring](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_358) [280](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_358) 8.6  External auditor report [281](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_361) [9. Other corporate governance information](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_367) [284](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_367) [9.1  Reconciliation with the CNMV's corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_370) [governance report model](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_370) [284](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_370) [9.2  Statistical information on corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [governance required by the CNMV](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [288](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [9.3  Table on compliance with or explanations of](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_376) [recommendations on corporate governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_376) [308](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_376) [9.4  Reconciliation to the CNMV's remuneration](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_379) [report model](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_379) [310](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_379) [9.5  Statistical information on remuneration](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382) [required by the CNMV](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382) [311](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 180 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_280) to [4.10](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_298). → Annual report on directors’ remuneration, which we are required to prepare and submit to a non-binding vote at our 2022 annual general meeting. See section [6.](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310) ['Remuneration'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310). → Directors’ remuneration policy. See section [6.4 'Directors’ remuneration policy for 2022,](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [2023 and 2024 submitted to a binding shareholder vote'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). → 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_370) [governance report model'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_370) and [9.4 'Reconciliation with the CNMV’s remuneration report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_379) [model'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_379). → 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 2021 corporate governance and other chapters of this annual report. See section [9.3 'Table on compliance with and explanations of](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_376) [recommendations on corporate governance'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_376). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 181 1. 2021 Overview 'The continuing impact of the global pandemic on our business, on our customers and on our employees, taken together with an uncertain economic and geopolitical environment, reinforces the need for Banco Santander board of directors’ constant vigilance of the management and oversight of its operations. We do this through a commitment to strong and effective governance processes to ensure that the board and management are directing Santander Group and its operations in the best interests of all our stakeholders, including shareholders, customers, employees, regulators and the communities in which we work around the world. We are also committed to playing our part in helping decarbonize the physical environment around us and reach net zero by 2050. Santander’s sophisticated governance model is designed to ensure that it can deliver its strategic plans, while ensuring that appropriate checks and balances are in place, so that the business is, at all times, resilient and sustainable in the face of a rapidly changing set of challenges and aligned with our values. During 2021, we devoted time to reviewing the roles and responsibilities of the most senior executives, including those of the executive chair and the CEO; and the independence, integrity and robustness of Banco Santander´s control functions. Details of the governance reviews conducted in that regard are outlined in the nomination committee report. Succession planning for our board members and senior managers remains a priority and will enable us to attract and retain the diverse range of highly talented colleagues we need to lead Banco Santander. Notwithstanding the strong performance of Santander in 2021, it is important that we are never complacent and that we continue to challenge ourselves and look to improve our governance where possible'. Bruce Carnegie-Brown, Lead independent director 1.1 Board skills and diversity The board’s composition did not change in 2021, after three years in which 47% of its members were renewed in order to boost diversity and expertise. 40% of board members are women, in line with its even representation target (of 40-60%) of both genders; and 66.67% are independent directors. The changes in recent years have strengthened its banking, financial, technological and digital prowess; made it more diverse in terms of regional origin; and, overall, given it the right composition to lead the Group in pursuit of its strategy now and in the future. On 24 February 2022, the board of directors nominated Germán de la Fuente Escamilla to be made a new independent director at the annual general meeting called for 31 March on first call or on 1 April on second call (2022 AGM), and fill the vacancy left by Álvaro Cardoso de Souza, who had announced he would effectively step down once a nomination was approved. See section [3.5 'Our next](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250) [AGM in 2022'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250). Germán de la Fuente has a solid background in auditing, accounting and the banking industry, and held senior positions at Deloitte for over 30 years. Changes to the director category Sergio Rial has changed his classification from executive to other external (non-executive or independent) having ceased his executive functions as CEO of Banco Santander (Brazil), S.A. and regional head of South America of the Group. Board committees The board made the following changes to the composition of its committees to further enhance their operations and support in their Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 182 areas of expertise, according to best international practice and internal regulation: •Nomination committee: Gina Díez Barroso joined the committee on 22 December 2021, raising the number of committee members from three to four. •Risk supervision, regulation and compliance committee: Belén Romana García was appointed chair of the committee on 1 April 2021, replacing Álvaro Cardoso, who stepped down on the same date and was replaced by Pamela Walkden on 1 May 2021. 1.2 Board effectiveness Covid-19 and after the pandemic In 2020, the pandemic’s unprecedented effect on health and the global economy required a rapid, coordinated and sustained response from Santander to safeguard business continuity and tackle challenges effectively. In 2021, the board and its committees carried on that effort amid recovery from the crisis. Banco Santander’s Special situations global office (SSGO) reviewed Covid-19 management to recognize strengths in special situation governance, as well as opportunities to improve it. The board received its findings (based on feedback from core functions and external agents) and approved the improvements being made. The exercise recognized the good practices adopted and rapid reaction capacity adopted by Banco Santander. In this sense, our management of the crisis has been recognised both externally (Euromoney award “Excellence in leadership” as best bank in the management of the crisis) and internally (95% of employees consider the crisis management to be very good). In addition, the review highlighted some areas of improvement: the relevance of the early and forward-looking threat identification, the speed-up of decision-making process and the coordination across the Group. In addition to reviewing the special situation governance system, the board oversaw the measures taken for our stakeholders: •Employees: reorganization of the way of working (promoting the remote working) and implemented protocols and preventive measures with the aim of protecting the health of all the Group's employees. •Customers: revamp the digital and remote channels with multiple customised solutions to help retail customers and businesses; relaxing loan conditions for people and businesses hit by the pandemic (payment holidays, grace periods); or swiftly facilitating government-backed lines of credit and other public assistance measures. •Shareholders: hybrid and remote general meetings that shareholders could attend in person or online, and revision of the shareholder remuneration policy according to ECB recommendations. •Society: engagement with governments and institutions to aid recovery from the crisis, including donations of urgent health equipment and supplies. Group and subsidiary board relations Strengthening the ties between the Group's and the subsidiaries' boards of directors is key to effective oversight of policies, controls and corporate culture. In the last two years, the global pandemic heightened the need for the effective cross-border cooperation that our proven Group Subsidiary Governance Model (GSGM) facilitates. That governance model is strengthened by the presence of a number of Group non-executive directors on our subsidiary boards: Luis Isasi at Santander España; Álvaro Cardoso at Banco Santander (Brasil), S.A.; Homaira Akbari at Santander Consumer USA Holdings Inc.; and Pamela Walkden at Santander UK plc and Santander UK Group Holdings plc (having replaced Bruce Carnegie-Brown in 2021). See section [7. 'Group structure and internal governance'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_334). In 2021 we also continued to hold committee chair conventions across the Group. They reinforced our coordination and accentuated the benefits of cross-border cooperation. Specifically, conventions of the audit and responsible banking, sustainability and culture committees chairs were held at the Santander Headquarters in Boadilla del Monte. The conventions aimed to foster further collaboration between countries, raise awareness about global initiatives and expectations, collectively debate current affairs and relevant operational matters, as well as encouraging networking among attendees. Both events were successful and productive, with universal positive feedback received from participants. Our approach to holding such conventions will continue in 2022 and beyond. Board assessment and actions to continuously improve its functioning Corporate governance is a key priority for Santander. Our governance model has consistently received strong support from shareholders, as evidenced by their high participation in general meetings and strong percentage of approval for corporate management and the re- election of the executive chair and other directors. As we are aware that governance arrangements need to adapt to contingent and forward-looking business and strategy needs, we must continuously monitor and enhance the functioning of our governance bodies. While we are confident of the effectiveness of Santander’s governance model, we regularly assess our governance framework with the support of external advisers as required. We also review individual and collective skills to ensure the board’s competence and diversity are sufficient for it to function effectively and hold management to account through constructive challenge. In 2020 we asked Egon Zehnder to conduct an effectiveness review of the board of directors and its committees in line with our policy to have an external party assess their annual effectiveness every three years. Egon Zehnder concluded that Santander’s board is highly effective, with recent changes in its composition resulting in a stellar set of diverse and outstanding individuals and that its governance model with the current individuals in key roles, is well designed and effectively implemented with demonstrable outcomes, as shown in the performance of Banco Santander and high satisfaction of the board members. In addition, in 2021 we asked another external firm to execute a broader review of our governance arrangements with the aim of assessing its overall functioning and adherence of Santander’s governance model to regulations, supervisors’ expectations, and industry best practice. After an in-depth analysis, the external firm came to the conclusion that Santander has implemented a sophisticated governance model that suits its group-wide characteristics and requirements. The external firm highlighted that Santander's corporate governance is a key tool to drive the Group towards the implementation of its medium and long-term strategy, Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 183 while managing the BAU operations and keeping a strong control on risks. They also acknowledged the high profile of Santander’s board members as well as the diversity of board in terms of gender, geography, age and background. Both external firms identified some areas for further improvement that contributed to an internal discussion led by the nomination committee and its chair, our lead independent director. In view of the conclusions of both reviews, in December 2021 the board of directors approved an action plan that will further align our corporate governance arrangements with supervisors’ expectations and best industry practices. It revolves around these objectives: •Ensuring continued clarity of the role and the responsibilities of the most senior executives, including the executive chair and CEO; •Ensuring that checks and balances remain appropriate and effective; and •Ensuring that the independence of control functions remains fully preserved. The plan will be executed in 2022 under the coordination of the general secretary and with oversight of the nomination committee and its chair. In addition to the above-mentioned structured reviews and resultant action plan, we encourage an environment of ongoing feedback and suggestions from the board members focused on continuous improvement. In 2021, the non-executive directors, under the leadership of the lead independent director, identified the following areas for improvement: •Optimizing board time spent together and the strategic areas of board focus; and increasing engagement with the executive and younger talent pools; •Increasing board visibility of customers' and branches' needs and circumstances; •Striking the right balance between holding the executive to account and engaging with the future talent pipeline; •Optimizing the materials delivered to the board and its committees, ensuring the right balance between content and length; •Continued focus on effective coordination between the board and its committees, ensuring an appropriate distribution of workload; and •Reviewing scalable processes that could be applied across the Group more effectively, while understanding the changes required for the Group’s strategic direction being more effective. We are confident these actions will have a lasting positive impact on our effective corporate governance. In the future, according to our commitment to continuous improvement, we will review our corporate governance arrangements on an ongoing basis, so as to ensure that they remain fully effective. 1.3 Alignment of executive compensation with the Group's strategy, investors and long-term sustainability Following the entry into force of the Capital Requirements Directive (CRD V), the board revised the remuneration scheme after five years to align it with strategy, investors’ interests and long-term sustainability. We took action to: •Introduce stock options as part of variable pay, for greater alignment with shareholder returns; •Update long-term compensation metrics, prioritizing: •Profitability and long-term value creation for Santander, applying return on tangible equity (RoTE); •Consistent total shareholder return (TSR), albeit raising the threshold above which executives begin to receive compensation for this metric from 33% to 40%; and •Sustainability, embedding an ESG metric that comprises five sub- metrics related to our Responsible Banking agenda. •Reduce the short-term corporate bonus metrics from four to three: customers (30%), RoRWA (40%) and RoTE (30%) to sharpen focus on the Group’s strategic priorities of customer and profitability; and •Make these amendments to match the Group’s strategic priorities: •Executive directors’ compensation as board members of PagoNxt to be paid in PagoNxt capital instruments. •Scope of the Digital Incentive widened to include a PagoNxt component that encourages non-PagoNxt executives to work together towards its success, and the strategic initiatives of the Digital Consumer Bank and One Santander in Europe. 1.4 [E](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_202)ngagement with our shareholders in 2021 In 2021, Banco Santander interacted with shareholders under conditions still marked by the covid-19 health crisis. Combining traditional communication channels with virtual meetings and special campaigns was fundamental to remain aligned with their interests and keep their loyalty. By digitalizing to stay at the forefront of both our core activity and shareholder and investor relations, we helped some four million shareholders from all over the world engage Grupo Santander. We focused our efforts on explaining our governance and sustainability strategy in detail. Because we understand investors are more considerate of ESG performance and the impact our operations can have on society and the environment, we give detailed explanations about how we are helping tackle inequality, climate change and other global challenges. We also engaged in open and constructive dialogue with analysts who provide investors with information about sustainability and assess our risks, actions and impact relating to ESG. We were proactive in sharing developments in our responsible banking agenda, particularly regarding climate change, and considering their feedback in our materiality analysis and work to introduce ESG into our remuneration scheme. By doing things responsibly and creating long-term environmental and social solutions to support inclusive and sustainable growth, we are able to create value for shareholders and earn their lasting loyalty. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 184 As regards the engagement of the shareholders in our corporate governance, in the light of attendance at the entirely virtual general meeting we held in 2020, we repeated the same format in 2021 according to all company obligations and without compromising shareholders’ rights. By facilitating remote attendance through a live online broadcast of the general meeting, we ensure shareholders can fully exercise their rights to attend, participate, cast votes, make remarks, make proposals and send messages to the notary public that has been proved fundamental. Figures from the 2021 annual general meeting reveal that participation under this format is very similar to that in hybrid general meetings (see section [3.4 '2021](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_244) [AGM'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_244)). We are convinced that our virtual general meetings provide shareholders the same opportunity to participate as in-person meetings. We proposed to shareholders at the general meeting an amendment to our by-laws to sanction entirely virtual general meetings. The new by-law provides even more extensive protections than the law, as it allows shareholder requests to be addressed (where possible) during general meetings or posted on the corporate website for the general public if they are addressed on a later date. All over the world, shareholders vastly supported making our regulations on general meetings more flexible. Now, they will not need to travel in order to take part in meetings (see section [3.4 '2021](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_244) [AGM'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_244)). 1.5 Achievement of our 2021 goals The 2020 annual report disclosed our corporate governance goals and priorities for 2021. The following chart describes how we delivered on each priority. #### 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. In 2021 we created value for our shareholders by focusing on delivering profitable growth in a responsible way. Our approach to ESG is embedded in all we do. In 2021 we generated more than EUR 2 billion in underlying profit every quarter and increased shareholder profitability compared to pre-pandemic levels. A key driver of this performance is our business model, customer focus, global scale and diversification. #### Covid-19 crisis governance 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. Since the covid-19 crisis began, the Group has focused on devising and implementing measures to mitigate its impact. The Group updated its Special Situations and Resolution rule map with a revised corporate framework that the subsidiaries’ boards had adopted in December 2021. The new rules emphasize pre-emptive management of events and streamlined escalation. In particular, we tightened centralized monitoring and oversight of subsidiaries to coordinate their decisions with the Group effectively. We launched several initiatives to financially support customers affected by the pandemic and to safeguard our customers’ and employees' health while guaranteeing normal services. To fight the pandemic in the countries where we operate, we took several social actions, such as providing essential health equipment and supplies. See subsection 'Covid-19 and after the pandemic' in section [1.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_196). Because of the Group and its subsidiaries’ robust financial situation, we were able to maintain stable business levels and appropriate capital, liquidity and risk profile levels. We executed our risk management and control processes correctly, and our governing bodies heard regularly about the pandemic’s impact and the measures each subsidiary was taking. #### 2021 goals #### How we delivered Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 185 #### 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. Our aim to become the world's best open financial services platform, building on our technology to earn customers’ lasting loyalty, was helped by the progress we made with three strategic initiatives in 2021: One Santander, PagoNxt and Digital Consumer Bank. We laid the foundations of our transformation in Europe (One Santander), with greater connection between customer segments and higher business activity that resulted in steady growth. In 2022, we will focus on harnessing our scale to roll out a common operational and business model. PagoNxt also became a global payment platform for all Santander customers and the open market. Its acquiring solution is already running in 6 markets, serving 1.2 million merchants; its international trade solution is already in 8 markets. Also, we launched the Payments Hub to support all our customers’ payments. Digital Consumer Bank also registered strong financial performance and significantly increased its customer base in its push to become the largest digital consumer credit bank. #### 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. Overseeing the implementation of our decisions to support the objectives of the Paris Agreement and focusing on fulfilling our commitment to raising and facilitating EUR 120 billion in green finance and to achieving the financial inclusion of 10 million people by 2025. We met or exceeded all our 2019-2021 commitments and continued our efforts to make progress on our commitments for 2025. On climate change, we set a goal to achieve net-zero CO2 emissions by 2050 and created our first decarbonization targets for exposures to thermal carbon and electric power generation. We became founder members of the Net Zero Banking Alliance and Santander Asset Management was the first fund manager in Spain to join the Net Zero Asset Managers Initiative with a commitment to reducing emissions from assets under management by 50% by 2030.  We also issued our third green bond in the amount of EUR 1 billion to finance wind and solar power projects, and expanded our range of ESG wealth management products. Through Santander finance for all program, we’ve financially empowered more than 7 million people since 2019. Euromoney named us “Best Bank for Sustainable Finance in Latin America” and “Best ESG Private Bank” and “Best Bank for Financial Inclusion”. Furthermore, Great Place To Work recognized us, for the third time, as one of the top 25 companies to work for. We were also the world's highest scoring bank and the second highest-scoring company in gender equality and diversity according to the Bloomberg Gender-Equality Index (the 2022 index includes 418 companies from 45 countries). For more details, see ['Responsible banking'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) chapter. #### 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. In 2021, an in-depth review by an external adviser indicated that Banco Santander’s corporate governance is consistent with regulation, industry best practice and the Group’s structure, conducive to effective management to implement strategy and sustain sound risk control. Our high rankings by ESG analysts who reviewed our performance in 2021 speak to our commitment to the highest governance standards. Banco Santander also received the highest score in the Spanish Association for Standardisation and Certification's (AENOR) new Good Corporate Governance Index, which checks board structure and dynamics, transparency, sustainability and ESG oversight. As always, this year we followed the recommendations and instructions of supervisors and national and international bodies. We reviewed the EBA’s new guidelines on internal governance and remuneration and joint guidelines with the ESMA on the assessment of the suitability of members of the management body and key function holders (released in July 2021) and are taking the measures needed to accommodate them. In 2021 we fully complied with the total 61 recommendations that apply to us in the CNMV’s Code of Good Governance (see section ['9.3 Table on compliance with, or](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_376) [explanations of, recommendations on corporate governance'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_376)). #### 2021 goals #### How we delivered Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 186 1.6 Priorities for 2022 Our board’s priorities for 2022 are: •Developing strategic initiatives: One Santander, PagoNxt and Digital Consumer Bank Overseeing those three strategic initiatives we launched in 2020 to help achieve our aim to be the world’s best open financial services platform, acting responsibly and earning the trust of our employees, customers, shareholders and broader society: •One Santander: A common operational and business model created to transform the way we serve our customers and provide a simpler and more enhanced customer experience; •PagoNxt: This autonomous global payment platform to integrate all Santander customers with open market includes the Payments Hub and our acquiring and international trade businesses. It will roll out payment solutions globally to our customers faster, which is critical to building One Santander; and •Digital Consumer Bank: Integrating Santander Consumer Finance (SCF) and our fast-growing auto and consumer finance businesses with Santander's digital native bank, Openbank, to boost the technological transformation of the consumer finance business and ensure profitability and growth. •Ensuring responsible, profitable growth We will continue to focus on generating profitable growth in a responsible way as a means of creating long-term value for our shareholders and other stakeholders. We will oversee the fulfilment of our ESG commitments to reach net zero emissions by 2050; raise 120 billion euros in green financing by 2025 and 220 billion euros by 2030; and financially empower 10 million people by 2025. In 2022, we will set new short- and medium-term climate change objectives that will help us meet our long-term climate commitment. •Strengthening governance to ensure we fulfil our long-term vision We will continue to bolster our corporate governance by taking the improvement measures we identified in the 2021 review and enhancing our management bodies' operations to make sure we continue to adhere to national and international best practices and to supervisors' expectations. •Maintaining capital discipline and creating shareholder value In 2022, we will prioritize organic growth as part of our capital management, focusing on businesses with high returns on risk- weighted assets (RoRWA) and shareholder remuneration. Our shareholder remuneration policy aims to pay out 40% of 2022 underlying profit, split in approximately equal measure between a cash dividend and a share buyback. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 187 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 EUR 0.50. 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'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_217). At 31 December 2021, Banco Santander had a share capital of EUR 8,670,320,651 represented by 17,340,641,302 shares. In 2021, share capital did not change. At the 2022 AGM, the board of directors submitted three capital reduction resolutions to cancel the shares that were or will be acquired through the two announced share buyback programmes; as well as those that will be acquired as part of any new buyback programmes that the board may initiate or by other means legally permitted. See sections [3.3 'Dividends and shareholder](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_241) [remuneration'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_241) and [3.5 'Our next AGM in 2022'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250). We have a broad and balanced shareholder structure. At 31 December 2021, Banco Santander had 3,936,922 shareholders, distributed by type of investor, geographic region and number of shares as follows: TYPE OF INVESTOR % of share capital BoardA 1.05% Institutional 39.63% Retail 59.32% 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259) and subsection A.3 in section [9.2 'Statistical information on corporate governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). CONTINENT % of share capital Europe 76.09% Americas 22.44% Rest of the world 1.47% Total 100% NUMBER OF SHARES % of share capital 1-3,000 8.57% 3,001-30,000 17.30% 30,001-400,000 12.01% Over 400,000 62.11% 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 By-laws are fully aligned with Spanish law and do not establish any different conditions for share capital increases. As of 31 December 2021, our board of directors had received authorization from shareholders to approve or carry out the following capital increases: •Authorized 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 47.86% of the share capital at 31 December 2021). The board was granted this authorization 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 9.57% of the share capital at 31 December 2021). However, when Law 5/2021 of 12 April, amending the revised Spanish Companies Act and other financial regulation in regard to the fostering of long-term shareholder engagement by listed companies (Act 5/2021) came into force, this limit on issuing shares without pre-emptive rights does not apply to capital increases to convert CCPS (which shall be converted into newly- issued shares when the CET1 ratio falls below a predetermined threshold). To date, this authorization has been used for the three CCPS issues executed in 2021. The board of directors is proposing to have this authority renewed at our 2022 AGM. See section [3.5 'Our next AGM in 2022'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 188 •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 authorization 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 resolution that allows convertible instruments and securities to be issued for up to EUR 10 billion or an equivalent amount in another currency (three issues were executed in 2021 under this authorization, 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 which each issue was executed. 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 25/04/2017 EUR 750 million 6.75% for the first five years If, at any time, the CET1 ratio of Banco Santander or the Group is less than 5.125% 207,125,103 29/09/2017 EUR 1,000 million 5.25% for the first six years 263,852,242 19/03/2018 EUR 1,500 million 4.75% for the first seven years 416,666,666 08/02/2019 USD 1,200 million 7.50% for the first five years 388,349,514 14/01/2020 EUR 1,500 million 4.375% for the first six years 604,594,921 06/05/2021 USD 1,000 million 4.75% for the first six years 391,389,432 06/05/2021 EUR 750 million 4.125% for the first seven years 352,278,064 21/09/2021 EUR 1,000 million 3.625% for the first eight years 498,007,968 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 2021, 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 2021, 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 (13.35%), Chase Nominees Limited (9.15%),The Bank of New York Mellon Corporation (5.21%), Citibank New York (3.74%) and EC Nominees Limited (3.34%). On 24 October 2019 BlackRock Inc., asset manager, reported to the CNMV its significant holding of voting rights in Banco Santander (5.426% of share capital at 24 October 2019). 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. In addition, on 21 February 2022, Amundi, S.A., another asset manager, reported to the CNMV its significant holding of voting rights in Banco Santander (3.007% of share capital), while it specifies that the corresponding shares are held by investment funds managed by management entities controlled by Amundi, S.A., none of which exceeds 3% individually. No other changes have been communicated since 31 December 2021. There may be some overlap in the holdings declared by the above mentioned custodians and asset managers. At 31 December 2021, neither our shareholder registry nor the CNMV's registry showed any shareholder residing in a non- cooperative jurisdictions 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304) ['Related-party transactions and conflicts of interest'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304). 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 agreement requires prior authorization 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 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 189 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 chair of the Fundación Botín (currently, Javier Botín, one of our directors and our Group executive chair'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 2021, the parties to the shareholders' agreement held 100,784,838 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [governance required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) 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. First Buyback Programme On 28 September 2021, the board resolved to execute a treasury shares buyback programme (First Buyback Programme) worth up to 841 million euros (20% of the Group’s underlying profit in H1 2021) according to the treasury shares policy and 2021 shareholder remuneration policy. It had based its decision on authorization by the ECB, and by shareholders at the April 2020 AGM. In the First Buyback Programme (from 6 October to 25 November 2021), we acquired 259,930,273 treasury shares —1.499% of Banco Santander’s share capital— at a weighted average price per share of 3.2355 euros. The purpose of the First Buyback Programme was to reduce Banco Santander’s share capital by cancelling the repurchased shares, which the board put to a vote at the 2022 AGM. See section [3.5 'Our](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250) [next AGM in 2022'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250). Second Buyback Programme Under the same AGM approval, on 24 February 2022 the board resolved that it would execute a new share buyback programme worth 865 million euros (approximately 20% of the Group’s underlying attributable profit in H2 2021) as shareholder remuneration charged against 2021 results once it had obtained the required regulatory authorization (Second Buyback Programme). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 190 The purpose of the Second Buyback Programme is to reduce Banco Santander’s share capital by cancelling purchased shares (up to the agreed maximum), for which the board submitted a resolution for a vote at the 2022 AGM. See section [3.5 'Our next AGM in 2022'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250). Activity in 2021 As of 31 December 2021, Banco Santander and its subsidiaries held 277.591.940 shares, which represented 1.601% of share capital (compared to 28.439.022 at 31 December 2020, then representing 0.164% of share capital). The chart below summarizes the monthly average proportion of treasury shares to share capital throughout 2021 and 2020. MONTHLY AVERAGE OF DAILY POSITIONS IN TREASURY SHARES % of Banco Santander’s share capital at month end 2021 2020 January 0.16% 0.09% February 0.18% 0.06% March 0.17% 0.11% April 0.17% 0.17% May 0.18% 0.17% June 0.19% 0.15% July 0.19% 0.15% August 0.05% 0.17% September 0.05% 0.17% October 0.27% 0.18% November 1.08% 0.17% December 1.90% 0.16% In 2021, the Group's treasury share trades consisted of the following values: ACQUISITIONS AND TRANSFERS OF TREASURY SHARES IN 2021 Acquisitions Transfers EUR (except number of shares) Number of shares Total par value Total cash amount Average purchase price Number of shares Total par value Total cash amount Average purchase price Profit (loss) net of taxes Discretionary trading 68,493,750 34,246,875 198,647,885 2.90 79,271,105A 39,635,553A 248,288,885A 3.13B 23,270,000B Client induced tradingC 195,888,825 97,944,413 605,336,429 3.09 195,888,825 97,944,413 605,336,429 3.09 0 Santander share buy- back 259,930,273 129,965,137 840,999,994 3.235 N/A N/A N/A N/A N/A Total 524,312,848 262,156,424 1,644,984,308 3.08 275,159,930A 137,579,966A 853,625,314A 3.11B 23,270,000B A. Includes two extraordinary donations totalling 55,750,000 treasury shares to Fundación Banco Santander. For more details, see 'Other programs to support communities' in section 'Support to higher education and other local initiatives' of the ‘Responsible banking’ chapter. B. Excluding the donations mentioned in footnote A above. C. 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 2021A % of voting rights represented by shares Reported on acquired since last notice transferred since last notice held at reference date of notice 17/03/2020B 0.163% 0.185% 0.156% 14/06/2021 1.001% 0.96% 0.197% 20/10/2021 1.017% 0.916% 0.298% 19/11/2021 1.001% 0.146% 1.153% A. Percentages calculated with share capital at the date of disclosure. B. This notice was corrected by disclosure dated 18 March 2021. Data shown as corrected. Transactions with financial instruments Below are the details of the transactions we carried out of our own accord for a purpose similar to discretionary treasury share management and with Banco Santander shares as the underlying asset in 2021: •In Q4, we took an investment position with a Delta (i.e. net exposure to share price changes) equalling 8,000,000 shares worth a total 22,600,000 euros. That was the final position at year end. •The instruments used were Total Return Equity Swaps, payable exclusively as a cash settlement. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 191 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'. Market trends The global economy came back strong. Vaccination programmes enabled a return to economic activity and mobility amid excess liquidity and expansionary fiscal policies. Despite uncertainties due to the surge of new covid-19 variants, positive trends drove a rise in commodity prices and inflationary pressures, which rebounded to the highest levels in a decade in the US and the eurozone. Central banks in developed economies began a widespread withdrawal of monetary stimulus. The Bank of England raised interest rates to 0.25% on the back of a strong jobs market and high inflation. The US Federal Reserve announced its intention to start raising rates no later than mid-2022. The ECB is limiting the withdrawal of stimulus to liquidity by scaling back its purchase programmes. Major global equity indices ended 2021 with significant aggregate gains. The banking industry registered better performance owing to the lifting of restrictions on dividend payments, favourable results of US bank stress tests, and better outlooks for most European banks. The IBEX 35 in Spain increased 7.9%; the DJ Stoxx 50 in Europe by 22.8%; DJ Banks by 34.0%; and the MSCI World Banks by 22.7%. Market capitalization and trading By 31 December 2021, Banco Santander’s market capitalization of EUR 50,990 million was the second largest in the eurozone and 24th largest in the world among the financial institutions. 13,484 million Banco Santander shares traded in the year for an effective value of EUR 41,195 million and a liquidity ratio of 78%. THE BANCO SANTANDER SHARE 2021 2020 Shares (million) 17,340.6 17,340.6 Price (EUR) Closing priceA 2.941 2.538 Change in the price 16% -29% Maximum for the periodA 3.509 3.799 Date of maximum for the period 3/6/2021 17/2/2020 Minimum for the periodA 2.375 1.439 Date of minimum for the period 28/1/2021 24/9/2020 Average for the periodA 3.055 2.288 End-of-period market capitalization (EUR million) 50,990 44,011 Trading Total volume of shares traded (million) 13,484 19,080 Average daily volume of shares traded (million) 52.7 74.2 Total cash traded (EUR million) 41,195 45,034 Average daily cash traded (EUR million) 160.9 175.2 A. Data adjusted to the December 2020 capital increase. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 192 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 communication and 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. The principles of Santander’s policy on communication and engagement with shareholders and investors are: •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. Furthermore, the policy applies to relations with the financial, environmental, social and corporate governance analysts, proxy advisers, rating agencies and other agents whom our shareholders and investors consult and we consider essential. Our policy on communication and engagement with shareholders and investors can be found in the corporate website. In addition, Banco Santander has board-approved frameworks on brand 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, 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 2021 In keeping with our policy, we engaged with our shareholders as follows: •The annual general meeting. The 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238). At the annual general meeting, the chair 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 and the relevant information disclosed to the market since the last general meeting. The CEO presents on the Group’s business landscape, strategy execution and performance (overall and by region, country and business) and the main priorities for the following year. Furthermore, the chairs 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. Our 2021 AGM was fully virtual to protect the health of our shareholders and everyone who organized it. Our general meeting attendance app enables shareholders to exercise their rights to attend and participate in real time and remotely. They can watch Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 193 the entire meeting through a live feed, vote, make remarks, propose resolutions and contact the notary public. Such high shareholder turnout and meeting participation proved our remote communication systems are effective. The outstanding quorum and voting results in our 2021 AGM show the importance we put on shareholder engagement through the annual general meetings. See section [3.4 '2021 AGM'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_244). Banco Santander's management system for the 2021 AGM 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 2021 Results Presentation on 2 February 2022. In 2021, 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 the annual general meeting. We gather their insights and form an opinion about their concerns, especially regarding our corporate governance. In 2021 and early 2022, he met with 20 investors, who accounted for approximately 30% of share capital. 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 schemes, and sustainability matters. In 2021 Shareholder and Investor Relations engaged 942 times (mostly virtually) with 469 institutional investors from 136 locations. 85 of those meetings focused on environmental, social and governance aspects. It engaged with 40% of share capital, which is over 67% of the capital held by institutional investors. We issued over 800 communications in 2021 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 2021 the Shareholders and Investors Relations team organized 116 events with retail shareholders: 94 virtually; 20 in-person; and two in hybrid format. 5,027 people accounting for 332,063,674 shares (4% of our retail shareholders’ capital in Spain) attended. Shareholders engaged with the chief financial officer (CFO) at several events. The team also responded to 139,301 queries received via our shareholder and investor helplines, mailboxes, WhatsApp and bilateral meetings on the Virtual Customer Channel. Satisfaction surveys revealed 96% would recommend the attention service. Lastly, we received 18,695 shareholder and investor opinions through quality surveys and studies. Communication with proxy advisors and other analyst and influencers 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 2021, through our continuous engagement with the main proxy advisers, we duly reported on and explained proposed resolutions submitted for the 2021 AGM so they could make voting recommendations. 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). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 194 Other channels According to good governance guidelines, we have an app for Android and iOS with vast insight into the Group so all shareholders and investors can stay well informed. We also post information about Banco Santander regularly on our official Twitter and LinkedIn accounts. 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 neutralization 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'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_223) 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. Shareholders can attend general meetings remotely. They can watch it through a live feed, vote, make remarks, propose resolutions and contact the notary public. 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. 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. Any shareholder can also request that the meeting address non- agenda items for which the law does not require a minimum percentage of share capital for a resolution to be put to a vote (the removal of directors or bringing corporate liability action against any of them). 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 195 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 authorization 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 and shareholder remuneration Distribution charged against 2021 results ECB Recommendation of 15 December 2020, which asked banks not to pay out dividends charged against 2021 results (ECB Recommendation III), was in force for over half of 2021. On 23 July 2021, the ECB believed the reasons underpinning ECB Recommendation III to limit dividend payouts were no longer valid and, thus, repealed it effectively on 30 September 2021. On 28 September 2021, the board announced its 2021 shareholder remuneration policy to pay out an interim distribution from approximately 40% of the Group's underlying profit (half through a cash dividend and half through a shares buyback). •Interim remuneration. Accordingly, it authorized the payment of an interim dividend of 4.85 euro cents per share (i.e. 20% of the Group's underlying profit in H1'21), in cash and charged against 2021 profits; it was paid on 2 November 2021. The board also voted to launch the First Buyback Programme worth 841 million euros (20% of the Group's underlying profit in H1'21) once the ECB approved it on 28 September 2021 (see in 'First Buyback Programme' in section [2.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_226)). •Final remuneration. On 24 February 2022, within the 2021 shareholder remuneration policy, the board of directors voted to: •submit a resolution at the 2022 AGM to approve a final cash dividend in the gross amount of 5.15 eurocents per share, worth approximately 865 million euros (approximately 20% of the Group’s underlying profit in H2 2021). If approved at the AGM, the dividend would be payable from 2 May 2022. The estimate of 865 million euros is based on the assumption that, once the Second Buyback Programme has taken place, the number of outstanding shares entitled to receiving dividends will be 16,804,353,202. Therefore, the total dividend may be higher if fewer shares than anticipated are acquired in the Second Buyback Programme; otherwise, it will be lower. •implement a Second Buyback Programme worth 865 million euros (approximately 20% of the Group’s underlying profit in H2 2021), once the necessary regulatory authorization has been obtained. For more details on the programme, see section [2.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_226) ['Treasury shares'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_226). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 196 If shareholders approve the dividend payout resolution and the ECB authorizes the Second Buyback Programme, it will result in a payout of approximately 40% of the Group’s underlying attributable profit for 2021. If the buyback reaches the maximum within the programme period, remuneration will be split equally between cash dividends and shares buybacks. This final remuneration will enable Santander to meet the target set in the shareholder remuneration policy disclosed to the market on 28 September 2021. Shareholder remuneration policy for 2022 results For the 2022 results the shareholder remuneration policy that the board intends to apply is a total remuneration of approximately of c.40% of the group's underlying profit, split in approximately equal parts between cash dividends and share buybacks, thus continuing the policy applied with respect to 2021 results. The implementation of the shareholder remuneration policy is subject to future corporate and regulatory decisions and approvals. 3.4 2021 AGM On 26 March 2021, we held our annual general meeting. In light of Covid-19, it was exclusively virtual. Because of the means shareholders were provided to attend remotely, the meeting had a quorum of 67.674%, just 0.8 percentage points below our highest- ever general meeting quorum in 2019. Quorum and attendance The quorum (among shareholders present and represented) was 67.674% broken down as follows: QUORUM BREAKDOWN In person and virtual attendance 0.062% By proxy Cast by post or direct delivery 6.586% By electronic means 58.438% Remote voting Cast by post or direct delivery 0.547% By electronic means 2.041% Total 67.674% Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 197 Voting results and resolutions All items on the agenda were approved. Votes in favour of the board’s proposals averaged 98.31%. 99.57% of votes approved corporate management for 2020 and 91.59% of votes approved the 2020 annual report on directors' remuneration. None of the agenda items listed in the notice convening the meeting received more than 9.53% of votes against. The following chart summarizes the resolutions approved and voting results: 1. Annual accounts and corporate management 1A. Annual accounts and directors’ reports for 2020 99.74 0.26 0.04 2.96 67.67 1B. Consolidated statement of non-financial information for 2020 99.71 0.29 0.04 2.83 67.67 1C. Corporate management 2020 99.57 0.43 0.04 3.04 67.67 2. Application of results 99.46 0.54 0.04 2.84 67.67 3. Appointment, re-election or ratification of directors 3A. Setting of the number of directors 99.64 0.36 0.05 2.87 67.67 3B. Ratification of the appointment of Gina Lorenza Díez Barroso 99.62 0.38 0.05 2.89 67.67 3C. Re-election of Homaira Akbari 99.39 0.61 0.05 2.91 67.67 3D. Re-election of Álvaro Antonio Cardoso de Souza 99.40 0.60 0.05 2.88 67.67 3E. Re-election of Javier Botín-Sanz de Sautuola y O'Shea 97.05 2.95 0.04 2.87 67.67 3F. Re-election of Ramiro Mato García-Ansorena 99.63 0.37 0.05 2.87 67.67 3G. Re-election of Bruce Carnegie-Brown 98.36 1.64 0.05 2.87 67.67 4. Re-election of the external auditor for Financial Year 2021 99.64 0.36 0.04 2.83 67.67 5. Amendment of the Bylaws 5A. Relating to the issuance of non-convertible debentures 99.23 0.77 0.05 2.89 67.67 5B. Relating to the powers of the general shareholders’ meeting (share-based compensation) 98.92 1.08 0.04 2.90 67.67 5C. Relating to the shareholders’ participation at the general shareholders’ meeting 99.22 0.78 0.04 2.85 67.67 5D. Relating to attending the meeting from a distance by remote means of communication 90.47 9.53 0.04 2.83 67.67 6. Amendment of the Rules and regulations of the general meeting 6A. Relating to the powers of the shareholders at a general meeting (issuance of debentures) 99.23 0.77 0.04 2.87 67.67 6B. Relating to the powers of the shareholders at a general meeting (share-based compensation) 98.94 1.06 0.04 2.86 67.67 6C. Relating to proxy representation at a general meeting 99.64 0.36 0.04 2.86 67.67 6D. Relating to the means for distance voting 98.51 1.49 0.04 2.83 67.67 6E. Relating to publication of the resolutions approved at the general meeting 99.71 0.29 0.04 2.84 67.67 8. Delegation to the board of the power to issue all kinds of fixed-income securities, preferred interests or similar debt instruments (including warrants) that are not convertible 96.89 3.11 0.04 2.85 67.67 8. Directors' remuneration policy 93.26 6.74 0.04 2.89 67.67 9. Maximum total annual remuneration of directors in their capacity as directors 98.35 1.65 0.04 2.87 67.67 10. Maximum ratio of fixed and variable components in executive directors' total remuneration 99.33 0.67 0.04 2.86 67.50 11. Remuneration plans that include the delivery of shares or share options: 11A. Deferred multiyear objectives variable remuneration plan 96.61 3.39 0.04 2.86 67.67 11B. Deferred conditional variable remuneration plan 97.66 2.34 0.04 2.86 67.67 11C. Digital Transformation Award 99.51 0.49 0.04 2.86 67.67 11D. Group buy-out policy 98.98 1.02 0.04 2.91 67.67 11E. Plan for employees of Santander UK Group Holdings and other companies of the Group in the UK 99.01 0.99 0.04 2.84 67.67 12. Authorization to implement the resolutions approved 99.56 0.44 0.04 2.82 67.67 13. Annual directors' remuneration report 91.59 8.41 0.04 2.88 67.67 14. Corporate action to demand director liabilityE 0.00 100.00 0.00 0.09 65.09 15 to 29. Dismissal and removal of directorsF 0.00 100.00 0.00 0.09 65.09 VOTES A QuorumD ForB AgainstB BlankC AbstentionC 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 2021 AGM. D. Percentage of Banco Santander's share capital on the date of the 2021 AGM. E. Item not included on the agenda. F. Items 15 to 29 (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 2021 AGM. The full texts of the resolutions passed at the 2021 AGM can be found on our corporate website and on the CNMV’s website, as they were filed as other relevant information on 26 March 2021. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 198 3.5 Our next AGM in 2022 The board of directors agreed to call the 2022 AGM for 31 March on first call or on 1 April on second call, 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 2021. For more details, see ['Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676). •The consolidated non-financial statement for the financial year ended on 31 December 2021that is part of this consolidated directors' report. See the ['Responsible banking'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) chapter. •The corporate management for the financial year 2021. •The application of results obtained during financial year 2021. See section [3.3 'Dividends and shareholder remuneration'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_241). •Appointment of directors. •Setting the number of directors at 15, within the maximum and minimum limits set in the Bylaws. •Appointing Germán de la Fuente as independent director (see section [1.1 'Board skills and diversity'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_193)) and re-electing José Antonio Álvarez, Belén Romana, Henrique de Castro, Luis Isasi and Sergio Rial for a three-year period. See section [4.1 'Our](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) [directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256). •External auditor. Re-electing the firm PricewaterhouseCoopers Auditores, S.L. as external auditor for financial year 2022. See 'External auditor' in section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283). •Bylaws. Approve certain amendments to the Bylaws to: •Introduce refinements based on the amended Spanish Companies Act as relates to final beneficiary identification and new share transfers before a capital increase is filed with the Registro Mercantil (Commercial Registry). •Round off the capital reduction rules to reflect other aims that the law allows. •Clarify the powers of the general meeting regarding the issuance of convertible securities. •Add technical refinements to the rules on holding general meetings. •Allow the board of directors to designate more than one vice- secretary. •Contemplate that executives other than the executive chair can have direct reporting lines to the board or its committees. •Adapt the audit committee’s authority regarding the management report and related-party transactions and increase its coordination with the responsible banking, sustainability and culture committee. •Adapt the Bylaws on directors’ remuneration to the recent amendments to the Spanish Companies Act. •Add technical regulatory refinements regarding dividend payouts in forms other than cash or own funds instruments. •Rules and regulations of the general meeting. Approve the amendment to the Rules and regulations of the general meeting to fully adapt the rule on remote general meeting attendance to the Bylaws; contemplate that more than one vice-secretary may be designated; and include technical refinements regarding resolutions proposed and remarks made by shareholders. •Authority to increase share capital. To authorize the board of directors to increase share capital once or several times over the course of three years. See section [2.2 'Authority to increase share](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_217) [capital'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_217). •Share capital reduction for the following purposes: •Cancelling the 259,930,273 treasury shares from the First Buyback Programme. •Cancelling a maximum of 1.730.000.000 treasury shares purchased under the Second Buyback Programme. •Cancelling a maximum of 1.734.064.130 treasury shares, acquired through one or more share buyback programmes or by other means legally permitted, whereby the board of directors will be authorized to cancel them on one or several occasions in a maximum timescale of one year or by the date of the next annual general meeting. See section [2.5 'Treasury shares'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_226). •Remuneration policy. Approving the director remuneration policy for 2022, 2023 and 2024. For further information, see section [6.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) ['Directors’ remuneration policy for 2022, 2023 and 2024 submitted](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [to a binding shareholder vote'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). •Director remuneration. Approving director’s fixed annual remuneration. See section [6.4 'Directors’ remuneration policy for](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [2022, 2023 and 2024 submitted to a binding shareholder vote'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). •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 more details, see section [6.4 'Directors’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [remuneration policy for 2022, 2023 and 2024 submitted to a](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [binding shareholder vote](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322)'. •Remuneration plans for executive directors. Approving remuneration plans for executive directors that involve the delivery of shares or share options or are share-value based. For more details, see section [6.4 'Directors’ remuneration policy for 2022,](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [2023 and 2024 submitted to a binding shareholder vote](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322)'. •Annual directors’ remuneration report. Holding a non-binding vote on the annual directors’ remuneration report. For more details, see section [6. 'Remuneration'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310). The related documents and information are available for consultation on our corporate website on the date the meeting notice is published. We will also broadcast our 2022 AGM live, as was done for the 2021 AGM. Since attendance at the general meetings is not paid, a general policy in this regard is not necessary. However, Banco Santander offers shareholders that participate in our general meeting a commemorative courtesy gift, as has been tradition for decades. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 199 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 women and men (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 effective controls: executive chair, CEO and lead independent director Javier Botín Member Non- executive director Álvaro Cardoso Member Non-executive director (independent) Ÿ R Martín Chávez Member Non-executive director (independent) ¢¢ppP Homaira Akbari Member Non-executive director (independent) òpŸ Pamela Walkden Member Non-executive director (independent) òPŸ Gina Díez Member Non-executive director (independent) ¢ Sergio Rial Member Non- executive director Jaime Pérez Renovales General secretary and secretary of the board Sol Daurella Member Non-executive director (independent) ¢¢Ÿ Luis Isasi Member Non- executive director ò¢p José Antonio Álvarez Vice chair and CEO Executive director òp Ana Botín Executive chair Executive director òPp Bruce Carnegie- Brown Vice chair and lead independent director Non-executive director (independent) ò¢P¢Pp Belén Romana Member Non-executive director (independent) òòpPpŸ Henrique de Castro Member Non-executive director (independent) ò¢p Ramiro Mato Member Non-executive director (independent) òòpŸP ò Executive committee ò Audit committee ¢ Nomination committee ¢ Remuneration committee p Risk supervision, regulation and compliance committee p Innovation and technology committee Ÿ Responsible banking, sustainability and culture committee P  Chair of the committee Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 200 4.1 Our directors #### Ana #### Botín-Sanz de Sautuola y O’Shea GROUP EXECUTIVE CHAIR 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 chair of Banco Español de Crédito, S.A. Between 2010 and 2014, she was chief executive officer of Santander UK plc and she has been non-executive director until April 2021. She has also been non-executive director of Santander UK Group Holdings plc (2014-2021). In 2014 she was appointed executive chair of Santander. Other positions of note: Ms Botín is a member of the board of directors of The Coca-Cola Company and president of the European Banking Federation. She is also founder and chair 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). Positions in other Group companies: Ms Botín is a chair of PagoNxt, S.L, 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. Membership of board committees: Executive committee (chair), 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. #### José Antonio #### Álvarez Álvarez VICE CHAIR & 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, 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. 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 and an established reputation with such key stakeholders as regulators and investors. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 201 #### Bruce #### Carnegie-Brown VICE CHAIR & 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 chair of Moneysupermarket.com Group plc (2014-2019), non-executive director of Jardine Lloyd Thompson Group plc (2016-2017), non- executive director of Santander UK plc and of Santander UK Group Holdings plc (2019-2021) 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 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 chair of Lloyd’s of London and of Cuvva Limited, member of the Investment Committee of Gresham House plc and chair of Marylebone Cricket Club (MCC). Membership of board committees: Executive committee, nomination committee (chair), remuneration committee (chair), 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 top management positions 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. #### Homaira #### Akbari 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 chair and CEO of SkyBitz, Inc., managing director of TruePosition Inc., non-executive director of Covisint Corporation and US Pack Logistics LLC. She has also held various posts at Microsoft Corporation and Thales Group and she was non-executive chair of WorkFusion, Inc. 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 diverse regions and knowledge of water, energy and waste management and treatment, which are of particular value to the Group's sustainability policy. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 202 #### Javier #### Botín-Sanz de Sautuola y O’Shea 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 chair ever since. He was co-founder and executive director of the equities division of M&B Capital 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 organizations. He has been chair of the Botín Foundation since 2014 and is also a trustee of the Princess of Girona Foundation. 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. #### Álvaro #### Cardoso de Souza 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 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. He was a board member at AMBEV. S.A., Gol Linhas Aéreas, S.A. and Duratex, S.A. He was chair of WorldWildlife Group (WWF) Brazil, a board member at WWF International and chair and member of the audit and asset management committees of FUNBIO (Fundo Brasileiro para a Biodiversidade). In addition, he has been non- executive chair of Banco Santander (Brasil) S.A. since 2017 until 2021. Membership of board committees: 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. In addition, his active involvement with several environmental foundations and NGOs brings with him very useful knowledge about sustainability. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 203 #### Sol #### Daurella Comadrán 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 chair of Coca-Cola Europacific Partners plc and executive chair of Olive Partners S.A. She also holds several roles at Cobega Group companies and is chair of the board of trustees of the FERO Oncology Research Foundation and vice- president of Instituto de la Empresa Familiar. 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. #### Henrique de Castro 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. 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 204 #### Gina #### Díez Barroso 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 Society and Council of the Americas, Laurel Strategies and Qualitas of Life Foundation. She has also been a founder and a trustee of the Pro-Educación Centro and Diarq foundations. 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. Membership of board committees: Nomination committee. 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. #### Luis #### Isasi Fernández de Bobadilla 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. In 1987, he joined Morgan Stanley as managing director of investment banking for Europe and, from 1997 to February 2020, held the role of chair 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). 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 (in particular, finance and investment banking) as well as a strong institutional network within Spain. (\*) In the opinion of nomination committee and board of directors, Mr Isasi meets the requirements to be considered independent, despite being categorized as other external based on a standard of prudence. For more information, see subsection 'Other external directors', section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 205 #### Ramiro #### Mato García-Ansorena 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 chair of BNP Paribas Group in Spain. Previously, he had held several top roles in Argentaria. He sat on the board of the Spanish Banking Association (AEB, representing Banque BNP Paribas) and Bolsas y Mercados Españoles, S.A. (BME), and was a member of the board of trustees of Fundación Española de Banca para Estudios Financieros (FEBEF). Other positions of note: Mr Mato is chair of Ansorena, S.A. and vice- chair of the board of trustees of Fundación Esperanza y Alegría. Membership of board committees: executive committee, audit committee, risk supervision, regulation and compliance committee, and responsible banking, sustainability and culture committee (chair). 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. #### R Martín #### Chávez Márquez 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. Furthermore, he has been director of PNM Resources, Inc., the International Swaps and Derivatives Association (ISDA) of The Santa Fe Opera, of Mount Sinai Genomics, Inc. DBA Sema4 and of Paige.AI, Inc., as well as member of the Harvard University Board of Overseers and member of the board of trustees of amfAR (the Foundation for AIDS Research) and of the Institute for Advanced Study of Princeton (New Jersey). Other positions of note: Mr Chávez is senior executive vice-chair of Sixth Street Partners Management Company, L.P. and non-executive chair of Recursion Pharmaceuticals, Inc. He is also member of the board of trustees of the Los Angeles Philharmonic and member of the Stanford University School of Medicine Board of Fellows. Likewise, he is a senior advisor of Cambrian Biopharma, Earli, Block.one, Ketch Kloud and Abacus.AI. 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 (chair). Skills and competencies: Mr Chávez brings extensive experience in the global financial and IT sectors, which will enhance the board's digital capabilities. His membership on the governing and advisory bodies of prestigious academic institutions and healthcare entities will contribute considerable value to the Group’s sustainability strategy development . Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 206 #### Sergio #### Rial Non-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 chair of the board of Banco Santander (Brasil) S.A. in 2015, a position he held until 2016, and has been serving as chief executive officer (CEO) and vice-chair of the board from 2016 to 2021. He has also been regional head for South America of the Group (2019–2021). He held various executive positions at ABN Amro group between 1982 and 2004, including CEO for Asia and member of the global ExCo. He also held various executive positions at Cargill Inc. between 2004 and 2012, including executive vice-chair, 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 and non-executive director of SAM Investment Holding, S.L., Banco Santander International (USA) and PagoNxt, S.L. Other positions of note: Mr Rial is an independent director of Delta Airlines Inc. and non-executive chair of Ebury Partners Limited. Positions in other Group companies: Mr Rial is the non-executive chair of Banco Santander (Brasil) S.A. 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. #### Belén #### Romana García 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 chair of Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, S.A. (SAREB). 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 co-chair of the Global Board of Trustees of the Digital Future Society and member of the advisory board of Rafael del Pino Foundation, of Inetum and of TribalData and senior advisor of Artá Capital. Membership of board committees: Executive committee, audit committee, risk supervision, regulation and compliance committee (chair), 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 key positions in  credit institutions and the regulatory and supervisory bodies of the financial industry and securities markets in Spain, she also provides strategic insights into banking, financial regulations and government relations in Spain and Europe. (\*) Until 31 December 2021 as executive director. See section [4.2 'Board composition'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 207 #### Pamela #### Walkden 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, 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 as member of the European Banking Authority Stakeholder Group and a lay member of the Welfare and Ethics Committee of the Royal Veterinary College. Other positions of note: Mrs Walkden is a member of the advisory board of JD Haspel Limited. Positions in other Group companies: She is an independent non- executive director of Santander UK plc and of Santander UK Group Holdings plc. Membership of board committees: Audit committee (chair) and risk supervision, regulation and compliance committee. Skills and competencies: Ms Walkden is a recognised financial expert in view of her broad, international experience in banking and auditing. #### Jaime #### Pérez Renovales 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. 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, chair 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 is the representative of Banco Santander in the Board of Trustees the Foundation Princess of Asturias and member of the jury of the Social Sciences Awards of the Foundation and chair of the ICADE Business Club. Mr Pérez is the secretary of all board committees. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 208 4.2 Board composition Size At 31 December 2021, the board of directors was made up of the 15 members whose profile and background are described in section [4.1](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) ['Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256). 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 Chair •José Antonio Álvarez, Group Vice-Chair and Chief Executive Officer Section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) provides a more detailed description of their roles and duties under 'Group executive chair and chief executive officer'. 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 the independence of the board members in this category and informs the board of its findings. It takes all pertinent circumstances into account, particularly possible significant business relations that could affect their independence. This analysis is described further in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286) ['Nomination committee activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286) and in subsection C.1.3 in section [9.2 'Statistical information on corporate governance required](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). 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 2021, the average term of independent non-executive directors was 4.05 years. TERM OF INDEPENDENT DIRECTORS Other external directors •Javier Botín •Luis Isasi •Sergio Rial These directors cannot be classified as independent directors for the following reasons: •Mr Botín has been director for over 12 years. •Mr Isasi as, although the nomination committee and the board believe that he 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. •Mr Rial, as a former executive director of Banco Santander as CEO of Banco Santander (Brasil) S.A. and Regional head of South America until 31 December 2021. OUR BOARD COMPOSITION Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 209 TENURE AND EQUITY OWNERSHIPA Board of directors Tenure Banco Santander shareholdingD Date of first appointmentB Date of last appointment End date C Direct Indirect Shares represented Total % of share capital Executive chair Ana Botín 04/02/1989 03/04/2020 03/04/2023 1,395,980 29,112,074 30,508,054 0.176% Vice chair and chief executive officer José Antonio Álvarez 25/11/2014 12/04/2019 12/04/2022 1,984,677 1,984,677 0.011% Vice chair Bruce Carnegie-Brown 25/11/2014 26/03/2021 26/03/2024 59,940 59,940 0.000% Members Homaira Akbari 27/09/2016 26/03/2021 26/03/2024 67,826 45,913 113,739 0.001% Javier Botín 25/07/2004 26/03/2021 26/03/2024 5,502,083 19,468,444 154,412,223E 179,382,750 1.034% Álvaro Cardoso 23/03/2018 26/03/2021 26/03/2024 0 0 0.000% R. Martín Chávez 27/10/2020 27/10/2020 27/10/2023 0 0 0.000% Sol Daurella 25/11/2014 03/04/2020 03/04/2023 149,483 476,837 626,320 0.004% Henrique de Castro 12/04/2019 12/04/2019 12/04/2022 2,982 2,982 0.000% Gina Díez 22/12/2020 22/12/2020 03/04/2023 0 0 0.000% Luis Isasi 03/04/2020 03/04/2020 03/04/2023 0 0 0.000% Ramiro Mato 28/11/2017 26/03/2021 26/03/2024 256,860 256,860 0.001% Sergio Rial 03/04/2020 30/05/2020 03/04/2023 236,413 236,413 0.001% Belén Romana 22/12/2015 12/04/2019 12/04/2022 208 4 212 0.000% Pamela Walkden 29/10/2019 03/04/2020 03/04/2023 2,608 2,608 0.000% Total 9,659,060 49,103,272 154,412,223 182,666,501 1.052% General secretary and secretary of the board Jaime Pérez Renovales A. Figures from 31 December 2021. B. The date of first appointment referred herein may not match with the date of acceptance of the position. C. For more details, see 'Election, renewal and succession' in section [4.2.](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259) 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 55.1 of the Bylaws. D. 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. E. Includes shares owned by Fundación Botín (chaired by Javier Botín) and syndicated shares. It includes shares corresponding to Ana Botín that are also  included within their direct or indirect shareholdings, but excluding Javier Botín's syndicated shares. In subsection A.3 of section [9.2 'Statistical information on corporate governance required by](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373), 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’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_223) [agreements'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_223). For more details, see section [9.2 'Statistical information on corporate governance required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). 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 points of view. 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. 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, was included. The policy was later amended in April 2020, at the time of the general review of the succession process for directors and other executive positions, and 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: •Country of origin or international education: selection considers cultural diversity and international education and experience, especially in the Group's main geographies. •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 target in the board by 2021, which implies a minimum and maximum representation of either gender of 40% to 60%. By November 2019, the board met this target and, at year-end, women already accounted for 40% of board members. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 210 The board’s number of women members is above the average for large listed companies in Spain and Europe. According to figures published by the CNMV in May 2021, based on the annual corporate governance reports for 2020, the percentage of female directors in IBEX 35 companies in Spain was on average 31.26%. Furthermore, according to the last Gender Diversity Index Report published by European Women on Boards (an association which cooperates with the European Commission) in October 2021 the percentage of female directors in large listed companies was, on average, 35%. •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 chair 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 skills and expertise in such areas deemed important for the Group. It takes into account education and work experience. In addition to professional experience, it considers their academic education. •Our policy has no implicit bias that could lead to discrimination due to race, disability and/or ethnicity. Board skills and diversity matrix The board’s skills matrix reflects the balance of the knowledge, skills, qualifications, diversity and experience required to design and 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, and also ECB Guide to fit and proper assessments. It has been further updated in October 2020 to disclose information on 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 (below) follows the structure introduced last year: •We distinguish thematic and horizontal skills. •We include a separate diversity section that details diversity in terms of gender, country of origin and/or education abroad, and age. Finally, we also show board tenure. In line with last year, the skills matrix discloses each board member's skills and competence as a sign of our commitment to transparency. Section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) includes a paragraph on each director's skills and competence to more clearly substantiate the matrix. We also include an additional chart (entitled 'Committees skills and diversity matrix') that shows the balanced diversity of skills on the board as a whole and on each board committee. That enables the board committees' overall effectiveness to be evaluated as it refers to the significant presence of the skills relevant to each committee's scope. This year's matrix (below) shows that there are no substantial gaps with regard to the qualitative composition of the board and its committees, although we remain focused on ensuring a robust board skills diversity.  In particular, the ongoing need for coverage of strategic markets for Banco Santander as well as for technology, digital strategy, banking, finance and regulatory and ethics experience and expertise remains important, as evidenced by our most recent board appointments.  The appropriateness of board skills and diversity will continue to be monitored on an ongoing basis. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 211 BOARD SKILLS AND DIVERSITY MATRIX Executive Independent Other external Ana Botín (chair) José Antonio Álvarez (vice chair - CEO) Bruce Carnegie-Brown (vice chair and lead independent director) Homaira Akbari R. Martín Chávez Sol Daurella Henrique de Castro Álvaro Cardoso Gina Díez Barroso Ramiro Mato Belén Romana Pamela Walkden Javier Botín Luis Isasi Sergio Rial SKILLS AND EXPERIENCE THEMATIC SKILLS Banking (93.3%) • • • • • • • • • • • • • • Other financial services (66.7%) • • • • • • • • • • Accounting, auditing and financial literacy (100%) • • • • • • • • • • • • • • • Retail (86.7%) • • • • • • • • • • • • • 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 directorship 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 (6.7%) • From 55 to 65 (73.3%) • • • • • • • • • • • More than 65 (20%) • • • BOARD TENURE 0 to 3 years (46.7%) • • • • • • • 4 to 11 years (40%) • • • • • • 12 years or more (13.3%) • • Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 212 COMMITTEES SKILLS AND DIVERSITY MATRIX Executive committee Audit committee Nomination committee Remuneration committee Risk supervision, regulation and compliance committee Innovation and technology committee Responsible banking, sustainability and culture committee SKILLS AND EXPERIENCE THEMATIC SKILLS Banking 100% 80% 100% 80% 100% 85.7% 100% Other financial services 100% 60% 50% 40% 60% 71.4% 60% Accounting, auditing and financial literacy 100% 100% 100% 100% 100% 100% 100% Retail 100% 100% 50% 80% 80% 85,7 100% Digital and information technology 66.7% 60% 50% 60% 40% 85.7% 40% Risk management 100% 80% 75% 80% 100% 85.7% 100% Business strategy 100% 100% 100% 100% 100% 100% 100% Responsible business and sustainability 83.3% 60% 100% 60% 60% 85.7% 100% Human resources, culture, talent and remuneration 100% 100% 100% 100% 100% 100% 100% Legal and regulatory 16.7% 20% 25% 20% 40% 28.6% 20% Governance and control 100% 80% 75% 80% 100% 85.7% 100% International experience Continental Europe 100% 80% 75% 100% 80% 100% 80% US/UK 100% 100% 75% 100% 100% 100% 100% LatAm 66.7% 60% 50% 60% 60% 71.4% 60% Others 33.3% 60% 75% 80% 60% 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 directorship tenure 100% 80% 75% 80% 60% 85.7% 100% DIVERSITY Female 33.3% 60% 50% 20% 40% 42.9% 60% Country of origin / international education Continental Europe 83.3% 60% 25% 60% 60% 57.1% 60% US/UK 100% 80% 75% 60% 100% 85.7% 80% Latam – – 25% – – – 20% Others – 20% – – – 14.3% 20% Age (years old) Less than 55 – – – – – – – From 55 to 65 83.3% 80% 75% 100% 80% 100% 60% More than 65 16.7% 20% 25% – 20% – 40% BOARD TENURE 0 to 3 years 16.7% 40% 50% 60% 60% 28.6% 20% 4 to 11 years 66.7% 60% 50% 40% 40% 57.1% 80% 12 years or more 16.7% – – – – 14.3% – Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 213 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 confirms or revokes 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'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) and the 'Board skills and diversity matrix' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). 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 step down from their position if the board, on recommendation of the nomination committee, deems it appropriate in cases that may adversely affect the board's functioning or Banco Santander’s credibility or reputation. In particular, they must resign if they find themselves in a circumstance of ineligibility or prohibition provided by law, irrespective of Royal Decree 84/2015, which implements Act 10/2014 on the organization, supervision and solvency of credit institutions, and on the honourability requirements for directors and the consequences of directors who subsequently fail to meet them. Directors must notify the board, as soon as possible, of any circumstances affecting them (whether or not they are related to their performance in Banco Santander) that might damage Santander's credibility or reputation, especially when under criminal investigation; and of the developments of any criminal proceedings. When the board is informed, or becomes aware in another way, of any such situations, it will examine them as soon as possible and, based on the particulars, will decide, following a report from the nomination committee, any measures to adopt, such as opening an internal investigation, calling on directors to resign or proposing their dismissal. Proprietary non-executive directors must also tender their resignation when the shareholder they represent sells off or significantly reduces its equity holding. Succession planning Succession planning is a key element of our good governance as it ensures orderly role transitions, as well as board continuity and stability and its adequate refreshment and independence. It is a yearly cycle with a well-defined methodology and timelines, and a clear allocation of responsibilities. Our aim is to boost diverse talent pipelines across functions. Santander’s policy on director selection, suitability assessment and succession focuses on: •Quantitative and qualitative board and committee composition criteria that are set by the Bylaws, the Rules and regulations of the board of directors and the board itself and include suitability and diversity standards and targets. •A periodic review of the quantitative and qualitative composition of the board of directors and its committees that includes an overall suitability assessment of the board. •Identification of potential candidates to join the board of directors. •A robust board member selection, suitability and nomination process. This policy has specific core performance indicators, reviewed each year, for such aspects as succession effectiveness (replacements fulfilled  by  identified  candidates); the number of internal and external candidates immediately available to succeed executive directors; training and development plans for potential candidates to succeed executive directors in one to three years; gender diversity and country of origin or international education; updated board member tenure; the strength of the list of successors to executive directors, committee chairs and the lead independent director; and Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 214 the percentage of candidates to succeed directors who are immediately available (or candidates for a one-to-three year period). The nomination committee and the board prioritize member succession planning, with sound and appropriate plans in place that are regularly revisited. Given the importance that the Group places in succession planning, in 2020 an external opinion was sought in relation to our succession policy and associated succession processes concluding that our succession arrangements and framework meet regulatory requirements and align with industry best practice. 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 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; culture and values including policies on responsible business and sustainability, in particular, on environmental and social matters; risk control; remuneration policy; and compliance). •Financial and non-financial reporting, and 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. •Selection, succession and remuneration of directors, 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 the approval of non-delegable related-party transactions, which are not subject to the general meeting's authority). •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 chair and chief executive officer, who are the most senior executives in the Group’s strategic and ordinary management, which the board is responsible for overseeing, ensuring that their roles are clearly separated and complementary. The respective roles and responsibilities have been updated as at the date of this report. Further details are shown below. •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 the audit, nomination, remuneration and risk supervision, regulation and compliance committees. •A board secretary, who supports the board, its committees and our chair, 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238). •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 duties of its members. In 2021 the board amended its Rules and regulations on two occasions: On 27 April, to allow the possibility to appoint more than one vice- secretary of the board to assist with the duties of the secretary of the board and, where appropriate, to replace him in the event of absence, inability to act or illness. This possibility was subject to the Bylaws so providing, so their amendment will be proposed for approval at the next 2022 AGM. See section [3.5 'Our next AGM in 2022'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250). On 27 July, to adapt them to, and ensure their consistency with Act 5/2021 and to make technical improvements and other minor changes. The main amendments adapting to Act 5/2021 were to: •In relation to the approval and oversight of related-party transactions: •Introduce the delegation of the board's power to approve related-party transactions and an internal reporting and regular control procedure for any transactions that it has delegated its power to approve. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 215 •Lay out the audit committee’s report about related-party transactions that will be subject to approval at the general meeting or by the board, as well as its duties in overseeing the procedure for reporting on, and regularly controlling, any transactions the board has delegated. •Align the internal rules for related-party transactions to the new legal provisions. •In relation to the directors' remuneration scheme: •Adapt the rules on approval, entry into force and maximum duration of the directors’ remuneration policy to the new legal provisions. •Amend the minimum content of the remuneration policy to the Spanish Companies Act. •Clarify that, if the annual remunerations report is rejected at the general meeting, the policy in force can only apply until the next annual general meeting. Lastly, on 24 February 2022 the board changed its Rules and regulations to introduce fundamentally technical amendments and: •Acknowledge that the board may establish that executives other than the chair report directly to the board or its committees. In this connection, on 24 February 2022 the board established that the chief executive officer will report exclusively to the board in line with governance best practice as further described below. •Bolster coordination mechanisms between the audit and the responsible banking, sustainability and culture committees. •Coordinate the wording of the Rules and regulations with the wording of the Bylaws provisions which amendment is proposed to the 2022 AGM. 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; 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 that came into force on 31 December 2021. 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) on standards relating to audit committees pursuant to the Sarbanes-Oxley act of 2002 (SOX). 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 chair and chief executive officer Our executive chair is Ana Botín and our chief executive officer is José Antonio Álvarez. Their respective roles and responsibilities were updated as at the date of this report in order to accelerate the execution of the Group´s strategy and operations and to align with governance best practices. The roles of our Group executive chair and chief executive officer are clearly separated, and can be summarized as follows: ROLES OF THE EXECUTIVE CHAIR AND THE CHIEF EXECUTIVE OFFICER Executive chair Chief executive officer •The chair is the highest-ranking executive in Grupo Santander and its main representative with regulators, authorities and other major stakeholders. •The chair is responsible for the long-term strategy of the Group, including new tech digital growth engines, namely PagoNxt and the Digital Consumer Bank. •The chair is also responsible for other corporate functions and units that help drive the Group´s long-term strategy and transformation, comprising Technology and Data & Architecture, Human Resources (including Talent), Financial Accounting & Control, Strategy and Corporate Development, General Secretariat and Communications & Corporate Marketing. •Risk, Compliance and Internal Audit functions have free and unfettered access to the board and its committees in order to preserve their full independence, without prejudice to the regular reporting lines to the chair and chief executive officer of the CAE and CRO. •The chair also leads the appointment and succession planning of the senior management of Santander Group, to be submitted for approval to the nomination committee and board. •The chief executive officer is entrusted with the day-to-day management of the business with the highest executive functions and exclusively reports to the board in this regard. •Accordingly, the chief executive officer’s direct reports are the senior managers in charge of the business units such as the regional heads (Europe, North America and South America) and those in charge of the global businesses (Wealth Management & Insurance, Corporate & Investment Banking, Cards & Digital Solutions), encompassing the relevant support & control functions. •As responsible for day-to-day management, the CFO and Investment Platforms & Corporate Investments also report to the CEO. •Additionally, the chief executive officer is responsible for Regulatory & Supervisory Relations and for embedding the sustainability policy of the Group in the day-to-day management of Group businesses and the support & control functions. The duties of the group executive chair, 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: Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 216 •The board and its committees supervise both the group executive chair and the chief executive officer. •The board of directors has delegated all its powers to the executive chair 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 the group executive chair’s succession and appointment. •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 chair 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. Lead independent director The role of the lead independent director is key to our governance and makes sure that non-executive directors serve as an appropriate counter- balance to the executive directors. The following chart illustrates the functions  and their application of the lead independent director in 2021: #### DUTIES OF THE LEAD INDEPENDENT DIRECTOR AND ACTIVITIES DURING 2021 Duties Activities in 2021 Facilitate discussion and open dialogue among independent directors, including coordinating private meetings of non-executive directors without the executive present; and proactively engage with them to consider their views and opinions. Held eight meetings with non-executive directors without executive directors present, where they were able to voice views and opinions. The meetings were also a valuable opportunity to discuss other matters such as, among others, board training topics, executive director and key management performance; reflections on areas for continuous improvement with regard to the operation of the board and its committees; and progress with externally facilitated Governance and Effectiveness reviews. Direct the periodic evaluation of the chair of the board of directors and coordinate her succession plan. Led the annual evaluation of the chair in order to determine her variable pay. Furthermore, played a key coordination role with regard to ongoing succession planning activity, as additionally facilitated through his chairmanship of the nomination committee. 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 communication and engagement'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235) for full details of the lead independent director’s activities. Replace the chair 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 have to replace the chair of the board in any board meetings he remained 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. While the lead independent director did not need to request additional board meetings to be called, he remained fully engaged and informed on board meeting agendas and encouraged constructive challenge on the same. 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 Decision-making powers Supervision, information advice and recommendations regarding functions in risk, financial reporting and audit, nomination and remuneration matters Support 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) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 217 Secretary of the board Jaime Pérez Renovales is the secretary of the board. He assists the chair 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 has three vice-secretaries. They assist the secretary with his duties on the board and its committees, and replace him in the event of absence, inability to act or illness. In April 2021, the board of directors appointed F. Javier Illescas Fernández-Bermejo (head of Group Corporate Legal), Julia Bayón Pedraza (head of Group Business Legal) and Adolfo Díaz-Ambrona Moreno (general secretary of Santander España) as vice-secretaries, replacing Óscar García Maceiras (who left the Group in March). Board meetings The board of directors held 15 meetings in 2021, including 13 ordinary meetings and 2 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 chair’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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 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 chair 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 chair of the board and the chair of the respective committee, after having asked the chair 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 chair. COMPARISON OF NUMBER OF MEETINGS HELDA Santander Average Spain US average UK average Board 15 12.8 9.4 11.6 Executive committee 40 10.7 — — Audit committee 14 8.8 8.4 5.5 Nomination committee 12 7 4.7 4.3 Remuneration committee 12 7 6.2 5.5 Risk supervision, regulation and compliance committee 6 NA NA NA Source: Spencer Stuart Board Index 2021 (Spain, United States and United Kingdom). NA: Not available. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 218 The following chart shows the board’s approximate time allocation to each function in 2021. APPROXIMATE ALLOCATION OF THE BOARD’S TIME IN 2021 Committee meetings Board committees follow a meetings calendar that 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 will be quorate if more than half of committee 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 chair 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 chair. Furthermore, committees may also submit a request to the general secretary to hire legal, accounting or financial advisers or other experts to assist with their duties at Banco Santander’s expense. 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 chairs report on committees’ meetings and activities at all board meetings. Furthermore, all board members are given a copy of committees’ meeting minutes and all documents provided for meetings. Board and committee attendance The table below shows the attendance rate of board and committee meetings. ATTENDANCE TO THE BOARD AND COMMITTEE MEETINGS IN 2021 Committees Directors Board Executive Audit Nomination Remuneration Risk supervision, regulation and compliance Innovation and technology Responsible banking, sustainability and culture Average attendance 99% 94% 100% 97% 98% 96% 96% 100% Individual attendance Ana Botín 15/15 39/40 \_ \_ \_ \_ 4/4 \_ José Antonio Álvarez 15/15 40/40 \_ \_ \_ \_ 4/4 \_ Bruce Carnegie-Brown 15/15 32/40 \_ 12/12 12/12 \_ 3/4 \_ Homaira Akbari 15/15 \_ 14/14 \_ \_ \_ 4/4 6/6 Javier Botín 15/15 \_ \_ \_ \_ \_ \_ \_ Álvaro CardosoA 13/15 \_ \_ \_ \_ 4/4 \_ 6/6 R Martin Chávez 14/15 \_ \_ 11/12 11/12 15/16 4/4 \_ Sol Daurella 15/15 \_ \_ 12/12 12/12 \_ \_ 6/6 Henrique de Castro 15/15 \_ 14/14 \_ 12/12 \_ 4/4 \_ Gina DíezB 15/15 \_ \_ \_ \_ \_ \_ \_ Luis Isasi 15/15 39/40 \_ \_ 12/12 15/16 \_ \_ Ramiro Mato 15/15 40/40 14/14 \_ \_ 16/16 \_ 6/6 Sergio Rial 15/15 \_ \_ \_ \_ \_ \_ \_ Belén RomanaC 15/15 35/40 14/14 \_ \_ 16/16 4/4 6/6 Pamela WalkdenD 15/15 \_ 14/14 \_ \_ 10/11 \_ \_ Note: The table details directors' attendance whenever they personally attended meetings of the board or its committees. For this purpose, absent directors who were represented are not counted among attendees. The nomination committee was informed of, and declared its satisfaction with, directors’ reasons for not being present A. Stepped down as chair and member of the risk supervision, regulation and compliance committee on 1 April 2021. B. Member of the nomination committee since 22 December 2021. C. Appointed chair of the risk supervision, regulation and compliance committee on 1 April 2021. D. Member of the risk supervision, regulation and compliance committee since 1 of May 2021. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 219 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 chairA Board 15 156B 312B Executive committee 40 200 400 Audit committee 14 140 280 Nomination committee 12 48 96 Remuneration committee 12 48 96 Risk supervision, regulation and compliance committee 16 160 320 Responsible banking, sustainability and culture committee 6 30 60 Innovation and technology committee 4 16 32 A. Includes hours of meeting preparation and attendance. B. Of the 13 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286) [activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286)) 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. Therefore, any necessary travel time taken to attend in-person board meetings is considered for reference purposes. 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 organizations are not included). Director training and induction programmes The board promotes its directors’ continued training through an annual board training programme. Its contents are chosen by the board based on its performance reviews as well as technological, risk management and regulatory issues. In 2021, programme workshops (held, as usual, after board meetings) addressed these topics: •  Regulatory compliance regarding conflicts of interest, market abuse, competitors and other types of risk. •  Risk Appetite Statement annual review covering material risks, calibration of limits and implementation across the Group and future enhancements proposed for 2022. •  Credit risk management regarding provisions calculations (e.g. covid-19 overlay, scenarios and impacts, and management of vulnerable industries). •  The transition from the IBOR to alternative benchmark rates as well as identification of key risks (especially legal, business, financial and accounting risks). •  Regulatory requirements regarding financial crime and best practice guidance (including anti money laundering and sanctions). •  The building and measurement of risk regulatory models. •  New special situations and resolution framework and governance bodies’ roles and responsibilities in special situations. •  Cloud migration, system changes and expectations for 2022. In addition, the board has sound induction and development programmes so new directors can better understand Santander’s business and governance rules. They normally run for six to twelve months from the time the board appoints a new director. They involve key group managers who provide detailed information on their areas of responsibility, and address the special needs found in a director’s suitability assessment. In 2021, these directors completed induction programmes with additional areas of focus: •  R Martín Chávez, who attended specific deep-dive workshops on the Single Supervisory Mechanism (SSM) and on Spain’s regulatory framework because he had developed his career in the US. Mr Chávez’s induction plan ended in January 2021. •  Gina Díez, who attended additional deep-dive workshops on and on the Single Supervisory Mechanism (SSM) and regulatory framework because she had developed her career in Mexico. Also, she received additional training in auditing, accounting and financial risk management. Ms Díez’s induction plan ended in July 2021. Those programmes were tailored to their experience and particular induction needs found in their suitability assessments Board assessment in 2021 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 and complemented by a wider external review of our governance arrangements in 2021, with the aim of assessing its overall functioning and adherence to regulations, supervisors’ expectations, and industry best practice. In addition to the above-mentioned structured reviews, we conducted an internally facilitated review of the effectiveness of our board practices. For more details, see 'Board assessment and actions to continuously improve its functioning' in section [1.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_196). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 220 The resultant actions and associated outcomes of the reviews have been the subject of further work in 2021 and have supported our continued priority focus on effective governance. 4.4 Executive committee activities in 2021 Composition Position Category Appointed on Chair Ana Botín Executive 11/12/1989A Members José Antonio Álvarez Executive 03/01/2015 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 since 10 September 2014. Functions The executive committee is a key governance body in Banco Santander and  the Group. The board delegated to it all its powers except those that cannot be delegated by the law or under the Bylaws and Rules and regulations of the board. The executive committee generally meets once a week to ensure key decision- making in a timely and efficient manner, so the board can focus on general supervision. It regularly reports to the board on its core matters, providing all directors with the minutes and documents from its meetings. Committee performance The board, supported by its nomination committee, sets the executive committee's size and qualitative composition, focused on overall effectiveness while keeping with the board composition guidelines. Although the executive committee does not exactly mirror the qualitative composition of the board of directors, it is consistent with an external director majority, 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 recommends to have at least two non- executive directors, including one independent director. The secretary of the board is also the secretary of the executive committee. The executive committee can meet as many times as its chair convenes it, however, it generally meets once a week. Main activities in 2021 In 2021, the executive committee addressed a breadth of matters relating to the business of the Group and its main subsidiaries, risk management, corporate transactions and main proposals subsequently submitted to the board of directors. The key topics covered in the year were: •Results: The committee was kept up to date on the Group´s results and their impact on investors and analysts. •Business performance: The committee was kept continuously and fully informed of the performance of the Group’s business areas, through management reporting or reports on specific matters. •Information reported by the chair: The board´s chair, who also chairs the executive committee, regularly reported on key matters relating to the Group´s management, strategy and institutional issues. •Information reported by the CEO: The CEO reported on key matters relating to the Group´s performance, budget and strategic business plans execution. •Corporate transactions: The committee analysed and (where appropriate) approved some corporate transactions (e.g. investments and divestments, joint ventures and capital transactions). •Covid-19: The committee was kept informed of the pandemic and was active in decision-making to mitigate its impact on the Group and the global economy, to preserve the health of employees and customers and to provide healthcare and financial resources to public and private institutions fighting the pandemic. •Risks: The committee was regularly informed about the risks facing the Group. Within the framework of the risk governance model, it made decisions about transactions that it had to approve due to their materiality. It was also kept informed on specific risk matters such as the Group’s leveraged finance, distribution risk and credit evolution in certain industries. •Subsidiaries: The committee received reports on the performance of the various units and business lines. In particular, it was kept duly informed about Santander España´s headcount and distribution model restructuring, specific regional projects (such as the One Europe App), strategic initiatives the board had approved during the year affecting subsidiaries and the appointments of key positions there. •Capital and liquidity: The committee reviewed regulatory plans and exercises (e.g. EBA stress test) and received regular reports on capital ratios and the measures taken to optimize them; pricing (originations) and portfolio profitability. •Supervisors and regulatory matters: The committee was regularly informed of regulatory developments, the supervisory agenda for the year and projects to ensure compliance with supervisory recommendations and regulatory changes. •Governance models: The committee discussed the new governance and strategy models for new units (such as the Investment Platforms) before they were submitted to the board for approval. •Issuances: By virtue of the board's delegation, the committee issued non-convertible debentures. In 2021, the executive committee held 40 meetings. 'Board and committee attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) provides information on members’ meeting attendance and the estimated average time each one spent on preparing for and participating in meetings. 2022 priorities •Ensuring at all times the committee’s effectiveness with consideration for all areas for continuous improvement and an overall review of its operations. •Continuing to ensure proper coordination with the board and its committees (including other executive committees.) •Monitoring the performance of strategic initiatives that affect the Group’s many global businesses and subsidiaries. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 221 4.5 Audit committee activities in 2021 'Our fundamental responsibility is the effective oversight of the financial information process and internal controls, ensuring the effectiveness of our internal audit function and maintaining a professional and open relationship with the external auditors. We must remain flexible and adapt priorities to the new challenges that may not have been foreseen at the beginning of the year. 2021 proved no different as we faced the second year of managing through a global pandemic, supporting our customers and staff, while maintaining the appropriate controls. The committee benefited from a good mix of experience and skills of our members. Each provided appropriate advice and challenge to the management. We also took views from all three key lines of defence (management, risk and audit) to oversee the progress in key global initiatives. Communication with executives and non-executives globally became even more important, given the travel restrictions around the world, as it allowed us to share with them our concerns and thoughts with them. In the coming year, we will progress some exciting and large strategic projects in which we will try to strike the delicate balance of supporting management and ensuring an appropriate level of control for a Group of our size'. #### Pamela Walkden Chair of the audit committee This section is the report the audit committee prepared on 21 February 2022 regarding its activities. The board of directors approved it on 24 February 2022. Composition Position Category Appointed on Chair 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 their expertise, skills and experience regarding the matters it handles. For more details, see section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) and 'Board skills and diversity matrix' and 'Committees skills and diversity matrix' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). According to SEC Regulation S-K, committee chair, Pamela Walkden is considered a financial expert based on her training and experience in accounting, auditing and risk management, her past leadership positions at entities where accounting expertise and risk management were essential, and her international experience - primarily in the UK and Asia. External auditor Our external auditor is PricewaterhouseCoopers Auditores, S.L. (PwC). Its registered office is at Paseo de la Castellana, 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 Ministry of Economic Affairs and Digital Transformation under number S0242. Lead partner Julián González, assumed Alejandro Esnal's role in 2021. Mr González has experience as a global groups' audit partner (mainly in Spain and the UK) and a strong background 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 verified the external auditor's independence, on 21 February 2022 and prior to the issuance of the 2021 auditor’s report on the financial statements in line with the terms established under 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, concluding that, in its opinion, it had no objective reason to question the external auditor's independence. In assessing the auditor's independence the committee considered personal circumstances and the financial relationship the auditor or persons performing the audit have with the Group; analysed possible threats; and established the appropriate safeguarding measures. The committee also considered the information included in subsection 'Duties and activities in 2021' in section on the auditor’s remuneration for audit and other services as well as 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 2022 As indicated in section [3.5 'Our next AGM in 2022'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250), the board of directors will submit a resolution to re-elect PwC as external auditor for 2022 at our 2022 AGM, following the proposal the audit committee had issued in November 2021. If PwC is re-elected, Mr González will continue as lead partner in auditing the accounts in accordance with the Spanish Account Auditing Act. Time allocation In 2021, the audit committee held 14 meetings. 'Board and committee attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) provides information on members’ attendance and the estimated average time each one spent on preparing for and participating in meetings. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 222 The chart below shows the committee’s approximate time allocation to each function in 2021. Duties and activities in 2021 This section summarizes the audit committee’s activities in 2021. 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 the 2021 directors' reports and submitted it prior to their approval by board of directors, monitoring compliance with legal requirements and the proper application of 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). •Reviewed quarterly financial information (dated 31 December 2020, 31 March, 30 June and 30 September 2021, respectively), prior to its approval by the board of directors, and they were subsequently released to the market and supervisory bodies. •Reviewed other financial information such as: the annual corporate governance report; shares registration document filed with the CNMV; Form 20-F with 2020 the financial information, filed with SEC; the half- yearly financial information filed with CNMV and with SEC as Form 6-K. •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 that covers the investments for each green bond issuance before the board approved it. Report to the board about applied tax policies •Received information on the tax policies applied, in compliance with the Code of Good Tax Practices; and submitted it to the board of directors, clearly stating that, as part of the cooperation the code advocates, the Tax transparency report for the 2020 fiscal year had been filed with the Agencia Estatal de Administración Tributaria (Spanish Tax Authority or "AEAT"). Relations 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 to financial reporting in light of new accounting standards and best international practices. •Received information on the planning, progress and execution of the audit plan. •Analysed audit 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 held in 2021, serving as a channel of communication between the external auditor and the board. •The committee met with the external auditor two times in 2021 to discuss the audit work without the presence of the executives. •Oversaw the change of the lead partner during 2021 and made certain that rotation rules were followed. Assessment of the auditor’s performance •Performed the external auditor's final evaluation and its contribution to financial reporting integrity on account of its work and the opinions of units and the audit committees chairs of Group's entities. During that assessment, the auditor informed the committee of the findings of regulators’ inspections of PwC, which the committee analysed along with details about any relevant investigations involving PwC. Duties Actions taken Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 223 External auditor's independence PwC’s remuneration for audit and non- audit services •Monitored PwC’s remuneration, including these fees for audit and non-audit services provided to the Group: EUR million 2021 2020 2019 Audit 103.7 99.4 102.4 Audit-related services 6.0 6.0 7.8 Tax advisory services 0.7 0.8 0.7 Other services 2.4 1.2 2.3 Total 112.8 107.4 113.2 The 'Audit' heading mainly includes audit fees for the individual and consolidated financial statements of Banco Santander, S.A., and of some of its subsidiaries; the integrated audits prepared in order to file Form 20-F for the annual report with the SEC in the US regarding any entities subject to it; the internal control audit (SOx) for Group's entities subject to it; the audit of the consolidated financial statements as of 30 June; and the regulatory auditor’s reports on Grupo Santander’s geographies. Tax advisory services provided by PwC totalled EUR 75,840 for Spain and EUR 575,122 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 that due to their nature are provided by the external auditor. 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 note [47.b)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_955) in the 'Notes to the consolidated financial statements' in the year to which the audit relates. The rest of the services are presented according to their approval by the audit committee. 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) 556 2,567 3,123 Amount of non-audit work as a % amount of audit work 0.5% 2.5% 3.0% In 2021, Santander arranged for services provided by audit firms other than PwC EUR 263.8 million (EUR 172.4 and 227,6 million in 2020 and 2019, respectively). Non-audit services. Assess threats to the independence and protective measures •Reviewed services rendered by PwC and confirmed its independence. For those purposes, it: •Verified that all services rendered by the Group’s auditor, including audit and audit-related services, tax advisory services (mainly on tax and compliance tax advice and tax compliance services ) and other services detailed in the section above, met the independence requirements set out in the applicable regulation. •Verified the 2021 ratio non-audit services fees to total fees received by the auditor for all services provided to the Group, with stood at 3.0%. •Average fees paid to auditors in 2021 for non-audit and related services account for 8% of total fees paid as a benchmark according to available information on the leading listed companies in Spain. •Verified the ratio of fees paid for all items relating to the services provided to the Group to total fees accrued in 2021 by PwC as a firm. The Group’s total fees paid are less than 0.30% of PwC’s total revenue worldwide. •Reviewed banking transactions performed with companies related to PwC and concluded that none that could compromise PwC’s independence have been detected. •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 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 the Group's entities. External auditor independence report •After considering the information above, the committee issued its 'Report on the independence of the external auditor', which is described at the beginning of this section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283). Re-election of the external auditor Re-election of the external auditor •Proposed to the board, for subsequent submission to the 2022 AGM, the re-election of PwC as the external auditor of Banco Santander and its consolidated Group for 2022. Duties Actions taken Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 224 Internal audit function Oversight of the Internal audit function •Supervised the internal audit function and ensured its independence and effectiveness in 2021. •Continued monitoring Covid-19's impact on internal audit activities on a regular basis. •Reported on progress made with the internal audit plan, with exhaustive control over internal audit recommendations and ratings of corporate units and functions. The chief audit executives (CAEs) of the core corporate units and divisions reported at least once to the committee in 2021. •Held its meetings in 2021 with the CAE and representatives of the Internal Audit division in attendance; and held private meetings with the CAE without other executives or the external auditor present. •Proposed the 2021 Internal audit function budget, ensuring that it had the physical and human resources needed to perform its function effectively; and was kept apprised of the progress and timetable of the Audit hubs being created, as well as of digital initiatives relating to the Internal Audit division. •Reviewed the strategic audit plan for 2021-2024 based on a comprehensive risk assessment and submitted it to the board for approval. •Received regular information on the internal audit activities carried out in 2021, highlighting an overall improvement in audit ratings, in part, due to continued focus on building a stronger control environment; and conducted an additional review of issued audit reports, requiring that relevant business areas present action plans. •Increased first-line management's involvement in internal audit recommendations and related documents about 2021. •Received holistic reviews of internal audit coverage of key topics to ensure proper oversight, with second line of defence representatives invited to provide it with additional feedback. •Reviewed and recommended to the board the 2021 objectives for the CAE; and assessed the Internal audit function's preparedness and effectiveness when fulfilling its duty, as well as the CAE’s performance in 2021 (which was reported to the remuneration committee and the board to determine his variable remuneration). •Required that an external assessment of the Internal audit function be performed in 2022 according to the best practices of International Internal Audit Standard 1312 to ensure compliance with regulation and international practices. Internal control systems Monitoring of the evaluation of the internal control systems • •Received information on the evaluation and certification the Group’s internal risk control system (IRCS) for 2020 and assessed its effectiveness, in compliance with regulatory requirements with from the CNMV (ICFR- Internal Control over Financial Reporting) and the SEC Sarbanes-Oxley Act (SOx). Its main priority was the reduction of risk in the risk control system and  actions in certain geographies. Whistleblowing channel (Canal Abierto) • •Received the annual update about Canal Abierto (the whistleblowing channels in the Group) in a joint meeting with risk supervision, regulation and compliance committee, helping ensure that the Group´s culture is embedded in the working environment is conducive to employees' talking straight and being truly listened to. Coordination with Risk • •Developed different activities to ensure that the internal audit plan is properly coordinated with the Group's relevant risks. •Held three joint meetings with the risk supervision, regulation and compliance committee in order to share information and discuss topics of mutual interest including the group risk control environment assessment, model risk, financial crime compliance, whistleblowing and third-party supplier risk management. •Held monthly meetings with the chairs of both the audit committee and the risk supervision, regulation and compliance committee. As detailed in section [1.1 'Board skills and diversity'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_193), Pamela Walkden was appointed to the risk supervision, regulation and compliance committee. The CRO was also invited to all 2021 committee’s meetings. Other activities •Was engaged in the appointment of any new CAE at subsidiaries in line with Group’s internal regulation ensuring their proper oversight and control. •Continued its collaboration with the responsible banking, sustainability and culture committee to supervise and evaluate the preparation of non-financial information. Related-party and corporate transactions Creation of special-purpose vehicles or entities based in countries considered non- cooperative jurisdictions •Was informed by the head of Tax of the Group’s offshore entities in accordance with Spanish regulations. See note [3.c)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_751) in the 'Notes to the consolidated financial statements'. Approval and oversight of related party transactions •Reviewed transactions carried out by Banco Santander to ensure they satisfied the Rules and regulations of the board and relevant legislation in relation to related parties and seeking board approval where required. The committee has examined the financial statements in regard to regarding related party transactions. See section [4.12 'Related-party transactions and conflicts of interest'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304). •Was informed of the amendments on related-party transactions in the Spanish Companies Act through Act 5/2021 and informed the board of its endorsement of the recommendation that it delegate to competent bodies, committees, proxies and executives approval of their own related-party transactions in the ordinary course of business; approval of the internal disclosure; and regular control of any transactions it has delegated to the committee to approve. Transactions involving structural or corporate changes •Reviewed the corporate transactions that the Group planned in 2021 prior to the submission to the board of directors, analysing their economic conditions, accounting and internal audit impact. Duties Actions taken Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 225 Information for general meetings and corporate documents Shareholders information •At our 2021 AGM (held remotely), board secretary Jaime Pérez Renovales, and substituting Pamela Walkden as committee chair, reported to shareholders on the matters and activities within the committee's scope in 2020. Corporate documents for 2021 •Prepared this report on its activities in 2021, which includes a performance review of its assigned functions and key priorities for 2022 based on the assessment of the effectiveness of the board and its committees. Duties Actions taken Annual assessment of the committee and its achievement of 2021 objectives In 2021, to follow up on the external review in 2020, an internal effectiveness review of our board practices was conducted and areas for improvement were identified. For more details about the internal review and its findings see 'Board assessment in 2021' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). The committee took the actions planned for 2021. In particular, it: •Reinforced the coordination and sharing of information with other committees, especially with the risk supervision, regulation and compliance committee. The audit committee chair was appointed as member of the latter. In addition, the Group CRO was invited to all committee meetings in 2021 and three joint meetings were held to ensure ongoing coordination and raise awareness of mutual areas of interest. •Strengthened coordination and information exchange with the core units and divisions through the reciprocal participation of the committee chair in the meetings of the audit committees of the different countries and the chairs of the audit committees of the different countries at committee meetings. •Held another Audit Committee Chairs Convention to raise awareness of global initiatives and expectations and to create an opportunity to collectively discuss relevant issues, putting the focus on key areas: model risk, climate change and trends in non- financial information, compliance and financial crime, provision of credit risk and areas for improvement, among others. •Reviewed a committee activity interim report to ensure that the committee’s responsibilities were being adequately fulfilled and that the expectations of the committee members were met, compliance with the applicable rules and alignment of meeting planning with business needs and promotion of a continuous feedback environment. •Remained focused on, and debated, such critical aspects as the supervision of the internal audit function and the internal control systems and, in particular, control environment risk assessment, execution of the internal audit plan, model management, anti money laundering and relationships with third party suppliers. •Promoted a greater presence of the first line of defence, for which it required the presence of the country head/local CEO during the local CAE’s updates on internal audit on a significant number of occasions. 2022 priorities The committee set these priorities for 2022: •Continuing to focus on its size and composition, particularly regarding the accounting, financial, risk management and audit expertise it needs, as well as any other areas that will enhance its effectiveness. •Continuing to focus on key judgements that are made in preparing the Group's financial statements. •Monitoring internal audit plan execution, especially in terms of how management identifies and measures emerging risks from the covid-19 crisis and overseeing the Group’s response to its environmental ambitions. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 226 4.6 Nomination committee activities in 2021 'The committee 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 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. Given our commitment to continuous improvement and to fully adhering to the best industry standards, evolving supervisory expectations and to stakeholders' best interests (clients, employees, shareholders and, more generally, the community in which Banco Santander operates), we continued our work on improving our overall effectiveness through commissioning an external evaluation to holistically review our governance model. An appropriate mix of members’ skills, further reinforced by the appointment of Gina Díez as a member, helped the committee to address these tasks and to operate effectively, offering appropriate challenge and support to management'. Bruce Carnegie-Brown Chair of the nomination committee This section is the report the nomination committee prepared on 21 February 2022 regarding its activities. The board of directors approved it on 24 February 2021. Composition Position Category Appointed on Chair Bruce Carnegie-Brown Independent 12/02/2015A Members R Martín Chávez Independent 22/12/2020 Sol Daurella Independent 23/02/2015 Gina Díez Barroso Independent 22/12/2021 Secretary Jaime Pérez Renovales A. Committee chair since 12 February 2015. The board of directors appointed the committee’s members based on their expertise, skills and experience regarding the matters it handles. For more details, see section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) and 'Board skills and diversity matrix' and 'Committees skills and diversity matrix' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). The only change in the committee composition in 2021, was Gina Díez appointment on 22 of December 2021. Time allocation In 2021, the nomination committee held 12 meetings. 'Board and committee attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) provides information on members’ attendance and the estimated average time each one spent on preparing for and participating in meetings. The chart below shows the committee’s approximate time allocation to each function in 2021. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 227 Duties and activities in 2021 This section summarizes the nomination committee’s activities in 2021. Composition of the board and its committees Selection, suitability assessment and succession policy and renewal of the board and its committees •Ensured board member selection procedures guaranteed directors’ individual and collective suitability; fostered diversity of gender, experience and skills; and conducted the necessary analysis of the required expertise, skills and time commitment for effective board membership. •Continued playing a leading role in the appointment of board and committee members and senior managers, and planning their succession. •Assessed the composition of the board committees and the international advisory board in order to ensure they had the right skills and experience to perform their duties successfully. •Continued monitoring the board of directors’ overall skills and competencies, including the need to cover Banco Santander’s strategic markets and such areas as technology, digital strategy, banking, finance, regulation and ethics. •Continuously oversaw appointments of key positions and the regular strategic review of leadership succession plans. •Ensured candidate pool selection for any nomination, interviews and appointment decisions actively took into account diversity in its broadest sense. Appointment, re-election, confirmation and removal of directors and committee members •Verified that the overall composition and skills of the board of directors and its committees are appropriate and identified, utilizing the skills matrix and the 2020 board effectiveness review, desired areas of expertise and experience in recruitment. •Recommended the board nominate Germán de la Fuente as a new board member for subsequent approval at the AGM. He will contribute significant auditing, accounting and technical banking expertise. •Submitted proposals to the board to make changes to certain committees’ composition in order to strengthen their performance and support to the board in their areas of authority. •Gina Díez was appointed a new committee member 12 months after being appointed a board member in December 2020. She had been nominated to join the committee in consideration of her skills, qualifications and experience (especially in corporate governance, strategic analysis and evaluation of human resources, selection of senior officers, the performance of senior management duties, and other tasks the committee usually discharges). Succession planning Succession planning for executive directors and senior managers •Reviewed the information it received regularly on senior executive succession planning (which included key positions in subsidiaries) and made sure it is being implemented to ensure the orderly succession of senior managers through a rigorous, transparent, merit-based and objective process, that promotes diversity in its broadest sense. •Reviewed an external expert’s report that concluded Banco Santander’s succession arrangements and framework for the board and critical roles throughout the Group are consistent with regulatory requirements and best industry practice. Director status verification Annual verification of the status of directors •Verified each director category (i.e. executive, independent and other external) and submitted its proposal to the board of directors that it be confirmed or revised in the annual corporate governance report and at the AGM. See section [4.2 'Board composition'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). •Assessed directors’ independence, verifying no significant business ties between the Group and companies in which they are or have been significant shareholders or directors, in particular regarding financing extended by the Group to such companies. In all cases, the committee concluded that the existing ties were not significant because (i) financing (a) did not create economic dependence for such companies because it could be replaced by different bank-based or other sources of funding, and (b) was consistent with the Group’s share of the relevant market; and because (ii) business ties did not reach comparable materiality thresholds used in other jurisdictions as benchmarks (e.g. NYSE, Nasdaq and Canada’s Bank Act), among other reasons. Regular assessment Annual suitability assessment of directors and key officers •Assessed the suitability of the members of the board, senior management members, those responsible for internal control functions and those holding key positions of the Group, ensuring their business and professional probity and appropriate knowledge and experience to perform their duties. •Concluded that board members can carry out good governance of Banco Santander after reviewing board meeting attendance and noting that, on average, directors attend 98.67% of board meetings and that it was not compelled to take any action against any director for under 75% attendance. •During 2021,the committee, based on the information it had received from the directors, was not aware of any circumstance or situation that could harm the Group’s credibility and reputation. Directors' potential conflicts of interest and other professional activities •Examined the information the directors had given about their other professional activities or positions to which they had been proposed and the related time commitment; and concluded those commitments did not interfere with that required of them as Banco Santander directors and did not put them in any conflict of interest. Duties Actions taken Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 228 Board assessment •Oversaw the holistic review of our governance model by an external adviser to determine if it accommodated the characteristics of our global operations, supervisors' expectations and industry best practice. •Reviewed the 2022 action plan to address the areas for improvement revealed in the 2020 and 2021 board effectiveness reviews. Senior management Appointment of key officers •Issued favourable opinions on the following appointees, approved by the board: •Carlos Rey as new regional head for South America to replace Sergio Rial, who assumed the non-executive chair role at Santander Brazil with effect from 1 January 2022. •Nathan Bostock as head of Investment Platforms. •Javier Roglá as new chief talent officer to replace Roberto di Bernardini. •Issued favourable opinions on directors and members of senior management appointments at the Group’s core subsidiaries. Talent and director training •Received information about the initiatives in Human Resources to make Santander an employer of choice in three ways: by putting the employee at the centre of everything we do; by securing the right talent and skills; and by aligning with the business to deliver value and our strategy. •Reviewed the Group’s director induction, information, training, development and knowledge refreshment programmes in line with the Rules and regulations of the board, the ESMA and EBA’s joint guidelines, and the Spanish Governance Code so that they would be designed according to each director’s own circumstances and needs. •Assessed the Group’s director induction and training programmes and recognized areas for improvement. Internal governance and corporate governance Internal governance oversight •Assessed the suitability of certain nominees at the subsidiaries subject to the Group’s appointments and suitability procedure; and oversaw subsidiary board composition to ensure a consistent selection and suitability approach across the Group. •Received explanations regularly about new governance regulation, trends, best practices and implications for the Group; closely reviewed amendments to Act 5/2021 (especially in regard to new related-party regulation); and amendments to corporate governance codes that apply to the Group and subsidiaries. •Verified that subsidiary boards, committees and their duties aligned governance structures were consistent with the Group-Subsidiary Governance Model (GSGM) guidelines and best practice; and tracked subsidiaries’ actions and progress in implementing internal regulation dictated by the Group. •Endorsed lead director nominations for subsidiary boards to ensure board members representing the Group as significant shareholder are appropriate and will correctly perform their duties. Corporate governance •Received an overview of the highlights and results from the 2021 AGM, especially, its virtual only nature. •Reviewed the joint work of the lead independent director and the Shareholder and Investor Relations team and investors' and shareholders' feedback on the Group's corporate governance arrangements. •Reviewed the independence of the external advisers hired by the nomination and remuneration committees in 2021 in line with the CNMV Technical Guide 1/2019 on nomination and remuneration committees, analysing, inter alia, the services the advisers provided and the amounts they received. •Reviewed the annual corporate governance report to verify that information to be published conforms to the law and that the corporate governance system promotes corporate interests and considers the legitimate interests of all stakeholders. Information for general meetings and corporate documents Shareholders information •At our 2021 AGM (held remotely), board secretary Jaime Pérez Renovales, substituting Bruce Carnegie- Brown as committee chair, reported to shareholders on the matters and activities within the committee's scope in 2020. Corporate documents for 2021 •Prepared this report on its activities in 2021, which includes a performance review of its assigned functions and key priorities for 2022 based on the assessment of the effectiveness of the board and its committees. Duties Actions taken Annual assessment of the committee and its achievement of 2021 objectives In 2021, to follow up on the external review in 2020, an internal effectiveness review of our board practices was conducted and areas for improvement were identified. For more details about the internal review and its findings see ´Board assessment in 2021' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). The committee took the actions planned for 2021. In particular, it: •Reviewed information it received regularly on senior executives succession planning (which included key positions in subsidiaries); ensured plans were in place for the orderly succession of senior management positions and that there was a rigorous and transparent procedure based on merit and objective criteria and that promotes diversity in its broadest sense; and reviewed an external expert’s report that concluded Banco Santander’s overall succession arrangements and framework for the board and critical roles throughout the Group are consistent with regulatory requirements and best industry practice. •Monitored the skills and training needs of the Group’s directors and reviewed an overview of the Group’s director induction and training programmes at the subsidiaries to coordinate them across the Group. The committee’s review showed subsidiaries’ high level of adherence to the GSGM. All GSGM subsidiaries have induction and training programmes and offer structured programmes for directors to develop and enhance skills, when needed. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 229 •Oversaw the holistic reviews by external advisers of our governance model and functioning. When Egon Zehnder conducted an effectiveness review of the board of directors and its committees in 2020, its report concluded that Banco Santander’s board is highly effective. When another external adviser performed a holistic review of our governance arrangements to assess its functioning and conformity with regulations, supervisors’ expectations and industry best practices in 2021, it concluded Banco Santander has a sophisticated governance model that suits its group-wide characteristics and requirements and acknowledged our board members’ high profile and diversity of the board in terms of gender, national origin, age and background. •Reviewed the action plan for such key governance objectives as ensuring continued clarity of the role and the responsibilities of the most senior executives (including the executive chair and CEO); that checks and balances remain appropriate and effective; and that the independence of control functions remains fully preserved according to the external reports' findings and our commitment to constant improvement. •Focused on reviewing corporate governance matters and reports and oversaw engagement with shareholders and investors about governance. 2022 priorities The committee set these priorities for 2022: •Continuing to focus on the review of the senior executive and board member succession plans according to the Group’s current and future strategy and to potential challenges the business may face when identifying future leadership needs. •Continuing to ensure that gender and broader diversity remains a key priority in our succession policy, appreciating that a more diverse and inclusive workforce is critical to 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. •Ensuring the actions recommended in external advisers’ governance reviews are introduced into the action plan and correctly executed. •Keeping the corporate governance arrangements under constant review to make sure it continues to consider all stakeholders’ interests with strategic relevance for the Group by closely monitoring shareholder engagement and, together with the lead independent director, by taking into account their feedback and insight. 4.7 Remuneration committee activities in 2021 'In 2021, we maintained oversight of the application and implementation of remuneration policies and frameworks for the Group and focused on simplifying executive remuneration within regulatory parameters. This included shaping compensation schemes consistent with the Group’s values of 'Simple, Personal and Fair', meeting stakeholders' expectations. In particular, the committee conducted a comprehensive review of the Group’s long term variable compensation which has been in place for five years, to see what enhancements could be implemented, and proposed simplifying the metrics, amending the key metrics to align with the Group’s evolving strategy and introducing an ESG metric for the first time. This review included consultation with the Group’s significant institutional shareholders. We 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, acknowledging diversity as a key pillar for succeeding in the Group’s long-term strategy. An appropriate mix of committee members’ skills helped the committee address those tasks and operate effectively, offering appropriate challenge and support to management. We also made sure we coordinated with our core subsidiaries’ remuneration committees constantly and were aware of subsidiary teams’ point of view so corporate remuneration policies would be applied consistently'. #### Bruce Carnegie-Brown Chair of the remuneration committee This section is the report the remuneration committee prepared on 21 February 2022 regarding its activities. The board of directors approved it on 24 February 2022. Composition Position Category Appointed on Chair Bruce Carnegie-Brown Independent 12/02/2015A Members R. Martín Chávez Independent 27/10/2020 Sol Daurella Independent 23/02/2015 Henrique de Castro Independent 29/10/2019 Luis Isasi Other external 19/05/2020 Secretary Jaime Pérez Renovales A. Committee chair since 12 February 2015. The board of directors appointed the committee’s members based on their expertise, skills and experience regarding the matters it handles. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 230 For more details, see section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) and 'Board skills and diversity matrix' and 'Committees skills and diversity matrix' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). Time allocation In 2021, the remuneration committee held 12 meetings. 'Board and committee attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) provides information on members’ attendance and the estimated average time each one spent on preparing for and participating in meetings. The chart below shows the committee’s approximate time allocation to each function in 2021. Duties and activities in 2021 This section summarizes the remuneration committee’s activities in 2021. Remuneration of directors, senior management and other key executives Individual remuneration of directors in their capacity as such •Analysed and proposed adjustments to the 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 meetings of the committees, and any other objective circumstances evaluated by the board. Individual fixed remuneration for executive directors •Reviewed the adequacy of executive directors' fixed remuneration to market rates and their responsibilities, which resulted in no quantity adjustments. Individual variable remuneration for executive directors •Proposed to the board immediately payable and deferred amounts of variable remuneration of the preceding year. •Submitted a proposal, as part of the directors' remuneration policy, on the annual performance indicators and targets used to calculate 2022 variable remuneration, subject to board approval. •Proposed the achievement scales and weightings for annual and multi-year performance targets. Share plans •Submitted a proposal to the board, for vote at the 2021 AGM, regarding the approval of remuneration plans that involve 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). •Analysed and submitted to the board a proposal, for approval at the AGM, regarding the 2021 Digital Transformation Award, which was designed and implemented to attract and retain key talent to drive long- term share value creation through the achievement of key digital milestones. Propose the annual directors' remuneration report to the board •Drafted and proposed to the board the annual directors' remuneration report for an advisory vote at the 2021 AGM. •Assisted the board of directors in overseeing compliance with the director remuneration policy. •Received information from the lead independent director about engagement with key shareholders and proxy advisers regarding 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 risks that exceed Banco Santander's tolerance, thus promoting and being compatible with adequate and effective risk management. Duties Actions taken Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 231 Remuneration policy for senior management and other key executives •Focused on simplifying executive remuneration, shaping remuneration schemes consistent with Banco Santander's Simple, Personal and Fair values, and including long term ESG related metrics in coordination with the responsible banking, sustainability and culture committee. •Proposed to the board the global annual variable remuneration for 2020 payable immediately and the deferred remuneration of the main executive segments, in line with the achievement of previously set quantitative and qualitative targets; proposed to the board the individual remuneration of members of senior management, based on each one’s achievement of the annual performance targets and their weightings as set by the board. •Reviewed the results of top executives’ performance review calibration in coordination with non-executive directors for the executive chair, the executive directors and the chief financial officer; the risk supervision, regulation and compliance committee for the chief risk officer and chief compliance officer; and the board audit committee for the chief audit executive. •Submitted proposals to the board to determine or amend the annual fixed and variable remuneration of certain senior management members. •Established the annual performance indicators to calculate variable remuneration for 2022 in order to simplify the bonus pool scorecard, with a focus on customers, risk, capital and profitability. •Set the achievement scales for the annual and multi-year performance targets and weightings for submission to the board. 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 consistency with regulation and their control objectives. •Set key remuneration components for Identified Staff (Material Risk Takers) in coordination with the risk supervision, regulation and compliance committee. •Maintained close coordination with the board and its committees to ensure that risks are correctly controlled and mitigated. •Submitted a proposal to the board, for subsequent submission to the 2021 AGM, regarding the approval of maximum variable remuneration of up to 200% of the fixed component for Group employees whose activities have a material impact on Banco Santander or the Group’s risk profile, including executive directors. •Reviewed certain remuneration schemes to support the attraction and retention of key talent to help drive digitalization, the application of incentives implemented in the Group, and the achievement of the long-term metrics associated with deferred remuneration. Assist the board of directors in supervising compliance with remuneration policies •Reviewed director remuneration schemes to ensure they considered the Group’s results, culture and risk appetite, and that there were no incentives to assume risks that exceed Banco Santander’s tolerance, thus promoting effective risk management. •Informed the board of a report issued by an external adviser that assessed the remuneration policy according to Ley 10/2014, CRD IV and EBA guidelines, which establish that credit institutions’ remuneration policies will be subject to a central and independent internal assessment to verify compliance with the remuneration guidelines and procedures adopted by the board of directors as part of its supervisory function. The review concluded that the Group's policies, procedures and practices comply with the prudential requirements applicable to credit institutions. •Reviewed Group remuneration policies and practices and assessed their effectiveness prior to their review by the board of directors. •Reviewed and favourably assessed the simplification of the remuneration policy, to facilitate its effective use and understanding as well as the inclusion of CRD V amendments (i.e. gender neutrality, ESG objectives, use of variable remuneration instruments, adjustments in criteria for identifying MRTs, minimum deferral period of four years and an amendment to the limitations on business objectives for control functions according to regulation). Gender and equal pay •Continued to monitor application of diversity policies, including the achievement of targets to reduce gender pay gap and equal pay gap. •Reviewed gender pay gap data in absolute terms and regarding “equal pay for equal work” in the Group; compared them to the previous year and to targets; and focused on measures to enhance them in every country. Governance Governance •Monitored the actions subsidiaries took to reduce their board members’ remuneration in line with the initiative of the Group’s board in light of the pandemic. •Took up certain remuneration oversight tasks for Santander London Branch according to requirements from the UK’s Prudential Risk Authority (PRA) which expects “third-country branches” in the UK to have independent oversight. Information for general meetings and corporate documents Reporting to shareholders •At our 2021 AGM (held remotely), board secretary Jaime Pérez Renovales, and substituting Bruce Carnegie- Brown as committee chair, reported to shareholders on the matters and activities within the committee's scope in 2020. Corporate documents for 2021 •Prepared this report on its activities in 2021, which includes a performance review of its assigned functions and key priorities for 2022 based on the assessment of the effectiveness of the board and its committees. Duties Actions taken Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 232 Annual assessment of the committee and its achievement of 2021 objectives In 2021, to follow up on the external review in 2020, an internal effectiveness review of our board practices was conducted and areas for improvement were identified. For more details about the internal review and its findings see 'Board assessment in 2021' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). The committee took the actions planned for 2021. Among the salient actions, it: •Kept incentives under regular review to ensure they continue to align with our strategy and drive the right culture and behaviours; and made changes to simplify remuneration schemes to ensure they are effective and fair within regulation. •Reviewed proposals to continue to enhance our employee value proposition to attract and retain key talent, maintaining strong shareholder support as well as investors and proxy agencies’ appreciation for our thorough approach and disclosures. •Strengthened coordination and communication with the remuneration committees of the Group’s subsidiaries, monitoring the application of corporate remuneration policies to ensure a consistent approach. The presentations from Santander UK and Santander Brasil’s Human Resources functions provided the committee with an overview of local market practices and challenges. •Prioritized gender pay measurement across the Group and how it compared to the previous year and set targets; and reviewed internal tools to calculate the gender equality metrics more accurately and action plans to reduce the gender pay gap for the Group and its core subsidiaries. The director remuneration policy report Pursuant to section 2 of Article 529 novodecies of the Spanish Companies Act, the remuneration committee issues this report on the resolution regarding the directors' remuneration policy for 2022, 2023 and 2024 that will be submitted by the board of directors at the 2022 AGM as a separate item on the agenda and is an integral part of this report. See section [6.4 'Directors' remuneration policy for 2022,](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [2023 and 2024 submitted to a binding shareholder vote'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) and section [6.5 'Preparatory work and decision-making for the remuneration](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_325) [policy; remuneration committee involvement](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_325)'. Banco Santander’s Remuneration function prepares the directors' remuneration policy based on requests, observations and suggestions it receives from the human resources committee, remuneration committee, board of directors and external advisers throughout the year (the policy for 2022, 2023 and 2024 includes suggestions from Willis Towers Watson). The remuneration committee receives a first draft of the policy every January to review and debate. During the meeting, it considers the inputs the chair and lead independent director receive through shareholder and stakeholder engagement during the year. It also considers any recommendations from regulators, legal requirements or regulation that has come to light since the last time the policy was submitted for approval at the annual general meeting. The committee also makes sure the policy is consistent with the Group's culture and Simple, Personal and Fair values. The Remuneration function then prepares the final draft for the remuneration committee to submit to the board of directors for approval in February. The remuneration committee believes the directors' remuneration policy for 2022, 2023 and 2024 included under section [6.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) is consistent with the Group's remuneration policy and with the remuneration scheme in the Bylaws. The directors’ remuneration policy has been reviewed, introducing several new features. It includes share options as variable remuneration instruments (along with shares) to align executive pay with shareholders’ interests. It has updated long term metrics to cover ESG aspects, RoTE and relative TSR (which was already included, but increasing the minimum threshold for pay) to be consistent with best practice and our shareholders’ and investors’ interests. Furthermore, it has reduced our annual pool metrics from four to three (i.e. customers, RoRWA and RoTE), with qualitative adjustments for risk, capital adequacy, competitor analysis, sustainable results and responsible banking commitments to sharpen our strategic focus. 2022 priorities The committee set these priorities for 2022: •Keeping incentive measures under continuous review to ensure they continue to align with our strategic aims, focus on customers and sustainable profitability and drive the right culture and behaviours, balancing the needs of our people, customers, communities, shareholders and regulators. •Continuing to enhance our employee value proposition with a view to attracting and retaining key talent for the Group, ensuring meritocracy through a proper correlation between pay and performance, and considering the changing environment, new ways of working and the digital transformation. •Keeping the focus on the continuous improvement and simplification of our variable remuneration schemes to maintain strong shareholder support and investors’ and proxy advisers’ appreciation. •Increasing its coordination with the Group subsidiaries’ remuneration committees and HR teams to ensure the consistent application of corporate policies as well as mutual awareness of the Group's trends and challenges. •Continue focusing on accelerating pay equality across the Group. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 233 4.8 Risk supervision, regulation and compliance committee activities in 2021 '2021 was a challenging year in terms of risks. Because of the challenges posed by covid-19 and the uncertain macroeconomic conditions, the committee closely oversaw the actions to manage and mitigate them. The committee also closely monitored both everyday and more strategic, non-traditional emerging risks in all subsidiaries, in full coordination with the board and other committees. Inspired by our previous chair, we remain focused on long- term strategic risks that could ultimately compromise Banco Santander's business and risk profile. The second strategy meeting we held in June 2021 served as another forum to examine and debate such relevant emerging risks as crypto assets, new areas of business, and property and other market segments in the wake of the pandemic. The committee will pay close attention those risks and remain closely vigilant of any that emerge in the future to ensure they are properly and evenly managed in daily operations'. #### Belén Romana Chair of the risk supervision, regulation and compliance committee This section is the report the risk supervision, regulation and compliance committee prepared on 18 February 2022 regarding its activities. The board of directors approved it on 24 February 2022. Composition Position Category Appointed on Chair Belén Romana Independent 28/10/2016A Members R. Martín Chávez Independent 27/10/2020 Luis Isasi Other external 19/05/2020 Ramiro Mato Independent 28/11/2017 Pamela Walkden Independent 01/05/2021 Secretary Jaime Pérez Renovales A. Committee chair since 1 April 2021. The board of directors appointed the committee's members based on their expertise, skills and experience regarding the matters it handles. For more details, see section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) and 'Board skills and diversity matrix' and 'Committees skills and diversity matrix' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). On 1 April 2021 Álvaro Cardoso stepped down as the risk committee chair and member, being replaced by Belén Romana. Time allocation In 2021, the committee held 16 meetings including one strategy session in June. 'Board and committee attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) provides information on members’ attendance and the estimated average time each one spent on preparing for and participating in meetings. The chart below shows the committee’s approximate time allocation to each function in 2021A. A.All regulatory and supervisory relations matters discussed in 2021 are included in each relevant category in the above chart. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 234 Duties and activities in 2021 This section summarizes the risk supervision, regulation and compliance committee's activities in 2021. Risk Assist the board in (i) defining the Group's risks 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; assessed proposals, issues and projects relating to risk management and control and received updates on risks from the Group's main subsidiaries and businesses. •Discussed the regular monitoring of the risk appetite and its metrics, and reviewed the annual risk appetite statement proposal (including an analysis of new metrics proposed and any breaches occurred throughout the year) before it was submitted to the board for approval. Checked compliance with risk appetite limits every quarter and reviewed new proposed metrics and any breach in the year. •Reviewed compliance with the new EBA Guidelines 2021/05 on internal governance. •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 industries such as energy, mining and soft commodities. •Reviewed the 2021 recovery plan, assessed the Group's resilience to severe stress scenarios and submitted it to the board of directors for approval. •Reviewed and challenged the key processes of the Group, such as the internal capital adequacy assessment process (ICAAP) and internal liquidity adequacy assessment process (ILAAP), the Strategic Plan, the 3-year strategic financial plan, the annual budget and the Recovery and Resolution plans. Reviewed and challenged the identified risks and mitigating factors associated with those key processes, their consistency, and their overall alignment to the Group' risk appetite. Risk management and control •Received regular updates on the top risks under management and the appropriateness of mitigating controls. •Reviewed the robustness of the Group's risk control management, most notably the risk profile assessment (RPA), and the risk control self-assessment (RCSA), two of the main tools for risks control. •Conducted regular reviews of the Group’s risks as well as the specific reviews by units and risk types. Assessed proposals, issues and projects relating to risk management and control. •Analysed risks and opportunities associated with emerging risks and how they affect the different geographies and businesses. •Supervised the risks associated with the main corporate transformation programmes and their risk mitigation measures. In particular, it monitored the risks and controls associated with PagoNxT and Openbank, among others. •Supported the board in conducting stress tests of Banco Santander through the assessment of scenarios and assumptions, analysing the results and the measures proposed by the Risk function. Ensured that the stress test programme was aligned with the EBA Guidelines 2018/04 on institutions' stress testing. •Continued to focus on non-performing loans and non-performing assets performance during 2021, in particular considering the evolution of the portfolios under moratoria and their effect on credit provisions. •Received and challenged periodic market and structural risk updates and counterparty risk reviews. •Engaged on non-financial risks including legal risk, environmental and social risks (including climate), and vendor risk management, which remained key areas of focus. •Monitored, in full coordination with the innovation and technology committee, risks stemming from technological obsolescence and cybersecurity. Received reports on major IT developments and projects. •Monitored the post-Brexit situation including its risk effects over the UK and the Group, and the status of preparedness to reduce and mitigate such risks. •Reviewed, supervised and challenged any strategic project before its submission to the board of directors. •Coordinated with the responsible banking, sustainability and culture 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. Supervise the risk function •Ensured the independence and efficacy of the Risk function. •Assessed the Risk function (including its staffing and resourcing suitability) as well as the performance of the CRO in coordination with the remuneration committee, with the purpose of informing the board in order to set his variable pay. •Reviewed new appointments for key positions for the Group and relevant subsidiaries for the Risk and Compliance and Conduct functions, in coordination with the nomination committee. •Reviewed and supervised the annual Group CRO objectives. 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 do not offer incentives to assume risks that exceed the level tolerated by Banco Santander in line with appropriate and effective risk management. The joint session also assessed the performance of the CRO and CCO. •Analysed the factors used to determine the ex-ante risk adjustment of total variable remuneration assigned to the units, based on how previously assessed risks actually materialized, in conjunction with the remuneration committee. •Reviewed the 2021 bonus pool and results of the exercise carried out annually to identify employees whose professional activities had a material impact on the Group´s risk profile. Duties Actions taken Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 235 Capital and liquidity Assist the board in reviewing and approving capital and liquidity strategies and supervising their implementation •Reviewed and challenged the annual ICAAP prepared by the Finance department and challenged by the Risk function in accordance with industry best practices and supervisory guidelines and submitted this report to the board for approval. Drew up a capital plan according to the scenarios envisaged over a three-year period. •Endorsed the Pillar III disclosures report, which was submitted to the board for approval. The report described various aspects of the Group’s management of capital and risk and provided an overview of the function; base capital and prescribed capital requirements; policies for managing the various risks undertaken by Banco Santander in regard to capital consumption; composition of the Group’s portfolio and its credit quality (measured in terms of capital) and the roll-out of advanced internal models. •Reviewed and challenged the ILAAP, developed in line with the Group’s business model and submitted to the board for approval. •Performed continuous monitoring of capital levels, and capital management and tools, including the 2021 securitizations plan and the analysis of the portfolio profitability versus the risk undertaken. Compliance and conduct Supervise the Compliance and conduct function •Ensured the independence and efficacy of the Compliance and conduct function. •Assessed the Compliance and conduct function (including its staffing and resourcing suitability) as well as the performance of the CCO (in coordination with the remuneration committee) to inform the board in order to set her variable pay. •Reviewed and supervised the annual CCO objectives. •Reviewed and followed up on the 2021 Compliance programme, including efforts to continuously improve the Compliance and conduct function. •Reviewed and challenged the status of the compliance and conduct strategy. •Received monthly reports on compliance and conduct matters as part of the risk and compliance monthly report, which cover regulatory issues, product governance and consumer protection, reputational risk, internal and external events, notifications and inspections by supervisors, updates on the One Financial Crime Compliance (One FCC) programme, among other matters. •Held bi-annual specific private sessions with the CCO (in addition to other informal meetings) to discuss strategic compliance topics as well as to report independently and directly to the committee on any material issue relating to the compliance and conduct function, if needed. Regulatory compliance •Monitored compliance with regulatory requirements regarding: •The Dodd Frank Title VII update. •Adaptation of the Volcker Rule compliance programme in line with recent amendments introduced, continuing the oversight of this regulation. •The status of data protection under the GDPR, the contribution to determining the Euribor and the Code of Conduct. Supervise the whistle- blowing channel (Canal Abierto) •Received, in a joint meeting with the audit committee, the annual report on Canal Abierto, Santander’s ethical channel model that helps consolidate the Group's “Speak up” culture through a work environment where employees can talk straight without fear of reprisal. Financial crime compliance (FCC) •Oversaw the Group´s observance with FCC regulations as well as the activities carried out by the function. In particular: •Provided a quarterly update on progress with One FCC implementation strategy in Banco Santander and its subsidiaries. •Received recommendations and observations stemming from the annual independent expert report on Banco Santander in accordance with the Spanish Law 10/2010 and Royal Decree 304/2014 (on anti-money laundering and terrorism financing). Product governance and consumer protection •Received an update on the status of customers’ complaints and associated action plans in place to address identified deficiencies. •Reviewed an update about progress made on subsidiary action plans for internal sales force pay in the Group and a general overview of conduct risk from the external sales force, at a joint meeting with the remuneration committee. •Received information on risk management and main risks identified, concerns, priorities and actions taken by the Product Governance and Consumer Protection (PGCP) function regarding the management and mitigation of conduct risk with retail customers, including product governance activity. Governance Corporate governance and internal governance •Received quarterly updates on the matters discussed at the responsible banking, sustainability and culture committee by the chair of this committee. Furthermore, the CRO provided updates on the work of the risk control committee in his capacity as chair of that committee. •In a joint session with the audit committee, reviewed the status of the internal audit plan and of the main recommendations of Santander, and an update on the internal audit works performed in relation to the risk corporate 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). Duties Actions taken Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 236 Information for general meetings and corporate documents Reporting to shareholders •At our 2021 AGM (held remotely), board secretary Jaime Pérez Renovales, and substituting Alvaro Cardoso de Souza as committee chair, reported to shareholders on the matters and activities within the committee's scope in 2020. Corporate documents for 2021 •Prepared this report on its activities in 2021, which includes a performance review of its assigned functions and key priorities for 2022 based on the assessment of the effectiveness of the board and its committees. Duties Actions taken Annual assessment of the committee and its achievement of 2021 objectives In 2021, to follow up on the external review in 2020, an internal effectiveness review of our board practices was conducted and areas for improvement were identified. For more details about the internal review and its findings see 'Board assessment in 2021' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). The committee took the actions planned for 2021. Among the salient actions, it: •Prioritized oversight of the Group's top risks, impacts and mitigation actions to ensure risks were appropriately managed and would remaining within the board-approved risk appetite limits. •Examined emerging and non-traditional risks to anticipate key strategic changes in the business as discussed at its strategic meeting held in June 2021. •Contributed to the role the Group played in proactively supporting economic recovery after the covid- 19 crisis, by overseeing the Group's credit - related policies to help our customers, while maintaining the strength of Banco Santander's capital and liquidity. •Supervised core business units, geographies and new businesses (including new digital platforms), with an additional focus on emerging business that are relevant for the Group's strategy. •Heightened coordinated action with other board committees to examine matters that concerned them holistically. •Checked that the Risk and Compliance and conduct functions had effective and appropriately resources. 2022 Priorities The committee set these priorities for 2022: •Continuing to monitor the post-covid-19 landscape, especially macroeconomic conditions and their effect on loans, provisions and conduct or reputational risk. •Overseeing the risks associated with certain strategic projects, especially ones relating to financial crime and money laundering prevention, cyber security, climate change, model risk, PagoNxt, Investment Platforms, Digital Consumer Bank and One Santander. •Continuing to monitor the Group’s top risks, early warning indicators, and mitigation actions in order to ensure risks are appropriately managed according to the Group's risk profile and remain with the board-approved risk appetite limits. •Continuing to identify emerging and non-traditional risks in order to anticipate potential impacts on our business model. Those risks will be a topic of debate at the committee’s annual strategic meeting, which follows up on its strategic meetings in 2020 and 2021. •Maintaining close coordination with the board and its committees to ensure that risks are closely controlled and mitigated. •Continuing to work on the committees' effectiveness to make sure it is discharging its duties with utmost efficacy. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 237 4.9 Responsible banking, sustainability and culture committee activities in 2021 'The committee continued to drive the responsible banking agenda in 2021 by assisting the board with oversight of strategy in sustainability. In 2021 the committee assisted the board with setting the climate change strategy, a key enabler to achieve the net zero carbon strategy ambition by 2050. The committee continued to monitor Banco Santander’s response to covid-19, focusing on the social impact of the pandemic and supporting employees, customers (especially the most vulnerable) and society as a whole. Sustainable finance and the green agenda remained key topics for the committee, which reviewed the measures being taken by Santander’s main regions and businesses. The committee continued to oversee the core initiatives, targets and proposed metrics to drive the commitments on diversity and inclusion, ethical behaviour and responsible supplier practices. It revised environmental and risk management policies and standards on financing sensitive industries. It devoted time to reviewing annual report documents on responsible banking; revised ESG metrics proposals for the long-term incentives programme, LTIP; and made progress with the development of an internal taxonomy and data quality. To improve awareness and effective execution of global initiatives, the Group held an inaugural responsible banking chairs’ Convention in 2021 for the subsidiaries’ responsible banking committee chairs to collaborate and share thoughts with a view to driving local traction on action plans aligned with Group expectations and goals. The Convention focused specifically on our ambition to be net zero in carbon emissions by 2050. The committee has continued to work closely with the board of directors and main board committees to ensure that its work was fully coordinated and effective. I would like to take this opportunity to thank the committee members for their invaluable contributions during the year'. Ramiro Mato Chair of the responsible banking, sustainability and culture committee This section is the report the responsible banking, sustainability and culture committee prepared regarding its activities on 21 February 2022. The board of directors approved it on 24 February 2022. Composition Position Category Appointed on Chair 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 Secretary Jaime Pérez Renovales A. Committee chair since 1 July 2018. The board of directors appointed the committee’s members based on their expertise, skills and experience regarding the matters it handles. For more details, see section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) and 'Board skills and diversity matrix' and 'Committees skills and diversity matrix' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). Time allocation In 2021, the responsible banking, sustainability and culture committee held six meetings. 'Board and committee attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) provides information on members’ attendance and the estimated average time each one spent on preparing for and participating in meetings. The chart below shows the committee’s approximate time allocation to each ESG criteria in 2021. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 238 Duties and activities in 2021 This section summarizes the responsible banking, sustainability and culture committee’s activities in 2021 based on ESG criteria. Environmental (E) Sustainable banking Environmental and climate change •Considered the Group's climate change strategy in terms of how Banco Santander would deliver on its external commitments to align its portfolio with the Paris Agreement. Reviewed the proposed alignment of the electric power generation portfolio, the thermal coal targets and the proposed approach to creating a net zero carbon roadmap. •Challenged the Group's public commitment to be net zero carbon by 2050. Reviewed progress made on climate projects, including the ambition to be net zero by 2050 and participation in the Net Zero Banking Alliance. •Received presentations on the Climate Finance Report from the regional heads for Europe, North America and South America and from Santander Consumer Finance, Santander Wealth Management & Insurance and Santander Corporate Investment Banking (SCIB). The report, published in July 2021, highlighted key milestones and progress with the Group’s climate ambitions. •Reviewed and made observations on business proposals on climate change submitted by our entities in Europe, North America and South America and by Santander Consumer Finance, Santander Wealth Management & Insurance and Santander Corporate Investment Banking (SCIB). Green finance •Reviewed the green finance strategy and challenges and opportunities in Europe, North America and South America. Green finance is the increase in financial flows (banking, micro-credit, insurance and investment) from the public, private and not-for-profit sectors to address sustainable development priorities. Aligned business strategies with objectives, commitments and regulatory requirements focusing on aiding customers' transition to carbon neutrality. •Endorsed the main priorities for 2021, including our ambitions to be net zero, aid our customers’ green transition and promote a green culture. •Monitored the green bond issuances, the annual disclosure requirements regarding the use of proceeds and impacts achieved from assigned projects and endorsed the Banco Santander´s 2020 Green Bond Report. Internal Emission Offsetting Project •Reviewed the 2021 emissions´ offsetting corporate plan which enables the Group to continue being a carbon neutral organization through the offsetting of the emissions caused by its own activity. •Monitored the carbon footprint compensation projects being implemented across the Group to ensure alignment with agreed commitments. Regulatory landscape •Continued to monitor the main regulatory initiatives of the sustainable finance framework that are relevant to Banco Santander, with a particular focus on Europe, due to heightened regulatory activity. The European sustainable finance framework has evolved rapidly in recent years to drive funds and investment to support the transition to a low carbon economy in 2050 and increase transparency on corporate business models and activities. Social (S) Inclusive banking Sustainable finance •Provided feedback on the Sustainable Finance Classification System to identify, measure and manage the volume of sustainable green and social financing activities. The Sustainable Finance Classification System aligns with regulatory reporting requirements. Approved guidelines for its implementation within the business. •Reviewed SCIB´s sustainable finance proposition, business opportunities and challenges, for customers interested in financing green and social projects. The significant progress on sustainable finance and notable transactions for SCIB were reviewed. Support for higher education •Reviewed the strategy, objectives and KPIs relating to Banco Santander' support for education, employability and entrepreneurship at universities. Banco Santander has become a leader in supporting higher education and intends to continue making it its flagship programme for investing in communities. Governance (G) Responsible banking strategy Governance •To ensure effective controls will be in place to mitigate risks and enhance opportunities regarding sustainability and responsible banking practices, the committee reviewed with other board committees matters concerning the corporate culture and values, responsible banking practices and sustainability within the board-approved guiding principles of responsible banking governance. •Provided through regular read-outs an overview of the responsible banking agenda to other committees (like the board risk supervision, regulation and compliance committee) and to the board. •Received regular updates on the responsible banking agenda from several units and corporate functions, to improve communication and ensure best practices are shared on a global basis. Duties Actions taken Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 239 Materiality assessment and Responsible Banking commitments •Considered the outcomes of the 2021 ESG Materiality assessment, an annual assessment conducted by the Responsible Banking team in coordination with other teams and an external consultant, that helps identify the most relevant ESG topics for the Group. Its results will ensure consistency between the Group's responsible banking priorities and public commitments. •Continued to monitor developments in the Amazon and the associated actions being taken by the Group to mitigate negative environmental consequences therein. •Reviewed the proposed responsible banking agenda for 2022-2025 and the associated commitments for 2025, to ensure they remain aligned with expectations. Responsible Banking initiatives •Oversaw the restructuring of One Santander in Europe, so subsidiaries could share best responsible banking practices in downsizing. •Monitored and assessed the Group´s progress on its 11 public commitments to ensure that its KPIs remained relevant and aligned with committee expectations. •Monitored and challenged ESG and responsible banking metrics in coordination with the remuneration committee to ensure alignment with market practice and increasing shareholder interest. Assisted the board in making sure the responsible banking objectives, metrics and commitments were embedded in the Group's remuneration schemes. Culture and values Corporate culture •Coordinated with the remuneration committee on its review of the alignment of remuneration schemes with corporate culture and values. •With the risk supervision, regulation and compliance committee, supervised and assessed (i) the alignment of risk appetite and limits with corporate culture and values and (ii) 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 Banco Santander's ambition to build a more responsible bank. Since 2015, a common language and behaviour has translated into our values of Simple, Personal and Fair (SPF) shared by all units. Our corporate policy is an important factor in developing consistent initiatives and enabling us to measure our values impact. Significant progress continues both globally and locally, with tangible results for our people, customers, shareholders and communities. •Assisted the board in promoting and embedding corporate culture and values across the Group, monitoring adherence and ensuring that the corporate culture is consistent with the Group's purpose and values. SPF with employees •Worked with the remuneration committee to advise the board on the design and implementation of the responsible banking scorecard (which forms part of the qualitative assessment of the bonus pool) to ensure that responsible banking targets, metrics and commitments were effectively embedded across the Group. •Considered the Group´s diversity and inclusion strategy and initiatives, together with the related targets for 2025 and discussed the action plan and approach towards each of the diversity dimensions relevant to the Group and provided feedback on Banco Santander's position in global rankings. •Received an update on the talent management programme and wellbeing of employees throughout the Group. •Ensured an overview of the 2021 global engagement survey included recommended actions. The purpose of the survey, now in its seventh year, is to garner employees' opinions on the best things about working at Banco Santander and areas of improvement. It enables the Group to draw up actions and initiatives to improve Banco Santander´s employee engagement and ways of working. SPF with customers •Received an update on the social impact of covid-19 on the Group´s key stakeholders, especially its vulnerable customers. Considered the potential reputational risks associated to covid-19 and the proposed recommendations for dealing with customers. SPF with suppliers •Reviewed the supplier action plan to include ESG standards in hiring procedures. SPF with general society •Monitored the progress made with responsible banking communications and determined whether the four key responsible banking communication pillars of diversity and inclusion, financial empowerment, climate change and Santander Universities remained relevant. Shared priorities and analysed a common responsible banking approach. Considered opportunities to expand sustainable finance activities, with a strong focus on financial inclusion. Ethical considerations •Reviewed and provided feedback on the proposed definition and scope of ethical behaviour within the Group to ensure ongoing fair business conduct. •Agreed an action plan to ensure continuous improvement of our ethical behaviour governance and the application of best practices in our internal processes. •Monitored the status of Canal Abierto whistleblowing channel, which contributes to the Group's cultural transformation by providing an anonymous way for employees to speak up, thus promoting our corporate behaviours. Canal Abierto (or a similar anonymous channel) is available in all Group units. •Reviewed the internal artificial intelligence (AI) ethical principles which aim to foster using AI responsibly in a Simple, Personal and Fair way, ensuring the Group has common guidelines to abide by. Policies and frameworks •Reviewed the environmental, social and climate change risk management policy, the general sustainability policy and other relevant responsible banking policies. •Reviewed and endorsed a new responsible banking corporate framework for board approval that was established to promote a consistent approach across the Group. Duties Actions taken Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 240 Stakeholder engagement Non-financial information •Coordinated with the audit committee on its supervision and assessment of the preparation and presentation of non-financial information according to the applicable regulations and leading international standards. •Reviewed the 2021 Group´ statement of non-financial information, including the independent expert's report, which can be found in the ['Responsible banking'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) chapter of this annual report. Stakeholder engagement - indexes and ratings •Considered Banco Santander´s positioning in global sustainability indexes. •Challenged the strengths, gaps and focus points in relation to Banco Santander´s ranking with ESG rating providers. Reviewed the action plan after engaging with investors on ESG matters. Information for general meetings and corporate documents Corporate documents for 2021 •Prepared this report on its activities in 2021, which includes a performance review of its assigned functions and key priorities for 2022, based on the assessment of the effectiveness of the board and its committees. Duties Actions taken Annual assessment of the committee and its achievement of 2021 objectives In 2021, to follow up on the external review in 2020, an internal effectiveness review of our board practices was conducted and areas for improvement were identified. For more details about the internal review and its findings see 'Board assessment in 2021' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). The committee took the actions planned for 2021. In particular, it: •Assisted the board in setting the climate change strategy, by endorsing a net zero carbon ambition for 2050, and continued to monitor risks and opportunities to develop sustainable finance proposals for a low-carbon economy. •Continued to oversee responses to the covid-19 crisis, including the status of payment holidays upon expiry, vulnerable customers and the Recovery and collection functions, ensuring responsible banking practices were embedded in Banco Santander´s customer- centric strategy. •Continued to monitor and provide feedback on the initiatives, targets and metrics to fulfil the public commitments on diversity and inclusion, financial inclusion, talent management and ethical behaviour. •Focused on promoting diversity and inclusion and continued to oversee how Banco Santander´s culture, including SPF values, were embedded throughout the Group. •Monitored the announcements of the Group's progress and achievements that enhance our reputation as one of the world's most sustainable banks. 2022 Priorities The committee set these priorities for 2022: •Continuing to advise the board on the climate change strategy and Banco Santander’s ambition to be net zero by 2050. The committee will oversee the proposed actions to align with the Task Force on Climate - Related Financial Disclosure (TCFD) recommendations, including the introduction of targets to reduce its exposure to certain climate-intensive industries and the decarbonization strategy and commitments. •Maintaining assistance to the board in monitoring the development of green and sustainable finance propositions across the Group, aiding our customers’ transition to a low-carbon economy and helping fulfil our public responsible banking commitments and regulatory requirements. •Continuing to assist the board in monitoring the development of the Banco Santander Finance for All proposition, which aims to foster financial empowerment among the unbanked, underbanked and vulnerable customers. •Overseeing the implementation of the strategic diversity and inclusion plan; progress with embedding our culture across the Group; and improvements in conduct, ethical behaviour, customer experience and satisfaction. •Continuing to assist the board in monitoring the implementation of enablers to further embed ESG in the business and business-as- usual, including Banco Santander's performance of our public responsible banking commitments and KPIs. •Focusing on ensuring the new corporate Responsible Banking framework is effectively embedded throughout the Group. •Overseeing the work undertaken with regulators on the stress test exercises relevant to the committee’s remit especially climate risk. •Becoming leaders in ESG to support our customers in the transformation to a more sustainable business model. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 241 4.10 Innovation and technology committee activities in 2021 'Throughout 2021, the committee oversaw the IT Strategy, which aims to integrate key digital capabilities in a new operating model based on global products definition and a common architecture. Its main focus has been to ensure that the strategy enables business initiatives by partnering with global businesses and supporting functions, reducing risks and improving cost efficiency. Cybersecurity strategy has also remained a top priority for the committee, covering Banco Santander's cyber progress and position, key trends and threat horizon and key strategic cyber-security pillars and initiatives for the Group, which gained significance due to the pandemic and emerging cyber trends. Additionally, the committee oversaw the update on the Models & Data unit, in order to maximize the potential from information with advanced analytics models to generate business value, manage risks and support innovation across the Group in a responsible way'. #### R Martín Chávez Chair of the innovation and technology committee This section is the report on the activities of the innovation and technology committee, as approved by the board of directors on 24 February 2022. Composition Position Category Appointed on Chair 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 expertise, skills and experience regarding the matters it handles. For more information, see section [4.1 'Our directors](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256)' and 'Board skills and diversity matrix' and 'Committees skills and diversity matrix' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). Time allocation In 2021, the innovation and technology committee held four meetings. 'Board and committee attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) provides information on members’ attendance and the estimated average time each one spent on preparing for and participating in meetings. The chart below shows the committee’s approximate time allocation to each function in 2021. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 242 Duties and activities in 2021 This section summarizes the innovation and technology committee’s activities in 2021. Innovation Innovation framework •Reviewed the implementation of the Group's strategic technology plan and innovation agenda; and identified the Group's main challenges and capabilities in innovation. •Identified opportunities for faster innovation across the Group and increased the likelihood of success in new business models, technologies, systems and platforms. Cybersecurity Cybersecurity •Supervised defences against the increasing threat environment, reviewed security controls and automated security processes. •Analysed the high-profile cyber incidents in Banco Santander and other well-known companies. •Received quarterly updates on cybersecurity risks, with a special focus on internal data leakage protection and such external threats as ransomware, in coordination with both the board of directors and the risk supervision, regulation and compliance committee. Assisted the board in the supervision of technological risks and cybersecurity. •Reviewed Santander’s cyber vision for 2025, focusing on three pillars, namely: levelling the “cyber battlefield” with criminals through deterrence, offensive disruption and deception techniques; defending the hyper-connected bank of the future to protect the distributed digital platforms and ecosystems; and generating value and trust for stakeholders, customers and society through commercial cyber solutions, customer engagement and collective response. •Analysed the systems supporting core financial crime compliance processes to satisfy new regulation and align them with Banco Santander´s business strategy based on best practices and standards. •Received updates about employee training, internal and external cyber awareness campaigns and other related key areas. Digital Digital •Boosted collaboration between subsidiaries, business units and the Technology and Operations (T&O) function on digital initiatives, which it oversaw. •Monitored metrics in connection with the digital evolution and associated transformation, as operations outflows, cost-to-income ratio, number of applications, cost per transaction, digital technical transaction, machine learning impact, number of application programming interfaces (BaaS APIs) and tech talent. •Reviewed core digital strategies to transform business and accelerate the growth of new businesses. Technology and operations Technology and operations •Reviewed the global technology strategy plan and reported to the board on technology and operations (T&O) planning and activities. •Endorsed the Group's core strategic technology priorities, especially in terms of 'agile', cloud, core system evolution, deep technology skills (APIs, AI, and other matters); oversaw the roll-out of a new operating model and a common architecture, and reduced technology risk. •Ensured T&O strategy properly focused on the Group's relevant issues and priorities. •Received updates on the international advisory board's deliberations about technological, innovation, cyber, talent and new financial trends. Data management Data management •Received updated information on the Models & Data unit's priorities for the year, to stay fully appraised on the models and data value chain for business growth and customer experience, risk control improvement, model and data development and data and artificial intelligence ethical principles definition and use. •Assessed the adequacy of the resources of the Data function and possible new regulations, validating their appropriateness and readiness for the Group and at local level. Duties Actions taken Annual assessment of the committee and its achievement of 2021 objectives In 2021, to follow up on the external review in 2020, an internal effectiveness review of our board practices was conducted and areas for improvement were identified. For more details about the internal review and its findings see 'Board assessment in 2021' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). The committee took the actions planned for 2021. Among the salient actions, it: •Continuously reviewed the Group’s innovation strategy, especially in regard to a business-oriented T&O transformation model. •Prioritized digital strategy through the implementation of multidisciplinary projects for the Group. •Continue to strengthen response measures and innovation to react to an environment of ever-changing threats. •Reviewed and discussed new trends and regulations on data management and analytical capabilities in the Group's businesses, based on the international advisory board's feedback. 2022 Priorities The committee set these priorities for 2022: •Assisting the board of directors with the Group's innovation strategy, and with trends arising from new business models, technology and products. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 243 •Reviewing the effectiveness of data management and analytics, as enablers for the Group to fulfil strategic priorities. •Supervising activities to continue strengthening the Group's cyber response and constant innovation to manage the changing threats. •Continuing to assess and provide suggestions on initiatives, targets, commitments, KPIs, and proposed metrics on cross-projects relating to the Group's digital strategy, which will remain a key priority. 4.11 International advisory board Members The members are all external and not members of the board. Composition Positions Chair Larry Summers Former Secretary of the US Treasury and president emeritus of Harvard University Members Sheila C. Bair Former chair of the Federal Deposit Insurance Corporation and former president of Washington College Mike Rhodin Supervisory board member of TomTom and director of HzO. Former IBM Watson senior vice president Francisco D’Souza Director of General Electric. Former CEO of Cognizant James Whitehurst Special advisor to IBM. Former chair and CEO of Red Hat, former chief operating officer of Delta Air Lines and former partner of The Boston Consulting Group George Kurtz CEO and co-founder of CrowdStrike. Former chief technology officer of McAfee Nadia Schadlow Former deputy National Security Advisor for Strategy and former Assistant to the President of the United States Andreas Dombret Former board member of Deutsche Bundesbank, former vice chair of Bank of America in Europe and former director of Bank for International Settlements 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 and European markets. Meetings The international advisory board meets at least twice a year. In 2021, it met in February, May and October. 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. On 27 July 2021, the board amended the Rules and regulations of the board to adapt them to the new provisions on related-party transactions in Act 5/2021, of 12 April, (amended text of the Spanish Companies Act). See 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). Pursuant to the Rules and regulations of the board (as adapted to the new legal regime), the following bodies must authorise transactions between Banco Santander, S.A. or its subsidiaries and directors; shareholders who hold at least 10% of voting rights or sit on the board; and with other parties considered 'related parties' under the International Financial Reporting Standards: •The general meeting, in regard to related-party transactions that amount to 10% or more of the assets listed on the last consolidated balance sheet. •The board of directors, in regard to the other types of related-party transactions. However, on 27 July 2021, the board of directors (on the audit committee’s recommendation) voted to delegate to executive bodies, committees and competent proxies the approval of related-party transactions that simultaneously meet these legal requirements: •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; and •they do not exceed 0.5% of Banco Santander’s net annual income as appears in the last consolidated annual accounts approved at the general shareholders’ meeting. Likewise, the board approved an internal authorization, reporting and regular monitoring procedure, involving the audit committee, to confirm that transactions approved by virtue of the board’s delegation are fair and transparent and meet the standards that apply in the above-mentioned exceptions. The procedure requires a permanently up-to-date list of natural and legal persons concerned in related-party transactions. Lastly, the board also approved certain categories of related-party transactions and established ideal conditions to protect company and shareholder interests. Related-party transactions will be assessed to Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 244 make sure they are fair and reasonable to Banco Santander and all shareholders but the related party. If a related-party transaction must be approved at the general meeting or by the board, the audit committee must issue a preliminary report about it in accordance with the law. That preliminary report will not be necessary for related-party transactions approved by virtue of the board's delegation. Board members must refrain from deliberating and voting on resolutions with which they or their related parties have a direct or indirect conflict of interest. In 2021, following due diligence, no director or any other related parties according to International Financial Reporting Standards carried out transactions deemed “significant” (i.e. material to Santander and the related party) or under non-market conditions. The audit committee confirmed that all related-party transactions in 2021 were performed correctly, after reviewing whether they complied with the law, the Rules and regulations of the board and with the conditions set forth by the board, as mentioned in the audit committee activities report under section [4.5 'Audit committee](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283) [activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283). Banco Santander also has a policy for the admission, authorisation 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 authorised 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_757) of the 'consolidated financial statements' lists the Grupo Santander's direct risks in the form of loans, credits and guarantees extended to directors in the ordinary course of business as of 31 December 2021. 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 Under new laws, Banco Santander's transactions with its direct or indirect wholly-owned subsidiaries and with other subsidiaries or investees will not be considered related-party transactions provided that no related party holds an interest in them. The rules, approval bodies and procedures that apply to intragroup transactions are the same as for transactions with customers to make sure they are conducted at market prices and conditions. Therefore, Santander maintains control of any subsidiaries or investees that might be affected by potential related-party transactions. Note [52](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_979) ('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 Grupo Santander’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 2021, no director reported having any conflict of interest with the Group, even though these 39 abstentions occurred in votes on matters deliberated at board and committee meetings. In 12 instances, directors abstained owing to resolutions to appoint or re- elect directors, or to be appointed them to board committees or to the boards of Santander companies. In 13 instances, the matter under consideration related to remuneration, loans or credits. In 4 instances, the matter was a transaction between Banco Santander and a company related to a director. In 9 instances, directors abstained regarding the annual verification of their status and suitability. In one instance, the director’s position at the meeting meant he was unable to take part in deliberations. 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 the 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 245 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 is consulted. 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 Grupo Santander’s corporate website. It dictates that directors, senior managers or related parties may not carry out (i) counter-transactions on Grupo Santander ’s securities within 30 days from the time they are acquired or sold; or (ii) transactions on Grupo Santander 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 Grupo Santander, structures the governance of the  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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_334) [and internal governance'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_334). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 246 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’)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) as of 31 December 2021. Alexandra Brandão GLOBAL 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. Since February 2021, she has been global head of Human Resources. Juan Manuel Cendoya GROUP HEAD OF COMMUNICATIONS, CORPORATE MARKETING AND RESEARCH Born 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-chair 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 state attorney and a non-executive director at Arena Communications Network, S.L. José Doncel GROUP HEAD OF ACCOUNTING AND FINANCIAL CONTROL - GROUP CHIEF ACCOUNTING OFFICER Born 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 - group chief accounting officer -  in 2014. Keiran Foad GROUP CHIEF RISK OFFICER Born 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 until his appointment in 2018 as group chief risk officer. José Antonio García Cantera GROUP CHIEF FINANCIAL OFFICER Born 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. In 2015, he was appointed 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 - group chief audit executive. He is also a state attorney. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 247 José María Linares GLOBAL HEAD OF CORPORATE & INVESTMENT BANKING Born 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 J.P. Morgan in 1999 and was subsequently appointed managing director and head of Global Corporate Banking at J.P. Morgan Chase & Co. (2011-2017). 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 until her appointment in 2019 as group head of Supervisory and Regulatory Relations. She is a state attorney. Javier Maldonado GROUP HEAD OF COSTS Born 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 until his appointment in 2015 as group head of Costs. Dirk Marzluf GROUP HEAD OF TECHNOLOGY AND OPERATIONS Born 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 & INSURANCE Born 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 until his appointment in 2017 as global head of Wealth Management & Insurance. Previously, Mr Matarranz had held several roles at McKinsey & Company, where he had become partner. 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 See profile in section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256). António Simões REGIONAL HEAD OF EUROPE AND COUNTRY HEAD OF SANTANDER ESPAÑA Born in 1975, António Simões joined Grupo Santander in 2020 as regional head of Europe and he was appointed country head of Santander España in 2021. 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 OFFICER Born 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 248 6. Remuneration Sections [6.1](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_313), [6.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316), [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319), [6.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_325),[6.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_328), [6.7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_331), [9.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_379) and [9.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382) 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) y [6.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_325) sets out the directors' remuneration policy for 2022, 2023 and 2024, which is to be put to a vote at the general shareholders' meeting, which is binding. The annual report on directors' remuneration and the directors' remuneration policy for 2022, 2023 and 2024 were approved by our board of directors on 24 February 2022. All directors were present at the time of vote casting and voted in favour. The  remuneration policy for directors in force as of the date of this report is available on our corporate website (2020 Annual Report, Corporate Governance, chapter 6: Remuneration). 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 (which also generally applies to Banco Santander employees) 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 be free of conflicts of interest and discrimination of any kind different from that based on the performance assessment of objectives and corporate behaviours. Remuneration must be free of gender-based bias and help eliminate inequalities that could result from it. The remuneration elements the policy lays down include necessary mechanisms to ensure remuneration will be conducive to achieving strategic and long-term sustainability objectives of the Bank. Accordingly, it bases executive directors and senior managers’ variable pay on pre-determined, specific and quantifiable financial, sustainability-based and value-creation targets that are consistent with Banco Santander’s interests, including in regard to environmental, social and governance matters. For more details, see section [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). about the policy's application in 2021 and section [6.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) about the remuneration policy for 2022 and subsequent years. Lastly, the remuneration committee and the board enlisted the assistance of Willis Towers Watson to: •Compare markets and entities similar to the Group in size, characteristics and operations using relevant data for setting remuneration. •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. •Advise in the update to the remuneration policy described in section [6.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). 6.2 Remuneration of directors for supervisory and collective decision-making duties: policy applied in 2021 A. Composition and limits According to our Bylaws, the remuneration of directors in their roles 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  2021 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 249 Directors can receive shares, share options or other forms of share- based compensation, subject to prior approval at the general 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 executives duties or not, in addition to their oversight and collective decision-making as board members. Non-executive directors do not have the right to receive any benefit on the occasion of their removal from office. B. Annual allotment Each director received the amounts for serving on the board and its committees and positions held in them included in the chart below for 2020 and 2021. As regards 2020, 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 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. In accordance with the remuneration policy approved at the general shareholders' meeting on 26 March 2021, the amounts for serving and holding roles on the board and committees was the same amount as initially approved for 2020, adding that the innovation and technology committee began to be remunerated, with its members receiving EUR 25,000 and its Chair, an additional EUR 70,000. Applicable amounts were: 2021 2020 Amount per director in euros 1 Jan to 31 Mar 1 Apr to 31 Dec Members of the board of directors 90,000 22,500 49,500 Members of the executive committee 170,000 42,500 93,500 Members of the audit committee 40,000 10,000 22,000 Members of the appointments committee 25,000 6,250 13,750 Members of the remuneration committee 25,000 6,250 13,750 Members of the risk supervision, regulation and compliance committee 40,000 10,000 22,000 Members of the responsible banking, sustainability and culture committee 15,000 3,750 8,250 Members of the innovation and technology committee 25,000 — — Chairman of the audit committee 70,000 17,500 38,500 Chairman of the appointments committee 50,000 12,500 27,500 Chairman of the remuneration committee 50,000 12,500 27,500 Chairman of the risk supervision, regulation and compliance committee 70,000 17,500 38,500 Chairman of the responsible banking, sustainability and culture committee 50,000 12,500 27,500 Chairman of the innovation and technology committee 70,000 — — Lead directorA 110,000 27,500 60,500 Non-executive vice chairmen 30,000 7,500 16,500 A.Since 2015, Bruce Carnegie-Brown has been allocated EUR 700,000 in minimum total annual pay (including annual allowances and attendance fees) for his services to the board and its committees, particularly as chair of the nomination and remuneration committees and as lead independent director; and for the required time and dedication to perform these roles. However, in line with the board of directors' decision (shared by Bruce Carnegie-Brown) to reduce their allotments and fees from 1 April 2020 to 31 December, the same reduction was applied to that amount. Accordingly, his allotment for 2020 was 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. As regards 2020, 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. For 2021, in the same manner as with  the annual allotment, the board voted to keep the same amounts set out in the 2020 policy before the exceptional decision above, and, as foreseen in the remuneration policy approved at the general shareholders' meeting on 26 March 2021, attendance fees for innovation and technology committee members were added. 2021 2020 Attendance fees per director per meeting in euros 1 Jan to 31 Mar 1 Apr to 31 Dec Board of directors 2,600 2,600 2,080 Audit committee and risk supervision, regulation and compliance committee 1,700 1,700 1,360 Other committees (excluding executive committee) 1,500 1,500 1,200 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 250 D. Breakdown of bylaw-stipulated emoluments Total director bylaw-stipulated emoluments and attendance fees received in 2021 amounted to EUR 4,8 million (EUR 4,1 million in 2020). This is 20% less than the amount approved at the general meeting. Each director earned the following amounts for these items: Amount in euros Directors Execu tive Non- execu tive 2021 2020 Annual allotment Board and committee attendance fees Total by-law stipulated emoluments and attendance fees BoardM EC AC ASC RC RSRCC RBSCC ITC Total Ana Botín — 90,000 170,000 — — — — — 25,000 285,000 45,000 330,000 288,970 José Antonio Álvarez — 90,000 170,000 — — — — — 25,000 285,000 45,000 330,000 269,620 Bruce Carnegie- Brown I 275,500 170,000 — 75,000 75,000 — — 25,000 620,500 79,500 700,000 595,000 Homaira Akbari I 90,000 — 40,000 — — — 15,000 25,000 170,000 77,800 247,800 202,290 Javier BotínA N 90,000 — — — — — — — 90,000 39,000 129,000 121,220 Álvaro CardosoB I 90,000 — — — — 27,500 15,000 — 132,500 49,600 182,100 243,170 R.Martín ChávezC I 90,000 — — 25,000 25,000 40,000 — 95,000 275,000 99,400 374,400 37,453 Sol Daurella I 90,000 — — 25,000 25,000 — 15,000 — 155,000 84,000 239,000 213,670 Henrique de CastroD I 90,000 — 40,000 — 25,000 — — 25,000 180,000 86,800 266,800 216,790 Gina DíezE I 90,000 — — 685 — — — — 90,685 39,000 129,685 4,053 Luis IsasiF N 90,000 170,000 — — 25,000 40,000 — — 325,000 81,000 406,000 203,027 Ramiro Mato I 90,000 170,000 40,000 — — 40,000 65,000 — 405,000 93,900 498,900 430,410 Sergio RialG — 90,000 — — — — — — — 90,000 39,000 129,000 62,800 Belén Romana I 90,000 170,000 40,000 — — 92,500 15,000 25,000 432,500 99,900 532,400 417,274 Pamela WalkdenH I 90,000 — 110,000 — — 26,667 — — 226,667 76,400 303,067 214,594 Rodrigo EcheniqueI N — — — — — — — — — — — 155,501 Ignacio BenjumeaJ N — — — — — — — — — — — 173,473 Guillermo de la DehesaK N — — — — — — — — — — — 107,747 Esther Giménez- SalinasL I — — — — — — — — — — — 191,405 1,535,500 1,020,000 270,000 125,685 175,000 266,667 125,000 245,000 3,762,852 1,035,300 4,798,152 4,148,467 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. Also includes emoluments for other roles in the board. 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. ITC: Innovation and technology committee. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 251 6.3 Remuneration of directors for executive duties The policy on directors’ remuneration for executive duties in 2021 was approved by the board of directors and put to a binding vote at the 2021 general shareholders' meeting, with 93.26% votes in favour. The table below summarizes the policy and its implementation for Ana Botín and José Antonio Álvarez. In the case of Sergio Rial, he has qualified as an executive director since his appointment as director became effective on 30 May 2020, pursuant to section 529 duodecies of the Spanish Companies Act (Ley de Sociedades de Capital) because of his role as CEO and vice-chair of Banco Santander (Brasil) S.A. (Santander Brasil). In 2021 he received as fixed pay for his role as Regional head for South America, the EUR 750 thousand that had been approved at the 2021 general shareholders meeting as part of the 2021 remuneration policy. He has not received any other remuneration for executive functions in Banco Santander, S.A. On 31 December 2021, Mr Rial has stepped down as CEO and vice-chair of Santander Brasil and as Regional head for South America. Accordingly, he is not considered as an executive director since that date. Component Type Policy Effective in 2021 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. The number of shares is set at the time of the award. •40% paid in 2022; •60% deferred in five years. ◦24% paid in equal parts in 2023 and 2024. ◦36% paid in equal parts in 2025, 2026 and 2027, provided certain long-term objectives are met (2021-2023). •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. •No change for Ana Botín or José Antonio Álvarez since 2018. •Payment for non-compete commitment •No change. Shareholding policy N/A •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 net annual salary (calculated on the basis of their gross annual salary). In such case, the regulatory obligation to hold shares is for one year from their grant date. •Policy updated during 2020 to assure compliance with recommendation 62 to the Good Governance Code for Listed Companies of the CNMV. Ana Botín and José Antonio Álvarez both maintain an amount in shares higher than 200% of their fixed pay. A. Gross annual salary The board resolved to maintain the same gross annual salary for Ana Botín and José Antonio Álvarez for 2021 as in 2020. It also maintained the fixed pension contribution of 22% of gross annual salary it had agreed in 2020 for 2021. Executive directors’ gross annual salary and fixed annual contribution to pensions for 2021 and 2020 were as follows: EUR thousand 2021 2020 Gross annual salary Fixed annual pension contribution Total Gross annual salary Fixed annual pension contribution Total Ana Botín 3,176 699 3,875 3,176 699 3,875 José Antonio Álvarez 2,541 559 3,100 2,541 559 3,100 Total 5,717 1,258 6,975 5,717 1,258 6,975 Sergio Rial also received EUR 750 thousand as remuneration for his role as Regional Head for South America in 2021. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 252 B. Variable remuneration i) General policy for 2021 The board approved the executive directors’ variable remuneration on the remuneration committee’s recommendation, according to the policy approved at the general shareholders' meeting: •Variable components22 (including the variable part of the contributions to the benefit systems) of executive directors’ total remuneration in 2021 should amount to less than 200% of fixed components, as established by resolution of the general shareholders' meeting on 26 March 2021. •At the beginning of 2022, on the remuneration committee’s recommendation, the board approved the final amount of the 2021 incentive, based on the set bonus pool  in accordance with the directors' remuneration policy approved at the general shareholders' meeting on 26 March 2021, in consideration 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 according to the current model and (i) their individual objectives (which generally match the Group’s and cover financial, risk management and capital adequacy metrics as well as the three pillars the Group's strategy stands on: One Santander, PagoNxt and Digital Consumer Bank; and (ii) how they achieve them in consideration of how they manage employees and demonstrated the corporate values. Individual benchmark variable remuneration Quantitative metrics and qualitative assessmentA Individual performance Final individual variable remuneration 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 2022, 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 2023 and 2024, (24% of the total) will be paid if none of the malus clauses described below are triggered. •The deferred amount payable in 2025, 2026 and 2027, (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 are subject to a three years retention period, unless the director already holds shares for an amount equivalent to twice his/her annual fix remuneration, in which case the shares would be subject only to the regulatory one year retention period obligation. •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. The payment schedule of the incentive is illustrated below. Cash Shares Immediately following performance year Deferred (malus) Long-term performance deferral Total 40% 24% 36% 2022 2023 2024 2025 2026 2027 100% 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 2021 Executive directors’ variable remuneration for 2021 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 2021 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 legal and financial accounting and control functions, who among others provided input on risk, solvency, liquidity, results' quality and Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 253 22 As indicated in the first chart in section 6.3 pension contributions include both fix and variable components, the latter of which also form part of total variable remuneration. recurrence, and compliance and control. 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. Category and (weight) Quantitative metrics Qualitative Total weighted scoreB Metrics % Achieveme nt over target Assessment Weighted assessmentA Component Assessment Customers (20%) Net Promoter Score (NPS)C Target: TOP3 in 6 countries. Achieved: TOP3 in 8 countriesD 109.3% 21.86% Evaluation of the effective satisfaction of objectives regarding customers conduct risk +3.40% - Strengthened product governance and made progress with customer conduct risk management, especially to further embed it in the first lines of defence. 25.26% Shareholders (80%) Risk - Cost of credit ratio (IFRS9) (10%) % Target: 1.18% % Achieved: 0.77% 134.97% 13.50% Appropriate management of risk appetite and operational risk Risks culture and employee awareness +1.42 % - Considerable progress in our risk management and control environment underpinned by the advances in our cutting edge technology (machine learning, AI and robotics), the definition of new target operating models for financial crime, as well as the successful implementation of our Risk Strategy. 14.92% Capital ratio (CET1) (20% % Target: 11.90% % Achieved: 12.35%E 280.0% 56.00% Efficient capital adequacy management: Sustainable capital contribution Capital strategy planning and execution + 3.34% - Positive Evolution of CET1 ratio with active management of regulatory and markets (e.g. available for sale portfolios) headwinds throughout the year. 59.34% Profitability - Return on tangible equity (RoTE) (50%) Target: 9.50% Result: 11.96% 125.84% 62.92% Ideal business growth from the previous year in view of market conditions and competition (net profit and profit margin after provisions) -2% - Growth in a complex landscape, influenced by our competitors’ management of pandemic-related provisions. While Santander leads its peers in revenue generation, it has released less provisions in 2021. 66.26% Sustainable and sound results, efficient cost management and cost-to-income objectives + 1.17% - Total net operating income growth year-on-year (+6%) provided by our geographic and business diversification and efficiency ratio of 46.2%, having improved 0.8 pp on 2020 and 2019. The Group remained one of the most efficient global banks in the world. Progress in public commitments on responsible banking (especially financial inclusion, green finance and diversity-based targets) + 4.17% - Good progress made with selected commitments on the Responsible banking agenda, especially in: (i) women in senior leadership positions (the ratio increased by 260 bps from 23.7% in 2020 to 26.3% in 2021. The target was 26.2% in 2021 and the public commitment  is 30% by 2025); (ii) financially empowered people (7.5 million people since 2019, including 2.5 million in 2021. The 2021 target was to reach 7.0 million and the public commitment  is 10 million people between 2019 and 2025); (iii) green finance (of the EUR 120 billion committed from 2019 to 2025 and EUR 66 billion have been reached so far (EUR 51 billion was the target for close of 2021). Exceptional adjustment Elements (non-exhaustive) under consideration: macro-economic environment, general control environment, compliance with internal and external regulations, prudent and efficient liquidity and capital planning management. Although the underlying business performance resulted in a bonus calculus of 165.77%, there has been a management proposal, supported by the remuneration committee and approved by the Board of Directors, to exercise downward discretion to the 2021 variable remuneration to align with the ongoing uncertainty about the covid-19 health crisis in the Group’s markets and its impact on shareholder returns. (14.54)% TOTAL 151.23% A. The weighted assessment is the result of multiplying each objective’s assessment by its weighting per category. Each qualitative component under the RoTE category has same weighting. 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. 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, CET1 phased-in metric has been adjusted by the board, following a proposal from the remuneration committee, due to inorganic transactions, material changes to the Group’s composition or size or other extraordinary circumstances which have  affected the suitability of the metric and achievement scale established, resulting in an impact not related to the performance of the executive directors and executives being evaluated. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 254 The following section details the individual variable remuneration approved by the board. iii) Determination of the individual variable remuneration for executive directors set in 2021 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. The board also verified that none of the following circumstances have occurred: •The Group’s ONP23 for 2021 was not more than 50% less than for 2020. 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 2021 as in 2020. Variable contributions to pensions were not modified in 2021, so the amounts are the 22% of the 30% of the last three assigned bonus' average. Breakdown of immediately payable and deferred remuneration Comparing with the previous year, it should be mentioned that amid the covid-19 health crisis in 2020, Ana Botín and José Antonio Álvarez proposed to reduce their total 2020 compensation (salary and bonus) by 50%. 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. In 2021, the good business performance (which enabled Banco Santander to reach a 12.73% underlying RoTE, above 2019), the excellent execution of our strategy (with the highest underlying attributable profit of the last 12 years), and efficient capital management, have improved substantially the bonus pool results, and thus the variable remuneration of corporate centre employees, including the executive directors. 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: IMMEDIATELY PAYABLE AND DEFERRED (NOT LINKED TO LONG-TERM OBJECTIVES) VARIABLE REMUNERATION EUR thousand 2021 2020 In cash In shares Total In cash In shares Total Ana Botín 2,941 2,941 5,883 534 534 1,068 José Antonio Álvarez 1,985 1,985 3,970 290 290 580 Total 4,926 4,926 9,853 824 824 1,648 A. The share amounts in the foregoing table correspond to a total of 1,587 thousand shares in Banco Santander (307 thousand shares in 2020). The following chart states deferred variable remuneration at fair value, which will only be received in 2025, 2026 and 2027, provided that long- term multi-year targets are met (see section 6.3 B iv)), beneficiaries continue to be employed at Grupo Santander, in accordance with the terms approved in the general shareholders' meeting, and no circumstances triggering malus clauses occur24: DEFERRED VARIABLE REMUNERATION LINKED TO LONG-TERM OBJECTIVES (FAIR VALUE) EUR thousand 2021 2020 In cash In shares Total In cash In shares Total Ana Botín 1,158 1,158 2,316 210 210 420 José Antonio Álvarez 782 782 1,563 114 114 228 Total 1,940 1,940 3,880 324 324 648 A. The number of shares in the table total 625 thousand shares in Banco Santander (121 thousand shares in  2020). 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 2021 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 255 23 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. 24 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. The maximum number of shares to be delivered under the plan (2,480 thousand shares not adjusted for fair value) is within the limit of 3,705 thousand shares authorised in the 2021 AGM  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 1 February 2022 (the date on which the board approved the 2021 bonus for executive directors), which was EUR  3.104 per share. iv) Multi-year targets linked to the payment of deferred amounts in 2025, 2026 and 2027 The multi-year targets linked to the payment of the deferred amounts payable in 2025, 2026 and 2027 are: Metrics Weight Target and compliance scales (metrics ratios) A Earnings per share (EPS) growth in 2023 vs 2020 33% If EPS in 2023 (% vs.2020) ≥ 125%, then metric ratio is 1.5 If EPS in 2023 (% vs.2020) ≥ 100% but < 125%, then metric ratio is 1 – 1.5C If EPS in 2023 (% vs. 2020) ≥ 70% but < 100%, then metric ratio is 0 – 1C If EPS in 2023 (% vs. 2020) < 70%, ratio is 0 B Relative Total Shareholder Return (TSR)A in 2021-2023 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 2023 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 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 2021 (exclusive) is considered (to calculate the initial value) and the fifteen trading sessions prior to 1 January 2024 (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 2023 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 2023 in respect of 2020 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 2023 within this bracket of the scale. To determine the annual amount of the deferred portion linked to objectives corresponding to each board member in 2025, 2026 and 2027, 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 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 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 beneficiary continues to work with the group25, 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 256 25 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. 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 2021 can be clawed back until the beginning of 2028. Malus and clawback clauses are triggered by poor financial performance of Banco Santander, a division or area, or exposures from staff as a result of an executive(s)’s management of, at least, one of these factors: 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 committee, and cannot be proposed once the retention period for the final payment in shares under the plan has elapsed in early 2028. Therefore, the board determines the specific deferred incentive amount to be paid as well as any amount that could be subject to clawback, upon on the remuneration committee’s recommendation and depending on the level of compliance with the conditions for applying malus clauses, . 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. José Antonio Álvarez's contract has been updated in 2020 so that he has ceased to have the right to early retirement in case of termination of his contract. Ana Botín has ceased to have the right to voluntary early retirement, keeping this right if Banco Santander terminates her contract before 31 August 2022, after which early retirement will no longer be available. As long as she retains that right, she is entitled to an annual allotment equal to her total fixed remuneration, plus 30% of the average of up to her last three variable pays. 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 recognized 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. 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. The provisions recognised in 2021 for retirement pensions amounted to 1,825 thousand euros (2,019 thousand euros in 2020), as broken down below. EUR thousand 2021 2020 Ana Botín 1,041 1,155 José Antonio Álvarez 783 864 Total 1,825 2,019 These are the amounts corresponding to each executive director as of 31 December 2021 and 2020 in the pension scheme: EUR thousand 2021 2020 Ana Botín 48,075 49,444 José Antonio Álvarez 18,821 18,082 Total 66,896 67,526 D. Other remuneration Grupo Santander 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. Note 5 to the group’s consolidated financial statements describes other benefits received by executive directors in detail. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 257 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 (net of taxes) to twice their gross annual salary on that date. Executive directors have complied with this policy. The following table show the ratio, with a share price at 31 December 2021 of 2.94 euros: 2021 2020 Gross annual salary (thousand) number of shares (thousand) X Gross annual salary (thousand) number of shares (thousand) X Chair 3,176 25,365 23.5 3,176 24,608 22.8 CEO 2,541 1,985 2.3 2,541 1,821 2.1 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 In addition to the EUR 750 thousand Sergio Rial received as Regional head for South America, he was paid the following amounts as CEO of Santander Brasil: 2021 BRL thousand EUR thousand Base salary 12,645 1,985 Other fixed benefits 47 7 Pensions 7,350 1,153 Variable remuneration immediately payable and deferred (not linked to long-term objectives) 26,600 4,018 Total 2021 46,642 7,163 Total 2020 37,079 6,378 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 under section B above (but in relation to the subsidiary where he was the CEO until 31 December 2021). The following table shows the variable remuneration deferred and contingent on long-term objectives (with a fair value applied of 70%): Deferred and linked to long-term objectives variable remuneration 2021 2020 In cash In shares Total In cash In shares Total Sergio Rial 791 791 1,582 655 655 1,311 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 2021 or 2020. However, in their personal capacity,  in 2021 Álvaro Cardoso was paid BRL 2,130 thousand (EUR 334 thousand) as non-executive chair of Banco Santander Brasil, S.A., Homaira Akbari was paid USD 190 thousand (EUR 161 thousand) as member of the board of Santander Consumer USA (SCUSA) and EUR 52 thousand as member of the Board of PagoNxt, and Henrique de Castro and R.Martín Chávez  were each paid the same EUR 52 thousand  as members of the board of PagoNxt. Likewise, Pamela Walkden was paid GBP 31 thousand (EUR 36 thousand) as member of Santander UK plc and Santander UK Group Holdings boards. Likewise, Luis Isasi was paid EUR 1,000 thousand for his roles as non- executive chair and for board and committees meetings (amount included in the chart below as "other remuneration" as it is paid by Banco Santander, S.A.). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 258 H. Individual remuneration of directors for all items in 2021 Below is a breakdown of each director’s short-term salary (payable immediately) and deferred remuneration not based on long-term performance for 2021 and 2020. Note 5 to the group’s consolidated financial statements contains disclosures on shares delivered in 2021 under the deferred remuneration schemes of previous years where conditions for their delivery were met in the related years. An additional column for 2019 is included for comparison purposes, being 2019 a more representative year due to the aforementioned extraordinary reduction in the variable remuneration applied in 2020. Total remuneration rose 15% for the Chair and 11% for the chief executive officer compared to 2019, as attributable profit grew 25% from 2019 to 2021. Underling RoTE in 2021 was 12.73% (11.79% in 2019), TSR 18.58% (-4% in 2019). EUR thousand Directors 2021 2020 2019 Bylaw-stipulated emoluments Salary and bonus of executive directors Total Total Total Board and board committees annual allotment Board and committee attendance fees Fixed Salary Immediate payment bonus (50% in shares) Deferred payment bonus (50% in shares) Total Pension Contributi on Other remuneration Ana Botín 285 45 3,176 3,676 2,206 9,058 1,041 1,006 11,435 6,818 9,954 José Antonio Álvarez 285 45 2,541 2,482 1,488 6,511 783 1,536 9,160 6,018 8,270 Bruce Carnegie-Brown 620 80 — — — — — — 700 595 700 Homaira Akbari 170 78 — — — — — — 248 202 226 Javier BotínA 90 39 — — — — — — 129 122 137 Álvaro CardosoB 133 50 — — — — — — 183 243 276 R.Martín ChávezC 275 99 — — — — — — 374 37 — Sol Daurella 155 84 — — — — — — 239 214 240 Henrique de CastroD 180 87 — — — — — — 267 217 86 Gina DíezE 91 39 — — — — — — 130 4 — Luis IsasiF 325 81 — — — — — 1,000 1,406 943 — Ramiro Mato 405 94 — — — — — — 499 430 500 Sergio RialG 90 39 750 — — 750 — — 879 63 — Belén Romana 433 100 — — — — — — 533 417 525 Pamela WalkdenH 227 76 — — — — — — 303 214 34 Rodrigo EcheniqueI — — — — — — — — — 1,955 4,874 Ignacio BenjumeaJ — — — — — — — — — 275 524 Guillermo de la DehesaK — — — — — — — — — 108 399 Esther Giménez-SalinasL — — — — — — — — — 191 228 Total 2021 3,764 1,036 6,467 6,158 3,694 16,319 1,824 3,542 26,485 — — Total 2020 3,081 1,066 5,717 1,029 617 7,363 2,019 5,537 — 19,066 — Total 2019 3,770 1,094 6,317 5,146 3,087 14,550 2,003 5,770 — 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 259 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 are achieved (as depending on their achievement the amounts will be reduced, or even be cero if the related minimum thresholds are not achieved). EUR thousand 2021 2020 (50% in shares)A (50% in shares)A Ana Botín 2,316 420 José Antonio Álvarez 1,563 228 Total 3,880 648 A. Fair value of the maximum amount receivable over a total of 3 years (2025, 2026 and 2027), which was estimated when the plan was granted, based on several scenarios relating to variables in the plan during the measurement periods. I. Ratio of variable to fixed pay components in 2021 At the 2021 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 2021. This ratio increased from 2020 by 142 pp for Ana Botín and by 104 pp for José Antonio Álvarez due to the exceptional reduction of their remuneration in 2020 amid the covid-19 health crisis mentioned in subsection B, iii) above. Executive directors Variable Components / fixed components (%) Ana Botín 182% José Antonio Álvarez 128% Sergio Rial 161% 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 summarizes 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. The weight of executive directors’ remuneration relative to underlying attributable profit continues to decline since 2013. RATIO OF EXECUTIVE DIRECTOR REMUNERATION TO UNDERLYING ATTRIBUTABLE  PROFIT Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 260 Compared to 2019 as a more representative year, due to the aforementioned extraordinary reduction in the variable remuneration applied in 2020, total remuneration rose 15% for the Chair and 11% for the chief executive officer, as attributable profit grew 25% from 2019 to 2021. Underling RoTE in 2021 was 12.73% (11.79% in 2019), TSR 18.58% (-4% in 2019). The following chart shows the comparative analysis between the directors' remuneration, the company performance (underlying profit attributable to the Group, audited profit before taxes and ordinary ROTE) and the average remuneration of Santander employees in the last 5 years: Directors' remuneration1 (EUR thousand) 2021 % var. 21/20 2020 % var. 20/19 2019 % var. 19/18 2018 % var. 18/17 2017 • Executive Directors Ana Botín 11,435 68% 6,818 (32)% 9,954 (5)% 10,483 (1)% 10,582 José Antonio Álvarez 9,160 52% 6,018 (27)% 8,270 (4)% 8,645 (3)% 8,893 Sergio RialA 879 — 63 — — — — — — • Non-Executive Directors2 Bruce Carnegie-Brown 700 18% 595 (15)% 700 (4)% 732 — 731 Javier BotínB 129 6% 122 (11)% 137 13% 121 (2)% 124 Sol Daurella 239 12% 214 (11)% 240 12% 215 4% 207 Belén RomanaC 533 28% 417 (21)% 525 27% 414 39% 297 Homaira AkbariD 248 23% 202 (11)% 226 14% 199 25% 159 Ramiro MatoE 499 16% 430 (14)% 500 11% 450 — 36 Álvaro CardosoF 183 (25)% 243 (12)% 276 86% 148 — — Henrique de CastroG 267 23% 217 152% 86 — — — — Pamela WalkdenH 303 42% 214 529% 34 — — — — Luis IsasiI 1,406 49% 943 — — — — — — R. Martín ChávezJ 374 911% 37 — — — — — — Gina DíezK 130 — 4 — — — — — — Company’s performance Underlying profit attributable to the Group (EUR mn) 8,654 70% 5,081 (38)% 8,252 2% 8,064 7% 7,516 Consolidated results of the Group3 (EUR mn) 14,547 — (2,076) — 12,543 (12)% 14,201 17% 12,091 Ordinary RoTE 12.73% 71% 7.44% (37)% 11.79% (2)% 12.08% 2% 11.82% Employees' average remuneration4 (EUR) 55,673 18% 47,130 (12)% 53,832 2% 52,941 (5)% 55,484 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. 3.Group operating profit/(loss) before tax. 4. Employee average remuneration includes all concepts, including other remuneration. Full-time equivalent data. The percentage of variable remuneration over fixed remuneration in an average employee is lower than that of the executive directors. Variable remuneration data accrued in the current year, both for employees and executive directors. Evolutive data also impacted by exchange rate performance in the group's geographies. 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 October 2019. I. Director since 19 May 2020. J. Director since 27 October 2020. K.Director since 22 December 2020. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 261 J. Summary of link between risk, performance and remuneration Banco Santander's remuneration policy and its application in 2021 have promoted sound and effective risk management, at the same time as supported the fulfilment of long-term business objectives. The key elements of the remuneration policy for executive directors making alignment between risk, performance and reward in 2021 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 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 and subject to retention for at least one year from their delivery. 6.4 Directors' remuneration policy for 2022, 2023 and 2024 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 Banco Santander’s bylaws and article 33 of the Rules and regulations of the board of directors. For 2022, 2023 and 2024, no changes to the principles and composition of directors’ remuneration for supervisory and collective decision-making duties are planned with respect of those in 2021. They are described in sections [6.1](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_313) and [6.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316). 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 2022, 2023 and 2024, several changes to the principles of executive directors’ remuneration for executive duties are planned ( sections [6.1](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_313) and [6.3).](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) First, to simplify the variable remuneration scheme, the proposal is to reduce the number of metrics in the bonus scorecard from the four applied in 2021 to three (30% for customers; 40% for RoRWA; and 30% for RoTE) to focus more on the Group's strategic priorities of customers and profitability, assuring adequate risk management and efficient use of capital. The qualitative assessment for the scorecard will be conformed by the same metrics as in 2021, but adding CET1, to acknowledge the importance of having sufficient capital to support the bank’s strategy even in the event of severe stress. Second, to create a stronger alignment with shareholder returns, it is proposed to introduce options as a remuneration instrument. Accordingly, the variable remuneration of Banco Santander's identified staff would be 50% in cash, 25% in shares and 25% in share options, instead of 50% in cash and 50% in shares under the current scheme. Executive directors would also be allowed to choose to receive only options, so their variable remuneration would be 50% in cash and 50% in share options. Options will not include any premium, as they will be valued at fair market price at the moment when they are awarded. So the executives' exposure to shareholders' return is amplified by the effect of the evolution of the share price both positively and negatively. Third, it is proposed to update the long-term performance metrics according to market best practice and our stakeholders’ preferences, prioritising shareholder returns and the Group's profitability in the long-term, as well as sustainability of the balance sheet and its activities and how they are carried out. Therefore: •Relative performance of Banco Santander's total shareholder return (TSR) compared to our peer group will remain; however, the threshold at which executives begin to accrue remuneration is increased from 33% to 40%. Its weight will be 40% of the total. •Return on tangible equity (RoTE), as an indication of long-term value creation. Its weight will be 40% of the total. •Five ESG (environmental, social and governance) metrics linked to the progress we make on our commitments to implement the Group's Responsible banking agenda. Their weight will be 20% of the total. For additional details about our public commitments, please see [Responsible banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) section. As shown below in the 'Deferred variable remuneration linked to long-term objectives' section, the maximum achievement ratio is also increased from 100% to 125% so executives have the incentive to exceed their targets; however, the maximum achievement ratio for Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 262 effectively paid remuneration will not exceed the thresholds approved at the AGM. Additionally, with the aim of providing a strong alignment with PagoNxt's success,  the executive Chair and the chief executive officer will be able to receive restricted share units (RSUs) of PagoNxt, S.L. The RSUs will substitute part of their Santander variable pay instruments without increasing their total pay and will not represent more than 10% of their variable pay. Specifically, as regards 2022, Ana Botín would receive the equivalent of EUR 608 thousand in RSUs, and José Antonio Álvarez would receive the equivalent of EUR 410 thousand in RSUs, under PagoNxt, S.L.'s long term incentive plan. Each RSU would grant the right to a share in PagoNxt, S.L. or the holding entity of its group (or its equivalent in cash) at the moment when, according to such plan, a liquidity event, a repurchase or a liquidation of such instruments takes place. This plan is subject to the same principles of risk alignment, variable remuneration caps, deferrals and malus and clawback as the incentive which applies to executive directors described herein, but with payment being done in PagoNxt instruments. It is also subject to specific objectives of PagoNxt, the main of which is the completion of its corporate restructuring for 2022. Finally, every year, Banco Santander conducts a comparative analysis of total compensation for executive directors and other senior executives. For 2022, the analysis will consist of a 'peer group' made up by BBVA, BNP Paribas, Citi, Crédit Agricole, HSBC, ING, Itaú, Scotia Bank and Unicredit. Principle of equal pay for equal work and equal employment conditions for Santander executives and employees Santander applies the equal pay principle in the Corporate remuneration policy of Grupo Santander for executive directors and employees alike, which forbids any type of differential treatment that is not exclusively based on an assessment of performance results and corporate behaviours, and promotes equal pay for men and women. Furthermore, our remuneration framework rewards Santander employees for their contribution based on such common principles as: •Meritocracy: Non-discrimination based on sex, age, culture, religion or ethnicity. •Consistency: Remuneration consistent with the level of responsibility, leadership and performance within the Group, to promote retention of key professionals and attract the best talent. •Sustainability: A  remuneration framework that is sustainable in terms of associated costs, cost control, and related objectives (as described in the policy) that ensure variable remuneration is commensurate with the Group's performance, disincentivize short- term commitment and promote long-term sustainability. The remuneration scheme for the c. 1,000 identified staff also includes deferral of up to 60% of variable remuneration, its payment 25% in Santander shares and 25% in Santander share options (also subject to one-year retention), and malus and clawback clauses. Also, performance objectives for annual variable remuneration have included since 2020 ESG components aligned with our Responsible banking commitments. From 2022, with the purpose of increasing focus on the group's Responsible banking agenda and highlight sustainability as a core long-term strategy, five new ESG metrics are included (described in the next section) for the last deferred variable remuneration payments. •Social responsibility: Employees’ pay cannot be lower than the legal minimum wage or the living wage in the country where they work. Additionally, in order to give our social responsibility prominence in remuneration, the Group’s Responsible banking objectives for employee remuneration include the people financially empowered metric. •Performance-based pay: Variable remuneration is subject to the achievement of (i) annual objectives (set out in section 6.4.B.ii.B), which reflect customer and profitability strategy, promote proper risk management and cost-effective capital allocation, and discourage short-term management focus; and (ii) long-term objectives (set out in section 6.4.B.ii.B), which support a sustainable balance sheet, shareholder return, the Group’s profitability and sustainability of the Group's activities and the way they are carried out. Directors’ remuneration for 2022 A. Directors' remuneration in their capacity as such In 2022, 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 2021 AGM (which will again be put to a vote at the 2022 AGM). It consists of: •annual allocation; and •attendance fees. The amounts agreed for 2022 are the same as initially established for 2021 (disclosed in section 6.2.B and C above), with the exception of the annual board member allotment (which is to increase from EUR 90,000 to EUR 95,000). The specific amounts and the form of payment are determined by the board of directors in the manner described in section [6.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316) above, based on the objective circumstances of each director. Additionally, as indicated in the description of the director remuneration system, Banco Santander will pay its directors’ the corresponding civil liability insurance premium in 2022. The related policy is common to all executives and was taken out under usual market condition, proportionate to Banco Santander's situation. 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 2022 as in 2021. Their gross annual salary amounts may  increase owing to adjustments made to the fixed remuneration mix based on the criteria approved by the remuneration committee, provided this does not entail any cost increase for Banco Santander. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 263 B) Other fixed remuneration components •Benefit systems: defined contribution schemes as set out in section 'Pre-retirement and benefit schemes'26. •Supplement to fixed salary: Ana Botín will receive the fixed salary supplement for an amount of EUR 525 thousand in 2022, and José Antonio Álvarez, EUR 710 thousand, that was 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. Likewise, the Bank makes available to directors the human and material means required or considered appropriate for  carrying out their duties (including any travel required for the exercise of their role). Any eventual private use of these means by the executive directors is duly paid by them under the terms and conditions approved by the board of directors upon proposal from the remuneration committee. This information can also 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 2022 on the remuneration committee's recommendation, based on the remuneration policy principles described under section [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). 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 (2023) 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 2024 and 2025 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 2026, 2027 and 2028, 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)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). 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 2022 cannot exceed the limit of 200% of fixed components submitted for approval to the 2022 AGM. However, under EU regulations on remuneration, certain variable components can be excluded. A. Variable remuneration benchmark Variable remuneration for executive directors in 2022 will be set based on a standard benchmark contingent upon the full achievement of their set individual targets, which for 2022 among others include, both for the executive chair and the CEO, increasing CET1 and sustainability 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, 2022 variable remuneration for executive directors will be based on the corporate bonus pool, and set according to: •Short-term quantitative metrics for annual objectives, which reduce from the four used in 2021 to three (customers, RoTE and RoRWA) to reflect strategic priorities regarding customers and profitability. •A qualitative assessment that cannot raise or lower the quantitative result by more than 25%, which among other elements includes metrics on capital and progress on ESG commitments. •An exceptional adjustment that must be supported by duly substantiated evidence and may involve changes owing to control and/or risk deficiencies, negative assessments from supervisors or unexpected material events. Capital continues to be an important part of key employees´ remuneration (including executive directors), due to the management of RWA (RoRWA metric weights 40%), the inclusion of CET1 in the qualitative assessment below and also the individual targets of the executive chair, the CEO and all executives running businesses. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 264 26 As indicated in the next section, executive directors contribution to the benefit systems includes both fixed and variable components The  new scorecard below provides the proposed quantitative metrics, qualitative assessment factors and weightings: Category and weighting Quantitative metrics Qualitative assessment Customers (30%) NPSA and  total customers and loyal customers Customer conduct Risk. Measurement of additional customer satisfaction metrics, such as easy access to service or response time Shareholders (70%) Return - RoTE: return on tangible equityB (30%) CET1 - Efficient capital adequacy management Appropriate management of operational risk, risk appetite and recorded breaches Sustainable and sound results and efficient cost management Suitability of business growth compared to the previous year in view of market conditions and competition Annual progress on Responsible banking commitments (as shown in Section D below for 2022) RoRWAB (Return on risk weighted assets)(40%) 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, share buybacks, 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 2022 were 50% less than in 2021, variable pay would in no case exceed 50% of the benchmark incentive for 2022. •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 will be 50% in cash, 25% in shares and 25% in share options. One portion is paid in 2023 and the other is deferred for five years and subject to long-term metrics: a)40% of variable remuneration is paid in 2023 net of tax, with 50% in cash, 25% in shares and 25% in share options. b)60% paid, if applicable, in five equal parts in 2024, 2025, 2026, 2027 and 2028 (net of tax), with 50% in cash, 25% in shares and 25% in share options under the conditions stipulated in section E). The final three payments will also be subject to long-term objectives described in section D) below. Shares shall be subject to a three-years retention period, unless the executive directors already hold shares for an amount equivalent to 200% of their fix annual remuneration -in which case the regulatory one year retention period will apply. For share options, the retention period applied will be in accordance with the rules of the plan approved by the board of directors to comply with applicable regulations and regulatory recommendations. Options will not include any premium, as they will be valued at fair market price at the moment when they are awarded. They may be exercised from the moment they are delivered to the executive, in accordance with the deferral calendar above, and until the tenth anniversary of the date when they are delivered. D) Deferred variable pay subject to long-term objectives As indicated above, the amounts deferred in 2026, 2027 and 2028 will be paid on the condition that the group achieves its long-term targets for 2022-2024, in addition to the terms described in section E). As advanced in section B) on the principles of the remuneration policy, the new long-term targets are: a.Banco Santander’s consolidated Return on tangible equity (RoTE) target in 2024. The RoTE ratio for this target is obtained as follows: RoTE in 2024 (%) ‘RoTE Ratio' ≥ 15% 1.5 ≥ 12% but < 15% 0 – 1.5A < 12% 0 A. Straight-line increase in the RoTE ratio based on the percentage of specific RoTE in 2024 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, share buybacks 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 2022-2024 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 'TSR Ratio' The100th percentile 1.5 Between the 75th and 100th percentiles (not inclusive) 1 – 1.5A Between the 40th and 75th percentiles  (not inclusive) 0.5 - 1A Less than the 40th percentile 0 A. Increase in the TSR ratio proportional to the number of positions moved up in the ranking. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 265 TSR27 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 BBVA, BNP Paribas, Citi, Credit Agricole, HSBC, ING, Itaú, Scotiabank and Unicredit. c.    ESG (environmental, social and governance) metrics. Achievement of this target will depend on the progress made on the Group's responsible banking commitments (described below): 1.Target for women in senior leadership positions by the end of 2024: Women in senior leadership positionsB (%) Coefficient ≥ 30.5% 1.25 ≥ 30% but < 30.5% 1 – 1.25A ≥ 28% but < 30% 0 – 1A < 28% 0 A. Increase of the coefficient is proportional to its position on this line of the scale. B. Senior leadership positions make up 1% of the total workforce 2.Financially empowered people target between 2019 and 2024: Financially empowered peopleB (million) Coefficient ≥ 14 1.25 ≥ 13 but < 14 1 – 1.25A ≥ 9 but < 13 0 – 1A < 9 0 A. Increase of the coefficient is proportional to its position on this line of the scale. B.Unbanked, underbanked or financially vulnerable individuals receive tailored finance solutions and can increase their knowledge and resilience through financial education. More ambitious target than the public commitment announced due to the good performance of this metric. Furthermore, our financial inclusion target will always conform to the Group’s credit risk policy without altering loanbook performance. The public commitment  is measured with cumulative data since 2019 to align with our 2019-2025 responsible banking public commitments. 3.Green finance raised and facilitated  target between 2019 and 2024: Green FinanceB (EUR Bn) Coefficient ≥ 170 1.25 ≥ 160 but < 170 1 – 1.25A ≥ 120 but < 160 0 – 1A < 120 0 A. Increase of the coefficient is proportional to its position on this line of the scale. B. 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. Includes the public commitment and the launch of new products and green retail volumes. The public commitment  is measured with cumulative data since 2019 to align with our 2019-2025 responsible banking public commitments. 4.Setting decarbonisation targets across the business following NZBA: Sectors with decarbonisation targets (number) Coefficient ≥ 11 1.25 =10 1 ≥ 0 but <10 0 – 1A A. Increase of the coefficient is proportional to its position on this line of the scale. The Group is working on aligning our climate-material portfolios with the goals of the Paris Agreement. In 2021, we set decarbonization targets for the coal and electricity generation industries, based on our ambition to be net zero by 2050. In February, we made our decarbonization targets public with a view to end financing for electricity-generating customers if the source of over 10% of their revenue is thermal coal; and to eliminating our exposure to coal mining entirely by 2030. In July 2021, we announced a new decarbonization target to reduce the emissions intensity of our electricity generation portfolio. As part of the NZBA, we have the obligation to set and announce interim emissions-related targets for 2030 (or sooner) regarding these ten industries by March 2024: electricity generation; coal; oil and gas, transport; iron and steel; aluminium; cement; mortgage lending; property; and agriculture (subject to the availability of data and methodologies, in line with our commitment to NZBA). To meet NZBA guidelines, we must disclose, at least, one target for portfolios of each of those ten industries. 5.Meeting the decarbonisation target set for Santander Power Generation Portfolio: Emission intensity reduction of our power generation portfolio (%) Coefficient ≥ 18.75% 1.25 ≥ 15% but < 18.75% 1 – 1.25A ≥ 0%B but < 15% 0 – 1A A. Increase of the coefficient is proportional to its position on this line of the scale. B. In case emission intensity increase, the coefficient would be 0. This commitment aims to make sure we succeed in lowering the emissions intensity of our electricity generation portfolio from 0.23 tCO2e/MWh (2019) to 0.18 tCO2e/MWh by 2025 and 0.11 tCO2e/ MWh by 2030, in accordance with the “IEA – Net Zero emissions” scenario. From the 2019 baseline scenario of 0.23, a 21.7% emissions reduction is necessary to reach the 2025 target of 0.18. Cutting emissions from 2019 by between 15% and 18.75% will put us on the right path with momentum to reach the targets for our electricity generation portfolio by 2025 and 2030. Each of the five Responsible banking commitments have the same weighting and this formula to calculate them: C = (1/5 x Coefficient 1 + 1/5 x Coefficient 2 + 1/5 x Coefficient 3 +1/5 x Coefficient 4 +1/5 x Coefficient 5 ) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 266 27TSR 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 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 2022 (exclusive) is considered (to calculate the initial value) and the fifteen trading sessions prior to 1 January 2025 (exclusive) (to calculate the final value). The following formula will be used to set the annual amount of performance-based deferred variable remuneration in 2026, 2027 and 2028 ('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 (2/5 x A + 2/5 x B + 1/5 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 2023). •‘A' is the RoTE coefficient according to the scale in the table above, based on RoTE at year-end 2024. •'B' is the TSR ratio calculated as the scale in the table above, according to the relative performance of Banco Santander’s TSR within its peer group in 2022-2024. •‘C’ is the coefficient resulting from the sum of weighted coefficients for each of the five Responsible banking commitments for 2024 (see section (c) above). •In any event, if the result of (2/5 x A + 2/5 x B +1/5 x C) is greater than 1.25, the multiplier will be 1.25. The estimated maximum amount to be delivered in shares or share options to executive directors is 11.5 million euros. E) Other terms of the incentive Payment of the deferred amounts (including those linked to long- term targets) if they remain in the group and none of the circumstances triggering malus clauses arising (as per the malus and clawback section in the group’s remuneration policy) under terms similar to those indicated for 2021. Furthermore, the group can claw back paid incentives under the scenarios, period and terms and conditions set out in the remuneration policy. Hedging the value of Santander shares or share options 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 the delivery. Shares received by the exercise of options, as well as cash proceeds deriving from exercise by differences, will be in accordance with the rules of the plan approved by the board of directors. . 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319), 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 includes 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. For share options, the retention period applied will be in accordance with the rules of the plan approved by the board of directors to comply with applicable regulations and regulatory recommendations. Directors’ remuneration for 2023 and 2024 A. Directors’ remuneration For 2023 and 2024, no changes to directors’ remuneration are planned for 2022. However, shareholders at the 2023 or 2024 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 in accordance with article 58.2 of Banco Santander’s Bylaws (duties and responsibilities; positions held on the board; their membership and attendance at committee meetings; and other objective circumstances). B. Directors' remuneration for the performance of executive duties Executive directors’ remuneration will conform to principles similar to those applied in 2022, 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 2023 and 2024, it may not increase above 5% of their annual gross salary in the previous year. It could also increase over that threshold 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. 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 2022. ii) Variable remuneration components The policy on executive directors’ variable remuneration for 2023 and 2024 will be based on the same principles as in 2022, 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 2023 and 2024 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 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 267 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 2022. It is also envisaged that for 2023 and 2024 Ana Botín would receive the equivalent of EUR 500 thousand in RSUs,  and José Antonio Álvarez would receive the equivalent of EUR 410 thousand in RSUs, under PagoNxt, S.L.'s long term incentive plan. Each RSU would grant the right to a share in PagoNxt, S.L. or the holding entity of its group (or its equivalent in cash) at the moment when, according to such plan, a liquidity event, a repurchase or a liquidation of such instruments takes place. The RSUs will substitute part of their Santander variable pay instruments without increasing their total pay and will not represent more than 10% of their variable pay. 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 confirm, reduce or increase payment amounts and the 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 delivery. For share options, the retention period applied will be in accordance with the rules of the plan approved by the board of directors. D) Other terms of the incentive No changes to the continuity, malus and clawback clauses of the remuneration policy for 2022 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) above will apply in 2023 and 2024, 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 2022 applies for 2023 and 2024. 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 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 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 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 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 268 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 in 2020, 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 2022, 2023 and 2024 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 2022 include standard life insurance and the life insurance cover with the supplement to their fixed remuneration mentioned above. In 2023 and 2024, 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. Likewise, the Bank makes available to directors the human and material means required or considered appropriate for  carrying out their duties (including any travel required for the exercise of their role). Any eventual private use of these means by the executive directors is duly paid by them under the terms and conditions approved by the board of directors upon proposal from the remuneration committee. 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. Agreements with non-executive members of the board Sergio Rial signed an agreement (effective on 1 January 2022) as strategic adviser to Grupo Santander for providing specific advisory services on strategic and digital transformation, including also business development in the Asian markets and other strategic matters. He will receive fixed remuneration of EUR 2.1 million and variable pay of EUR 1 million, subject to the achievement of objectives. The agreement is for an indefinite term. It also includes a one year non-compete commitment which would entitle him to receive EUR 2 million if he complies with this commitment. Luis Isasi has a contract since 4 April 2020 to act as non-executive chair of the board of Santander España (for which he receives EUR 925,000 a year) and to serve as a member of the board of Santander España (for which he receives EUR 75,000 a year). His contract is permanent and does not entitle him to any compensation if terminated. 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 and share options, depending on the delivery limits approved at the annual general shareholders' meeting. Authorization is expected to be sought at the next general shareholders’ meeting in order to deliver a Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 269 maximum number of shares and share options 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. In 2021, no executive director appointments could trigger buy outs, sign-on bonuses or any other form of remuneration. Temporary exceptions to the remuneration policy According to section 6 of Article 529 novedecies of the Spanish Companies Act, specific exceptions may apply to components in the remuneration policy, based on particular business needs or macroeconomic context in the Group's geographies , provided that they are required to serve the long-term interests and sustainability of the entity; ensure its viability; and require to be adopted urgently. Such exceptions include: •Complex macroeconomic scenarios where the ordinary course of the business is severely impacted. •The appointment of a new executive chair or chief executive officer, or the need to retain an executive director to avoid a vacancy at the head of the Group (vacatio regis) during especially complex  times for the business. •The need to adapt to regulatory change. To apply, exceptions must be supported by: •a reasoned remuneration committee proposal; and •board of directors analysis and approval. Any applied exception will be explained in the Annual report on directors' remuneration. 6.5 Preparatory work and decision-making for the remuneration policy; remuneration committee involvement Section 4.7 ['Remuneration committee activities for](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289) 2021['](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289), (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 2021, including joint sessions with the risk, compliance and regulation supervision committee. •The date of the meeting in which the report was approved. •The 2020 annual report on directors’ remuneration was approved by the board of directors and put to a binding vote at the 2021 AGM, with 91.6% of the votes in favour. The tally of the votes was: Number % of totalA Votes 11,397,073,138 97.12% Number % Votes forB 10,434,787,981 91.59% Votes againstB 957,730,594 8.41% BlankC 4,554,563 0.04% AbstentionsC 338,103,702 2.88% A. Percentage on total valid votes and abstentions. B. Percentage of votes for and against. C. Percentage of share capital present and attending by proxy at the Ordinary Shareholders’ Meeting. Decision process for the development, review and application of the policy Pursuant to Article 529 novodecies of the Spanish Companies Act, the remuneration committee issues the report on the proposed remuneration policy for 2022, 2023 and 2024 herein. The board of directors then submits it to the 2022 AGM as a separate item on the agenda and an integral part of this text. See section 6.4 'Directors' remuneration policy for 2022, 2023 and 2024 submitted to a binding shareholder vote'. Banco Santander’s Compensation function prepares the remuneration policy with the suggestions, requests and comments received during the year from the human resources committee, remuneration committee and the board of directors. A first draft of the policy is submitted to the remuneration committee for review every January. The review considers the suggestions, requests and comments the chair and lead director receive through shareholder and stakeholder engagement during the year on our corporate governance and our remuneration structures. Regulators’ recommendations and legal requirements that may have come to light since the last time the director remuneration policy was submitted for approval by the annual general meeting are also considered. The committee also makes sure the policy is consistent with the Group's culture and our Simple, Personal and Fair values. The Compensation function then prepares the final draft for the remuneration committee to submit to the board of directors for approval in February. Based on the analysis carried out in the context of the 2021 annual remuneration report elaboration and its continued supervision of the remuneration policy, the remuneration committee believes the director remuneration policy for 2022, 2023 and 2024 which is included in section 6.4 above is consistent with the principles of Banco Santander’s remuneration policy and its remuneration scheme set out in the Bylaws. As detailed herein, the policy considers (i) further simplifying our executive remuneration scheme by reducing the four metrics relating to annual results to three (i.e. customers, RoRWA and RoTE) and combining more simplicity with our key strategic pillars of customers and profitability, without losing sight of proper risk and capital management, which is also added as qualitative element for the result,; (ii) introducing share options as part of variable pay, with the aim of creating a greater alignment with shareholder returns; and (iii) updating the metrics linked to the achievement of multi-year objectives, maintaining total shareholder return (TSR) and introducing RoTE and ESG-related metrics related to our Responsible banking commitments, in order to adhere to best market practice and our stakeholders’ preferences, prioritizing long-term profitability for Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 270 shareholders and Santander, as well as a stable and sustainable balance sheet and operations. In 2021, no deviations from, or temporary exceptions to, the application of the remuneration policy occurred. 6.6 Remuneration of non-director members of senior management 2021 variable remuneration was approved by the board of directors on 1 February 2022 in view of the recommendation the remuneration committee of 31 January 2022. 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319)). Some senior managers’ contracts were amended in 2018 in the same manner described under [6.3.C and D](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) 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 2021 and 2020, excluding those of executive directors. This amount has been reduced by 33% compared to that reported in 2014 (EUR 80,792 thousand): 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 2021 15 19,183 16,804 7,296 5,542 5,055 53,880 2020 18 21,642 11,479 4,941 6,039 6,312 50,413 A. The amount immediately payable in shares in 2021 was 2,707 thousand Santander shares (2,136 thousand Santander shares in 2020). B. The amount of deferred shares in 2021 was 1,175 thousand Santander shares (919 thousand Santander shares in 2020). 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 (excluding executive directors)  at 31 December 2021 and 2020, 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 2021 15 7,660 2020 18 5,188 A. In 2021, this corresponds to the fair value of maximum annual payments for 2025, 2026 and 2027 in the sixth cycle of the plan for deferred variable remuneration linked to multi-year targets. In 2020, this corresponds to the estimated fair value of maximum annual payments for 2024, 2025 and 2026 in the fifth cycle of the plan for deferred variable pay linked to multi-year targets. Fair value in the plan was determined on the authorization date based on the valuation report of independent expert Willis Towers Watson. Based on the plan for 2021 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 1,234 thousand in 2021 (965 thousand shares in Santander in 2020). The long-term goals are the same as those for executive directors. They are described in section [6.3 B iv](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319)). Senior executives who stepped down from their roles in 2021 consolidated salary remuneration and other remuneration until the cessation of their duties for a total amount of EUR 5,294 thousand during the year (EUR 5,984 thousand for those who stepped down from their roles in 2020). They also have the right to receive, in total, 55 thousand euros in variable pay subject to long-term targets (EUR 133 thousand for those who stepped down from their roles in 2020). At our 2021 AGM, shareholders approved the 2021 Digital Transformation Incentive, a variable remuneration scheme that delivers Santander shares and share options if the group hits major milestones on its digital roadmap, and is aimed at a group of up to 250 employees whose functions are deemed essential to Santander’s growth. No senior executives are included within this plan in 2021. The 2020 Digital Transformation Incentive, which terms are substantially the same as those of the 2021 one, included three senior executives, who may receive a total of EUR 1,700 thousand. See [Note 46](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_934) to the 2021 Group's consolidated financial statements for further information on the Digital Transformation Incentive. In 2021, the ratio of variable to fixed pay components was 125% of the total for senior managers, well within the maximum limit of 200% set by shareholders. See [note 5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_757) of the group’s 2021 consolidated financial statements for further details. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 271 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 organization who qualify as such. The Remuneration Policies chapter in the 2021 Pillar III disclosures report28 of Banco Santander, S.A. explains the criteria and regulations followed to identify such staff. At the end of 2021, 1,018 group executives (including executive directors and non-director senior managers) were considered identified staff (1,394 in 2020), which accounts for 0.52% of the total final workforce (0.73% in 2020). Identified staff have the same remuneration standards as executive directors (see sections [6.1](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_313) and [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319)), but not: •Category-based deferral percentages and terms. •The possibility in 2021 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 and Poland that can be delivered in shares or similar instruments of their own listed entities (as in previous years). In 2022, on top of the inclusion of share options, described in section 6.4 above, the board will maintain its flexibility to determine full or partial payment in shares or similar instruments of Banco Santander and its subsidiaries in the proportion it deems appropriate (according to the maximum number of Santander shares allocated at the general meeting and to any regulatory restrictions in each jurisdiction), in addition to the aforementioned introduction of share options in the executive pay of Banco Santander, S.A. The aggregate amount of variable remuneration for identified staff in 2021, 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 2021. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 272 28 The 2021 Pillar III disclosures report can be found on our corporate website. 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, and Wealth Management & Insurance). 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. Since 2020, the Europe region (Spain, Portugal, Poland and UK) has the 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 local governance. Business and functional roles were also created to support and control those responsibilities. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 273 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. In 2021 a new Responsible Banking Corporate Framework was approved by the board. 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 as required 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. Every year an assessment is conducted by the Functions on the effective embedding of the contents of the  group's internal regulation at local level. This information is presented by the internal governance office to the board of directors. 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. Since 2019, a policy for the governance of non-GSGM subsidiaries , completes and enhances the governance and control system that has been applied to those companies thus far. Since 2020, 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 has its own  governance model. 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 since 2020, Santander Corporate and Investment Banking (SCIB) and Wealth Management and Insurance have specific governance models to ensure robust, group-wide  oversight of those businesses, as set out in the GSGM. 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 Group executive chairA The GSGM enhances control and oversight through: Presence of Group Santander on the subsidiaries' boards of directors, establishing guidelines for board structure, dynamics and effectiveness. Group CEOB Regional headsC CEO / Country head Reporting of the CEO/country heads to the Group CEO /regional heads and group executive committee. Control management and business functionsD Control management and business functionsD 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 and Wealth Management & Insurance. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 274 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. Identifying 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 275 8. Internal control over financial reporting (ICFR) This section describes the key aspects of Grupo Santander's ICFR 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 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283)). The audit committee works with the external auditor to address every aspect with impact in the ICFR identified  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 accountability including: The head of the financial accounting and control function (the CAO), which has the following functions concerning the generation of financial information, amongst others: •Integrating the group's corporate accounting 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 Risk Control System (IRCS) and IRCS evaluation and certification, which covers the ICFRS, amongst other regulatory and regulatory requirements. Grupo Santander's IRCS 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 IRCS 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 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 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 276 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. The board of directors adapted the GCC in 2021 to forbid board members and employees from releasing external communications on Banco Santander's behalf or from acting as its representatives and employees if such communications could undermine the Group's neutrality by showing political or ideological bias. See the on the information on 'General Code of Conduct' section ['Conduct and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151) [ethical behaviour'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151) in the 'Responsible banking' chapter. 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. The channel 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 channel can be viewed on our corporate website. For more information on the number of complaints filed on the channel and their typology, see the on the information on 'Ethical Channels' section ['A talented and motivated team'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_112) 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 focused 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. 31,373 employees in the all of the group’s markets were involved in training programmes. Over 545,459 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 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 IRCS using a homogeneous methodology to make sure that relevant controls are included and all significant risks to financial reporting are covered. The group's IRCS complies with the strictest international standards, particularly the guidelines of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) within its last published Internal Control framework in 2013 which 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 IRCS is based on management's knowledge and understanding of the business and its operations relative to the Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 277 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 IRCS are as follows: •It is a corporate model that involves the entire organizational structure through a direct set of individual responsibilities. •Management of the IRCS 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 IRCS 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 accordance with law and such disclosure is fair, accurate and not misleading. To verify that the IRCS 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 IRCS. 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 278 The Group also has a forum to oversee internal control. It is chaired by the heads of the Risk and Financial Accounting & Control divisions and continuously monitors the Group's control environment and ICFR strategy and operations. 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. •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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 279 8.5 Monitoring 2021 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 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283). As at 2021 year-end, Internal Audit had 1,212 employees, all exclusively dedicated to this service. Of these, 269 were based at Corporate Centre and 943 in the local units located in the main geographies where the group is present. 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, as regards the review of the ICFR, 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, including the risk culture. •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 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 2021, 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 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283). 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 2021, the audit committee was informed of the IRCS evaluation and certification for the 2019 financial year. See section [4.5 'Audit](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283) [committee activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 280 8.6 External auditor report The external auditor issued an independent reasonable assurance report on the design and effectiveness of the ICFR and the description on the ICFR that is provided in this section 8 of the annual corporate governance report. This report is included in the following pages. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 281 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 282 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 283 9. Other corporate governance information Since 12 June 2018 CNMV 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [corporate governance required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373), which also covers the section 'Degree of compliance with corporate governance recommendations', and (ii) for remuneration matters, under section [9.5 'Statistical information on remuneration required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382). 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_370) [governance report model'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_370) and [9.4 'Reconciliation to the CNMV’s](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_379) [remuneration report model'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_379) include a cross reference indicating where this information may be found in the 2021 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_376) [compliance with or explanations of recommendations in corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_376) [governance'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_376), 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 A. OWNERSHIP STRUCTURE A.1 Yes See sections [2.1 'Share capital'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_214), [3.2 'Shareholder rights'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238) and [9.2 'Statistical information on corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). A.2 Yes See section [2.3 'Significant shareholders'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_220) where we explain there are no significant shareholders on their own account. A.3 Yes See 'Tenure and equity ownership' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_262) and sections [6. 'Remuneration'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310) and [9.2 'Statistical](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [information on corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). A.4 No See section [2.3 'Significant shareholders'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_220) where we explain there are no significant shareholders on their own account so this section does not apply. A.5 No See section [2.3 'Significant shareholders'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_220) where we explain there are no significant shareholders on their own account so this section does not apply. A.6 No See section [2.3 'Significant shareholders'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_220) where we explain there are no significant shareholders on their own account so this section does not apply. A.7 Yes See sections [2.4 'Shareholders' agreements'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_223) and [9.2 'Statistical information on corporate governance as](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). A.8 Yes Not applicable. A.9 Yes See section [2.5 'Treasury shares'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_226) and [9.2 'Statistical information on corporate governance as required by](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). A.10 No See section [2.5 'Treasury shares'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_226). A.11 Yes See section [9.2 'Statistical information on corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). A.12 No See section [3.2 'Shareholder rights'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238). A.13 No See section [3.2 'Shareholder rights'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238). A.14 Yes See section [2.6 'Stock market information'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_229). Section in the CNMV model Included in statistical report Comments Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 284 B. GENERAL SHAREHOLDERS’ MEETING B.1 No See 'Quorum and majorities for passing resolutions at general meeting' in section [3.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238). B.2 No See 'Quorum and majorities for passing resolutions at general meeting' in section [3.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238). B.3 No See 'Rules for amending our Bylaws' in section [3.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238). B.4 Yes See 'Quorum and attendance' in section [3.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_244), in relation to financial year 2021, and section [9.2 'Statistical](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [information on corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373), in relation to the remaining financial years. B.5 Yes See 'Voting results and resolutions' in section [3.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_244). B.6 Yes See 'Shareholder participation at general meetings' in section [3.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238) and section [9.2 'Statistical information](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [on corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). B.7 No See 'Quorum and majorities for passing resolutions at general meeting' in section [3.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238). B.8 No See 'Corporate website' in section [3.1](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235). C. MANAGEMENT STRUCTURE C.1 Board of directors C.1.1 Yes See 'Size' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). C.1.2 Yes See 'Tenure and equity ownership' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_262), and section [9.2 'Statistical information on corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.1.3 Yes See sections [2.4 'Shareholders' agreements'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_223), [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256), 'Composition by type of director' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259), 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286) and section [9.2 'Statistical information on](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.1.4 Yes See 'Diversity' and 'Board skills and diversity matrix' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259), in relation to financial year 2021, and section [9.2 'Statistical information on corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373), in relation to the remaining financial years. C.1.5 No See 'Diversity' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259) and 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286). C.1.6 No See 'Diversity' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259), 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286) and, regarding top executive positions, see ['Responsible banking'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) chapter. C.1.7 No See 'Diversity' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). and 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286). C.1.8 No Not applicable, since there are no proprietary directors. See 'Composition by type of director' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). C.1.9 No See 'Group executive chair and chief executive officer' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) and 'Functions' in section [4.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_280). C.1.10 No See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256). C.1.11 Yes See sections [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) and [9.2 'Statistical information on corporate governance as required by the](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.1.12 Yes See 'Board and committees attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). C.1.13 Yes See sections [6 'Remuneration'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_310) and [9.2 'Statistical information on corporate governance as required by the](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). Additionally, see note [5 c)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_757) to our 'consolidated financial statements'. C.1.14 Yes See sections [5 'Management team'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_307) and [9.2 'Statistical information on corporate governance as required](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.1.15 Yes See 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). C.1.16 No See 'Election, renewal and succession of directors' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). C.1.17 No See 'Board assessment in 2021' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277), 'Annual assessment of the committee and its achievement of 2021 objectives' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286) and 'Board assessment and actions to continuously improve its functioning' in section [1.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_196). C.1.18 No See 'Board assessment in in 2021' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). C.1.19 No See 'Director election, renewal and succession' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). C.1.20 No See 'Board meetings' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). C.1.21 Yes Not applicable since there are no specific requirements, other than those applying to directors generally, to be appointed chair. C.1.22 No See 'Diversity' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). C.1.23 Yes See 'Election, renewal and succession of directors' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259) and section [9.2 'Statistical information on](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.1.24 No See 'Board meetings' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). C.1.25 Yes See 'Lead independent director' and 'Board and committees attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277), 'Duties and activities in 2021' in sections [4.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_280), [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283), [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286), [4.7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289), [4.8](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292), [4.9](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) and [4.10](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_298) and section [9.2 'Statistical information on](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.1.26 Yes See 'Board and committees attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). and section [9.2 'Statistical information on corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.1.27 Yes See section [9.2 'Statistical information on corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.1.28 No See 'Duties and activities in 2021' in section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283). C.1.29 Yes See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) and section 'Secretary of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). Section in the CNMV model Included in statistical report Comments Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 285 C.1.30 No See section [3.1 'Shareholder communication and engagement'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235) and 'Duties and activities in 2021' in section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283) C.1.31 Yes See 'External auditor' in section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283) and section [9.2 'Statistical information on corporate governance as](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373)s. C.1.32 Yes See 'Duties and activities in 2021' in section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283) and section [9.2 'Statistical information on corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.1.33 Yes Not applicable. C.1.34 Yes See section [9.2 'Statistical information on corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.1.35 Yes See ‘Board meetings' and ‘Committee meetings' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). C.1.36 No See 'Election, renewal and succession of directors' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). C.1.37 No Not applicable. See 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286). C.1.38 No Not applicable. C.1.39 Yes See sections [6.4 'Directors' remuneration policy for 2022, 2023 and 2024 submitted to a binding](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [shareholder vote'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322), [6.7 'Prudentially significant disclosure document'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_331) and [9.2 'Statistical information on](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.2 Board committees C.2.1 Yes See 'Committee structure' and 'Committee meetings' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277), 'Duties and activities in 2021' in sections [4.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_280), [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283), [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286), [4.7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289), [4.8](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292), [4.9](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) and [4.10](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_298) and section [9.2 'Statistical information on corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) [governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.2.2 Yes See section [9.2 'Statistical information on corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). C.2.3 No See 'Rules and regulations of the board' and 'Committee structure', 'Committee meetings' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) and 'Duties and activities in 2020" in sections [4.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_280), [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283), [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286), [4.7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289), [4.8](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292), [4.9](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) and [4.10](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_298). D. RELATED PARTY AND INTRAGROUP TRANSACTIONS D.1 No See 'Related-party transactions' in section [4.12](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304). D.2 Yes Not applicable. See 'Related-party transactions' in section [4.12](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304). D.3 Yes Not applicable. See 'Related-party transactions' in section [4.12](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304). D.4 Yes See section [9.2 'Statistical information on corporate governance as required by the CNMV'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373). D.5 Yes Not applicable. See 'Related-party transactions' in section [4.12](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304). D.6 No See 'Conflicts of interests' in section [4.12](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304) D.7 Yes Not applicable. See section [2.3 'Significant shareholders'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_220) and 'Conflicts of interests' in section [4.12](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304). E. CONTROL AND RISK MANAGEMENT SYSTEMS E.1 No See chapter ['Risk management and compliance'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508), in particular section [2.'Risk management and control](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_523) [model'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_523) and sections ['A strong and inclusive culture: The Santander Way'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109) and ['Principles of action in tax](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151) [matters'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151) in the 'Responsible banking' chapter. E.2 No See note [53](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_982) to our consolidated financial statements, section [2.3 'Risk governance'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_532) in the 'Risk management and compliance' chapter, and sections ['A strong and inclusive culture: The Santander Way'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109) and ['Principles of action in tax matters'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151)in the 'Responsible banking' chapter. E.3 No See sections [2.2'Risk factors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_529), [3. 'Credit risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_544), [4. 'Market, structural and liquidity risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_577), [5. 'Credit risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_604), [6.](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_616) ['Operational risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_616), [7. 'Compliance and conduct risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_628), [8 'Model risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_637) and [9. 'Strategic risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_646) in the 'Risk management and compliance' chapter. See also the ['Responsible banking'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) chapter and, for our capital needs, see section [3.5 'Capital management and adequacy. Solvency ratios'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_415) of the 'Economic and financial review' chapter. E.4 No See section [2.4. 'Management processes and tools'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_535) in the Risk management and compliance chapter and sections ['A strong and inclusive culture: The Santander Way'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109) and ['Principles of action in tax matters'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151) in the 'Responsible banking' chapter. E.5 No See [3. 'Credit risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_544), [4. 'Market, structural and liquidity risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_577), [5. 'Credit risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_604), [6. 'Operational risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_616), [7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_628) ['Compliance and conduct risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_628), [8 'Model risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_637), [9 'Strategic risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_646) and in [10.'Climate and environmental risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661) the 'Risk management and compliance' chapter. Additionally, see note [25e)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_850) to our consolidated financial statements. E.6 No See sections [2.'Risk management and control model'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_523), [3. 'Credit risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_544), [4. 'Market, structural and liquidity](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_577) [risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_577), [5. 'Capital risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_604), [6. 'Operational risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_616), [7. 'Compliance and conduct risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_628), [8. 'Model risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_637),  [9. 'Strategic risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_646) and [10.'Climate and environmental risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661) in the 'Risk management and compliance' chapter. F. ICFRS F.1 No See section [8.1 'Control environment'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_346). F.2 No See section [8.2 'Risk assessment in financial reporting'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_349). F.3 No See section [8.3 'Control activities'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_352). F.4 No See section [8.4 'Information and communication'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_355). F.5 No See section [8.5 'Monitoring'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_358). F.6 No Not applicable. F7 No See section [8.6 'External auditor report'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_361). Section in the CNMV model Included in statistical report Comments Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 286 G. DEGREE OF COMPLIANCE WITH CORPORATE GOVERNANCE RECOMMENDATIONS G Yes See 'Degree of compliance with the corporate governance recommendations' in section [9.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_373) and section [9.3 'Table on compliance with or explanations of recommendations on corporate governance'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_376). H. OTHER INFORMATION OF INTEREST H No Banco Santander also complies with the Polish Code of Best Practices, updated in 2021, except in areas where regulation is different in Spain and Poland. In addition, see sections '[Conduct and ethical behaviour'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_151) and 'Governance', in particular, 'Joint initiatives to promote our agenda', in the Responsible banking chapter. Section in the CNMV model Included in statistical report Comments Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 287 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: Indicate whether company bylaws contain the provision of double loyalty voting: No þ Yes o Date of last modification Share capital (euros) Number of shares Number of voting rights 03/12/2020 8,670,320,651 17,340,641,302 17,340,641,302 Indicate whether different types of shares exist with different associated rights: No þ Yes o A.2 List the direct and indirect holders of significant ownership interests at year-end, including directors with a significant shareholding: % of voting rights attributed to shares % of voting rights through financial instruments Total % of voting rights Name or corporate name of shareholder Direct Indirect Direct Indirect BlackRock Inc. 0 5.08% 0 3.46% 5.43% Details of the indirect shares: Name or corporate name of the indirect shareholder Name or corporate name of the direct shareholder % of voting rights attributed to shares % of voting rights through financial instruments Total % of voting rights BlackRock Inc. Subsidiaries of BlackRock Inc. 5.08% 3.46% 5.43% A.3 Give details of the participation at the close of the fiscal year of the members of the board of directors who are holders of voting rights attributed to shares of the company or through financial instruments, whatever the percentage, excluding the directors who have been identified in Section A2 above: Name or corporate name of director % 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 Direct Indirect Direct Indirect Direct Indirect Ana Botín-Sanz de Sautuola y O’Shea 0.01 0.17 0.00 0.00 0.18 0.00 0.00 José Antonio Álvarez Álvarez 0.01 0.00 0.00 0.00 0.01 0.00 0.00 Bruce Carnegie-Brown 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Homaira Akbari 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Javier Botín-Sanz de Sautuola y O’Shea 0.03 0.11 0.00 0.00 0.14 0.00 0.00 Álvaro Cardoso de Souza 0.00 0.00 0.00 0.00 0.00 0.00 0.00 R. Martin Chávez Márquez 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Sol Daurella Comadrán 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Henrique de Castro 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Gina Díez Barroso 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Luis Isasi Fernández de Bobadilla 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Ramiro Mato García-Ansorena 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Sergio Rial 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Belén Romana García 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Pamela Walkden 0.00 0.00 0.00 0.00 0.00 0.00 0.00 % total voting rights held by the board of directors 0.34 % total voting rights represented on the board of directors 0.71 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 288 Details of the indirect holding: Name or corporate name of director Name or corporate name of direct owner % 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 \_ \_ \_ \_ \_ \_ 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'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_223) 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'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_223) 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 259,930,273 17,661,667 1.601% (\*) Through: Name or corporate name of the direct shareholder Number of shares held directly Pereda Gestión, S.A. 13,680,000 Banco Santander Río, S.A. 975,238 Banco Santander México, S.A. 3,006,429 Total: 17,661,667 A.11 Estimated free float: % Estimated free float 91.92% A.14 Indicate whether the company has issued securities not traded in a regulated market of the European Union. Yes þ  No o Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 289 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 % remote voting Date of General Meeting % attending in person % by proxy Electronic means Other Total 12/04/2019 0.77% 65.31% 0.96% 1.47% 68.51% of which free float: 0.07% 64.87% 0.96% 1.47% 67.37% Attendance data % remote voting Date of General Meeting % attending in person % by proxy Electronic means Other Total 23/07/2019 0.66% 41.82% 15.54% 1.21% 59.23% of which free float: 0.02% 41.32% 15.54% 1.21% 58.09% Attendance data % remote voting Date of General Meeting % attending in person % by proxy Electronic means Other Total 03/04/2020 0.09% 62.60% 1.71% 0.60% 65.00% of which free float: 0.01% 61.59% 1.71% 0.60% 63.91% Attendance data % remote voting Date of General Meeting % attending in person % by proxy Electronic means Other Total 27/10/2020 0.17% 43.29% 16.30% 0.59% 60.35% of which free float: 0.11% 42.27% 16.30% 0.59% 59.27% Attendance data % remote voting Date of General Meeting % attending in person % by proxy Electronic means Other Total 26/03/2021 0.06% 65.02% 2.04% 0.55% 67.67% of which free float: 0.01% 64.03% 2.04% 0.55% 66.63% 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 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 290 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 directors 17 Minimum number of directors 12 Number of directors fixed by GSM 15 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’Shea N/A Executive Chair 04/02/1989 03/04/2020 Vote in general shareholders’ meeting José Antonio Álvarez Álvarez N/A Executive Chief executive officer 25/11/2014 12/04/2019 Vote in general shareholders’ meeting Bruce Carnegie-Brown N/A Independent Lead independent director 25/11/2014 26/03/2021 Vote in general shareholders’ meeting Homaira Akbari N/A Independent Director 27/09/2016 26/03/2021 Vote in general shareholders’ meeting Javier Botín-Sanz de Sautuola y O’Shea N/A Other external Director 25/07/2004 26/03/2021 Vote in general shareholders’ meeting Álvaro Cardoso de Souza N/A Independent Director 23/03/2018 26/03/2021 Vote in general shareholders’ meeting R. Martín Chávez Márquez N/A Independent Director 27/10/2020 27/10/2020 Vote in general shareholders' meeting Sol Daurella Comadrán N/A Independent Director 25/11/2014 03/04/2020 Vote in general shareholders’ meeting Henrique de Castro N/A Independent Director 12/04/2019 12/04/2019 Vote in general shareholders’ meeting Gina Díez Barroso N/A Independent Director 22/12/2020 22/12/2020 Vote in general shareholders’ meeting Luis Isasi Fernández de Bobadilla N/A Other external Director 03/04/2020 03/04/2020 Vote in general shareholders' meeting Ramiro Mato García-Ansorena N/A Independent Director 28/11/2017 26/03/2021 Vote in general shareholders´ meeting Sergio Rial N/A Other external Director 03/04/2020 03/04/2020 Vote in general shareholders' meeting Belén Romana García N/A Independent Director 22/12/2015 12/04/2019 Vote in general shareholders’ meeting Pamela Walkden N/A Independent Director 29/10/2019 03/04/2020 Vote in general shareholders' meeting Total number of directors 15 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 N/A N/A N/A N/A N/A N/A 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’Shea Executive chair See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the 'Corporate governance' chapter in the annual report. José Antonio Álvarez Álvarez CEO See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the 'Corporate governance' chapter in the annual report. Total number of executive directors 2 % of the Board 13.33% Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 291 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/A N/A N/A Total number of proprietary non-executive directors 0 % of the Board 0% INDEPENDENT NON-EXECUTIVE DIRECTORS Name or corporate name of director Profile Bruce Carnegie-Brown See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the 'Corporate governance' chapter in the annual report. Homaira Akbari See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the 'Corporate governance' chapter in the annual report. Álvaro Cardoso de Souza See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the 'Corporate governance' chapter in the annual report. R. Martín Chávez Márquez See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the 'Corporate governance' chapter in the annual report. Sol Daurella Comadrán See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the 'Corporate governance' chapter in the annual report. Henrique de Castro See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the 'Corporate governance' chapter in the annual report. Gina Díez Barroso See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the 'Corporate governance' chapter in the annual report. Ramiro Mato García-Ansorena See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the 'Corporate governance' chapter in the annual report. Belén Romana Garcia See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the 'Corporate governance' chapter in the annual report. Pamela Walkden See section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the 'Corporate governance' chapter in the annual report. Total number of independent directors 10 % of the Board 66.67% Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 292 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 rela tionship Reasoned statement Homaira Akbari Business When 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 2021 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 Financing When 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 2021 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 Castro Business When 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 2021 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 Díez Financing When 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 companies in which Gina Díez was a principal shareholder and director in 2021 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. R. Martín Chávez Business When 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 R. Martín Chávez was a director in 2021 were not significant because, among other reasons they did not reach certain comparable materiality thresholds used in other jurisdictions, e.g. NYSE and Nasdaq. Belén Romana Business When 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 2021 were not significant because, among other reasons they did not reach certain comparable materiality thresholds used in other jurisdictions, e.g. NYSE and Nasdaq. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 293 Other external 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 Company, manager or shareholder to which or to whom the director is related Profile Javier Botín-Sanz de Sautuola y O’Shea Given that Mr Botín has been director for over 12 years, pursuant to sub-section 4. i) of article 529 duodecies of the Spanish Companies Act. Banco Santander, S.A. See section [4.1 'Our](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) [directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the Corporate governance chapter in the annual report. Luis Isasi Fernández de Bobadilla Under prudent criteria given his remuneration as non- executive chair of Santander España’s body as supervisor, unit without its own corporate identity separate to Banco Santander, pursuant to sub-sections 2 to 4 of article 529 duodecies of the Spanish Companies Act. Banco Santander, S.A. See section [4.1 'Our](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) [directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the Corporate governance chapter in the annual report. Sergio Rial Given that Mr Rial, as a former executive director of Banco Santander as CEO of Banco Santander (Brasil) S.A. and Regional head of South America until 31 December 2021, pursuant to sub-section 4 a) of article 529 duodecies of the Spanish Companies Act. Banco Santander, S.A. See section [4.1 'Our](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) [directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256) in the Corporate governance chapter in the annual report. Total number of other non-executive directors 3 % of the Board 20.00% 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 Sergio Rial 31/12/2021 Executive 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 2021 FY 2020 FY 2019 FY 2018 FY 2021 FY 2020 FY 2019 FY 2018 Executive 1 1 1 1 50.00% 33.33% 50.00% 33.33% Proprietary — — — — 0.00% 0.00% 0.00% 0.00% Independent 5 5 5 4 50.00% 50.00% 55.55% 44.44% Other external — — — — 0.00% 0.00% 0.00% 0.00% Total: 6 6 6 5 40.00% 40.00% 40.00% 33.33% Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 294 C.1.11 List the positions of director, administrator or representative thereof, held by directors or representatives of directors who are members of the company's board of directors in other entities, whether or not they are listed companies: Identity of the director or representative Company name of the listed or non-listed entity Position Remunerated YES/NO Ana Botín-Sanz de Sautuola y O’Shea The Coca-Cola Company Director YES Bruce Carnegie-Brown Lloyd's of London Chair YES Cuvva Limited Chair YES Homaira Akbari Landstar System, Inc. Director YES AKnowledge Partners, LLC Chief executive officer YES Temenos AG Director YES Sol Daurella Comadrán Coca-Cola Europacific Partners plc. Chair YES Cobega, S.A. Representative of director NO Equatorial Coca Cola Bottling Company, S.L. Director YES Cobega Invest S.L. Sole administrator NO Olive Partners, S.A. Representative of director NO Indau, S.A.R.L. Sole administrator YES Henrique de Castro Fiserv Inc. Director YES Stakecorp Capital, s.a.r.l. Director NO Gina Díez Barroso Grupo Diarq, S.A. de C.V. Chair-chief executive officer NO Dalia Women , S.A.P.I. de C.V. Director NO Centro de Diseño y Comunicación, S.C. Chair NO Ramiro Mato García-Ansorena Ansorena, S.A. Chair NO R. Martín Chávez Márquez Sixth Street Partners Management Company, L.P. Vice-president YES Recursion Pharmaceuticals, Inc. Chair YES Luis Isasi Fernández de Bobadilla Compañía de Distribución Integral Logista Holdings, S.A. Director YES Agropecuaria Fuenfría, S.L. Director NO Santa Clara de C. Activos, S.L. Director NO Sergio Rial Delta Airlines Inc Director YES Ebury Partners Limited Chair YES Belén Romana García Aviva plc. Director YES Six Group AG Director YES Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. Director YES Javier Botín-Sanz de Sautuola y O’Shea JB Capital Markets, Sociedad de Valores, S.A.U. Chair YES Inversiones Zulú, S.L. Chair-chief executive officer NO Agropecuaria El Castaño, S.L.E Joint and several administrator NO Inversiones Peña Cabarga, S.L. Sole administrator NO Indicate, where appropriate, the other remunerated activities of the directors or directors' representatives, whatever their nature, other than those indicated in the previous table. Identity of the director or representative Other paid activities Bruce Carnegie-Brown Member of investment committee of Gresham House Plc Belén Romana García Member of the advisory board of Inetum Senior advisor of Artá Capital, S.G.E.I.C., S.A Pamela Walkden Member of the advisory board of JD Haspel Limited Luis Isasi Fernández de Bobadilla Senior Advisor of Morgan Stanley R. Martín Chávez Márquez Senior advisor of Cambrian Biopharma Senior advisor of Earli Senior advisor of Block.one Senior advisor of Ketch Kloud Senior advisor of Abacus.AI Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 295 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) 26,485 Funds accumulated by current directors for long-term savings systems with consolidated economic rights (EUR thousand) 66,896 Funds accumulated by current directors for long-term savings systems with unconsolidated economic rights  (EUR thousand) 0 Pension rights accumulated by former directors (EUR thousand) 49,778 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) Alexandra Brandão Head of Human Resources Juan Manuel Cendoya Méndez de Vigo Group head of Communications, Corporate Marketing and Research José Francisco Doncel Razola Group head of Accounting and Financial Control - Group Chief Accounting Officer Keiran Paul Foad Group Chief Risk Officer José Antonio García Cantera Group Chief Financial Officer Juan Guitard Marín Group Chief Audit Executive José Maria Linares Perou Global head of Corporate & Investment Banking Mónica Lopez-Monís Gallego Group head of Supervisory and Regulatory Relations Javier Maldonado Trinchant Group head of Costs Dirk Marzluf Group head of Technology and Operations Víctor Matarranz Sanz de Madrid Global head of Wealth Management José Luis de Mora Gil-Gallardo Group head of Strategy and Corporate Development and Head of Consumer Finance (Santander Consumer Finance) Jaime Pérez Renovales Group head of General Secretariat Antonio Simões Head regional of Europe and Country head of Santander Spain Marjolein van Hellemondt-Gerdingh Group Chief Compliance Officer Number of women in senior management 3 Percentage of total senior management 20.00% Total remuneration accrued by the senior management (EUR thousand) 53,880 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 chair: 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 chair’s attendance. Attendance will also include proxies appointed with specific instructions: Number of board meetings 15 Number of board meetings held without the chair’s attendance 0 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 meetings 8 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 296 Indicate the number of meetings of the various board committees held during the fiscal year. Number of meetings of the audit committee 14 Number of meetings of the responsible banking, sustainability and culture committee 6 Number of meetings of the innovation and technology committee 4 Number of meetings of the nomination committee 12 Number of meetings of the remuneration committee 12 Number of meetings of the risk supervision, regulation and compliance committee 16 Number of meetings of the executive committee 40 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 present 15 % of votes cast by members present over total votes in the fiscal year 98.66% Number of board meetings with all directors being present (or represented having given specific instructions) 14 % of votes cast by members present at the meeting or represented with specific instructions over total votes in the fiscal year 99.11% 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 Razola Group 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 Renovales N/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 Company Group companies Total Amount of non-audit work (EUR thousand) 556 2,567 3,123 Amount of non-audit work as a % of amount of audit work 0.5% 2.5% 3.0% 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 chair 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 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 years 6 6 Company Group Number of years audited by current audit firm/Number of years the company’s or its Group financial statements have been audited (%) 15.38% 15.38% Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 297 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. 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 golden 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 beneficiaries 21 Type of beneficiary Description of the agreement: Employees The 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 directors General Shareholders’ Meeting Body authorising clauses √ YES NO Is the general shareholders’ meeting informed of such clauses? √ Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 298 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’Shea Chair Executive director José Antonio Álvarez Álvarez Member Executive director Bruce Carnegie-Brown Member Independent director Luis Isasi Fernández de Bobadilla Member Other external director Ramiro Mato García-Ansorena Member Independent director Belén Romana García Member Independent director % of executive directors 33.33% % of proprietary directors 0.00% % of independent directors 50.00% % of other non-executive directors 16.67% AUDIT COMMITTEE Name Position Type Pamela Walkden Chair Independent director Homaira Akbari Member Independent director Henrique de Castro Member Independent director Ramiro Mato García-Ansorena Member Independent director Belén Romana García Member Independent director % of executive directors 0% % of proprietary directors 0% % of independent directors 100% % of other non-executive directors 0% 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 chair. 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 chair for that position 26 April 2020 NOMINATION COMMITTEE Name Position Type Bruce Carnegie-Brown Chair Independent director R. Martin Chávez Márquez Member Independent director Sol Daurella Comadrán Member Independent director Gina Díez Barroso Member Independent director % of executive directors 0% % of proprietary directors 0% % of independent directors 100% % of other executive directors 0% Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 299 REMUNERATION COMMITTEE Name Position Type Bruce Carnegie-Brown Chair Independent director R. Martín Chávez Márquez Member Independent director Sol Daurella Comadrán Member Independent director Henrique de Castro Member Independent director Luis Isasi Fernández de Bobadilla Member Other 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 Belén Romana García Chair Independent director R. Martín Chávez Márquez Member Independent director Luis Isasi Fernández de Bobadilla Member Other external director Ramiro Mato García-Ansorena Member Independent director Pamela Walkden Member 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 Chair Independent director Homaira Akbari Member Independent director Álvaro Cardoso de Souza Member Independent director Sol Daurella Comadrán Member Independent director Belén Romana García Member 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 Chair Independent director Ana Botín-Sanz de Sautuola y O'Shea Member Executive director José Antonio Álvarez Álvarez Member Executive director Bruce Carnegie-Brown Member Independent director Homaira Akbari Member Independent director Henrique de Castro Member Independent director Belén Romana García Member Independent director % of executive directors 28.57% % of proprietary directors 0.00% % of independent directors 71.43% % of other external directors 0.00% Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 300 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 2021 FY 2020 FY 2019 FY 2018 Number % Number % Number % Number % Audit committee 3 60.00% 3 60.00% 3 60.00% 2 50.00% Responsible banking, sustainability and culture committee 3 60.00% 3 60.00% 5 62.50% 5 62.50% Innovation and technology committee 3 —% 3 42.85% 3 37.50% 3 42.85% Nomination committee 2 50.00% 1 33.33% 2 40.00% 1 25.00% Remuneration committee 1 20.00% 1 20.00% 1 20.00% 1 20.00% Risk supervision, regulation and compliance committee 2 40.00% 1 20.00% 2 40.00% 2 33.30% Executive committee 2 33.33% 2 33.33% 2 28.50% 2 25.00% D. RELATED-PARTY AND INTRAGROUP TRANSACTIONS D.2  Give individual details of operations that are significant due to their amount or of importance due to their subject matter carried out between the company or its subsidiaries and shareholders holding 10% or more of the voting rights or who are represented on the board of directors of the company, indicating which has been the competent body for its approval and if any affected shareholder or director has abstained. In the event that the board of directors has responsibility, indicate if the proposed resolution has been approved by the board without a vote against the majority of the independents: Not applicable. D.3 Give individual details of the operations that are significant due to their amount or relevant due to their subject matter carried out by the company or its subsidiaries with the administrators or managers of the company, including those operations carried out with entities that the administrator or manager controls or controls jointly, indicating the competent body for its approval and if any affected shareholder or director has abstained. In the event that the board of directors has responsibility, indicate if the proposed resolution has been approved by the board without a vote against the majority of the independents: Not applicable. D.4 Report individually on intra-group transactions that are significant due to their amount or relevant due to their subject matter that have been undertaken by the company with its parent company or with other entities belonging to the parent's group, including subsidiaries of the listed company, except where no other related party of the listed company has interests in these subsidiaries or that they are fully owned, directly or indirectly, by the listed company. In any case, report 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 and any other information necessary for its evaluation 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 2021 with Group entities resident in countries or territories that were considered non-cooperative jurisdictions pursuant to Spanish legislation, at such date (Law 11/2021 on measures to prevent and fight against tax fraud expands the meaning of tax havens, which it renames “non-cooperative jurisdictions”). These results, and the balances indicated below, were eliminated in the consolidation process. See note 3 to the 2021 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 274 million in the Bank and covered the following transactions: - 91 Non Delivery Forwards. - 251 Swaps. -  65 Cross Currency Swaps. -  12 Options. - 44 Forex. 18,681 The amount shown on the right corresponds to negative results relating to short term deposits with the New York branch of Banco Santander, S.A. (liability), all of them expired before 31 December 2021. 1,036 The amount shown on the right corresponds to positive results relating to deposits with the Hong Kong branch of Banco Santander, S.A. (asset). These deposits had a nominal value of EUR 0.9 million at 31 December 2021. 16 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 2,228 million as at 31 December 2021. 140,892 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 40 million at 31 December 2021. 15 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 301 D.5 Give individual details of the operations that are significant due to their amount or relevant due to their subject matter carried out by the company or its subsidiaries with other related parties pursuant to the international accounting standards adopted by the EU, which have not been reported in previous sections. Not applicable. 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 chair 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 þ  Partially complies o  Explain o 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 where the auditors includes any qualification in its report, the chair 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 302 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 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 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 303 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 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 chair 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 chair, 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 chair or vice chair; 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 chair’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 chair of the board of directors and the company’s chief executive. e) The performance and contribution of individual directors, with particular attention to the chair 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 304 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 39. All members of the audit committee, particularly its chair, 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 chair or the chair 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, sharehold ers, 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 regula tions 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: 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 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 305 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 chair 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 chair 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: 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 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 306 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 achievement 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 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 307 9.3 Table on compliance with or explanations of recommendations on corporate governance 1 Comply See section [3.2 'Shareholder rights'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238). 2 Not applicable See 'Conflicts of interest' in section [4.12](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304). and section [2.3 'Significant shareholders'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_220). 3 Comply See section [3.1 'Shareholder communication and engagement'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235). 4 Comply See section [3.1 'Shareholder communication and engagement'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235). 5 Comply See section [2.2 'Authority to increase capital'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_217). 6 Comply See sections [4.5 'Audit committee activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283), [4.6 'Nomination committee activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286), [4.7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289) ['Remuneration committee activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289), [4.8 'Risk supervision, regulation and compliance committee](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292) [activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292), [4.9 'Responsible banking, sustainability and culture committee activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295), [4.10](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_298) ['Innovation and technology committee activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_298) and [4.12 'Related-party transactions and conflicts of](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304) [interest'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_304). 7 Comply See 'Engagement with shareholders in 2021' in section [3.1](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235), 'Shareholder participation at general meetings' in section [3.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238) and section [3.5 'Our next AGM in 2022'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250). 8 Comply See 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) and section [4.5 'Audit committee activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283). 9 Comply See 'Participation of shareholders at the general meeting' in section [3.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_238). 10 Comply See 'Supplement to the annual general meeting notice' in section 3.2. 11 Not applicable See section [3.5 'Our next AGM in 2022'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_250). 12 Comply See section [4.3 'Board functioning and effectiveness'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 13 Comply See 'Size' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). 14 Comply See 'Diversity' and 'Election, renewal and succession of directors' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259), 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277), 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286), section [5 'Management team'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_307) and ['Responsible banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85)' chapter. 15 Comply See section [4.2 'Board composition'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). 16 Comply See 'Composition by type of director' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). 17 Comply See 'Composition by type of director' and 'Election, renewal and succession of directors' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). 18 Comply See 'Corporate website' in section [3.1](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235) and section [4.1 'Our directors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_256). 19 Not applicable See 'Composition by type of director' and 'Tenure and equity ownership' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). 20 Comply See 'Election, renewal and succession of directors' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). 21 Comply See 'Election, renewal and succession of directors' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). 22 Comply See 'Election, renewal and succession of directors' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259), 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) and 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286). 23 Comply See 'Election, renewal and succession of directors' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259). 24 Comply See 'Election, renewal and succession of directors' in section [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_259), 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) and 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286). 25 Comply See 'Board and committees attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) and 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286). 26 Comply See 'Board meetings' and 'Board and committee attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 27 Comply See 'Board meetings' and 'Board and committee attendance' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 28 Comply See 'Board meetings' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 29 Comply See 'Board meetings' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 30 Comply See 'Training of directors and induction programmes for new directors' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 31 Comply See 'Board meetings' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 32 Comply See section [3.1 'Shareholder communication and engagement'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_235) and 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286). 33 Comply See section [4.3 'Board functioning and effectiveness'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 34 Comply See 'Lead independent director' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 35 Comply See 'Secretary of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 36 Comply See 'Board assessment in 2021' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 37 Comply See 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) and 'Composition' in section [4.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_280). 38 Comply See 'Committee meetings' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) and section [4.4 'Executive committee activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_280). 39 Comply See 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) and 'Composition' in section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283). 40 Comply See 'Duties and activities in 2021' in section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283) and section [8.5 'Monitoring'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_358). 41 Comply See 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) and 'Duties and activities in 2021' in section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283). 42 Comply See 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) and 'Duties and activities in 2021' in section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283). 43 Comply See 'Committee meetings' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 44 Comply See 'Duties and activities in 2021' in section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283). 45 Comply See 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277), 'Duties and activities in 2021' in section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283), 'Duties and activities in 2021' in section [4.8](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292) and the '[Risk management and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)' chapter. Recommendation Comply / Explain Information Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 308 46 Comply See 'Duties and activities in 2021' in section [4.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_283),'Duties and activities in 2021' in section [4.8](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292) and the '[Risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [management and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508)' chapter. 47 Comply See 'Composition' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286) and 'Composition' in section [4.7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289). 48 Comply See 'Structure of board committees' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277). 49 Comply See 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286). 50 Comply See 'Duties and activities in 2021' in section [4.7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289). 51 Comply See 'Duties and activities in 2021' in section [4.7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289). 52 Comply See 'Rules and regulations of the board' and 'Committee meetings'  in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277) and sections [4.8 'Risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292) [supervision, regulation and compliance committee activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292) and [4.9 'Responsible banking,](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) [sustainability and culture committee activities in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295). 53 Comply See 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277), 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286), 'Duties and activities in 2021' in section [4.8](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292) and 'Duties and activities in 2021' in section [4.9](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295). 54 Comply See 'Rules and regulations of the board' in section [4.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_277), 'Duties and activities in 2021' in section [4.6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_286), 'Duties and activities in 2021' in section [4.8](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292) and 'Duties and activities in 2021' in section [4.9](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295). 55 Comply See 'Duties and activities in 2021' in section [4.9](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_295) and ['Responsible banking'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) chapter. 56 Comply See sections [6.2 'Remuneration of directors for supervisory and collective decision-making duties: policy](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316) [applied in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316), [6.3 'Remuneration of directors for executive duties'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) and [6.4 'Directors' remuneration policy](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [for 2022, 2023 and 2024 submitted to a binding shareholder vote'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). 57 Comply See sections [6.2 'Remuneration of directors for supervisory and collective decision-making duties: policy](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316) [applied in 2021'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316), [6.3 'Remuneration of directors for executive duties'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) and [6.4 'Directors' remuneration policy](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [for 2022, 2023 and 2024 submitted to a binding shareholder vote'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). 58 Comply See section [6.3 'Remuneration of directors for executive duties'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) and [6.4 'Directors' remuneration policy for](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [2022, 2023 and 2024 submitted to a binding shareholder vote'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). 59 Comply See section [6.3 'Remuneration of directors for executive duties'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). 60 Comply See section [6.3 'Remuneration of directors for executive duties'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). 61 Comply See section [6.3 'Remuneration of directors for executive duties'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) and [6.4 'Directors' remuneration policy for](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [2022, 2023 and 2024 submitted to a binding shareholder vote'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). 62 Comply See 'Duties and activities in 2021' in section [4.7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289), section [6.3 'Remuneration of directors for executive duties'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) and [6.4 'Directors' remuneration policy for 2022, 2023 and 2024 submitted to a binding shareholder vote'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). 63 Comply See section [6.3 'Remuneration of directors for executive duties'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) and [6.4 'Directors' remuneration policy for](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [2022, 2023 and 2024 submitted to a binding shareholder vote'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). 64 Comply See sections [6.1 'Principles of the remuneration policy'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_313) and [6.3 'Remuneration of directors for executive](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) [duties'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) and [6.4 'Directors' remuneration policy for 2022, 2023 and 2024 submitted to a binding shareholder](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322) [vote'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). Recommendation Comply / Explain Information Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 309 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.1 No •See section [6.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322): A.1.1, A.1.2, A.1.3, A.1.4, A.1.5, A.1.6, A.1.7, A.1.8, A.1.9, A.1.10, A.1.11 ([note 5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_757)), A.1.12. •See also sections [4.7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289) and [6.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_325) for A.1.1 y A.1.6. •See 'Summary of link between risk, performance and reward' in section [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). A.2 No See section [6.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). A.3 No See section [6.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). See Introduction. A.4 No See section [6.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_325). B. Overall summary of application of the remuneration policy over the last fiscal year B.1 No For B.1.1, see sections [6.1](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_313), [6.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316). and [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). For B.1.2 y B.1.3 (not applicable) see section  [6.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_301) B.2 No See 'Summary of link between risk, performance and reward' in section [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). B.3 No See sections [6.1](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_313), [6.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316) and [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). B.4 No See section [6.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_325). B.5 No See section [6.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316) and [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319) B.6 No See 'Gross annual salary' in section [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). B.7 No See 'Variable remuneration' in section [6.1](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_313), [6.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_316) and  [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). B.8 No Not applicable. B.9 No See 'Main features of the benefit plans' in section [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). B.10 No See 'Other remuneration' in section [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). B.11 No See 'Terms and conditions of executive directors´ contracts' in section [6.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). B.12 No See section [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319): "Remuneration of board members as representatives of Banco Santander" B.13 No See [note 5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_757) to the consolidated financial statements. B.14 No See 'Insurance and other remuneration and benefits in kind' in section [6.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_322). B.15 No See 'Remuneration of board members as representatives of the Bank' in section [6.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_319). B.16 No No remuneration for this component. C. Breakdown of the individual remuneration of directors C Yes See section [9.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382). C.1 a) i) Yes See section [9.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382). C.1 a) ii) Yes See section [9.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382). C.1 a) iii) Yes See section [9.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382). C.1 a) iii) Yes See section [9.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382). C.1 b) i) Yes See section [9.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382). C.1 b) ii) No See section [9.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382). C.1 b) iii) No See section [9.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382). C.1 b) iv) No See section [9.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382). C.1 c) Yes See section [9.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382). C.2 Yes See section [9.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_382). D. Other information of interest D No See section [4.7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_289) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 310 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 the consultative vote at the General Shareholders’ Meeting on remuneration in the previous year, indicating the number of votes in favour, votes against, abstentions and blank ballots: Number % of total Votes cast 11,735,176,840 100.00% Number % of votes cast Votes in favour 10,434,787,981 88.92% Votes against 957,730,594 8.16% Blank 4,554,563 0.04% Abstentions 338,103,702 2.88% C. ITEMISED INDIVIDUAL REMUNERATION ACCRUED BY EACH DIRECTOR Directors Type Period of accrual in year 2021 Ms Ana Botín-Sanz de Sautuola y O’Shea Executive From 01/01/2021 to 31/12/2021 Mr José Antonio Álvarez Álvarez Executive From 01/01/2021 to 31/12/2021 Mr Bruce Carnegie-Brown Lead independent director From 01/01/2021 to 31/12/2021 Ms Homaira Akbari Independent From 01/01/2021 to 31/12/2021 Mr Francisco Javier Botín-Sanz de Sautuola y O’Shea Other external From 01/01/2021 to 31/12/2021 Mr Álvaro Antonio Cardoso de Souza Independent From 01/01/2021 to 31/12/2021 Mr Ramón Martín Chávez Márquez Independent From 01/01/2021 to 31/12/2021 Ms Sol Daurella Comadrán Independent From 01/01/2021 to 31/12/2021 Mr Henrique Manuel Drummond Borges Cirne de Castro Independent From 01/01/2021 to 31/12/2021 Ms Gina Díez Barroso Independent From 01/01/2021 to 31/12/2021 Mr Luis Isasi Fernández de Bobadilla Other External From 01/01/2021 to 31/12/2021 Mr Ramiro Mato García-Ansorena Independent From 01/01/2021 to 31/12/2021 Mr Sergio Rial Executive From 01/01/2021 to 31/12/2021 Ms Belén Romana García Independent From 01/01/2021 to 31/12/2021 Mrs Pamela Ann Walkden Independent From 01/01/2021 to 31/12/2021 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 311 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) Name Fixed remune ration Per diem allowances Remuneration for membership of Board's committees Salary Short-term variable remuneration Long-term variable remuneration1 Severance pay Other grounds Total year 2021 Total year 2020 Ms Ana Botín-Sanz de Sautuola y O’Shea 90 45 195 3,176 2,941 561 — 525 7,533 5,352 Mr José Antonio Álvarez Álvarez 90 45 195 2,541 1,985 375 — 710 5,941 4,370 Mr Bruce Carnegie-Brown 275 80 345 — — — — — 700 595 Ms Homaira Akbari 90 78 80 — — — — — 248 202 Mr Francisco Javier Botín- Sanz de Sautuola y O’Shea 90 39 — — — — — — 129 122 Mr Álvaro Antonio Cardoso de Souza 90 50 43 — — — — — 183 243 Mr Ramón Martín Chávez Márquez 90 99 185 — — — — — 374 37 Ms Sol Daurella Comadrán 90 84 65 — — — — — 239 214 Mr Henrique Manuel Drummond Borges Cirne de Castro 90 87 90 — — — — — 267 217 Ms Gina Díez Barroso 90 39 1 — — — — — 130 4 Mr Luis Isasi Fernández de Bobadilla 90 81 235 — — — — 1,000 1,406 943 Mr Ramiro Mato García- Ansorena 90 94 315 — — — — — 499 430 Mr Sergio Rial 90 39 — 750 — — — — 879 63 Ms Belén Romana García 90 100 343 — — — — — 533 417 Mrs Pamela Ann Walkden 90 76 137 — — — — — 303 214 Mr Rodrigo Echenique Gordillo — — — — — 292 — — 292 2,369 Mr Ignacio Benjumea Cabeza de Vaca — — — — — 275 Mr Guillermo de la Dehesa Romero — — — — — 108 Ms Esther Giménez- Salinas i Colomer — — — — — 191 Comments (Not included in the electronic submission to the CNMV) 1. Includes deferred amounts from the 2017 deferred and conditional variable remuneration plan subject to long term metrics for Ana Botín, José Antonio Álvarez and Rodrigo Echenique. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 312 ii) Table of changes in share-based remuneration schemes and gross profit from consolidated shares or financial instruments Financial instruments at start of year 2021 Financial instruments granted at start of year 2021 Financial instruments consolidated during 2021 Instruments matured but not exercised Financial instruments at end of year 2021 Name Name of Plan No. of instruments No. of equivalent shares No. of instruments No. of equivalent shares No. of instruments No. of equivalent shares / handed over Price of the consolidated shares Net profit from shares handed over or consolidated financial instruments (EUR thousand) No. of instruments No. of instruments No of equivalent shares Ms Ana Botín- Sanz de Sautuola y O’Shea 2nd cycle of deferred variable remuneration plan linked to multi-year targets (2017) 206,775 206,775 — — 94,083 94,083 3.104 292 112,692 — — 3rd cycle of deferred variable remuneration plan linked to multi-year targets (2018) 309,911 309,911 — — — — — — — 309,911 309,911 4th cycle of deferred variable remuneration plan linked to multi-year targets (2019) 319,390 319,390 — — — — — — — 319,390 319,390 5th cycle of deferred variable remuneration plan linked to multi-year targets (2020) 111,823 111,823 — — — — — — — 111,823 111,823 6th cycle of deferred variable remuneration plan linked to multi-year targets (2021) — — 1,480,622 1,480,622 947,598 947,598 3.104 2,941 — 533,024 533,024 Financial instruments at start of year 2021 Financial instruments granted at start of year 2021 Financial instruments consolidated during 2021 Instruments matured but not exercised Financial instruments at end of year 2021 Name Name of Plan No. of instruments No. of equivalent shares No. of instruments No. of equivalent shares No. of instruments No. of equivalent shares / handed over Price of the consolidated shares Net profit from shares handed over or consolidated financial instruments (EUR thousand) No. of instruments No. of instruments No of equivalent shares Mr. José Antonio Álvarez Álvarez 2nd cycle of deferred variable remuneration plan linked to multi-year targets (2017) 138,283 138,283 — — 62,919 62,919 3.104 195 75,364 — — 3rd cycle of deferred variable remuneration plan linked to multi-year targets (2018) 207,097 207,097 — — — — — — — 207,097 207,097 4th cycle of deferred variable remuneration plan linked to multi-year targets (2019) 213,449 213,449 — — — — — — — 213,449 213,449 5th cycle of deferred variable remuneration plan linked to multi-year targets (2020) 60,739 60,739 — — — — — — — 60,739 60,739 6th cycle of deferred variable remuneration plan linked to multi-year targets (2021) — — 999,259 999,259 639,526 639,526 3.104 1,985 — 359,733 359,733 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 313 Financial instruments at start of year 2021 Financial instruments granted at start of year 2021 Financial instruments consolidated during 2021 Instruments matured but not exercised Financial instruments at end of year 2021 Name Name of Plan No. of instruments No. of equivalent shares No. of instruments No. of equivalent shares No. of instruments No. of equivalent shares / handed over Price of the consolidated shares Net profit from shares handed over or consolidated financial instruments (EUR thousand) No. of instruments No. of instruments No of equivalent shares Mr. Rodrigo Echenique Gordillo 2nd cycle of deferred variable remuneration plan linked to multi-year targets (2017) 107,764 107,764 — — 49,033 49,033 3.104 152 58,731 3rd cycle of deferred variable remuneration plan linked to multi-year targets (2018) 164,462 164,462 — — 164,462 164,462 4th cycle of deferred variable remuneration plan linked to multi-year targets (2019) 98,092 98,092 — — 98,092 98,092 Comments (Not included in the electronic submission to the CNMV) After reviewing the results of the 2nd cycle of the deferred variable remuneration plan linked to multi-year targets (2017), the board of directors confirmed in 2021, upon recommendation from the remunerations committee, a 45.5% achievement of the long-term metrics of the plan (as the following level of achievement was met during 2017-2019 period: CET1 at 100% (the target was 11.30%); underlying EPS growth at 36.34% (the target was a 25% growth); and TSR metric at 0% (33% minimum target not reach), with a 33% weight each one;  and the amounts of the pending deliveries for each executive director, payable in February 2021, 2022 and 2023 in connection with this plan. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 314 iii) Long-term saving systems Name Remuneration from consolidation of rights to savings system Ms Ana Botín-Sanz de Sautuola y O’Shea 1,041 Mr José Antonio Álvarez Álvarez 783 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) 2021 2020 Name 2021 2020 2021 2020 Systems with consolidated economic rights Systems with unconsolidated economic rights Systems with consolidated economic rights Systems with unconsolidated economic rights Ms Ana Botín-Sanz de Sautuola y O’Shea 1,041 1,155 — — 48,075 — 49,444 — Mr José Antonio Álvarez Álvarez 783 864 — — 18,821 — 18,082 — iv) Details of other items (Thousands of EUR) Name Item Amount remunerated Ms Ana Botín- Sanz de Sautuola y O’Shea Life and accident insurance and fixed remuneration supplement insurance 459 Other remuneration 22 Name Item Amount remunerated Mr José Antonio Álvarez Álvarez Life and accident insurance and fixed remuneration supplement insurance 817 Other remuneration 7 b) Remuneration of the company directors for seats on the boards of other group companies: i) Remuneration in cash (Thousands of EUR) Name Fixed remuneration Per diem allowances Remuneration for membership of Board's committees Salary Short-term variable remuneration Long-term variable remuneration Severance pay Other grounds Total year 2021 Total year 2020 Ms Homaira Akbari 213 — — — — — — — 213 184 D. Álvaro Antonio Cardoso de Souza 282 — — — — — — 52 334 335 Mr. Ramón Martín Chávez Márquez 52 — — — — — — — 52 17 D. Henrique Manuel Drummond Borges Cirne de Castro 52 — — — — — — — 52 17 Ms. Pamela Walkden 36 — — — — — — — 36 — D. Sergio Rial1 — — — 1,985 2,009 — — 7 4,001 4,020 D.ª Gina Diez Barroso — — — — — — — — — 14 Comments (Not included in the electronic submission to the CNMV) 1. Long-term variable remuneration includes amounts since the appointment as director. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 315 ii) Table of changes in share/based remunerations schemes and gross profit from consolidated shares of financial instruments Financial instruments at start of year 2021 Financial instruments granted at start of year 2021 Financial instruments consolidated during 2021 Instruments matured but not exercised Financial instruments at end of year 2021 Name Name of Plan No. of instruments No. of equivalent shares No. of instruments No. of equivalent shares No. of instruments No. of equivalent shares / handed over Price of the consolid ated shares Net proft from shares handed over or consolidated fnancial instruments (EUR thousand) No. of instruments No. of instruments No of equivalent shares Mr. Sergio Rial 5th cycle of deferred variable remuneration plan linked to multi-year targets (2020) 472,500 472,500 — — — — — — — — — — — 472,500 472,500 6th cycle of deferred variable remuneration plan linked to multi-year targets (2021) — — — 625,000 625,000 — 400,000 400,000 5.022 2,009 — — — 225,000 225,000 Comments (Not included in the electronic submission to the CNMV) After reviewing the results of the 2nd cycle of the deferred variable remuneration plan linked to multi-year targets (2017), the board of directors confirmed in 2021, upon recommendation from the remunerations committee, a 45.5% achievement of the long-term metrics of the plan (as the following level of achievement was met during 2017-2019 period: CET1 at 100% (the target was 11.30%); underlying EPS growth at 36.34% (the target was a 25% growth); and TSR metric at 0% (33% minimum target not reach), with a 33% weight each one;  and the amounts of the pending deliveries for each executive director, payable in February 2021, 2022 and 2023 in connection with this plan. iii) Long term saving systems Name Remuneration from consolidation of rights to savings system Mr Sergio Rial 1,153 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) 2020 2019 Name 2020 2019 2020 2019 Systems with consolidated economic rights Systems with unconsolidat ed economic rights Systems with consolidated economic rights Systems with unconsolidat ed economic rights Mr Sergio Rial 1,153 693 — — 5,202 — 3,900 — iv) Detail of other items (Thousands of EUR) Name Item Amount Remunerated 2021 Mr Sergio Rial Fundo de Pensão do Governo 159 Other remuneration 7 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 316 Remuneration accrued in the company Remuneration accrued in group companies Name Total cash remuneration1 Gross profit on consolidated shares or financial instruments1 Contributions to the long- term savings plan Remuneration for other items Total 2021 Total 2020 Total cash remuneration Gross profit on consolidated shares or financial instruments Contributions to the long- term savings plan Remuneration for other items Total 2021 Total 2020 Ms Ana Botín-Sanz de Sautuola y O’Shea 7,533 3,233 1,041 481 12,288 8,090 — — — — — — Mr José Antonio Álvarez Álvarez 5,941 2,180 783 824 9,728 6,877 — — — — — — Mr Bruce Carnegie- Brown 700 — — — 700 595 — — — — — — Ms Homaira Akbari 248 — — — 248 202 213 — — — 213 184 Mr Francisco Javier Botín-Sanz de Sautuola y O’Shea 129 — — — 129 122 — — — — — — Mr Álvaro Antonio Cardoso de Souza 183 — — — 183 243 334 — — — 334 335 Mr Ramón Martín Chávez Márquez 374 — — — 374 37 52 — — — 52 17 Ms Sol Daurella Comadrán 239 — — — 239 214 — — — — — — Mr Henrique Manuel Drummond Borges Cirne de Castro 267 — — — 267 217 52 — — — 52 17 Ms Gina Díez Barroso 130 — — — 130 4 — — — — — 14 Mr Luis Isasi Fernández de Bobadilla 1,406 — — — 1,406 943 — — — — — — Mr Ramiro Mato García-Ansorena 499 — — — 499 430 — — — — — — Mr Sergio Rial 879 — — — 879 63 4,001 2,009 1,153 7 7,170 6,558 Ms Belén Romana García 533 — — — 533 417 — — — — — — Mrs Pamela Ann Walkden 303 — — — 303 214 36 — — — 36 — Mr Rodrigo Echenique Gordillo 292 152 — — 444 2,595 — — — — — — Mr Ignacio Benjumea Cabeza de Vaca — — — — — 275 — — — — — — Mr Guillermo de la Dehesa Romero — — — — — 108 — — — — — — Ms Esther Giménez- Salinas i Colomer — — — — — 191 — — — — — — Total 19,656 5,565 1,824 1,305 28,350 21,837 4,688 2,009 1,153 7 7,857 7,125 Comments (Not included in the electronic submission to the CNMV) 1. Includes deferred amounts from the 2017 deferred and conditional variable remuneration plan subject to long term metrics for Ana Botín, José Antonio Álvarez and Rodrigo Echenique. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 317 C.2 Indicate the evolution in the last five years of the amount and percentage variation of the remuneration accrued by each of the directors of the listed company who have held this position during the year, the consolidated results  the company and the average remuneration on an equivalent basis with regard to full-time employees of the company and its subsidiaries that are not directors of the listed company. Directors' remuneration (EUR Thousand) 2021 % var. 21/20 2020 % var. 20/19 2019 % var. 19/18 2018 % var. 18/17 2017 • Executive Directors Ana Botín-Sanz de Sautuola y O’Shea 12,288 52% 8,090 (19)% 9,954 (10)% 11,011 4% 10,582 José Antonio Álvarez Álvarez 9,728 41% 6,877 (17)% 8,270 (8)% 9,001 1% 8,893 Sergio Rial 8,049 22% 6,621 — — — — — — • External Directors1 Bruce Carnegie-Brown 700 18% 595 (15)% 700 (4)% 732 — 731 Francisco Javier Botín-Sanz de Sautuola y O’Shea 129 6% 122 (11)% 137 13% 121 (2)% 124 Sol Daurella Comadrán 239 12% 214 (11)% 240 12% 215 4% 207 Belén Romana García 533 28% 417 (21)% 525 27% 414 39% 297 Homaira Akbari 461 19% 386 71% 226 14% 199 25% 159 Ramiro Mato García-Ansorena 499 16% 430 (14)% 500 11% 450 — 36 Álvaro Cardoso de Souza 517 (11)% 578 (14)% 673 355% 148 — — Henrique Manuel Drummond Borges Cirne de Castro 319 36% 234 172% 86 — — — — Pamela Ann Walkden 339 59% 214 529% 34 — — — — Luis Isasi Fernández de Bobadilla 1,406 49% 943 — — — — — — Ramón Martín Chávez Márquez 426 689% 54 — — — — — — Gina Díez Barroso 130 622% 18 — — — — — — Company’s performance Underlying profit attributable to the Group (EUR mn) 8,654 70% 5,081 (38)% 8,252 2% 8,064 7% 7,516 Consolidated results of the Group2 (EUR mn) 14,547 — (2,076) —% 12,543 (12)% 14,201 17% 12,091 Ordinary RoTE 12.73% 71% 7.44% (37)% 11.79% (2)% 12.08% 2% 11.82% Employees' average remuneration3 (EUR) 55,673 18% 47,130 (12)% 53,832 2% 52,941 (5)% 55,484 1.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. 2.Group operating profit/(loss) before tax. 3.Employee average remuneration includes all concepts, including other remuneration. Full-time equivalent data. The percentage of variable remuneration over fixed remuneration in an average employee is lower than that of the executive directors. Variable remuneration data accrued in the current year. Evolutive data impacted by exchange rate performance in the group's geographies. (Notes not included in the electronic submission to the CNMV) This annual report on remuneration has been approved by the board of directors of the company, at its meeting on 24 February 2022. State if any directors have voted against or abstained from approving this report. Yes o No þ Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 318 #### [THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY] Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 319 # Economic and financial review Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 320 [1. Economic, regulatory and competitive context](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_394) [322](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_394) [2. Group selected data](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_397) [325](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_397) [3. Group financial performance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_400) [327](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_400) [3.1 Situation of Santander](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_403) [327](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_403) [3.2 Results](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_406) [329](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_406) [3.3 Balance sheet](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_409) [342](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_409) [3.4 Liquidity and funding management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_412) [346](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_412) [3.5 Capital management and adequacy. Solvency ratios](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_415) [353](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_415) [3.6 Special Situations and Resolution](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10388) [365](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_10388) [4. Financial information by segments](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_418) [368](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_418) [4.1 Description of segments](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_421) [368](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_421) [4.2 Summary of the Group's main business areas' income statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_424) [370](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_424) [4.3 Primary segments](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_427) [372](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_427) [4.4 Corporate Centre](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_478) [390](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_478) [4.5 Secondary segments](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_481) [392](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_481) [4.6 Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9385) [401](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9385) [5. Research, development and innovation (R&D&I)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_496) [410](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_496) [6. Significant events since year end](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_499) [412](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_499) [7. Trend information 202](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_502)2 [413](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_502) [8. Alternative performance measures (APM)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_505) [421](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_505) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 321 1. Economic, regulatory and competitive context In 2021, Santander operated in an environment marked by (i) fiscal and monetary policies implemented to counter the adverse effects of the covid-19 pandemic; (ii) the ongoing recovery from the pandemic, which has been inconsistent across countries and sectors; (iii) new covid-19 variants and significant outbreaks; and (iv) an upturn in inflation in the second half of the year, which reached a three-decade high in mature markets. Inflationary pressures have intensified as a result of a number of factors, including the renewed demand for consumer goods; labour shortages; tensions in the supply chains of microchips and other key items;  transportation issues; and increases in energy, certain raw materials and food prices. Under these circumstances, withdrawal of the expansionary fiscal and monetary policies implemented in response to the covid-19 pandemic began, especially in the last quarter of 2021, particularly in countries that experienced the heaviest pressure on prices. Economic performance by geography was as follows: •Eurozone (GDP: 5.2% estimated in 2021). GDP growth was driven by the lifting of lockdown measures and expansionary monetary and fiscal policies. The ECB kept interest rates stable despite the 5.1% rise in inflation in January 2022. However, at the monetary policy meeting held in February, the ECB showed more concern and was less positive regarding the outlook for inflation. In December 2021, the ECB had announced a reduction in its asset purchases starting in spring 2022. •Spain (GDP: 5.0% in 2021). Economic recovery continued in 2021, a trend which is expected to return GCP to pre-pandemic levels in 2022. The labour market improved at a faster rate, with employment exceeding pre-pandemic levels. Inflation reached 6.7% in December, largely due to energy prices. •United Kingdom (GDP: 7.5% in 2021).  Strong economic growth offset the severe decline in 2020. Tensions in the labour market, particularly in some sectors, posed a greater risk for higher inflation (which exceeded 5% and is one of the main reasons behind the Bank of England's interest rate hike from 0.1% to 0.25% at the end of the year) to take hold. •Portugal (GDP: 4.9% in 2021). Economic recovery continued. The labour market recovered quickly (unemployment at 6.5%) and inflation jumped to 2.7% in December. The socialist party won the country's parliamentary elections held in January 2022 with an absolute majority, providing stability for the next 4 years. •Poland (GDP: 5.7% in 2021). The economy was remarkably buoyant despite a relatively moderate decline in 2020. Inflation ended the year at 8.6%, leading the central bank to raise the official interest rate to 2.25%. •United States (GDP: 5.7% in 2021). Fiscal impulses and the reopening of the economy favoured a vigorous economic recovery which was somewhat dampened by supply-side problems from summer onwards. Supply chain and labour constraints pushed inflation to 7.0%. Unemployment falling to 3.9% in November drove the Federal Reserve (Fed) to start withdrawing monetary stimulus. •Mexico (GDP: 4.8% preliminary in 2021).  Strong GDP growth, partially reversing the decline in 2020. Inflation picked up considerably (7.4%). Banco de México raised its official benchmark from a low of 4.0% in the first half of 2021 to 5.5% at the end of the year. •Brazil (GDP: 4.6% estimated in 2021). Outstanding economic recovery, especially since the drop in 2020 was lower than in the region as a whole. However, growth stalled as the year progressed due to the withdrawal of the 2020 fiscal stimulus and, in particular, to the inflation upturn (10.1% in December) and the consequent official interest rate hike, from 2% to 9.25% by the end of 2021, and an additional hike in January 2022 to 10.75%. •Chile (GDP: 12.0% estimated in 2021). Sharp GDP growth stemmed from exceptional fiscal and monetary measures. Inflation rebounded to 7.2%. Banco Central de Chile raised the official interest rate from 0.5% to 4% by the end of 2021, with a further increase to 5.5% in January 2022. •Argentina (GDP: 10.0% estimated in 2021). Strong recovery after recording one of the region's largest declines in 2020, driven by the reopening of service sector activities and fiscal stimulus. Inflation remained high at monthly rates of around 3%. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 322 The exchange rates of our main currencies against the euro in 2021 and 2020 were: Exchange rates: 1 euro/currency parity Average Period-end 2021 2020 2021 2020 US dollar 1.182 1.140 1.133 1.227 Pound sterling 0.859 0.889 0.840 0.898 Brazilian real 6.372 5.814 6.319 6.373 Mexican peso 23.980 24.364 23.152 24.438 Chilean peso 897.123 902.072 964.502 871.819 Argentine peso 112.383 79.555 116.302 103.159 Polish zloty 4.564 4.441 4.597 4.559 In mature markets, vaccination campaigns' favourable impact on the recovery of international travel acted as a support lever for equities, (especially in the US, where there was a strong fiscal impulse in addition to monetary stimulus). Spain, however, lagged behind other European countries and its stock market has not yet recovered pre- covid levels. Inflationary pressures built up by rising commodity prices and by global supply chain bottlenecks due to a post-covid demand spike (especially for goods) pushed up bond yields in early 2021. Inflation is proving a more persistent problem than initially expected and central banks have started to withdraw monetary stimulus. Long- term debt yields remained subdued, as the withdrawal of stimulus is perceived as a risk to medium-term growth and there is still some uncertainty about the pandemic caused by new variants. German bund yields remained negative. The US dollar appreciated against the euro, boosted by the growth differential benefitting the US and expectations that the Fed will be ahead of the ECB in normalizing monetary policy. Latin American countries' assets struggled amid heightened uncertainty stemming from rising inflation and tightening financial conditions, stimulus withdrawal in the US, the economic risk of new covid-19 variants, and some political tensions. Uncertainty was reflected in the fact that central bank interest rate hikes did not lead to currency appreciation in the countries. The international banking environment is entering a phase of normalization and banks are gradually returning to their traditional business. In general, as support measures helped cushion the blow of the pandemic in the private sector, loan portfolios deteriorated less initially forecasted. This, together with economic recovery, is enabling banks to lower provisions, which improved profitability relative to 2020. We estimate that this, together with stronger solvency in 2021, will leave the banking industry in a strong position to face a potential economic slowdown, based on the stress tests carried out by the main central banks. Even so, global inflationary pressures and the consequent tightening of monetary policy in most economies pose management challenges for banks in the short term, particularly in developing markets with high indebtedness. The challenges faced by the banking industry (considered more medium-term) have gained momentum in recent years and require institutions to act swiftly. The digital transformation accelerated during the pandemic, pushing entities to offer the best digital customer experience in the wake of a surge in new competitors. The climate transition also requires a significant effort as institutions must develop new portfolio classification models to understand each entity's exposure to the transitional and physical risks that companies and households will face due to climate change in the coming years. This will be reflected in the first climate change stress exercises that the main central banks will conduct in 2022. Regulatory environment As in 2020, sustainability and digitalization took centre stage in a regulatory landscape once again influenced by the covid-19 pandemic, with debates on key prudential topics, in view of the need to ensure banks' ability to help keep the economy afloat during times of crisis. Prominent actions came in three areas: •Prudential: the European Commission published its proposal to implement the Basel III reform, which aims to reduce excessive variability of risk-weighted assets and favour comparability among banks. •Sustainability: Europe continued to lead the way in talks on sustainability. Of note was the adoption of the Taxonomy Regulation that sets the criteria for classifying economic activities as environmentally sustainable. It also dictates the information that financial and non-financial companies will have to disclose about the environmental impact of their activities. Furthermore, the green asset ratio (GAR) is of utmost importance to the banking industry as it will show the percentage of exposures aligned with the EU Taxonomy. •Digitalization: because covid-19 has sped up digitalization, the authorities are keen to regulate platforms and risks associated with new, private currencies that could enter into wide circulation (e.g. stablecoins). Central banks continue to explore the possibility of issuing digital currencies. A significant marker in the age of the digital economy is the deal struck by the OECD to ensure that all multinational enterprises pay tax wherever they earn profits, regardless of physical presence. For more details, see  [note 1.e](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_712) to the consolidated financial statements. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 323 Summary of Santander and public policy Santander has always been highly supportive of robust, high-quality regulation that supports bank strength and solvency, underpins robust consumer protection and market stability standards, and creates transparency on risk and resilience for investors and supervisors. We are committed to engaging constructively and transparently with public policy makers and regulators on the aims, design and implementation of banking rules and policy frameworks that impact our banks' or our customers' interests. All our public policy engagements are oriented to providing decision-makers, mainly through official consultations, with valuable insights and data of the banking industry with transparency and integrity. 1 Capital and bank resilience We believe that the reforms of the last decade have made financial institutions more robust in terms of capital. However, the covid-19 crisis which began in 2019 has raised some issues regarding the functioning of the regulatory framework that need to be carefully assessed. Additionally, the EU still has work to do to build the foundations of a true banking union. We continue to advocate for: •An approach to continue working on the implementation of Basel III standards that does not materially increase new post-crisis capital requirements and takes into account the demands of digitalization, the green transformation and the post-covid recovery. •Careful reflection on how aspects of the framework established after the 2009 crisis worked in the covid-19 context, for example, the capital buffers, as well as supervisory decisions taken during the crisis such as restrictions on dividend payouts. •Banking regulation needs to recognize some of the realities of banks with a global footprint, such as the recognition of the Multiple Point of Entry resolution framework. •A common deposit insurance scheme for EU banks that breaks the bank/sovereign loop. 2 Sustainability and sustainable finance We believe that decarbonization is a first order social and environmental challenge in which banks have an important role to play and are fully committed to the objectives. We continue to advocate for: •A fair transition; in which the costs and impacts of change are anticipated and addressed proactively. •International coordination on key policy frameworks to the greatest extent possible, especially on green taxonomies, climate disclosures and climate-risk stress testing. •Robust, credible and comparable ESG data availability as a key enabler to make informed decisions and particularly to direct financial flows towards net zero emissions economies. •A supervisory approach to climate-related risks in banking that avoids front-loading requirements faster than wider regulatory reforms are consolidated. 3 The digital landscape We believe digital transformation is a force for innovation and customer choice in banking. Banks have to be able to compete under fair terms with any player providing financial services. We continue to advocate for: •Ex ante competition rules that address the way in which gatekeepers could engage with business users and consumers. For example, in order to ensure fair access to data and critical infrastructure. •A level playing field based on the principle of "same rules, same risks, same regulation and same supervision" to ensure that, when technology firms take on banking or payments activities and risks, they are regulated the same as banks or incumbent payments providers. •An open finance regime in the EU and elsewhere in which consumers and users are given true power over all their relevant data, not just that held by banks, whose data is already open. •A technology-neutral approach to regulation which allows banks to use technology (e.g.  cloud, artificial intelligence) under the same conditions as technology companies and other competitors. •The direct supervision of technology providers such as cloud computing services that provide critical infrastructure to the financial services sector. •Discussions on Central Bank Digital Currencies should take into consideration the role the financial system plays in financing the economy. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 324 2. Group selected data BALANCE SHEET (EUR million) 2021 2020 %  2021 vs 2020 2019 Total assets 1,595,835 1,508,250 5.8 1,522,695 Loans and advances to customers 972,682 916,199 6.2 942,218 Customer deposits 918,344 849,310 8.1 824,365 Total funds A 1,153,656 1,056,127 9.2 1,050,765 Total equity 97,053 91,322 6.3 110,659 INCOME STATEMENT (EUR million) 2021 2020 % 2021 vs 2020 B 2019 Net interest income 33,370 31,994 4.3 35,283 Total income 46,404 44,279 4.8 49,229 Net operating income 24,989 23,149 7.9 25,949 Profit before tax 14,547 (2,076) — 12,543 Profit attributable to the parent 8,124 (8,771) — 6,515 EPS, PROFITABILITY AND EFFICIENCY (%) 2021 2020 %  2021 vs 2020 2019 EPS (euro) C 0.438 (0.538) — 0.347 RoE 9.66 (9.80) 6.62 RoTE 11.96 1.95 11.44 RoA 0.62 (0.50) 0.54 RoRWA 1.69 (1.33) 1.33 Efficiency ratio D 46.2 47.0 47.0 UNDERLYING INCOME STATEMENT D (EUR million) 2021 2020 %  2021 vs 2020 E 2019 Net interest income 33,370 31,994 4.3 35,283 Total income 46,404 44,600 4.0 49,494 Net operating income 24,989 23,633 5.7 26,214 Profit before tax 15,260 9,674 57.7 14,929 Profit attributable to the parent 8,654 5,081 70.3 8,252 UNDERLYING EPS AND PROFITABILITY D (%) 2021 2020 %  2021 vs 2020 2019 Underlying EPS (euro) C 0.468 0.262 79.1 0.449 Underlying RoE 10.29 5.68 8.38 Underlying RoTE 12.73 7.44 11.79 Underlying RoA 0.65 0.40 0.65 Underlying RoRWA 1.78 1.06 1.61 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 325 SOLVENCY (%) 2021 2020 2019 Fully-loaded CET1 ratio 12.12 11.89 11.41 Fully-loaded total capital ratio 16.41 15.73 14.78 CREDIT QUALITY (%) 2021 2020 2019 Cost of credit 0.77 1.28 1.00 NPL ratio 3.16 3.21 3.32 Coverage ratio 71 76 68 THE SHARE, MARKET CAPITALIZATION AND DIVIDEND 2021 2020 % 2021 vs 2020 2019 Number of shareholders 3,936,922 4,018,817 (2.0) 3,986,093 Shares (millions) 17,341 17,341 0.0 16,618 Share price (euro) C 2.941 2.538 15.9 3.575 Market capitalization (EUR million) 50,990 44,011 15.9 61,986 Tangible book value per share (euro) C 4.12 3.79 4.18 Price / Tangible book value per share (X) 0.71 0.67 0.86 CUSTOMERS (thousands) 2021 2020 % 2021 vs 2020 2019 Total customers 152,862 148,256 3.1 144,795 Loyal customers F 25,448 22,838 11.4 21,556 Loyal retail customers 23,311 20,901 11.5 19,762 Loyal SME & corporate customers 2,137 1,938 10.3 1,794 Digital customers G 47,443 42,362 12.0 36,817 Digital sales / Total sales (%) 54 44 36 OPERATING DATA 2021 2020 % 2021 vs 2020 2019 Number of employees 197,070 191,189 3.1 196,419 Number of branches 9,879 11,236 (12.1) 11,952 A. Includes customer deposits, mutual funds, pension funds and managed portfolios. B. In constant euros: Net interest income: +7.1%; Total income: +7.7%; Net operating income: +12.0%; Profit before tax: -/+;  Attributable profit: -/+ C. 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 business which are grouped in the ‘net capital gains and provisions’ line and are further detailed at the end of section [3.2 'Results'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_406) and in section [8 'Alternative Performance Measures'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_505) – of this chapter. E. In constant euros: Net interest income: +7.1%; Total income: +6.9%; Net operating income: +9.4%; Profit before tax: +64.5%; Attributable profit: +77.8%. F. 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. G. Every physical or legal person, that, being part of a commercial bank, has logged into its personal area of internet banking or mobile phone or both in the last 30 days. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 326 3. Group financial performance Santander follows IFRS to report its results (see [note 1.b](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_703) to the consolidated financial statements). While the results generally guide the overview of our financial situation in this consolidated directors’ report, we also use non-IFRS measures and Alternative Performance Measures (APMs) to assess our performance (see section [8](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_505) ['Alternative Performance Measures'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_505) of this chapter). Thus, the 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 course of business that are grouped in the net capital gains and provisions line, and are further detailed at the end of section [3.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_406) ['Results'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_406) of this chapter. We also present underlying results by business area in section [4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_418) ['Financial information by segment'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_418)  in accordance with IFRS 8 and reconcile them in aggregate terms to our IFRS consolidated results in [note 51.c](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_976) to the consolidated financial statements. •Local currency measures: we use certain non-IFRS financial indicators in local currency to assess the ongoing operating performance of our business. They include the results from our subsidiary banks outside the eurozone (excluding the exchange rate impact). Because changes in exchange rates have a non- operating impact on results, we believe evaluating performance in local currency provides management and investors an additional and meaningful assessment of performance. Section [8 'Alternative](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_505) [Performance Measures'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_505) 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 match the total figure given for that column or row. 3.1 Situation of Santander Santander is one of the largest banks in the eurozone. At the end of 2021, we had EUR 1,595,835 million in assets, EUR 1,153,656 million in total funds and a market capitalization of EUR 50,990 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, supporting economic growth in an inclusive and sustainable way. We engage in all types of typical banking activities, operations and services. Our track record, business model and strategic execution drive our aim to be the best open digital financial services platform, by acting responsibly and earning the lasting loyalty of our stakeholders (customers, shareholders, people and communities). In 2021, with the global economy and society still feeling the effects of the covid-19 pandemic, we continued to play an active role in economic recovery and continued to support our 153 million customers and society. Our priority for our 197,070 employees is to keep them safe and healthy in line with local government recommendations and based on three pillars:  (i) development and implementation of health and safety protocols; (ii) remote working where necessary; and (iii) track and tracing (diagnostic tests, health apps and even vaccination centres in our corporate buildings for employees and the general public). We are living in an increasingly digital world, and the covid-19 pandemic has spurred this transformation. As such, more than ever, our aim is to continue to offer our customers digital products and services that will meet their needs and support them in their digital learning. However, Santander continues to invest in ensuring access to financial services for our customers who are not digitally savvy, so that no one is left behind. We interact with our customers through several channels. We have 9,879 branches and in recent years, have worked and invested to ensure our branches satisfy our customers' needs. We have universal branches and specialist centres for certain customer segments, such as businesses and universities. We are also promoting new collaborative spaces with excellent digital capabilities (e.g. Work Café, SmartBank and Ágil branches). Additionally, our contact centres, which provide best-in-class service quality, continue to serve our customers. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 327 In addition, and in order to achieve greater penetration, we have also signed agreements with other companies and organizations, such as Correos and MAPFRE in Spain, which allowed us to increase our physical points of service by more than 7,000. Through this process, while we enhance our branches, we are continuously investing in our digital capabilities and technological infrastructure to optimize our product and service proposition, reducing our cost to serve while remaining among the top banks in customer satisfaction in almost all our core markets. As a result, the number of digital and loyal customers as well as digital activity continued to increase. We have more than 25 million loyal customers (+11% year-on-year), and have grown in both individuals and companies. Digital customers rose 12% in the year, exceeding 47 million. Similarly, digital sales accounted for 54% of total sales (44% in 2020 and 36% in 2019). The world is also increasingly aware of the different environmental, social and corporate governance factors (most commonly known as ESG). We focus on delivering profitable growth responsibly and creating value for our 3.9 million shareholders. For more details, see the ['Responsible banking'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) chapter. Our strategic priorities are essential to increasing our core businesses' profitability by offering simple, fair and innovative products. Our strategy is based on three strategic initiatives: One Santander, Digital Consumer Bank and PagoNxt: •One Santander: a global project encompassing the three regions where we operate, that aims to sustainably create a bank that is better for our customers and more profitable and efficient for our shareholders. It consists of enhanced customer service, an omni- channel strategy and a common operating model in each region, enabling us to market simpler products. •Digital Consumer Bank is the leading European bank in consumer finance, created on the back of Santander Consumer Finance's (SCF) scale and leadership position in the consumer business in Europe and the business and technology of Openbank's digital platform. Its objectives include simplifying the legal and operating structure, redefining the business platform (auto, consumer and retail) to strengthen our leadership positions or grow faster with a fully- digital approach and maintaining high profitability and efficiency. •PagoNxt is our legally and operationally independent global payments platform. It aims to bring together all of Santander's most innovative payments assets under one roof. Its strategy is to continue to expand our global platforms; consolidate our retail leadership positions with Getnet; deploy One Trade's international payments services; implementing the instant functionality of Payments Hub in various markets; and continue to gradually migrate our global payments services and financial inclusion platform (Superdigital) in Latin America. Santander also has two transversal global businesses: Santander Corporate and Investment Banking (SCIB) and Wealth Management and Insurance (WM&I), that add value to our local businesses. SCIB integrates global corporate banking businesses for large companies and financial institutions that require tailor-made services and value-added wholesale products adapted to their complexity and sophistication. It is a highly profitable business that has delivered sustainable returns throughout the cycle. Its long-term strategy is to become our clients' strategic advisor of choice. Its priorities are expanding the content and products it offers to further transform us into our clients' strategic advisors to make strategic decisions and transform their businesses according to today’s demands for sustainability and digitalization. In addition, we aim to improve our position in the markets where we operate. WM&I comprises our asset management, private banking and insurance businesses. It is very capital efficient, with significant growth potential and high returns. Our aim remains to become the best responsible wealth and protection manager in Europe and Latin America. That's why we continue to innovate and enhance our product proposition (especially in terms of ESG products). We are also increasing our sales through digital channels. These strategic priorities, coupled with the pillars of our business model (scale, geographical presence and business diversification) will provide numerous opportunities for growth and greater profitability, while we continue to act responsibly and earn the trust of our stakeholders while generating more value for our shareholders. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 328 3.2 Results #### Executive summary Profit (2021 vs 2020) Performance (2021 vs 2020). In constant euros Strong profit growth across regions and businesses Strong underlying profit performance backed by total income, cost control and lower provisions Attributable profit Underlying attrib. profit Total income Costs Provisions EUR 8,124 mn EUR 8,654 mn -EUR 8,771 mn in 2020 EUR 5,081 mn in 2020 +6.9% +4.1% -37.1% Efficiency Profitability The Group's efficiency ratio strengthened, mainly driven by Europe Higher profitability compared to 2020 Group Europe RoTE Underlying RoTE RoRWA Underlying RoRWA 46.2% 51.0% 12.0% 12.7% 1.69% 1.78% -0.8 pp vs 2020 -5.4 pp vs 2020 +10.0 pp +5.3 pp +3.0 pp +0.7 pp Changes vs 2020 Condensed income statement EUR million Change 2021 2020 Absolute % % excl. FX 2019 Net interest income 33,370 31,994 1,376 4.3 7.1 35,283 Net fee income (commission income minus commission expense) 10,502 10,015 487 4.9 8.1 11,779 Gains or losses on financial assets and liabilities and exchange differences (net) 1,563 2,187 (624) (28.5) (26.5) 1,531 Dividend income 513 391 122 31.2 31.5 533 Income from companies accounted for using the equity method 432 (96) 528 — — 324 Other operating income / expenses 24 (212) 236 — — (221) Total income 46,404 44,279 2,125 4.8 7.7 49,229 Operating expenses (21,415) (21,130) (285) 1.3 3.1 (23,280) Administrative expenses (18,659) (18,320) (339) 1.9 3.6 (20,279) Staff costs (11,216) (10,783) (433) 4.0 5.8 (12,141) Other general administrative expenses (7,443) (7,537) 94 (1.2) 0.5 (8,138) Depreciation and amortization (2,756) (2,810) 54 (1.9) (0.3) (3,001) Provisions or reversal of provisions (2,814) (2,378) (436) 18.3 22.9 (3,490) Impairment or reversal of impairment of financial assets not measured at fair value through profit or loss (net) (7,407) (12,382) 4,975 (40.2) (38.4) (9,352) Impairment of other assets (net) (231) (10,416) 10,185 (97.8) (97.8) (1,623) Gain or losses on non-financial assets and investments (net) 53 114 (61) (53.5) (53.0) 1,291 Negative goodwill recognized in results — 8 (8) (100.0) (100.0) — Gains or losses on non-current assets held for sale not classified as discontinued operations (43) (171) 128 (74.9) (75.2) (232) Profit or loss before tax from continuing operations 14,547 (2,076) 16,623 — — 12,543 Tax expense or income from continuing operations (4,894) (5,632) 738 (13.1) (10.8) (4,427) Profit from the period from continuing operations 9,653 (7,708) 17,361 — — 8,116 Profit or loss after tax from discontinued operations — — — — — — Profit for the period 9,653 (7,708) 17,361 — — 8,116 Profit attributable to non-controlling interests (1,529) (1,063) (466) 43.8 47.7 (1,601) Profit attributable to the parent 8,124 (8,771) 16,895 — — 6,515 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 329 Main income statement items Total income Total income amounted to EUR 46,404 million in 2021, up 5% year- on-year. If the exchange rate impact is excluded, total income increased 8%, with growth in all regions and main country units, except Mexico, highlighting 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 33,370 million, 4% higher than in 2020. The tables below show the average balances for each year, calculated as the monthly average over the period (which we believe should not differ materially from using daily balances), and generated interest. They also include the average balances and average interest rates in 2021 and 2020, 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), and are divided into mature markets (Europe, except Spain and Poland, and the US) and developing markets (South America, Mexico and Poland). Average balance sheet - assets and interest income EUR million 2021 2020 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 272,567 2,682 0.98% 223,096 2,232 1.00% Domestic 113,703 809 0.71% 97,511 650 0.67% International - Mature markets 111,358 542 0.49% 79,703 512 0.64% International - Developing markets 47,506 1,331 2.80% 45,882 1,070 2.33% of which Reverse repurchase agreements 38,236 707 1.85% 44,989 483 1.07% Domestic 23,390 29 0.12% 31,050 47 0.15% International - Mature markets 5,101 15 0.29% 4,791 49 1.02% International - Developing markets 9,745 663 6.80% 9,148 387 4.23% Loans and advances to customers 943,071 38,649 4.10% 930,563 38,788 4.17% Domestic 254,232 4,799 1.89% 251,536 4,913 1.95% International - Mature markets 513,910 16,090 3.13% 509,016 17,136 3.37% International - Developing markets 174,929 17,760 10.15% 170,011 16,739 9.85% of which Reverse repurchase agreements 36,660 60 0.16% 46,207 105 0.23% Domestic 9,521 7 0.07% 10,691 5 0.05% International - Mature markets 25,622 18 0.07% 34,295 65 0.19% International - Developing markets 1,517 35 2.31% 1,221 35 2.87% Debt securities 168,834 5,724 3.39% 172,940 5,022 2.90% Domestic 42,740 313 0.73% 46,390 341 0.74% International - Mature markets 40,579 446 1.10% 49,667 619 1.25% International - Developing markets 85,515 4,965 5.81% 76,883 4,062 5.28% Hedging income (723) (343) Domestic 20 21 International - Mature markets (91) (116) International - Developing markets (652) (248) Other interest 131 42 Domestic (29) 10 International - Mature markets 13 21 International - Developing markets 147 11 Total interest-earning assets 1,384,472 46,463 3.36% 1,326,599 45,741 3.45% Domestic 410,675 5,912 1.44% 395,437 5,935 1.50% International - Mature markets 665,847 17,000 2.55% 638,386 18,172 2.85% International - Developing markets 307,950 23,551 7.65% 292,776 21,634 7.39% Other assets 179,427 210,953 Assets from discontinued operations — — Average total assets 1,563,899 46,463 1,537,552 45,741 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 330 The average balance of interest-earning assets in 2021 was 4% higher than in 2020. Domestic and mature markets grew 4% (mainly in cash and demand deposits and in loans and advances to central banks and credit institutions) and developing markets increased 5% owing to volume growth in local currency in all country units. The average return on interest-earning assets decreased from 3.45% in 2020 to 3.36% in 2021, with decreases in domestic (-6 bps) and mature international markets (-30 bps) while developing international markets increased 26 bps. By balance sheet item, cash, demand deposits and loans and advances to central banks and credit institutions fell 2 bps; and loans and advances to customers -7 bps, primarily driven by interest rates even lower than 2020. Debt securities rose 49 bps supported by developing markets. The average balance of interest-bearing liabilities in 2021 was 4% higher year-on-year, also spurred by overall growth in the three markets (domestic: +6%; mature international: +2%; and developing international: +4%), boosted by customer deposits and deposits from central banks and credit institutions. The average cost of interest-bearing liabilities fell 9 bps to 0.98% owing to the domestic (-8 bps) and mature international (-33 bps) markets while developing international markets were up 44 bps. By balance sheet item, there were reductions in central banks and credit institutions deposits (-27 bps); customer deposits (-6 bps); and marketable debt securities (-1 bp). The change in interest income/(expense) shown in the table below was calculated as follows: •To obtain the change in volumes we apply the interest rate of the previous period to the difference between the average balances from the current and previous periods. •To obtain the change in interest rate we apply the difference between the rates from the current and previous periods to the average balance from the previous year. Interest income grew in the year driven by higher volumes, as interest rates had a negative impact. Interest expense dropped due to lower interest rates. As a result, net interest income increased 4% favoured by both volumes and the interest rate effect, as shown in the table below summarizing the performance of net interest income by market. Excluding the exchange rate impact, growth was 7%. This 7% increase in constant euros was due to higher credit and deposit volumes and the lower cost of deposits, partially offset by lower revenue due to even lower average interest rates in most of our markets. By country, and at constant exchange rates, net interest income in the UK increased 22% due to the liability cost management and greater volumes (mainly in mortgages), +13% in Brazil due to higher volumes, +10% in Chile on the back of its margin and inflation management, +4% in Poland due to the pick up in interest rates in recent months, while in Spain there was a slight increase (+1%), because of its spread management. In the US, net interest income decreased slightly, affected by disposals (Puerto Rico and the Bluestem portfolio). Excluding the impact of these disposals, net interest income would have increased 5%. In Mexico, we saw a 2% decrease due to lower average interest rates and ALCO portfolio sales in 2020 and there were also declines in Portugal, driven by lower interest rates in 2021. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 331 Average balance sheet - liabilities and interest expense EUR million 2021 2020 Liabilities and stockholders’ equity Average balance Interest Average rate Average balance Interest Average rate Deposits from central banks and credit institutions A 197,997 1,750 0.88% 187,128 2,147 1.15% Domestic 97,257 376 0.39% 90,747 394 0.43% International - Mature markets 61,999 227 0.37% 61,877 445 0.72% International - Developing markets 38,741 1,147 2.96% 34,504 1,308 3.79% of which Repurchase agreements 28,763 703 2.44% 34,160 759 2.22% Domestic 12,316 18 0.15% 13,765 30 0.22% International - Mature markets 1,252 8 0.64% 6,377 29 0.45% International - Developing markets 15,195 677 4.46% 14,018 700 4.99% Customer deposits 889,041 5,452 0.61% 837,397 5,599 0.67% Domestic 287,525 282 0.10% 269,979 332 0.12% International - Mature markets 410,695 706 0.17% 385,956 1,662 0.43% International - Developing markets 190,821 4,464 2.34% 181,462 3,605 1.99% of which Repurchase agreements 41,475 520 1.25% 38,641 432 1.12% Domestic 7,918 — 0.00% 4,116 1 0.02% International - Mature markets 19,311 6 0.03% 18,063 44 0.24% International - Developing markets 14,246 514 3.61% 16,462 387 2.35% Marketable debt securities B 234,887 4,838 2.06% 247,284 5,119 2.07% Domestic 104,602 1,538 1.47% 99,466 1,539 1.55% International - Mature markets 102,330 1,670 1.63% 116,411 2,395 2.06% International - Developing markets 27,955 1,630 5.83% 31,407 1,185 3.77% of which Commercial paper 17,794 135 0.76% 19,825 276 1.39% Domestic 12,247 22 0.18% 13,813 87 0.63% International - Mature markets 4,582 59 1.29% 4,729 134 2.83% International - Developing markets 965 54 5.60% 1,283 55 4.29% Other interest-bearing liabilities 7,944 216 2.72% 10,650 281 2.64% Domestic 4,146 70 1.69% 6,331 117 1.85% International - Mature markets 1,948 30 1.54% 2,245 28 1.25% International - Developing markets 1,850 116 6.27% 2,074 136 6.56% Hedging expenses (368) (294) Domestic (153) (37) International - Mature markets (147) (205) International - Developing markets (68) (52) Other interest 1,205 895 Domestic 306 313 International - Mature markets 109 95 International - Developing markets 790 487 Total interest-bearing liabilities 1,329,869 13,093 0.98% 1,282,459 13,747 1.07% Domestic 493,530 2,419 0.49% 466,523 2,658 0.57% International - Mature markets 576,972 2,595 0.45% 566,489 4,420 0.78% International - Developing markets 259,367 8,079 3.11% 249,447 6,669 2.67% Other liabilities 139,757 155,714 Non-controlling interests 10,140 9,920 Shareholders' equity 84,133 89,459 Liabilities from discontinued operations — — Average total liabilities and equity 1,563,899 13,093 1,537,552 13,747 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 at the European Central Bank. B.  Does not include contingently convertible preference shares and perpetual subordinated notes because they do not accrue interest. We include them under 'Other liabilities'. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 332 Volume and profitability analysis EUR million 2021 vs. 2020 Increase (decrease) due to changes in Interest income Volume Rate Net change Cash and deposits on demand and loans and advances to central banks and credit institutions 325 125 450 Domestic 113 46 159 International - Mature markets 173 (143) 30 International - Developing markets 39 222 261 of which Reverse repurchase agreements 20 204 224 Domestic (10) (8) (18) International - Mature markets 3 (37) (34) International - Developing markets 27 249 276 Loans and advances to customers 706 (845) (139) Domestic 52 (166) (114) International - Mature markets 163 (1,209) (1,046) International - Developing markets 491 530 1,021 of which Reverse repurchase agreements (6) (39) (45) Domestic (1) 3 2 International - Mature markets (13) (34) (47) International - Developing markets 8 (8) — Debt securities 348 354 702 Domestic (27) (1) (28) International - Mature markets (105) (68) (173) International - Developing markets 480 423 903 Hedging income (380) — (380) Domestic (1) — (1) International - Mature markets 25 — 25 International - Developing markets (404) — (404) Other interest 89 — 89 Domestic (39) — (39) International - Mature markets (8) — (8) International - Developing markets 136 — 136 Total interest-earning assets 1,088 (366) 722 Domestic 98 (121) (23) International - Mature markets 248 (1,420) (1,172) International - Developing markets 742 1,175 1,917 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 333 Volume and cost analysis EUR million 2021 vs. 2020 Increase (decrease) due to changes in Interest expense Volume Rate Net change Deposits from central banks and credit institutions 176 (573) (397) Domestic 27 (45) (18) International - Mature markets 1 (219) (218) International - Developing markets 148 (309) (161) of which Repurchase agreements 23 (79) (56) Domestic (3) (9) (12) International - Mature markets (30) 9 (21) International - Developing markets 56 (79) (23) Customer deposits 314 (461) (147) Domestic 21 (71) (50) International - Mature markets 100 (1,056) (956) International - Developing markets 193 666 859 of which Repurchase agreements (55) 143 88 Domestic — (1) (1) International - Mature markets 3 (41) (38) International - Developing markets (58) 185 127 Marketable debt securities (333) 52 (281) Domestic 77 (78) (1) International - Mature markets (268) (457) (725) International - Developing markets (142) 587 445 of which Commercial paper (28) (113) (141) Domestic (9) (56) (65) International - Mature markets (4) (71) (75) International - Developing markets (15) 14 (1) Other interest-bearing liabilities (56) (9) (65) Domestic (38) (9) (47) International - Mature markets (4) 6 2 International - Developing markets (14) (6) (20) Hedging expenses (74) — (74) Domestic (116) — (116) International - Mature markets 58 — 58 International - Developing markets (16) — (16) Other interest 310 — 310 Domestic (7) — (7) International - Mature markets 14 — 14 International - Developing markets 303 — 303 Total interest-bearing liabilities 337 (991) (654) Domestic (36) (203) (239) International - Mature markets (99) (1,726) (1,825) International - Developing markets 472 938 1,410 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 334 Net interest income. Volume, profitability and cost analysis summary EUR million 2021 vs. 2020 Increase (decrease) due to changes in Volume Rate Net change Interest income 1,088 (366) 722 Domestic 98 (121) (23) International - Mature markets 248 (1,420) (1,172) International - Developing markets 742 1,175 1,917 Interest expense 337 (991) (654) Domestic (36) (203) (239) International - Mature markets (99) (1,726) (1,825) International - Developing markets 472 938 1,410 Net interest income 751 625 1,376 Domestic 134 82 216 International - Mature markets 347 306 653 International - Developing markets 270 237 507 Net interest income EUR million +4% A 2021 vs 2020 A. Excluding exchange rate impact: +7%. Net fee income EUR million +5% A 2021 vs 2020 A. Excluding exchange rate impact: +8%. Net fee income EUR million Change 2021 2020 Absolute % % excl. FX 2019 Asset management business, funds and insurance 3,649 3,416 232 6.8 9.3 3,815 Credit and debit cards 1,782 1,737 45 2.6 6.8 2,242 Securities and custody services 1,035 951 84 8.9 12.6 931 Account management and availability fees 1,850 1,649 201 12.2 16.0 1,675 Cheques and payment orders 642 594 48 8.1 12.3 633 Foreign exchange 522 500 22 4.4 8.9 612 Charges for past-due/unpaid balances and guarantees 266 295 (29) (9.9) (6.8) 522 Bill discounting 199 253 (54) (21.3) (14.5) 316 Other 557 620 (63) (10.1) (8.5) 1,033 Net fee income 10,502 10,015 487 4.9 8.1 11,779 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 335 Net fee income Santander's net fee income increased 5% compared to 2020, reaching EUR 10,502 million. Excluding the exchange rate impact, it was 8% higher, showing recovery quarter after quarter from the second quarter lows in 2020, driven by the rebound in activity. Broad-based increases, notably fees relating to card turnover and points of sale (+26% and +38%, respectively). Fees from our asset management and insurance business as well as SCIB increased at double digits, demonstrating the strength of fees from value-added products and services. Specifically, Santander Corporate & Investment Banking increased 16% on the back of the strong growth in markets and investment banking results. Wealth Management & Insurance grew 12% including fees ceded to the branch network. Together, both businesses accounted for close to 50% of the Group’s total (SCIB: 17%; WM&I: 32%). By region, fees in Europe were up 9%, supported by growth in all countries except the UK (mainly due to regulatory changes in April 2020 that affect overdrafts). In North America, they decreased 1%, impacted by the disposals in the US; without them, growth in the region and the US would have been 6%, the same as in Mexico. Net fee income in South America was up 13% driven by all countries. Gains or losses on financial assets and liabilities and exchange differences (net) Gains or losses on financial assets and liabilities and exchange differences (net) accounted for 3% of total income. They were 29% lower than the previous year at EUR 1,563 million (-27% excluding the exchange rate impact) mainly due to decreases in Spain (-29%), Mexico (-47%), Brazil (-12%), Chile (-25%) and the Corporate Centre. This was due to the positive impact from FX hedging, portfolio sales and higher market volatility in 2020. Gains and losses on financial assets and liabilities stem from valuing trading portfolio and marked-to-market derivative instruments, which include spot market foreign exchange transactions, sales of investment securities and liquidation of our hedging and other derivative positions. For more details, see [note 43](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_925) to the consolidated financial statements. Exchange rate differences primarily show gains and losses from foreign exchange and the differences that arise from converting 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 Santander manages currency exposures with derivative instruments, the changes in this line item should be analysed together with Gains/(losses) on financial assets and liabilities. For more details, see [note 44](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_928) to the consolidated financial statements. Dividend income Dividend income was EUR 513 million, 31% higher than in 2020 (+32% excluding the exchange rate effect), recovering some income that was affected by the decrease, delay or cancellation of dividend payments due to the pandemic (especially in Europe). Income from companies accounted for by the equity method The income from companies accounted for by the equity method climbed to EUR 432 million in 2021 (in contrast to -EUR 96 million in 2020) owing to the higher contribution from the Group's associated entities. Other operating income/expenses Other operating income/expenses recorded a gain of EUR 24 million compared to a loss of EUR 212 million in 2020 due to higher results obtained in insurance and leasing. In 2021, contributions made to the Single Resolution Fund (SRF) in the second quarter and to the Deposit Guarantee Fund (DGF) in the fourth remained stable. For more details, see [note 45](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_931) to the consolidated financial statements. Operating expenses EUR million Change 2021 2020 Absolute % % excl. FX 2019 Staff costs 11,216 10,783 433 4.0 5.8 12,141 Other administrative expenses 7,443 7,537 (94) (1.2) 0.5 8,138 Information technology 2,182 2,075 107 5.2 4.9 2,161 Communications 401 473 (72) (15.2) (12.2) 518 Advertising 510 517 (7) (1.4) (1.2) 685 Buildings and premises 699 725 (26) (3.6) (3.1) 859 Printed and office material 90 100 (10) (10.0) 0.0 116 Taxes (other than tax on profits) 558 534 24 4.5 3.6 522 Other expenses 3,003 2,980 23 0.8 0.7 3,277 Administrative expenses 18,659 18,320 339 1.9 3.6 20,279 Depreciation and amortization 2,756 2,810 (54) (1.9) (0.3) 3,001 Operating expenses 21,415 21,130 285 1.3 3.1 23,280 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 336 Operating expenses Operating expenses increased 1% from 2020 to EUR 21,415 million. Excluding the exchange rate impact, costs rose 3% due to the general increase in inflation in 2021 and investments in technological and digital developments, including PagoNxt. However, in real terms (excluding the impact of inflation), however, costs fell 2%. With an efficiency ratio of 46.2% - a 0.8 pp improvement on 2020 and 2019 (mainly driven by Europe) - we remained one of the most efficient global banks in the world. We continue to make structural changes to reduce costs while improving customer satisfaction. Some businesses are migrating to regional platforms and simplifying products and services. Efficiency ratio (cost to income) % -0.8 pp 2021 vs 2020 The trends by region and market in constant euros were as follows: •In Europe, costs were down 0.2% in nominal terms, -3% in real terms (excluding average inflation), as we continued with our cost reduction plan. In real terms, costs in Spain were down 11%,  -4% in the UK and -6% in Portugal while costs in Poland increased 3% due to greater personnel costs. As a result, the region's efficiency ratio stood at 51.0%, a year-on-year decrease of 5.4 pp. •In North America, costs increased 8%. In real terms, there was a net increase of 3% due to investments in digitalization, the 3% rise in the US and the 2% decrease in Mexico. The efficiency ratio was 45.2%. •Soaring inflation in Argentina significantly distorted costs in South America (+8%). In real terms, costs declined by 5% in the region: Brazil, -8%, Chile, 0% and Argentina, -5%. The efficiency ratio in South America was 35.0%, a 1 pp decline compared to 2020. •Lastly, Digital Consumer Bank's costs were 3% higher mainly due to perimeter effects and digital transformation investments. In real terms, they were flat and efficiency was stable at 45.0%. Provisions or reversal of provisions Provisions (net of provisions reversals) amounted to EUR 2,814 million (EUR 2,378 million in 2020). They include the charges for restructuring costs and charges related to Swiss franc mortgages in Poland and Digital Consumer Bank (EUR 319 million in 2021). For more details, see [note 25](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_841) 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 7,407 million (EUR 12,382 million in 2020), a 40% decrease year-on-year in euros and -38% in constant euros. This decrease was mainly due to the elevated level of additional loan-loss provisions recognized in 2020 based on the IFRS 9 forward- looking view as well as the collective and individual assessments to reflect expected credit losses arising from covid-19. In 2021, approximately EUR 750 million of those provisions were released. For more details, see section [3 'Credit risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_544) in the 'Risk management and compliance' chapter. Impairment of other assets (net) The impairment of other assets (net) stood at -EUR 231 million, compared to -EUR 10,416 million in 2020 due a -EUR 10,100 million adjustment to the valuation of goodwill. Gains or losses on non-financial assets and investments (net) Net gains on non-financial assets and investments were EUR 53 million in 2021 (EUR 114 million in 2020). For more details, see [note 48](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_961) 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 2021 2020 2019 Financial assets at fair value through other comprehensive income 19 19 12 Financial assets at amortized cost 7,388 12,363 9,340 Impairment or reversal of impairment of financial assets not measured at fair value through profit or loss and net gains and losses from changes 7,407 12,382 9,352 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 337 Impairment on other assets (net) EUR million 2021 2020 2019 Impairment of investments in subsidiaries, joint ventures and associates, net — — — Impairment on non-financial assets, net 231 10,416 1,623 Tangible assets 150 174 45 Intangible assets 71 10,242 1,564 Others 10 — 14 Impairment on other assets (net) 231 10,416 1,623 Negative goodwill recognized in results No negative goodwill was recorded in 2021 (EUR 8 million in 2020). Gains or losses on non-current assets held for sale not classified as discontinued operations This item mainly includes impairment of foreclosed assets recorded and the sale of properties acquired upon foreclosure. It totalled -EUR 43 million in 2021 (-EUR 171 million in 2020). Profit or loss before tax from continuing operations Profit before tax was EUR 14,547 million in 2021, compared to -EUR 2,076 million in 2020 (affected by the adjustment in the valuation of goodwill). The results in 2021 were supported by higher income and lower provisions. Tax expense or income from continuing operations Total income tax was EUR 4,894 million (EUR 5,632 million in 2020, which included the -EUR 2,500 million valuation adjustment to deferred tax assets). Profit attributable to the parent EUR million -/+ 2021 vs 2020 Profit attributable to non-controlling interests Profit attributable to non-controlling interests increased 44% year- on-year (+48% excluding the exchange rate impact) to EUR 1,529 million, due to profit growth in countries with the highest minority interest (mainly the US). For more details, see [note 28](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_871) to the consolidated financial statements. Profit attributable to the parent Profit attributable to the parent amounted to EUR 8,124 million in 2021 (-EUR 8,771 million in  2020). RoTE stood at 11.96% (1.95% in 2020), RoRWA at 1.69% (-1.33% in 2020) and earnings per share at EUR 0.438 (-EUR 0.538 in 2020), all three showing an improvement on 2019 as well. RoTE % Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 338 Earnings per share A EUR -/+ 2021 vs 2020 A.2019 data adjusted for the capital increase in December 2020. RoRWA % Below is the condensed income statement adjusted to items beyond the ordinary course of business (included under the net capital gains and provisions line) as described in [note 51.c](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_976) of the consolidated financial statements, where our segments' aggregate underlying consolidated results are reconciled to the statutory consolidated results. Condensed underlying income statement EUR million Change 2021 2020 Absolute % % excl. FX 2019 Net interest income 33,370 31,994 1,376 4.3 7.1 35,283 Net fee income 10,502 10,015 487 4.9 8.1 11,779 Gains (losses) on financial transactions and exchange differences 1,563 2,187 (624) (28.5) (26.5) 1,531 Other operating income 969 404 565 139.9 142.0 901 Total income 46,404 44,600 1,804 4.0 6.9 49,494 Administrative expenses and amortizations (21,415) (20,967) (448) 2.1 4.1 (23,280) Net operating income 24,989 23,633 1,356 5.7 9.4 26,214 Net loan-loss provisions (7,436) (12,173) 4,737 (38.9) (37.1) (9,321) Other gains (losses) and provisions (2,293) (1,786) (507) 28.4 30.7 (1,964) Profit before tax 15,260 9,674 5,586 57.7 64.5 14,929 Tax on profit (5,076) (3,516) (1,560) 44.4 51.2 (5,103) Profit from continuing operations 10,184 6,158 4,026 65.4 72.1 9,826 Net profit from discontinued operations — — — — — — Consolidated profit 10,184 6,158 4,026 65.4 72.1 9,826 Non-controlling interests (1,530) (1,077) (453) 42.1 45.9 (1,574) Net capital gains and provisions (530) (13,852) 13,322 (96.2) (96.2) (1,737) Profit attributable to the parent 8,124 (8,771) 16,895 — — 6,515 Underlying profit attributable to the parent A 8,654 5,081 3,573 70.3 77.8 8,252 A.Excluding net capital gains and provisions. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 339 Underlying profit attributable to the parent Profit attributable to the parent in 2021 and 2020 was affected by the following results that are outside the ordinary course of business and distort the year-on-year comparison: •In 2021, -EUR 530 million for restructuring costs, fully recorded in Q1'21, mainly in the UK and Portugal. •In 2020, -EUR 13,852 million from the valuation adjustment of goodwill ascribed to various Group entities in the amount of -EUR 10,100 million, the valuation adjustment to deferred tax assets of the Spanish consolidated fiscal group (-EUR 2,500 million) and - EUR 1,252 million in restructuring costs (mainly in Spain and the UK). For more details, see [note 51.c](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_976) to the consolidated financial statements. Net loan-loss provisions EUR million -39% A 2021 vs 2020 A. Excluding exchange rate impact: -37%. Underlying profit attributable to the parentA EUR million +70% B 2021 vs 2020 A. Excluding net capital gains and provisions. B. Excluding exchange rate impact: +78%. Excluding these results from the income statement lines where they are recorded, and incorporating them separately in the net capital gains and provisions line, the adjusted or underlying profit attributable to the parent was EUR 8,654 million in 2021 (greater than the EUR 5,081 million 2020 and EUR 8,252 million in 2019). The Group’s cost of credit was 0.77%, a significant improvement compared to 2020 and 2019 (1.28% and 1.00%, respectively). This performance was better than expected in light of the lower provisions in most of our markets in the year, particularly in the US, the UK, Digital Consumer Bank and Chile, together with the release of provisions recognized in 2020 at the end of 2021. Cost of credit % -0.51 pp 2021 vs 2020 Underlying earnings per shareA B EUR +79% 2021 vs 2020 A. Excluding net capital gains and provisions. B. 2019 data adjusted for the capital increase in December 2020. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 340 Before recording loan-loss provisions, Santander's net operating income1 (i.e. total income less operating expenses) was EUR 24,989 million, 6% higher year-on-year, +9% excluding the FX impact, as follows: By line: •Total income increased mainly due to net interest income (+7%) and net fee income (+8%) which continued to rebound. •Higher inflation drove costs up. In real terms, they were down (except in Poland and the US). Underlying RoTEA % A. Excluding net capital gains and provisions. By region: •In Europe, net operating income increased 24% with better performance in all markets. •In North America, net operating income fell 4%. It increased 1% in the US and was down by 9% in Mexico. Excluding the aforementioned disposals, net operating income was 11% higher in the US and +2% the region. •In South America, we grew 13% with increases of 14% in Brazil, 10% in Chile and 34% in Argentina. •In Digital Consumer Bank, net operating income increased by 3%. In 2021, the Santander’s underlying RoTE was 12.73% (7.44% in 2020), underlying RoRWA was 1.78% (1.06% in 2020) and underlying earnings per share was EUR 0.468 (EUR 0.262 in 2020), all three showing an improvement on 2019 as well. Underlying RoRWAA % A.  Excluding net capital gains and provisions. 1.As described in [note 51.c](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_976) of the consolidated financial statements, net operating income is used for the Group’s internal operating and management reporting purposes but is not a line item in the statutory consolidated income statement. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 341 3.3 Balance sheet Balance sheet EUR million Change Assets 2021 2020 Absolute % 2019 Cash, cash balances at central banks and other deposits on demand 210,689 153,839 56,850 37.0 101,067 Financial assets held for trading 116,953 114,945 2,008 1.7 108,230 Non-trading financial assets mandatorily at fair value through profit or loss 5,536 4,486 1,050 23.4 4,911 Financial assets designated at fair value through profit or loss 15,957 48,717 (32,760) (67.2) 62,069 Financial assets at fair value through other comprehensive income 108,038 120,953 (12,915) (10.7) 125,708 Financial assets at amortized cost 1,037,898 958,378 79,520 8.3 995,482 Hedging derivatives 4,761 8,325 (3,564) (42.8) 7,216 Changes in the fair value of hedged items in portfolio hedges of interest risk 410 1,980 (1,570) (79.3) 1,702 Investments 7,525 7,622 (97) (1.3) 8,772 Assets under insurance or reinsurance contracts 283 261 22 8.4 292 Tangible assets 33,321 32,735 586 1.8 35,235 Intangible assets 16,584 15,908 676 4.2 27,687 Tax assets 25,196 24,586 610 2.5 29,585 Other assets 8,595 11,070 (2,475) (22.4) 10,138 Non-current assets held for sale 4,089 4,445 (356) (8.0) 4,601 Total assets 1,595,835 1,508,250 87,585 5.8 1,522,695 Liabilities and equity Financial liabilities held for trading 79,469 81,167 (1,698) (2.1) 77,139 Financial liabilities designated at fair value through profit or loss 32,733 48,038 (15,305) (31.9) 60,995 Financial liabilities at amortized cost 1,349,169 1,248,188 100,981 8.1 1,230,745 Hedging derivatives 5,463 6,869 (1,406) (20.5) 6,048 Changes in the fair value of hedged items in portfolio hedges of interest rate risk 248 286 (38) (13.3) 269 Liabilities under insurance or reinsurance contracts 770 910 (140) (15.4) 739 Provisions 9,583 10,852 (1,269) (11.7) 13,987 Tax liabilities 8,649 8,282 367 4.4 9,322 Other liabilities 12,698 12,336 362 2.9 12,792 Liabilities associated with non-current assets held for sale — — — — — Total liabilities 1,498,782 1,416,928 81,854 5.8 1,412,036 Shareholders' equity 119,649 114,620 5,029 4.4 124,239 Other comprehensive income (32,719) (33,144) 425 (1.3) (24,168) Non-controlling interest 10,123 9,846 277 2.8 10,588 Total equity 97,053 91,322 5,731 6.3 110,659 Total liabilities and equity 1,595,835 1,508,250 87,585 5.8 1,522,695 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 342 #### Executive summary A Loans and advances to customers (excl. reverse repos) Customer funds (deposits excl. repos + mutual funds) High liquidity in the system drove credit normalization following the uptick at the beginning of the pandemic Strong increase in customer funds benefiting from the higher propensity to save amid the health crisis #### EUR 962 billion +4% #### EUR 1,070 billion +7% è  By segment: è  By product: Growth backed by individuals and large corporates Of note were demand deposits (which account for 67% of customer funds) and mutual funds Individuals SMEs and corporates CIB and institutions Demand Time Mutual funds +5% -2% +9% +9% -5% +13% A. 2021 vs 2020 changes in constant euros Loans and advances to customers totalled EUR 972,682 million in December 2021, up 6% compared to December 2020. Santander uses gross loans excluding reverse repurchase agreements (EUR 962,382 million) to analyse traditional retail banking loans. To better assess management, 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 4%. In particular: •Europe: in Poland, they increased 6% driven by record mortgage loan sales, SMEs and SCIB. In Portugal, they rose 3%, due to mortgages and corporates (mainly SMEs). In the UK, they grew slightly (+0.5%), driven by residential mortgages, but they remained flat in Spain, with growth in individuals and institutions. In 'Other Europe', they  increased 25% owing mainly to SCIB. Overall regional growth was 3%. Loans and advances to customers EUR million Change 2021 2020 Absolute % 2019 Commercial bills 49,603 37,459 12,144 32.4 37,753 Secured loans 542,404 503,014 39,390 7.8 513,929 Other term loans 269,526 269,143 383 0.1 267,154 Finance leases 38,503 36,251 2,252 6.2 35,788 Receivable on demand 10,304 7,903 2,401 30.4 7,714 Credit cards receivable 20,397 19,507 890 4.6 23,876 Impaired assets 31,645 30,815 830 2.7 32,543 Gross loans and advances to customers (excl. reverse repos) 962,382 904,092 58,290 6.4 918,757 Reverse repos 33,264 35,702 (2,438) (6.8) 45,703 Gross loans and advances to customers 995,646 939,794 55,852 5.9 964,460 Loan-loss allowances 22,964 23,595 (631) (2.7) 22,242 Net loans and advances to customers 972,682 916,199 56,483 6.2 942,218 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 343 Gross loans and advances to customers (excluding reverse repos) EUR billion +6% A 2021 vs 2020 A. Excluding exchange rate impact: +4%. •In North America, growth was 3% (+4% excluding the impact of Bluestem portfolio disposal). In the US, they grew 2% (+3% excluding disposal) propelled by auto financing. In Mexico, they were up 8% with widespread rises across segments (except SMEs). •Growth in South America was 12%. In Argentina, lending increased 40% driven by individuals, SMEs and corporates. In Brazil, it climbed 13% owing to positive performance in all segments. In Chile, it was up 6% due to mortgages and SCIB. In Uruguay, it rose 14% backed by individuals. •Digital Consumer Bank (DCB) declined 1%, as it continued to feel the effects of the covid-19 pandemic. However, new lending rose 10%. Performance across countries was mixed, with growth recorded in France and the UK. Openbank increased 48%. By segment, gross loans and advances to customers excluding reverse repos maintained a balanced structure: individuals (63%), SMEs and corporates (22%) and SCIB and institutions (15%). Gross loans and advances to customers (excluding reverse repos) % of operating areas. December 2021 By the end of 2021, 40% of loans and advances to customers maturing in more than a year had floating interest rates, while the other 60% were fixed-rate: •In Spain, 52% of loans and advances to customers had floating rates and 48% were fixed-rate. •Elsewhere, 37% of loans and advances to customers had floating rates and 63% were fixed-rate. For more details on the distribution of loans and advances to customers by business line, see [note 10.b](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_793) to the consolidated financial statements. Tangible assets amounted to EUR 33,321 million in December 2021, up EUR 586 million compared to December 2020 and largely driven by the recorded rise in property, plant and equipment leased under operating leases. Intangible assets stood at EUR 16,584 million, of which EUR 12,713 million corresponds to goodwill (which increased EUR 242 million in the year) and EUR 3,871 million to other intangible assets, mostly IT developments (up EUR 434 million). Loans and advances to customers with maturities exceeding one year at 2021 year end EUR million Domestic International TOTAL Amount Weight as % of the total Amount Weight as % of the total Amount Weight as % of the total Fixed 80,934 48% 341,226 63% 422,160 60% Variable 87,940 52% 198,115 37% 286,055 40% TOTAL 168,874 100% 539,341 100% 708,215 100% Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 344 Total customer funds EUR million Change 2021 2020 Absolute % 2019 Demand deposits 717,728 642,897 74,831 11.6 588,533 Time deposits 164,259 171,939 (7,680) (4.5) 196,921 Mutual funds A 188,096 164,802 23,294 14.1 180,405 Customer funds 1,070,083 979,638 90,445 9.2 965,859 Pension funds A 16,078 15,577 501 3.2 15,878 Managed portfolios A 31,138 26,438 4,700 17.8 30,117 Repos 36,357 34,474 1,883 5.5 38,911 Total funds 1,153,656 1,056,127 97,529 9.2 1,050,765 A. Including managed and marketed funds. In terms of liabilities, customer deposits grew 8% year-on-year to EUR 918,344 million in December 2021. Santander uses customer funds (customer deposits including mutual funds but excluding repos) to analyse traditional retail banking funds, which stood at EUR 1,070,083 million. Customer funds, excluding the effect of exchange rate movements, rose 7% in 2021 as follows: •By product, customer deposits excluding repos were up 6%. Demand deposits grew 9% with rises in all markets, and time deposits fell 5%, as declines in Europe and North America more than offset growth in the main South American markets. Mutual funds surged 13% underpinned by net inflows and market recovery. Customer funds (excluding repos) EUR billion +9% A +14% +8% ■Total ■Mutual fundsB ■Deposits excl. repos 2021 vs 2020 A. Excluding exchange rate impact: +7%. B. Including managed and marketed funds. •Customer funds increased in all regions and most countries. Of note was the 9% jump in South America (Argentina: +52%; Uruguay: +15%; Chile: +11%; Brazil: +4%), and the 9% increase in North America (the US: +10%). Growth in Europe was 6% (Poland: +10%; Portugal and Spain: +8%; the UK was flat). •Positive performance also in DCB, which rose 10%. Openbank grew 24%. As a result, the weight of demand deposits as a percentage of total customer funds was 67%, while time deposits accounted for 15% of the total and mutual funds 18%. In addition to capturing customer deposits, the Group, for strategic reasons, maintains a selective policy on issuing securities in international fixed income markets. We strive to adapt the frequency and volume of market operations to each unit's structural liquidity needs and to the receptiveness of each market. For more details on debt issuances and maturities, see section [3.4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_412) ['Liquidity and funding management'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_412). Customer funds (excluding repos) % of operating areas. December 2021 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 345 3.4 Liquidity and funding management #### Executive Summary Regulatory ratios Debt issuances in 2021 The LCR and NSFR ratios amply exceed regulatory requirements (both 100%) We issued EUR 52 bn of debt in 2021, diversified by product, currency, country and maturity #### EUR 29 bn Medium- and long-term debt #### EUR 23 bn Securitizations Comfortable and stable funding structure High contribution of deposit funding 106% LTD ratio Liquidity management in Santander Our structural liquidity management aims to optimize maturities and costs, and to avoid undesired liquidity risks in funding 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 and subsidiary level compliance with regulatory liquidity requirements, as a new factor conditioning management. To apply these principles effectively across the Group, we developed a unique management framework based on three fundamental pillars: •Tight organization and governance that involve subsidiaries’ senior managers in decision-making and integrate them into our global strategy. Decisions about 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 empowered by the board of directors under the corporate Asset and Liability Management (ALM) framework. This enhanced governance model is included within our risk appetite framework, which meets regulators and market’s 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 decisions and control to ensure liquidity levels cover short- and long-term needs with stable funding sources, as well as minimize the impact of their cost on earnings. Each geographic area has a conservative risk appetite framework, (based in its commercial strategy) which sets out the liquidity risk management framework. Subsidiaries must work within the framework limits to achieve their strategic objectives. •Liquidity management adapted to the needs of each business. We develop a liquidity plan every year to achieve: –a solid balance sheet structure, with a diversified footprint in wholesale markets; –stable liquidity buffers and limited asset encumbrance; and –compliance with regulatory and other metrics included in each entity’s risk appetite statement. We monitor all of the plan's dimensions throughout the year. Santander continues to carry out the Internal Liquidity Adequacy Assessment Process (ILAAP). It is integrated into our other risk management and strategic processes to measure liquidity in ordinary and stressed scenarios. The quantitative and qualitative items we consider are also inputs for the Supervisory Review and Evaluation Process (SREP). Once a year, we must submit to supervisors a board-approved ILAAP assessment that shows our funding and liquidity structures will remain solid in all scenarios and our internal processes will ensure sufficient liquidity (based on analyses that each subsidiary conducts according to our local liquidity management model). Our governance structure is robust and 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 346 We produce 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, Santander and each subsidiary have developed a comprehensive special situations management framework that centralizes our governance for such scenarios. It contains contingency funding plans, that are integrated within our governance model, with feasible, pre-assessed actions that follow a defined timeline; are categorized and prioritized; and provide for sufficient liquidity and execution time to mitigate stress scenarios. Funding strategy and liquidity in 2021 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 our solid retail banking model to maintain sound 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 2021, we improved specific aspects, without significant changes in liquidity management or funding policies and practices. This will enable us to face 2022 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. These developments have strengthened Santander's funding structure: •Customer deposits are our main source of funding. They are highly stable because they mainly arise from retail customer activity. At the end of December 2021, they represented just over two-thirds of net liabilities (i.e. of the liquidity balance sheet) and nearly 95% of loans and advances to customers. Their weight (as a percentage of loans and advances to customers) grew compared to end 2020. For more details, see the ‘Liquidity in 2021' section. Group's liquidity balance sheet %. December 2021 ■ Financial  assets ■ Fixed assets & other ■ Loans and advances to customers ■ ST funding ■ Equity and  other ■ M/LT debt issuance ■ Securitizations and others ■ Customer deposits •M/LT funding accounted for nearly 17% of net liabilities at the end of 2021, similar to 2020. It amply covers the retail funding gap (i.e. loans and advances to customers not funded by customer deposits). The outstanding balance of M/LT debt issued in the market (to third parties) at the end of 2021 was EUR 173,652 million. Our maturity profile is comfortable and well balanced by instruments and markets with a weighted average maturity of 4.8 years (similar to the average maturity of 4.7 years at the end of 2020). These tables show our funding by instrument over the last three years and by maturity profile: Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 347 Group. Medium- and long-term debt issuances A EUR million 2021 2020 2019 Preferred 10,238 8,925 9,411 Subordinated 16,953 13,831 12,640 Senior debt 104,553 95,208 107,166 Covered bonds 41,908 49,388 50,847 Total 173,652 167,351 180,064 A. Placed in markets. Does not include securitizations, agribusiness notes and real estate credit notes. Group. Distribution by contractual maturity. December 2021 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 — 49 — — — — — 10,189 10,238 Subordinated — — — 129 — 652 6,128 10,044 16,953 Senior debt 3,033 3,734 2,918 1,097 4,169 18,222 42,792 28,586 104,553 Covered bonds 104 1,695 2,087 1,850 1,090 3,380 15,280 16,421 41,908 Total 3,137 5,478 5,006 3,076 5,260 22,255 64,200 65,240 173,652 A. If an issuance has a put option in favour of the holder, its maturity is considered (not the contractual maturity). Note: There are no additional guarantees for any of the debt issued by the Group’s subsidiaries. The lower weight of covered bonds in recent years in favour of other instruments is mainly due to the gradual construction of the MREL and TLAC requirements, as instruments with loss-absorbing capacity cannot have additional guarantees. Additionally,  loan portfolios that are currently being used as collateral in central bank funding cannot be reused to issue secured instruments to the market. In addition to the M/LT wholesale debt issuances, we have securitizations placed in the market as well as collateralized and other specialist funding totalling EUR 48,286 million (which includes EUR 6,935 million in debt instruments placed with private banking clients in Brazil). The average maturity is around 1.6 years. This chart shows the similarity of the geographic breakdown of our loans and advances to customers and M/LT wholesale funding across our footprint. This distribution is almost identical to 2020 both in loans and advances and M/LT wholesale funding. Loans and advances to customers and M/LT wholesale funding %. December 2021 Europe North America South America DCB Wholesale funding from short-term issuance programmes is a residual part of Santander’s funding structure, which is related to treasury activities and comfortably covered by liquid assets. The outstanding short-term wholesale funding balance at the end of 2021 was EUR 27,296 million. 50% was in European Commercial Paper, US Commercial Paper and domestic programmes issued by Banco Santander, S.A.; 22% in certificates of deposit and commercial paper programmes in the UK; 19% in Santander Consumer Finance (SCF) commercial paper programmes; and 9% in issuance programmes in other country units. Liquidity in 2021 The key liquidity takeaways in 2021 are: •Basic liquidity ratios remain at comfortable levels. •Regulatory ratios were well above minimum requirements. •Our use of encumbered assets in funding operations was moderate. In 2021, the transition back to business as usual began, after a 2020 marked by the frenetic activity of governments, regulators and central banks following the World Health Organization’s declaration of covid-19 as an epidemic and subsequently a pandemic. At the end of 2021, central banks (albeit at different rates) began to withdraw or think about how to withdraw some of the stimulus measures (especially those relating to injecting liquidity into the system), put in place during the most acute phase of the crisis, without causing second-round effects. With markets fully open in 2021, we regularly monitored our liquidity position in the special situations committees and the meetings held by the Group’s executive committee and board of directors. We also supplied information to the ECB at the regular monitoring meetings held by the Group during the supervisory dialogue process. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 348 Our liquidity position has remained solid at all times. Moreover, the commercial activity in the year (discussed below), contributed liquidity in the year. i. Basic liquidity ratios at comfortable levels At the end of 2021, Santander recorded: •A stable credit to net assets ratio (i.e. total assets minus trading derivatives and inter-bank balances) of 75%. Such a 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 106%, a very comfortable level (well below 120%) and down from the 108% in 2020. Lending grew moderately in constant euros in almost all our markets (except consumer businesses which were affected by the semiconductor and supply chain problems). However, deposit growth more than compensated the increase in lending. •A customer deposits plus M/LT funding to net loans and advances ratio of 117% (similar to last year). •Limited recourse to short-term wholesale funding (just over 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 from fixed assets and loans had an average balance of EUR 207,233 million in the year. Our consolidated structural surplus stood at EUR 208,540 million. Fixed-income assets (EUR 149,057 million), equities (EUR 20,357 million) and net interbank deposits (EUR 60,423 million) were partly offset by short-term wholesale funding (-EUR 27,296 million). This totalled around 16% of our net liabilities (slightly up from the end of 2020). This table shows Santander’s basic liquidity monitoring metrics in recent years: Group’s liquidity monitoring metrics % 2021 2020 2019 Loans A / Net assets 75% 76% 77% Loans A to deposit ratio (LTD) 106% 108% 114% Customer deposits and medium and long term funding / Loans A 117% 116% 113% Short term wholesale funding / Net liabilities 2% 2% 3% Structural liquidity surplus (% of net liabilities) 16% 15% 13% A. Loans and advances to customers. The table below shows the principal liquidity ratios of our main country units as at the end of 2021: Main country units’ liquidity metrics %. December 2021 LTD ratio Deposits + M/ LT funding / Loans A Spain 74% 149% United Kingdom 108% 107% Portugal 93% 115% Poland 79% 130% United States 125% 111% Mexico 87% 126% Brazil 98% 118% Chile 128% 100% Argentina 56% 178% Digital Consumer Bank 206% 77% Group 106% 117% A. Loans and advances to customers In 2021, the key drivers of Santander's and our subsidiaries' liquidity (excluding the exchange rate impact) were: •Recovery in lending, except for Digital Consumer Bank (DCB), which remained stable, affected by the semiconductor crisis and supply chain problems which slowed production of cars and consumer goods. There was also generalized growth in customer deposits. As a result, the retail funding gap provided liquidity in the year. •Issuances continued at a similar rate to the previous year and, overall, were in line with our funding plan for the year. By region, North America and DCB issued less than planned given business performance, while South America was more active in capital markets. In 2021, Santander issued EUR 51,954 million in M/LT funding (at year-average exchange rates). By instrument, the stock of M/LT fixed income debt (i.e. covered bonds, senior debt, subordinated debt and capital hybrid instruments) decreased by around 5% to EUR 29,030 million at the end of the year. The greater activity in senior, both preferred and TLAC eligible bonds, and in hybrids was not enough to offset low covered bond issuances. Securitizations and structured finance totalled EUR 22,924 million in 2021, a 35% increase year-on-year. By country unit, Spain and Brazil issued the most M/LT fixed income debt (not including securitizations), followed by the UK. In the year, the greatest absolute increases were recorded in by our units in Spain and Brazil. The main year-on-year decreases occurred in the UK and SCF. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 349 SCF and SC USA were the main issuers of securitizations. The charts below provide show issuances by instrument and region: Distribution by instrument and region %. December 2021 Covered bonds issued in 2021 accounted for 1% of total issuances, well below the 14% in 2020. Only Santander Brasil issued covered bonds in 2021. The main issuers in previous years, Spain and the UK, issued no covered bonds in 2021, for the reasons stated above (regarding central bank collateral). Senior debt accounted for 45% of total issuances, compared to 42% in 2020. The weight of TLAC eligible senior debt compared to senior preferred debt was lower than in 2020. In 2021, the Group issued EUR 16,574 million in subordinated instruments, including EUR 11,282 million in senior non-preferred debt from Banco Santander, S.A. and senior preferred from the holding in the UK; EUR 2,698 million in subordinated debt; and EUR 2,593 million in AT1 eligible hybrid instruments issued by the parent bank. In summary, we retained comfortable access to all our markets. In 2021, we issued and securitized debt in 17 currencies, involving 20 major issuers from 14 countries and an average maturity of 4.5 years (slightly lower than 4.8 years in 2020). ii. Compliance with regulatory ratios Within the liquidity management model, over the last few years Santander has been managing the implementation, monitoring and compliance with the liquidity requirements established under international financial regulations ahead of schedule. Liquidity Coverage Ratio (LCR) As the regulatory LCR requirement has been at the maximum level of 100% since 2019, we have set a risk appetite of 110% for the Group and subsidiaries. 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 2021 was 163%, well above the regulatory requirement. The table below shows that all our subsidiaries substantially exceeded the required minimum in 2021 and the comparison versus 2020. 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 2021 December 2020 Parent bank 151% 175% United Kingdom 168% 152% Portugal 138% 122% Poland 197% 187% United States 150% 129% Mexico 184% 207% Brazil 141% 167% Chile 148% 155% Argentina 258% 222% Santander Consumer Finance 319% 314% Group 163% 168% NSFR (Net Stable Funding Ratio) The final definition of the net stable funding ratio (NSFR) was approved by the Basel Committee in October 2014 and 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 the quotient of available stable funding (ASF) and required stable funding (RSF). ASF comprises sources of funding (i.e. capital and other liabilities) considered stable over one year. RSF primarily refers to any asset deemed illiquid over one year, thus needing to be matched with stable sources of funding. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 350 In 2021, we defined a risk appetite limit of 101.5% both at the consolidated and subsidiary level. The 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 help maintain our balanced liquidity structure as reflected in our consolidated and subsidiary NSFRs above 100% in December 2021. The table below provides details by main subsidiary as well as a comparison with 2020. Santander UK’s figures only include activities that the Financial Services and Markets Act 2000 leaves within the Ring-Fenced Bank. Additionally, note that 2020 figures were calculated under the Basel methodology while 2021 calculations incorporate requirements as transposed to European law. Net Stable Funding Ratio % December 2021 December 2020 Parent bank 118% 116% United Kingdom 138% 129% Portugal 124% 123% Poland 156% 150% United States 128% 120% Mexico 134% 132% Brazil 116% 119% Chile 124% 120% Argentina 180% 174% Santander Consumer Finance 115% 114% Group 126% 120% III. Asset Encumbrance 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 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 tables below show the asset encumbrance data we must submit to the EBA as of December 2021: Group. Disclosure on asset encumbrance as at December 2021 EUR billion Carrying amount of encumbered assets Fair value of encumbered assets Carrying amount of unencumbered assets Fair value of unencumbered assets Assets 365.1 — 1,230.7 — Loans and advances 262.8 — 984.4 — Equity instruments 8.4 8.4 13.1 13.1 Debt instruments 61.0 61.1 102.9 102.8 Other assets 32.9 — 130.3 — Group. Collateral received as at December 2021 EUR billion Fair value of encumbered collateral received or own debt securities issued Fair value of collateral received or own debt securities issued available for encumbrance Collateral received 80.7 31.5 Loans and advances 1.2 0.0 Equity instruments 5.4 7.0 Debt instruments 74.2 24.5 Other collateral received — 0.0 Own debt securities issued other than own covered bonds or ABSs 0.0 0.6 Group. Encumbered assets/collateral received and associated liabilities as at December 2021 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) 325.2 445.9 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 351 On-balance-sheet encumbered assets amounted to EUR 365.1 billion; 72% are loans and advances (e.g. mortgages and corporate loans). Off-balance-sheet encumbrance stood at EUR 80.7 billion and mainly relates to debt securities received as collateral in reverse repurchase agreements and rehypothecated ("reused"). Both types of encumbered assets amount to EUR 445.9 billion, giving rise to associated liabilities of EUR 325.2 billion. At the end December 2021, total asset encumbrance in funding operations was 26.1% of the Group's extended balance sheet under EBA criteria (total assets plus guarantees received: EUR 1,708.0 billion), lower than the 26.6% at the end of 2020 mainly due to balance sheet growth. Rating agencies Rating agencies influence Santander’s access to wholesale funding markets and the cost of its issuances. The agencies listed below regularly review our ratings. Debt ratings depend on several internal factors (business model, strategy, capital, income generation capacity, liquidity, etc.) but also on external factors related to economic conditions, the industry and sovereign risk across our footprint. Sometimes the methodology applied by the agencies limits ratings to the sovereign's rating of country where the bank is headquartered. However, as a testament of our financial strength and diversification, Banco Santander, S.A. is still rated above the Kingdom of Spain's sovereign rating (where it is headquartered) by Moody’s, DBRS and Standard & Poor’s (S&P) and on par with it by Fitch. At the end of 2021, the ratings from the main agencies were: Rating agencies Long term Short term Outlook DBRS A (High) R-1 (Middle) Stable Fitch Ratings A- (Senior A) F2 (Senior F1) Stable Moody's A2 P-1 Stable Standard & Poor's A+ A-1 Negative Scope AA- S-1+ Stable JCR Japan A+ — Stable In 2021, S&P upgraded the long-term rating to A+ due to a change in its methodology. DBRS, Fitch, Moody's and JCR Japan confirmed their ratings. As for the outlook, Fitch changed from negative to stable due to the stabilization of the operating environment in Santander's main markets, while in December S&P, after having raised it in June, downgraded it back to negative due to the worsening of the sovereign's outlook, keeping Santander 1 notch above the Kingdom of Spain. Funding outlook for 2022 Despite some lingering uncertainties, Santander has begun 2022 with a comfortable liquidity position and a positive funding outlook for the year. We expect lending to rise moderately in all our core markets, coupled with a solid performance in deposits leading to limited demand for liquidity from our retail business. The largest liquidity needs will come from our largest country units: Spain, Brazil and Digital Consumer Bank. The maturities in upcoming quarters are manageable, aided by limited recourse to short-term funding and an expected medium- and long-term issuance dynamic slightly greater than last year. We will manage each country, optimizing liquidity to maintain a solid balance sheet structure across our footprint. Additionally, our funding plans take into account costs and diversification by instrument, country and market as well as the construction of liability buffers with loss-absorbing capacity in resolution (whether capital eligible or not). They are designed to ensure Santander and each subsidiary always satisfy regulatory requirements and those stemming from our risk appetite framework. For example, Banco Santander, S.A.'s 2022 funding plan is designed to cover the greater TLAC/MREL requirements and pre-finance issuances that lose loss-absorbing capacity, and to cover any needs arising from potential increases in RWAs (which form the base for both ratios). As such, the plan includes between EUR 9 billion and EUR 10 billion of senior preferred and non-preferred debt, between EUR 3 billion and EUR 3.5 billion of hybrid instruments (depending on RWA growth to ensure the continued fulfilment of the 1.5% AT1 and 2% T2 buffers). The plan does not contemplate any covered bond issuances. With regard to the rest of the Group: Santander Consumer Finance, plans to issue between EUR 5 billion and EUR 6 billion in senior instruments, as well as the possibility of up to EUR 0.5 billion in covered bonds; in the UK we expect to issue between EUR 3 billion and EUR 4 billion in senior debt (either from the bank or from its holding company) and between EUR 0.5 billion and EUR 0.75 billion in covered bonds; and, lastly, Santander Holdings USA plans to issue between EUR 2 billion and EUR 2.5 billion in senior debt. Notwithstanding the above, Banco Santander, S.A. and the Group remain alert to opportunities to optimize the cost of outstanding issuances and may therefore decide to carry out additional issuances or reduce them. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 352 3.5 Capital management and adequacy. Solvency ratios #### Executive summary Fully-loaded capital ratio Fully-loaded CET1 The fully-loaded CET1 reached 12% Strong organic generation driven by profit and RWA management G e n e r a c i ó n o r g á n i c a + 6 p b ( t r a s d e d u c i r 1 8 p b p o r d e v e n g o p a r a l a r e m u n e r a c i ó n a l a c c i o n i s t a y 5 p b p o r a u m e n t o a c t i v o s e n r i e s g o ) Organic generation\* +118 bps TNAV per share The TNAV per share was EUR 4.12, +11% year-on-year including dividends \* Includes negative impact from shareholder remuneration The aim of capital management and adequacy at Santander is to guarantee solvency and maximize profitability, while complying with internal capital targets and regulatory requirements. Capital management is a key strategic tool for decision-making at both the local and corporate levels. At Santander, we have a common framework covering actions, criteria, policies, functions, metrics and processes for capital management. Our most notable capital management activities are: •establishing capital adequacy and capital contribution targets aligned with minimum regulatory requirements and internal policies, to guarantee robust capital levels consistent with our risk profile and efficient use of capital to maximize shareholder value. •drawing up a capital plan to meet those objectives consistent with our strategic plan. Capital planning is an essential part of executing the three-year strategic plan. •assessing capital adequacy to ensure that the capital plan is also consistent with our risk profile and risk appetite framework in stress scenarios. •developing the annual capital budget as part of the Group's budgeting process. •monitoring and controlling the budget execution at the Group and country level and drawing up action plans to correct any deviations from the budget. •integrating capital metrics into our business management to ensure alignment with the Group's objectives. •preparing internal capital reports, and reports for the supervisory authorities and the market. •planning and managing other loss absorbing instruments (MREL and TLAC). Santander's capital function is carried out on three levels: → Regulatory capital The first step in managing regulatory capital is to analyse the capital base, the capital adequacy ratios under the current regulatory criteria and the scenarios used in capital planning to make the capital structure as efficient as possible, both in terms of costs and compliance with regulatory requirements. Active capital management includes strategies for allocation and efficient use of capital, together with securitizations, asset sales and issuances of equity instruments (hybrid equity instruments and subordinated debt). → Economic capital The objective of the economic capital model is to ensure that we adequately allocate our capital to cover all risks to which we are exposed as a result of our activity and risk appetite. It also aims to optimize economic value added at the Group and business unit level. → Profitability and pricing Creating value and maximizing profitability is one of Santander's main objectives, carefully selecting the most appropriate markets and portfolios based on profitability, taking into account risk. Profitability and pricing are therefore integral parts of the key capital model processes. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 353 The main measures we took in 2021 were: Issuances of capital hybrid and other loss-absorbing instruments In 2021, Banco Santander, S.A. issued EUR 4,464 million in hybrid instruments. This comprised EUR 1,852 million in T2 subordinated debt and EUR 2,612 million in contingently convertible preferred shares (CoCos). Part of these CoCos were intended to replace the early amortization of a EUR 1,500 million issuance called in September 2021. Banco Santander, S.A. also issued EUR 7,934 million in senior non- preferred debt. Dividends and shareholder remuneration On 28 September 2021, the board announced its 2021 shareholder remuneration policy to pay out an interim distribution of approximately 40% of the Group's underlying profit (half through a cash dividend and half through a shares buyback). •Interim remuneration. Accordingly, it authorized the payment of an interim dividend of EUR 4.85 cents per share (i.e. 20% of the Group's underlying profit for H1'21), in cash and charged against 2021 profits; it was paid on 2 November 2021. The board also voted to launch the First Buyback Programme worth EUR 841 million (20% of the Group's underlying profit for H1'21) once the ECB approved it on 28 September 2021. The number of shares acquired (259,930,273 shares) makes up approximately 1.499% of our share capital. •Final remuneration. The board of directors voted to submit a resolution at the 2022 AGM for the approval of a complementary cash dividend of EUR 5.15 cents per share (gross), equalling an approximate total of EUR 865 million; and a Second Buyback Programme for EUR 865 million, to be approved by the ECB. For more details, see section [3.3 ‘Dividends’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_241) on the Corporate governance chapter. Strengthen capital management culture Focus ahead will remain on disciplined capital allocation and shareholder remuneration while we maintain our fully-loaded CET1 target between 11%-12%. The continuous improvement in the capital ratios reflects our profitable growth strategy and a culture of active capital management at all levels of the organization. In order to have a more global vision and simplify our structure, we created a new team, ‘Capital and Profitability Management’, in charge of our capital analysis, adequacy and management, coordination with subsidiaries in all matters related to capital and monitoring and measuring returns. All the countries and business units have drawn up individual capital plans focused on achieving a business that maximizes the return on equity. Santander gives a significant weight to capital and incentives. Certain aspects relating to capital management and returns are taken into account when setting the variable remuneration payable to members of senior management: •The relevant metrics include our CET1 ratio, the county units' capital contributions to the Group ratio, the return on tangible equity (RoTE) and profit after tax. •The qualitative aspects considered include the proper management of regulatory changes affecting capital, effective management of capital relating to business decisions, sustainable capital generation over time and effective capital allocation. Action plans In addition, we have developed a three-year action plan for the continuous improvement of infrastructures, processes and methodologies that support all aspects related to capital, with the aim of further enhancing active capital management, responding more quickly to the numerous and increasing regulatory requirements and efficiently carrying out all associated activities. We continue to improve our processes and controls associated with capital data quality. Additionally, we continuously develop risk management initiatives at both the consolidated and local levels to strengthen and fine-tune different activities. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 354 Fully-loaded CET1 ratio % Main capital data and solvency ratios EUR million Fully loaded Phased-in A 2021 2020 2021 2020 Common equity (CET1) 70,208 66,783 72,402 69,399 Tier1 (T1) 79,939 75,510 82,452 78,501 Eligible capital 95,078 88,368 97,317 91,015 Risk-weighted assets 579,478 561,850 578,930 562,580 CET1 capital ratio 12.12% 11.89% 12.51% 12.34% T1 capital ratio 13.79% 13.44% 14.24% 13.95% Total capital ratio 16.41% 15.73% 16.81% 16.18% Leverage ratio 5.21% 5.13% 5.37% 5.33% Regulatory phased-in CET1 ratio A % 11.65 12.34 12.51 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. Fully-loaded capital ratios in 2021 If we do not apply the transitory IFRS 9 provisions, nor the subsequent amendments introduced by Regulation 2020/873 of the European Union, which has a 39 bp impact, the fully-loaded CET1 ratio was 12.12%. Of note in the year was organic generation of 118 basis points, supported by the results obtained in the year and management of risk-weighted assets. This figure includes a negative impact of 45 basis points related to shareholder remuneration. This strong generation was partially offset by regulatory and model impacts, the negative market impacts on available for sale (HTC&S) portfolios and non-recurring impacts (acquisition of minority interest in Mexico and restructuring costs). If we include the acquisition of SC USA minority interests, which closed on 31 January 2022, and the announced acquisition of Amherst Pierpont, which is pending to completion, the CET1 ratio would be an estimated 16 basis points lower, bringing it to 11.96%. The fully-loaded leverage ratio stood at 5.21% Fully-loaded CET1 ratio in 2021 % Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 355 Regulatory capital ratios (phased-in) The phased-in ratios are calculated by applying the CRR transitory schedules. At year-end, the total phased-in capital ratio was 16.81% and the (phased-in) CET1 ratio was 12.51%. 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 366 bps, compared to the pre-covid-19 buffer of 189 bps. Taking into account the shortfall in AT1, Santander exceeded the 2021 minimum regulatory requirements by 360 bps. A. Countercyclical buffer. B. Global systemically important banks (G-SIB) buffer. C. Capital conservation buffer. The phased-in leverage ratio stood at 5.37%. Regulatory capital (phased-in). Flow statement EUR million 2021 Capital Core Tier 1 (CET 1) Starting amount (31/12/2020) 69,399 Shares issued in the year and share premium (4,034) Treasury shares and own shares financed (840) Reserves 2,640 Attributable profit net of dividends 6,394 Other retained earnings 152 Minority interests 67 Decrease/(increase) in goodwill and other intangible assets (353) Other (1,023) Ending amount (31/12/2021) 72,402 Additional Capital Tier 1 (AT1) Starting amount (31/12/2020) 9,102 AT1 eligible instruments 1,248 T1 excesses - subsidiaries (299) Residual value of intangible assets — Deductions — Ending amount (31/12/2021) 10,050 Capital Tier 2 (T2) Starting amount (31/12/2020) 12,514 T2 eligible instruments 2,073 Generic funds and surplus loan-loss provisions-IRB 75 T2 excesses - subsidiaries 203 Deductions — Ending amount (31/12/2021) 14,865 Deductions from total capital — Total capital ending amount (31/12/2021) 97,317 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 356 The following tables show the total risk-weighted assets (comprising the denominator of capital requirements based on risk) as well as their distribution by geographic segment. Risk-weighted assets EUR million RWAs Minimum capital requirements 2021 2020 2021 Credit risk (excluding CCR) 477,977 470,333 38,238 Of which: standardized approach (SA) 262,869 259,362 21,029 Of which: the foundation IRB (FIRB) approach 9,483 8,841 759 Of which: slotting approach 14,672 14,529 1,174 Of which: equities under the simple risk weighted approach 2,219 2,750 178 Of which: the advanced IRB (AIRB) approach 173,956 168,096 13,916 Counterparty credit risk (CCR) 15,674 10,239 1,254 Of which: standardized approach 13,639 9,278 1,091 Of which: internal model method (IMM) — — — Of which: exposures to a CCP 268 241 21 Of which: credit valuation adjustment (CVA) 1,767 720 141 Of which: other CCR — — — Settlement risk 1 — 0 Securitization exposure in the banking book (after the cap) 11,151 9,751 892 Of which: SEC-IRBA approach 5,226 4,731 418 Of which: SEC-ERBA approach 1,366 1,607 109 Of which: SEC-SA approach 2,676 1,821 214 Of which: 1250% deduction 1,883 1,592 151 Position, foreign exchange and commodities risks (Market risk) 17,224 17,983 1,378 Of which: standardized approach 6,844 5,047 547 Of which: internal model approach (IMA) 10,380 12,936 830 Large exposures — — — Operational risk 58,786 55,865 4,703 Of which: basic indicator approach — — — Of which: standardized approach 58,786 55,865 4,703 Of which: advanced measurement approach — — — Amounts below the thresholds for deduction 21,032 22,382 1,683 Total 578,930 562,580 46,314 Includes equities under the PD/LGD approach Fully loaded CRR, phased-in IFRS 9 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 357 Capital requirements by geographical distribution EUR million TOTAL EUROPE o/w: Spain o/w: United Kingdom NORTH AMERICA o/w: US SOUTH AMERICA o/w: Brazil Rest of the world Credit risk (excluding CRR) 38,238 22,926 9,688 5,824 6,831 5,205 7,592 5,103 888 Of which: internal ratings-based (IRB) approach A 16,684 13,090 5,789 4,320 1,320 540 1,530 1,241 745 Central governments and central banks — — — — — — — — — Institutions 776 454 92 95 138 67 54 11 131 Corporates 9,428 6,392 3,586 1,306 1,175 470 1,472 1,229 389 of which: Corporates - Specialized Lending 1,345 1,029 362 426 205 56 62 — 49 of which: Corporates – SME 1,593 1,427 1,226 55 108 1 57 54 1 Retail - Secured by real estate SME 232 231 222 1 1 1 — — 1 Retail - Secured by real estate non-SME 3,650 3,636 884 2,515 3 2 2 — 8 Retail - Qualifying revolving 373 372 98 216 — — — — — Retail - Other SME 578 564 388 — — — 1 — 14 Retail - Other non-SME 1,562 1,356 435 187 2 — 1 — 203 Other non-credit-obligation assets 85 85 85 — — — — — — Of which: standardized approach (SA) 21,032 9,193 3,208 1,530 5,548 4,667 6,146 3,918 144 Central governments or central banks 2,073 1,058 903 24 160 — 846 776 9 Regional governments or local authorities 25 8 4 — — — 16 13 — Public sector entities 29 4 — — 15 15 10 — — Multilateral Development Banks — — — — — — — — — International Organizations — — — — — — — — — Institutions 367 113 59 17 123 114 126 103 6 Corporates 3,450 1,760 329 491 692 674 975 399 23 Retail 7,868 2,973 324 516 2,631 2,280 2,167 1,714 96 Secured by mortgages on immovable property 2,614 860 180 54 792 586 962 279 1 Exposures in default 957 370 156 76 281 241 304 196 3 Items associated with particular high risk 111 13 2 2 10 10 88 16 — Covered bonds 13 13 — 12 — — — — — Claims on institutions and corporates with a short- term credit assessment 20 8 1 — 6 — — — 5 Collective investments undertakings (CIU) 17 17 6 — — — — — — Equity exposures under risk weighted approach 12 5 — — — — 7 — — Other items 3,475 1,992 1,245 337 838 746 644 421 1 Of which: Equity IRB 1,358 1,358 1,358 — — — — — — Simple method 178 178 178 — — — — — — Under the PD/LGD method 428 428 428 — — — — — — Equity exposures under risk weighted approach 753 753 753 — — — — — — Counterparty credit risk (CRR) 1,254 959 701 125 114 67 177 127 4 Of which: standardized approach 1,091 832 670 78 104 60 153 111 2 Of which: internal model method (IMM) — — — — — — — — — Of which: CCPs 21 14 1 8 1 1 6 6 — Of which: CVA 141 113 31 38 9 5 17 9 2 Settlement risk — — — — — — — — — Securitization exposures in banking book (after cap) 741 383 114 131 345 310 11 11 2 Market risk 1,378 1,027 653 14 11 11 340 96 — Of which: standardized approach 547 433 60 14 11 11 103 96 — Of which: internal model method (IMM) 830 594 594 — — — 237 — — Operational risk 4,703 2,001 834 546 1,170 879 1,149 622 383 Of which: basic indicator approach — — — — — — — — — Of which: standardized approach 4,703 2,001 834 546 1,170 879 1,149 622 383 Of which: advanced measurement approach — — — — — — — — — Amounts below the thresholds for deduction and other non-deducted investments (subject to 250% risk weight) 1,683 907 765 24 102 — 673 656 — Total 46,314 27,296 11,991 6,641 8,471 6,472 9,270 5,960 1,277 Note: Fully-loaded CRR, phased-in IFRS 9. A. Including counterparty credit risk. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 358 This table presents the main changes to  capital requirements by credit risk: Credit risk capital movements A EUR million RWAs Capital requirements Starting amount (31/12/2020) 487,745 39,020 Asset size (15,078) (1,206) Model updates 4,407 353 Regulatory 14,058 1,125 Acquisitions and disposals (1,729) (138) Foreign exchange movements 11,482 919 Other — — Ending amount (31/12/2021) 500,884 40,071 A. Includes capital requirements from  equity, securitizations and counterparty risk (excluding CVA and CCP). Credit risk RWAs increased EUR 13,139 million in 2021, largely driven by exchange rate movements (+EUR 11,482 million), mainly due to the USD's and GBP's appreciation. Regulatory changes (methodology and policy) related to the implementation of the New Default Definition and changes in the calculation of counterparty credit risk exposure (SA-CCR) were also significant in the year. In models, changes arose from TRIM (Targeted Review of Internal Models) in Low Default Portfolios. In terms of asset size, of note was the impact from securitizations the Group carried out in the year. In short, from a qualitative point of view, Santander's solid capital ratios are consistent with its business model, balance sheet structure and risk profile. Economic capital Economic capital is the capital required to cover risks from our activity with a certain level of solvency. We measure it through an internal model. To calculate the required capital, we determine our solvency level based on our long-term rating target of 'A' (above the Kingdom of Spain's); this represents a confidence level of 99.95% (above 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 considers diversification, 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 spans several countries in a structure of separate legal entities with different customer and product segments and risk types, 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 has been evident during the covid-19 pandemic. Groups with a global presence tend to have stabler results and are more resistant to the eventual market or portfolio crises which translates into lower risk. In contrast to regulatory criteria, we consider certain intangible assets, such as DTAs or goodwill, to retain value, even in a hypothetical resolution, owing to the geographic structure of our subsidiaries. Thus, we can value assets and estimate their unexpected loss and capital impact. Economic capital is an essential tool for internal management and the development of our strategy, assessing solvency and managing portfolio and business risk. As such, it is a key part of the Supervisory Review and Evaluation Process (SREP). Regarding 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, price operations based on risk, determine how economically viable projects are, and value country units and business lines to fulfil our overriding objective of maximizing shareholder value. As a homogeneous risk measure, we can use economic capital to explain how we distribute risk throughout Santander, bringing together different activities and risk types under a single metric. Given its relevance to internal management, Santander includes 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 2021 amounted to EUR 60,900 million. Compared to the available economic capital base of EUR 88,790 million, this implies a capital surplus of EUR 27,890 million. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 359 Reconciliation of economic and regulatory capital EUR million 2021 2020 Net capital and issuance premiums 55,683 60,557 Reserves and retained profits 62,357 52,902 Valuation adjustments (34,395) (35,345) Minority interests 6,736 6,669 Prudential filters (637) (592) Other A (954) 2,126 Base economic capital available 88,790 86,316 Deductions (16,922) (16,337) Goodwill (13,911) (13,621) Other intangible assets (2,153) (2,090) DTAs (859) (627) Other 535 (580) Base regulatory (FL CET1) capital available B 72,402 69,399 Base economic capital available 88,790 86,316 Economic capital required C 60,900 60,386 Capital surplus D 27,890 25,931 A. Includes: deficit of provisions over economic expected loss, pension assets and other adjustments. B. Including IFRS 9 transitional arrangements. C. For a better comparison with regulatory capital, the differences in goodwill due to FX changes are included in the required economic capital. All figures according to EC 2021 methodology. D.  If we include the pro forma impact of the transactions announced in December 2021 (-16 bp impact on the Group's CET1), the economic capital base would be EUR 87,869 million and the excess capital EUR 26,969 million. The main difference compared to regulatory CET1 is the treatment of goodwill, other intangible assets and DTAs; we consider them additional capital requirements rather than a deduction from available capital. The charts below show Group’s economic capital needs as at 31 December 2021, by region and risk type. Distribution of economic capital needs by type of risk December 2021, % Our distribution of economic capital among core business areas is an indication of our business and risk diversification. Europe accounted for 47% of capital needs; North America, 21%; South America, 22%; and Digital Consumer Bank (DCB) 9%. Outside our operating areas, the Corporate Centre mainly takes on goodwill risk and structural exchange rate risk (from maintaining stakes denominated in currencies other than the euro in foreign subsidiaries). 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%. Distribution of Group economic capital needs by region and risk type EUR million. December 2021 Group. Total requirements: 60,900 Corporate Centre Europe North America South America DCB 16,042 21,242 9,578 9,872 4,166 All risks: All risks: All risks: All risks: All risks: Goodwill 56% Credit 49% Credit 69% Credit 56% Credit 68% Market 27% Market 11% Business 7% Business 11% Operational 7% DTAs 15% Pensions 10% Fixed Assets 7% DTAs 7% Business 7% Other 1% ALM 9% Operational 5% Operational 7% Fixed Assets 5% Others 21% Others 12% Others 18% Others 12% Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 360 RoRAC and Economic Value Added Since 1993, Santander has been using risk-adjusted return (RoRAC) methodology to: •calculate economic capital consumption and return for business units, segments, portfolios and customers, to optimize capital allocation; •measure the management of units through budgetary monitoring of capital consumption and RoRAC; and •analyse 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 RoRAC across the Group. EVA is the 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 business and thus obtain each subsidiary’s underlying result for the year. Additionally, for internal management purposes, we analyse the impact of items that are not covered by our economic capital model but affect reserves without being included in the income statement. The minimum return on capital a transaction must obtain is determined by the cost of capital (i.e. the minimum compensation required by shareholders). We calculate it by adding the premium shareholders demand 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 market performance. Santander's cost of capital in 2021 was 10.08% (compared to 12.00% in 2020 impacted by higher volatility stemming from the covid-19 crisis). On top of reviewing the cost of capital every year, Santander’s management also estimates 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. This table shows economic value added and RoRAC of the Group’s main geographical segments at the end of December 2021. The following figures reflect the economic value added in all the main segments: Economic Value Added A and RoRAC EUR million 2021 2020 Main segments RoRAC EVA RoRAC EVA Europe 12.1% 495 6.2% (1,401) North America 34.3% 2,380 15.0% 187 South America 30.4% 1,744 26.1% 883 Digital Consumer Bank 33.2% 1,149 33.8% 972 Total Group 15.0% 3,327 8.5% (2,529) A. The economic value added is calculated with the cost of capital of each unit. The Group’s total RoRAC includes the operating units and the Corporate Centre, 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 assessments of their risks and solvency. These forward-looking reviews 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 these 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, Santander has a capital stress and planning process to respond to various regulatory exercises which is a key tool integrated within management and strategy. Internal capital stress and planning aims to ensure sufficient current and future capital, even in unlikely-but-plausible economic scenarios. We estimate results in various business environments (including severe recessions as well as expected macroeconomic environments), based on our initial situation (financial statements, capital base, risk parameters and regulatory and economic ratios) to determine our solvency ratios, usually for a three-year period. Planning offers a comprehensive view of our capital for the analysed period and in each of the defined scenarios based on regulatory capital and economic capital metrics. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 361 This chart describes the structure in place: 1 Macroeconomic scenario •Central and recession •Idiosyncratic: based on specific risks the entity faces •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 •Regulatory 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, analyses specific effects and integrates them into strategic planning; •enables a more efficient use of capital; •helps formulate capital management strategy; and •facilitates communication with the market and supervisors. Senior managers are fully involved in and closely supervise capital planning under a framework that ensures proper governance and is subject to the robust levels of challenge, review and analysis. In capital planning and stress analysis exercises, calculating the required provisions under these stress scenarios is key, especially to cover losses on credit portfolios. It is particularly important for income statement forecasts under adverse scenarios. To calculate loan-loss provisions of the credit portfolio, we use a methodology that ensures provisions cover loan losses projected by 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 brought in by 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 all internal capital and regulatory requirements. Should we fail to meet our capital objectives, we would draw up an action plan with the measures needed to attain the minimum capital desired. We analyse and quantify those measures as part of internal exercises even if we don't need to use them as we exceed the minimum capital thresholds. 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. Since the beginning of the economic crisis in 2008, we have undergone eight external stress tests. All 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 a 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 (Basel Pillar 2). Every test has proven our capacity to confront the most difficult exercises on a global and local level. These capital planning processes are carried out using shared tools throughout the Group. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 362 Due to the special situation resulting from the covid-19 crisis, capital planning capacities and stress tests have allowed us to analyse various pandemic scenarios and ensure capital adequacy under the various possible scenarios derived from the crisis. In 2021, we incorporated the analysis of the potential impact of climate risks (transition risk and physical risk) into the internal stress exercises in addition to being expressly considered in the definition of macroeconomic scenarios, in line with industry best practices and supervisory expectations. ECB/EBA 2021 stress test In July 2021, the European Banking Authority (EBA) published the results of the stress tests carried out on the European Union's 50 leading banks. As in the previous exercise, it did not impose any minimum capital threshold to pass, rather the final results represent an additional variable for the ECB to determine each bank’s minimum capital requirement (as part of the Supervisory Review and Evaluation Process - SREP). This exercise included two macroeconomic scenarios (base and adverse), taking the banks’ end-2020 balance sheet positions as a starting point, with a three-year time horizon (finishing in 2023). The very improbable adverse scenario considers a sharp deterioration in the macroeconomic environment and financial markets in Europe and the other countries where we operate. For example, the simulation included a cumulative fall in GDP of 3.6%, the impact of an increase in unemployment to 12.1% and a cumulative decline in housing prices of 16.1% in 2023 for the eurozone as a whole. In the adverse scenario, Santander destroyed the least capital among its peers. Our fully-loaded CET1 capital ratio fell 258 basis points (vs the system average of -485 basis points) from 11.89% in 2020 to 9.31% in 2023. Under the base scenario, Santander also generated the most capital among its peers. We also generated more profit than our peers and we were the only bank not to incur a cumulative loss over the three-year horizon. In short, we are more resilient than our peers in Europe due to our highly recurrent revenue and profit, a testimony to the strength of our business model and diversification. Fully-loaded ratio 2020 vs. 2023 Adverse scenario. Basis points Profit after tax (accumulated 3 years) Adverse scenario. EUR million Peer average System Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 363 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) will 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); however, other jurisdictions where we operate (e.g. Brazil), have yet to do so. In Europe, the final texts of CRR 2 and BRRD 2, which amend 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%). As of 31 December 2021, the TLAC of the resolution group headed by Banco Santander, S.A. stood at 26.86% of risk-weighted assets and 11.83% of the leverage ratio exposure. The BRRD 2 was 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 December 2021, Banco de España formally communicated the (binding) MREL requirement for the Banco Santander, S.A. Resolution Group (sub-consolidated), which needed be met from 1 January 2022. It was set at highest of 29.85% of the Resolution Group’s RWAs1 and 13.82% of the Resolution Group’s leverage ratio exposure, based on 31 December 2019 data. As of 31 December 2021, Banco Santander, S.A. met its MREL requirements having issued eligible instruments during the year. Specifically, 35.35% of RWAs and 18.47% of the leverage ratio exposure respectively. Of the total MREL requirement, a minimum subordination level was fixed as the larger of 9.04% of RWAs and 6.02% of the leverage ratio exposure. However, the Resolution Group's minimum subordination is determined by  TLAC, not by MREL, as the TLAC subordination requirement is greater In December 2021, the MREL subordinated figures of the Resolution Group headed by Banco Santander, S.A. were 32.22% and 16.83% respectively. TLAC 2021 MREL 2021 % % A. The CBR of 2.79% is obtained by multiplying the 3.51% CBR by the post-MPE Add-on RWAs and dividing the result by the Resolution Group’s total RWAs 1. When the requirement is set in terms of RWAs, the CET1 used to cover the combined capital buffers cannot be used to comply with the MREL requirement at the same time. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 364 3.6 Special Situations and Resolution Corporate Special Situations and Resolution Framework, crisis management, Recovery and Resolution Planning This section summarizes the main developments in preparing for a potential crisis, focusing on governance mechanisms, activities to prepare and strengthen recovery plans, and initiatives relating to preparing and improving resolvability plans. Corporate framework for special situations and resolution As part of our corporate frameworks that regulate the internal governance of important matters that impact the Group's risk profile, we updated the special situations and resolution corporate framework. The board of directors ratified it in Q2 2021. Following corporate level approval, country units now adhere to the updated framework. The process of transposing and adapting the documents of the new crisis management and resolution regulatory tree to local requirements is being finalized. The lessons learned so far from the covid-19 pandemic moved us to make significant changes to the framework which focus on: (i) early and pre-emptive identification of threats; (ii) coordination mechanisms between units; (iii) simplifying governance procedures; and (iv) promoting a crisis management preparation culture internally,  including preparation for resolution and improving resolvability. The framework enables our units, to comprehensively aggregate and clearly interpret the different mechanisms for monitoring, escalating and managing both financial and non-financial events as well as governance. It helps link the different action plans (e.g. contingency plans, business continuity plans, recovery plan, etc.). We base crisis governance on a collective decision-making model, that is organized into and operated under severity levels to facilitate flexibility and sequential decision-making. For example, in the most severe stages of a hypothetical crisis, the “Gold" committee, composed of the Group’s main executives and supported by the “Silver" forum and other specialist "Bronze" teams, would be the leading decision-making body. Furthermore, the framework aims to encourage (i) the sharing of best practices between units; and (ii) the continuous collaboration between local and corporate teams (including coordination in the recovery and resolution planning phases) to continue developing our management and control model in the most effective way. Several training exercises were carried out in 2021, both at corporate and local levels, facilitating the necessary dissemination of the changes and collaborative discussions. Regardless of these changes, Santander’s defining characteristic is its pursuit of excellence. We regularly run simulation and testing exercises to be better prepared for stress situations and to reinforce the collective awareness and culture of the crisis management function. Recovery plans Context. Santander drew up its twelfth corporate recovery plan in 2021. It sets out measures we have at our disposal to survive a very severe crisis without extraordinary public aid, in accordance with article 5.3 of the BRRD. Its primary aim is 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 financial crisis scenarios which incorporate idiosyncratic and/or systemic events that could lead the Group to trigger the plan. The recovery plan should not be considered an instrument separate from our structural mechanisms to measure, manage and supervise risk. It includes the risk appetite framework (RAF), the risk appetite statement (RAS), the risk profile assessment (RPA), the business continuity management system (BCMS), the internal assessments of capital and liquidity (ICAAP and ILAAP) and other tools. It is also integrated into the Group's strategic plans. Progress in 2021. In May, continuing the operational relief offered last year in response to the covid-19 pandemic, the ECB asked banks to focus efforts on the parts of the recovery plan that are essential for crisis preparation and management. We therefore focused on governance and escalation, indicators, measures and scenarios. With regard to the scenarios, the ECB asked banks to develop two stress scenarios related to the possible economic and financial consequences of the covid-19 pandemic: one systemic and one including an idiosyncratic element. Like last year, and despite this easing of requirements, we prepared a comprehensive plan in 2021 that comprised all chapters and fully covered all of the ECB’s recommendations. Specifically: •New special situations and resolution framework. •Two new indicator categories (macroeconomic and market) and new capital and asset quality indicators. •New chapter explaining the Group’s subsidiary model and how local crises in the subsidiaries could affect the consolidated capital and liquidity ratios. •Three stress scenarios to cover a wider range of crisis situations: idiosyncratic, regional and combined (global crisis plus idiosyncratic). •Greater detail on total recovery capacity including a thorough analysis showing recovery capacity in each time bucket. •New recovery measures. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 365 The key takeaways from our review of the 2021 corporate plan were: •No material interdependencies between country units. •Ample recovery capacity in all scenarios from 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 capital and liquidity within our autonomous subsidiaries model. •Sufficiently robust governance to manage financial and non- financial stresses varying in nature and intensity. •Amid 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 breached. These factors prove our business model and geographic diversification strategy, based on autonomous subsidiaries, remain firm in a recovery situation. Regulation and governance. Santander’s recovery plan complies with 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 2021; 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, Portugal, Norway and a recovery plan summary for Poland (as required). All country units (except Santander Chile and SC Germany) must draw up a local plan in compliance with local regulations and 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 Silver forum, Gold committee, risk control committee and the risk supervision, regulation and compliance committee. Local plans are approved by corresponding local bodies in coordination with the Group (as they are included in the corporate plan). Resolution plans Santander cooperates with the relevant authorities to prepare resolution plans, providing them with all information they request. The members of the Crisis Management Group (CMG) upheld their decision on our Multiple Point of Entry (MPE) strategy1 to be used in a hypothetical 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. Working meetings with the SRB and their communications (working priorities letters) confirmed that there are no impediments to the bank’s resolvability. In fact, the SRB highlighted the significant progress the Group has made in recent years (especially in 2020 and 2021) to improve its resolvability. In 2021, we prepared our first three-year multi-year plan. Banco Santander, S.A.’s board of directors approved it in February 2021. It set out the following actions: 1) Ensure the bank establishes processes and develops capabilities to: (i) estimate liquidity needs for implementing the resolution strategy; (ii)  duly provide information regarding the liquidity position in resolution; and (iii) identify and mobilize the available collateral to obtain funding during and after resolution. In 2021, we identified key liquidity entities (KLEs) that (i) provide liquidity to other entities in the Group; (ii) depend on the liquidity received from other entities in the Group; or (iii) perform liquidity management functions for the Resolution Group. We also identified the key liquidity drivers in resolution, which are factors that could potentially trigger a substantial change or deterioration in the bank's liquidity position in resolution. Finally, we developed a methodology to identify, process and analyse relevant data to estimate the liquidity position in resolution. 2) Ensure information systems can quickly provide the high-quality information required in resolution. We continued to make our governance of information provided to the resolution authority for drawing up resolution plans stronger and more systematic, including the following projects in 2021: 1.Automation of Santander Consumer Finance's liability data report and additional liability report. 2.Automation of Banco Santander, S.A.’s TLAC/MREL reports. 3.Automated production of the necessary data to carry out a valuation exercise in resolution. 4.Automated production of the dataset for bail-in. 1. With the exception of Santander US whose resolution plans correspond to the individual entities. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 366 3) Guarantee operational continuity in resolution situations. In 2021, we identified essential services that support core business lines, as well as their operational assets and critical personnel. We also redrafted any service contracts that did not contain the operational continuity clause to include said clause. We continued to work on making contingency plans for market infrastructure services more operational and executive. 4) Foster a culture of resolvability. Santander continued to involve more senior managers in resolution planning. We escalated the multi-year plan, which includes the resolution work streams, to the board. We also presenting its progress to other high-level committees (such as the Gold committee, Silver forum, and other bodies). The board and senior management also received resolution training in 2021. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 367 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_976) to the Santander financial statements). Santander has aligned the information in this chapter with the underlying information used internally for management reporting and with that presented in the Group's other public documents. Santander's executive committee has been selected to be its chief operating decision maker. The Group'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 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 the Group are applied. On 9 April 2021, we announced that, starting and effective with the financial information for the first quarter of 2021, we would carry out a change in our reportable segments to reflect our new organizational and management structure. These changes in the reportable segments aim to align the segment information with their management and have no impact on the Group’s accounting figures. a.Main changes in the composition of Santander's segments made in April 2021 The main changes, which have been applied to management information for all periods included in the consolidated financial statements, are the following: Primary segments 1.Creation of the new Digital Consumer Bank (DCB) segment, which includes: •Santander Consumer Finance (SCF), previously included in the Europe segment, and the consumer finance business in the United Kingdom, previously recorded in the country. •Our fully-digital bank Openbank and the Open Digital Services (ODS) platform, which were previously included in the Santander Global Platform segment. 2.Santander Global Platform (SGP), which incorporated our global digital services under a single unit, is no longer a primary segment. Its activities have been distributed as follows: •Openbank and Open Digital Services (ODS), which, as mentioned above, are now included under the new Digital Consumer Bank reporting segment. •The business recorded in Global Payment Services (Merchant Acquiring, International Trade and Consumer) has been allocated to the three main geographic segments, Europe, North America and South America, with no impact on the information reported for each country. Secondary segments 1.Creation of the PagoNxt segment, which incorporates simple and accessible digital payment solutions to drive customer loyalty and allows us to combine our most disruptive payment businesses into a single autonomous company, providing global technology solutions for our banks and new customers in the open market, and which has been structured into three businesses, previously included in SGP: •Merchant Acquiring: acquiring solutions for merchants. •International Trade: solutions for SMEs and companies operating internationally. •Consumer: payment solutions for individuals aimed at underbanked populations. 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. 3.Elimination of the Santander Global Platform reporting segment: •Openbank and ODS are now recorded in the Retail Banking segment. •The remaining Santander Global Platform businesses form the new PagoNxt reporting segment. The Group recasted the corresponding information of earlier periods considering the changes included in this section. As stated above, group consolidated figures remain unchanged. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 368 b. Current composition of Group segments 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 business activity carried out in the region, except that included in Digital Consumer Bank. Detailed financial information is provided on Spain, the UK, 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 business unit Banco Santander International, Santander Investment Securities (SIS) and the New York branch. South America: includes all the financial activities carried out by Santander through its banks and subsidiary banks in the region. Detailed information is provided on Brazil, Chile, Argentina, Uruguay, Peru and Colombia. Digital Consumer Bank: includes Santander Consumer Finance, which incorporates the entire consumer finance business in Europe, Openbank and ODS. Secondary segments At this secondary level, Santander is structured into Retail Banking, Santander Corporate & Investment Banking (SCIB), Wealth Management & Insurance (WM&I) and PagoNxt. 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. The results of the hedging positions in each country are also included, conducted within the sphere of their respective assets and liabilities committees. 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). PagoNxt: this includes digital payment solutions, providing global technology solutions for our banks and new customers in the open market. It is structured in three businesses: Merchant Acquiring, International Trade and Consumer. In addition to these operating units, both primary and secondary segments, the Group 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 the Group’s assets and liabilities committee, as well as management of liquidity and of shareholders’ equity via issuances. As the Group’s holding entity, this area manages all capital and reserves and allocations of capital and liquidity with the rest of businesses. It also incorporates goodwill impairment 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'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_400) 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 Santander's competitiveness and that of its subsidiaries have been produced by the Group based on public information (corporate websites of competing entities and information published by national banking institutions). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 369 4.2 Summary of the Group's main business areas' income statements 2021 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 profit attributable to the parent Europe 10,952 4,344 16,312 7,994 4,411 2,978 Spain 3,994 2,482 7,006 3,666 1,307 957 United Kingdom 4,431 434 4,863 2,271 2,197 1,570 Portugal 751 441 1,341 778 714 482 Poland 1,049 518 1,646 984 380 161 Other 726 470 1,455 294 (187) (191) North America 8,204 1,644 10,986 6,019 4,664 3,053 US 5,405 782 7,383 4,187 3,652 2,326 Mexico 2,799 828 3,579 1,936 1,126 835 Other 0 34 23 (104) (114) (108) South America 11,323 3,721 15,353 9,974 6,249 3,328 Brazil 7,875 2,728 10,884 7,649 4,618 2,325 Chile 1,984 394 2,457 1,514 1,158 637 Argentina 1,070 420 1,393 587 311 274 Other 395 179 620 223 162 92 Digital Consumer Bank 4,281 821 5,339 2,934 2,213 1,332 Corporate Centre (1,390) (28) (1,586) (1,931) (2,277) (2,037) TOTAL GROUP 33,370 10,502 46,404 24,989 15,260 8,654 Secondary segments Retail Banking 31,389 7,010 39,636 22,443 13,265 7,869 Corporate & Investment Banking 2,995 1,750 5,692 3,392 3,251 2,167 Wealth Management & Insurance 375 1,276 2,166 1,264 1,247 907 PagoNxt 1 493 495 (178) (227) (253) Corporate Centre (1,390) (28) (1,586) (1,931) (2,277) (2,037) TOTAL GROUP 33,370 10,502 46,404 24,989 15,260 8,654 Underlying profit attributable to the parent distribution A 2021 A. As a % of operating areas. Excluding the Corporate Centre. Underlying profit attributable to the parent. 2021 EUR million. % change YoY in constant euros Europe North America South America Digital Consumer Bank DCB Global businesses +288% +85% +42% +2% +230% +8% +21% +47% +73% +16% +26% +13% n.a. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 370 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 profit attributable to the parent Europe 9,911 4,000 14,673 6,398 2,084 1,413 Spain 3,957 2,314 6,782 3,175 715 517 United Kingdom 3,504 494 3,980 1,441 508 391 Portugal 787 388 1,296 706 483 338 Poland 1,037 452 1,524 895 370 162 Other 627 351 1,090 181 8 5 North America 8,470 1,684 11,034 6,357 2,307 1,472 US 5,645 889 7,360 4,281 1,250 731 Mexico 2,825 772 3,651 2,098 1,082 762 Other 1 24 23 (23) (25) (20) South America 10,723 3,589 14,868 9,511 5,267 2,907 Brazil 7,625 2,824 10,866 7,325 4,045 2,113 Chile 1,787 335 2,263 1,363 785 432 Argentina 912 273 1,128 496 200 179 Other 399 158 611 327 238 183 Digital Consumer Bank 4,263 771 5,166 2,837 1,929 1,133 Corporate Centre (1,374) (29) (1,141) (1,470) (1,912) (1,844) TOTAL GROUP 31,994 10,015 44,600 23,633 9,674 5,081 Secondary segments Retail Banking 30,056 6,987 38,022 20,736 7,866 4,420 Corporate & Investment Banking 2,918 1,542 5,332 3,294 2,689 1,798 Wealth Management & Insurance 394 1,153 2,030 1,159 1,132 823 PagoNxt (1) 362 356 (86) (101) (116) Corporate Centre (1,374) (29) (1,141) (1,470) (1,912) (1,844) TOTAL GROUP 31,994 10,015 44,600 23,633 9,674 5,081 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 371 4.3 Primary segments #### Europe Underlying attributable profit EUR 2,978 Mn “One Europe is about the fundamental transformation of our business. In 2021, we laid the foundations of that change and moving towards a common operating model” António Simões Regional Head of Europe and CEO of Santander Spain #### Strategy #### Business performance 1 #### Results 1 #### Our strategy in Europe is to maintain the focus on customer experience and service quality, while making the necessary #### structural changes to develop a common operating model across the region Customer funds rose 6%driven by retail deposits and mutual funds.Loans and advances to customers were 3% higher, #### with strong growth in individuals #### Underlying attributable profit rose 110%year-on-year underpinned by NII and net fee income growth, efficiency #### improvement and the lower cost of credit 1. Excluding the exchange rate impact. Strategy The aim of One Santander is to create a better bank in Europe, that our customers and employees feel a deep connection with while delivering sustainable value to shareholders and society by: •serving our customers better to grow our business, focusing on capital efficient opportunities (including SCIB and WM&I), simplifying our mass market value proposition, improving customer experience and engaging with PagoNxt; •making headway with our omnichannel strategy, redefining customer interaction, accelerating our digital agenda and maintaining close relationships through our teams; and •creating a common operating model, to serve our businesses through shared technology platforms and automated operations, leveraging shared services. This should enable us to become a more agile organization with one aligned team across Europe. Our ongoing structural changes aim to deliver revenue growth and significant cost savings, resulting in positive operating jaws. This is consistent with the commitment we announced in October 2020 to deliver EUR 1 billion additional cost savings by 2022 year end. In 2021, we laid the foundations for our transformation, through structure simplification, the convergence to our Everyday Banking value proposition across the countries, the launch of a common app in Spain, Portugal and Poland, and started to offer homogeneous payment products. As a result, we: •improved service quality, reflected in achieving a top 3 NPS position in our core markets; •increased revenue and improved efficiency 5.4 pp year-on-year; and •doubled Europe's return on equity in terms of underlying RoTE, from 3.6% in 2020 to 7.4% in 2021. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 372 The strategy by country in 2021 was as follows: #### Spain Economic activity picked up in the year, particularly reflected in individuals. •In individuals, higher demand for loans and positive trends in protection insurance drove commercial dynamism. All of this was channelled through our mobile app. •In corporates, performance was largely shaped by ICO loans granted in 2020, coupled with the integrated management platform for Next Generation EU programmes (available to customers and non-customers). •In Private Banking, we consolidated our position as market leader through customer attraction and digital interaction. •In SCIB, we maintained our leadership in volumes and number of transactions in the main league tables. In line with One Santander's regional strategy in Europe, we continued to make headway with business transformation and product simplification. We incorporated the more than 3,000 MAPFRE points of sale where our products are offered. We also launched the rebranding campaign Por ti, los primeros. We continued to push our digital transformation process and develop new product, services and process capabilities. Our app for individuals, rolled out in 2020, led the Aqmetrix ranking and was successfully exported to other countries such as Portugal and Poland. We also launched a new app and website for businesses, including a wider service proposition. As a result, Euromoney named us Best Digital Bank in Western Europe in 2021. #### United Kingdom We are delivering on our strategy, focusing on improved customer loyalty. We continued to enhance our operating model, by digitalizing the business while simplifying its structure and automating processes. •The number of digital customers reached 6.6 million, up 6% year-on-year. •We completed the transfer of the wholesale banking business out of the UK perimeter, separating it from the retail banking and asset management businesses. •We enhanced our Breakthrough initiative that helps companies (mainly SMEs) to re-focus their strategies post-pandemic. We continued to run One Santander-related projects, such as the Transformation for Success programme aimed at boosting productivity. #### Portugal Against a backdrop of economic recovery, our main priority was to increase customer loyalty by: •implementing a more agile and simpler commercial and digital transformation plan, that built on already high customer satisfaction; •strengthening our position as the leading bank in lending, following double-digit growth in new mortgage lending and above-market increases in corporate loans, while maintaining high credit quality; and •maintaining our leadership in efficiency without compromising quality customer service. . Loyal Customers #### Europe Spain UK Portugal Poland Thousands 10,286 2,772 4,389 860 2,266 YoY +3% +5% -1% +6% +7% Digital Customers #### Europe Spain UK Portugal Poland Thousands 16,216 5,412 6,635 1,000 2,998 YoY +6% +3% +6% +7% +9% Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 373 Poland Following the impact of the covid-19 crisis in 2020, we focused on returning to pre-pandemic activity levels and to position our brand as one of the banks with the highest customer satisfaction ratings, ranking top 3 in 2021 by NPS. •We focused on digitalizing and simplifying our catalogue, which reduced the number of marketed products, processes and the complexity of the organization. •In retail banking, we streamlined online processes for account openings which led to an increase in the number of digital customers (+9% year-on-year) and record new lending. •In business and corporate banking, we focused on the development of the iBiznes24 app (launched in 2020) and used it to build a common platform to offer comprehensive services to our customers. Business performance The individuals segment recorded sharp growth in all countries. In line with our strategy, WM&I also grew strongly and CIB increased its revenue at double-digit rates. Loans and advances to customers were 5% higher year-on-year. In gross terms, excluding reverse repurchase agreements and the exchange rate impact, they rose 3%. We saw broad-based growth in all countries especially in mortgages in the UK, individuals in Spain, mortgages and SMEs in Portugal and individuals, SMEs and CIB in Poland. Europe. Business performance. December 2021. EUR billion and YoY % change in constant euros 576 +3% 712 +6% Gross loans and advances to customers excl. reverse repos Customer deposits excl. repos + mutual funds Customer deposits increased by 6% compared to 2020. Excluding repurchase agreements and the FX impact, they were up 5%, as demand deposits offset the drop in time deposits. Mutual funds grew 16% in constant euros, with broad-based growth across countries, with customer funds up 6% (excluding the exchange rate impact). Results Underlying attributable profit in 2021 was EUR 2,978 million (28% of the Group's total operating areas). Compared to 2020, underlying attributable profit was up 111%  and +110% in constant euros, as follows: •Total income was up 11%, with increased net interest income (+10%), benefitting from higher volumes, interest rate management and the positive TLTRO impact. Net fee income rose 9% spurred by greater commercial activity and business growth in WM&I and CIB. •Despite inflation, increased activity and necessary investments in IT, significant restructuring efforts in all countries and cost control left administrative expenses and amortizations flat by year-end. As a result, net operating income rose 24%. •Net loan-loss provisions dropped 32% compared to 2020, due to covid-19-related provisions recorded in 2020 that were partially released in 2021. •Other gains (losses) and provisions increased 32%, mainly due to Swiss franc mortgage-related charges. Europe. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 16,312 14,673 +11 +11 Expenses -8,318 -8,275 +1 0 Net operating income 7,994 6,398 +25 +24 LLPs -2,294 -3,344 -31 -32 PBT 4,411 2,084 +112 +111 Underlying attrib. profit 2,978 1,413 +111 +110 Detailed financial information in section  [4.6 'Appendix'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9385) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 374 #### Spain Underlying attributable profit EUR 957 Mn Business performance Activity in the individuals segment picked up in 2021, especially in residential mortgages (where we reached record highs in new lending), and in consumer credit (which recovered to pre-pandemic levels in Q2). As a result, we gained market share in both products. In corporates, signs of recovery emerged in H2'21, with growth in working capital management (+15% year-on-year). However, the demand for loans slumped due to the extensions of grace periods in ICO funding and expectations regarding the Next Generation EU funds. In transactional products, we gained significant market share and expanded our customer base in PoS, which was reflected in a 44% increase in turnover compared to the previous year. Both credit and debit card turnover rose 17% year-on-year. Loans and advances to customers rose 0.4% versus 2020. In gross terms, excluding reverse repurchase agreements, growth was also 0.4%, driven by individuals and institutions. Customer deposits increased 5% compared to 2020. Excluding repos, growth was also 5%. Mutual funds grew 16% driven by sustained net positive inflows in the last seven quarters. Customer funds rose 8%. Results Underlying attributable profit amounted to EUR 957 million (9% of the Group’s total operating areas), 85% higher than 2020. By line: •Total income increased 3% propelled by the positive performance in net fee income (+7%), driven by transactional fees, insurance, and mutual funds, and, to a lesser extent, net interest income (+1%), supported by TLTROs. •Our cost reduction efforts continued to bear fruit (-7% year-on- year), improving the efficiency ratio by 5.5 pp to 47.7%. Net operating income increased 15%. •Net loan-loss provisions fell 8%, which enabled the cost of credit to improve 9 bps year-on-year. •Other gains (losses) and provisions increased due to higher operational risks and contingencies. Spain. Underlying income statement EUR million and % change / 2020 2021 2020 % Revenue 7,006 6,782 +3 Expenses -3,340 -3,607 -7 Net operating income 3,666 3,175 +15 LLPs -1,833 -2,001 -8 PBT 1,307 715 +83 Underlying attrib. profit 957 517 +85 Detailed financial information in section  4.6 'Appendix' #### United #### Kingdom Underlying attributable profit EUR 1,570 Mn Business performance We delivered a very strong performance in 2021 against a challenging backdrop. Our strategy remains focused on customer loyalty, simplification, improved efficiency and sustainable growth, while delivering outstanding customer experience. We are transforming the business to meet changing customer needs and delivering on our purpose to help people and businesses prosper. The increasing use of digital channels is demonstrated by our retention of 72% of refinanced mortgage loans thanks to new digital retention journeys, and we opened 90% of new current accounts and 98% of credit cards through digital channels. We also transformed our ways of working and reduced our head office and branch property estate. Strong mortgage growth, with GBP 7.5 bn net mortgage lending (GBP 30.7 bn of gross new lending) in a buoyant housing market. This performance was not reflected in total lending balances due to the transfer of the CIB business to the London branch. In gross terms excluding repos and the FX impact, loans and advances to customers were 0.5% higher. Customer deposits rose 5%. Excluding repurchase agreements and the exchange rate impact, customer deposits and total customer funds saw no material change. Mutual funds were 6% higher. Results Underlying attributable profit was EUR 1,570 million in 2021 (15% of the Group’s total operating areas), four times that of 2020. In constant euros, growth was 288%, as follows: •Total income was up 18%, driven by net interest income growth (+22%) from increased lending volumes and lower cost of funding. •Administrative expenses and amortizations dropped 1%, due to efficiency savings from our transformation programme, offsetting ongoing investments in IT and the business, as well as costs related to greater activity. As a result, net operating income was up 52%. •We recorded a net credit impairment write-back of EUR 245 million, due to the improved economic outlook and partial release of covid-19 provisions from 2020. •The negative impact from other gains (losses) and provisions increased compared to 2020, owing to legal contingencies. United Kingdom. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 4,863 3,980 +22 +18 Expenses -2,592 -2,539 +2 -1 Net operating income 2,271 1,441 +58 +52 LLPs 245 -677 — — PBT 2,197 508 +332 +318 Underlying attrib. profit 1,570 391 +301 +288 Detailed financial information in section  4.6 'Appendix' Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 375 #### Portugal Underlying attributable profit EUR 482 Mn Business performance Our digitalization-led transformation strategy was reflected in the number of digital customers (+7%). The simplification of our processes and commercial proposition drove double-digit growth in new mortgage lending and above-market increases in corporate loans, reaching new lending market shares greater than 20%. Loans and advances to customers rose 3%, as well as in gross terms and excluding reverse repurchase agreements, while the NPL ratio improved to 3.4%. We focused on ensuring the funds we capture are efficient in terms of costs and return on capital, recording strong growth in both mutual funds and insurance premiums. Customer deposits increased 6% boosted by the jump in demand deposits. Mutual funds grew 33%. As a result, customer funds increased 8% versus 2020. Results Underlying attributable profit amounted to EUR 482 million (5% of the Group’s total operating areas), 42% more year-on-year, backed by our efficiency (42%) and improved cost of credit. •Total income was up 3%, underpinned by net fee income (+14%) that was boosted by transactional fees, insurance and mutual funds, and ALCO portfolio sales. •We continued to implement our operating model transformation plan and improve the productivity of our network, leading to a 5% reduction in administrative expenses and amortizations. As a result, net operating income rose 10%. •Credit quality improvement enabled loan-loss provisions to fall to EUR 38 million, driving the cost of credit to a low of 9 bps. •Other gains (losses) and provisions amounted to a loss of -EUR 26 million compared to -EUR 29 million in 2020. Portugal. Underlying income statement EUR million and % change / 2020 2021 2020 % Revenue 1,341 1,296 +3 Expenses -563 -590 -5 Net operating income 778 706 +10 LLPs -38 -193 -80 PBT 714 483 +48 Underlying attrib. profit 482 338 +42 Detailed financial information in section  4.6 'Appendix' Poland Underlying attributable profit EUR 161 Mn Business performance In 2021, we focused on recovering pre-pandemic levels. We rapidly enhanced our digital capabilities, regaining the third position in NPS, and aligned our commercial proposition with our customers' needs. Loans and advances to customers rose 6%. In gross terms, excluding reverse repurchase agreements and exchange rate impact, growth was also 6%, driven by retail, where we hit record highs in mortgage sales, digital loans, bancassurance and SME lending. In CIB, we consolidated our market leadership as one of the country's preferred banks for executing capital market transactions. Customer deposits increased 9% compared to 2020, +10% excluding repos and the exchange rate impact. Demand deposits spiked in wholesale banking, individuals and SMEs. Mutual fund growth remained positive, boosting growth in customer funds (+10% in constant euros). Results Underlying attributable profit amounted to EUR 161 million (2% of the Group’s total operating areas). Compared to 2020, profit dropped 1% but grew 2% in constant euros, as follows: •Total income was 11% higher driven by transactional and WM&I fee income, and net interest income, as NII pressures eased following interest rate hikes in Q4. •Administrative expenses and amortizations were up 8% affected by high inflation and costs related to the rebound in activity. Net operating income rose 13%. •Loan-loss provisions plummeted, which enabled cost of credit to improve. •The negative impact from other gains (losses) and provisions (including the charges related to Swiss franc mortgages which distort the year-on-year comparison) increased 113% to -EUR 404 million. Poland. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 1,646 1,524 +8 +11 Expenses -663 -629 +5 +8 Net operating income 984 895 +10 +13 LLPs -200 -330 -39 -38 PBT 380 370 +3 +6 Underlying attrib. profit 161 162 -1 +2 Detailed financial information in section  4.6 'Appendix' Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 376 #### North America Underlying attributable profit EUR 3,053 Mn "We provide a full range of financial services with particular focus on retail, private and corporate banking" Héctor Grisi Checa Regional Head of North America and CEO of Santander México #### Strategy #### Business performance 1 #### Results 1 #### In North America, the Group's strategy is to accelerate profitable growth in the region, increasecollaboration #### between countries,create a joint value proposition and implement local priorities Customer fundssurged 9% boosted by retail and corporate deposits in the US and mutual funds.Loans and #### advances to customers increased 3%,driven by overall growth in Mexico and in auto in the US #### Underlying attributable profit surged 109%year-on-year, driven largely by higher revenue in the US and lower #### LLPs in the region 1. Excluding the exchange rates impact. Strategy In North America, our aim is to create a joint value proposition that boosts profitable growth in the region by leveraging the US's and Mexico's individual strengths and the Group’s global digital platforms. In 2021, we continued with our strategy to deploy capital to the most profitable businesses. •In Q1, the Group announced its intention to repurchase the outstanding c. 8.3% stake in Santander México it did not own. This transaction closed in Q4 with the Group having paid MXN 5.17 bn for Santander México shares and USD 138.5 million for its ADSs acquired in this operation, increasing its stake by 4.5% to 96.2%. •In Q2, BSI completed the acquisition of the Miami office of Crédit Agricole's global wealth management company. •In Q3, SHUSA entered into a definitive agreement with SC USA to acquire the remaining common SC USA stock that it did not own. This deal closed on 31 January 2022. •Also in Q3, SHUSA reached an agreement to acquire Amherst Pierpont Securities however it remains subject to completion, regulatory approval and other conditions. Synergies between countries leverage joint initiatives in our regional strategy, including: •further development of the USMX trade corridor. Revenue increased as CIB and Commercial Banking continued to deepen relationships with existing customers; •boosting customer attraction and retention through loyalty strategies, while broadening our tailored products and services proposition for a more straightforward customer experience. We are also working on developing payment solutions for the USMX trade corridor and leveraging PagoNxt in line with the Group’s strategy; •improved customer interaction through new segmentation. In the US, we launched a value proposition aimed at servicing affluent customers. In Mexico, we implemented a service model for high- income customers differentiating the value proposition into three segments for a more customer-focused experience; and •leveraging our regional capabilities to optimize expenses, improve profitability and increase collaboration between the US and Mexico and with the Group and continue reducing duplication in the operating model, platform and architecture. We are also consolidating IT functions across the region to address common challenges, comprising operations (know-how, digitalization, hubs, front-office and back-office) and the integration of the regional IT platform, MEXUS. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 377 Our strategy by country in 2021 was as follows: #### United States Santander US is positioned to maintain profitability above cost of capital across core businesses. We are refocusing our operations in the US around our consumer franchise and fee-based businesses that benefit from the Group’s connectivity or have a distinct competitive advantage. The simplification of our US businesses anchored in disciplined expense management and capital allocation is leading us to discontinue our home lending product operations and to review certain C&I segments. The strategic investments we announced in 2021 will improve our competitiveness and capture revenue and cost synergies (Amherst Pierpont and SC USA minorities). Our strategy has four key pillars: •Simplify our operating model (One  Santander US): optimize our Auto business by integrating our origination and funding strategy across our bank and finance company platforms. •Drive organic growth across our profitable business lines: –Consumer: Become a more relevant player in auto near-prime and prime segments through other OEM partnerships and relationships with large national dealer groups. –Commercial: Expand multifamily direct origination capabilities. –CIB: Deepen and up tier relationships with corporates; successfully integrate APS/SIS. –Wealth Management: Offshore market growth and capabilities to compete in the onshore market for Latin American individuals domiciled in the US. •Transformation of Consumer and Commercial Banking segments: Enhance value proposition, customer service and digital capabilities and drive a customer-centric mindset across the organization to deliver customer growth and product penetration. •Long term optionality: global Group initiatives to drive optionality in digital banking and payments. #### Mexico Multichannel innovation and digital channel momentum continued to strengthen our value proposition and introduce new products and services, allowing us to improve our customer attraction and loyalty strategy. •We continued to make headway with projects to generate synergies between commercial areas, in particular the project to increase profitability through the attraction of new payrolls and portabilities. We also improved our value proposition for collections and payments through new commercial alliances. •Our digital focus prompted campaigns to promote the use of electronic signatures and digital cards, such as the Like-U credit card, which allows customers to make online purchases, tailor benefits and support social causes. •We strengthening our real-time capabilities and implementing direct communication via WhatsApp to provide more direct and fluid digital customer assistance. •We confirmed a deal to partner with Samsung and MasterCard and launched Members Wallet, which includes such services as financing, payments, and balance and movement queries. In mortgages, we are one of the main originators due to our innovative products and services, such as Hipoteca Plus and Hipoteca Free. We were the first bank in Mexico to offer an interest rate tailored to the customer’s profile. In auto, we doubled our market share in one year. It exceeded 12% in December, due in part to a new alliance with Honda (together with the already established partnerships with Mazda, Tesla, Suzuki, Peugeot, among others). In SMEs, partnerships with Contpaqi and Getnet helped attract digital customers. We launched Getnet’s G Store, an initiative that enables SMEs to digitalize their business through an online store, developed by a professional team. We signed commercial alliances with the main chambers of commerce and launched TDC Agro which provides financing adapted to production cycles. We continued to promote financial inclusion and empowerment through Tuiio. We were named World’s Best Bank for Financial Inclusion by Euromoney. Loyal customers #### North America United States Mexico Thousands 4,226 373 3,853 YoY +7% +8% +7% Digital customers #### North America United States Mexico Thousands 6,706 1,036 5,499 YoY +9% +2% +10% Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 378 Business performance Loans and advances to customers grew strongly year-on-year, up 14%. In gross terms, excluding reverse repurchase agreements and the exchange rate impact, they rose 3% boosted by overall growth in Mexico (except SMEs) and lending growth in auto in the US. Without the impact of the Bluestem portfolio disposal, growth was 4%. Customer deposits grew significantly compared to 2020 (+19%). Excluding repurchase agreements and the exchange rate impact, growth was 7% driven by retail and corporate deposits in the US and demand deposits in Mexico. Mutual funds were up 15% in constant euros owing to our strong performances in both countries, reflecting the high level of liquidity in the market and success with our customer attraction and loyalty strategy. As a result, customer funds increased 9% in constant euros. North America. Business performance December 2021. EUR billion and YoY % change in constant euros A 134 +4% 137 +9% Gross loans and advances to customers excl. reverse repos Customer deposits excl. repos + mutual funds A. Excluding Bluestem portfolio impact. Results Underlying attributable profit in 2021 was EUR 3,053 million (29% of the Group's total operating areas). Compared to 2020, underlying attributable profit more than doubled; +107% in euros (+109% in constant euros). The year-on-year comparison by line was distorted due to the impact of the Bluestem portfolio and Puerto Rico disposals. Without them and the exchange rate impact, growth was 111%, as follows: •Total income was up 5%. Net interest income grew 3% as price management and hedging in the US more than offset lower net interest income in Mexico due to the negative impact of lower interest rates and ALCO portfolio sales in 2020. Net fee income grew 6% and leasing results increased 48%; •Administrative expenses and amortizations rose 10% primarily due to inflation and investments in digitalization. The efficiency ratio stood around 46%; •As a result, net operating income increased 2%; •Net loan-loss provisions plummeted 66% due to better market outlooks and a healthier operating environment, following heavy covid-19-related provisioning in 2020. The cost of credit improved notably to 0.93%, the NPL ratio stood at 2.42% and coverage was 135%; and •Other gains (losses) and provisions were more negative in 2021 mainly due to the early amortization of buildings and integration costs in the US. North America. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 10,986 11,034 0 +1 Expenses -4,967 -4,677 +6 +8 Net operating income 6,019 6,357 -5 -4 LLPs -1,210 -3,917 -69 -68 PBT 4,664 2,307 +102 +105 Underlying attrib. profit 3,053 1,472 +107 +109 Detailed financial information in section  4.6 'Appendix' Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 379 #### United States Underlying attributable profit EUR 2,326 Mn Business performance Loans and advances to customers increased 14% compared to 2020. In gross terms and excluding reverse repurchase agreements and the impacts of both the exchange rate and the Bluestem portfolio disposal, they grew 3% year-on-year as lending growth in CIB and auto more than offset tepid corporate demand. Considering the Bluestem portfolio disposal impact, loans increased 2%. Auto originations climbed 13% versus 2020 as our consumer business further leveraged its strong deposit base to support originations across the full credit spectrum. Customer deposits soared 23% year-on-year. Excluding repurchase agreements and the exchange rate impact, customer deposits grew strongly (8% higher), boosted by retail deposits. Mutual funds also increased 23% excluding the exchange rate impact. Results Underlying attributable profit in the year was EUR 2,326 million (22% of the Group's total operating areas), up 218% year-on-year in euros. On a like-for-like basis, excluding the Puerto Rico and Bluestem portfolio disposals and the exchange rate impact, growth was 237%. By line, excluding divestiture impacts: •Total income was up 11%. Though net interest income growth was impacted by loan volumes and interest rate pressure, it still increased 5% due to focused deposit price management. Net fee income increased 6% due to CIB and Wealth Management. Other operating income improved 53%, primarily due to outstanding auto lease results; •Administrative expenses and amortizations increased 10% due to increased activity and investments in strategic initiatives (such as digital transformation), as well as a USD 60 million donation to our community foundation in Q3 and Q4. Excluding the latter, costs rose 8%, resulting in a 3 pp increase in operating leverage; •Net loan-loss provisions plummeted 85% on the back of lower net charge-offs, better macroeconomic conditions and strong used vehicle prices; •The negative impact of other gains (losses) and provisions increased by 31%, mainly due to the early amortization of buildings and integration costs. United States. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 7,383 7,360 0 +4 Expenses -3,197 -3,079 +4 +8 Net operating income 4,187 4,281 -2 +1 LLPs -419 -2,937 -86 -85 PBT 3,652 1,250 +192 +203 Underlying attrib. profit 2,326 731 +218 +230 Detailed financial information in section  4.6 'Appendix #### Mexico Underlying attributable profit EUR 835 Mn Business performance Loans and advances to customers increased 15% year-on-year. In gross terms and excluding reverse repurchase agreements and the exchange rate impact, they climbed 8% year-on-year, driven by loans to individuals (mortgages +13%, consumption +17% and cards +3%) as well as corporates (companies +4% and CIB +14% offset a 15% decline in SMEs). Customer deposits grew 9% year-on-year. Excluding repos and the impact of exchange rates, they rose by 5%, propelled by demand deposits (+8%). Mutual funds were up 8% in constant euros, a sign of the success of our customer attraction and loyalty strategies, as well as efforts to reduce the cost of funding. Results Underlying attributable profit in 2021 was EUR 835 million (8% of the Group’s total operating areas), 10% higher than 2020. Excluding the exchange rate impact, it increased 8%. By line: •Total income fell 4%, impacted by lower gains on financial transactions (sales of ALCO portfolios in 2020) and net interest income (-2%), the latter a result of interest rate cuts and lower ALCO portfolio volumes. Net fee income increased by 6%, mainly due to transactional fees and insurance; •Administrative expenses and amortizations increased 4%, well below inflation, mainly driven by technology costs and the increase in amortizations; •As we move to a more normal operating environment, net loan- loss provisions were down 21%, following the high levels recorded in 2020 due to the pandemic; •Other gains (losses) and provisions improved 49% mainly due to the sale of foreclosed assets and lower contingencies charges. Mexico. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 3,579 3,651 -2 -4 Expenses -1,643 -1,552 +6 +4 Net operating income 1,936 2,098 -8 -9 LLPs -791 -979 -19 -21 PBT 1,126 1,082 +4 +2 Underlying attrib. profit 835 762 +10 +8 Detailed financial information in section  4.6 'Appendix Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 380 #### South America Underlying attributable profit EUR 3,328 Mn "We remain leaders in the region with a unique footprint that is bolstered by the Group's assets. We reaffirm our commitment to society, sustainability and shareholders by delivering profitable growth" Carlos Rey Regional Head of South America #### Strategy #### Business performance 1 #### Results 1 We continued to focus on deliveringprofitable growth, increasing customerloyalty and acquisition, and #### controlling risks and costsamid high inflation #### The innovation of our products and services led todouble-digit growthinloans and advances to customersandcustomer #### deposits.We are rolling outESG initiatives in the region Underlying attributable profit rose 24% year-on-year, driven by higher customer revenue, efficiency improvement and #### lower LLPs 1. Excluding the exchange rate impact. Strategy South America continued to show high growth potential and opportunities for banking penetration and financial inclusion progress. In this environment, we remained focused on growing our customer base by leveraging business opportunities, exchanging successful experiences across countries and boosting digitalization and customer loyalty. We continued to generate synergies across business units according to our strategy: •In consumer finance, Santander Brasil exported its new and used vehicle financing platform to other countries. We are also rolling out Cockpit in Chile, Argentina and Peru. We also made progress in Argentina and Peru on expanding the digital strategy for consumer credit and used vehicle finance. Santander Chile recorded strong insurance sales and in Uruguay, our consumer finance entity exceeded pre-pandemic growth. •In payment methods, we focused on e-commerce strategies and on instant domestic and international transfers. We continued to consolidate Getnet in Brazil and expand it to other countries, based on Santander Brasil's successful model; its market share is above 15% and in 33% e-commerce. In Chile, we reached 20% market share in PoS in just 10 months. We are also Argentina's second largest company in payments processing. •We continued to make headway in joint initiatives between CIB and corporates to deepen relations with multinational clients. That helped boost loyalty and customer acquisition in every market, (especially in Chile and Argentina). •We continued to promote inclusive and sustainable businesses, such as Prospera, our micro-credit programme in Brazil (with 708,000 active customers), Uruguay (10,000 entrepreneurs) and Colombia (in 167 municipalities). We also launched a microfinance entity, Surgir, in Peru; a green SME product in Chile and the first vehicle loan that seeks to offset emissions by acquiring neutral carbon credits in Uruguay. In Argentina, we partnered with a major energy provider on renewable energy financing. As a result, we were named the Best Bank for Sustainable Finance in Latin America in 2021 by Euromoney. Santander Chile was recognized by Global Finance as Outstanding Leader in Sustainable Finance in Latin America (alongside Santander México). Our customer service enhancement initiatives and our expanded product and service proposition earned us a top 3 NPS position in four markets, plus substantial customer growth in the region. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 381 The main initiatives by country were: #### Brazil The strong dynamics of our commercial proposition resulted in an all-time high customer acquisition in 2021. By segment: •Excellent performance in mortgages, with a 24% new lending market share in home equity. •In cards, we reached record-high customer acquisition and credit turnover (+28%). •Santander vehicles remained a market leader with a 19% share, while Santander Auto reached 20% penetration in new insurance contracts. •In SMEs, customer acquisition continued to grow. In  wholesale banking we remained the only Global Bank, Infrastructure, Agribusiness and Equity Bank. •In ESG, we channelled BRL 2.4 billion in solar energy loans, committed to be net zero by 2050 and continued to make progress with Plano Amazônia. As a result, we were named Best Bank in Brazil in 2021 by The Banker and one of the 10 best companies to work for in Brazil by GPTW 2021, in the DESTAQUE 50+, Women, LGBTQI+ and Ethnic-Racial categories. We were also recognized as the most sustainable company by Época Negócios 360°, and as one of the companies that are effecting the most change in the world by Fortune magazine. #### Chile We kept our place as the country's leading bank, in terms of assets and customers. Our strategy remained customer-centric, based on digital expansion and better customer service. As a result, we increased our market share in current accounts to 29% (+4 pp in the year), driven by Santander Life and Superdigital. •Getnet, our acquiring business, continued to gain momentum, installing more than 68,000 PoS. •Autocompara, driven by increased vehicle sales, achieved 17% growth in new lending. •In ESG, Santander Chile became the first local bank to be certified by Chile's Ministry of Women and Gender Equality. We also launched the Green SME initiative, to help SMEs obtain ESG certification, and made progress with solar energy lending. •As a result, we were named Best Bank in Chile by Euromoney and The Banker magazines and as the Best Latin American Bank for SMEs. #### Argentina We remained focused on offering the best customers service, through innovation, improved customer care and process digitalization, carrying out the following initiatives: •In digitalization, we rolled out Superdigital, which offers a fully- digital account. 78% of total sales were digital and our app was rated the best among banks on iOS and Android. •In Santander Consumer, we launched Todo en Cuotas, a fully- digital platform to increase access to lending. •We enhanced Getnet's value proposition (launched in Q4'20) and ranked second in payments processing. •We continued to expand MODO, which promotes digital payments and financial inclusion in the country. •In vehicles, we began to implement the CRM Cockpit system at dealerships. •In ESG, we partnered with an energy supplier to support companies in their transition to cleaner, more sustainable energy. Loyal customers #### South America Brazil Chile Argentina Others South America Thousands 10,625 8,037 832 1,614 141 YoY +23% +26% +9% +19% +27% Digital customers #### South America Brazil Chile Argentina Others South America Thousands 23,771 18,351 2,017 2,730 502 YoY +17% +18% +30% +3% +12% Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 382 #### Uruguay We strengthened our leadership among privately-owned banks in Uruguay and expanded our insurance and card product proposition. We saw strong growth in vehicles through partnerships with dealers which enabled us to increase our market share by 10 pp, propelling us to top of the pile. We made further progress with our digital and technological transformation strategy through Soy Santander, a fully-digital loyalty proposition for individuals. In ESG, we launched the first vehicle loan, with carbon credits to offset the emissions of every car the bank finances. In addition, GPTW named us the Best Bank in the country. #### Peru We continued to focus on global companies and the corporate segment, growing through more sophisticated products. In auto finance business continued to increase, reaching a 25% market share in new vehicles. We also acquired a market place for new and used vehicle financing. We continued to digitalize our services and internal processes to enhance customer experience. We processed 88% of transactions digitally on our office banking platform and Nexus. #### Colombia We continued to expand in Colombia. In CIB, we remained a market leader and participated in key transactions for nationwide development. In corporates, we further increased our portfolio (+36% year-on-year) aided by a joint CIB and corporate proposition. In consumer finance, we grew our vehicle portfolio by 51% in the year. In ESG, we continued to expand Microcredit (launched in June 2021) which is already present in 167 towns and cities. South America. Business performance December 2021. EUR billion and YoY % change in constant euros 129 +12% 162 +9% Gross loans and advances to customers excl. reverse repos Customer deposits excl. repos + mutual funds Business performance Loans and advances to customers climbed 9% year-on-year. Excluding reverse repos and the exchange rate impact, gross loans were 12% higher, with increases in all entities. Customer deposits rose 8% in euros compared to 2020. Excluding repurchase agreements and the exchange rate impact, they rose 11% (increasing across all our markets) driven by demand and time deposits. As mutual funds were up 4% (excluding the FX impact), customer funds were 9% higher in constant euros. Results Underlying attributable profit in the year was EUR 3,328 million (31% of the Group's total operating areas), 14% higher compared to 2020 (24% excluding the exchange rate impact). By line: •Total income increased 12% underpinned by strong customer revenue, driven by larger volumes and customer acquisition. Net interest income was 14% higher and net fee income increased by 13%, while gains on financial transactions remained stable. •Administrative expenses and amortizations increased 8% at a slower pace than inflation. In real terms, costs were 5% lower, owing to management and greater productivity. •Net loan-loss provisions dropped by 10% driven by covid-19- related provisions recorded in 2020. The cost of credit improved 72 bps to 2.60%. •Losses in other income and provisions increased in the year, owing mainly to Argentina and Brazil. South America. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 15,353 14,868 +3 +12 Expenses -5,380 -5,357 0 +8 Net operating income 9,974 9,511 +5 +13 LLPs -3,251 -3,924 -17 -10 PBT 6,249 5,267 +19 +28 Underlying attrib. profit 3,328 2,907 +14 +24 Detailed financial information in section  4.6 'Appendix Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 383 #### Brazil Underlying attributable profit EUR 2,325 Mn Business performance Our efforts to preserve business dynamism and improve service quality helped us rank first in NPS and hit an all-time high in customer acquisition in the year (5.1 million). Loans and advances to customers increased 14% year-on-year. In gross terms, excluding reverse repos and the exchange rate impact, they rose 13%, underscored by individuals (+22%), consumer finance (+12%) and SMEs (+15%). We continued to build the most complete auto platform in the market, reached record highs in customer acquisition figures in cards and hit a record in mortgage origination for individuals. In corporates, we expanded the range of available services in the app. GENT&, our artificial intelligence channel, registered more than 19 million interactions per month. Customer deposits increased 6% in euros with respect to 2020. Excluding repos and the exchange rate impact, growth was 4% driven by the increase in demand deposits (+5%). As mutual funds were 3% higher excluding the exchange rate impact, customer funds rose 4% at constant exchange rates. Results Underlying attributable profit was EUR 2,325 million in 2021 (22% of the Group's total operating areas), 10% higher compared to 2020. Excluding the exchange rate impact, it was 21% higher. By line: •Total income rose 10% boosted by 13% higher net interest income plus net fee income, benefitting from higher volumes and a larger customer base. •Administrative expenses and amortizations had no material change through efficient cost management and higher productivity despite average inflation of 8%. The annual efficiency ratio improved to an all-time record of 29.7%, while net operating income was 14% higher. •Net loan-loss provisions fell 1%, enabling cost of credit to improve 62 bps year-on-year to 3.73%. The NPL ratio was 4.88% and coverage stood at 111%. •The negative impact of other gains (losses) and provisions rose due to higher tax provisions in 2021 and releases in 2020. Brazil. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 10,884 10,866 0 +10 Expenses -3,236 -3,541 -9 0 Net operating income 7,649 7,325 +4 +14 LLPs -2,715 -3,018 -10 -1 PBT 4,618 4,045 +14 +25 Underlying attrib. profit 2,325 2,113 +10 +21 Detailed financial information in section  4.6 'Appendix #### Chile Underlying attributable profit EUR 637 Mn Business performance Our strategy remained focused on boosting customer satisfaction through an enhanced digital banking proposition and the transformation of our commercial network, with new Work Café branches. Santander Life and Superdigital continued to grow steadily. Life customers rose nearly 100% in just one year, reaching close to 900,000, Superdigital has 257,000 customers and we maintained the best NPS in the country. Loans and advances to customers decreased 4% year-on-year in euros. Excluding reverse repurchase agreements and the exchange rate impact, gross loans and advances to customers rose 6%. By segment, individuals grew 8% (boosted by mortgages), CIB by 17%, and corporates and institutions by 4%, which more than offset the fall in SMEs (-6%, affected by state-backed loans granted in 2020). Customer deposits rose 4% year-on-year, up 15%  excluding repurchase agreements and the exchange rate impact (on the back of demand deposits, +23%). Mutual funds fell 3% and customer funds rose 11% in constant euros. Results Underlying attributable profit was EUR 637 million in 2021 (6% of the Group’s total operating areas), up 47% compared to 2020. Excluding the exchange rate impact it was also 47% higher. By line: •Total income rose 8%, spurred on by 10% higher net interest income, driven by inflation and margin management, and by the 17% increase in net fee income, mainly due to payment methods. •Administrative expenses and amortizations rose 4% (below inflation) which resulted in 10% higher net operating income and an efficiency ratio of 38.4%. •Net loan-loss provisions dropped 43% due to covid-19-related charges in 2020, placing the cost of credit at 0.85%. The NPL ratio improved to 4.43% and coverage was 63%. •Other gains (losses) and provisions totalled -EUR 16 million (+EUR 16 million in 2020) due to contingencies in 2021. Chile. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 2,457 2,263 +9 +8 Expenses -942 -900 +5 +4 Net operating income 1,514 1,363 +11 +10 LLPs -341 -594 -43 -43 PBT 1,158 785 +48 +47 Underlying attrib. profit 637 432 +47 +47 Detailed financial information in section  4.6 'Appendix Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 384 #### Argentina Underlying attributable profit EUR 274 Mn Business performance We continued to make headway with our digitalization strategy and enhanced service quality, ranking second in NPS. In 2021, we further expanded our product offering through different initiatives, such as the launch of Superdigital and the opening of the first agribusiness branch. We boosted Getnet's value proposition, reaching 60,000 active customers and rolled out Cockpit and Todo en Cuotas. Our efforts to remain one of Argentina's top banks and a leader in deposit volumes were recognized by the market, as The Banker once again named us Best Bank in Argentina. Loans and advances to customers rose 25%. Excluding reverse repurchase agreements and the exchange rate impact, gross loans and advances to customers were 40% higher driven by lending to individuals, SMEs and corporates. Customer deposits increased 28% compared to 2020 in euros. Excluding repurchase agreements and the exchange rate impact, deposits grew 44% and mutual funds +90%. Results Underlying attributable profit was EUR 274 million in the year (3% of the Group’s total operating areas). Compared to 2020, underlying attributable profit was 53% higher. Excluding the exchange rate impact, it rose 73%. In particular: •Total income grew 39% underpinned by net interest income (+32%) and 74% higher net fee income, driven by transactional fees. Gains on financial transactions were 168% higher. •Administrative expenses and amortizations increased 44%, affected by inflation and the salary agreement. The efficiency ratio stood at 57.8% and net operating income rose 34%. •Net loan-loss provisions fell 30% due to covid-19-related provisioning in 2020. The NPL ratio improved to 3.01%. •Other gains (losses) and provisions increased their loss due to charges relating to downsizing. Argentina. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 1,393 1,128 +23 +39 Expenses -805 -632 +27 +44 Net operating income 587 496 +18 +34 LLPs -140 -226 -38 -30 PBT 311 200 +56 +76 Underlying attrib. profit 274 179 +53 +73 Detailed financial information in section  4.6 'Appendix #### Uruguay Underlying attributable profit EUR 110 Mn Business performance In 2021, we strengthened our business model with new products, such as Soy Santander, the launch of Getnet and partnerships and growth in auto finance. We also made progress with our technological transformation. We upgraded our channels and processes: we completed the roll out of Santander Lockers and our mobile branch saw great success. These initiatives were reflected in volumes. Loans and advances to customers increased 17% year-on-year in euros. Excluding reverse repurchase agreements and the exchange rate impact, gross loans and advances to customers rose 14%, due to lending to individuals, (mainly due to auto segment growth well above market rates). Customer deposits were 18% higher in euros compared to 2020. Excluding the exchange rate impact and repurchase agreements, they increased 15% backed by demand deposits (+20%). Mutual funds were up 22% excluding the exchange rate impact. Results In 2021, underlying attributable profit was EUR 110 million (1% of the Group's total operating areas). Compared to 2020, it fell 18% in euros. Excluding the exchange rate impact, it declined 12%. By line: •Total income declined 3% mainly due to the 6% lower net interest income, due heavily to lower interest rates, but partly offset by 9% growth in net fee income. •Administrative expenses and amortizations rose 11%, affected by the salary agreement under the collective labour agreement signed in 2021, and by higher costs from business growth. The efficiency ratio stood at 47.4%. •Net loan-loss provisions decreased 43%, due to covid-19-related provisioning in 2020. The cost of credit improved 111 bps to 1.19%, the NPL ratio stood at 2.65% and coverage at 107%. Uruguay. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 342 380 -10 -3 Expenses -162 -157 +3 +11 Net operating income 180 223 -19 -13 LLPs -32 -61 -47 -43 PBT 145 161 -10 -3 Underlying attrib. profit 110 134 -18 -12 Detailed financial information in section  4.6 'Appendix Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 385 #### Peru Underlying attributable profit EUR 63 Mn Business performance Loans and advances to customers rose 23% year-on-year (+26% on a gross basis, excluding reverse repurchase agreements and the exchange rate impact). Customer deposits surged 18% (+20% excluding the exchange rate impact and repurchase agreements), with growth in both demand and time deposits. Results Underlying attributable profit of EUR 63 million in 2021 was 18% higher year-on-year. Excluding the exchange rate impact, it soared 36%: •Total income grew 32% mainly led by customer revenue and gains on financial transactions stemming from higher customer activity. •Administrative expenses and amortizations were 35% higher, mainly driven by the launch of new businesses. Net operating income increased 31%. •Net loan-loss provisions increased slightly, although the cost of credit remained low at 0.58%. #### Colombia Underlying attributable profit EUR 25 Mn Business performance Loans and advances to customers rose 38% year-on-year in euros. In gross terms, excluding reverse repurchase agreements and the exchange rate impact growth was 51%. Customer deposits rose 28% in euros and 40% excluding the exchange rate impact and repurchase agreements, driven by 71% growth in demand deposits. Results Underlying attributable profit of EUR 25 million in the year was 27% higher than in 2020. Excluding the exchange rate impact, underlying attributable profit rose 34%. By line: •Total income grew 25% spurred by higher customer revenue. •Administrative expenses and amortizations rose 30% and net operating income was 21% higher. •Net loan-loss provisions fell 8% and the cost of credit declined year-on-year to 0.40%. Other South America. Underlying income statement EUR million and % change Net operating income Underlying attrib. profit / 2020 / 2020 2021 2020 % % excl. FX 2021 2020 % % excl. FX Peru 106 93 +14 +31 63 53 +18 +36 Colombia 43 37 +15 +21 25 19 +27 +34 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 386 #### Digital Consumer Bank Underlying attributable profit EUR 1,332 Mn “We aim to become the leading and largest digital consumer bank leveraging SCF’s footprint in auto and consumer finance and profiting from Openbank’s technology stack" Sebastian J. Gunningham Chairman of Santander Consumer Finance and VP of Openbank #### Strategy #### Business performance 1 #### Results 1 #### We prioritized the execution of our strategic operations to broaden our business capabilities, strengthen #### leadership in global digital consumer financeand generate significant growth for the Group #### We continued to manage the unstable environment.New lendingwas well above 2020 (+10% year-on-year), with strong new and used car volumes despite lockdowns and the semiconductor shortage. Demand gathered momentum as restrictions were lifted #### Underlying attributable profit stood at EUR 1,332 million (+16% year-on-year), driven byrevenue #### growth (+3% year-on-year) and better cost of credit 1. Excluding the exchange rate impact. Strategy Digital Consumer Bank (DCB) is the leading consumer finance bank in Europe. It combines Santander Consumer Finance's (SCF) scale and leadership in consumer finance and Openbank’s digital capabilities. SCF is Europe's consumer finance leader. It operates in 18 countries (16 in Europe, most recently in Greece, and presence in China and Canada) through more than 130,000 affiliated points of sale (mainly auto dealers and retail merchants). In addition, it is developing direct financing capabilities. Openbank is the largest fully-digital bank in Europe. It offers current accounts, cards, loans, mortgages, a state-of-the-art robo-advisor service and open platform brokerage services. Operating in Spain, the Netherlands, Germany and Portugal, it is working on expansion across Europe and the Americas. The aim of the Digital Consumer Bank concept is to generate synergies for both businesses: •SCF will leverage Openbank's IT capabilities to further improve its digital operating system and service to its customers and partners (i.e. OEMs, car dealers, retailers and individuals) at a lower cost. •Openbank will be able to offer retail banking products to SCF's large customer base to expand retail capabilities across Europe at lower customer acquisition costs. Loans and advances to customers by geographic area December 2021 Germany Nordic countries Spain France United Kingdom Italy Poland Others Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 387 #### Jose Luis de Mora “We are dedicated to supporting our partners and developing advanced technologies to give them a competitive edge, enabling us to become the top mobility financer and provider in Europe" #### CEO SCF In 2021 management focused on: •Auto: strengthening our auto financing leadership position by: renewing existing agreements and entering into new ones with car manufacturers, importers and dealers; reinforcing our leasing business; and developing new services (e.g. subscriptions) across our footprint. SCF also focused on providing advanced online financing capabilities to its partners to help boost their sales growth. The Auto business closed 2 million new contracts in 2021. By the end of the year, it was managing a loan book of EUR 91 billion. •Consumer (Non-Auto): gaining market share in consumer financing solutions by leveraging our position to grow in e- commerce, checkout lending and buy now, pay later (BNPL). The Consumer (Non-Auto) business closed 6 million new contracts in 2021. As at 31 December 2021, it managed a loan book of EUR 20 billion. In retail, we focused on improving digital capabilities to inspire loyalty among our 3.7 million retail (Openbank and SC Germany Retail) customers and to boost digital banking activity. •Cost reduction and simplification: accelerating digitalization to transform the business and improve efficiency. The main drivers were: –organizational simplification by transitioning from banking licences to branches in the Western hub. SCF is already working through branches in Portugal, Belgium, the Netherlands and Greece; –streamlining IT by leveraging technology and data capabilities with digital banking apps (APIs) and a Banking as a Service (BaaS) model. During 2021, DCB signed new agreements with retail distributors and manufacturers, supporting them in their commercial transformation and increasing the value proposition for end customers. We executed strategic deals to strengthen our presence in Europe in order to maintain our auto finance leadership and boost digital channels including: •the acquisition of Sixt Leasing in Germany (renamed Allane); •the kick off of the joint consumer finance venture with Telecom Italia Mobile in Italy, deploying a new consumer finance solution (for smartphones, modems, eWatches, etc.) which was used by more than 5,500 active retail points of sale and financed more than 600,000 TIM customers in 2021; •SCF's acquisition in the second half of 2021 of a 14.7% stake in Vinturas Holding, a company with a blockchain-based technology solution which allows manufacturers to digitally track vehicles throughout the entire logistics process, supporting our focus on digitalization; and •a non-binding agreement with Stellantis (the world's fourth largest car manufacturer) signed in December to renegotiate the terms of cooperation (binding contracts expected to be signed in Q1 2022). This new agreement will enable us to broaden our scope and be the captive financing partner for all Stellantis brands (Abarth, Alfa Romeo, Chrysler, Citroën, Dodge, DS, Fiat, Fiat Professional, Jeep, Lancia, Maserati, Opel, Peugeot, RAM and Vauxhall) in France, Italy, Spain, Belgium, the Netherlands, Poland and Portugal. In 2021, the leasing business doubled and digital credit and leasing sales tripled. We also launched a subscription business in Spain, Germany and Norway (to be launched  in our remaining countries in 2022-2023). Moreover, we ran several cost reduction and income initiatives (pricing and funding costs) to compensate revenue lost during lockdowns. To sustainably grow our business and contribute to the enhancement of the environment, we are developing new business solutions and partnerships to finance electric vehicles (we financed >113,000 fully- electric vehicles in 2021), electric chargers, solar panels, green heating systems, etc. while promoting carbon offset services (available in all countries). Additionally, we are an active issuer in the green bond market, with 5 issuances in 2021. In comparison with our pan-European competitors, our higher volumes and better efficiency (in absolute terms and trends) enabled us to maintain our leadership position and high profitability, thereby increasing our competitive advantage. Thanks to all these initiatives, DCB secured its great potential to continue enhancing the business and growing the 19 million active customer base. SCF was once again named Top Employer in Austria, Belgium, Germany, the Netherlands and Poland recognizing its HR best practices. Additionally, Great Place to Work named SCF among the best 25 companies to work for in Italy, France and the UK. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 388 #### Ezequiel Szafir “In applying Openbank's IT and business philosophy, we will continue to exceed our customer loyalty and engagement targets, while ensuring an unbeatable time to market” #### CEO SCF and Openbank Business performance Though pandemic restrictions affected commercial activity in early 2021 (mainly in Central Europe), new business recovered to pre- covid-19 levels in Q2 (driven by Germany and the Nordics). The second half of the year was affected by the semiconductor shortage which impacted new car production and by the reintroduction of some travel and social restrictions near year end. Despite those headwinds, new lending increased 10% year-on-year. We saw growth in all countries (except the Netherlands) and our business model, highly diversified by country with a critical mass in key products, supported further market share gains in Europe (approximately +50 bps). The stock of loans and advances to customers increased 1% year-on- year. In gross terms, excluding reverse repos and the exchange rate impact, it fell 1% to EUR 117 billion. Customer deposits increased 8% in euros and 7% excluding repos and the exchange rate impact. Mutual funds grew significantly. Our recourse to wholesale funding markets remained strong and diversified, with funding costs, rates and spreads remaining near all- time lows. Digital Consumer Bank. Activity December 2021. EUR billion and % change in constant euros -1% 117 YoY 58 +10% YoY Gross loans and advances to customers excl. reverse repos Customer deposits excl. repos + mutual funds Results Underlying attributable profit in 2021 was EUR 1,332 million (12% of the Group’s total operating areas). Compared to 2020, underlying profit increased 18% in euros. In constant euros the increase was 16% as follows: •Total income was up 3% driven by growth in net fee income (+6% due to increased new business volumes) and leasing. Net interest income fell slightly (-0.4%). •Administrative expenses and amortizations increased 3% due to perimeter effects (Allane and TIMFIN joint ventures) and digital transformation investments. Net operating income increased 3% and the efficiency ratio stood at 45.0%. Without perimeter effects, costs were flat year-on-year and 4% lower than in 2019. •Net loan-loss provisions dropped 45% driven by covid-19 provisioning in 2020. Positive credit quality performance, with a 38 bp reduction in the cost of credit of credit to 0.46% and an NPL ratio of 2.13% (-4 bps year-on-year). Coverage remained high (108%). •Negative impact from Other gains (losses) and provisions due to charges related to Swiss franc mortgages. •The largest contribution to underlying attributable profit came from Germany (EUR 405 million), the UK (EUR 277 million), the Nordic countries (EUR 247 million), France (EUR 145 million) and Spain (EUR 133 million). Digital Consumer Bank. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 5,339 5,166 +3 +3 Expenses -2,405 -2,329 +3 +3 Net operating income 2,934 2,837 +3 +3 LLPs -527 -957 -45 -45 PBT 2,213 1,929 +15 +14 Underlying attrib. profit 1,332 1,133 +18 +16 Detailed financial information in section  4.6 'Appendix Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 389 4.4 CORPORATE CENTRE #### Corporate Centre Underlying attributable profit #### - EUR 2,037 mn #### 2021 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 was 10% higher than in 2020, mainly due to lower gains on financial transactions resulting from exchange rate differences that affected our core units’ foreign currency hedges, as other results and provisions decreased year-on-year. Strategy and functions The Corporate Centre adds value to the Group by: •strengthening the Group's governance with global control frameworks and supervision. •fostering the exchange of best practices in cost management and generating economies of scale, that enable us to be one of the most efficient banks. •helping launch global business projects that leverage our global footprint to develop solutions for all business units, generating economies of scale. It also coordinates our relation with regulators and supervisors in the EU and performs the following financial and capital management functions: •Financial management: –Structural management of liquidity risks from funding the Group's recurring activity and financial stakes. Global Headquarters. Boadilla del Monte. –Diversification of funding sources (issuances and other), to maintain appropriate volumes, maturities and costs. The price of these transactions with other Group entities is the market rate plus a premium, which in liquidity terms, we support by immobilizing funds during the term of the transaction. –Active management of interest rate risk with derivatives with high credit quality, high liquidity and low capital consumption in order to reduce the impact of interest rate shifts on net interest income. –Strategic management of exposure to exchange rates in equity and dynamic on the countervalue of the country units’ annual results in euros. At year end, net investment hedges with spots, forwards and other equity instruments amounted to EUR 18,730 million (mainly in Brazil, the UK, Mexico, Chile, the US, Poland and Norway). •Management of total capital and reserves: efficient allocation of capital to each of the Group's entities in order to maximize shareholder return. Global Headquarters. Boadilla del Monte. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 390 Results In 2021, underlying attributable loss of EUR 2,037 million was 10% higher than in 2020 (-EUR 1,844 million) because: •gains on financial transactions were lower (EUR 427 million less than in 2020) dampened by negative foreign currency hedging results in 2021 and positive results in 2020. Net interest income fell 1%; •administrative expenses and amortizations, however, increased by 5% compared to 2020, due to general inflation upturn in 2021. Excluding this impact, they would have remained stable; •net loan-loss provisions grew from EUR 31 million in 2020 to EUR 155 million in 2021; and •the net impact of other gains (losses) and provisions (which include provisions, intangible assets impairment, cost of the state guarantee on deferred tax assets, pensions, litigation, one-off provisions for stakes whose value was affected by the crisis, etc.) went from -EUR 412 million in 2020 to -EUR 190 million in 2021. Global Headquarters in Boadilla del Monte. Corporate Centre EUR million Underlying income statement 2021 2020 % Net interest income (1,390) (1,374) 1.2 Net fee income (28) (29) (5.4) Gains (losses) on financial transactions A (140) 287 — Other operating income (28) (25) 12.2 Total income (1,586) (1,141) 38.9 Administrative expenses and amortizations (346) (329) 5.2 Net operating income (1,931) (1,470) 31.4 Net loan-loss provisions (155) (31) 399.1 Other gains (losses) and provisions (190) (412) (53.8) Profit before tax (2,277) (1,912) 19.0 Tax on profit 241 69 250.7 Profit from continuing operations (2,036) (1,844) 10.4 Net profit from discontinued operations — — — Consolidated profit (2,036) (1,844) 10.4 Non-controlling interests (1) 0 479.0 Underlying profit attributable to the parent (2,037) (1,844) 10.5 Balance sheet Loans and advances to customers 6,787 5,044 34.6 Cash, central banks and credit institutions 88,918 61,173 45.4 Debt instruments 1,555 1,918 (18.9) Other financial assets 2,203 1,645 33.9 Other asset accounts 116,007 112,807 2.8 Total assets 215,470 182,587 18.0 Customer deposits 1,042 825 26.3 Central banks and credit institutions 53,563 38,554 38.9 Marketable debt securities 74,302 57,240 29.8 Other financial liabilities 431 493 (12.5) Other liabilities accounts 7,113 9,443 (24.7) Total liabilities 136,451 106,556 28.1 Total equity 79,019 76,031 3.9 Memorandum items: Gross loans and advances to customers B 6,813 5,224 30.4 Customer funds 1,042 837 24.5 Customer deposits C 1,042 825 26.3 Mutual funds 0 12 (100.0) Operating means Number of employees 1,724 1,692 1.9 A. Includes exchange differences. B. Excluding reverse repos. C. Excluding repos. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 391 4.5 Secondary segments #### Retail Banking Underlying attributable profit EUR 7,869 mn "We remained committed to our digital transformation and multi-channel strategy with a clear focus on customers and their satisfaction" Smart Red branch, Spain #### Strategy #### Business performance 1 #### Results 1 Santander continued to strengthen itscommitmentto customers and society, boosting digitalization and #### offering new products and servicesthat meet their needs #### Year-on-year growth inloans and advances to customers and customerdeposits, driven by individuals, benefitting #### from economic recovery #### Underlying attributable profit up 78% in eurosto EUR 7,869 million(+83% in constant euros)due to strong #### performance in core P&L lines 1. Excluding the exchange rate impact. Strategy The economic and social impacts of the global health crisis moved us to strengthen our commitment to our customers and society, and play a key part in economic and business recovery in the countries where we operate. The crisis brought forward the implementation and development of our digital transformation strategy. It focuses on our multi-channel approach and the digitalization of businesses and processes. We are adapting channels to new business trends under a hybrid model that prioritizes digital customer service, and complements the service of our branches, which are well equipped to handle operations that are more complex and those that require tailored assistance from our professionals. The personalized support we offer to our customers, also forms part of our aim to continuously enhance customer care and service. This enabled us to rank in the top 3 in customer satisfaction (measured by NPS) in eight of our markets in 2021. Thanks to our efforts to improve customer care and services, our leadership position in the banking industry in digitalization and focus on meeting our customers' needs, we registered double-digit growth in loyal and digital customers. Loyal customers Digital customers Total customers Digital sales Millions Millions Millions % of total sales +11% +12% +3% +10 pp Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 392 The number of loyal customers increased 11% year-on-year to more than 25 million, digital customers rose 12% year-on-year to more than 47 million and 54% of our of total sales were digital. These increases were spurred by our commercial initiatives and specialized products and services for each segment: •Individuals: strong mortgage growth in almost all markets, through initiatives. We were the first bank in Mexico to offer a tailored interest rate based on customer profiles. In the UK, the shift towards digitalization enabled us to process most new mortgages, current accounts and cards through digital channels. •Auto finance: Digital Consumer Bank continued to strengthen our leadership position in Europe. We renewed agreements and entered into new ones with manufacturers, importers and distributors.  In the US, we signed new agreements with the country's largest auto dealer groups. In Mexico, we doubled our auto market share, partly due to a new alliance with Honda.  While Santander Brasil exported its management platform for financing new and used vehicles to other countries, we are also rolling out Cockpit in Chile, Argentina and Peru. •Corporates: we continued to roll out new services. In  Spain, we launched the integrated management platform for Next Generation EU programmes. In Portugal, new corporate lending grew at a fast pace, especially in SMEs. In Poland, we focused on building a common platform to offer comprehensive services to our customers. Regarding our branch network transformation, we remain committed to boosting our multi-channel proposition. In addition to digital channels, we have 9,879 branches. Our aim is to improve customer experience and offer advice on everything they need through the channel that best suits their preferences and requirements. Business performance Loans and advances to customers increased 4% year-on-year. Excluding reverse repurchase agreements and the exchange rate impact, gross loans rose 2%, boosted by South America. Customer deposits were 8% higher compared to 2020. Excluding repurchase agreements and the exchange rate impact, they were up 6%, driven by growth in demand deposits (+8%). Results Underlying attributable profit was EUR 7,869 million (74% of the Group’s operating areas). Compared to 2020, underlying attributable profit was up 78%. Excluding the exchange rate impact, it was 83% higher, as follows: •Total income increased 7% on the back of net interest income (+7%) and net fee income (+4%). Gains on financial transactions dropped 18% affected by the high levels recorded in the second and the third quarter of 2020. •Administrative expenses and amortizations increased slightly (+1%, well below inflation), benefiting from positive cost management and productivity improvement. •Loan-loss provisions plummeted 37% mainly due to covid-19- related provisioning in 2020. •Other gains (losses) and provisions increased its loss versus 2020, mainly due to charges for Swiss franc mortgages. Retail Banking. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 39,636 38,022 +4 +7 Expenses -17,193 -17,286 -1 +1 Net operating income 22,443 20,736 +8 +12 LLPs -7,114 -11,632 -39 -37 PBT 13,265 7,866 +69 +74 Underlying attrib. profit 7,869 4,420 +78 +83 Detailed financial information  in section  4.6 'Appendix Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 393 #### Santander  Corporate & #### Investment Banking Underlying attributable profit EUR 2,167 mn "The transformation we started a few years ago is paying off. In an environment shaped by sustainable development and digitalization, more and more clients are relying on SCIB's leadership and expertise to guide their strategic decision-making and business transformation" José M. Linares Senior Executive Vice-President and Global Head of Santander CIB #### Strategy #### Business performance #### Results #### Expanding ourcontent and product propositionto become ourclients' strategic advisors,whiledigitalizing #### our business faster #### Business in 2021 was marked byrecovery in SCIB's major marketsdespite the pandemic upsurge and uncertainty #### caused by rising inflation and geopolitical tension #### Underlying attributable profit reached EUR 2,167 million, driven by  higher revenue and strong LLP reductions. #### Efficiency was best-in-class andRoRWAwas2.23% Strategy SCIB continued to make headway with its strategy to strengthen its position as our clients' strategic advisor of choice, by boosting specialized high value-added products and services that enable us to optimize the return on capital. In line with this strategy, SCIB focuses on high growth potential sectors which require considerable expertise. Our ESG team was involved in transactions in many sectors and markets, such as Plug Power's M&A deals to lead the hydrogen sector alongside Groupe Renault and Acciona; the issuance of the 2053 Green Gilt, to support the UK's environmental targets; and Vineyard Wind 1, the largest offshore wind farm ever built in the US. Created in Q1'21, our Digital Solutions Group (DSG) team supports the development and digital transformation of our current and potential customer base. The several transactions it took part in include the Robinhood's IPO in the US and the issuance of the European Investment Bank's first Digital Bond, which earned Euromoney's 2021 Global Awards for Excellence in the with the Financial Innovation Deal of the Year category. Lastly, as part of our plans to continue to geographically diversify and accelerate growth in the United States, Santander announced the acquisition of broker-dealer Amherst Pierpont, a market-leading franchise in fixed income and structured products. Though the deal is still subject to regulatory approvals, it will strengthen our product offering, value proposition and distribution capabilities in the US, with 230 seasoned professionals who serve more than 1,300 institutional clients across the country and will boost our global business. SCIB held leading positions in several rankings in 2021: •In Project Finance and Export & Agency Finance we ranked top 3 in Latin America and Europe in volumes of transactions that promote renewable energies  (Top 3 in Green Global) the cornerstone of our ESG strategy. •In Debt Capital Markets (DCM) we are the market leaders in Spain and ranked among the top 5 underwriters by volume of corporate debt  in Latin America. •In Equity Capital Markets (ECM) we ranked in the top 3 in Latin America and number one in Spain and Mexico. In the year, SCIB also received numerous awards in several categories, including Global Finance and Euromoney. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 394 Ranking 2021 Award/ranking Source Area Global Financial Adviser of the Year PFI (Project Finance International) GDF Global ESG Deal of the Year: Vineyard Wind (US) PFI (Project Finance International) GDF Europe Deal of the Year: Enfinium (UK) PFI (Project Finance International) GDF Americas ESG Deal: Intersect Power (US) PFI (Project Finance International) GDF Americas Transport Deal of the Year Americas: Rio Magdalena 2 (Colombia) PFI (Project Finance International) GDF & GTB Best Bank for Cash Management in Latin America Global Finance GTB Best Bank for Payments and Collections in Latin America Global Finance GTB 2021 Bank of the year in Argentina, Chile and Southern Cone Latin Finance GDF & B&CF Investment Bank of the Year in Mexico Latin Finance GDF & B&CF Infrastructure Bank of the Year-Andes Latin Finance GDF Best Bank for Latam FX-W Markets Best Bank for USD/BRL FX-W Markets Deals of the Year 2021 (Europe) The Banker GDF Deals of the Year 2021 (Americas) The Banker GTB & B&CF Deals of the Year 2021 (Middle East) The Banker GDF Best Transactional Bank Latin America The Banker GTB Sustainability Bond of the Year Environmental Finance GDF Lead Manager of the Year Environmental Finance GDF Best Bank for Financial Inclusion Euromoney Global Financial Innovation of the Year Euromoney GDF Business performance Business in 2021 was marked by recovery in SCIB's core markets despite the pandemic upsurge and uncertainty caused by rising inflation and geopolitical tension. Against this backdrop, SCIB continued to offer clients tailored financing solutions, strategic advice and assistance with capital markets to meet their needs, and advice on their digital transformation and sustainability goals. Each business's revenue performance (in constant euros) was as follows: •Global markets: revenue was 12% higher year-on-year. The markets business recorded strong revenue growth in 2021 underscored by sound management of the trading books and sales to clients whom we have continued to support with structured hedging products, especially in Spain and Portugal, Asia, Argentina, Brazil and Chile. Solid performance of interest rate and FX hedging products, fixed income, lending and equity derivatives. In 2021, SCIB developed the first sustainable market products, such as the ESG Linked Derivatives, whose price is based on KPIs of Santander's corporate ESG programmes and our customers; and the first ESG Impact Derivatives, which help Santander run environmental projects with a portion of their proceeds. SCIB also issued structured notes and ESG deposits. •GDF (Global Debt Financing): Santander continued to support clients in accessing liquidity sources. As a result, funding volumes spiked in the year and total income was 14% higher year-on-year. We shifted our strategy towards sustainable financing in the loan and bond markets. In particular, we issued our first social project bond with Sacyr in Colombia plus the sustainable bonds of the Kingdom of Spain, Republic of Chile, the European Investment Bank and others. We continued to be a global leader in structured finance. SCIB ranked number one in Latin America and Europe thanks to the large renewable projects we led. We also began to engage in our clients' leveraged buy-outs on companies in Europe such as Burger King, Masmovil, Urbaser and the privatization of Aggreko. •Global Transactional Banking (GTB): Total income was 1% higher than in 2020. Cash Management improved during the year as transactional banking continued to recover, with greater commercial activity in most of the division's core countries, offsetting the negative impact of low interest rates in some, though rises are expected in 2022. Export & Agency Finance continues to provide financial and risk mitigation solutions for cross-border capex transactions in all markets. It benefits from the support of Export Credit Agencies (ECAs) and Multilateral Lending Agencies (MLAs) to serve our entire client base. We were particularly active in green finance for environmental projects and in covid-19 impact mitigation programmes. We also maintained our market leadership with solid growth (especially in Europe). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 395 In 2021, the Trade & Working Capital Solutions team enhanced its industry leadership. It closed large transactions with the development of new products and strategic asset allocation initiatives. Of note was the launch of the Inventory Finance product (which rounds off our working capital solutions proposition). To maintain our double-digit growth rate sustainably, we expanded our client base and developed tools that optimize the use of our balance sheet. In particular, we rolled out an alternative investment fund with Santander Asset Management for trade assets, and entered into an EUR 2 billion agreement with the EIB to expand our confirming programmes. Total income breakdown Constant EUR million TOTAL +10% Other +44% Global Debt Financing +14% Global Transactional Banking +1% Markets +12% •Corporate Finance (CF): we saw significant revenue growth (+44% vs 2020) driven by an increase in mergers and acquisitions (M&A) and equity capital market (ECM) transactions. In M&A, we focused on transactions for assets related to the energy transition and renewable electricity. In two green hydrogen-related transactions, we advised Plug Power in the creation of a joint venture with Renault and another with Acciona Energía. In renewable energies, we advised Canada's Northland Power and Italy's ENI on acquisitions in Spain. In the technology, media and telecom (TMT) sector, we advised on digital infrastructure transactions. SCIB advised Telefónica in three sales of fibre-to-the-home (FTTH) companies worth more than USD 2.5 billion, which will help expand digital inclusion in Chile, Brazil and Colombia. The infrastructure M&A market also had a good year. We carried out more than 15 global transactions. In particular, Platinum Equity acquired the Spanish environmental services group Urbaser and Goldman Sachs Infra sold the last package of the RCO highway in Mexico. As a result, SCIB was at the top of advisor rankings for Spain and Portugal and for Latin America. ECM revenue spiked, strengthening our market leadership in Spain and Portugal, Brazil, Mexico and Poland. We led major transactions of the year, such as Acciona Energía's EUR 1.5 billion IPO in Spain (the largest in Europe's renewable energy industry), Universal Music Group's EUR 20 billion IPO (the largest spin-off ever) and EXI's IPO (the largest equity offering in Mexico since 2017). We performed exceptionally well in Brazil. Our 28 transactions (16 IPOs and 12 primary share offerings), included Armac's BRL 1.5 billion IPO and Brisanet's BRL 1.4 billion IPO and Lojas Renner's BRL 4 billion follow-on public offering. Results Underlying attributable profit in 2021 increased 21% to EUR 2,167 million (20% of the Group's total operating areas). Excluding the exchange rate impact, growth was 26%, strongly backed by GDF and Markets. RoRWA was 2.23% (1,86% in 2020).  By line: •Total income was 10% higher driven by net fee income (+16%) and gains on financial transactions (+9%). •Administrative expenses and amortizations rose 15%, compared to 2020 due to investments in products and franchises under development. However, efficiency improved year-on-year and remained a benchmark in the sector (40%). •Sharp improvement in loan-loss provisions compared to 2020, due to significant increases last year stemming from the widespread macroeconomic downturn caused by the covid-19 pandemic. Better-than-expected economic conditions at the beginning of 2021 led us to release provisions and improved the credit outlook for the customer portfolio, which had an impact on the level of provisions recorded during the year. SCIB. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 5,692 5,332 +7 +10 Expenses -2,301 -2,038 +13 +15 Net operating income 3,392 3,294 +3 +7 LLPs -130 -470 -72 -72 PBT 3,251 2,689 +21 +26 Underlying attrib. profit 2,167 1,798 +21 +26 Detailed financial information in section  4.6 'Appendix Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 396 #### Wealth Management & #### Insurance Underlying attributable profit EUR 907 Mn "In 2021, we returned to double-digit growth rates and consolidated the transformation of our businesses, laying the groundwork for a new phase of growth in the coming years" Víctor Matarranz Senior Executive Vice President and Head of Wealth Management & Insurance #### Strategy #### Business performance 1 #### Results 1 #### We continue toinnovate and improveour product offering #### (especiallyESGproducts), while increasing sales through digital channels #### Totalassets under managementwere8% higher than in 2020, andfunds and investments increased 9%a #### sign of the gradual recovery of activity #### Total contribution to profitin 2021 wasEUR 2,313 million, #### 12% higherthan in 2020, due to greater assets under management and higher net fee income 1. Excluding the exchange rate impact. Strategy We maintain our objective to be the best responsible wealth and protection manager in Europe and Latin America, as one of the Group's growth drivers with a 12% greater total contribution to profit. •In Private Baking, we continued to revamp our product proposition, focusing on sustainable (ESG), alternative (e.g. private markets, real estate and venture capital) and thematic products. We also continued to expand our discretionary advisory service to tailor value-added solutions to our clients' specific investment needs and risk profiles. Those platforms recorded 20% growth in 2021. Regarding our ESG investment product range, SAM and third-party ESG products raised more than EUR 18 billion in assets under management classified according to Article 8 and 9 of the Sustainable Finance Disclosure Regulation (SFDR) or similar criteria in Latin America, which integrate a wide range of sustainability strategies. Santander Future Wealth is our line of thematic funds and structured products to help private banking clients invest in innovation and disruptive technologies. This joint initiative with SAM has reached EUR 3.9 billion in investment funds alone since launching. Furthermore, our alternative product proposition exceeded EUR 1.8 billion in SAM and third-party alternative funds (Hamilton Lane, Bain, Brookfield, Blackstone, Harbour Vest, Owl Rock and Everwood, among others). Also of note was our Private Banking platform, with a large number of clients operating across countries and a shared business volume of EUR 9.9 billion (+34% versus 2020, mainly due to operations in Mexico, Brazil, the US and the UK). In 2021, we launched new digital private banking front-ends in Portugal and Spain and new manager front-ends in Poland. •Santander Asset Management continued to improve. We rounded off our local and global product proposition. We launched Santander ON ('oriented to your needs'), a range of solutions to cover our clients' diverse investment needs. It follows a systematic and quantitative management methodology, including various investment themes and our ESG integration model. The Santander GO product range grew strongly, reaching EUR 3.8 billion. Also, the hub in Luxembourg, which serves all of Europe, amounted to more than EUR 11.5 billion. We made further headway with our ESG strategy; we offer 29 ESG products globally, and our assets under management stood close to EUR 11.3 billion. We are also focused on strengthening our proposition of products classed under Article 8 (SFDR). Our range of alternative products aimed primarily at our institutional clients is becoming more robust. Five funds (Alternative Leasing, Private Debt fund of funds, Trade Finance EUR, Santander European Hospitality opportunities and Sancus Green Investments II SCR) already launched. As part of our operational and technological transformation, we fully rolled out the Aladdin platform in all our countries in 2021. We are also about to launch our European Robo-advisor proposition in Spain and Chile in 2022. •In Insurance, we continued to see growth in premiums (+4% year- on-year). Protection remained our main growth driver (+12%). Net fee income grew overall by a remarkable 13%. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 397 Regarding our digital strategy, the number of insurance policies sold via our digital channels doubled and now account for 17% of total sales. We closed an important agreement with Allianz in Poland, which we expect will strengthen our position in the country. Motor vehicle insurance business performed well, with a portfolio of almost 2 million policies (most on the Autocompara platform) and a strong increase in revenue (+27%) compared to 2020. Business performance Total assets under management amounted to EUR 399 billion, 8% higher year-on-year, driven by the gradual business recovery following the hardest months of the health crisis. Business performance: SAM and Private Banking December 2021. EUR  billion and % change in constant euros / 2020 +8% +9% +7% +15% +6% +7% +23% Note: Total assets marketed and/or managed in 2021 and 2020. (\*)    Total adjusted customer funds of private banking managed by SAM. •In Private Banking, the volume of client assets and liabilities reached EUR 253 billion. Net new money amounted to EUR 11.7 billion in 2021 (4.6% of total volume). Funds reached EUR 4.4 billion. Net profit in 2021 was 9% higher compared to 2020 at EUR 433 million, due primarily to 13% higher net fee income. Threshold Private Banking clients rose 8% to 117,000 clients. •SAM's total assets under management increased 7% compared to 2020 to EUR 194 billion. Record-high cumulative net sales mainly in Spain, Mexico, Luxembourg, Argentina and Poland amounted to EUR 8 billion (4.1% of total AuMs). SAM’s contribution to the Group's profit (including ceded fee income) was EUR 562 million, 16% higher year-on-year. •In Insurance, the gross written premiums in 2021 amounted to EUR 8.6 billion (+4% year-on-year). In particular, non-credit- related protection business grew 12% and total fee income increased 13%. Total contribution to profit (including ceded fee income) increased 12% year-on-year to EUR 1,318 million. Results Underlying attributable profit was EUR 907 million in 2021, up 10% year-on-year. Excluding the exchange rate effect, it was 13% higher: •Total income increased 9% mainly driven by the higher volume of assets under management, net fee income growth and greater insurance protection. Total fee income generated, including fees ceded to the branch network rose 12% to EUR 3,397 million and represented 32% of the Group's total fee income. •Administrative expenses and amortizations increased 5%, due to investments and costs stemming from greater commercial activity. •As a result, net operating income increased 11%. The total contribution to the Group (including net profit and total fees generated net of tax) was EUR 2,313 million in 2021, 12% higher than in 2020 in constant euros. Total contribution to profit EUR million and % change in constant euros 2,313 〉 +12% / 2020 WM&I. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 2,166 2,030 +7 +9 Expenses -902 -872 +4 +5 Net operating income 1,264 1,159 +9 +11 LLPs -27 -28 -5 -5 PBT 1,247 1,132 +10 +13 Underlying attrib. profit 907 823 +10 +13 Detailed financial information in section  4.6 'Appendix Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 398 #### PagoNxt Underlying attributable profit -EUR 253 Mn "After just over 12 months of existence, I'm thrilled to see the progress we've made to become a one-stop-shop that meets all payment needs for merchants, SMEs, corporates and consumers. We're investing in world-class technology and hiring top payments talent to continue to innovate and launch new products and services that will improve user experience" Javier San Félix CEO of PagoNxt #### Strategy #### Business performance #### Results #### Accelerating commerce for merchants and for their connected ecosystem of customers and business partners, on the back of our #### cloud-native global payments platform , Santander's large-scale distribution capabilities and open market access PagoNxt achieved #### significant growth across markets in 2021 . In the last 12 months, Getnet's base of active merchants grew 6% and Total Payments Volume was 50% higher PagoNxt's revenue is growing fast. It amounted to EUR 495 mn in 2021, 47% higher in H2 than in H1 Strategy PagoNxt aims to accelerate commerce for merchants and for their connected ecosystem of customers and business partners. Its strength lies in its digital commerce proposition for merchants and in its exposure to fast-growing markets, complemented by distinctive assets that are progressively connecting corporates and consumers. We are fulfilling our purpose with: •Our strong track record serving merchants through a digital commerce proposition. We serve merchants of different sizes according to their payment needs with a full suite of merchant service products, which include PoS payments, e-commerce and omnichannel, boasting local and cross-border coverage. We also offer value-added solutions that leverage our in-house product development and third-party providers. •Reinforced adjacencies that deliver value to businesses and consumers. We are developing solutions to expand our breadth of payment services to cover the entire commerce network. In combining the cutting-edge platforms, One Trade and Ebury, PagoNxt is offering a complete portfolio to meet SMEs' and institutions' international trade needs and help them thrive across borders with a simple, secure solution to transfer money globally. This is complemented by our Payments Hub's instant payment capabilities. In consumer, our Superdigital platform connects merchants with the underbanked and with low-income individuals across Latin America, providing them with a low cost-to-serve model and innovative offering. •Our progressively integrated value proposition that leverages our shared cloud-native, data-driven global payments platform. PagoNxt's real-time, flexible and highly scalable technology platform is fully cloud- and API- based, and enterprise-ready. It ensures access to PagoNxt's latest features with simpler integration. We process and generate insights to help our customers and their businesses harness the full power of data and make data-driven decisions. •Santander’s distribution network and open market capabilities. Our connection to Santander gives us privileged access to 153 million customers, plus proven distribution capabilities, that enable us to scale up faster and save acquisition costs. To expand our global reach, we are leveraging synergies with Santander’s existing presence but also developing open market distribution capabilities outside its footprint. Our full autonomy and clear governance ensure delivery speed, as we operate independently, with our own people, culture, technology and operations. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 399 Business performance In late 2020, PagoNxt launched as a global payments platform to bring Santander's most innovative payment assets under one roof, build on the established Getnet franchise and achieve global leadership in the payments market. Since inception, we have had several important achievements: •PagoNxt is now a standalone operation. Its talent, processes and corporate governance provide the necessary base for faster growth. It has autonomous decision-making processes and a diverse talent pool with a strong technological background, 60% of whom are technologists and payments experts. We are investing to expand our payments proposition, increase our scale and enter high growth markets. •Getnet, our payment solution for merchants, increased its footprint and achieved significant growth in 2021. Its Total Payments Volume (TPV) grew 50% to EUR 116 billion and its active merchants totalled 1.2 million a 6% increase year-on-year. In Latin America, Getnet continued to expand. It achieved TPV market share exceeding 15% TPV market share in Brazil and Mexico, and it also launched commercial operations in Chile and Uruguay. Getnet Brazil is now fully integrated within PagoNxt after the completion of its spin-off from Santander Brasil and subsequent listing on the B3, in São Paulo and on the Nasdaq. Likewise, Getnet Europe began operations in H2 as a pan-European acquirer after the integration of former Wirecard's technology, and consolidated its position in Spain with a 14% TPV market share. •PagoNxt's global technology platform continued to enhance its capabilities and scale: –On the merchant side, our global platform added multiple new services including digital onboarding and PoS, alternative payment methods (APMs) and other payment schemes. We rolled it out in the EU, Argentina and Uruguay, and accelerated migration in other countries (e.g., 80% of transactions in Mexico have already been transferred). –On the trade side, our One Trade value proposition expanded its international payments, FX and trade finance solutions for SMEs and institutions. It is already connected to eight countries, providing, for example, instant payments in BRL in Brazil. –Our Payments Hub platform complements that proposition with its instant payments access to schemes in GBP and EUR. –On the consumer side, our Superdigital global platform developed digital wallets and payments for the underbanked. It was rolled out in Argentina, ahead of an initial launch of friends & family in Colombia and Peru. Merchant Active merchants Total Payments Volume Millions EUR billion 1.19 1.12 +6% +50% 115.9 77.4 Dec-20 Dec-21 2020 2021 Results In 2021, underlying attributable loss increased year-on-year to -EUR 253 million (-EUR 116 million in 2020), driven by high investments in new, developing projects and platforms (mainly in Trade), and by the integration of Wirecard's assets into Merchant in January 2021. However, total income increased 39% in 2021, with a strong jump in net fee income (+47% at constant exchange rates). PagoNxt. Revenue performance Constant EUR million 495 338 +47% 2020 2021 Our performance was backed by the activity recovery in recent quarters. Volumes exceeded pre-pandemic levels, mainly in Merchant (strong increase in the number of transactions, merchants and total payments volumes in most of the countries). PagoNxt. Underlying income statement EUR million and % change / 2020 2021 2020 % % excl. FX Revenue 495 356 +39 +47 Expenses -673 -443 +52 +57 Net operating income -178 -86 +106 +96 LLPs -10 -12 -17 -10 PBT -227 -101 +124 +116 Underlying attrib. profit -253 -116 +118 +114 Detailed financial information in section  4.6 'Appendix Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 400 4.6 Appendix Primary segments EUR million #### Europe #### Spain Underlying income statement 2021 2020 % % excl. FX 2021 2020 % Net interest income 10,952 9,911 10.5 9.5 3,994 3,957 0.9 Net fee income 4,344 4,000 8.6 8.6 2,482 2,314 7.3 Gains (losses) on financial transactions A 755 869 (13.1) (12.7) 552 781 (29.3) Other operating income 261 (107) — — (21) (269) (92.0) Total income 16,312 14,673 11.2 10.5 7,006 6,782 3.3 Administrative expenses and amortizations (8,318) (8,275) 0.5 (0.2) (3,340) (3,607) (7.4) Net operating income 7,994 6,398 24.9 24.5 3,666 3,175 15.5 Net loan-loss provisions (2,294) (3,344) (31.4) (31.7) (1,833) (2,001) (8.4) Other gains (losses) and provisions (1,289) (970) 32.9 32.5 (526) (459) 14.6 Profit before tax 4,411 2,084 111.6 111.0 1,307 715 82.7 Tax on profit (1,362) (594) 129.4 129.1 (350) (199) 75.9 Profit from continuing operations 3,049 1,491 104.6 103.8 957 516 85.3 Net profit from discontinued operations — — — — — — — Consolidated profit 3,049 1,491 104.6 103.8 957 516 85.3 Non-controlling interests (71) (78) (9.0) (6.1) 0 0 86.8 Underlying profit attributable to the parent 2,978 1,413 110.8 109.7 957 517 85.3 Balance sheet Loans and advances to customers 590,610 563,582 4.8 1.6 195,041 194,239 0.4 Cash, central banks and credit institutions 256,433 213,561 20.1 17.8 142,040 113,518 25.1 Debt instruments 67,068 81,271 (17.5) (18.2) 13,915 21,654 (35.7) Other financial assets 37,250 48,313 (22.9) (23.0) 2,550 2,671 (4.5) Other asset accounts 29,793 35,893 (17.0) (18.5) 17,712 22,438 (21.1) Total assets 981,153 942,620 4.1 1.6 371,258 354,521 4.7 Customer deposits 619,486 582,353 6.4 3.5 265,004 251,375 5.4 Central banks and credit institutions 193,307 167,014 15.7 14.1 52,855 48,305 9.4 Marketable debt securities 73,629 84,201 (12.6) (16.1) 25,428 26,068 (2.5) Other financial liabilities 38,706 54,634 (29.2) (29.4) 7,937 9,344 (15.1) Other liabilities accounts 10,929 11,788 (7.3) (9.6) 4,147 4,112 0.9 Total liabilities 936,056 899,990 4.0 1.5 355,371 339,203 4.8 Total equity 45,097 42,630 5.8 3.3 15,887 15,318 3.7 Memorandum items: Gross loans and advances to customers B 575,983 543,336 6.0 2.9 201,549 200,735 0.4 Customer funds 711,799 655,954 8.5 6.1 345,298 320,879 7.6 Customer deposits C 603,739 562,977 7.2 4.5 265,004 251,375 5.4 Mutual funds 108,060 92,977 16.2 15.6 80,295 69,503 15.5 Ratios (%), operating means and customers Underlying RoTE 7.36 3.61 3.75 6.33 3.30 3.04 Efficiency ratio 51.0 56.4 (5.4) 47.7 53.2 (5.5) NPL ratio 3.12 3.34 (0.22) 5.77 6.23 (0.46) Total coverage ratio 49.4 50.3 (0.9) 52.2 47.1 5.1 Number of employees 60,941 69,032 (11.7) 23,035 26,961 (14.6) Number of branches 3,242 4,494 (27.9) 1,947 2,939 (33.8) Number of loyal customers (thousands) 10,286 10,021 2.6 2,772 2,643 4.9 Number of digital customers (thousands) 16,216 15,302 6.0 5,412 5,234 3.4 A. Includes exchange differences. B. Excluding reverse repos. C. Excluding repos. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 401 Primary segments EUR million #### United Kingdom #### Portugal Underlying income statement 2021 2020 % % excl. FX 2021 2020 % Net interest income 4,431 3,504 26.5 22.3 751 787 (4.6) Net fee income 434 494 (12.3) (15.2) 441 388 13.7 Gains (losses) on financial transactions A (8) (20) (59.4) (60.8) 142 111 27.4 Other operating income 6 1 419.7 402.4 8 10 (21.8) Total income 4,863 3,980 22.2 18.1 1,341 1,296 3.5 Administrative expenses and amortizations (2,592) (2,539) 2.1 (1.3) (563) (590) (4.7) Net operating income 2,271 1,441 57.6 52.4 778 706 10.3 Net loan-loss provisions 245 (677) — — (38) (193) (80.5) Other gains (losses) and provisions (319) (256) 24.6 20.5 (26) (29) (9.2) Profit before tax 2,197 508 332.2 317.9 714 483 47.8 Tax on profit (627) (117) 435.9 418.1 (231) (145) 59.8 Profit from continuing operations 1,570 391 301.2 287.9 483 339 42.6 Net profit from discontinued operations — — — — — — — Consolidated profit 1,570 391 301.2 287.9 483 339 42.6 Non-controlling interests — — — — (1) 0 171.9 Underlying profit attributable to the parent 1,570 391 301.2 287.9 482 338 42.4 Balance sheet Loans and advances to customers 261,414 249,777 4.7 (2.1) 39,280 38,058 3.2 Cash, central banks and credit institutions 72,499 54,444 33.2 24.6 9,692 5,819 66.6 Debt instruments 7,832 11,527 (32.0) (36.4) 8,489 11,569 (26.6) Other financial assets 389 712 (45.4) (49.0) 1,586 1,487 6.7 Other asset accounts 5,667 8,177 (30.7) (35.2) 1,209 1,475 (18.0) Total assets 347,801 324,637 7.1 0.2 60,257 58,408 3.2 Customer deposits 242,739 231,921 4.7 (2.1) 42,371 39,881 6.2 Central banks and credit institutions 44,086 20,587 114.1 100.3 9,410 9,974 (5.7) Marketable debt securities 40,796 51,151 (20.2) (25.4) 2,633 2,520 4.5 Other financial liabilities 2,558 2,316 10.5 3.3 236 249 (5.5) Other liabilities accounts 2,442 4,508 (45.8) (49.3) 1,344 1,643 (18.2) Total liabilities 332,620 310,483 7.1 0.2 55,994 54,267 3.2 Total equity 15,181 14,154 7.3 0.3 4,264 4,141 3.0 Memorandum items: Gross loans and advances to customers B 247,775 230,674 7.4 0.5 40,262 39,054 3.1 Customer funds 237,780 222,268 7.0 0.1 46,711 43,133 8.3 Customer deposits C 228,790 214,329 6.7 (0.1) 42,371 39,881 6.2 Mutual funds 8,991 7,938 13.3 5.9 4,340 3,252 33.4 Ratios (%), operating means and customers Underlying RoTE 11.71 3.02 8.69 11.85 8.73 3.12 Efficiency ratio 53.3 63.8 (10.5) 42.0 45.5 (3.6) NPL ratio 1.43 1.24 0.19 3.44 3.89 (0.45) Total coverage ratio 25.8 44.7 (18.9) 71.7 66.5 5.2 Number of employees 18,684 22,028 (15.2) 5,069 6,336 (20.0) Number of branches 450 564 (20.2) 393 477 (17.6) Number of loyal customers (thousands) 4,389 4,450 (1.4) 860 812 6.0 Number of digital customers (thousands) 6,635 6,267 5.9 1,000 930 7.5 A. Includes exchange differences. B. Excluding reverse repos. C. Excluding repos. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 402 Primary segments EUR million Poland #### Other Europe Underlying income statement 2021 2020 % % excl. FX 2021 2020 % % excl. FX Net interest income 1,049 1,037 1.2 4.0 726 627 15.9 16.7 Net fee income 518 452 14.5 17.7 470 351 33.9 35.2 Gains (losses) on financial transactions A 77 90 (14.2) (11.8) (8) (93) (91.0) (91.2) Other operating income 2 (55) — — 267 206 29.9 29.9 Total income 1,646 1,524 8.0 11.0 1,455 1,090 33.5 34.6 Administrative expenses and amortizations (663) (629) 5.3 8.2 (1,161) (909) 27.7 28.7 Net operating income 984 895 10.0 13.0 294 181 62.5 64.1 Net loan-loss provisions (200) (330) (39.4) (37.7) (468) (144) 226.2 225.9 Other gains (losses) and provisions (404) (195) 106.8 112.5 (13) (30) (56.4) (56.2) Profit before tax 380 370 2.8 5.6 (187) 8 — — Tax on profit (150) (130) 15.5 18.7 (4) (3) 10.4 9.5 Profit from continuing operations 230 240 (4.1) (1.4) (191) 4 — — Net profit from discontinued operations — — — — — — — — Consolidated profit 230 240 (4.1) (1.4) (191) 4 — — Non-controlling interests (69) (78) (11.1) (8.6) (1) — — — Underlying profit attributable to the parent 161 162 (0.7) 2.0 (191) 5 — — Balance sheet Loans and advances to customers 29,817 28,025 6.4 7.3 65,058 53,483 21.6 19.9 Cash, central banks and credit institutions 2,968 2,539 16.9 17.8 29,234 37,241 (21.5) (22.3) Debt instruments 15,082 14,006 7.7 8.6 21,748 22,516 (3.4) (3.4) Other financial assets 503 980 (48.7) (48.3) 32,222 42,463 (24.1) (24.2) Other asset accounts 1,419 1,341 5.8 6.7 3,785 2,462 53.8 47.6 Total assets 49,788 46,890 6.2 7.1 152,049 158,165 (3.9) (4.7) Customer deposits 37,919 34,868 8.8 9.7 31,452 24,307 29.4 28.4 Central banks and credit institutions 3,312 2,613 26.7 27.8 83,644 85,535 (2.2) (3.3) Marketable debt securities 1,618 2,110 (23.3) (22.7) 3,154 2,353 34.1 34.1 Other financial liabilities 692 993 (30.3) (29.7) 27,283 41,732 (34.6) (34.7) Other liabilities accounts 1,529 1,232 24.1 25.1 1,468 294 399.3 395.8 Total liabilities 45,071 41,816 7.8 8.7 147,000 154,221 (4.7) (5.4) Total equity 4,717 5,074 (7.0) (6.3) 5,048 3,944 28.0 25.1 Memorandum items: Gross loans and advances to customers B 30,657 29,055 5.5 6.4 55,740 43,818 27.2 25.0 Customer funds 42,325 38,889 8.8 9.7 39,684 30,786 28.9 28.2 Customer deposits C 37,919 34,865 8.8 9.7 29,655 22,526 31.7 30.6 Mutual funds 4,406 4,023 9.5 10.4 10,029 8,260 21.4 21.4 Ratios (%), operating means and customers Underlying RoTE 5.00 5.05 (0.05) Efficiency ratio 40.2 41.3 (1.0) NPL ratio 3.61 4.74 (1.13) Total coverage ratio 73.9 70.7 3.2 Number of employees 9,718 10,582 (8.2) Number of branches 440 502 (12.4) Number of loyal customers (thousands) 2,266 2,115 7.1 Number of digital customers (thousands) 2,998 2,756 8.8 A. Includes exchange differences. B. Excluding reverse repos. C. Excluding repos. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 403 Primary segments EUR million #### North America #### United States Underlying income statement 2021 2020 % % excl. FX 2021 2020 % % excl. FX Net interest income 8,204 8,470 (3.1) (1.4) 5,405 5,645 (4.2) (0.8) Net fee income 1,644 1,684 (2.4) (1.3) 782 889 (12.0) (8.8) Gains (losses) on financial transactions A 224 251 (10.6) (9.9) 152 118 29.1 33.9 Other operating income 914 629 45.3 51.6 1,044 709 47.3 52.7 Total income 10,986 11,034 (0.4) 1.4 7,383 7,360 0.3 4.0 Administrative expenses and amortizations (4,967) (4,677) 6.2 8.1 (3,197) (3,079) 3.8 7.6 Net operating income 6,019 6,357 (5.3) (3.5) 4,187 4,281 (2.2) 1.4 Net loan-loss provisions (1,210) (3,917) (69.1) (68.4) (419) (2,937) (85.7) (85.2) Other gains (losses) and provisions (145) (133) 9.6 11.8 (116) (93) 24.0 28.6 Profit before tax 4,664 2,307 102.2 104.5 3,652 1,250 192.1 202.7 Tax on profit (1,056) (573) 84.1 86.4 (832) (318) 161.2 170.7 Profit from continuing operations 3,609 1,734 108.1 110.5 2,821 932 202.6 213.7 Net profit from discontinued operations — — — — — — — — Consolidated profit 3,609 1,734 108.1 110.5 2,821 932 202.6 213.7 Non-controlling interests (556) (262) 112.3 117.4 (494) (201) 145.4 154.3 Underlying profit attributable to the parent 3,053 1,472 107.4 109.3 2,326 731 218.4 230.0 Balance sheet Loans and advances to customers 137,428 120,571 14.0 5.9 103,548 90,992 13.8 5.0 Cash, central banks and credit institutions 34,857 28,666 21.6 13.5 24,033 16,614 44.7 33.5 Debt instruments 38,500 38,402 0.3 (5.9) 16,341 14,084 16.0 7.1 Other financial assets 12,555 15,439 (18.7) (23.5) 4,258 4,381 (2.8) (10.3) Other asset accounts 21,394 20,718 3.3 (4.2) 17,638 17,003 3.7 (4.3) Total assets 244,734 223,797 9.4 1.9 165,819 143,074 15.9 7.0 Customer deposits 121,989 102,924 18.5 10.4 83,159 67,450 23.3 13.8 Central banks and credit institutions 35,059 38,017 (7.8) (13.9) 21,851 20,989 4.1 (3.9) Marketable debt securities 38,061 36,583 4.0 (3.5) 31,482 29,737 5.9 (2.3) Other financial liabilities 14,652 16,182 (9.5) (14.8) 4,038 4,329 (6.7) (13.9) Other liabilities accounts 6,194 6,029 2.7 (4.0) 4,140 3,369 22.9 13.4 Total liabilities 215,955 199,735 8.1 0.8 144,670 125,874 14.9 6.1 Total equity 28,779 24,062 19.6 11.3 21,149 17,200 23.0 13.5 Memorandum items: Gross loans and advances to customers B 134,090 120,665 11.1 3.2 99,731 90,459 10.2 1.8 Customer funds 137,206 117,548 16.7 8.7 91,865 76,972 19.3 10.2 Customer deposits C 111,004 96,315 15.3 7.2 77,775 66,385 17.2 8.1 Mutual funds 26,202 21,233 23.4 15.4 14,090 10,586 33.1 22.8 Ratios (%), operating means and customers Underlying RoTE 13.10 6.95 6.15 13.62 4.66 8.96 Efficiency ratio 45.2 42.4 2.8 43.3 41.8 1.5 NPL ratio 2.42 2.23 0.19 2.33 2.04 0.28 Total coverage ratio 134.9 182.6 (47.6) 150.3 210.4 (60.1) Number of employees 43,595 38,706 12.6 15,674 16,125 (2.8) Number of branches 1,859 1,958 (5.1) 488 585 (16.6) Number of loyal customers (thousands) 4,226 3,942 7.2 373 347 7.6 Number of digital customers (thousands) 6,706 6,127 9.5 1,036 1,011 2.5 A. Includes exchange differences. B. Excluding reverse repos. C. Excluding repos. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 404 Primary segments EUR million #### Mexico #### Other North America Underlying income statement 2021 2020 % % excl. FX 2021 2020 % % excl. FX Net interest income 2,799 2,825 (0.9) (2.5) — 1 (26.9) (26.9) Net fee income 828 772 7.3 5.6 34 24 41.7 41.7 Gains (losses) on financial transactions A 72 134 (45.9) (46.7) — (1) (84.3) (84.3) Other operating income (120) (79) 51.0 48.6 (11) (1) — — Total income 3,579 3,651 (2.0) (3.5) 23 23 0.4 0.4 Administrative expenses and amortizations (1,643) (1,552) 5.8 4.2 (127) (46) 176.6 176.6 Net operating income 1,936 2,098 (7.7) (9.2) (104) (23) 354.2 354.2 Net loan-loss provisions (791) (979) (19.2) (20.5) — — (80.9) (80.9) Other gains (losses) and provisions (19) (37) (48.6) (49.4) (10) (2) 472.8 472.8 Profit before tax 1,126 1,082 4.1 2.5 (114) (25) 354.3 354.3 Tax on profit (231) (259) (11.1) (12.5) 7 5 45.3 45.3 Profit from continuing operations 896 823 8.9 7.2 (108) (21) 422.2 422.2 Net profit from discontinued operations — — — — — — — — Consolidated profit 896 823 8.9 7.2 (108) (21) 422.2 422.2 Non-controlling interests (61) (61) 0.7 (0.9) — — — — Underlying profit attributable to the parent 835 762 9.6 7.8 (108) (20) 434.3 434.3 Balance sheet Loans and advances to customers 33,860 29,565 14.5 8.5 20 15 34.4 34.4 Cash, central banks and credit institutions 10,593 11,854 (10.6) (15.3) 231 197 17.0 17.0 Debt instruments 22,159 24,315 (8.9) (13.7) — 4 (100.0) (100.0) Other financial assets 8,297 10,982 (24.5) (28.4) 0 76 (99.5) (99.5) Other asset accounts 3,474 3,523 (1.4) (6.6) 282 193 46.2 46.2 Total assets 78,383 80,239 (2.3) (7.5) 533 485 9.9 9.9 Customer deposits 38,820 35,457 9.5 3.7 11 17 (38.3) (38.3) Central banks and credit institutions 13,183 16,977 (22.3) (26.4) 25 51 (49.7) (49.7) Marketable debt securities 6,579 6,847 (3.9) (9.0) — — — — Other financial liabilities 10,559 11,830 (10.7) (15.4) 54 23 140.4 140.4 Other liabilities accounts 2,022 2,628 (23.1) (27.1) 32 31 3.2 3.2 Total liabilities 71,162 73,739 (3.5) (8.6) 123 122 0.8 0.8 Total equity 7,221 6,500 11.1 5.2 410 363 13.0 13.0 Memorandum items: Gross loans and advances to customers B 34,339 30,191 13.7 7.8 20 15 31.8 31.8 Customer funds 45,330 40,558 11.8 5.9 11 17 (38.3) (38.3) Customer deposits C 33,218 29,912 11.1 5.2 11 17 (38.3) (38.3) Mutual funds 12,112 10,646 13.8 7.8 — — — — Ratios (%), operating means and customers Underlying RoTE 13.91 14.38 (0.47) Efficiency ratio 45.9 42.5 3.4 NPL ratio 2.73 2.81 (0.08) Total coverage ratio 95.0 120.8 (25.8) Number of employees 27,266 22,246 22.6 Number of branches 1,371 1,373 (0.1) Number of loyal customers (thousands) 3,853 3,595 7.2 Number of digital customers (thousands) 5,499 5,000 10.0 A. Includes exchange differences. B. Excluding reverse repos. C. Excluding repos. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 405 Primary segments EUR million #### South America #### Brazil Underlying income statement 2021 2020 % % excl. FX 2021 2020 % % excl. FX Net interest income 11,323 10,723 5.6 14.0 7,875 7,625 3.3 13.2 Net fee income 3,721 3,589 3.7 12.7 2,728 2,824 (3.4) 5.9 Gains (losses) on financial transactions A 716 765 (6.5) 0.4 376 467 (19.6) (11.9) Other operating income (407) (210) 94.0 112.7 (95) (51) 87.1 105.0 Total income 15,353 14,868 3.3 11.6 10,884 10,866 0.2 9.8 Administrative expenses and amortizations (5,380) (5,357) 0.4 8.4 (3,236) (3,541) (8.6) 0.1 Net operating income 9,974 9,511 4.9 13.4 7,649 7,325 4.4 14.4 Net loan-loss provisions (3,251) (3,924) (17.2) (10.5) (2,715) (3,018) (10.0) (1.4) Other gains (losses) and provisions (474) (321) 48.0 63.9 (316) (263) 20.4 31.9 Profit before tax 6,249 5,267 18.6 28.3 4,618 4,045 14.2 25.1 Tax on profit (2,364) (1,923) 23.0 33.7 (2,029) (1,693) 19.8 31.3 Profit from continuing operations 3,884 3,344 16.2 25.2 2,589 2,352 10.1 20.6 Net profit from discontinued operations — — — — — — — — Consolidated profit 3,884 3,344 16.2 25.2 2,589 2,352 10.1 20.6 Non-controlling interests (556) (436) 27.5 33.6 (263) (238) 10.5 21.1 Underlying profit attributable to the parent 3,328 2,907 14.5 23.9 2,325 2,113 10.0 20.6 Balance sheet Loans and advances to customers 123,920 113,745 8.9 12.7 73,085 63,974 14.2 13.3 Cash, central banks and credit institutions 43,134 43,154 0.0 1.4 28,400 31,466 (9.7) (10.5) Debt instruments 51,451 49,303 4.4 5.9 37,078 37,655 (1.5) (2.4) Other financial assets 23,809 17,342 37.3 45.1 10,129 6,877 47.3 46.0 Other asset accounts 15,491 15,201 1.9 4.0 10,755 10,600 1.5 0.6 Total assets 257,805 238,746 8.0 11.0 159,446 150,573 5.9 5.0 Customer deposits 120,500 111,808 7.8 10.7 74,475 70,083 6.3 5.4 Central banks and credit institutions 44,303 42,040 5.4 8.3 27,664 26,350 5.0 4.1 Marketable debt securities 23,461 21,280 10.2 14.5 13,737 11,901 15.4 14.5 Other financial liabilities 40,490 35,456 14.2 17.3 25,503 23,536 8.4 7.4 Other liabilities accounts 8,610 8,334 3.3 5.0 5,283 6,157 (14.2) (14.9) Total liabilities 237,364 218,918 8.4 11.4 146,662 138,026 6.3 5.4 Total equity 20,441 19,828 3.1 5.7 12,785 12,547 1.9 1.0 Memorandum items: Gross loans and advances to customers B 128,916 118,784 8.5 12.3 76,569 67,424 13.6 12.6 Customer funds 162,212 153,241 5.9 8.5 105,095 100,351 4.7 3.8 Customer deposits C 110,875 103,319 7.3 10.5 64,890 61,627 5.3 4.4 Mutual funds 51,337 49,922 2.8 4.4 40,205 38,725 3.8 2.9 Ratios (%), operating means and customers Underlying RoTE 20.28 17.72 2.56 21.49 19.16 2.33 Efficiency ratio 35.0 36.0 (1.0) 29.7 32.6 (2.9) NPL ratio 4.50 4.39 0.11 4.88 4.59 0.29 Total coverage ratio 98.3 97.4 0.9 111.2 113.2 (2.0) Number of employees 74,970 65,587 14.3 52,871 43,258 22.2 Number of branches 4,469 4,431 0.9 3,614 3,571 1.2 Number of loyal customers (thousands) 10,625 8,614 23.3 8,037 6,382 25.9 Number of digital customers (thousands) 23,771 20,315 17.0 18,351 15,556 18.0 A. Includes exchange differences. B. Excluding reverse repos. C. Excluding repos. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 406 Primary segments EUR million #### Chile #### Argentina Underlying income statement 2021 2020 % % excl. FX 2021 2020 % % excl. FX Net interest income 1,984 1,787 11.0 10.4 1,070 912 17.3 32.2 Net fee income 394 335 17.8 17.2 420 273 53.9 73.5 Gains (losses) on financial transactions A 131 174 (24.7) (25.1) 147 62 137.4 167.7 Other operating income (52) (32) 62.5 61.6 (245) (119) 105.3 131.4 Total income 2,457 2,263 8.5 7.9 1,393 1,128 23.4 39.2 Administrative expenses and amortizations (942) (900) 4.7 4.1 (805) (632) 27.4 43.6 Net operating income 1,514 1,363 11.1 10.5 587 496 18.5 33.5 Net loan-loss provisions (341) (594) (42.6) (43.0) (140) (226) (37.9) (30.0) Other gains (losses) and provisions (16) 16 — — (136) (70) 93.6 118.3 Profit before tax 1,158 785 47.5 46.7 311 200 55.8 75.7 Tax on profit (230) (155) 48.0 47.2 (35) (19) 83.8 107.2 Profit from continuing operations 928 629 47.4 46.6 275 180 52.8 72.3 Net profit from discontinued operations — — — — — — — — Consolidated profit 928 629 47.4 46.6 275 180 52.8 72.3 Non-controlling interests (291) (197) 47.7 46.9 (2) (1) 25.9 41.9 Underlying profit attributable to the parent 637 432 47.3 46.5 274 179 53.0 72.5 Balance sheet Loans and advances to customers 37,849 39,381 (3.9) 6.3 5,173 4,151 24.6 40.5 Cash, central banks and credit institutions 6,773 5,836 16.0 28.4 5,243 3,048 72.0 93.9 Debt instruments 10,955 8,365 31.0 44.9 1,358 1,897 (28.4) (19.3) Other financial assets 13,469 10,221 31.8 45.8 92 59 55.1 74.9 Other asset accounts 2,942 3,076 (4.4) 5.8 966 832 16.1 30.9 Total assets 71,987 66,880 7.6 19.1 12,832 9,988 28.5 44.8 Customer deposits 29,525 28,362 4.1 15.2 9,170 7,179 27.7 44.0 Central banks and credit institutions 12,109 11,611 4.3 15.4 645 840 (23.2) (13.4) Marketable debt securities 9,264 9,247 0.2 10.8 204 20 911.8 — Other financial liabilities 13,841 11,162 24.0 37.2 1,013 657 54.0 73.7 Other liabilities accounts 2,543 1,519 67.4 85.2 443 359 23.3 39.0 Total liabilities 67,282 61,902 8.7 20.2 11,475 9,056 26.7 42.9 Total equity 4,705 4,978 (5.5) 4.6 1,357 931 45.6 64.2 Memorandum items: Gross loans and advances to customers B 38,930 40,593 (4.1) 6.1 5,454 4,395 24.1 39.9 Customer funds 37,847 37,873 (0.1) 10.6 11,891 8,795 35.2 52.4 Customer deposits C 29,484 28,330 4.1 15.1 9,170 7,179 27.7 44.0 Mutual funds 8,363 9,543 (12.4) (3.0) 2,721 1,616 68.4 89.9 Ratios (%), operating means and customers Underlying RoTE 19.28 13.19 6.09 27.44 26.24 1.20 Efficiency ratio 38.4 39.8 (1.4) 57.8 56.0 1.8 NPL ratio 4.43 4.79 (0.36) 3.61 2.11 1.50 Total coverage ratio 63.3 61.4 1.9 153.8 275.1 (121.3) Number of employees 10,574 10,835 (2.4) 8,620 9,159 (5.9) Number of branches 326 346 (5.8) 411 408 0.7 Number of loyal customers (thousands) 832 764 8.9 1,614 1,356 19.0 Number of digital customers (thousands) 2,017 1,547 30.4 2,730 2,650 3.0 A. Includes exchange differences. B. Excluding reverse repos. C. Excluding repos. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 407 Primary segments EUR million #### Other South America #### Digital Consumer Bank Underlying income statement 2021 2020 % % excl. FX 2021 2020 % % excl. FX Net interest income 395 399 (1.0) 8.0 4,281 4,263 0.4 (0.4) Net fee income 179 158 13.3 21.5 821 771 6.4 6.4 Gains (losses) on financial transactions A 62 62 (0.1) 9.7 8 16 (46.3) (43.5) Other operating income (15) (8) 96.2 117.1 228 116 96.4 92.1 Total income 620 611 1.5 10.3 5,339 5,166 3.3 2.6 Administrative expenses and amortizations (397) (284) 39.8 49.4 (2,405) (2,329) 3.3 2.6 Net operating income 223 327 (31.7) (24.6) 2,934 2,837 3.4 2.5 Net loan-loss provisions (55) (86) (36.3) (30.6) (527) (957) (44.9) (45.5) Other gains (losses) and provisions (7) (3) 89.5 97.9 (194) 49 0.0 0.0 Profit before tax 162 238 (31.8) (24.4) 2,213 1,929 14.8 13.8 Tax on profit (70) (55) 27.2 41.4 (536) (495) 8.2 7.5 Profit from continuing operations 92 183 (49.4) (44.0) 1,678 1,433 17.0 15.9 Net profit from discontinued operations — — — — — — — — Consolidated profit 92 183 (49.4) (44.0) 1,678 1,433 17.0 15.9 Non-controlling interests — — — — (346) (301) 15 15 Underlying profit attributable to the parent 92 183 (49.7) (44.3) 1,332 1,133 17.6 16.2 Balance sheet Loans and advances to customers 7,813 6,239 25.2 27.6 113,936 113,257 0.6 (0.6) Cash, central banks and credit institutions 2,718 2,803 (3.0) (3.1) 33,482 21,754 53.9 53.1 Debt instruments 2,061 1,386 48.7 48.8 5,280 5,660 (6.7) (7.1) Other financial assets 119 185 (35.8) (35.0) 47 30 57.3 56.4 Other asset accounts 828 692 19.6 20.3 6,937 6,149 12.8 11.0 Total assets 13,539 11,306 19.8 21.1 159,683 146,851 8.7 7.5 Customer deposits 7,331 6,184 18.5 18.1 55,327 51,399 7.6 6.7 Central banks and credit institutions 3,885 3,239 20.0 25.0 49,109 41,567 18.1 16.1 Marketable debt securities 255 112 127.2 131.6 36,710 35,965 2.1 1.3 Other financial liabilities 134 101 33.2 34.6 1,397 1,370 2.0 0.9 Other liabilities accounts 340 298 14.0 13.9 4,565 3,940 15.8 15.2 Total liabilities 11,945 9,934 20.2 21.6 147,108 134,241 9.6 8.4 Total equity 1,595 1,372 16.2 16.8 12,575 12,610 (0.3) (1.7) Memorandum items: Gross loans and advances to customers B 7,963 6,373 25.0 27.3 116,580 116,083 0.4 (0.8) Customer funds 7,378 6,222 18.6 18.2 57,824 52,058 11.1 10.2 Customer deposits C 7,331 6,184 18.5 18.1 55,327 51,399 7.6 6.7 Mutual funds 48 38 25.3 22.4 2,497 658 279.4 279.4 Ratios (%), operating means and customers Underlying RoTE 14.05 11.77 2.27 Efficiency ratio 45.0 45.0 (0.04) NPL ratio 2.13 2.17 (0.04) Total coverage ratio 107.8 113.3 (5.54) Number of employees 15,840 16,172 (2.1) Number of branches 309 353 (12.46) Number of total customers (thousands) 19,437 19,611 (0.89) A. Includes exchange differences. B. Excluding reverse repos. C. Excluding repos. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 408 Secondary segments EUR million #### Retail Banking #### Corporate & Investment Banking Underlying income statement 2021 2020 % % excl. FX 2021 2020 % % excl. FX Net interest income 31,389 30,056 4.4 7.0 2,995 2,918 2.6 5.8 Net fee income 7,010 6,987 0.3 3.7 1,750 1,542 13.5 16.4 Gains (losses) on financial transactions A 920 1,132 (18.8) (17.6) 684 670 2.1 8.7 Other operating income 318 (153) — — 263 202 30.1 29.3 Total income 39,636 38,022 4.2 7.0 5,692 5,332 6.8 10.1 Administrative expenses and amortizations (17,193) (17,286) (0.5) 1.4 (2,301) (2,038) 12.9 15.0 Net operating income 22,443 20,736 8.2 11.6 3,392 3,294 3.0 7.1 Net loan-loss provisions (7,114) (11,632) (38.8) (36.9) (130) (470) (72.3) (72.1) Other gains (losses) and provisions (2,064) (1,238) 66.8 70.6 (11) (135) (92.2) (91.9) Profit before tax 13,265 7,866 68.6 74.2 3,251 2,689 20.9 26.5 Tax on profit (4,052) (2,524) 60.5 68.2 (937) (773) 21.2 27.3 Profit from continuing operations 9,213 5,342 72.5 77.0 2,314 1,916 20.8 26.2 Net profit from discontinued operations — — — — — — — — Consolidated profit 9,213 5,342 72.5 77.0 2,314 1,916 20.8 26.2 Non-controlling interests (1,344) (922) 45.8 49.1 (147) (119) 24.1 31.2 Underlying profit attributable to the parent 7,869 4,420 78.0 82.9 2,167 1,798 20.6 25.8 A. Includes exchange differences. Secondary segments EUR million #### Wealth Management & Insurance #### PagoNxt Underlying income statement 2021 2020 % % excl. FX 2021 2020 % % excl. FX Net interest income 375 394 (4.9) (2.5) 1 (1) — — Net fee income 1,276 1,153 10.7 12.5 493 362 36.3 43.9 Gains (losses) on financial transactions A 101 100 0.3 2.9 (1) (2) (44.4) (43.6) Other operating income 414 383 8.3 10.2 2 (3) — — Total income 2,166 2,030 6.7 8.7 495 356 38.9 46.6 Administrative expenses and amortizations (902) (872) 3.5 5.2 (673) (443) 52.0 57.0 Net operating income 1,264 1,159 9.1 11.3 (178) (86) 106.3 95.5 Net loan-loss provisions (27) (28) (4.6) (4.5) (10) (12) (16.5) (9.5) Other gains (losses) and provisions 10 1 — — (38) (3) — — Profit before tax 1,247 1,132 10.2 12.6 (227) (101) 124.3 115.6 Tax on profit (304) (271) 12.1 14.0 (24) (16) 51.0 71.2 Profit from continuing operations 943 860 9.6 12.1 (251) (117) 114.3 110.3 Net profit from discontinued operations — — — — — — — — Consolidated profit 943 860 9.6 12.1 (251) (117) 114.3 110.3 Non-controlling interests (36) (38) (4.1) 0.1 (2) 1 — — Underlying profit attributable to the parent 907 823 10.3 12.7 (253) (116) 117.9 113.9 A. Includes exchange differences. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 409 5. Research, development and innovation (R&D&I) Research, development and innovation activities Innovation and technological development are fundamental to Santander's strategy. We aim to focus on operational excellence and customer experience in response to fresh challenges that emanate from digital transformation. Moreover, the information from our new technological platforms helps us better understand the customer 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 entrants to the financial system, whose use of new technology is both a differentiating factor and a competitive advantage. Developing a sound strategic technology plan must provide: •greater capacity to adapt to customers’ needs (customized products and services, full availability, and excellent, secure service across all channels); •enhanced processes for Santander’s professionals to ensure greater reliability and productivity; and •proper risk management, supplying teams with the necessary infrastructures to help identify and assess all business-related, 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. Therefore they must make considerable additional investments to guarantee compliance and legal security. As in previous years, the European Commission's 2021 EU Industrial R&D Investment Scoreboard (based on 2020 data) ranked our technological effort first among Spanish companies and our R&D investment second among global banks. The equivalent investment in R&D&I to that considered in the ranking was EUR 1,325 million. See [note 18](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_817) 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, and better risk and associated cost management, help us achieve this. To ensure the technology strategy is consistent in all the Group's entities, the Santander Architecture Review Board (SARB) holds monthly meetings that bring together the chief technology officers (CTOs) of the different units and businesses to actively participate in key architecture decision-making. The SARB oversees everything; the analysis of potential assets, the migration to the cloud, the review of data lake reference architectures and other measures. The use of a single technology stack and reference architectures are key to achieving Santander Common Architecture. Based on simplification, component recycling and the principle of composable architecture, the SARB also guarantees  the use of technologies that matches the business of the future. To implement our technological strategy we rely on internal regulation, the Group's commitment and experience in relations with our entities, and a governance model that articulates projects and initiatives that help crystallize it in all our markets. The development of our technology and operations (T&O) model will help us cultivate new business, especially in terms of global products and digital services. Some 5,000 Santander Global Technology & Operations professionals in Spain, the UK, Portugal, Poland, the US, Mexico, Brazil and Chile are gradually incorporating the global product portfolio agreed on by the Group's entities, our global businesses and the T&O division, guaranteeing the not only quality of digital services and products, but also their security. Technological infrastructure Santander has a network of high-quality data centres (CPDs) interconnected by a redundant communications system. The CPDs are spread across strategic markets to support and develop our activity. They 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 digital transformation and allows us to save costs significantly. Santander has migrated more than 75% of its technology infrastructure to the cloud and expects to complete the roll-out by 2023. Our cloud strategy enables us to improve processes, innovate swiftly and improve service quality. Our Local Cloud Centres of Excellence (local CCoEs), which the Global CCoE coordinates, guarantee consistent and rigorous cloud adoption across our entities. This minimizes risks in accordance with our Public Cloud policy. The process will also help fulfil Santander's responsible banking goals as Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 410 we expect it to save 70% of the energy our technology infrastructure consumes. Cybersecurity Cybersecurity is one of Santander’s main priorities and a crucial element in supporting our purpose of helping people and businesses prosper, as well as offering excellent digital services to our customers. The new cyber services and capabilities created during the 3-year Cybersecurity Transformation Plan completed in 2020 have moved to business as usual (BAU) operations in line with the Group’s Cybersecurity Framework. It enabled us to set the organizational foundations and governance for cyber security globally; establish global cybersecurity services in the Group; strengthen defences according to existing best practices and latest technology tools; and drive a security-aware culture among employees and clients. During the transformation, Santander opened a Global Cybersecurity Centre in Madrid which proactively identifies, monitors and responds to cyber threats 24/7 to protect all Group entities, systems and customers. At the same time, as cyber threats and attack techniques become more sophisticated, we must continuously evolve our cyber defences. In 2021, we established these key strategic cyber security pillars and initiatives to help us develop our cyber defences against emerging threats and technologies: •Level the playing field: The current threat landscape is increasingly challenging and new weaknesses, techniques and procedures are reported on a daily basis. Deterrence, deception and automation techniques are crucial to make attacks more difficult; •Defend the (hyper-connected) "Bank of the Future": Banks'platforms, cloud and supply chains are increasingly hyper- connected and interdependent. Cybersecurity teams have been working on implementing new defence paradigms such as “Zero Trust” and other innovative solutions; and •Generate value and trust: Helping customers stay safe online is key to continue building trust and helping everyone prosper in the digital world. Santander promoted public-private partnerships and collaborations to tackle cybercrime to protect customers and society as a whole. For Santander this has translated into several initiatives in 2021, detailed in section ['Acting responsibly towards](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115) [customers'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_115) of the Responsible banking chapter. Internal and external audits of information systems occur periodically. The Group identifies IT assets, systems and information (including those in third parties), and regularly reviews the relevant risks and levels of protection to proactively discover and remedy any weakness through frequent security testing such as vulnerability scanning, penetration testing and red team exercises that simulate real cyber-attack scenarios. Santander also actively participates in various coordinated cyber- exercises in collaboration with public and private organizations. In 2021, Santander placed first and third against 29 teams in the “Capture the Flag” exercise the SANS Institute in Spain had organized. We also placed seventh out of 200 teams from 48 countries in the World Economic Forum's Cyberpolygon exercise. In addition to regular testing and reviews, independent certification authorities such as the International Organization for Standardization (ISO) 27001 and the Statement on Standards for Attestation Engagements (SSAE) 18 certify our critical cyber security services. For more details on the different on how we measure, monitor and control cybersecurity risks and their respective mitigation plans, see section [6.2 'Operational risk management'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_622) of the Risk management and compliance chapter. Digitalization and fintech ecosystem To make headway in our digital transformation, in addition to the technological strategy, infrastructure development and cybersecurity initiatives, we created PagoNxt in 2020. This new brand enables us to accelerate business for merchants and enhance their ecosystem connecting customers and business partners, through our cloud- native, data-driven global payments platform, coupled with Santander's large-scale distribution and proven capabilities to provide access to the open market. Further details are given in section [4 'Financial information by segment'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_418) in this chapter. Moreover, Santander combined Santander Consumer Finance's scale and leading position in Europe with Openbank's platform. Openbank's technology (digital banking API, with a Banking as a Service model) and data management capabilities drive growth by offering new services and operational improvements. For more details about our digital and innovative products and services for individuals and corporates, as well as references to cybersecurity policies, see section 2 ‘Inclusive and sustainable growth’ in the Responsible banking chapter. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 411 6. Significant events since year end No significant events occurred from 1 January 2022 to the date on which these consolidated financial statements were authorized for issue, other than those described in these consolidated annual accounts. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 412 7. Trend information 2022 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_982) [53](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_982) of the consolidated financial statements. The economic outlook for 2022 is subject to considerable uncertainty owing to the spread of new covid-19 variants in Europe and the US in the final stretch of 2021, the risk they will spread to other regions and doubts about the transience of the 2021 inflation upturn. The impact of the omicron variant and any future variants or outbreaks on activity is difficult to gauge and will largely depend on the resulting pressure on hospital capacity, which is not easy to foresee given the varying contagiousness and virulence of each covid-19 variant. Higher inflation will have an adverse effect on consumption and on financial conditions. Our baseline scenario assumes that the measures to contain the virus will have a moderate effect on business activity, inflation gradually subsides but remains above the target for the year, and, with some exceptions, the withdrawal of monetary stimulus will be very gradual. Among the bank's most relevant economies, growth in Europe and the US is expected to stay strong growth, but it may be more imbalanced in Latin America. The macroeconomic forecast for 2022 by country/region is as follows: Eurozone Although growth recorded in 2021 may be slightly more hesitant at the start of 2022, it is expected to continue into the year, underpinned by continued expansionary financial conditions, loose fiscal policy, a greater weight of Next Generation EU funds, a downturn in the pandemic and a gradual decline in inflation. In several countries, upcoming elections and the reforms and credibility of countries' fiscal consolidation plans will be important in a year in which the restoration of the Stability and Growth Pact may be announced and monetary and prudential measures against the pandemic will be gradually withdrawn. Spain In Europe, the deployment of EU funds (particularly crucial for Spain), the potential improvement in international tourism, the expected further recovery in household consumption and the anticipated reactivation of home construction indicate remarkable growth that could push GDP close to pre-pandemic levels. The success of ongoing structural reforms (partly related to EU funds) will be fundamental in the short- and medium-term. United Kingdom A favourable outlook points to another year of strong recovery. The main unknown is the UK's ability to adapt to Brexit and the implications it will have for supply (mainly in the labour market which has shown some tension due to labour shortages in some segments). Overall, financial conditions are expected to remain expansionary and inflation is projected to fall, which will boost confidence and activity as long as the spread of covid-19 reduces. Portugal The economy is forecast to grow above pre-pandemic levels as early as 2022, thanks to consumption growth (backed by accumulated savings), Next Generation EU funds and the hope of an upturn in tourism. The labour market is already at pre-pandemic employment levels, but is suffering from worker shortages, as the job vacancy rate suggests that unemployment will fall even further, to around 6%. The commitment to putting  public accounts in order will remain a priority. Poland GDP growth was surprisingly positive in 2021 and it seems as though the economy is starting 2022 strongly. That could keep annual GDP growth close to 5%. Positive outlooks for the highly competitive and diversified manufacturing and export sector (which will benefit from ongoing positive growth abroad). While high inflation has not affected corporate profit margins, it did lead to a 165 bp rise in interest rates in Q4'21 to 1.75%, a trend that is expected to continue. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 413 United States The US economy is forecasted to grow around 4% in 2022 supported by pick ups in activity, wealth-backed private consumption and inventory rebuilding. However, the withdrawal of fiscal and monetary stimulus and effects of potential further covid-19 waves will have a negative impact. Inflation will start the year suffering from supply-side strains; however it is expected to moderate but at high rates. The Federal Reserve (Fed) is expected to end tapering in March and begin to raise interest rates. Mexico Mexico's outlook is positive in light of the dynamism in the US, the credibility of monetary and fiscal policies and expected easing of the recent bottlenecks. The Fed's interest rate hike is not expected to have a major influence on the central bank's plans to continue raising rates given that it has already raised them significantly. Brazil Inflation,  the sharp tightening of financial conditions and the uncertainty generated by the presidential elections are expected to have a strong impact on business in 2022. Once political uncertainty subsides, economic recovery may be stronger. Chile Following the strong economic expansion in 2021, growth is expected to be subdued in 2022, due to the withdrawal of fiscal stimulus and the tighter monetary policy, amid lower inflation than in the previous year but still higher than the central bank's target. Argentina Argentina's economy is expected to grow moderately in 2022, in light of its economic stabilization programme with the International Monetary Fund (agreed in the first quarter of 2022), to refinance its debt maturities with the organization. à #### Financial markets Inflationary pressures, less fiscal and, especially, monetary support, and geopolitical risk, mean more vulnerable financial markets in 2022. Our expectation of inflation moderating gradually throughout the year and slower but above potential economic growth after a strong post-covid-19 recovery will help equities adjust to the transition to monetary policy normalization. However, in light of the gap between real interest rates and inflation expectations at maximum levels and given the current high stock prices, moments of instability could befall the stock markets during this adjustment. We expect the Fed to end its net purchase programme in March 2022, potentially opening the door to rate hikes. The more laggard ECB will exhaust its pandemic programme before considering raising the deposit rate. The landscape suggests bond yields may rebound (albeit moderately in any case), although the ECB's gradual withdrawal could put pressure on peripheral spreads. The US dollar will likely remain strong against the euro in the short term, but a gradual appreciation of the euro is possible in the medium term as the US-Europe growth differential narrows and the US is encumbered by fiscal and trade deficits. The risks that emerged in Latin America in the second half of 2021 fuel uncertainty regarding 2022. At the domestic level, there are two main obstacles: increased concerns that public finances in the Latin American countries that increased debt the most to cope with the pandemic will become unsustainable amid rising interest rates; and on the political front, Brazil's presidential elections may spur market volatility. The banking environment will be conditioned by inflation and central banks' response, both in mature and emerging countries. In general, a gradual normalization of monetary policy would not negative for business; but central banks must get the pace and communication of their measures right. The tightening of monetary policy may be followed by the withdrawal of liquidity support measures, but gradually, allowing banks to adjust to the new conditions. Lastly, the private sector remains vulnerable to an economic downturn, especially in those sectors most affected by social distancing and mobility measures. Even so, at the moment most institutions have a solvency position sound enough to cope, as demonstrated by several stress tests conducted on the main banking systems. In addition to the economic environment, banks must deal with faster business digitalization while understanding and managing climate change risks. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 414 à #### Financial regulation In 2022, we expect sustainability and digitalization will remain at the top of the regulatory agenda, alongside prudential and financial matters. Prudential. Talks about implementing the Basel III reforms in Europe will take centre stage. The most important matters include the treatment of operational risk, the output floor (a measure that sets a lower limit on risk-weighted assets that banks calculate when using their internal models) and EU-specific scenarios relating to SME and infrastructure support. The new rules will take effect on 1 January 2025, regardless of their approval date. The authorities will continue to assess the impact of the crisis and the interaction of regulatory framework in matters such as current capital buffers (which banks have not used despite supervisors’ recommendations). The European Commission is expected to review the macroprudential framework before the year is out. The Basel Committee will continue to issue proposals on the prudential treatment of financial entities’ cryptoasset exposures. Finance: In 2022, the EU will commence a third revision of the Bank Recovery and Resolution Directive (BRRD) aiming to improve the application of the framework, eliminate incentives to bail out failing banks with public money and ensure the framework is suitable for small and medium-sized banks. A first revision of the Deposit Guarantee Schemes Directive (DGSD) is planned. Negotiations on the creation of a common European deposit guarantee fund (European Deposit Insurance Scheme – EDIS) will also continue. Sustainability: To enhance the green taxonomy, the European Commission will work on drafting the four remaining environmental objectives and determining one taxonomy for activities that harm the environment and another for activities with social aims. Further work will be done on setting European and international sustainable reporting standards and on finalizing details of the ESG information to be included in the Pillar 3 report from 2023. The legislative proposal on sustainable corporate governance to help companies introduce ESG objectives into their strategies will be published. Progress will be made in with sustainability labels and standards linked to the Taxonomy, such as the European Green Bond Standard (EGBS). The Basel Committee will continue the work it started in 2021 on recommendations for the management and supervision of sustainability-related risks. Digitalization: The Digital Markets Act (DMA) could possibly be passed in Q1. It would prove a turning point in the EU’s digital strategy by setting criteria for considering a large online platform a “gatekeeper” as well as obligations that ensure a fairer environment where all businesses could market their services. The authorities acknowledge that data will be at the centre of the digital transformation. Further talks are expected on a regulatory framework for data sharing (Data Act). Debates will intensify on so- called “open finance”, which considers the possibility that banks (and also insurers and asset managers) may have to share more data than the Payment Services Directive (PSD2) requires. While talks on reforming PSD2 will begin, the European Commission could issue a proposal on instant cross-border payments. Technological innovation: In 2022, talks about the Commission's 2019 regulatory proposals to strengthen the Digital Operational Resilience Act (DORA) and regulate markets in cryptoassets (MiCA) will continue. Those could be passed during the year. Legislative procedures will continue to pass those submitted in 2021 to regulate the use of artificial intelligence and create a European digital identity (eIDAs2) which could be used to access financial services, for example. The ECB will continue its analysis of the digital euro. In 2021, it began a two-year study into the feasibility of issuing a digital euro. Almost all of the world's central banks are examining digital currencies. Retail banking: Several initiatives underway are seeking to boost consumer protection and adapt laws to the digital landscape. Legislators are expected to approve proposed reforms of the Consumer Credit Directive and the Mortgage Credit Directive. The key obligations that will apply from 2022 fall under the Taxonomy Regulation on environmentally sustainable activities), including banks' disclosure of the proportion of eligible assets held on their balance sheets. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 415 These are the main management priorities for 2022 in our core regions and segments: #### Europe Our priority in Europe is to integrate all businesses within a common operating model to boost cost efficiency and improve service quality. Our main action lines in 2022 are: → Continuing to grow our digital capabilities in the region, accelerating customer-to-digital conversion for better service and higher customer satisfaction, while reducing the cost base. → Delivering on our EUR 1 billion cost savings commitment. → Leveraging our global businesses, SCIB and WM&I, and the connection with PagoNxt to allocate capital to the most profitable segments faster and more efficiently and thereby improve the overall profitability. → Excelling in risk management and maintaining and reinforcing our balance sheet strength. The cornerstone of our strategy in Spain is customer service. We aim to: •grow the customer base through excellent service quality and seamless interaction with both customers and non-customers through digital channels; •increase customer loyalty with better customer experience when acquiring products through simple, digital processes; •achieve operational excellence and improve NPS; •develop low capital-intensive revenue streams (i.e. funds and insurance); and •continue to revise the cost structure in light of the new, more efficient model. Santander UK’s priorities remain largely unchanged. In 2022, specific focus will be on managing revenue and simplifying the business as well as: •increasing customer loyalty by improving customer experience when interacting with the bank; •reducing the cost of deposits and maximizing the margin of the mortgage portfolio; •furthering the digital transformation, optimizing the branch network and simplifying processes; •engaging, motivating and developing a talented and diverse team; and •being a responsible and sustainable business. Due to our market leadership in Portugal, we can focus on: •consolidating the commercial and digital interaction model; •strengthening our lending leadership and focusing on organic growth from transactions with the highest return on capital; •increasing customer loyalty with a diversified Daily Banking proposition and by attracting off-balance sheet funds; •maintaining our position as market leaders in efficiency, with a better cost base; and •maintaining an appropriate risk policy, with high credit quality and a strong capital position. Our strategy is based on the following pillars: •customers: continuing to improve customer satisfaction, to remain top 3 or better; •digitalization: increasing sales, loyalty and our customer base atop the foundations we've laid for digital interaction with customers; •simplification: leveraging One Europe to evolve our business into a more agile, dynamic and profitable bank; and •responsible banking: continuing to support our customers' transition to a sustainable economy. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 416 #### North America In North America, we will strive to generate synergies by leveraging the Group's global presence and strength, capitalizing on our advantages over competitors and running cross-cutting One Santander initiatives. We aim to: → Generate new business opportunities on the back of cross-border, US-Mexico collaboration, as well as operational efficiencies, including technology. → Continue to execute our regional collaboration strategy, sharing best practices and know-how between countries, increasing our common value proposition and profitability, leveraging our global strength as part of the Group. → Take advantage of new and improved value propositions and improved interactions to drive customer loyalty, NPS and CX. → Simplify the regional business model to reduce duplications (platforms and architecture) and optimize expenses. → Continue consolidating regional IT under a single leadership, in pursuit of faster time to market and greater efficiencies. → Continue developing value-added products that meet customers' needs. → Capitalize on recent acquisitions to expand market capabilities while also driving organic growth. Our goal is to maintain above cost of capital returns across our core businesses. To do so, we will: •continue to refocus our business on our consumer finance franchise; •develop a global hub in CIB for capital markets and investment banking; while capitalizing on the APS acquisition to broaden our product offering and fee income; •remain among the top 10 CRE and multifamily lenders in commercial banking; and •complete the integration of the acquisition in Wealth Management and leverage the Group's connectivity to gain market share, backed by our leading brand in Latin America. Our strategic agenda aimed at becoming the best bank for our customers is based on: •leveraging digital solutions and process enhancement to improve customer experience; •developing appropriate, innovative and profitable solutions for the country's mass market, such as the Like-U credit card and the Samsung Members debit account to significantly expand our customer base; •remaining a market leader with value-added products for corporates and leverage existing relationships to attract individuals; •executing our multi-year plan to improve our operating model and IT security and further drive our technological and digital transformation; and •focusing on profitability, by proactively allocating capital in businesses with higher potential and profitability. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 417 #### South America The Group's priorities in South America are to: → Accelerate profitable growth, with a strategy that seeks to boost connectivity across South America through regional projects, seizing on business opportunities and anticipating trends. → Maintain high profitability and best-in-class efficiency, while expanding our customer base and increasing customer loyalty to remain a leader in the region and our markets. → Improve our customers' banking experience by making further progress with our digital transformation through the development of digital platforms and a more efficient model. → Administer strict risk controls, with credit growth mainly in secured products. Santander Brasil's management priorities for 2022 are to: •build a more integrated, market-leading distribution platform and strengthen connections between businesses in order to allow us to seize on opportunities faster; •grow our customer base and make it more profitable while increasing customer loyalty; •maintain controlled credit quality levels, by continuously enhancing our risk models, with a focus on anticipating trends; •strengthen our high productivity culture, optimize our channels and review our processes to improve operational efficiency; and •innovate in order to adapt to different scenarios and maintain profitability. Santander Chile's strategy will focus on: •continuing to improve our service quality to maintain our leadership position in NPS; •expanding Getnet to become a platform for our customers (particularly corporates); •continuing to strengthen our position in the mass segment, through Life and Superdigital; and •increasing green finance, our use of renewable energy and financially empowering our customers to fulfil our ESG strategy. In Argentina, our strategy will focus on: •expanding our customer base, increasing loyalty and ensuring the best customer service though our multi- channel strategy; •developing new businesses and commercial alliances further; •continuing our efficiency and simplification process through digital transformation; •boosting profitable growth, optimizing capital consumption and maintaining the quality of our portfolio; and •accelerating cultural transformation through a more collaborative and agile environment. In Uruguay, our priorities for 2022 are to: •further consolidate the business, leverage Getnet's roll- out and strengthen our SME offering; •enhance and expedite our technological and digital development model; and •make progress with new ways of working and distribution models, by integrating talent and brand management among the Group's companies. Our strategy in the Andean region will focus on: In Peru, we aim to continue driving greater synergies and expanding our microfinance business to expand our global, corporate and retail customer base. In Colombia, we will focus on increasing profitability in each of the business areas and generating synergies between them: capitalizing on the new financial entity in Consumer, developing Prospera and broadening our Multilatinas proposition in Corporates, while enhancing digitalization by adopting automation tools. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 418 #### Digital Consumer Bank Our priorities for 2022 are to: → Secure leadership in global digital consumer lending (on the shoulders of Santander Consumer Finance's existing footprint and the business and technology stack of Openbank's digital platform) by focusing on growth and transformation to: –leverage the successful global insurance model while optimizing capital consumption and expanding into new markets to strengthen Auto positioning; –gain market share in consumer lending and develop buy now, pay later (BNPL) 2.0 to strengthen our current top 3 position in Europe; and –simplify for efficiency, increase competitiveness and gain scale benefits with the finalization of the new legal and operational structure with three hubs. → Launch a large global transformation project, re-platforming the auto, consumer and retail banking businesses completely to seize on the fast-growing transition to online to support digital customer base expansion and maintain high profitability and one of the best efficiency ratios in the sector. → Increase profits on the back of the strategic operations initiated in 2021 (e.g. Stellantis Agreement in Auto, and BNPL business in Non-Auto). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 419 #### SECONDARY SEGMENTS In 2022, we will focus on: •partnering with our clients as strategic advisors and strengthening our value-added services, with an increased focus on ESG and digital solutions to transform our business; •leveraging the pan-European platform to strengthen our advisory capabilities, better serve the needs of our global customers and improving our position in Europe; •bolstering our leadership and going from being multinational to pan-regional to become the leading CIB player in most countries and products in South America; and •raising the level of our CIB franchise to compete on a level playing field in the US and integrating Amherst Pierpont Securities (once the acquisition is completed), a step towards meeting our growth expectations. In 2022, the key management aims will be: In Private Banking: •continuing to leverage our scale so clients benefit globally and fostering cooperation across countries (+43% in 2021) and segments; •continuing to expand our product range in line with market trends, with a focus on discretionary management, secured lending, alternative products, investment banking and ESG; and •continuing to focus on strengthening our technological capabilities, with an ambitious strategy to maximize operational efficiency and provide the best digital experience to our customers. In Santander Asset Management: •following a systematic and quantitative management approach to support our unchanged ambition to improve performance and market share via our distribution networks, and to continue to create a global value proposition of such highly successful products as Santander Future Wealth, Santander GO and the Santander ON range of solutions geared towards our clients' needs; •continuing to develop the alternative business with the aim of expanding our institutional client base and addressing our Private Banking clients' specific needs; •strengthening our ESG fund offering, making responsible and profitable investment solutions available to our clients in line with our strong commitment to sustainability; and •implementing digital robo-advisor investment platforms in certain markets where we operate. In Insurance: •continuing to develop our value proposition consistent with the new needs of individual and corporate customers; •ensuring the best customer experience in taking-out, renewing and using insurance; •focusing on use of data to customize and simplify our insurance value proposition; and •providing an end-to-end digital insurance proposition for all interested customers, with support from the other channels. PagoNxt strategy for 2022 is to: •enhance our Getnet franchise and continue to develop and grow Santander’s acquiring business, leverage our agreements with One Santander in Europe, North and South America and SCIB, bring innovations from one region to another and expand our products and value-added services as a multi-regional provider with a growing global presence, and tailor our solutions to local merchants’ needs. The commercial expansion will leverage both the distribution through Santander channels and through third parties and alliances in the open market; •expand our global platforms; continue delivering on Getnet's plan to migrate payment volumes from local operations, as we further expand our gateways convergence and technical interoperability; roll out One Trade platform services to Santander banks under a SaaS model, according to our plans to migrate payment volumes from the Group to the global platform and to integrate financing solutions, as well as our plan to implement Payments Hub’s instant functionality in Spain, the UK and SCIB; and gradually migrate Superdigital's volumes from our local operations to the global platform. •accelerate our commercial activity in the open market through direct marketing and partnerships; continue to expand Getnet's channels in the open market, focusing on Brazil, Mexico and the EU; deliver One Trade's and Payments Hub's direct digital marketing of e-money services in the Eurozone and the UK; use our APIs to access GBP and EUR payment schemes (subject to regulatory approvals); and accelerate Superdigital’s plan to launch of its global payment services platform in Latin American markets to reach seven countries by year end and gradually introduce new services such as credit. •continue fulfilling our strong commitment to ESG, focused on driving financial inclusion by empowering micro- entrepreneurs and underbanked communities to overcome barriers and access our services, supporting the development of vulnerable customers. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 420 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 categorized 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 business which are grouped in the non-IFRS line net capital gains and provisions and are further detailed at the end of section [3.2 'Results'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_406) of this chapter. In addition, the results by business areas in section [4 'Financial](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_418) [information by segment'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_418) 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_976) to our consolidated financial statements. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 421 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 amortization costs are needed to generate revenue. The goodwill adjustments have been removed from the RoTE numerator as, since they are not considered in the denominator, we believe this calculation is more correct. Ratio Formula Relevance of the metric RoE Profit attributable to the parent This 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 RoE Underlying profit attributable to the parent This ratio measures the return that shareholders obtain on the funds invested in the bank excluding results from operations outside the ordinary course of business. Average stockholders’ equity A (excl. minority interests) RoTE Profit attributable 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 RoTE Underlying profit attributable to the parent This 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 business. Average stockholders’ equity A (excl. minority interests) - intangible assets RoA Consolidated profit This 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 RoA Underlying consolidated profit This metric measures the profitability of a company as a percentage of its total assets excluding results from operations outside the ordinary course of 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 RoRWA Consolidated profit The return adjusted for risk is a 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 RoRWA Underlying consolidated profit This relates the underlying consolidated profit (excluding results from operations outside the ordinary course of business) to the Group’s risk weighted assets. Average risk weighted assets RoRAC Underlying consolidated profit This 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 Added Underlying 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 + Profit attributable to the parent + Dividends. B.Excluding the adjustment to the valuation of goodwill. C. Operating expenses = Administrative expenses + amortizations. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 422 Profitability and efficiency A B  (EUR million and  %) 2021 2020 2019 RoE 9.66% -9.80% 6.62% Profit attributable to the parent 8,124 -8,771 6,515 Average stockholders' equity (excluding minority interests) 84,133 89,459 98,457 Underlying RoE 10.29% 5.68% 8.38% Profit attributable profit to the parent 8,124 -8,771 6,515 (-) Net capital gains and provisions -530 -13,852 -1,737 Underlying profit attributable to the parent 8,654 5,081 8,252 Average stockholders' equity (excluding minority interests) 84,133 89,459 98,457 RoTE 11.96% 1.95% 11.44% Profit attributable to the parent 8,124 -8,771 6,515 (-) Goodwill impairment -6 -10,100 -1,491 Profit attributable to the parent (excluding goodwill impairment) 8,130 1,329 8,006 Average stockholders' equity (excluding minority interests) 84,133 89,459 98,457 (-) Average intangible assets 16,169 21,153 28,484 Average stockholders' equity (excl. minority interests) - intangible assets 67,964 68,306 69,973 Underlying RoTE 12.73% 7.44% 11.79% Profit attributable to the parent 8,124 -8,771 6,515 (-) Net capital gains and provisions -530 -13,852 -1,737 Underlying profit attributable to the parent 8,654 5,081 8,252 Average stockholders' equity (excl. minority interests) - intangible assets 67,964 68,306 69,973 RoA 0.62% -0.50% 0.54% Consolidated profit 9,653 -7,708 8,116 Average total assets 1,563,899 1,537,552 1,508,167 Underlying RoA 0.65% 0.40% 0.65% Consolidated profit 9,653 -7,708 8,116 (-) Net capital gains and provisions -530 -13,866 -1,710 Underlying consolidated profit 10,183 6,158 9,826 Average total assets 1,563,899 1,537,552 1,508,167 RoRWA 1.69% -1.33% 1.33% Consolidated profit 9,653 -7,708 8,116 Average risk-weighted assets 572,136 578,517 609,170 Underlying RoRWA 1.78% 1.06% 1.61% Consolidated profit 9,653 -7,708 8,116 (-) Net capital gains and provisions -530 -13,866 -1,710 Underlying consolidated profit 10,183 6,158 9,826 Average risk-weighted assets 572,136 578,517 609,170 RoRAC 14.97% 8.51% 12.91% Consolidated profit 9,653 -7,708 8,116 (-) Net capital gains and provisions -530 -13,866 -1,710 Underlying consolidated profit 10,183 6,158 9,826 Average economic capital 68,042 72,389 76,105 Economic value added 3,327 -2,529 3,509 Underlying consolidated profit 10,183 6,158 9,826 (-) Average economic capital x cost of capital -6,856 -8,687 -6,317 Average economic capital 68,042 72,389 76,105 Cost of capital 10.08% 12.00% 8.30% Efficiency ratio 46.15% 47.01% 47.04% Underlying operating expenses 21,415 20,967 23,280 Operating expenses 21,415 21,130 23,280 Net capital gains and provisions impact in operating expenses C — -163 — Underlying total income 46,404 44,600 49,494 Total income 46,404 44,279 49,229 Net capital gains and provisions impact in total income C — 321 265 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](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_976) to the consolidated financial statements. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 423 Efficiency ratio by business areas (EUR million and %) 2021 2020 % Total income Operating expenses % Total income Operating expenses Europe 51.0 16,312 8,318 56.4 14,673 8,275 Spain 47.7 7,006 3,340 53.2 6,782 3,607 United Kingdom 53.3 4,863 2,592 63.8 3,980 2,539 Portugal 42.0 1,341 563 45.5 1,296 590 Poland 40.2 1,646 663 41.3 1,524 629 North America 45.2 10,986 4,967 42.4 11,034 4,677 US 43.3 7,383 3,197 41.8 7,360 3,079 Mexico 45.9 3,579 1,643 42.5 3,651 1,552 South America 35.0 15,353 5,380 36.0 14,868 5,357 Brazil 29.7 10,884 3,236 32.6 10,866 3,541 Chile 38.4 2,457 942 39.8 2,263 900 Argentina 57.8 1,393 805 56.0 1,128 632 Digital Consumer Bank 45.0 5,339 2,405 45.1 5,166 2,329 Underlying RoTE by business area (EUR million and %) 2021 2020 % Underlying profit attributable to the parent Average stockholders' equity (excl. minority interests) - intangible assets % Underlying profit attributable to the parent Average stockholders' equity (excl. minority interests) - intangible assets Europe 7.36 2,978 40,478 3.61 1,413 39,178 Spain 6.33 957 15,108 3.30 517 15,674 United Kingdom 11.71 1,570 13,411 3.02 391 12,966 Portugal 11.85 482 4,065 8.73 338 3,875 Poland 5.00 161 3,211 5.05 162 3,204 North America 13.10 3,053 23,300 6.95 1,472 21,182 US 13.62 2,326 17,086 4.66 731 15,690 Mexico 13.91 835 6,001 14.38 762 5,298 South America 20.28 3,328 16,411 17.72 2,907 16,409 Brazil 21.49 2,325 10,821 19.16 2,113 11,028 Chile 19.28 637 3,304 13.19 432 3,278 Argentina 27.44 274 997 26.24 179 681 Digital Consumer Bank 14.05 1,332 9,479 11.77 1,133 9,620 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 424 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) Credit impaired loans and advances to customers, customer guarantees and customer commitments granted The 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 credit impaired as a percentage of the total outstanding amount of customer credit and contingent liabilities. Total Risk A Total coverage ratio Total allowances to cover impairment losses on loans and advances to customers, customer guarantees and customer commitments granted The total coverage ratio is a fundamental metric in the financial sector. It reflects the level of provisions as a percentage of the credit impaired assets. Therefore it is a good indicator of the entity's solvency against client defaults both present and future. Credit impaired loans and advances to customers, customer guarantees and customer commitments granted Cost of Credit Allowances for loan-loss provisions over the last 12 months This 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 and advances and guarantees to customers (including credit impaired assets) +  contingent liabilities that are credit impaired. Credit risk (I) (EUR million and %) 2021 2020 2019 NPL ratio 3.16% 3.21% 3.32% Credit impaired loans and advances to customers, customer guarantees and customer commitments granted 33,234 31,767 33,799 Gross loans and advances to customers registered under the headings “financial assets measured at amortized cost” and "financial assets designated at fair value through profit or loss" classified in stage 3 (OCI), excluding POCI (Purchased or Originated Credit Impaired) that is currently impaired 31,288 30,318 31,826 POCI exposure (Purchased or Originated Credit Impaired) that is currently impaired 358 497 706 Customer guarantees and customer commitments granted classified in stage 3 1,578 941 1,250 Doubtful exposure of loans and advances to customers at fair value through profit or loss 10 11 17 Total risk 1,051,115 989,456 1,016,507 Impaired and non-impaired gross loans and advances to customers 995,646 939,795 964,450 Impaired and non-impaired customer guarantees and customer commitments granted 55,469 49,662 52,057 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 425 Credit risk (II) (EUR million and %) 2021 2020 2019 Total coverage ratio 71% 76% 68% Total allowances to cover impairment losses on loans and advances to customers, customer guarantees and customer commitments granted 23,698 24,272 22,965 Total allowances to cover impairment losses on loans and advances to customers measured at amortised cost and designated at fair value through OCI 22,964 23,577 22,229 Total allowances to cover impairment losses on customer guarantees and customer commitments granted 734 695 736 Credit impaired loans and advances to customers, customer guarantees and customer commitments granted 33,234 31,767 33,799 Gross loans and advances to customers registered under the headings “financial assets measured at amortized cost” and "financial assets designated at fair value through profit or loss" classified in stage 3 (OCI), excluding POCI (Purchased or Originated Credit Impaired) that is currently impaired 31,288 30,318 31,826 POCI exposure (Purchased or Originated Credit Impaired) that is currently impaired 358 497 706 Customer guarantees and customer commitments granted classified in stage 3 1,578 941 1,250 Doubtful exposure of loans and advances to customers at fair value through profit or loss 10 11 17 Cost of credit 0.77% 1.28% 1.00% Underlying allowances for loan-loss provisions over the last 12 months 7,436 12,173 9,321 Allowances for loan-loss provisions over the last 12 months 7,436 12,431 9,321 Net capital gains and provisions impact in allowances for loan-loss provisions — -258 — Average loans and advances to customers over the last 12 months 968,931 952,358 935,488 NPL ratio by business areas (EUR million and %) 2021 2020 % Credit impaired loans and advances to customers, customer guarantees and customer commitments granted Total risk % Credit impaired loans and advances to customers, customer guarantees and customer commitments granted Total risk Europe 3.12 19,822 636,123 3.34 20,272 606,997 Spain 5.77 12,758 221,100 6.23 13,796 221,341 United Kingdom 1.43 3,766 262,869 1.24 3,138 252,255 Portugal 3.44 1,442 41,941 3.89 1,584 40,693 Poland 3.61 1,210 33,497 4.74 1,496 31,578 North America 2.42 3,632 149,792 2.23 2,938 131,626 US 2.33 2,624 112,808 2.04 2,025 99,135 Mexico 2.73 1,009 36,984 2.81 913 32,476 South America 4.50 6,387 141,874 4.39 5,688 129,590 Brazil 4.88 4,182 85,702 4.59 3,429 74,712 Chile 4.43 1,838 41,479 4.79 2,051 42,826 Argentina 3.61 198 5,481 2.11 93 4,418 Digital Consumer Bank 2.13 2,490 116,989 2.17 2,525 116,381 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 426 Coverage ratio by business areas (EUR million and %) 2021 2020 % Total allowances to cover impairment losses on loans and advances to customers, customer guarantees and customer commitments granted Credit impaired loans and advances to customers, customer guarantees and customer commitments granted % Total allowances to cover impairment losses on loans and advances to customers, customer guarantees and customer commitments granted Credit impaired loans and advances to customers, customer guarantees and customer commitments granted Europe 49.4 9,800 19,822 50.3 10,199 20,272 Spain 52.2 6,660 12,758 47.1 6,495 13,796 United Kingdom 25.8 971 3,766 44.7 1,403 3,138 Portugal 71.7 1,033 1,442 66.5 1,053 1,584 Poland 73.9 895 1,210 70.7 1,058 1,496 North America 134.9 4,901 3,632 182.6 5,364 2,938 US 150.3 3,943 2,624 210.4 4,261 2,025 Mexico 95.0 958 1,009 120.8 1,103 913 South America 98.3 6,279 6,387 97.4 5,540 5,688 Brazil 111.2 4,651 4,182 113.2 3,880 3,429 Chile 63.3 1,164 1,838 61.4 1,260 2,051 Argentina 153.8 305 198 275.1 257 93 Digital Consumer Bank 107.8 2,684 2,490 113.3 2,862 2,525 Cost of credit (EUR million and %) 2021 2020 % Underlying allowances for loan-loss provisions over the last 12 months Average loans and advances to customers over the last 12 months % Underlying allowances for loan-loss provisions over the last 12 months Average loans and advances to customers over the last 12 months Europe 0.39 2,294 591,703 0.58 3,344 579,501 Spain 0.92 1,833 199,243 1.01 2,001 198,273 United Kingdom -0.09 -245 258,636 0.27 677 255,038 Portugal 0.09 38 39,805 0.51 193 37,951 Poland 0.67 200 29,777 1.10 330 30,073 North America 0.93 1,210 130,635 2.92 3,917 134,187 US 0.43 419 97,917 2.86 2,937 102,662 Mexico 2.44 791 32,434 3.03 979 32,287 South America 2.60 3,251 125,089 3.32 3,924 118,138 Brazil 3.73 2,715 72,808 4.35 3,018 69,421 Chile 0.85 341 40,344 1.50 594 39,534 Argentina 3.01 140 4,667 5.93 226 3,813 Digital Consumer Bank 0.46 527 115,156 0.83 957 114,747 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 427 Other indicators The market capitalization 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 price Is 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 customers This 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 repos In 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 repos In 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 customers Metric to assess Wealth Management & Insurance’s total contribution to Group’s profits A. Tangible book value = Stockholders’ equity - intangible assets. Others (EUR million and %) 2021 2020 2019 TNAV (tangible book value) per share B 4.12 3.79 4.18 Tangible book value 70,346 65,568 72,384 Number of shares excl. treasury stock (million) B 17,063 17,312 17,332 Price / tangible book value per share (X) 0.71 0.67 0.86 Share price (euros) B 2.941 2.538 3.575 TNAV (tangible book value) per share B 4.12 3.79 4.18 Loan-to-deposit ratio 106% 108% 114% Net loans and advances to customers 972,682 916,199 942,218 Customer deposits 918,344 849,310 824,365 PAT + After tax fees paid to SAN (in WM&I) (Constant EUR million) 2,313 2,061 Profit after tax 943 841 Net fee income net of tax 1,370 1,220 B. 2019 data adjusted for the capital increase in December 2020. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 428 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 2021 to all periods contemplated in the analysis. The table below shows the average exchange rates of the main currencies in which the Group operates. 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 2021 to all periods contemplated in the analysis. The table below shows the period-end exchange rates of the main currencies in which the Group operates. Exchange rates: 1 euro/currency parity Average Period-end 2021 2020 2021 2020 US dollar 1.182 1.140 1.133 1.227 Pound sterling 0.859 0.889 0.840 0.898 Brazilian real 6.372 5.814 6.319 6.373 Mexican peso 23.980 24.364 23.152 24.438 Chilean peso 897.123 902.072 964.502 871.819 Argentine peso 112.383 79.555 116.302 103.159 Polish zloty 4.564 4.441 4.597 4.559 Impact of inflation on operating expenses Santander presents, for both the Group and the business units included in the primary segments, the changes in operating expenses, as well as the changes excluding the exchange rate effect, and the changes of the latter excluding the effect of average inflation in 2021. The reason is that the two latter facilitate analysis for management purposes. Inflation is calculated as the arithmetic average of the last twelve months for each country and, for the regions, as the weighted average of each country comprising the region's inflation rate, weighed by each country's operating expenses in the region. The table below shows the average inflation rates calculated as indicated for each of the regions and countries. Average inflation % 2021 Europe 2.9 Spain 3.1 United Kingdom 2.6 Portugal 1.3 Poland 5.1 North America 5.0 US 4.7 Mexico 5.7 South America 13.7 Brazil 8.3 Chile 4.5 Argentina 48.1 Digital Consumer Bank 2.6 Total Group 6.0 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 429 # Risk management and compliance Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 430 [1. Risk management and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_511) [compliance overview](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_511) [432](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_511) [1.1 Executive summary and 2021 highlights](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_514) [432](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_514) [1.2 2021 key achievements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_517) [436](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_517) [1.3 Santander's top and emerging risks](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_520) [437](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_520) [2. Risk management and control model](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_523) [439](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_523) [2.1 Risk principles and culture](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_526) [439](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_526) [2.2 Risk factors](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_529) [439](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_529) [2.3 Risk governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_532) [440](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_532) [2.4 Management processes and tools](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_535) [442](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_535) [2.5 Models & Data unit](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_538) [444](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_538) [3. Credit risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_544) [446](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_544) [3.1 Introduction](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_547) [446](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_547) [3.2 Credit risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_550) [446](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_550) [3.3 Key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_556) [449](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_556) [3.4 Details of main geographies](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_559) [455](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_559) [3.5 Other c](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_574)redit risk details [460](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_574) [4. Market, structural and liquidity risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_577) [466](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_577) [4.1 Introduction](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_580) [466](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_580) [4.2 Market risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_583) [467](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_583) [4.3 Market risk key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_586) [469](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_586) [4.4 Structural balance sheet risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_589) [management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_589) [475](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_589) [4.5 Structural balance sheet risk key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_592) [475](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_592) [4.6 Liquidity risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_595) [477](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_595) [4.7 Liquidity risk key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_598) [478](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_598) [4.8 Pension and actuarial risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_601) [478](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_601) [5. Capital risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_604) [480](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_604) [5.1 Introduction](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_607) [480](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_607) [5.2 Capital risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_610) [481](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_610) [5.3 Key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_613) [482](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_613) [6. Operational risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_616) [483](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_616) [6.1 Introduction](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_619) [483](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_619) [6.2 Operational risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_622) [483](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_622) [6.3 Key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_625) [488](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_625) [7. Compliance and conduct risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_628) [489](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_628) [7.1 Introduction](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_631) [489](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_631) [7.2 Compliance and conduct risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [489](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [8. Model risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_637) [496](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_637) [8.1 Introduction](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_640) [496](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_640) [8.2 Model risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_643) [496](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_643) [9. Strategic risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_646) [498](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_646) [9.1 Introduction](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_649) [498](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_649) [9.2 Strategic risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_652) [498](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_652) 10[. Climate and environmental risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661) [499](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661) 10[.1 Introduction](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9669) [499](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9669) 10[.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9675) Climate and environmental risk management [499](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9675) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 431 1. Risk management and compliance #### Our risk and compliance culture is a key pillar of Grupo Santander's #### strategy and underpins our safe and robust business model In 2021, we continued to support our customers and all our stakeholders to encourage a sustainable and responsible economic recovery. The Risk and Compliance function kept its commitment to the digitalization and fulfilment of our strategic goals and initiatives such as One Santander, PagoNxt and Digital Consumer Bank. Management of ESG-related risks (with special focus on the effects of climate-related risk and the achievement of our ambitious net zero goals) is also one of our priorities. 1.1 Executive summary and 2021 highlights This section outlines Santander’s risk management and risk profile in 2021 based on key risk indicators and their performance. The subsequent sections in this chapter (accessible via the links provided) provide additional information on each risk factor, as well as our analysis of top and emerging risks. #### Credit risk [> Section 3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_544) Our risk management and control model together with our solid risk culture contributed to the bank's strong performance in 2021 while improving the way we serve our customers. 29 TOTAL RISK BY REGION30 TOTAL RISK BY SEGMENT Credit quality indicators maintained their positive trend through the year. NON-PERFORMING LOANS RATIO Loan growth coupled with positive portfolio performance drove the NPL rate down. COST OF CREDIT20 Cost of credit improved owing to the good performance of the portfolio and the additional provisions made in 2020 to cover potential losses that could arise as a result of the covid pandemic. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 432 Digital Consumer Bank (DCB) and Santander Corporate & Investment Banking (SCIB) 29 Includes gross lending to customers, guarantees and documentary credits. 30 'Others' not included represent 1% (Corporate Centre). 20 Cost of credit is the ratio of 12-month loan-loss provisions to average lending on the same period. #### Market, structural and liquidity risk > [Section 4](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_577) Risk levels in trading activity remained low, in an environment where volatility was lower than in 2020. 2021 AVG. VALUE AT RISK (VaR) EUR million. Dec.21 Max. EUR 15.9mn Min. EUR 6.8mn VaR remained stable averaging EUR 10.5 million. It peaked in September (EUR 15.9 million) due to supply chain disruptions and rising energy prices. ▲164% The liquidity ratio (LCR) was stable in 2021 and always remained above the regulatory threshold. We managed liquidity buffers effectively to maintain a sound risk profile (within regulatory limits) and a profitable balance sheet. Our subsidiaries have a strong balance sheet and a stable funding structure, supported by a large customer deposit base. This strength is demonstrated in stress scenarios developed under homogeneous corporate criteria. #### Capital risk > [Section 5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_604) RWA31 BY RISK TYPE Credit risk, which is our core business, stands out among RWA. 32 FULLY LOADED CET1 ▲12.12% ▲ 23 bp in 2021 placing CET1 at the top of our 11-12% target RoRAC33 ▲ 15.0% ▲ 6 pp in 2021 RWA BY REGION Diversified and balanced distribution. 2021 EUR 579 bn 2020 EUR 563 bn Others not included represent 2% in 2021 and 3% in 2020. The CET1 ratio increased due to strong organic capital generation based on underlying profits and efficient RWA management. The strength of our diversified retail banking business model is demonstrated by our positive performance in all eight regulatory stress tests performed since 2008. RoRAC methodology allows us to compare homogeneously the return on loans, customers, portfolios and businesses, helping to identify those that obtain a risk-adjusted return above the cost of capital. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 433 31 Risk weighted assets. 32 Credit includes counterparty risk, securitizations and amounts below deduction thresholds. 33 The Group’s total RoRAC includes the operative units and the Corporate Centre, reflecting the Group's economic capital and its return. #### Operational risk > [Section 6](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_616) Our operational risk profile remained stable despite the exceptional circumstances. With the goal of reinforcing existing controls, our 2021 priorities were: #### Operational management model #### Relevant operational risks Progress implementation and improvements in instruments related to risk appetite, risk assessment and control, business continuity plans, as well as in the analysis and integration within the monitoring and control of non-financial risks (transformation risk and climate). Several initiatives in place to mitigate emerging risks (technological, cyber, etc.) and also adapt to regulatory framework changes, focusing on strengthening capacities to recover from disruptive events that affect our main business operations. OPERATIONAL LOSSES BY BASEL CATEGORY #### Dec.2021 Clients 73% Damage to physical assets 1.8% External fraud 15% Processes & systems 8% Employees 2% Internal fraud 0.2% #### Compliance and conduct risk > [Section 7](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_628) Main initiatives in 2021: → Transformation: Continued development of One FCC strategic transformation plan; use of artificial intelligence techniques to improve root-cause analysis of customer complaints and for proactive conduct risk management in commercialization; exploration of RegTech tools. → Process redesign to improve effectiveness: Use of homogeneous management methodologies and tools in subsidiaries: Heracles, CCM, Annual compliance program, Product and service approval. Stronger governance under a risk-based approach for the supervision of our subsidiaries. → Compliance & conduct risk management by the first line of defence: ·  Designation of an executive responsible for FCC at subsidiary/business level. · More robust compliance and conduct risk management in terms of dealing with vulnerable customers, conduct risk control, better reputational risk management and regulatory agenda with GDPR and Anti-Trust requirements. → Risk culture: Fine-tuning of team capabilities according to strategic objectives, gender and diversity initiatives, talent review in succession planning. #### Model risk > [Section 8](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_637) → We continue to make progress with our Model Risk Management (MRM 2.0) strategic plan, with two achievements: better management of our regulatory models (IRB and IMA) and compliance with supervisory expectations. → Our digitalization progress helped us improve real-time decision-making through more agile admission models. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 434 #### Strategic risk > [Section 9](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_646) → 2021 strategic focus was to see how economic recovery fared against the uncertainty generated by new covid-19 variants and the progress of vaccination campaigns in various geographies; and to monitor the progress of our transformational projects. → Challenging strategic plans, reviewing our business model, identifying and monitoring top risks, assessing and validating new products and coordinating the risk analysis for corporate development transactions. #### Climate and environmental risk > [Section 10](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661) → Climate-related and environmental risk further embedded in our core risk management processes. Major 2021 milestones include a new quantitative metric in our risk appetite statement that allows us to closely monitor our commitment to reduce thermal coal exposure. → Progress also made with increasing granularity and scope (e.g. Santander Consumer Finance and Private Banking) of credit risk materiality assessments. → Continued support for our public commitments on climate change and for our customers’ transition to a more sustainable economy. → In 2021, progress was made in developing the Group's capabilities to assess portfolios with scenario analysis techniques. Among other management uses, it is also enabling to meet growing regulatory requirements, including the Climate Biennial Exploratory Scenarios (CBES) in the UK and the Single Supervisory Mechanism (SSM) climate risk stress test for 2022. → Progress in credit approval process according to EBA guidelines; and the adaptation of our policy to comply with environmental commitments. 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 internal 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 internal 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. For additional information on segments, please see '[4.1 Description of segments'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_421) of the Economic and financial review chapter. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 435 1.2 2021 key achievements Our Risk and Compliance function is forward-looking, pragmatic and a reference in the market. It is also guided by a clear and reinforced strategy with lessons learnt throughout the crisis that enables us to be better prepared. #### Covid-19 close monitoring Unprecedented level of support to customers (EUR 150 bn). Integrated Health reports and stats into BAU reporting for effective & timely updates. Closely following most affected sectors/clients supported by clear segmentation. Fully prepared Collections & Recoveries teams were instrumental in helping manage the crisis including Conduct approach. Detailed & regular assessments of provisions alongside a robust control environment. #### Operational excellence Strong customer-centric credit management with excellent results in the ECB’s stress test. ONE Compliance strategy in motion and accelerating One FCC transformation programme through global standards implementation and detection activities. Considerable cyber risk progress made with the launch of Europe’s hub. Climate & environmental factors integration into the admission process. Constantly raising up the bar in credit risk digitalisation and automation to improve customer experience (time to yes/time to cash). #### Creating value Capital accuracy: continuous optimization through model enhancements and other initiatives. Consolidation of Monet as the Group’s tool supporting our consistent model risk management framework. Integration of compliance & conduct risk assessments/ indicators into one process under the same methodology through the enhancements made to our Heracles tool. Compliance & conduct governance, process, methodologies and tool simplification to better engage with subsidiaries and be more effective and efficient. Leverage new advanced analytics techniques in risk management: conduct and customer voice, reputational risk, credit risk, FCC. #### New ways of working Simplified key processes through state of the art modelling techniques and robotics. New regional heads in place accelerating shared services/ common solutions. Introduced Flexi- working to better reconcile work-life balance and protect employees during covid. Broadened Risk Culture to include cyber, compliance & conduct and climate. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 436 1.3 Santander's top and emerging risks For forward-looking management and strict control, we regularly measure top and emerging risks under various stress scenarios. We detect, analyse and monitor major internal and external threats that could affect our strategic plan and compromise our profitability and solvency. Top and emerging risks could lead to deviations from our targets, as (by definition) their potential impact is not included in current plans. Still, management measures can mitigate impact severity. In 2021, the covid pandemic and vaccine rollouts (especially in OECD countries, where they have prompted faster economic recovery than expected) still affected our top risks identification process. The risk of new virus variants remains under close observation, particularly in geographies where vaccination rates are low. Grupo Santander is monitoring and adopting measures to mitigate strategic risks, such as: A macroeconomic scenario in which recovery is restrained: Ongoing inflation in the US and Europe over recent months and signs of some economic indicators' slowdown have cast doubts about global economic recovery. Extreme scenarios even suggest the return of stagflation. Following lockdowns, global manufacturing and services have not been able to keep up with increasing demand and changing consumption patterns prompted by covid. Global supply chains have not yet recovered their full capacity, which was diminished by pandemic restrictions. Examples of this are the maritime shipping woes and the semi-conductor shortage that is especially affecting the auto industry. Food and commodity prices are on the rise, and many markets (including the US and the UK) are seeing labour shortages. Amid the inflationary tension (which central banks will have to tackle), fiscal and monetary stimulus measures to reverse the economic slowdown spurred by the pandemic which are gradually being reduced. There is the risk that economic recovery will be affected by these ongoing supply shocks, leading to higher, more structural inflation. Furthermore, if job market instability pushes inflation forecasts above targets, due to the so called "second-round effects", the pressure for tighter monetary policies will be greater. Our balanced diversification between mature and developing markets and our wide range of products leave us more resilient to macroeconomic threats. We also managed to reduce the potential severity of these risks through mitigating measures we took at the onset of the pandemic and adapted throughout 2021. They include: •robust risk policies and processes and proactive management, which kept our risk profile within the parameters set out in our risk appetite statement; •our recoveries and collections teams’ full capacity after adapting to the new environment through a Group-wide preparedness plan initiated in 2020 and finalized in 2021; •continuous monitoring of the social and political situation regarding countries and industries where we have considerable exposure, and adjustments of our limits and positions according to our risk appetite; and •regular reviews of our risk profile and commercial, market and macroeconomic dynamics, and new action plans to remain on track with established plans. Growing regulatory pressure In light of our international footprint and status as a global systemically important bank, we are subject to substantial capital requirements that could increase owing to new regulation or to a review by the supervisor of the existing criteria. This could reduce our profitability and return on capital while raising our cost of funding. In the coming years, banks must implement capital and leveraging requirements in accordance with Basel III reforms, aimed to enhance the comparability of capital ratios at the industry level. Key mitigation measures: •Continued enhancement of our models and multiple initiatives on each risk factor to optimize capital. •Participation in all forums to debate and work with banking associations, regulators and supervisors on new regulation and requirements. •Appropriate capital planning that allows us to absorb new regulation impacts preventing them from affecting our solvency levels. Cyber risk in a digital business model Cybersecurity threats are increasing rapidly in terms of frequency, sophistication and impact. Ransomware and data breaches continued to dominate the external threat landscape during 2021. Additionally, new vulnerabilities that can be rapidly exploited are also on the rise. As cyber threats continue to grow and new attack techniques are developed, continuous evolution of cyber defences is essential. Cybersecurity initiatives, described on the Cyber risk paragraph on section [6.2 'Operational risk management'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_622), are helping Grupo Santander to evolve its defences in line with emerging threats and technologies. The increase in digital transactions and the expansion of remote working schemes seen in recent times can also have an effect on cyber risks and threats. These are the measures Grupo Santander has taken to combat them: •We tightened controls (e.g., patching, browsing control, data protection and remote connections from the call centre), anticipating the worst scenarios in order to create a "defence in depth" to prevent, detect, react and recover. •We standardized and continued to bolster existing defences through agile, sustainable and risk-driven management. Risk in the execution of our transformational projects In the new digital environment driven by covid-19, growing competition between existing companies and new players is causing banks to rethink their business models, customer experience and market demands, spurring faster digitalization. Regulation plays a fundamental role and may give rise to asymmetries between new and traditional competitors, and between markets. To adapt, Grupo Santander is executing a transformation plan that is complex owing to the number of countries, systems and regulation it Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 437 involves. If we fail to execute these key strategic projects, it could damage our business plan and worsen efficiency as well as regulatory expectations. Key mitigation measures: •Continuing to make progress in digitalization to make the bank an open financial services platform. This has been vital in the new environment. Our agreements and joint ventures have been playing a fundamental role in our transformation. •Sharing best practices and commercial solutions in order to continue to embed a culture of fast experimentation in Grupo Santander. •Establish a strategic project management office with robust governance to monitor and report to the risk control and strategy committees on strategic projects. •We carefully measure and monitor risks stemming from inadequate project execution. Projects must be closely overseen by specific departments. Inclusion of climate-related risks within risk management Climate-related risks have become a priority for broader society. Governments, international organizations, regulators and supervisors continue to develop initiatives to comprehend the magnitude of this risk, with stricter transparency and market disclosure requirements in regard to climate-related risks to banks’ profitability, resilience and business strategies. We split climate-related risk into two categories: (1) risks from the transition to a low-carbon economy and (2) risks from the physical effects of climate change. To identify and respond to them properly, proactive management is key. In 2022, European banks will undergo their first-ever climate-related stress test to measure the Eurosystem’s balance sheet exposure to climate-related risk. Furthermore, as the Supervisory Review and Evaluation Process (SREP) gradually includes environmental risks, they could eventually have an effect on regulatory capital. Key mitigation measures: •Direct participation of senior managers to support Grupo Santander’s strategic objectives, in accordance with our established governance. For more details on those objectives, see section [10. 'Climate and environmental](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661) [risk'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9661) in this chapter. •Climate-related project, with Responsible Banking, Corporate & Investment Banking (CIB) and Risks at the helm, to develop risk measurement approaches, climate-related metrics, strategies, new policies and frameworks; set out a robust risk appetite statement; and design green products to satisfy the growing demand. Stronger internal resources and capabilities to meet increasing requirements. •Financing for renewable energy and smart infrastructure to aid customers’ transition to reducing their own carbon emissions. Support for inclusive and sustainable growth in consideration of risks and opportunities. •Active role in international forums and working groups to promote the energy transition programme, including the United Nations Environment Programme Finance Initiative's (UNEP FI) pilot programme to develop scenarios, models and metrics to measure climate-related risks and opportunities in the future. As part of our risk identification process, we also defined other events, which could affect our strategy and transformation plan in the longer-term, such as significant shifts in market tendencies and the business environment; consumer behaviour; geopolitics; political fragmentation; social and demographic changes; asymmetric access to natural resources; extended use of crypto assets; and potential legal loopholes. We conducted Board Risk Strategy sessions to discuss with board members new and fast emerging key trends. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 438 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 who must understand the risks associated with their functions and not assume risks with an impact that exceeds the Group’s risk appetite or is unknown. 2.Involvement of senior managers, with consistent risk management and control through their conduct, actions and communications, as well as oversight of our risk culture and make sure we maintain our risk profile within the defined risk appetite. 3.Independent risk management and control functions, according to our three lines of defence model, described in detail under section [2.3 'Risk and Compliance governance'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_532) of this chapter. 4.A forward-looking, comprehensive approach to risk management and control for all businesses and risk types. 5.Complete and timely information to identify, assess, manage and disclose risks to the appropriate level. Grupo Santander’s holistic control structure stands on these principles and includes strategic tools and processes set out in the risk appetite statement, such as annual and budget planning, scenario analysis, the risk reporting structure and risk identification and assessment. Risk culture - Risk Pro Santander has a strong risk culture called Risk Pro (or I AM RISK in the UK and the US), based on the principle that all employees are risk managers. Risk Pro is a pillar of 'The Santander Way' group culture and considers all risks to promote socially responsible management and long-term sustainability. For more details, see the section ['Risk pro:](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109) [our risk culture'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109) in the Responsible Banking chapter. 2.2 Risk factors Grupo Santander's risks categorization ensures effective risk management, control and reporting. Our risk framework distinguishes these 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 financed or assumed a contractual obligation. 2 Market risk results of loss and detriment to profits or capital stemming from movements in interest rates, exchange rates, stock and commodity prices and its potential impact on capital requirements. 3 Liquidity risk occurs if liquid financial resources are insufficient or too costly to obtain in order to meet liabilities when they fall due. 4 Structural risk is the risk that market movements or balance sheet behaviour will change the value or profit generation of assets or liabilities in the banking book. It covers insurance and pension risks, as well as the risk that Santander will not have sufficient capital (in terms of quantity or quality) to meet internal business targets, regulatory requirements or market expectations. 5 Operational risk is the possibility of losses due to shortcomings and failures relating to processes, employees and internal systems, even as a result of external events. It includes legal, regulatory compliance and conduct risks. 6 Financial crime risk is the risk of loss due to criminal or illegal activity involving Santander’s resources, products and services. Such activity includes money laundering, terrorism financing, violation of international sanctions, corruption, bribery and tax evasion. 7 Model risk involves potential losses due to inaccurate forecasting or from a model being implemented or misused that can result in poor decision-making. 8 Reputational risk is the risk of current or potential negative economic impact due to damage to the bank’s reputation among employees, customers, shareholders, investors and broader society. 9 Strategic risk relates to losses due to strategic decisions or their poor implementation that affect our core stakeholders’ medium-to-long-term interests or to an inability to adapt to a changing environment. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 439 Environmental and climate-related risk drivers are considered as factors that could impact the existing risks in the medium-to-long- term. These elements include, on the one hand, those derived from the physical effects of climate change, generated by one-off events as well as by chronic changes in the environment and, on the other hand, those derived from the process of transition to a development model with lower emissions, including changes on legislation, technology or economic agents' behaviour. 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 line: formed by businesses and functions that take or originate exposure to risk, it recognizes, measures, controls, monitors and reports on risks according to internal risk management regulation. Risk origination must be consistent with the approved risk appetite and related limits. –Second line: formed by the Risk and Compliance and Conduct functions, it independently oversees and challenges the first line’s risk management. Its duties include ensuring that risks are managed according to the risk appetite defined by senior management and strengthening our risk culture throughout Grupo Santander. –Third line: the Internal Audit function, which is independent to ensure the board of directors and senior managers with high- quality and efficient internal controls, governance and risk management systems, helping to safeguard our value, solvency and reputation. The Risk, Compliance & Conduct and Internal Audit functions are separate and independent. Each has direct access to the board of directors and its committees. Risk and Compliance committees' structure The board of directors is ultimately responsible for risk and compliance management and control. It revises and approves the bank's risk frameworks and appetite, while promoting a strong risk culture across the Group. The board relies on its risk supervision, regulation and compliance committee for risk control and on the group’s executive committee for risk approval. For more details, see section [4.8 ‘Risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292) [supervision, regulation and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292) [committee activities in 2021’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_292) of the chapter on Corporate governance. The Group chief risk officer (Group CRO), who decides risk strategy and promotes proper risk culture, is in charge of overseeing all risks and challenging and advising business lines on risk management. The Group chief compliance officer (Group CCO), who decides compliance and conduct strategy, is in charge of controlling the risks within their purview and must provide the Group CRO with a complete overview on the situation of risks being monitored. Both the Group CRO and the Group CCO have direct access and report to the risk supervision, regulation and compliance committee and the board of directors. Risk governance keeps risk control and risk-taking lines separate: Board of directors Risk management Risk control Board executive committee Board risk supervision, regulation and compliance committee Executive risk committee Chair: CEO Risk control committee Chair: GCRO Compliance and conduct committee Chair: GCCO Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 440 The executive risk, risk control and compliance and conduct committees (described below) are executive committees and have been delegated powers by the board. Executive risk committee (ERC) Risk control committee (RCC) Compliance and conduct committee Functions: Manages risks according to the powers it has been delegated by the board. It is authorized to approve, alter or scale significant models as well as any measures or transactions that may pose substantial risk to Grupo Santander. It makes the highest-level risk decisions according to the group’s risk appetite. Controls and provides a holistic overview of risks. It makes sure business lines are managed according to risk appetite. It also identifies, monitors and assesses the impact of existing and emerging risks on Santander's risk profile. The committee monitors and reviews compliance and conduct risk management. It also oversees corrective measures for new risks and risks detected among management-related deficiencies. Chair: CEO Group CRO Group CCO Composition: Appointed executive directors and other senior managers, representing the risk, finance and compliance and conduct functions. The Group CRO reserves the right to veto the committee’s decisions. Senior managers from the risk, compliance & conduct, finance, accounting and management control functions. From time to time, each CRO from subsidiaries attend to report on their respective risk profiles. Senior managers representing the compliance & conduct, risk, accounting and management control functions. The chair reserves the right to veto the committee’s decisions. Meetings: Weekly Monthly Monthly Forums: •Model approval forum •Risk proposal forum •Forum on market, structural, liquidity and capital risk control •Credit risk control forum •Provisions forum •Corporate product governance forum •Financial crime prevention forum •Reputational risk forum In addition, for each risk factor there are forums and regular meetings to manage and control the risks within their purview. Executive committees also delegate part of their duties to subordinate forums. Their responsibilities include: •reporting to the Group CRO, the Group CCO, the risk control committee and the compliance and conduct committee on risk management according to risk appetite; •monitoring and ensuring proper management of each risk factor; and •overseeing measures to comply with supervisors and auditors' expectations. In order to establish an adequate control environment for the management of each risk factors, the Risk and Compliance and Conduct functions have effective internal regulation to create the right environment to manage and control all risks. Grupo Santander can also dictate new governance measures for special situations. For the Brexit transition process, it set up separate steering committees and working groups with Santander UK. Also, to cope with the covid crisis, it created special situation forums, in which close coordination with subsidiaries, local contingency plan activation (including scenario analysis) enhanced allocated resources and governance to ensure the efficiency of the measures. The Group’s relationship with its subsidiaries Our subsidiaries’ risk and compliance management and control models is consistent with the frameworks approved by the group’s board of directors, which they adhere to through their own boards and can only adapt according to local law and regulation. In its duty to carry out aggregate risk oversight, Grupo Santander validates and challenges subsidiaries’ internal regulation and transactions, which results in a common risk management model across the group. In 2021, we continued to strengthen our regional subsidiary relations model, based on regions, to find synergies for common operations and platforms building on our global and regional scale; to streamline processes; and to tighten control mechanisms so our business can grow, allocate capital more efficiently and offer the best service to our customers. Local CRO interact regularly with their regional head of risk, the Group CRO and the Group CCO in periodic regional or country control meetings. Local and global Risk and Compliance functions also hold follow-up meetings to address special matters. The Group CRO and the Group CCO and regional heads of risk are involved in appointing, setting of objectives, reviewing and compensating their local counterparts to ensure proper risk management. Grupo Santander enhances its relations with subsidiaries and its advanced risk management model through: Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 441 •close collaboration between countries in the same region to carry out common initiatives efficiently; •structural change, subsidiary benchmarks and a strategic vision for the function to implement advanced risk management infrastructures and practices •the exchange of best practices to strengthen processes and drive innovation in order to achieve a quantitative impact. •identification of talent in risk and compliance teams, promoting international mobility through a global risk talent programme and tightening succession plans. For more details on our relationship with our subsidiaries, see section [7 ‘Group structure and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_334) [internal governance’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_334) of the chapter on Corporate Governance. 2.4 Risk management processes and tools Grupo Santander has the following processes and tools to carry out an effective risk management: Risk appetite and structure of limits Risk appetite is the volume and type of risks we deem prudent for our business strategy, even in unforeseen circumstances. It considers adverse scenarios that could have a negative impact on capital, liquidity and profitability. The board sets the Group's risk appetite statement (RAS) every year. Our subsidiaries' boards also set their own risk appetites annually. Each of those risk appetites translates into risk management limits and policies based on risk type, portfolio and segment. Group's RAS RAS Unit 1 RAS Unit 2 RAS Unit n Risk limits & policies Unit 1 Risk limits & policies Unit 2 Risk limits & policies Unit n Business model and risk appetite fundamentals Santander's risk appetite is consistent with our risk culture and our business model built on customer focus, scale and diversification. At the core of our risk appetite are: •a medium-low and predictable target risk profile that is centred on retail and commercial banking, internationally diversified operations and strong market share; •stable, recurrent earnings and shareholder remuneration, sustained by a sound base of capital, liquidity and sources of funding; •independent subsidiaries that manage their own capital and liquidity, with risk profiles that do not compromise the Group’s solvency; •an independent risk function with involvement by senior management to embed a strong risk culture and drive a sustainable return on capital; •a global, holistic outlook through extensive control and monitoring of risks, businesses and markets; •a focus on products we know well; •a conduct model that protects our customers; and •a remuneration policy that aligns employees and executives' interests with risk appetite and long-term results. Our risk appetite principles The principles that inform our risk appetite are: •the board and senior management's responsibility for risk appetite; •an enterprise-wide view of risk, backtesting and challenge of risk profile based on quantitative metrics and qualitative indicators; •a forward-looking view 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 that align each subsidiary's appetite with the Group's; and •regular reviews, best practice and regulatory requirements, with mechanisms in place to keep the risk profile stable and mitigate non-compliance. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 442 Limits structure, monitoring and control Our risk appetite is expressed in qualitative terms and limits structured on these five core elements. 1 Earnings volatility Maximum loss Santander can tolerate in an acute-but- plausible stress scenario. 2 Solvency •Minimum capital position Santander can tolerate in a stress scenario. •Maximum leverage Santander can tolerate in a stress scenario. 3 Liquidity •Minimum structural liquidity position. •Minimum liquidity horizon Santander can tolerate in peak stress scenarios. •Minimum liquidity coverage position. 4 Concentration •Concentration in single-names, industries 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: ◦Financial crime compliance (FCC) ◦Cyber and security risk ◦Model risk ◦Reputational risk 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. The link between risk appetite limits and the limits used to manage business units and portfolios is key to making risk appetite an effective tool for managing risks. Management policies and limits are based on the risk appetite statement (see sections [3.2 ‘Credit risk management’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_550), [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_583) [‘Market risk management’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_583) and [4.4 ‘Structural balance sheet risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_589) [management’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_589) of this chapter). Key initiatives in 2021 Santander continued to thoroughly review the impact of covid and the adequacy of our risk appetite to cope with the new landscape. We strengthened our controls and metrics to monitor our commitment to the environment and to the Paris Agreement for the transition to a low-carbon and climate-resilient economy more closely. Having achieved our aim to be carbon neutral in 2020, our ambition is to be net-zero in carbon emissions by 2050. We set our first decarbonization objectives, which are to stop providing financial services to power generation customers with a revenue dependency on coal of over 10% and to reduce our worldwide exposure to coal mining production to zero, a key step in fighting climate change. Risk profile assessment (RPA) Identification and assessment are central to the management, control and reporting of Grupo Santander’s risk. To assess the Group's risk profile systematically, we use a single, robust methodology that allows us to analyse the various risk types described in our risk framework (outlined under section [2.2 'Risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_529) [factors'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_529)). In addition, it classifies them by different levels and unit according to a points system with four categories (“low”, “medium- low”, “medium-high” and “high”). The RPA methodology is based on the main principles of the identification and risk assessment model, such as: self-assessment and exercise suitability; efficiency; and holistic, in-depth risk analysis (with common approaches and alignment for decision-making). The three lines of defence take part in the assessment, strengthening our risk culture by reviewing how risks change and pinpointing areas for improvement. Risk profile assessment covers: •risk performance (to measure exposure to each type of risk); •control environment (to measure the target operating model of our advanced risk management according to regulation and best market practice); and •forward-looking analysis (to measure threats that can affect business planning and strategic objectives). In 2021, we revised and strengthened our control environment standards, adding an internal self-assessment questionnaire on the management of risks relating to environment and climate-related risks to check the implementation of measures designed to achieve net-zero emissions by 2050. At the end of 2021, Grupo Santander’s risk profile returned to “medium-low”. Our core profitability and credit quality indicators improved due to efficient risk management, a sustained low liquidity risk profile and the reopening of the economy spurred by vaccination and government stimulus in our geographies. Furthermore, the severity of the emerging risks on our risk profile declined, as health indicators improved and the global economy shows signs of recovery. Grupo Santander maintains a robust risk control environment. Scenario analysis Scenario analyses are a useful risk management tool to measure our resilience to stress situations under a forward-looking approach and, if necessary, prepare mitigating plans for expected loss, capital and liquidity. Our Research department plays a key role in determining analysis scenarios based on macroeconomic and other variables that can affect our risk profile in our markets. The governance and control of the entire process, including the review by our three lines of defence and senior management, is also a fundamental aspect to ensure its consistency and robustness, to which it also contributes: •develop and execute models that estimate future metric values (e.g. credit losses); •backtesting (in order to challenge model outcomes regularly); •our teams’ expert opinions and vast understanding of portfolios; and Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 443 •thorough monitoring of models, scenarios, assumptions, results and mitigating management measures. Grupo Santander has repeatedly obtained excellent quantitative and qualitative scores in the European Banking Authority’s (EBA) stress tests. Scenario analysis applications We run a systematic review of our risk exposure under a base scenario and several adverse and favourable scenarios to predict potential solvency and liquidity changes. These exercises are fundamental for: •Regulatory exercises according to instructions given by EU and local supervisors. •Internal capital and liquidity adequacy assessment processes (ICAAP and ILAAP), in which Grupo Santander follows its own approach to measure capital and liquidity under various scenarios. •Risk appetite, which includes stressed metrics to determine the highest risk we can assume. Though risk appetite and capital and liquidity stress exercises are closely related, they have different time frames and granularity. •Recurrent risk management also uses scenario analyses for: ◦budget and strategy planning, when implementing a new risk approval policy or reviewing the Group’s risk profile, monitoring specific portfolios and business lines; ◦systematic top risk identification and impact analysis (where each top risk relates to a macroeconomic or idiosyncratic scenario); ◦our annual Recovery Plan, which specifies the tools Grupo Santander can use to survive a severe financial crisis. The plan includes financial and macroeconomic stress scenarios with varying levels of severity, plus idiosyncratic and systemic events. ◦IFRS 9: Since 1 January 2018, regulation for estimating provisions have required scenario analysis models and methodologies. ◦Credit and market risk stress testing exercises, simulating changes to expected losses or estimating required capital to absorb losses resulting from unforeseen events. In the covid-19 pandemic context, scenario analyses continued to be instrumental in 2021 to check if the additional provisions recognized in 2020 were sufficient to cover expected losses caused by the health crisis. In the Group we have developed a new tool (Delphi) to review the calculation of provisions, using the latest best practices available in the industry, to better anticipate and manage the impacts of covid. Across our geographies, macroeconomic conditions were differently affected by the progress of vaccination campaigns, government relief programmes and monetary and tax policies. Accordingly, our scenario analyses helped us recognize points of action, develop adequate commercial responses and adapt our risk strategy to conserve our strength and solvency. For more details on scenario analysis, see sections [3.2 ‘Credit risk management'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_550), [4.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_583) [‘Market risk management’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_583) and [4.6 'Liquidity risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_595) [management'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_595) and Note 53 section ['Expected](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1000) [loss estimation'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1000) in this report •Grupo Santander made significant inroads with climate-related analysis in 2021. We added the Network for Greening in the Financial System (NGFS) climate scenarios and created others to account for risks posed by the transition to a low-carbon economy and by potential climate events in certain geographies. Our 2021 ICAAP showed improvement against environmental and climate- related risks, and we anticipate further progress in 2022. We will also take part in pilot stress tests led by the Single Supervisory Mechanism (SSM) in 2022, which will be included in the Supervisory review and evaluation process (SREP). For more details, see 'Monitoring' in section 10.2 ['Climate and environmental risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9675) [management'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9675)  in this chapter Risk reporting structure (RRS) To provide senior managers with a complete, up-to-date understanding of our risk profile, the Enterprise-wide risk management team regularly consolidates and reports on current and future risks so the right decisions can be made in a timely manner. We continue to change our reporting, as we simplify and automate processes, tighten controls and adapt to new needs. In 2021, to report on the covid crisis, we monitored such critical topics as the macroeconomic situation, health indicators, relief measures for our customers and risk areas, which helped us make decisions. We also vigorously accounted for initiatives relating to our strategic objectives, such as new regional structures and new business units. Our risk reporting covers all factors set out in our risk framework, especially environmental, social and climate-related risks, as well as all those fundamental aspects that may be necessary for our risk assessment. We issue weekly, monthly and group-wide reports for senior managers; as well as monthly subsidiary risk reports and reports on each risk factor found in our risk framework. Our robust risk reporting structure is characterized by: •balanced data analysis and qualitative commentary (with future measures, alerts, risk appetite limits and emerging risks); •holistic, accurate overviews of risk factors, subsidiaries and markets; •consistent risk analysis structure and standards; and •metric reporting according to our corporate data framework, guaranteeing information quality and consistency. This ensures complete, agile and dynamic reporting that provides a clear overview of current and future risks and enables us to adapt to emerging risks. 2.5 Models & Data Unit In 2021, Grupo Santander made progress towards becoming the best open financial services platform, using advanced analytics and artificial intelligence (AI) to enrich its understanding of current and potential customers’ needs and to earn their trust. The leading data scientists and analysts that make up the group's Models & Data unit (part of the Risk and Technology & Operations divisions) used state-of-the-art algorithms and models to help us achieve our targets and get the most out of data in a responsible way. During 2021, they worked on two priorities: Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 444 a.Strengthening the business, where AI and digitalization enable Santander to scale up and grow efficiently. The Models & Data teams in headquarters and each of our geographies help by: •growing the customer base:  We select quality potential customers and get to know their needs and behaviours to boost onboarding and conversion rates. AI has been useful for customer approval, especially at Santander Brasil, where new account openings climbed from 51% to 76%. When combined with better digital customer experience, it proves highly beneficial at scale. •increasing customer loyalty: We meet expectations and offer smart services throughout the customer life cycle. In particular, Santander España created and applied a machine learning model to split the Spanish economy into high-growth industries (in collaboration with Tresmares1); identify SMEs in those industries; and design a value proposition that meets existing and potential customers' needs. •maximizing profitability: Grupo Santander is increasing efficiency by using cognitive robotics to automate repetitive tasks. Santander México uses this type of robotics to review 20,000 digitalized collateral documents per month. b.Enhancing risk management: Our data and models are key to regulatory compliance. In 2021, Grupo Santander worked on internal ratings-based (IRB) 2.1 models programme to comply with the EBA Repair Programme (and other regulatory requirements), which sets out new provisions for internal models developed under the IRB approach. The programme posed significant planning and resource challenges for the industry. Our Data & Models teams created models to delve deeper into our portfolios and better manage their risks. They also developed Reg-Tech apps to upgrade anti-money laundering practices in geographies as Santander Brasil. The apps use AI to prioritize major risk alerts for analysts and help scale anti- money laundering processes. In the future, Santander will continue to innovate its risk management based on two pillars: •Boosting sustainable growth and climate risk management. In accordance with EBA requirements, the Models & Data teams quantify transition and physical risks from natural and climate- related disasters based on geography and exposure. •Promoting the use of new analysis techniques (AI) in risk models (especially for regulatory capital). Banco Santander took part in a study on machine learning models' prediction of credit default published by Banco de España2 in early 2021, which showed that advanced models have greater predictive power than traditional ones. Grupo Santander commits to promoting changes to risk management in banking through the responsible use of advanced analytics (machine learning and AI). [1] Tresmares is a financing platform specialized in SMEs with the collaboration of Santander España. [2] Understanding the performance of Machine Learning Models to predict credit default: a novel approach for supervisory evaluation. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 445 3. Credit risk 3.1 Introduction Credit risk is the risk of financial loss due to the failure to pay or impaired credit of a customer or counterparty Santander has financed or maintains a contractual obligation with. It is our most significant risk in terms of exposure and capital consumption, and includes counterparty risk, country risk and sovereign risk. 3.2 Credit risk management We take a holistic view of the credit risk cycle, which includes the transaction, the customer and the portfolio to identify, analyse, control and decide on credit risk. 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 the following processes: 1. Planning Our planning helps us set business targets and draw up concrete action plans within our risk appetite statement. Strategic commercial plans (SCPs) are a risk management and control tool the business and risk areas prepare for our credit portfolios. They determine commercial strategies, risk policies, resources and infrastructure, ensuring a holistic view of portfolios. In addition, they provide us with an updated view of portfolio credit quality to measure credit risk; run internal controls over the strategy with regular monitoring; detect significant deviations in risk and potential impacts; and take corrective actions when necessary. The SPCs align with our risk appetite and our subsidiaries’ capital targets, and are approved and monitored by senior managers at each subsidiary before the group reviews and validates them. 2. Risk assessment and credit rating To analyse customers’ ability to meet contractual obligations, we use assessment and parameter estimation models in each of our segments. Our credit quality assessment models are based on credit rating engines, which we monitor to calibrate and adjust the decisions and ratings they assign. Depending on each segment, engines can be: 1 Rating: From mathematical algorithms that use a quantitative module based on balance sheet ratios or macroeconomic variables, and a qualitative module supplemented by credit analysts' expert judgement. It is used in the SCIB, corporate and institutions, and SME segments (individually). 2 Scoring: Automated loan application assessment that assigns a score to retail customers and small enterprises that do not have an assigned analyst for subsequent decision-making. 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' suitability, predictive capacity, performance, granularity, compliance with policies and other related factors. We review ratings with the latest financial and other relevant information. We increased the reviews for customers who are subject to close observation or automatic warnings in risk management systems. 3. Credit risk mitigation techniques Risk approval is generally determined by the borrowers’ ability to pay when financial obligations fall due, regardless of any additional collateral or personal guarantees we require from them. We analyse funds or net cash flows from their businesses or income with no guarantors or assets pledged as collateral. When approving a loan, we always consider guarantors and collateral as a secondary means of recourse if the first channel fails. Guarantees are a reinforcement measure in a credit transaction to mitigate a loss if the borrower defaults on their payment obligation. We have credit risk mitigation techniques for various types of customer and product. 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 and real guarantees or with credit derivatives coverage. 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. Introducing our risk appetite into portfolio management strengthens controls over our credit portfolios. Our limits setting processes, pre-classifications and pre-approvals determine the risk we can assume with each customer. Limits are approved by the executive risk committee (or delegated committees) and should reflect a transaction’s expected risk-return. We use different limits models based on the segment: Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 446 •Large corporates are subject to a pre-classification model based on a system for measuring and monitoring economic capital. Pre- classification models set the level of risk we are willing to assume in transactions with customers or groups in terms of capital at risk (CaR), nominal CAP and maximum tenors, depending on the transaction type. To manage limits with financial entities, we use credit equivalent risk (CER), which includes current and expected risks with customers according to risk appetite and credit policies. •Corporates and institutions that meet certain requirements (strong relationships, rating, etc.) are subject to a simpler pre- classification model with an internal limit that benchmarks a customer's risk level against their repayment capacity, overall indebtedness and 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 automated decision models to classify customers and transactions. 5. Scenario analysis In line with section [2.4 'Management processes and tools'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_535) of this chapter, our scenario analyses determine potential risks in credit portfolios; give us a better understanding of their performance under various macroeconomic conditions; and enable us to employ management strategies that will avoid future deviations from set plans and targets. They simulate the impact of alternative scenarios in portfolios’ credit parameters (PD, LGD) and expected credit losses. We compare findings with the portfolio’s credit profile indicators to find the right measures for managers to take. The credit risk management of portfolios and SCPs incorporate scenario analyses. 6. Monitoring Regularly monitoring business performance and checking it according to our original plans is key to our risk management. Our holistic customer monitoring aids the early detection of impacts on risk performance and credit quality. We assign customers a monitoring classification with a pre-determined course of action and ad hoc measures to correct any deviations. In monitoring customers, local and global risk teams consider transaction forecasts and characteristics as well as changes in classification. It is based on the following customer segmentation: •Monitoring in SCIB is a function of business managers and risk analysts and provide an up-to-date view of customers’ credit quality to predict a potential customer's deterioration. •For corporates, institutions and SMEs with an assigned credit analyst, we monitor more closely those customers that require so and review their ratings based on relevant indicators. •For individual customers, businesses and smaller SMEs, we use automatic alerts to detect shifts in portfolio performance. Our monitoring function uses the Santander Customer Assessment Note (SCAN). It helps set individual monitoring levels and frequencies, policies and actions for customers. In addition to monitoring customer credit quality, we draw up control procedures to analyse portfolios and performance, as well as any possible deviations from planning or approved alert levels. 7. Collections and recoveries The Collections and Recoveries function is key to risk management and control. It sets a global strategy with general lines of action for our subsidiaries based on the economic landscape, business model and other local recovery conditions. Recovery management follows the EBA guidelines on the management of credit impaired and forborne exposures. Its sustained value creation is based on effective and efficient collections management, for which digital channels that develop new customer relations are key. Our diverse customer base requires segmentation to manage recoveries competently. The highly technological and digital procedures 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 an assigned manager and tailored approach. We split recovery management into four phases: arrears, credit impaired loans, write-offs and foreclosed assets. We may use mechanisms like portfolios sales and foreclosed assets in order to rapidly reduce deteriorated assets. 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 showing a noticeable and irreversible impairment leads us to believe recovery is remote. Though this may lead to full or partial cancellation and de- recognition of the gross carrying amount of debt, we never interrupt negotiations and existing legal proceedings to recover debt. In countries with high exposure to property risk, we have efficient sales management instruments that help maximize recovery and optimize balance sheet stocks. Forbearance Grupo Santander's internal forbearance policy is a reference for our subsidiaries locally and follows regulations and supervisory expectations such as the EBA Guidelines on the management of credit impaired and forborne exposures. It defines forbearance as the modification of a transaction’s payment terms to enable a customer who is experiencing (or may foreseeably experience) financial difficulties to fulfil their payment obligations; otherwise, there would be reasonable certainty that the customer would not be able to meet those obligations. This policy also sets out rigorous criteria for assessing, classifying and monitoring forbearances to ensure the strictest possible care and diligence in recovering due amounts. Forbearance must focus on recovering due amounts and adapting payment obligations to customers' current circumstances. Thus, we must recognize losses as soon as we deem any amounts irrecoverable. The loans we put into forbearance to recognize risks appropriately must remain classified as credit impaired or on a watch-list for as long as necessary to ensure reasonable certainty of repayment. Forbearance may never be used to delay the immediate recognition of losses or hinder the appropriate recognition of risk of default. Total forbearance amounted to EUR 36,042 million at the end of December 2021. After years of important decreases, due to the positive macroeconomic situation of the Group's main geographies, forbearance stock remained flat in 2020. The portfolio increased by 24% in 2021, as a result of greater volume of forbearance carried out Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 447 to attend to the needs of customers facing financial difficulties. In terms of credit quality, 43% are classified as doubtful with a coverage of 41% KEY FORBEARANCE FIGURES EUR million 2021 2020 2019 Performing 20,504 14,164 15,199 Credit impaired 15,538 14,995 17,276 Total forborne 36,042 29,159 32,475 % Total coverageA 23% 28% 28% A. Total forbearance portfolio loan-loss allowances/total forborne portfolio. Identifying and managing most vulnerable sectors Grupo Santander has implemented a quarterly sectoral monitoring process that enables the identification of sectors that could potentially be of concern. This process considers, among other things, the following information at the sector level: •Market information: Industries’ stock market performance. •Analysts’ EBITDA forecasts for the coming years. •Internal information: Changes in credit exposure, defaults (in different timelines) and stagings. •Our industry experts’ opinion, based on specific details about our exposures and our relationships with customers. As at December 2021, we considered the industries listed in the table below as vulnerable based on our analysis and the covid landscape, including their exposure (excluding individuals): EXPOSURE TO VULNERABLE SECTORS EUR million Industry Exposure Stage 1 Stage 2 Stage 3 Automobile 31,600 90.6% 7.7% 1.7% Hotels, leisure, cruises & restaurantsA 16,400 57.4% 27.5% 15.1% Transport 17,100 85.1% 9.2% 5.7% Oil & Gas 22,100 96.5% 2.3% 1.2% Retail (non-food) 21,700 87.1% 9.1% 3.8% ConstructionB 12,800 78.5% 12.1% 9.4% A.Catering and others not included. B.Property development not included. Total exposure to the most vulnerable industries fell 3.1% from last year to EUR 121.700 million at year end. Exposure to the most short- term affected industries (hotels, leisure, cruises and restaurants; oil and gas; retail (non-food); and passenger transport) was EUR 65.300 million, down 1.4% compared to 2020. Our findings were consistent with similar analyses conducted by the ECB, Banco de España and rating agencies. Credit risk target operating model (ATOMiC) We launched our advanced target operating model in collaboration (ATOMiC) to bolster our credit risk strategy, permanently challenge the Group’s credit targets, and create the best bank in risk management in all of the markets where we operate. Its objective is to implement, extend, continuously improve and promote (under a realistic and medium-term goal) the credit target operating model (TOM) in our subsidiaries based on best practice in the Group and across the industry. ATOMiC's success lies in the collaboration and best practice of experts from several geographies (Champions/Boosters/ATOMiC Team). Their over 40 success case studies (SCS) allowed to quantify benefits, apply lessons learned and identify impacts of each SCS, which enabled the development of TOM in each portfolio segment. They monitor progress twice a year through key performance indicators (KPIs) and have the support and commitment of a unique risk team. ATOMiC has progressively embedded credit strategy in management and enabled us to bolster the control environment through greater preparation for unforeseen events like the Covid-19 crisis. It has also given us the ability to meet the EBA's Guidelines on loan origination and monitoring. In ATOMiC's first cycle, we accelerated and reinforced these priority initiatives: •C&R efficiency and digital connectivity; •foresight and preventive monitoring that use new data sources (transactional and CRM) and advanced analytics (early warning system) to determine what action to take towards customers; •industry sensitivity and forward-looking analysis through pre- determined risk playbooks to make better decisions when anticipating unexpected changes; •risk-based pricing tools to ensure sustainable portfolio growth; and; •significant developments in customer pre-assessments and pre- approvals through greater automation and digitalization. 2021 was crucial in setting management metrics to demonstrate how ATOMiC enhances lending and customer onboarding across our footprint. We came up with several tangible and homogeneous metrics to report to the Group's senior management, uncover trends, make comparisons and agree on medium-term improvements. The main aim was to create a common language to show the fruits of credit risk transformation. ATOMiC laid down solid foundations for us to continue building up our credit risk strategy over a long period. Continuous challenging of our ambition was key, not to mention the commitment and collaborative culture among our subsidiaries. That, together with an agile working methodology and robust organizational structure, enabled us to address the next challenge of defining the strategic credit lines that will shape our strategy for 2022-2025 and that align with our risk strategy and priorities: 1."Customer first" for an enhanced customer experience through digital processes and tailored solutions that help drive loyalty and grow the customer base; 2.Efficiency to increase volumes and expected profitability (risk- adjusted return); 3."Responsible banking", with the inclusion of environmental, social and climate related risk in the lending process; 4."Forward thinking", including climate related scenarios in stress test; and 5.Exploring opportunities for shared services and fintechs. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 448 3.3 Key metrics 2021 general performance 2021 saw gradual economic recovery in our core markets, as well as progress with covid vaccination campaigns to ease the health crisis. That, along with effective credit risk management, helped boost Santander’s performance. Q1’21 was marked by new, targeted lockdown measures, inconsistent vaccination programmes and the extension and revision of economic policies. Growth in corporate and large corporate portfolios offset the decline in consumer portfolios, while credit quality indicators began to stabilize. Loan-loss provisions fell sharply in all regions and in most subsidiaries. The second quarter brought economic recovery on the back of vaccination progress in all regions. Credit volumes grew despite the ongoing impact of the pandemic and heightened liquidity in our markets; a stronger Brazilian real also reinforced this trend. By segment, lending to corporates and large corporates remained high. Key credit indicators reflected our strong credit quality, supported by mitigation measures and portfolio growth. Loan-loss provisions continued to fall. Most notably in the UK and the US, a greater economic outlook led to lower provisions. The third quarter saw further recovery (in all regions), higher vaccination rates and the gradual lifting of restrictions relating to the health crisis. Currency depreciation slowed credit volume growth in South America. Nonetheless, the wholesale and retail banking portfolios continued to flourish, and the corporate banking portfolio began to tail off. Loan-loss provisions returned to Q1 levels following unusual market behaviour in the UK and US in Q2. In the last quarter of the year, revenues continued to grow steadily as business recovered across all regions. In contrast to previous quarters, loan-loss provisions plunged owing mainly to the provisions recognized to cope with the pandemic in 2020, brighter macroeconomic outlooks and overall positive NPL and loan loss trends, especially among customers who benefited from relief measures (e.g. payment holidays) and the general positive portfolio performance. As of December 2021, credit risk with customers rose 6.2% from 2020 within the same perimeter. This was mainly due to currency appreciation in our core markets. All our subsidiaries saw growth in local currency with the exception of Santander Spain and Santander Chile. Our credit risk remained diversified, with a strong balance between mature and emerging markets: Europe34 (61%), South America (13%), North America (14%) and Digital Consumer Bank (11%). Loan book growth offset the rise in credit impaired loans to EUR 33,234 million (+4.6% vs 2020 year end) and reduced our NPL ratio to 3.16% (-5 bps vs 2020). In accordance with IFRS 9, Santander recorded loan-loss provisions of EUR 7,436 million (-39% vs December 2020) driven by economic recovery, federal economic stimulus in the US, effective portfolio management and the use of additional provisions raised in 2020 to mitigate potential impact that could arise as a result of the covid-19 pandemic. Santander's total loan-loss allowances amounted to EUR 23,698 million. This brought our NPL coverage ratio to 71.3%, down from 76.4% in December 2020. Regarding the support measures put in place in 2020 to tackle the covid-19 pandemic, at the end of December 2021, 99.8% of the payment holidays granted as part of Santander’s response to the Covid-19 pandemic had ended and only 7% were classified as stage 3. The positive performance owed to better macroeconomic conditions in our main markets. Government liquidity programmes remained in force in 2021. By geography, Spain makes up 68% of total exposure to those programmes with an average ICO guarantee coverage of 77%. The UK makes up 13% of total exposure, with an average coverage of 98%. In light of those measures, Grupo Santander made additional credit loss allowances throughout 2020 upon analysing vulnerable sectors and struggling segments and estimating further impairment of loans and advances amid the economic crisis caused by the pandemic; those provisions are an indication of the economy's actual structural deterioration. Our estimation, which was based on available information and affected by the high uncertainty at the time, is consistent with ECB forecasts. The macroeconomic scenario was not “through the cycle” but included a balance sheet with short- and long-term provisions. We expected most macroeconomic indicators in those scenarios to reach pre-crisis levels in the first quarter of 2022 (with the exception of housing prices, which should reach them in the first quarter of 2023). In 2020 and 2021, the Group closely and frequently monitored: (1) pandemic developments and macroeconomic outlooks; (2) institutions and central banks’ forecasts; and (3) Santander’s portfolios in each country. In accordance with established governance, we monitored or updated macroeconomic scenarios according to new, realistic and substantiated information. When calculating IFRS 9 provisions at the end of 2021, we updated our most recent scenarios by eliminating the overlay (which accounts for structural economic deterioration), the effect of which had been assimilated by the model upon recalibrating its parameters according to current macroeconomic conditions and outlooks in order to re-estimate losses. Also, we gradually used the additional credit loss allowances for the groups most affected by the pandemic in line with the portfolio’s performance on the back of extraordinary support measures. The outstanding moratoria at the end of December 2021 amounted to EUR 166 million. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 449 34 "Others" not included make up the remaining 1% (Corporate Centre) The tables below show the results of the key metrics of customer credit risk: MAIN CREDIT RISK METRICSA Data as of 31 December Credit risk with customersB (EUR million) Credit impaired loans (EUR million) NPL ratio (%) 2021 2020 2019 2021 2020 2019 2021 2020 2019 Europe 636,123 606,997 605,969 19,822 20,272 21,054 3.12 0.03 0.03 Spain 221,100 221,341 213,668 12,758 13,796 14,824 5.77 6.23 6.94 UK 262,869 252,255 264,297 3,766 3,138 2,736 1.43 1.24 1.04 Portugal 41,941 40,693 37,978 1,442 1,584 1,834 3.44 3.89 4.83 Poland 33,497 31,578 33,566 1,210 1,496 1,447 3.61 4.74 4.31 North America 149,792 131,626 143,839 3,632 2,938 3,165 2.42 2.23 2.20 US 112,808 99,135 105,792 2,624 2,025 2,331 2.33 2.04 2.20 Mexico 36,984 32,476 38,047 1,009 913 834 2.73 2.81 2.19 South America 141,874 129,590 143,428 6,387 5,688 6,972 4.50 4.39 4.86 Brazil 85,702 74,712 88,893 4,182 3,429 4,727 4.88 4.59 5.32 Chile 41,479 42,826 42,000 1,838 2,051 1,947 4.43 4.79 4.64 Argentina 5,481 4,418 5,044 198 93 171 3.61 2.11 3.39 Digital Consumer Bank 117,049 116,381 117,399 2,490 2,525 2,470 2.13 2.17 2.10 Corporate Centre 6,277 4,862 5,872 903 344 138 14.38 7.08 2.34 Total Group 1,051,115 989,456 1,016,507 33,234 31,767 33,799 3.16 3.21 3.32 NPL coverage ratio (%) Net ASRC provisions (EUR million) Cost of credit (%/risk)D 2021 2020 2019 2021 2020 2019 2021 2020 2019 Europe 49.4 50.3 43.0 2,293 3,344 1,332 0.39 0.58 0.24 Spain 52.2 47.1 41.1 1,833 2,001 856 0.92 1.01 0.43 UK 25.8 44.7 33.4 (245) 677 223 (0.09) 0.27 0.09 Portugal 71.7 66.5 52.8 38 193 (8) 0.09 0.51 (0.02) Poland 73.9 70.7 66.8 200 330 217 0.67 1.10 0.72 North America 134.9 182.5 153.0 1,210 3,917 3,656 0.93 2.92 2.76 US 150.3 210.4 161.8 419 2,937 2,792 0.43 2.86 2.85 Mexico 95.0 120.8 128.3 791 979 863 2.44 3.03 2.49 South America 98.3 97.4 88.4 3,251 3,923 3,789 2.60 3.32 2.92 Brazil 111.2 113.2 99.8 2,715 3,018 3,036 3.73 4.35 3.93 Chile 63.3 61.4 56.0 341 594 443 0.85 1.50 1.08 Argentina 153.8 275.1 124.0 140 226 235 3.01 5.93 5.09 Digital Consumer Bank 107.8 113.3 108.1 527 957 508 0.46 0.83 0.45 Corporate Centre 3.6 89.0 174.5 155 31 36 2.45 0.54 0.57 Total Group 71.3 76.4 67.9 7,436 12,173 9,321 0.77 1.28 1.00 A. Management perimeter according to the reported segments. B. Includes gross loans and advances to customers, guarantees and documentary credits. C. Post write-off recoveries (EUR 1,383 million). D. Cost of credit is the ratio of 12-month loan-loss provisions to average lending of the same period. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 450 Reconciliation of key figures Santander’s 2021 consolidated financial statements disclose loans and advances to customers before and after provision allowances. Credit risk also includes off-balance sheet risk. The following table shows the relationship between those concepts: A. Includes gross loans and advances to customers, guarantees and documentary credits. B. Before loan-loss allowances. Geographical distribution and segmentation Santander organizes its credit risk function around three customer groups: •Individuals: All salaried individuals, subdivided by income level to manage risk by customer type. Mortgages to individuals made up approximately 37% of net customers loans at the end of 2021. 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: Companies and self- employed individuals, public entities and private not-for-profit entities. •Santander Corporate and Investment Banking (SCIB): Corporate customers, financial institutions and sovereigns in a closed list that is revised annually through comprehensive customer analysis (business type, geographic diversification, product types, revenue volume for Santander, etc.). The graph below shows the breakdown of our credit risk (including gross loans and advances to customers, guarantees and documentary credits): CREDIT RISK DISTRIBUTION Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 451 Below is a breakdown of the geographical distribution and amounts of performing and credit impaired loans: TOTAL Total 1,051,115 INDIVIDUALS Total 592,245 SME, COMMERCIAL BANKING AND INSTITUTIONS Total 278,902 SCIB Total 179,967 Others' include Corporate Centre. Performing and non-performing exposure for 2020 and 2019 has been redistributed across segments. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 452 •Europe: the NPL ratio fell 22 bps to 3.12% from 2020 due to a significant reduction in credit impaired loans in Spain and Poland, offsetting the increase in the UK. •North America: The NPL ratio increased 19 bps to 2.42% from 2020, mainly due to increases at SC USA. credit impaired stock rose 24% year-on-year. •South America: The NPL ratio rose 11 bps to 4.50%. comparing to 2020, due to the increase observed in Argentina (+150 bps) and Brazil (+29 bps), offsetting the decrease in Chile (-36 bps) •Digital Consumer Bank: The NPL ratio decreased 4 bp to 2.13%, despite the decrease in automobile financing. For more details, see section [3.4. 'Details of main geographies'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_559). Financial asset impairment 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; leasing receivables; and commitments and guarantees not valued at fair value. The portfolio of financial instruments subject to IFRS 9 has three credit risk categories (or stages): ◦Stage 1: Financial instruments with no significant increase in risk since initial recognition – the impairment provision reflects expected credit losses from defaults over the twelve months from the reporting date. ◦Stage 2: Financial instruments with a significant credit risk increase since initial recognition but no materialized impairment event – the impairment provision reflects expected losses from defaults over the financial instrument’s residual life. ◦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 instrument’s expected residual life. The following table shows Grupo Santander's credit risk exposure by stages and geography: EXPOSURE BY STAGE AND GEOGRAPHYA EUR million Stage 1 Stage 2 Stage 3 Total Europe 544,590 41,953 19,822 606,365 Spain 187,577 15,906 12,759 216,242 UK 225,846 18,079 3,767 247,692 Portugal 34,051 6,448 1,442 41,941 Poland 30,642 1,517 1,210 33,369 North America 124,066 13,811 3,632 141,509 US 90,179 12,155 2,623 104,957 Mexico 33,887 1,657 1,008 36,552 South America 126,144 8,269 6,387 140,800 Brazil 75,242 5,259 4,182 84,683 Chile 37,148 2,450 1,838 41,436 Argentina 5,039 244 198 5,481 Digital Consumer Bank 110,605 3,932 2,490 117,027 Corporate Centre 193 2,873 903 3,969 Total Group 905,598 70,838 33,234 1,009,670 A. Excluding EUR 23,799 million from reverse repos. In addition excluding from the total, EUR 17,646 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 453 Financial instruments with effective signs of impairment (stage 3) performed as follows: NPL PERFORMANCE BY CONSTITUENT ITEM EUR million 2019 - 2021 CREDIT IMPAIRED EVOLUTION EUR million 2019 2020 2021 Credit impaired (start of period) 35,692 33,799 31,767 Stage 3 35,670 33,783 31,758 NPL not subject to impairment accounting 22 16 9 Net entries 10,544 10,277 10,027 Perimeter — (44) — FX and others 156 (3,335) 529 Write-off (12,593) (8,930) (9,089) Credit impaired (end of period) 33,799 31,767 33,234 Stage 3 33,783 31,758 33,224 NPL not subject to impairment accounting 16 9 10 ALLOWANCES EVOLUTION ACCORDING TO CONSTITUENT ITEM EUR million 2019 - 2021 ALLOWANCES EUR million 2019 2020 2021 Allowances (start of period) 24,061 22,965 24,271 Stage 1 and 2 8,913 8,872 10,491 Stage 3 15,148 14,093 13,780 Gross provision for impaired assets and write-downs 10,905 13,263 8,824 Provision for other assets 6 139 (6) FX and other 586 (3,166) (302) Write-off (12,593) (8,930) (9,089) Allowances (end of period) 22,965 24,271 23,698 Stage 1 and 2 8,872 10,491 9,983 Stage 3 14,093 13,780 13,715 We quantify expected losses from credit events using an unbiased, 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 GDP, house pricing, unemployment and other important macroeconomic factors. We calculated impairment losses using parameters (mainly EAD, PD, LGD and discount rate) based on internal models, and regulatory and management expertise. Far from being a simple adaptation, we defined and validated them according to specific requirements of IFRS 9 and other guidelines by regulators, supervisors and other international organizations (EBA, NCAs, BIS, GPPC, etc.), such as forward-looking information, point-in-time (PiT) vision, multiple scenarios, calculation of losses for the entire life of the transaction through lifetime PD, etc. •Identifying a significant increase in credit risk: when classifying financial instruments under stage 2, we consider: ◦Quantitative criteria: We review and quantify changes in the risk of default during their expected life based on their credit risk level on initial recognition. To recognize significant changes so instruments can be classified in stage 2, each subsidiary set quantitative thresholds for its portfolios based on Santander's guidelines for consistent interpretation across all our footprint. Of those quantitative thresholds, we consider two: the relative threshold, which shows the difference in credit quality since the transaction was approved as a percentage of change; and the absolute threshold, which calculates the total difference in credit quality. All subsidiaries apply them (with different values) in the same manner. The use of one or both depends on portfolio type and other aspects, such as the starting point for average credit quality. ◦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. We supplement these qualitative criteria with expert opinions. •Definition of default: For provisions, we use the definition of default dictated by Article 178 of the CRR. We are gradually applying the new definition to provisions calculation according to Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 454 the EBA’s guidelines; we are also considering applying it to prudential framework once the competent authorities approve it for calculating regulatory capital. •Past, present and future information: To estimate expected losses, we require a great deal of expert analysis as well as past, present and future data. We base expected loss estimates on multiple macroeconomic scenarios, measure the probability of loss considering past events, current conditions, and future trends of GDP, unemployment and other macroeconomic indicators. We use forward-looking information in internal management and regulatory processes under several scenarios, which helps us make sure our processes are consistent. •Expected life of financial instruments: We estimate the expected life of financial instruments according to their contractual terms (e.g. prepayments, duration, purchase options, etc.). The contractual period (including extension options) is the maximum time frame for measuring the expected credit loss. If financial instruments have an undefined maturity period and available balance (e.g. credit cards), we estimate its expected life based on the total exposure period and effective management practices to mitigate exposure. 3.4 Details of main geographies United Kingdom General overview Credit risk with customers in the UK (excluding Santander Consumer UK and Santander London Branch) grew 4.2% (-2.5% in local currency) year-on-year to EUR 262,869 million. The UK accounts for 25% of Santander’s loan portfolio. Since the pandemic began, we’ve granted 368,000 payment holidays and EUR 5,280 million in government-backed loans to help our customers. The NPL ratio, 1.43%, increased compared to 2020 (+19 bps), due to the increase in the SME portfolio offset by the decrease observed in the wholesale portfolio. The profile of the different segments remains stable. The Santander UK portfolio is divided into these segments: PORTFOLIO SEGMENTATIONA Dec. 21 data A. Excluding SCF UK and London Branch Mortgage portfolio performance Because of its size, we closely monitor Santander UK’s mortgage portfolio for both the entity itself and the group. As of December 2021, the portfolio amounted to EUR 209,949 million, growing by 4.3% in local currency. It comprises residential mortgages granted to new and existing customers which are first lien mortgages. There are no second or more liens on mortgaged properties. 2021 was a year of strong mortgage activity, mainly due to the higher demand after the covid-19 restrictions were lifted and the reduction of the stamp duty rates up until September. As a consequence, Santander UK achieved all-time high mortgage lending origination levels in June. In accordance with Santander's risk management principles, properties are appraised independently before we approve a new mortgage. In line with market practice and legislation, property values used as collateral for granted mortgages are updated quarterly by an independent agency's automatic appraisal system. Credit exposures are predominantly in Southeast UK and the London metropolitan area. Geographically, credit exposures are predominantly in the South East of the UK and the London metropolitan area. GEOGRAPHICAL DISTRIBUTION Dec. 21 data Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 455 The chart below breaks down the portfolio by borrower type: MORTGAGE PORTFOLIO LOAN TYPE Home mover: customers who change houses, with or without changing the bank granting the loan. Remortgage: customers who switch the mortgage from another financial entity. First time buyer: customers who purchase a home for the first time. 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. Loans require an appropriate repayment vehicle, such as a pension plan or an investment fund. This product is common 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 (5%): Loan agreements allow borrowers to modify monthly payments or draw down additional funds up to a set limit under various conditions. •Buy-to-let (8%): Buy-to-let mortgages account for a small portion of the total portfolio and are subject to strict risk approval policies. The NPL ratio reflects the mortgage portfolio’s strength, which was stable at 1.01% at the end of December 2021 (-5 bp YoY). The portfolio’s credit quality owed to high repayment rates as payment holidays expired (of which, 100% expired), and to low levels of default. Prudent approval policies put the portfolio’s simple average LTV at 41%. 2% of the portfolio has a 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 2021: LOAN TO VALUE Dec. 21 data Loan to value: relation between the amount of the loan and the appraised value of the property. Based on indices. Our credit risk policies forbid loans considered "high risk" (e.g. subprime mortgages) and set out strict credit quality requirements for transactions and customers. Spain General overview Santander España’s credit risk totalled EUR 221,100 million (21% of the Group’s total). It is appropriately diversified among products and customer segments. Amid economic and credit recovery, as macroeconomic figures improved following covid-19 lockdowns in 2020, consumer loans (especially mortgages) grew significantly; but the corporate and SME lending remained below 2020 numbers, while we maintained positions with customers in liquidity support programmes (i.e. ICO lines of credit) without having to seek new financing. Total credit risk decreased -0.1% from December 2020. The ICO loans in corporate and SME lending amounted to a significant EUR 27,294 million; around half of them were extended. The credit portfolio’s NPL ratio was 5.77%, 46 bps lower than in December 2020. This better overall portfolio performance was driven by customer support programmes; the regularization of several restructured positions; and portfolio sales. The additional provisions raised to mitigate the potential impacts from the exceptional circumstances of the covid-19 pandemic, increased the NPL coverage ratio to 52% (+5 pp vs December 2020). The credit impaired portfolio declined mainly from loans with the highest expected losses. The cost of credit reflects the rise in covid provisions, with slight improvement at the end of 2021 compared to December 2020. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 456 Santander España's portfolio is divided into these segments: PORTFOLIO SEGMENTATION Dec. 21 data Residential mortgages performance Santander España’s residential mortgages portfolio amounted to EUR 60,948 million, 28% of its total credit risk. 99.3% have a mortgage guarantee. RESIDENTIAL MORTGAGESA EUR million 2021 2020 2019 Gross Amount 60,948 58,079 60,557 Without mortgage guarantee 419 387 306 With mortgage guarantee 60,529 57,692 60,251 of which credit impaired loans 1,798 1,784 2,581 Without mortgage guarantee 115 75 14 With mortgage guarantee 1,683 1,709 2,567 A. Excluding SC España mortgage portfolio (EUR 1,376 million in December 2021 with doubtful loans for EUR 62 million, and EUR 1,526 million with doubtful loans for EUR 66 million in 2020). The NPL ratio for residential mortgages granted to households fell 18 bps to 2.78%, mainly owing to non-performing portfolio sales. NPL RATIO, RESIDENTIAL MORTAGES % In 2021, mortgage origination soared 94% year-on-year on the back of higher customer demand caused by the pandemic. The residential mortgage portfolio in Spain maintained a medium-low risk profile with low expectations of additional impairment: •Principal repayment starts on the first day of all mortgage transactions. •Because early repayment is common, so the average transaction life is shorter than the agreement term. •High-quality collateral, concentrated almost exclusively in financing for first-time buyers. •The average affordability rate stood at 26%. •90% of the portfolio has an LTV below 80%, calculated as the ratio of total risk to the latest available appraisal. •All customers applying for a residential mortgage are subject to a rigorous credit risk and solvency assessment by credit analysts to determine if their income will be sufficient to pay loan instalments and stable until the end of the mortgage term. DEBT TO INCOME\* Dec. 21 data LOAN TO VALUE\*\* Dec. 21 data Average 27% (\*) 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 457 Corporate and SME financing Credit risk with SME and corporates in commercial banking, which is Santander España's core lending segment (at 53% of total credit risk) declined 3.1% from December 2020 to EUR 117,544 million, mainly due to a drop in the SME portfolio. 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 industry. Its NPL ratio stood at 7.50% in December 2021, up 8 bps from December 2020 due to lower volume; meanwhile, credit impaired stock remained flat. 2021 brought stable portfolio figures after significant growth in 2020 due to liquidity support programmes (ICO), which after the initial grace period are now being repaid. United States General overview Santander US's credit risk stood at EUR 112,808 million at the end of December. It makes up 11% of the Group's total credit risk and includes these business units: BUSINESS UNITS SEGMENTATION Dec. 21 data SBNA: Santander Bank N.A. SC USA: Santander Consumer USA NYB - SIS: Santander Investment Securities BSI: Banco Santander International Fiscal stimulus together with the reopening of the economy favoured a strong recovery that was moderated as of the summer due to problems on the supply side. The supply chain and labour constraints pushed inflation up to 7.0%, while the unemployment rate fell to 3.9% in November, leading to the start of the Fed's withdrawal of monetary stimulus. As of December, Santander US's lending had grown 13.8% from 2020, particularly in SCIB portfolios in Santander Bank N.A., the New York branch, and the Miami branch. Excluding foreign exchange (FX) effect, growth was 8%. Santander US remains focused on supporting its customers and making inroads with its strategic initiatives to enhance customer experience and allocate capital to its businesses. Its NPL ratio rose to 2.33% (+29 bps in the year), while the cost of credit fell to 0.43% (-243 bps YoY). Loan-loss provisions dropped 82% due to lower net charges, and the improved macroeconomic outlook, customer loan relief measures and steadfast used car prices prompted lending growth. The performance of Santander US's core units is described below. Business units performance Santander Bank N.A. At 78% of total credit risk, retail and commercial banking is Santander Bank N.A.’s main business. 24% of the portfolio is with individuals, and approximately 76% with corporates. The bank's primary goals include increasing the SCIB business — 22% of total credit risk — 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 business; and strengthening its auto finance partnerships. Its 15.1% hike in lending spanned all segments. Minus the FX effect, the increase was lower, standing at 9.2%. Its NPL ratio increased to 0.85% (+4 bps in the year) as of December 2021, and the cost of credit fell to -0.06% due to the release of provisions based on better-than-expected market performance, customer behaviour (support programmes and fiscal stimulus) and greater recovery. Santander Consumer USA Santander Consumer USA (SC USA) presents higher risk indicators than other Santander US units due to the nature of its business (auto loans and leasing). Its focus remains on managing the profitability- to-risk balance through pricing aligned with the credit quality of the customer/transaction, while improving the dealer experience. In 2021, loan originations grew more than 4% year-on-year, returning to the pre-pandemic prime and non-prime mix on the back of the commercial relationship we have with Stellantis Group. Auto originations continued to increase, driven mainly by hikes in used car prices and demand. As of December, the NPL ratio rose to 6.27% (+101 bps in the year) and the cost of credit stood at 1.54% (-654 bps YoY). Annual net credit losses fell year on year due to customer support programmes (triggered by the health crisis), federal fiscal stimulus packages and greater recovery driven by a surge in used car prices. Due to the increase in defaults, the non- performing coverage ratio fell to 176% (-54 pp in the year). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 458 Furthermore, leases carried out exclusively under the Stellantis Group agreement (primarily with highly creditworthy customers) dropped 5% to EUR 13,600 million, providing stable and recurring earnings. Risk management and residual value mitigation measures remain a priority. Brazil General overview Despite the economic recovery due to the reopening of the service sector, in line with the advances in the vaccination campaigns and the lift of restrictions, international supply problems have continued to hamper industry growth. Santander Brasil's credit risk amounted to EUR 85,702 million. It increased by 15% from 2020. Excluding the exchange rate effect, it grew by 13%. As of December 2021, Santander Brasil accounts for 8% of Grupo Santander's loan book. In line with the commercial strategy, we continued to build an auto platform focused on end-to-end customer experience, thanks to which we achieved a 20% market share in vehicles (including individuals and companies). Santander Auto began selling insurance to corporates and had 19% penetration in insurance. Credit cards broke customer capture records and remained third in the market. We also hit records figures in billing. The surge in mortgage origination continued, where Santander Brasil leads the home equity segment with a market share of 25%. The SME portfolio (Varejo PJ) grew significantly due to the contribution of the different billing clusters that make the portfolio and its different products. State-backed guarantees to combat the effects of the pandemic ended in December 2020, although a new window opened in July 2021. Our digital business continued to grow. 90% of transactions were digital. Furthermore, Gente, our virtual assistance channel based on artificial intelligence, has over 18 million hits per month. Our leadership of the wholesale sector makes us one of the top corporate banks, thanks to our experience as a global bank — the biggest in FX transactions for the last eight years — in infrastructure, agribusiness — Brazil's largest agricultural commodities desk — and equities. In ESG, Santander is a leader in sustainable solutions. It channelled EUR 5,000 million in social and environmental business. Progress continues on Plano Amazônia, our joint project with Brazil's other two largest private banks. We created a new business unit in the region that has already channelled EUR 43 million. Net loan-loss provisions stood at EUR 2,715 million (-10% compared to 2020), a decrease driven by additional provision made in 2020 related to covid-19. In local currency, provisions declined by 11%. Cost of credit decreased to 3.73% from 4.35% at the end of 2020, driven by the provisions evolution aforementioned. Santander Brasil's loan book is distributed as follows: Portfolio segmentation Dec.21 data It is diversified and has an increasing retail profile, with 80% 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 rose from 4.59% to 4.88% at December 2021, and the coverage ratio decreased slightly to 111% from 113%. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 459 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 2.7% at December 2021 (+60 bps vs 2020 year-end), below the average of its competitors. Over 90 total (%) - PDTE Dec. 21 data 3.5 Other credit risk details Credit risk from financial markets activities This section covers credit risk from treasury management through money market financing and counterparty risk products to satisfy customers’ (especially credit institutions) needs. According to the CRR, counterparty credit risk results from the likelihood that a customer in a derivatives contract on financial securities or commodities, repurchase agreement, securities lending, long settlement transactions, margin lending and other transactions could default before the final settlement of the transaction’s cash flows. To measure exposure, we use two methods: “Mark-to- market” (MtM) (replacement cost of derivatives) plus potential future exposure (“add-on”); and the Montecarlo simulation to calculate exposure for certain countries and products. We also calculate capital at risk and unexpected loss (economic capital, net of collateral and recoveries, after deducting expected loss). At market close, we recalculate exposures by adjusting all transactions to their new time horizon, adapting potential future exposure and applying netting, collateral and other mitigants. Thus, we can check exposures daily against the limits approved by senior management. For risk control, we use a real-time integrated system that shows the exposure limit with any counterparty, for any product and term, and in all subsidiaries. Counterparty risk exposures: over-the-counter (OTC) transactions and organised markets (OM) By December 2021, after applying netting and collateral agreements for counterparty risk, the positive market value of total exposure (under management criteria) was EUR 5,491 million (net exposure of EUR 31,444 million). COUNTERPARTY RISK: MARKET VALUE EXPOSURE AND CREDIT RISK EQUIVALENT, INCLUDING MITIGATION EFFECTA EUR million 2021 2020 2019 Market value, netting effectB 31,390 37,204 37,365 Collateral receivedC 25,899 31,970 30,100 Market value with netting effect and collateralD 5,491 5,235 7,265 Net CREE 31,444 30,139 32,552 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. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 460 The chart below shows products that generate counterparty risk (especially interest rate and FX hedging instruments) by their nominal risk and market value: COUNTERPARTY RISK BY NOMINAL RISK AND GROSS MARKET VALUEA EUR million 2021 2020 2019 Nominal Market value Nominal Market value Nominal Market value Positive Negative Positive Negative Positive Negative Credit derivativesB 17,164 228 (346) 14,530 145 (215) 29,805 312 (1,357) Equity derivatives 79,062 3,244 (2,553) 53,821 2,973 (1,848) 71,401 2,481 (1,836) Fixed income derivatives 4,409 275 (123) 11,370 47 (386) 23,136 119 (177) Exchange rate derivatives 947,061 22,329 (26,965) 863,001 25,341 (27,071) 897,886 21,053 (23,260) Interest rate derivatives 4,915,150 106,341 (103,074) 4,917,944 143,679 (139,261) 5,089,817 112,128 (108,651) Commodity derivatives 12,022 722 (32) 3,732 83 (15) 735 56 (27) Total OTC derivatives 5,786,114 131,243 (131,316) 5,695,339 170,911 (167,650) 5,944,977 135,194 (134,392) Derivatives organised marketsC 188,755 1,896 (1,777) 169,059 1,357 (1,147) 167,803 955 (917) Repos 129,085 4,404 (5,997) 146,984 3,978 (7,311) 143,163 4,334 (2,722) Securities lending 48,346 12,802 (29,919) 46,418 12,500 (26,072) 48,786 17,490 (23,652) Total counterparty riskD 6,152,300 150,345 (169,009) 6,057,800 188,746 (202,180) 6,304,729 157,973 (161,682) 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. As the following table shows, most of Santander’s derivatives reach maturity in up to five years, while its repurchase agreements and securities lending reach maturity in up to one year. COUNTERPARTY RISK BY NOMINAL RISK AND MATURITYA EUR million. Dec.21 data Up to 1 year Up to 5 years Up to 10 years More than 10 years TOTAL Credit derivativesB 23% 68% 2% 6% 17,164 Equity derivatives 50% 48% 2% —% 79,062 Fixed income derivatives 86% 8% 6% —% 4,409 Exchange rate derivatives 51% 30% 13% 6% 947,061 Interest rate derivatives 34% 39% 17% 10% 4,915,150 Commodity derivatives 85% 14% 1% —% 12,022 Total OTC derivatives 37% 37% 16% 10% 5,786,114 Derivatives organised marketsC 59% 39% 1% —% 188,755 Repos 93% 7% —% —% 129,085 Securities lending 100% —% —% —% 48,346 Total counterparty risk 39% 37% 15% 9% 6,152,300 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. Even if the credit quality of some counterparties declines, we focus counterparty credit risk on customers with high credit quality (85% of counterparties have a rating of A or higher), especially financial institutions (23%) and clearing houses (71%). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 461 NOMINAL COUNTERPARTY RISK BY CUSTOMER RATINGA Dec.21 data Rating % AAA 0.98% AA 0.34% A 83.83% BBB 13.34% BB 1.43% B 0.05% Other 0.02% 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 constantly aim to have all other transactions covered by such agreements as well. In general, the collateral agreements Santander signs are bilateral; still, there are a few exceptions of unilateral agreements in the customer’s favour, mainly with multilateral organizations and securitization funds. COUNTERPARTY RISK BY CUSTOMER SEGMENT Dec.21 data Collateral helps reduce counterparty risk. It consists of highly liquid instruments with economic value that are deposited or transferred from one counterparty to another to guarantee or reduce counterparty credit risk from portfolios of cross-risk derivatives. We usually measure transactions subject to collateral agreements daily, applying contractual parameters to quantify the collateral (in cash or securities) to pay or receive from the counterparty. Amid the pandemic, the processes we have in place to manage collateral in the Group properly and more often have proved effective. The collateral received under CSA, OSLA, ISMA, GMRA and other collateral agreements signed by the Group amounted to EUR 25,899 million (including EUR 15,089 million in received collateral for derivatives), with 41% in cash. The remaining collateral is subject to strict quality policies in regard to the issuer and their rating, debt seniority and haircuts. Received collateral is distributed among the following geographies: COLLATERAL RECEIVED. GEOGRAPHIC DISTRIBUTION Dec.21 data Due to counterparty credit risk, we calculate the results of trading portfolios by applying credit valuation adjustments (CVA) to over-the- counter (OTC) derivatives. We also make debt valuation adjustments (DVA) in view of the risk of Santander that our counterparties assume. At the end of December 2021, CVA adjustments amounted to EUR 236.5 million (a decrease of 31% compared to the end of 2020) and DVA adjustments were EUR 161.8 million (a decrease of 17,5% compared to the end of 2020). These impacts are mainly due to the continuous credit market improvement , the creation of specific credit curves for certain counterparties and the introduction of methodological improvements in the exposure calculation. The definition and methodology for calculating the CVA and DVA are set out in the section [4.2 ‘Market risk management'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_583). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 462 Counterparty risk, organized markets and clearing houses Santander’s policies aim to promote early action according to regulation for OTC derivatives, repurchase agreements and securities lending (whether settled through clearing houses or bilaterally). In recent years, we have gradually standardized OTC transactions to settle and clear new contracts through clearing houses according to current regulation, in addition to increasing internal use of electronic execution systems. We also manage transactions not settled by clearing houses actively to optimize their volume according to regulation on margins and capital. While our counterparty risk management does not contemplate the credit risk in such transactions, we have been calculating regulatory credit exposure for organized market exchanges since the Capital Requirements Directive (CRD) IV and the Capital Requirements Regulation (CRR) took effect in 2014, transposing the Basel III principles on capital calculation. The tables below show the weight of transactions settled by clearing houses versus total counterparty as of December 2021: COUNTERPARTY RISK BY SETTLEMENT CHANNEL AND PRODUCT TYPEA Nominal in EUR million Bilateral CCPB Organised marketsC Total Nominal % Nominal % Nominal % Credit derivatives 10,450 60.9% 6,714 39.1% — —% 17,164 Equity derivatives 18,173 23.0% — —% 60,889 77.0% 79,062 Fixed income derivatives 4,409 100.0% — —% — —% 4,409 Exchange rate derivatives 900,845 95.1% 38,755 4.1% 7,462 0.8% 947,061 Interest rate derivatives 740,599 15.1% 4,054,711 82.5% 119,841 2.4% 4,915,150 Commodity derivatives 11,459 95.3% — —% 563 4.7% 12,022 Repos 93,800 72.7% 35,284 27.3% — —% 129,085 Securities lending 48,346 100.0% — —% — —% 48,346 Total 1,828,081 4,135,464 188,754 6,152,300 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. RISK SETTLED BY CCP AND ORGANIZED MARKETS BY PRODUCTA Nominal in EUR million 2021 2020 2019 Credit derivatives 6,714 6,245 11,556 Equity derivatives — 62 370 Fixed income derivatives — — — Exchange rate derivatives 38,755 31,043 43,358 Interest rate derivatives 4,054,711 4,020,927 4,087,255 Commodity derivatives — — — Repos 35,284 39,397 23,933 Securities lending — — — Total 4,135,464 4,097,674 4,166,472 A. Figures under internal risk management criteria. Credit derivatives We use credit derivatives to hedge transactions, customer business in financial markets and trading. The notional value of the credit derivatives Santander has negotiated is low (0.3% of the notional value of counterparty risk). Furthermore, we subject credit derivatives to internal robust controls and procedures to minimize operational risk. Concentration risk Concentration risk control is key for our management. We continuously monitor credit risk concentration by region and country, economic sector, customer type and other criteria. The board sets concentration limits according to risk appetite (See ‘Risk appetite framework and structure of limits’ in [2.4 'Management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_535) [processes and tools](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_535)'). Accordingly, the executive risk committee develops risk policies and reviews the appropriate exposure levels so we can effectively manage credit risk concentration. As indicated in the key metrics section of this chapter, our credit risk is diversified among our core markets (UK 25%, Spain 21%, United States 11%, Brazil 8%, etc.). In terms of sector diversification, 56% of our credit risk is with individuals, who are inherently highly diverse. Our lending portfolio is also well distributed, with no significant concentrations in any specific industry. The chart below shows the distribution as of December 2021: Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 463 DIVERSIFICATION BY ECONOMIC SECTORA 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 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. Because Santander is subject to the CRR stipulations on large risks, exposure with a customer or group of associated customers will be considered “large exposure” if its value is equal to, or greater than, 10% of eligible capital. To limit large exposures, no entity may assume any exposure with a single customer or group of associated customers if it exceeds 25% of their eligible capital, having factored in the credit risk reduction effect set out in the regulation. The use of risk mitigation techniques resulted in no groups triggering those thresholds as of the end of December. Regulatory credit exposure with the 20 biggest groups within the scope of large risks made up 5% of credit risk (lending to customers and off-balance sheet risks) as of December 2021. Our Risk division works closely with the Finance division to manage credit portfolios, aimed at reducing the concentration of exposures through credit derivatives, securitizations and other techniques to optimize the risk-reward of the entire portfolio. 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 arises from central bank transactions (including regulatory cash reserves), government bonds (public debt) and transactions with non-commercial government institutions funded exclusively by a state’s budget revenue. In some respects, Banco Santander's standard for sovereign risk differs from the European Banking Authority's (EBA) standard for regular stress testing. In particular, the EBA does not consider deposits with central banks, exposures with insurance companies or indirect exposures to guarantees and other financial instruments; however, its standard does generally include central, regional and local government agencies. Our local sovereign exposure, in currencies other than the official currency of the country of issuance, is not significant ( EUR 10,013 million, 2.6% of total sovereign risk) according to our management criteria. Furthermore, exposure to non-local sovereign issuers involving cross-border risk is even less significant (EUR 7,011 million, 1.8% of total sovereign risk).The sovereign debt we hold in Latin America is almost entirely in local currency, recorded in local ledgers and predominantly short-term. In recent years, our total sovereign risk exposure has been consistent with both regulation and our strategy. Because it spans countries with diverse macroeconomic conditions, growth scenarios, interest rates and exchange rates, it varies on account of our strategy to manage liquidity and hedge both interest rate and foreign exchange risk. Furthermore, our sovereign debt strategy also sets exposure limits based on each country’s credit rating. The table below shows exposure ratios by level20: 2021 2020 2019 AAA 15% 18% 20% AA 32% 25% 24% A 26% 25% 18% BBB 11% 14% 15% Lower than BBB 16% 18% 23% 19. Countries that are not considered low risk by Banco de España 20. Internal rating are applied'. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 464 Sovereign exposure at the end of December 2021 is shown in the table below (data in million euros): 2021 2020 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 mandatory at fair value through profit or loss Total net direct exposure Total net direct exposure Spain 2,574 2,805 14,178 — 19,557 24,245 Portugal (20) 2,287 4,277 — 6,544 8,730 Italy (73) 634 323 — 884 4,015 Greece — — — — — — Ireland — — 9 — 9 — Rest Eurozone (233) 1,231 2,631 — 3,629 4,054 UK (538) 676 228 — 366 (97) Poland (15) 10,819 489 — 11,293 10,947 Rest of Europe — 77 1,291 — 1,368 1,070 US 1,050 13,803 7,616 — 22,469 15,548 Brazil 8,733 16,432 3,394 — 28,559 27,717 Mexico 2,150 10,253 1,106 — 13,509 21,029 Chile 56 1,134 4,881 — 6,071 6,955 Rest of America 94 651 680 — 1,425 958 Rest of the World 2 1,524 1,811 — 3,337 4,752 Total 13,780 62,326 42,914 — 119,020 129,923 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 465 4. Market, structural and liquidity risk 4.1 Introduction This section describes our market risk management and control in 2021, covering trading risk as well as liquidity and structural risks. It also contains a brief description of 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 movements in interest rates that reduce the value of a financial instrument, a portfolio or the Group. It can affect loans, deposits, debt securities, most assets and liabilities held for trading, and derivatives. •Inflation rate risk arises from movements in inflation that can reduce the value of a financial instrument, a portfolio or the Group. It can affect loans, debt securities and derivatives (e.g. inflation swaps and futures) whose profitability is linked to inflation. •Exchange rate risk is the possibility of loss because the currency of a long or open position will depreciate against the base currency. It can affect debt in subsidiaries whose local currency is not the euro, as well as loans denominated in a foreign currency. •Equity risk is the possibility of loss from open positions in securities if their market price or expected future dividends fall. It affects shares, stock market indices, convertible bonds and derivatives with shares as the underlying asset (put, call, equity swaps, etc.). •Credit spread risk is the possibility of loss from open positions in fixed-income securities or credit derivatives if their yield curve, or the recovery rate of their issuer or type change. A spread is the yield difference between financial instruments against a benchmark (e.g. the internal rate of return (IRR) of government bonds and interbank interest rates). •Commodity price risk is the possibility of loss from movements in commodity prices. Our commodity exposure is minor and stems mainly from commodity derivatives. •Volatility risk is the possibility of loss caused by movements in interest rates, exchange rates, the stock market, credit spreads and other risk factors affecting portfolio value. It is inherent to all financial instruments whose value considers volatility (especially options contracts). Derivative contracts (such as options, futures, forwards and swaps) can mitigate market risks partially or fully. Some market risks that require more complex hedging are: •Correlation risk is the possibility of loss due to an adverse correlation between risk variables that affect portfolio value. Risk variables could be the same (e.g. two FX rates) or different (e.g. an interest rate and a commodity price). •Market liquidity risk is the possibility that fewer market makers or institutional investors, a large number of transactions, market instability and other factors will cause the Group or a subsidiary to exit a position at a worse market price or trade cost. Exposure to different products and currencies can also increase this risk. •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 is the possibility that the bank will have to hold part of a debt issue it has underwritten or agreed to place if it cannot all be placed among potential buyers. In addition, during 2021, there was an increased focus on climate and environmental risk, which arise from the possibility that changes in climate may adversely affect the value of a financial instrument, a portfolio or the Group as a whole. Changes in climate include both extreme weather scenarios as well as gradual climate change and other situations where there is environmental degradation. This risk may have an impact both on financial instruments value or portfolios and on Santander's liquidity. The Group measures this risk through stress scenarios for both market and liquidity risk. Balance sheet liquidity risk (unlike market liquidity risk) is the possibility of loss caused by forced disposal of assets or cash flow imbalance if the bank meets its payment obligations late or at excessive cost. It can cause losses by forced asset sales or impacts on margins due to the mismatch between expected cash inflows and outflows. Pension and actuarial risks (explained at the end of this section) also depend on market variables. We aim to comply with the Basel Committee’s Fundamental Review of the Trading Book (FRTB) and the EBA’s Guidelines on the management of interest rate risk arising from non-trading book activities. The purpose of several projects we run is to provide risk control managers and teams with the best market risk management tools under the right governance framework for the models we use Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 466 for metric reporting; and to comply with regulation on the risks mentioned above. IBOR Reform Since 2015, central banks and regulators have organized working groups to propose alternative risk-free-rates to the Euro Overnight Index Average (EONIA), the London Interbank Offered Rate (LIBOR). For the purpose of risk control during the transition, we launched the Santander's global IBOR Transition Programme in 2019, making sure concerned business units and subsidiaries understand risks regarding the transition and can take the right mitigating measures. It takes recommendations, guidance and targets from regulators and working groups into account. The areas it is structured on are Technology and operations; the Legal department; Customer relations; Risk and model management; Conduct and communications; and Accounting and Finance. In 2021, the programme focused on handling the transition to LIBOR and EONIA rates in December 2021. In 2022, the program will continue to address next steps in the transition related to the contract history management and the LIBOR dollar termination milestone in June 2023. Santander also keeps taking part in public and private initiatives on benchmark interest rate indices reform. For more details on IBOR reform, see Notes to the consolidated annual accounts nº 53 section ['c) Trading market risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1024) [management'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1024). 4.2 Market risk management Limits management and control system The Market Risk function's daily control keeps market risk positions within approved limits, and evaluates performance and significant fluctuations in metrics. This assessments inform regular reports for senior management and both internal and external stakeholders to ensure proper oversight of market risk management. We set market risk limits in a dynamic process according to the risk appetite in the annual limits plan prepared by senior management and extended to all subsidiaries (See “Risk appetite and structure of limits” under Section [2.4 ‘Management processes and tools](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_535)’). To ensure limits cover operations exposed to market risk from various perspectives, we take a prudent approach involving these metrics: •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 limit by issuer . ◦Others. •Limits for origination transactions. Those general limits include sub-limits that make the structure granular enough to control market risks from Santander’s trading operations. We monitor subsidiaries’ positions daily, checking changes in portfolios and at trading desks in order to detect events that may necessitate immediate mitigation. The Group establishes global approval and control limits; global approval limits with local control; and local approval and control limits. They are requested by each subsidiary’s business manager in consideration of business particulars, budgetary targets and the risk/ reward ratio. They are then approved by risk bodies according to internal governance processes. Subsidiaries must adhere to approved limits. On the day a limit breach occurs, subsidiary business managers must provide a written explanation with an action plan and corrective measures, such as reducing a position within the limits or formulating a strategy that justifies raising limits. Methodologies and key aspects a) Value at Risk Value at risk (VaR), our standard methodology for managing and controlling market risk, measures maximum expected loss with a certain confidence level over a given time. For standard historical simulation, the confidence level is 99% and the time horizon is one day. We also make statistical adjustments (i.e. a two-year horizon or daily figures from the 520 days since the reference date for calculating VaR) to account for recent events that influence our risk levels in a quick and efficient manner. We report the highest of two VaR figures, which we calculate every day. To one of them, we apply an exponential decay factor, which assigns a low weighting to the oldest observations; the other assigns the same weighting to all observations. At the same time, we use the same methodology for VaR to calculate “value at earnings” (VaE), which gives maximum potential earnings with a certain confidence level over a given time. As a risk metric, historical VaR simulation has many advantages. It states a portfolio’s market risk in a single figure according to market movements, without assumptions about functions, forms or correlations between market variables. Still, it also has limitations. Some are inherent to the VaR metric, no matter the methodology used to calculate it. In particular: •Because VaR is calibrated at a certain confidence level, it does not reveal potential losses beyond the VaR level. •The liquidity horizon of certain products in a portfolio is longer than the VaR model’s. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 467 •VaR is a static measurement of portfolios’ risk and subject every day to significant (albeit unlikely) changes. Historical simulation also has limitations, such as: •high sensitivity to time frame used •inability to show plausible high-impact events outside the time frame used; •no market inputs (e.g. correlations, dividends or recovery rates) for measurement parameters; and •slow adaptation to new volatility and correlations, as the weighting of the newest and the oldest data is the same. To circumvent some limitations, we use stressed VaR (sVaR) and expected shortfall (ES); calculate VaR with exponential decay; make conservative measurement adjustments; and run analyses and backtesting to assess the accuracy of the VaR calculation model. b) Stressed VaR (sVaR) and Expected Shortfall (ES) Every day, we calculate sVaR for our main portfolios using the same VaR calculation method but with these exceptions: •A window of 260 observations (as opposed to 520 for VaR) over a continuous stress period. For each portfolio, we review the history of a subset of market risk factors (selected with expert criteria) and the most significant positions per books. •Unlike with VaR, the percentile we take to get sVaR has uniform weighting and is not the highest one based on exponential and uniform weightings. To calculate ES, we estimate expected potential loss above the level obtained from VaR and assign uniform weightings to all observations. Unlike VaR, ES has the advantage of showing tail risk (i.e. the risk of loss due to a rare event) while being a subadditive metric. According to the Basel Committee, ES with 97.5% confidence interval is at a similar risk level than VaR with 99% confidence interval. c) Scenario analysis Santander’s risk measures are based on normal market conditions, price stability, sufficient liquidity and other assumptions used in daily risk management and decision-making. However, it is possible that extreme movements and strong unforeseen changes will not be properly anticipated. Therefore, we run scenario analyses, which prove important to predict the outcome of a wide range of risks and estimate the capital needed to absorb any losses in case such unexpected events occur. The scenarios we use to predict future risks are important to overcome the limitations of models and historic data; support liquidity and capital plans; report on risk tolerance levels in place; and help us execute risk reduction and contingency plans under stress. All units engaged in trading regularly calculate and review historical, hypothetical and reverse stress-test scenarios. d) Gauging and backtesting measures According to regulation, the VaR model must accurately show material risks. Because VaR uses statistical techniques under normal conditions for a certain confidence level over a set time horizon, the estimate of maximum potential loss may differ from actual losses. Santander reviews and contrasts the VaR calculation model on a regular basis to verify its accuracy. Our Market risk functions run internal backtesting, contrast VaR and review hypothesis about portfolios for subsidiaries that apply the internal market risk model. For subsidiaries with an approved internal model, we run regulatory backtesting to find exceptions (where daily profit or loss is higher than VaR or VaE) that will influence the calculation of regulatory capital requirements for market risk. Through backtesting, we assess the quality and general effectiveness of our risk measurement model, comparing daily VaR or VaE from D-1 with these P&L figures on D: •Economic P&L: P&L at end-of-day mark-to-market or mark-to- model value. Backtesting indicates if VaR/VaE methodology to measure and aggregate risk is appropriate. •Current P&L: The difference between a portfolio’s end-of-day value and real value by the end of the next day, in light of intraday trading but not fees or interest margin. Backtesting results enable us to determine the number of regulatory exceptions. •Hypothetical P&L: The difference between a portfolio’s end-of-day value and real value by the end of the next day, based on the assumption that positions will not vary. This backtesting does not consider the time effect, intraday trading, nor changes in portfolio positions in order to maintain consistency with VaR. We use it to determine if portfolios can withstand an intraday risk not reflected in closing positions (nor in VaR) over time. We also use it to count the number of regulatory surpluses. •Theoretical P&L: Calculated with the market risk calculation engine, without intraday trading, changes in portfolio positions or time (“Theta”). We use this backtesting to check the quality of the internal VaR model. Every day, we run backtesting for our subsidiaries. We also do internal (non-regulatory) backtesting every day, week or month depending on portfolio granularity. The number (or proportion) of exceptions we record is one of the most intuitive indicators of a model’s soundness. As our regulatory backtesting covers a historical period of one year (250 days) and a 99% VaR, we expect two to three exceptions per year. To calculate regulatory capital for market risk, we take the regulatory K35 from the number of exceptions we find in actual and hypothetical backtesting. e) Analysis of positions, sensitivities and results Santander uses positions to quantify the market value of derivative transactions by main risk factor and with the Delta value of futures and options. We can express risk positions in subsidiaries’ base currency and in the currency used to standardize information. We monitor positions every day to correct any incidents we uncover immediately. Sensitivity to market risk is the estimated impact of change in a risk factor on the market value of an instrument or portfolio. To measure it, we take analytical approximations from partial derivatives or a full portfolio revaluation. The Risk function’s daily P&L statement is an excellent indicator of the impact of changes of financial variables on portfolios. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 468 35 K: Parameter used for calculating the consumption of regulatory capital due to market risk. f) Derivatives activities and credit management Because of their atypical characteristics, we have special measures to monitor derivatives and credit management daily. We monitor the sensitivity of underlying assets to price movements (Delta and Gamma), to volatility (Vega36) and over time (Theta). We also systematically check measurements of their sensitivity to spread, jump-to-default risk and position concentrations by rating. According to regulation and the Basel Committee’s recommendations, we also calculate the incremental risk charge (IRC), an additional metric for credit risk in the trading book. The IRC covers default risk and rating migration risk (which VaR does not show adequately) by taking credit spread changes into account. In general, we apply it to government and corporate bonds; to forwards, options and other bond derivatives; and to credit default swaps, asset-backed securities and other credit derivatives. To calculate it, we take direct measurements of loss distribution tails at the right percentile (99.9%) over a one-year horizon and follow the Montecarlo method with one million simulations. g) Credit valuation adjustment and debit valuation adjustment Santander makes credit and debit valuation adjustments to calculate trading book value. A credit valuation adjustment (CVA) is a change in the value of OTC derivatives to take into account counterparty credit risk. For a given counterparty, it adds up to the CVAs for all its maturity dates. We calculate it based on exposure at default, loss given default, probability of default, the discount curve and other inputs. A debit valuation adjustment (DVA) is similar to a CVA but results from the risk our counterparties assume with OTC derivatives traded with Banco Santander. 4.3 Market risk key metrics In 2021, risk levels from trading generally remained low amid less volatility than in 2020, as well as economic recovery spurred by vaccination progress. However, uncertainty persisted in light of the possibility of new covid variants. Risks mainly originated from trading non-complex instruments with customers. Most were to hedge interest rate and FX risks. Like last year, our own trading portfolio positions’ contribution to overall risk stayed lower than in previous years. 2021 saw generally low consumption of trading limits, which correspond to the Group's market risk appetite. Our stressed scenarios also revealed low risk levels based on observed losses in stress testing. We run the scenarios time and again to measure any risk not covered by the usual metrics for monitoring and controlling market risks. Market risk capital requirements We use internal and standard models to determine market risk- related capital requirements. In 2019, the ECB authorized Santander to use internal market risk models to calculate regulatory capital for the trading portfolios of our subsidiaries in Spain, Chile and Mexico; and to extend our Spain subsidiary’s internal model to our London branch. As we aim to get the rest of our subsidiaries gradually approved, we have been working closely with the ECB and reviewing the new requirements recently published by the Basel Committee to strengthen financial institutions’ capital. Santander launched the Market risk advanced platform (MRAP), a global initiative to strengthen market risk infrastructure according to the new Fundamental Review of the Trading Book (FRTB); and to adapt internal market risk models to the latest Targeted Review of Internal Models (TRIM) and to supervisory demands. MRAP takes a multi-disciplinary and multi-regional approach. It includes all subsidiaries that generate market risk, as well as the Market risk function, IT, Front office, the Finance function, the Regulatory affairs function and other relevant stakeholders. In 2021, it continued to improve our functional and IT architecture and our operational models significantly, while generating synergies between initiatives and resources. According to Santander’s internal market risk model, we calculate consolidated regulatory capital as the total regulatory capital of the subsidiaries that the ECB has approved. This standard for consolidating capital does not consider capital savings owing to geographical diversification and is, therefore, conservative. In light of the ECB’s approval, we use advanced methods with VaR, sVaR and IRC as fundamental metrics to calculate market risk-related regulatory capital consistently with the Basel requirements and, in particular, with the EU Capital Requirements Regulation (CRR). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 469 36 Vega, a Greek term, is the sensitivity of the value of a portfolio to changes in the price of market volatility VaR analysis As demonstrated by the VaR of SCIB’s trading portfolio, Santander's market risk strategy focuses on trading with customers to minimize net directional exposure and keep risk diversified by geography and risk factor. Despite constant market volatility (especially in regard to interest and FX rates), VaR stayed mostly below the average of the last three years, with the exception of a spike in the last quarter of the year . In this period, there was an increase in market volatility due to the uncertainty caused by the potential impact of the new covid variant (Omicron). This could lead to a possible economic growth slowdown, mainly due to new disruptions in supply chains together with increases in energy prices, closing December VaR at EUR 12.3 million. VaR 2019-2021 EUR million. VaR at 99% over a one day horizon In 2021, VaR fluctuated between EUR 15.9 million and EUR 6.8 million. The average VaR in 2021 was EUR 10.5 million, lower than in 2020 and 2019 (EUR 12.5 million and EUR 12.1 million, respectively). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 470 Risk per factor This table shows the latest and average VaR at a 99% confidence level by risk factor in the last three years. It also shows the minimum and maximum VaR values in 2021 and 97.5% ES at the end of December 2021: EUR million. VaR at 99% and ES at 97.5% with one day time horizon 2021 2020 2019 VaR (99%) ES (97.5%) VaR VaR Min Average Max Latest Latest Average Latest Average Latest Total Trading 6.8 10.5 15.9 12.3 11.9 12.5 8.3 12.1 10.3 Diversification effect (6.3) (12.9) (26.6) (13.4) (15.0) (13.0) (11.8) (8.1) (9.8) Interest rate 6.0 9.6 15.3 9.1 9.4 9.2 5.4 10.0 9.2 Equities 2.2 3.5 7.7 5.1 5.1 4.4 3.1 2.9 4.8 Exchange rate 1.9 4.2 8.0 5.7 5.6 5.9 6.0 3.9 2.6 Credit spread 2.6 4.8 8.0 5.1 6.0 5.5 4.5 3.4 3.5 Commodities 0.4 1.3 3.5 0.7 0.8 0.5 1.1 — — Total Europe 6.1 9.3 16.1 9.9 9.7 10.5 8.0 6.3 10.1 Diversification effect (5.2) (9.3) (16.9) (12.6) (13.1) (10.7) (8.9) (6.9) (8.4) Interest rate 5.3 7.7 11.7 7.1 6.7 7.9 6.5 6.0 8.2 Equities 1.8 3.3 8.3 5.8 5.2 4.3 3.0 1.9 4.9 Exchange rate 1.6 2.8 5.0 4.5 4.9 3.5 2.9 1.9 1.9 Credit spread 2.6 4.8 8.0 5.1 6.0 5.5 4.5 3.4 3.5 Commodities — — — — — — — — — Total North America 1.6 2.5 7.4 2.7 2.8 6.6 2.9 3.5 3.8 Diversification effect 0.2 (0.7) (2.9) (0.6) (0.5) (2.2) (1.0) (1.3) (2.1) Interest rate 1.3 2.5 7.0 2.7 2.7 3.4 3.3 2.6 3.4 Equities — 0.1 1.5 — — 0.3 0.1 0.2 0.1 Exchange rate 0.1 0.6 1.8 0.6 0.6 5.1 0.5 2.0 2.4 Total South America 3.3 5.9 10.5 6.3 6.4 5.6 4.5 9.5 6.0 Diversification effect (1.2) (4.9) (16.0) (5.1) (3.8) (3.8) (5.4) (2.9) (3.7) Interest rate 3.0 5.5 12.2 5.8 6.3 5.2 4.1 7.8 5.9 Equities 0.4 1.2 3.2 1.1 1.0 1.0 0.5 2.0 1.7 Exchange rate 0.7 2.8 7.6 3.8 2.1 2.7 4.2 2.6 2.1 Commodities 0.4 1.3 3.5 0.7 0.8 0.5 1.1 — — VaR STATISTICS AND EXPECTED SHORTFALL BY RISK FACTORA A. In North America and South America, VaR levels of credit spreads, and in North America for VaR of commodities, are not shown separately due to their low or null materiality. At the end of December, VaR was EUR 4.0 million higher than at the end of 2020; however, average VaR fell by EUR 2.0 million. Average VaR fell for most risk factors owing to low market volatility throughout the year. By region, average VaR decreased in Europe and especially in North America with lower exchange rate volatility. By risk factor, VaR has followed a generally stable trend in recent years. For many factors, temporary VaR increases generally owe more to short-term price volatility than to significant changes in positions. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 471 Backtesting Actual losses can differ from predicted losses because of the mentioned VaR’s limitations. Santander measures the accuracy of our VaR calculation model to make sure it is reliable (see “Methodologies and other key details” under section [4.2 ‘Market risk management’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_583)). The most important tests we run involve backtesting: •Backtesting of hypothetical P&L and of the entire trading book showed no exceptions to 99% VaR and VaE in 2021. •The results for the past year are consistent with the assumptions of the VaR calculation model. BACKTESTING OF TRADING PORTFOLIOS: DAILY RESULTS VS. VaR FOR PREVIOUS DAY EUR million Derivatives risk management Our operations with derivatives consist mainly in selling investment products and hedging risks for customers. We aim to keep open net risk as low as possible. Trading includes equity, fixed-income and FX options, chiefly in Spain, Brazil, the UK and Mexico. The graph below shows the Vega VaR of structural derivatives over the last three years. It has fluctuated around an average of EUR 2.0 million. In general, high VaR values stem from significantly high market volatility, such as at the start of the health crisis, amid changes to monetary policy, or at times of political uncertainty in our geographies. CHANGE IN RISK OVER TIME (VaR) OF STRUCTURE DERIVATIVES EUR million. VaR Vega at a 99% over a one day horizon Average VaR was based on interest rates, equities and FX rates. In 2021, average risk (EUR 2.6 million) was slightly higher than in 2019 and 2020 (see table below): Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 472 FINANCIAL DERIVATIVES. RISK (VaR) BY RISK FACTOR EUR million. VaR at a 99% over a one day horizon c 2021 2020 2019 Minimum Average Maximum Latest Average Latest Average Latest Total VaR Vega 1.5 2.6 7.7 3.7 1.9 2.3 1.5 2.6 Diversification effect (0.6) (0.9) (2.3) (0.1) (1.3) (1.7) (1.1) (1.3) VaR interest rate 0.7 1.4 6.7 1.2 1.0 1.8 1.1 2.7 VaR equities 0.9 1.2 1.8 1.6 1.3 1.4 0.8 0.8 VaR exchange rate 0.5 0.9 1.5 1.0 0.9 0.8 0.6 0.4 VaR commodities — — — — — — — — — Thanks to our risk culture and prudent risk management, exposure to complex structured instruments and vehicles is minor. At the end of December 2021, we had exposure to: •hedge funds (as the counterparty in derivative contracts): EUR 109 million (indirect). We review this type of counterparty risk on a case by case basis, setting collateralization ratios based on each fund's characteristics and assets. •monolines: no exposure at the end of December 2021. Santander’s policy on approving new derivatives transactions has always been extremely prudent and conservative. It is closely monitored by senior management. Scenario analysis We regularly calculate and review stress test scenarios for all the trading portfolios of the group and its subsidiaries, such as: Historical scenarios Historical scenarios consider trading portfolio performance during a crisis or significant past market events to estimate maximum losses if such events reoccur. •“Subprime crisis”: Historical scenario based on 2007-2008 events arising from the US subprime mortgage crisis. The financial crisis caused high volatility and drastically low liquidity in markets across the globe. For each market risk factor, we determine the worst market shocks over one-day and ten-day horizons. •“Covid crisis”: Historical scenario added to our stress testing programme in 2020 and based on abrupt movements in financial markets owing to the health crisis. After calculating a ten-day horizon of peak trading losses in the first half of 2020, all risk factors were affected. Stock indices plummeted, volatility increased for all risk factors, emerging market currencies depreciated, government bond yields hit record lows and credit spreads widened significantly. Hypothetical scenarios We use extreme scenarios based on market risk shocks that do not necessarily relate to past events. Unlike generally ex post historical scenarios, hypothetical scenarios are ex ante. •“Abrupt crisis”: A scenario of strong, sudden movements in all risk factors, including higher yield curves, stock market crashes, a stronger US dollar against other currencies, higher volatility, wider credit spreads, declines in commodity prices, reduction in dividends and default from main fixed-income and equity positions. •“Worst case”: A hypothetical scenario that combines movements of each risk factor with its volatility. We base these scenarios on historical volatility with between ± 3 and ±6 standard deviations per day (irrespective of any historical correlation between them) in order to review trading books’ risk profile and potential maximum losses under the worst possible scenario. •EBA’s adverse scenario: A hypothetical scenario based on the EBA’s proposed adverse macroeconomic scenario for all market risk factors in biennial EU-wide stress testing. •Forward-looking scenario: A plausible hypothetical scenario defined and calculated on the basis of portfolio positions and expert opinions about expected short-term market risk movements that could have a negative effect on 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 also run different quarterly stress tests based on extreme market movements to determine potential losses or major impacts on capital: •IRC scenarios: Designed to stress market risk capital consumption by incremental risk charge (IRC), associated with default risk and credit rating change risk of issuers of debt instruments present in trading portfolios. •Stress proxy scenario: Specially constructed to measure how selecting the wrong proxies would affect VaR. •Illiquidity and concentration scenarios: To show the impact of scarce liquidity in markets under stress, price gaps and concentration risk. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 473 The table below shows the worst scenario outcomes at the end of December 2021: STRESS SCENARIO: MAXIMUM VOLATILITY (WORST CASE) EUR million. Dec. 2021 data Interest rate Equities Exchange rate Credit spread Commodities Total Total trading (22.6) (17.5) (13.2) (21.1) — (74.4) Europe (15.1) (14.8) (4.9) (21.1) — (55.9) North America (4.4) — (2.1) — — (6.5) South America (3.1) (2.7) (6.2) — — (12.0) Our analysis concludes that Santander's trading portfolios would lose EUR 74 million in market value in the worst-case scenario of market stress. The loss would mainly affect Europe (in this order: credit spread, interest rates, equities, and FX rates). Connection with balance sheet items Below are items on Santander’s consolidated balance sheet that generate market risk. The table distinguishes positions whose main risk metric is VaR from other positions that are monitored with other risk metrics. RISK METRIC VALUES ON THE CONSOLIDATED BALANCE SHEET EUR Million. As of Dec. 2021 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 210,689 210,689 Interest rate Financial assets held for trading 116,953 116,953 Non-trading financial assets mandatorily at fair value through profit or loss 5,536 4,042 1,494 Interest rate, spread Financial assets designated at fair value through profit or loss 15,957 5,489 10,468 Interest rate, spread Financial assets at fair value through other comprehensive income 108,038 2,453 105,585 Interest rate, spread Financial assets measured at amortised cost 1,037,898 1,037,898 Interest rate, spread Hedging derivatives 4,761 4,761 Interest rate, exchange rate Changes in the fair value of hedged items in portfolio hedges of interest risk 410 410 Interest rate Other assets 95,593 Total assets 1,595,835 Liabilities subject to market risk Financial liabilities held for trading 79,469 79,469 Financial liabilities designated at fair value through profit or loss 32,733 390 32,343 Interest rate, spread Financial liabilities at amortised cost 1,349,169 1,349,169 Interest rate, spread Hedging derivatives 5,463 5,463 Interest rate, exchange rate Changes in the fair value hedged items in portfolio hedges of interest rate risk 248 248 Interest rate Other liabilities 31,700 Total liabilities 1,498,782 Total equity 97,053 Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 474 4.4 Structural balance sheet risk management Limits management and control systems The policies of senior management dictate mechanisms to monitor and control structural risk according to regulatory requirements and our risk appetite. The mechanisms consider sub-types of structural risk and their implications, contingencies and interrelations. The Structural risk function’s role in the second line of defence is to ensure structural risks are understood, controlled and reported to senior management according to established governance: •It sets interest rate risk metrics and reviews and challenges structural risk appetite and limits proposed by the first line of defence. •It oversees the first line of defence’s structural risk management and checks compliance with set limits. •It regularly reports on risk profile to senior management and issues guidelines to business lines about measures it deems necessary. •It evaluates and challenges commercial proposals and gives senior management and business units information to understand the interest rate risk of Santander’s businesses and operations. •It confirms proper structural risk procedure, in addition to formulating and overseeing models and policies. Like market risk, structural risk also has an annual plan framework to set structural balance sheet risk limits according to risk appetite. •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 and that given their accounting classification (fair value with changes in equity) could have an impact on shareholders' equity. •Structural exchange rate risk: ◦Limit on the net permanent position of the core capital ratio. ◦Limit on individual hedge required for each currency. Business lines’ risk managers must prove explanations for potential limit and sub-limit breaches as well as an action plan to correct them. Methodologies and other key details a) Structural interest-rate risk As part of structural risk, interest rate risk in the banking book (IRRBB) is the main source of balance sheet risk. Santander measures the potential impact of interest rate movements on EVE and NII. Because changing rates may generate impacts, we must manage and control many subtypes of interest rate risk, such as repricing risk, curve risk, basis risk and option risk (e.g. behavioural or automatic). Interest rate risk in the balance sheet and market conditions and outlooks could necessitate certain financial measures to achieve Santander's desired risk profile (such as selling positions or setting interest rates on products we market). The metrics we use to monitor IRRBB include NII and EVE sensitivity to interest rate movements. •Net interest income sensitivity Net interest income (NII) is the difference between interest income from assets and the interest cost of liabilities in the banking book over a typical one- to three-year horizon (one year being standard in Santander). Because NII sensitivity is the difference in income between a selected scenario and the base scenario, its values can be as many as considered scenarios. It enables us to see short-term risks and supplement economic value of equity (EVE) sensitivity. •Economic value of equity sensitivity Economic value of equity (EVE) is the difference between the net current value of all assets minus the net current value of all liabilities in the banking book. It does not include shareholders’ equity and non- interest-bearing instruments. Because EVE sensitivity is the difference in EVE between a selected scenario and the base scenario, it can have as many values as considered scenarios. It enables us to see long-term risks and supplement NII sensitivity. b) Interest rate models Interest rate risk metrics consider the behaviour of financial products under stress scenarios in which uncertainty is common and the failure to meet contractual terms is possible. We have methodologies that help explain how such products will behave. These are our key interest rate risk models: •Treatment of liabilities without stated maturity Santander's model uses such variables as stable and unstable volumes, the rate of settlement over time and the difference between customer rates and market rates to model non-maturity account balances. •Prepayment treatment for certain assets Prepayment risk mainly affects fixed-rate mortgages at subsidiaries where their contractual rates are low compared to market levels and there is an incentive for customers to amortize in advance (in whole or in part). In variable rate products, the prepayment is due to other factors such as economic cycle, tax factors, cultural factors, etc. The impact in terms of IRRBB risk is more limited by having a variable repricing. In the Group, this risk is modelled and included in the risk appetite metrics. c) Structural foreign exchange rate risk/hedging of results Every day, we measure FX positions, VaR and P&L. d) Structural equity risk We measure equity positions, VaR and P&L. 4.5 Structural balance sheet risk key metrics Consistent with previous years, the market risk profile of Santander’s balance sheet remained moderate in 2021 in terms of asset, shareholders’ equity and NII volumes. Each subsidiary’s Finance division manages interest rate risk from commercial banking and is responsible for handling structural risk from interest rate fluctuations. To measure interest rate risk, Santander uses statistical models based on strategies to mitigate structural risk with interest-rate Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 475 instruments (such as bonds and derivatives) to keep risk profile within risk appetite. The NII and EVE sensitivities below are based on scenarios of parallel interest rate movements from -100 to +100 basis points. Structural interest rate risk Europe In general, the NII and EVE of our main balance sheets (i.e. Santander España and Santander UK) show positive sensitivity to rising interest rates. Across our footprint, exposure was moderate in relation to annual budget and capital levels in 2021. At the end of December 2021, under the scenarios previously described, the most significant NII sensitivity risk concentration in euros amounted to EUR 703 million; in pounds sterling, EUR 541 million; in Polish złoty, EUR 65 million; and in US dollars, EUR 54 million, all relating to interest rate cut risks. NET INTEREST INCOME (NII) SENSITIVITY % of total \* Other: Portugal and SCF. The most significant EVE risk concentration amounted to EUR 3,684 million in the yield curve of the euro ; of the pound sterling, EUR 1,056 million; of the US dollar, EUR 221 million; and of the Polish złoty, EUR 56 million, all relating to interest rate cut risks. ECONOMIC VALUE OF EQUITY (EVE) SENSITIVITY % of total \* Other: Poland, Portugal and SCF. North America In general, the NII and EVE of our North American balance sheets tend to show positive sensitivity to rising interest rates. Exposure was moderate in relation to annual budget and capital levels in 2021. At the end of December, the most significant risk to NII was mainly in the US and amounted to EUR 152 million. NET INTEREST INCOME (NII) SENSITIVITY % of total The most significant risk to EVE was in the US and amounted to EUR 590 million. ECONOMIC VALUE OF EQUITY (EVE) SENSITIVITY % of total South America The EVE and NII of our main South American balance sheets are positioned for interest rate cuts. In 2021, exposure was moderate in relation to annual budget and capital levels. At the end of December, the most significant risks to NII were mainly in Chile (EUR 86 million) and Brazil (EUR 83 million). NET INTEREST INCOME (NII) SENSITIVITY % of total \* Other: Argentina, Peru and Uruguay. The most significant risks to EVE were recorded in Brazil (EUR 271 million) and Chile (EUR 258 million). ECONOMIC VALUE OF EQUITY SENSITIVITY % of total \* Other: Argentina, Peru and Uruguay. Structural foreign exchange rate risk/results hedging Our structural FX risk stems mainly from the income and hedging of foreign currency transactions for permanent financial investments. In our dynamic management of this risk, we aim to limit the impact of FX rate movements on the core capital ratio. In 2021, we hedged nearly all currencies that have an impact on our core capital ratio. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 476 In December 2021, our permanent exposures (with potential impact on shareholders’ equity) were, from largest to smallest, in US dollars, British pounds sterling, Brazilian reais, Mexican pesos, Chilean pesos and Polish złoty. We use FX derivatives to hedge part of those permanent positions. The Finance division manages FX risk and hedging for the expected profits and dividends of subsidiaries whose base currency is not the euro. Structural equity risk Santander holds equity positions in its banking and trading books. They are either equity instruments or stock, depending on the share of ownership or control. By the end of December 2021, the equities and shareholdings in the banking book were diversified among Spain, China, Morocco, Poland and other countries. Most of them invest in the financial and insurance sectors. We have minor equity exposure to property and other sectors. Structural equity positions are exposed to market risk. We calculate their VaR with a set of market prices or proxies. At the end of December 2021, VaR at a 99% confidence level over a one-day horizon was EUR 309 million (EUR 319 million in 2020 and EUR 170 million in 2019). Structural VaR With such a homogeneous metric as VaR, we can fully monitor market risk in the banking book (not including SCIB’s trading operations, as explained in Section [4.3 ‘Market risk key metrics](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_586)’).We differentiate fixed income based on interest rates and credit spreads in ALCO portfolios, FX rates and shares. In general, the structural VaR of our total assets and equity is minor. EUR million. VaR at a 99% over a one day horizon 2021 2020 2019 Minimum Average Maximum Latest Average Latest Average Latest Structural VaR 895.8 993.7 1,090.7 1,011.9 911.0 903.1 511.4 729.1 Diversification effect (158.8) (327.3) (431.4) (240.2) (349.8) (263.4) (304.2) (402.0) VaR Interest RateA 224.2 400.7 540.5 287.8 465.1 345.5 345.6 629.7 VaR Exchange Rate 521.3 600.6 655.2 655.2 499.9 502.6 308.1 331.7 VaR Equities 309.1 319.7 326.4 309.1 295.9 318.5 161.9 169.8 STRUCTURAL VaR A. Includes credit spread VaR on ALCO portfolios. 4.6 Liquidity risk management The Liquidity risk function’s role in the second line of defence is to ensure liquidity risks are understood, controlled and reported to senior management and across the Group according to established governance: •It determines liquidity risk and provides detailed measurements of current and emerging risks. •It sets liquidity risk metrics, and reviews and challenges liquidity risk appetite and limits proposed by the first line of defence. •It oversees the first line of defence’s liquidity risk management; measures how long business will remain within risk appetite limits; and checks compliance with liquidity risk limits. •It reports to governing bodies on risk, risk appetite and exceptions. •It evaluates and challenges commercial and business proposals, and gives senior management and business units the information they need to understand Santander’s liquidity risk. •It provides a comprehensive overview of our liquidity risk exposure and profile. •It makes sure the liquidity risk procedures in place are appropriate to manage business within risk appetite limits. Methodologies and key other key details Grupo Santander measures liquidity risk with tools and metrics that account for the appropriate risk factors. a) Liquidity buffer The liquidity buffer is the total liquid assets a bank has to cope with cash outflows during periods of stress. The assets are free of encumbrances and can be used immediately to generate liquidity without losses or excessive discounts. The liquidity buffer is a tool for calculating most liquidity metrics. It is also a metric with defined limits for each subsidiary. b) Liquidity coverage ratio (LCR) The liquidity coverage ratio (LCR) is a regulatory metric. Its purpose is to promote the short-term resilience of a bank’s liquidity profile and make sure it has enough high-quality liquid assets to withstand a considerable idiosyncratic or market stress scenario over 30 calendar days, in addition to a currency distribution according to its needs. c) Wholesale gap metric The wholesale liquidity metric measures the number of days the Group would survive if it used liquid assets to cover lost liquidity from a wholesale deposit run-off (without possible renewal) over a set Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 477 time horizon. We also use it as an internal short-term liquidity metric to reduce risk from dependence on wholesale funding d) Net stable funding ratio The net stable funding ratio (NSFR) is a regulatory metric we use to measure long-term liquidity risk. It is the ratio of available stable funding to required stable funding. It requires banks to keep a robust balance sheet, with off-balance-sheet assets and operations financed by stable liabilities. e) Asset encumbrance metrics We calculate two metrics to measure asset encumbrance risk. On the one hand, the asset encumbrance ratio gives the proportion of encumbered assets to total assets; on the other, the structural asset encumbrance ratio gives the proportion of encumbered assets by structural funding transaction (namely long-term collateralized issues and credit transactions with central banks). f) Other liquidity indicators In addition to traditional tools to measure short and long-term liquidity and funding risk, Santander has a set of additional liquidity indicators to complement those and to measure other non-covered liquidity risk factors. These include concentration metrics, such as the main and the five largest funding counterparties, or the distribution of funding by maturity. Additionally, we calculate a number of metrics on the institution’s ability to generate liquidity through collateralized financing, such as overcollateralization, eligibility ratios assets without charges and deadlines for their placement. g) Liquidity scenario analysis Our four standard liquidity stress test scenarios are: i.an idiosyncratic scenario of events detrimental only to Santander; ii.a local market scenario of events highly detrimental to a base country’s financial system or real economy; iii.a global market scenario of events highly detrimental to the global financial system; and iv.a combined scenario of the most severe idiosyncratic and local and global market events, occurring simultaneously in an interconnected manner. We use these stress test outcomes as tools to determine risk appetite and support business decision-making. h) Liquidity early warning indicators (EWI) The system of early warning indicators (EWI) consists of quantitative and qualitative liquidity indicators that help predict stress situations and weaknesses in the funding and liquidity structure of Santander entities. External indicators relate to market-based financial variables; internal indicators relate to our own performance. i) Intraday liquidity metrics Santander follows Basel regulation and calculates several metrics and stress scenarios for intraday liquidity risk to maintain a high level of control. 4.7 Liquidity risk key metrics Santander's sound liquidity and funding situation stands on a decentralized liquidity model. Each subsidiary manages its own liquidity independently, keeping a large stock of highly liquid assets. In general, our LCR remained stable and well above the regulatory threshold. In 2021, our minimum required LCR was 100% and our risk appetite limit was 110%. We calculate and monitor this metric every day. We manage liquidity buffers effectively to maintain a sound risk profile within regulatory limits and a profitable balance sheet. They mostly consist of level 1 assets: cash and sovereign debt, adequately diversified by currency according to the Group’s balance sheet needs. Our subsidiaries have a sound balance sheet and stable funding structure, supported by a large base of customer deposits, low dependence on short-term funding and liquidity metrics well above local and corporate regulatory requirements and within risk appetite limits. The regulatory NSFR of our core subsidiaries and the Group remained above the regulatory requirement and internal risk appetite. In June 2021, we adapted our metric calculation to the new implementing technical standards (ITS) in the EBA’s Reporting framework 3.0. Our main sources of structural asset encumbrance are collateralized issues (e.g. securitizations and covered bonds) and credit transactions with central banks with collateral. The higher asset encumbrance from 2020 carried over into 2021 on the back of more appeals to central banks by using the management drivers provided for the covid scenario. Santander’s asset encumbrance is consistent with the other European banks’. As demonstrated by stress scenarios run under uniform corporate standards, the balance sheets of Santander’s units are robust. Under the worst scenario, every unit would survive and handle liquidity needs with nothing more than its liquidity buffer for at least 45 days. Santander has worked to introduce intraday liquidity risk management into its main metrics by setting daily limits and warning indicators to help anticipate contingencies. For more details on liquidity metrics, see section [3.4 ‘Liquidity and funding](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_412) [management’](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_412) of the chapter on Economic and financial review. 4.8 Pension and actuarial risk management Pension risk Santander covers financial, market, credit and liquidity risks from the assets and investments of employees’ defined benefit pension funds, as well as actuarial risks from pension obligations. We aim to recognize, measure, control, mitigate and report on pension risk and all its sources. We estimate combined losses each year on assets and liabilities under a stress scenario that accounts for shifting interest rates, exchange rates, inflation, stock markets, property values and credit spreads. In 2021, the markets’ effect on our pension risk was positive mainly because of higher discount rates in our main geographies. Also, Santander took measures in core units to reduce exposure to actuarial and pension risk. Actuarial risk Actuarial risk stems from biometric changes in defined benefit recipients and life insurance policyholders’ life expectancy; from suddenly higher non-life insurance payments; and from Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 478 policyholders’ unexpected behaviour to file claims covered by insurance policies. These are the actuarial risks we distinguish: •Life liability risk: risk of loss on liabilities due to changing risk factors that affect pension obligations. We split it into: ◦mortality/longevity risk: risk of loss on liabilities due to death or survival rates that exceed expectations. ◦morbidity risk: risk of loss on liabilities due to changes in estimated policyholder disability or incapacitation rates. ◦surrender/lapse risk: risk of loss on liabilities due to early policy surrender or changes in policyholders’ exercise of withdrawal rights, extraordinary premium payments or suspension of premium payments. ◦expense risk: risk of loss on liabilities from negative shifts in expected costs. ◦catastrophe risk: losses caused by catastrophic events that increase the bank’s life insurance obligations. •Non-life liability risk: risk of loss on liabilities from risk variations that increase Santander's non-life payment obligations towards employees. We split it into: ◦premium risk: loss from insufficient premiums to cover future claims. ◦reserve risk: loss from insufficient reserves for unpaid claims (including management costs). ◦catastrophe risk: losses caused by catastrophic events that increase the bank’s non-life insurance obligations. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 479 5. Capital risk #### 5.1 Introduction Our structural risk includes the risk of insufficient quality or quantity of capital to meet internal business objectives, regulatory requirements and market expectations. Our Capital Risk function, which is part of our second line of defence, controls and oversees first-line capital management. It checks that our capital adequacy and coverage match our risk profile. It also approves and monitors transactions that could be significant risk transfers (SRT). It brings together capital planning, budget execution and tracking, and the ongoing measurement, reporting and disclosure of capital data (described below). The Capital Risk function controls and oversees the capital activities carried out by the first line of defence. These activities split into four workflows to ensure monitoring is adequate to Santander’s risk profile: •Capital planning: internal process to determine capital levels and returns according to our strategy. Because we must ensure solvency and efficiency of capital, we identify the necessary measures to achieve our capital ratios and return on capital targets. •Capital adequacy: assessment of capital levels against the type and amount of risk assumed based on the risk profile assessment (RPA), our strategy and risk appetite. For more details, see section [2.4 'Management processes and tools](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_535)' - Risk profile assessment and Risk appetite and structure of limits. •Capital risk measurement: process to cover required actions to measure capital metrics, based on a set methodology for obtain final figures required. It also supports the stages of capital management, monitoring, oversight and control. •Origination: assessment of our portfolios' capital efficiency for identifying securitization, risk mitigation techniques, asset sales and other capital optimization initiatives. In 2021, the function continued to work on implementing capital risk operating model improvements across the Group. A key objective was to reduce the capital risk profile through more robust control and oversight environment, which we achieved by: •revising and updating corporate and local capital risk procedures; •improved traceability on capital planning; •standardization of capital reporting under our common guidelines while adapting to local market and regulations; and •following up regularly on local progress made on the TOM rollout. Key initiatives 2021 The year 2021 saw economic recovery on the back of progress in the vaccination process and the gradual lifting of restrictions. Capital risk management focused on protecting solvency and making sure internal objectives were met. We identified and assessed the risks that could affect solvency and continuously monitored key metrics. We closely track the evolution of our organic capital generation and securitizations plan and the impact of regulators’ market risk and credit risk model reviews, such as the targeted review of internal models (TRIM) on low default portfolios; the new definition of default (NDD); and the amendments to counterparty credit risk (SA- CCR) and NPL provision regulations. We also checked the impact of market variables on capital levels. We continued to implement hedging policies to mitigate exchange rate volatility on our CET1 ratio. The Capital Risk function periodically establishes uncertainty levels on budget execution, evaluating forecast possible deviations. At year-end, our fully-loaded CET1 was 12.12%, above our 11-12% target. When including the minority interest acquisition of SC USA, which closed on 31 January 2022, and the announced acquisition of Amherst Pierpont Securities (APS) by Santander Holding USA - still subject to complete regulatory approval - , the fully-loaded CET1 ratio would be 11.96%, at the top of our 11-12% target. The increase in fully-loaded CET1 ratio for the year is 23 bps, which reflects the strong organic generation of 118 bps based mainly on the year's profit and the growth in risk-weighted assets (RWA). This is supported by an adequate management, as well as by the recovery of the securitization activity. In addition, we registered -49 bps from regulatory and model impacts and -46 bps from other items on the back of market developments. Under IFRS 9 transitional arrangements, the phased-in CET1 ratio was 12.51% and the total phased-in capital ratio was 16.81%, comfortably meeting the ECB's 8.85% and 13.01% minimum levels, respectively. The fully-loaded leverage ratio was 5.21% and the phased-in ratio was 5.37%. We kept all ratios above solvency appetite limits throughout the whole year. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 480 For more details, see the section [3.5](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_415) [‘Capital management and adequacy.](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_415) [Solvency ratios](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_415)' 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; and •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 the monitoring of Grupo Santander's significant risks 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: 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 proper governance. Quantitative analysis We quantitatively assess metrics and components affecting RWA, available capital forecasts and pre-provisions net revenues (PPNRs). This phase requires proper coordination with subsidiaries to analyse local projections, which underpin group-wide projections and ensure traceability. Conclusions and disclosure Based on the outcomes of 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. Ongoing oversight of capital measurement Continuous monitoring of our 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: 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 instance, 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 explanation. The internal ‘Capital measurement control metrics guidelines’ outline these metrics, thresholds and sources of information. Preliminary analysis At this stage of the control process, we analyse qualitative issues, such as process governance and the regulatory framework. We review our capital management measures to fulfil supervisory authorities' recommendations and instructions. Assessment and measurement The Capital Risk function uses received information to review primary and secondary metrics, detect variations that might exceed defined thresholds and run a detailed analysis of the causes based on the 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. We also monitor capital appetite metrics every month to check for excesses in the Group and our subsidiaries, which we report to the corresponding governing bodies every quarter. Conclusions and disclosure The body responsible for capital risk control analyses the report and conclusions. If needed, it will submit them to the second-line (capital Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 481 committee) or first-line (risk control committee) committees for deliberation. Securitizations oversight The Capital Risk function oversees securitizations that might be significant risk transfers (SRT) originated by Santander, in accordance with articles 243 and 245 of Regulations (EU) 2017/2401 and 2017/2402. Oversight is an essential prerequisite for synthetic and traditional securitization, especially if they can reduce RWA under regulatory standards. It aims to make sure that the Capital risk function analyses the conditions that could alter a securitization's SRT classification, namely: •if it can effectively transfer risk; •if it complies with all prudential regulation requirements; •if its risk parameters follow our methodology; and •if its economic rationale that meets group-wide standards. SRT supervision is split into these stages: •ECB pre-notification: The Capital Risk function 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 to the ECB take place no later than 15 days after the securitization's closing date. •Monitoring: The Capital Risk function regularly monitors executed securitizations and reports its findings to the corresponding bodies. 5.3 Key metrics Grupo Santander’s strong capital position is 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, as ratios remain comfortably above the regulatory requirements and are consistent with senior management-approved risk appetite. For more details, see the section [3.5 ‘Capital](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_415) [management and adequacy. Solvency ratios](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_415)' in the Economic and financial review. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 482 6. Operational risk 6.1 Introduction In accordance with the Basel framework, Santander defines “operational risk” as the risk of loss due to inadequate or failed internal processes, people and systems or to external events. It covers fraud, technological risk, cyber risk, legal37 and conduct risk. Operational risk is inherent in 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 operational risk (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), ensuring that risk management priorities are established appropriately. 6.2 Operational risk management Grupo Santander’s operational risk management is based on the following elements: Management and control model Santander’s operational risk model establishes the elements needed to manage and control operational risk properly according to advanced regulatory standards and best management practice. Its phases are: •strategy and planning; •identification, measurement and monitoring of risks and internal controls; •implementation and monitoring of mitigation measures; and •disclosure, proper reporting and escalation of relevant matters. Operational risk management in Grupo Santander is underpinned by the following items: •Internal events database: registry of operational risk events whose impact could be financial (e.g. losses, regardless of their amount) or non-financial (i.e. relating to regulation, customers or services). This information: ◦enables the analysis of root causes; ◦increases the awareness of risks for better operational risk management; ◦enables the escalation of relevant operational risk events to senior risk executives in the shortest time possible; ◦facilitates regulatory reporting; and ◦facilitates the economic capital model within the internal capital adequacy assessment process (ICAAP). •Operational risk and control self-assessment (RCSA): a qualitative process that evaluates each area´s operational risks and assesses the control environment based on the opinion of experts from each function. Its purpose is to identify, assess and measure material operational risks that could prevent the business or support units from achieving their objectives. After assessing risks and internal controls, mitigating measures for risk levels above tolerance are identified. Our RCSA integrates specific reviews that allow to identify cyber, technology, fraud, third party supplier and other risk drivers that could lead to operational risk as well as the failure to meet regulations. In addition, the RCSA incorporates reviews related to conduct and financial crime risk (for more details, see section [7.2](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) ['Compliance and conduct risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634)'). •External event database: quantitative and qualitative information about external operational risk events. The database facilitates detailed and structured analysis of relevant events in the industry; the comparison of the Group and subsidiaries’ loss profile; as well as the preparation for RCSA exercises, insurance and scenario analysis. •Operational risk scenario analyses: identifies highly unlikely events that could result in significant losses for Santander, and establishes appropriate mitigating measures based on the assessment and opinion of experts from business lines and risk managers. •Key risk indicators: indicators that provide quantitative information about Santander’s risk exposure and control environment. The most significant indicators related to main risk exposure are part of operational risk appetite. •Risk appetite, which has the following structure: ◦a global non-financial risk appetite statement, which asserts Santander’s commitment to controlling and limiting: non- financial risk events that can or will result in financial losses; fraud events; operational and technological incidents; legal and regulatory infractions; issues associated with conduct; or reputational damage. While some losses are expected, high severity unexpected losses resulting from failed controls are not acceptable. This statement is associated with our loss and control environment metrics. ◦statements regarding technological risk, cyber risk, cloud, fraud, money laundering, product sales, regulatory compliance, model risk and supplier risk management, each with their own forward- looking monitoring metrics. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 483 37 Legal processes with an operational risk root cause. •Recommendations from internal audit, external audit and regulators: provide independent information about inherent and residual risk, identifying controls and processes improvements. •Economic capital model: 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 economic capital and estimate expected and stressed losses for operational risk appetite. •Other specific instruments are used to analyse and manage operational risk; assess new products and services; manage business continuity plans (BCP); review and revise perimeters; and run quality assurance reviews. Our management and reporting system for operational risk, Heracles, supports the operational risk programme and tools with a Governance, Risk and Compliance (GRC) approach. It provides information for management and reporting at subsidiaries and throughout the group. Heracles facilitates better operational risk management decisions by consolidating information, preventing duplication and simplifying reporting. To achieve this, we ensure that employees can have a timely, full and precise view of their risks by using a common set of taxonomies and methodological standards. Implementing the model and initiatives In 2021, we enhanced our operational risk model by: •enhancing the risk appetite framework: establishing new metrics (inclusion of new internal control metrics and of a qualitative statement regarding cloud risk in risk appetite for 2022); and improving defined thresholds and measurements; •developing models used to conduct an independent assessment of our risk profile and control environment to assist subsidiaries in their oversight and help to challenge the accuracy of local assessments; •improving and progressing with our holistic risk assessment programme, in which each specialist second line monitors and contrasts the principal risks that are integrated within non-financial risks; •improvements in the process to determine, identify and assess reference risks and standard controls with the objective of strengthening and ensuring consistency of our risk and control environment; •establishing initiatives to assess climate risk as related to operational risk within our management model; •improving the assessment methodology of the global cyber security transformation plan to identify and measure the reduction in risk due to the implementation of new information security developments; •improvements to contingency, business continuity and crisis management plans, in coordination with the recovery and resolution plans, while also hedging emerging risks; and •developing the methodology to analyse and assess transformation risk, with an approved operating model. Operational resilience and business continuity plan (BCP) Digital transformation is revolutionizing how banks operate, presenting new business opportunities. At the same time this structural change is also giving rise to new emerging risks such as technology risk, cyber risk and an increased dependency on third party suppliers, which increase the potential exposure to events that could affect the provision of services to our clients. We are also witnessing changes in regulation that are increasingly focused on the importance of Operational Resilience, such as in the recently published Basel Principles for Operational Resilience; in the policy statement and final rules, Building the UK Financial Sector’s Operational Resilience, by Bank of England (BoE), the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA); and in the EU's Digital Operational Resilience Act (DORA). In particular, these regulations require banks to strengthen their ability to recover from disruptive events that could have an impact on their core business operations. Grupo Santander is firmly committed to maintaining a robust control environment according to the best standards in the banking industry. This allows us to reinforce our operational resilience against potential disruptive events thus ensuring the provision of services to our customers as well as ensuring systemic stability. A major pillar of our operational resilience is our business continuity management system (BCMS), which ensures the continuity of our business processes in all our subsidiaries in the event of a severe incident or disaster. It is a holistic management process that identifies potential threats and their impact to our operations and resources as well as defines the proper protocols and governance in order to provide an effective response. Its main objectives are: •safeguarding people's safety in a contingency situation; •guaranteeing that core functions are performed, and service is delivered to our customers; •fulfilling our obligations towards employees, customers, shareholders, and other stakeholders; •to comply with regulatory requirements; •to minimize potential losses to Grupo Santander as well as the impact on business activities; •to safeguard the bank’s reputation and credibility, as well as our client’s confidence in the bank; •to reduce the effects of an incident by ensuring efficient procedures, priorities, and strategy for the recovery and restoration of business operations in a contingency situation; and •contribute to a stable financial system. The pandemic challenged the business continuity plan frameworks and strategies of our subsidiaries. While we did have to adapt some protocols, the crisis has demonstrated that Santander has a robust BCMS. In 2021, we continued to enhance and revise our BCMS incorporating conclusions and lessons learned from the management of the pandemic. In particular: •revision of the scope and extent of the critical processes that should be considered in the definition and determination of business continuity strategy and plans (especially for prolonged contingencies); Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 484 •reinforcement of infrastructure and protocols to establish the possibility of remote working as a valid and effective strategic alternative within continuity plans; •mandatory risk assessments and cost-benefit analyses in order to select the necessary continuity strategies for each contingency scenario identified; •implementation of flexible solutions (such as robotics and the digitization of documents) in order to be able to respond quickly to the needs of our customers and business units during a contingency; •development of a methodology and tool to manage and monitor the maturity level of subsidiary business continuity programmes. In addition, we have formed a multidisciplinary working group led by the non-financial risk function in order to review the risk identification and management frameworks that are currently in place. The objective of the working group is to ensure proper coverage of the new Operational Resilience regulatory requirements. Relevant mitigation actions Grupo Santander continuously implements and monitors mitigation actions for major sources of risk identified by internal management tools and other external sources of information. Fraud The transformation and digitalization of the business has given rise to new risks and threats, such as more payment scams and credit fraud (fraud in origination). To mitigate these risks, we enhanced control mechanisms and designed new products. Strong customer authentication processes, in line with the EU’s Payment Service Directive (PSD2), such as biometric validation (e.g., facial recognition) in customer onboarding and enhancing anti-fraud alerts in origination are becoming increasingly widespread to mitigate fraud risk. To reduce fraud, Grupo Santander applies special measures in some geographies, such as: •Card fraud: ◦Generalized use of chip and PIN (transactions with chip cards that require a numeric verification code) for all transactions in ATMs and stores, with advanced authentication mechanisms between ATMs, points of sale and Grupo Santander’s systems. ◦Continuously improved card protection against e-commerce fraud, with a secure standard (3D Secure) via two-step authentication based on one-time passwords, mobile applications that enable card deactivation for e-commerce transactions, or virtual cards issuance with dynamic authentication passwords. ◦Use of a new biometric authentication system in ATMs and branches in Santander Brazil. Customers could use their fingerprint to withdraw cash from ATMs. ◦Continuous integration of monitoring and fraud detection tools with internal and external systems for better detection of suspicious activity. ◦Reinforced ATM security with new physical protection and anti- skimming elements, as well as improved logical security of devices. •Online/mobile banking fraud: ◦Online banking transaction verification with a second security factor of one-time passwords. The evolution of technologies differ across geographies, e.g., the use of QR codes generated from transactional data. ◦Continuous improvements to online banking security with a transaction scoring system that assigns transactions a risk level, which trigger additional authentication when a given security threshold is breached. ◦Implementation of specific mobile banking protections, such as identification and registration of customer devices. ◦Monitoring of the e-banking platform security to avoid systems attacks. •Forgery and identity theft fraud: ◦Enhanced fraud controls that verify the applicant’s identity and the device used to submit the request. ◦Implementation of biometrics for customers and employees. ◦Transfer of the credit fraud prevention function to the Credit Risk area for enhanced mitigation of fraud in origination as well as strengthening of alerts. ◦New management and authentication platforms. Cyber risk In 2021, cyberthreats were more frequent and stronger, as hackers continued to enhance their capabilities. This is a trend that is expected to continue in coming years and the financial sector will remain a primary target. This trend as well as Santander's increasing reliance on digital systems, make cyber risk one of the top non- financial risks for the business. Therefore, our objective is to make Santander a cyber resilient organization that can withstand, detect and rapidly react to cyber- attacks, while constantly evolving and improving our defences. We continue to enhance our cyber security controls, policies, and procedures according to our global cyber security framework and international best practices. During 2021, several key strategic cyber security pillars and initiatives, described on section 5. Research, development & innovation (R&D&I) of Economic & Financial Review chapter, have been established to help Santander evolve its cyber defences in line with emerging threats and technologies. In the second line of defence, the cybersecurity risk team developed and implemented a cyber risk management and control framework that assesses and evaluates the cyber risk profile and control environment of the bank. The main focal points have been: •approval and implementation of an operating model that drives and steers the second line of defence cyber-risk function. The model provides a structured approach and enables effective and proactive risk management. It establishes the mission, principles, procedures, tools and required skills for cyber risk management; •implementation of a holistic procedure across all second line functions to regularly measure and assess the cyber security control environment and risk profile. The assessment has been Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 485 integrated with the different Non-Financial Risk instruments and tools, which enables the second line of defence to provide an independent opinion and challenge of control 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 enable prioritization of risk management activities; •establishment of group-wide governance to verify that subsidiaries have properly implemented the operating model and to ensure consistency of the risk control tools and procedures implemented across our footprint. For more details on cyber security, see section [5 'Research, development and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_496) [innovation (R&D&I)'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_496). IT risk The process of digital transformation as well as Santander’s mission to become the best open financial services platform requires that we constantly review, assess and improve our controls to mitigate and manage IT risk. Along these lines, the risk analyses that we perform on key transformation initiatives help us understand and escalate, as necessary, to senior management the risk profile of these initiatives in terms of inherent and residual risks. Despite a demanding environment that is constantly changing, we have quickly adapted our technology to meet the new needs of our customers as well as meet new regulatory requirements. It is important to note that, even with the current digital transformation, total IT incidents at Group level have continued their downward trend in comparison with figures from previous years. For 2021 key aspects of our IT Risk Management programme are summarized below: •The adoption of a risk-based approach to ensure we prioritize the necessary resources and corrective actions taking into consideration the criticality of our IT assets. These critical assets have corresponding risk appetite metrics that are used to monitor the level of IT risk in areas such as availability, obsolescence, and the application of security patches. We have made significant progress on reducing the level of obsolescence in key IT assets in all subsidiaries. •As with cyber risk, we have developed and implemented an automated tool that enables IT risk data correlation, analysis, and reporting. This tool has facilitated information gathering and consolidation to enable the prioritization of risk management activities, allowing for more efficient supervision and oversight of IT risk. •Detailed analyses of the most relevant IT risks as identified in our RCSA to gain an in-depth understanding of these risks, and ensure appropriate mitigation plans. •The issuance of a new IT risk supervision and oversight policy that establishes common protocols and standards for the monitoring and controlling of IT risks, in conjunction with functional and governance aspects. 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 cloud. In light of the increase in cyber risks and regulatory requirements, we continue to update and strengthen our supplier risk management model, internal control framework, and risk culture to properly assess and manage the risks in outsourcing and third-party agreements In 2021, we adopted a risk-based approach that focused on those suppliers, in the different entities of the Group, that could increase the potential risk level in our operations and client services. We have implemented enhanced monitoring of those suppliers to ensure: •they present an appropriate control environment in accordance with established Group policies and with the risk level of the service provided; •business continuity plans are in place to guarantee the delivery of the service even in the event of a disruption; •the proper controls are in place to guarantee the protection of information processed during the provision of service; •contracts and third party agreements include the required clauses to protect the interests of the Group and our customers, while providing coverage of the legal obligations in force; •regular monitoring of these providers is carried out, with particular attention to the monitoring of service level agreements and to the regular testing of the provider’s business continuity plans; and •exit strategies are defined, including reversion or migration plans, particularly for those services with a high impact on business continuity and complex substitution. We began the implementation of a new certification process to ensure our suppliers follow the same ESG sustainability standards and criteria. Santander has defined ESG sustainability as integral to our way of operating and doing business. Lastly, we revised our supervision methodologies and tools to enhance the monitoring of third-party risk in our subsidiaries. Other key mitigating actions We are constantly improving our risk mitigation measures related to customer, products, and business practices. Santander has specific frameworks and policies on the marketing and selling of products and services; customer complaint handling and analysis; financial crime prevention; and compliance with new regulations. For more details on compliance risk mitigation, see section [7.2 'Compliance and conduct risk](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [management'.](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 486 Insurance in operational risk management Santander considers insurance to be a key component in the management of operational risk. The Own Insurance function is responsible for the use of risk transfer formulas to optimize and safeguard the bank´s financial results. The Own Insurance function, in collaboration with non- financial Risk (NFR), performs the continuous oversight and supervision of entities across the Group to ensure the proper application of policies and procedures to manage risk that is insurable. This collaboration is governed by: •NFR participation as a permanent member in the quarterly Own Insurance forum. •NFR attendance of the quarterly Claims forum, which monitors and enhances processes for loss recovery via insurance. •Procedures outlining the interaction model between NFR and Own insurance, as well as other functions that correspond to the various insurance typologies (e.g. Facilities, Legal, etc.). These procedures ensure the proper management of insurance throughout the entire process of identification, assessment, transfer, and retention of risk. •the coordination on an annual basis of the mapping of risks to insurance across the Group, with the objective of monitoring the effectiveness of insurance coverage, and identifying and correcting any potential gaps in coverage. We continue to adapt the use of insurance to align our management with changes in the risk environment. As a result, we have expanded our analysis and implemented coverage related to climate-related risk, the digital environment, and other elements. To respond to these and other transversal risks, Santander has global insurance programmes for property damage, general civil liability, fraud, expenses arising from cyber security breaches, and third-party claims against directors and officers of the Group (D&O insurance). These global policies are complemented by local insurance policies that adapt to the characteristics of each subsidiary and are purchased according to the Own Insurance risk management model implemented in each geography. Analysis and monitoring of controls in Santander Corporate & Investment Banking In 2021, SCIB maintained normal activity and its robust internal control environment without major incidents. Preventative measures related to the pandemic continued to be applied and were consistent with recommendations by local authorities. Given the nature, specificity and complexity of financial markets, SCIB improves operational risk management and control on a continuous basis. The following enhancements were implemented in 2021: •Continued to monitor the risk of unauthorized trading via a specific risk appetite metric that measures the periodic assessment of key risk mitigation controls. Global guidelines were updated with new requirements. We continued to strengthen the control framework by performing the regular review of controls, as well as incorporating reports to facilitate the holistic supervision and monitoring of markets’ activity. •Increased incident and risk surveillance to make resolution quicker and operational risk mitigation measures more effective. •Continued to enhance processes and drive the operational excellence of services provided to our customers by reinforcing a culture of quality and promoting the best standards in all SCIB geographies. •Strengthened the governance and oversight of third-party risk management through the creation of a specialized function within the division to mitigate the risks inherent in our business. •Advanced the maturity of the control framework that covers cyber security risks with special focus on the risks related to data leaks, vulnerability management (ransomware), identity management and access control. •Continuous improvement of the control model related to regulatory requirements such as MiFID II, the Dodd-Frank Act, EMIR, IFRS 9, GDPR and other regulations. For more details on regulatory compliance in markets, see section [7.2 'Compliance and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) [conduct risk management'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_634) Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 487 6.3 Key metrics Net losses (including incurred losses and net provisions) as per Basel38 risk categories for the last three years were: NET LOSSES BY OPERATIONAL RISK CATEGORYA (% o/total) A. Excluding employee litigation from Santander Brazil Losses due to Fraud, as well as those due to Processing errors were lower than in the previous year. However, Customers, products and business practices losses increased. The chart below shows net losses by country: NET LOSSES BY COUNTRYA (% o/total) A. Excluding Trabalhistas events from Brazil Santander considers employee litigation in Santander Brasil to be a staff expense. Our governing bodies continuously monitor expense levels with specific risk appetite metrics and take special actions to reduce them. These expenses are reported under the categories defined by the Basel Operational Risk framework. In 2021, the most significant losses by geography are related to litigation in Santander Brazil (with ongoing root cause analyses of the main products), Poland and Spain (due to legacy cases). Additionally, the amount of losses in the US continues to decrease due to a reduction in legal cases provisions. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 488 38 The Basel categories incorporate risks which are detailed in section 7 'Compliance and conduct risk'. 7. Compliance and conduct risk 7.1 Introduction According to our three lines of defence model, the Compliance and Conduct risk function is an independent control function within the second line of defence. It reports directly and periodically to the Board of Directors and its committees through the Group Chief Compliance Officer (GCCO). The Compliance and Conduct function, as the second line of defence, will facilitate critical and independent debate. It will also exercise oversight and control of the first line of defence's management of regulatory compliance, product governance and consumer protection, financial crime compliance, and reputational risk. Additionally, it will ensure that risks are managed in accordance with the risk appetite formulated by senior management while assessing the impact on our risk appetite and risk profile. The responsibility of the second line of defence includes the obligation to inform the relevant governance bodies when necessary, of risks, risk appetite and risk excesses. It should adopt and promote a common risk culture and provide guidance, advice and expert judgment on all relevant matters relating to compliance and conduct business. The compliance program is one of the key processes of the compliance and conduct risk function and details the main activities to be developed throughout the year. The parent company and each of the subsidiaries execute a compliance program appropriate to their size and complexity which is structured around the four management areas mentioned above, being a key tool that enables the supervision of our subsidiaries and the control environment. 7.2 Compliance and conduct risk management The compliance and conduct risk ensures compliance with the General code of conduct (“GCC”) under the supervision of the compliance and the risk supervision, regulation and compliance committees. The GCC dictates the ethical principles and conduct rules that must govern our employees’ work. It is to be understood and applied along with all other internal regulation. It sets out: •compliance functions and duties; •the Group’s general ethical principles; •the general rules of conduct; •the consequences for failure to comply; •an ethical channel (Canal Abierto) to report possible misconduct in a confidential and anonymous manner. Regulatory Compliance The Regulatory compliance function monitors and controls regulatory risk from employees, data processing and market regulations (together with SCIB’s compliance team). Its core areas are: A. Employees The Regulatory compliance function promotes a culture of ethics and compliance among our employees. It sets internal standards to prevent criminal risks, conflicts of interest and anti-competitive practices according to the GCC. It also manages Canal Abierto. To enhance the Group’s compliance system, in 2021 the function launched in our core units a competition law programme based on international standards and best practices from competition authorities. Its main elements are “Tone from the top”, policies, training, awareness, identification of risk areas, risk domains, controls, Canal Abierto and disciplinary proceedings. It helped us reduce risk from failure to comply with competition regulation while tightening our monitoring and awareness so employees could recognize and report breaches. This year: •we updated mandatory employee training, with a message from senior management (Expanding “Tone from the top” is key to the cultural transformation needed for the programme to be successful). •We enhanced our methodology for measuring competition risk. •We drafted conduct guidelines so employees can recognize and report risk situations and seek advice from our Legal and Compliance areas. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 489 #### Real ethics: Employees’ compliance functions Canal Abierto #### Training and awareness → Provide a channel for employees to report unethical conduct and breaches of internal regulation. → Manage and investigate reported cases. → Promote a culture of speaking up and truly listening. → Develop and implement training programmes and awareness campaigns among employees on Corporate Defense and Employees compliance. → Issue messages about ethics to the entire Group and promote relationships built on trust. #### Disciplinary proceedings #### Policies and procedures → Investigate conduct that is misaligned with our ethics and compliance principles. → Assess disciplinary measures. → Ensure compliance with the GCC and design special policies and procedures to enforce it. → Report to governing bodies regularly. #### Appointments #### Queries about ethics → Assess the suitability of the Group’s board and senior management appointments.\* → Manage queries from employees and members of governing bodies about ethics and internal regulation. → Provide ethical advice in controversial situations. #### Competition Programme → Manage the Competition compliance programme. \* Carried out by the Corporate compliance function For more details on Canal Abierto and its management during covid-19, see section '[A strong and inclusive culture](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_109)' of the Responsible Banking chapter. B. Market abuse The Market abuse function’s Control room team applies the Code of conduct in securities markets (CCSM) to prevent risk from trading with or making unlawful disclosures of inside information and from market manipulation. In 2021 the Surveillance team has worked together with the SCIB compliance area performing the monitoring of the traders and overseeing their trades and communications. #### ControlRoom Control of the personal operations of persons subject to CCMV and the flow of sensitive information. #### Main achievements → Global Control Room: Initiated a strategic and multi-year project to remodel the Group's Control Room, aiming at creating a single team with members in different locations who assists to manage potential conflicts of interests arising from deals originated from the Group units. → Treasury Shares Activity: improvements have been made in the controls in place to ensure compliance with the Treasury Shares Policy approved by the Board. → Euribor: adaptation of internal procedures in accordance with the new requirements of the benchmark administrator, as part of the contribution process oversight. → Training: course update on the CCSM, which has been carried out by the 97% of the covered persons. → Countries Oversight: update of the countries supervision manual adapted to the new structure of the Control Room function. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 490 C. Regulatory compliance is responsible for: •Announcing the Group’s relevant information to markets. This year, Banco Santander made public several inside information and other relevant information, which are available on the Group’s website and on the Comisión Nacional del Mercado de Valores’s (Spanish securities market commission or "CNMV”) website. •Disclosing transactions relating to own shares (CNMV) and major shareholding notifications of Banco Santander; and major shareholding notification and remuneration schemes of the Group's board members and senior managers (CNMV and other regulatory bodies of those markets where Santander share is listed). D. Data processing In 2021, Data processing focused on: Data protection •Adopting measures to comply with new regulation on international data transfers: identification of data flows and affected suppliers; impact analyses and additional guarantee proposals; and negotiation and signing of new agreements. •Monitoring closely the Group’s adaptation of digital assets to regulation on transparency obligations and consent management. We have made significant progress on our control framework by updating our unit-monitoring programme, improving management metric traceability, enhancing reporting and monitoring tools, and expanding our perimeter to countries outside the European Economic Area (EEA). We also revised and approved a new corporate policy on data protection. Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) Corporate oversight for automatic exchange of information for tax purposes between countries (pursuant to FATCA and CRS) focused on monitoring subsidiaries’ regular reporting obligations and three-year FATCA certification under the 2 IGA model or by direct agreement with the US Internal Revenue Service (IRS). E. SCIB markets regulation SCIB’s compliance team manages risks from core international market regulation that affects Banco Santander. #### EU regulation #### US regulation It continued to reinforce its control environment to monitor compliance with EU regulation (market regulations, mainly MiFID and EMIR). It paid close attention to reporting and monitoring the quality of transactions. It also enhanced its system for monitoring the bank's high-frequency trading in real time. It reviewed and adapted its swap dealer compliance programme to new cross- border regulation. It also reinforced its control environment to monitor compliance with US regulation. It implemented the security- based swap dealer compliance programme to meet imminent US Securities and Exchange Commission (SEC) requirements. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 491 Product governance and consumer protection Our product governance and customer protection function promotes that our actions are based on our customers’ interests, regulation, our values and our principles by: 1 Promoting a culture with a Simple, Personal and Fair approach towards our customers: → Establishing the consumer protection and conduct principles for marketing, customer engagement and the promotion of a solid culture, which are found in the Corporate framework of commercialization of products and services and consumer protection (and the internal regulation that builds on it). → Running corporate and local product governance forums and escalating customer conduct risk monitoring and related issues to the compliance, risk and responsible banking committees. 2 Overseeing key procedures to make sure: → our products will meet customer needs under the right balance of risks, costs and profitability; → we are selling to the right target markets; providing transparent information; training our sales force appropriately; and implementing remuneration schemes centred on meeting customers’ expectations; and → our customer service, post-sale systems and processes are Simple, Personal and Fair, and we check for deterioration in products and services and process shortcomings to manage them promptly. 3 Managing risk by: → making correct decisions; drawing up and tracking action plans; and keeping senior managers and statutory bodies properly informed; → overseeing the design and execution of controls for marketing and customer relations; and assessing the second line of defence management and control model; → identifying new risks in regulatory guidelines, industry practices, supervisor and auditor opinions and learning from internal and external events; and → applying group risk assessment methodologies, such as customer survey analysis, management indicator tracking, thematic assessments and first-line self-assessments. Our product approval governance operates on two levels. All subsidiaries have their own approval bodies to ensure new products and services will meet the needs of their target market, are being sold through the appropriate channels and processes, and have fair and transparent terms and conditions. Products and services classified as new are then escalated to the corporate product governance forum (CPGF) to be approved before launch. This two-tier approval system helps us share best practices and manage product and service risk in line with risk appetite. In addition, the Fiduciary Risk function meetings follow-up that the investment products have a proper definition of their policies and that their management is carried out in a robust risk control environment, aligned with the Group's policy on approval, monitoring and control of fiduciary risks. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 492 In 2021, the Product governance and consumer protection function introduced these new features in the design of products and services: Adapting our products to the landscape: → Analysis and transparency of our growing ESG product development. → Replacement of IBOR indices with new risk-free rates. → Management of Santander Corporate Investment Banking – ALCO proposals. → Enhanced alternative investment propositions for professional and private banking clients that offer greater potential returns amid low interest rates. #### Supporting our digital strategy → Governance of PagoNxt proposals that are to be distributed across our footprint. → Focus on elevating customer experience on digital channels, especially by removing difficulties in acquiring and cancelling products and services. Implementation of good practice in accordance with the Product governance and consumer protection function's Digital product and service design guide. #### Key conducts risk lines of action in 2021 #### Objectives #### Lines of action #### Vulnerable customers and special cases Effective protection of vulnerable customers and special cases (including, but not limited to, people affected by Covid). → Global vulnerable customer strategy and support to units for its roll-out. → Monthly monitoring of collection and recovery indicators. #### Customer focus Research into big data and artificial intelligence analysis on customer survey findings and business indicators. → Development of a root-cause analysis methodology for customer complaints. → Creation of consumer protection indicators. #### Sustainable products and services Support in collaboration with the Risk and Responsible banking functions on projects relating to the Group’s transition towards a more sustainable economy. → Transparent information on the investment products and services we offer to retail customers. → ESG risks embedded in our management through measurement tools and methodologies. → Meeting our customers’ sustainability preferences. #### Awareness and accountability of the first line of defence Ongoing raising of awareness by the business and support functions of conduct risk prevention and management. → Mandatory conduct training; risk and control self-assessment exercises; and the creation of working groups led by the first line. → First line teams’ remuneration linked to conduct and quality. → Medium-term project to come up with a rating scheme (conduct branch rating) to promote conduct risk management in our employees’ work. #### Control Further strengthening of retail conduct risk management with a focus on continuous improvement. → List of standard controls that all geographies must perform when marketing products and services, and awareness of local controls. → Spotting areas for improvement and including them in other risk assessment exercises for more robust monitoring in risk- based testing. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 493 Financial Crime Compliance (FCC) Financial crimes are universal, globalised phenomena that take advantage of the international economy, and thus their detection, deterrence and disruption call for a coordinated global response by the international community and the financial sector. Santander Group is wholly committed to the fight against financial crime and does not tolerate compliance failures with financial crime regulations both internationally and in the countries in which it operates. The business functions within the Group maintain the primary responsibility for managing financial crime risk and to support and promote the organization's risk culture. The FCC Function in turn is responsible for monitoring and overseeing financial crime risks and for ensuring adequate policies and procedures have been implemented to manage the business within the Group's established risk appetite. In 2021, the Board of Directors approved an expanded FCC Corporate Framework, which establishes: •The principles that must be adhered to by entities of the Group in relation to the prevention of financial crime; •The roles and responsibilities for effective financial crime risk management; •The key FCC processes to be developed and embedded within the entities of the Group in compliance with the Group policies and procedures that must be adopted locally; and •The essential features of FCC governance at a Corporation and local level. Under this expanded FCC Corporate Framework, the scope of financial crime related risk includes not only money laundering, terrorist financing, and the violation of international sanctions programmes, but also bribery, corruption, tax evasion and external fraud, as well as any other priority criminal activity reportable under AML/CFT regulation. The Group has significantly advanced the FCC strategic transformation plan over 2021, initially defined in 2020, designing a bank-wide FCC target operating model that reaffirms the role of the business functions in assuming responsibility and accountability for managing financial crime risk. The strategic transformation plan continues to work toward the centralization of key FCC controls along with their maintenance and calibration. The transformation plan embraces the responsible use of automation, artificial intelligence and machine learning, and the use of reliable third-party data sources, all to improve financial crime risk management, enhance the customer experience, and give the business the necessary risk management tools to continue to pursue financial inclusion initiatives. The on-going implementation of the FCC strategic transformation has relied on a series of successes over 2021, including: •The transposition of enhanced policies and procedures, tracking control implementation on a country-by-country, control-by- control basis; •The establishment of a legal framework that will facilitate over the long-term inter-group information sharing; •Continued intensive subsidiary oversight to ensure country-by- country advancements on key FCC pillars; •The addition of new members to the FCC Corporate Forum, increasing the representation of accountable stakeholders from the business functions; •And regular key risk indicator reporting and an annual FCC risk and controls self-assessment exercise, paired with a risk-pro culture that encourages self-identified issues and the identification of risk events. Highlights over 2021 in key activities include: 221 subsidiary reviews (+3% vs. 2020) 150,343 disclosures to authorities (+64% vs. 2020) 315,512 investigations conducted 164,547 employees trained In addition, the FCC Function implemented over 2021 a significant FCC upskilling training initiative in line with the expanded FCC corporate framework. Further, following a series of successful group-wide awareness sessions in 2020, over 2021 the FCC introductory training module was fully redesigned to highlight, for example, risks associated with crypto-assets, compliance challenges faced in designing innovative digital products, trends in responding to complex international sanctions regimes, and awareness on drug trafficking, human trafficking and online child sexual exploitation risks, and environmental crime. The Group continues to play a leading role in key industry groups and public-private initiatives, including as a founding member of the Wolfsberg Group, a representative on the Europol Financial Intelligence Public Private Partnership (EFIPPP) Steering Group, a member of the United for Wildlife Financial Taskforce, a member of the European Banking Federation, and a frequent contributor to private sector consultations from the Financial Action Task Force (FATF). Notably in 2021 the Santander FCC Function was asked by the FATF to represent the private sector in an awareness-raising webcast on environmental crime, and the United Nations Office on Drugs and Crime (UNODC) named the Santander FCC function as the chair of the UNODC’s quarterly Private Sector Dialogue on Disruption of Financial Crimes Related to Forestry Crimes. Reputational risk Santander classifies reputational risk as the risk of loss due to damage to the bank’s reputation among 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. This requires regular update and review of the Group’s risk appetite and preventative risk management and control. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 494 Key actions in 2021: We continued to enhance our risk management and control, as well as reviewing and updating our action guidelines for certain areas. These were the most significant actions we took: •Revision of the Group's policies on the defence industry and other sensitive industries, including new standards for banking in the cannabis, tobacco, defence and other sensitive industries as well as for social contributions. •New operating procedure approved by the Group and subsidiaries to analyse reputational risk in a broader scope of activities. •New guidelines for supplier reputation assessments. •Reputational impact analysis, prevention and mitigation measures and best practices on branch and workforce restructuring in Europe. •E-learning modules for all corporation employees. Thematic reputational risk training sessions with the business, risks and support functions on sensitive transactions and customers, and general awareness for employees across our footprint. •Global reputational risk assessment that involved all corporate risk management and control areas as well as all key group units to draw up a more comprehensive risk road map. •A new reputational risk tool that assesses stakeholder perception of the bank and finance industry. •Earlier and more coordinated risk management as part of forward- looking reputational risk analysis. •More advanced reputational risk approach for measuring global risk profile. •Better governance and challenge in oversight of subsidiaries. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 495 8. Model risk 8.1 Introduction A model is a system, approach or method that makes quantitative estimations based on statistical, economic, financial or mathematical theories, techniques or assumption about data. Its simplified representations that contrast real and observed trends help Grupo Santander focus on specific aspects. In particular, we use models for approval (scoring/rating), capital calculation, behaviour, provisions, market risk, operational risk, compliance and liquidity. Models risk is the risk of loss from inappropriate, inaccurate or misused models in decision-making. 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 prompt financial loss, poor commercial and strategic decision-making or damage to Grupo Santander’s transactions. We have been defining, managing and controlling model risk for several years. The Model Risk function has been enhanced and consolidated across corporate and our core subsidiaries. To ensure adequate model risk management, we have a set of policies and procedures that establish the principles, obligations and procedures for organizing, governing, managing and approving models throughout their life cycle. We monitor model risk according to each model’s level of importance. Through tiering, we synthesize the level of importance of non-regulatory models and determine how intense risk management should be. As regulatory models are particularly important to Grupo Santander, we subject them to more intense monitoring and management. We implemented our multi-year Model risk management (MRM) 2.0 strategy to manage model risk better according to regulatory standards (e.g. ECB guide to internal models, 2018). Upon concluding in 2021, MRM 2.0 included several initiatives that strengthened our Model risk function, such as: •Streamlining: It helped us take risk-driven measures to simplify processes involving regulatory model management and other important operations for the Group. •Regulatory models (IRB and IMA): To fulfil regulatory requirements and the EBA’s new guidelines, we scaled back our mapping of regulatory credit risk model portfolios. •Validation: We continued to reinforce the Single Validation Office, which guarantees consistent and well-coordinated validation of the Group’s models. •Model risk facilitators: We made additional improvements to our infrastructure and tools and helped spread the model culture across the Group. Real-time information from advanced digitalization enhanced decision-making. In addition to MRM 2.0, we have made further progress on the two regulatory credit risk and market risk model projects under way that focus on the targeted review of internal models (TRIM), internal model inspections (IMIs) and compliance with new regulation. Our main aim will be to keep building up our IRB and IMA management in line with ECB requirements for 2022, especially the new EBA Repair Programme due to take effect in January. In 2021, we submitted several model changes to the ECB for authorization, which entails a lengthy review that will carry on into 2022 and require the Model risk function’s full cooperation. We anticipate sending additional model changes to the ECB in the coming years. 8.2 Model risk management Model risk management and control are structured processes known as the model life cycle and consist of the following phases in Santander: Identification Model risk control must include identified models. For sound management, a complete inventory of models in use is key. Our centralized inventory system, which has uniform taxonomy and detailed information for all the models that business units use, enables us to monitor them closely according to their level of importance and tiering. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 496 Planning This is an internal annual exercise, approved by our subsidiaries’ governance bodies and validated by the global team. It formulates strategic measures for models managed by the Model risk function and pinpoints needs for any models to be created, revised or used during the year. Development Development is the model-building phase. It is based on econometrics and run by methodology experts. Model development considers each unit’s needs in line with the annual model plan. To guarantee model quality and consistency, it must apply the common group-wide methodology formulated by the global team. Models & Data unit aims to make model development a more efficient and more centralized process that builds on shared synergies. More detail see section [2.5 'Models & Data](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_538) [Unit'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_538) of this chapter. Internal validation Independent model validation is a regulatory requirement and key feature of our model risk management. A specialist unit that is totally independent from developers and users issues technical assessments of internal model suitability. The validation opinion for each model is expressed through a rating that summarizes the model risk associated to it. Validation intensity and frequency are well- defined and risk-driven. Validation covers theory, methodology, technological systems and data quality to ensure effectiveness. It also involves a detailed analysis of model performance and other risk management elements (e.g. controls, reporting, uses and senior manager involvement). One internal validation task is the consistency analysis conducted by validators to review the severity and ratings. It acts as an important point of control to ensure the homogeneity and comparability of validation tasks. Validation tasks only conclude after the consistency analysis phase. The Single Validation Office also plays an important role to ensure consistent validation of the Group’s models. Approval Before we can use a model, internal governing bodies must approve it through a governance circuit in place for our model inventory, based on their level of importance. Deployment and use In this phase, newly developed models are added to computer systems. Because this creates another source of model risk, technical teams and model owners must run tests that verify proper model integration based on methodology and intended function. Monitoring and control We must regularly review models to ensure that they function correctly or, otherwise, adapt and redesign them. Model risk monitoring teams must make sure models are managed according to the general model risk framework and internal rules and principles. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 497 9. Strategic risk 9.1 Introduction Strategic risk is the threat of loss due to poor strategic decisions or their deficient implementation that affect our core stakeholders’ medium-to-long-term interests or to an inability to adapt to a changing environment. Because Grupo Santander’s business model is pivotal to strategic risk, it has to be viable and sustainable and should produce results in accordance with the Group’s annual targets (particularly the next three years) and long-term outlook. Strategic risk has three components: 1 Business model risk, which includes the risk that the Group's model will become obsolete or irrelevant; or that it will lose value and not produce desired results. 2 Strategy design risk, which relates to the strategy and assumptions set out in Grupo Santander’s long-term plan (including the risk that the plan will not be up to par), which could result in a failure to deliver expected results. 3 Strategy execution risk, which involves the three-year financial plan; 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 a cross-sectional risk and has a target operating model that our subsidiaries use as a reference. The model covers the governance, procedures and necessary tools for robust monitoring and control according to the board-approved risk appetite statement. We constantly monitor changes in competition, regulation and market conditions as well as within the bank to determine whether we need to revise our strategy and verify any mitigating factors and resolution plans in place. The strategic risk function engages key first- and second-line teams to make sure measures are primed for immediate implementation in case they are needed. In 2021, the main strategic focus was to see how economic recovery fared against the uncertainty fuelled by new covid-19 variants and progress of global vaccination campaigns and especially in our markets. We also continued to monitor the progress of our transformation projects, which are key to meeting our objectives. Our proactive and effective response to business challenges meant our strategic risk profile was once again medium-low. While our long-term strategy remains valid, our success is increasingly dependent on our customer focus (i.e. “think customer”). Boosting our revenue, profitability and value hinge on increasing customer numbers, loyalty and satisfaction. Our strategic risk model is based on: •Challenging strategic plans: With the support of specialized functions within the Risk division, the Strategic Risk function challenged the three-year financial plan, including a specific chapter in the final plan that identifies potential threats and changes in the environment that could jeopardize strategic objectives. In 2021, we closely monitored the key digital transformation projects that underpin our plan: One Santander (common operating model), PagoNxt and Digital Consumer Bank. •Top risks: Under stressed scenarios, Grupo Santander identifies, measures, monitors and manages risks that could have a significant impact on results, liquidity or capital. The first and second line of defence work with our subsidiaries to identify top risks, which are also added to idiosyncratic scenarios in exercises like ICAAP, ILAAP and the Group's viability and recovery plans. For more details on top risks, see section [1.3](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_520) ['Santander Top and emerging risks'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_520) of this chapter. •Analysing business model performance: To measure and identify the main threats to the bank’s business plan and strategic objectives, based on four pillars that bring together retrospective and prospective analyses. ◦Strategy execution (retrospective): Measurement of the risk of deviation from the plans and targets set in the board-approved strategy and strategic and transformation initiatives, which are deemed crucial to addressing strategic priorities. ◦Viability and sustainability (prospective): Measurement of the risk that the business model will fail to create shareholder value or will perform poorly. We also assess the bank’s position in relation to competitors. ◦Business plan volatility (retrospective): Measurement of the risk that our income statement planning is unstable and that profits will not be recurrent in the long term. ◦Likelihood of meeting strategic objectives (prospective): Risk of failing to achieve the strategic objectives set in the financial plan, based on the threats uncovered in the top risks exercise. •The strategic risk and corporate development and strategy functions prepare the strategic risk report to measure and monitor the strategy and its risks. It is presented to senior management and includes an update on strategy execution, strategic projects, corporate development transactions, business model performance, top risks and the risk profile. •Commercialization of new products: The strategic risk function helps assess and validate new product and service proposals before Grupo Santander launches them, ensuring alignment with the approved strategy. •Corporate development transactions: With the support of other functions within the Risk division, the strategic risk function makes sure risk assessments are carried out on the impact of these transactions on our risk profile and risk appetite. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 498 10. Climate and environmental risk 10.1 Introduction Climate-related and environmental risk management is key to fulfilling our objectives and the commitments in our climate strategy sustainably. Santander takes aiding customers’ and households’ transition to a low-carbon economy seriously, offering financial products and services to environmentally and socially responsible businesses in keeping with our sustainability commitments and the objectives of the Paris Agreement. For more details, see the Responsible banking chapter. Santander has an environmental, social and climate change risk policy (available on its corporate website). It dictates the standards for measuring, monitoring and managing risks from oil and gas, power generation, mining and metals, soft commodities and other sectors that require in-depth analysis because of their potential impact on the environment and society. It is consistent, and must be applied, with the Group's policies on sustainability and human rights. The Risk and Responsible banking functions oversee the annual revision of the policy alongside other business areas to make sure it will conform to international practices and standards and to the Group's sustainability strategy. 10.2 Climate-related and environmental risk management Climate-related and environmental risk management is a priority of the Risk function. The graph below sums up how we’ve been integrating it within core processes and risk cycle phases (more details in the sections below). Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 499 Identification Two core processes help Santander spot climate-related risks: top and emerging risk identification (see section [1.3 'Santander Top and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_520) [emerging risks'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_520)) and regular risk profile assessment — RPA — (see section [2.4 'Management processes and tools'](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_535) ). Here is how they form part of climate-related risk management. In identifying emerging and top risks, we pinpoint and measure our most significant internal and external threats to profitability, capital adequacy and strategy. Since 2018, our four top risk event categories have included a climate and environment subcategory. Our analysis covers qualitative as well as quantitative factors (which we’ve been developing further as more data and new methodologies become available). As the Group makes progress on its climate-related commitment, it shows us how the importance of climate-related and environmental risks and the mounting pressures from regulators, supervisors and broader society have grown in recent years. The table below shows certain climate matters that could influence the types of risks within our framework over various time horizons. Santander deems climate-related and environmental risk a cross risk, as climate drivers could influence other risks. Climate Risk Type Climate Drivers Main affected Time Horizon Transition Risk Market & Customers → Change in consumer behaviours including deliberate move to more sustainable products → Potential loss of competitive advantage with our green product proposition or pricing risks → Increased market volatility and cost, sourcing restrictions for carbon heavy raw materials Short - Medium Term Policy-Making → More demanding policy environment affecting our customer's business operations → Increased green house gas (GHG) emissions pricing to foster movement to renewable sources Short - Medium - Long Term Technology & Data → Investment in technology to reduce emissions or improve energy efficiency ratings → Lack of procedures and systems to obtain and store reliable data for risk assessments and disclosure Medium Term Regulatory Pressure → New public disclosure products which increase the risk of misrepresentation, increased regulatory requirements which increases the potential of non-compliance, increased use of external analytics providers which increases the potential for data privacy breaches, all of which could result in fines, payment of damages and the voiding of contracts → Increasingly demanding banking regulation (disclosure, stress testing, taxonomies, etc) → Inefficiencies as consequence of different climate regulations, with special attention in those financial entities with international scope Short - Medium Term Reputational → Risk of slow, lack or not sufficient reaction from financial entities impacting its reputation; extreme events that would cause damages to financial entities and employees own sites could challenge, if readiness response plans fail, the ability of the banks to prompt react to restoration of service and customers attention in vulnerable situations due to the damages → Increased scrutiny from different stakeholders (e.g. supervisors, regulators, media, NGO's, shareholders, investors, etc) → Perceived not to be meeting, sufficiently progressing, or providing transparency on climate-related commitments and transitioning → Liability implications as an intermediary in several value chain (e.g. data, products, financial services) → Reputational impact from potential misalignment of emissions reduction commitments with performance in specific portfolios Short - Medium - Long Term Physical Risk Acute → More frequent and severe climate events such as flooding, drought, etc, that could affect financed assets and the value of the collaterals Short - Medium - Long Term Chronic → Alterations in weather patterns and stability of local ecosystems affecting food production and living environment. → Rising temperatures affecting working conditions, living conditions and local infrastructure. → Rising sea levels affecting local ecosystems, increasing subsidence and flood risks Long Term Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 500 Findings from emerging and top risk identification fuel our internal capital and liquidity adequacy assessment processes (ICAAP and ILAAP). For instance, our 2021 ICAAP included an idiosyncratic event to show climate change's potential impact on measurement. The risk profile assessment (RPA) is the second topic of this section. Santander regularly conducts an RPA that covers all risk types and reveals any threat to its business plan. In 2021, we added a special module on climate-related risk control to measure the Corporate Centre and the other subsidiaries'’ progress. The questionnaire covers strategic planning, implementation, control and monitoring, and governance. Its findings enable us to find gaps and areas for improvement. The questionnaire will continue to change throughout 2022. Planning Strategic planning includes annual budgeting, the three-year financial plan (including risk in executing the Group's strategy, internal and external influence, inability to respond to a changing business environment) and the Group's long-term strategic plan (including risk from its own design). Those core strategic processes enable the Group to plan for risks from the transition to a low-carbon economy and the physical impact of climate change, and introduce them into short-, medium- and long-term strategy, making it easier to spot threats and changing conditions that could influence our ability to deliver objectives. In qualitative and group-wide terms, plans cover priorities and projects for the coming years; in quantitative terms, they include a financial plan for the period that is consistent with the Group's risk appetite. Assessment To determine the most significant climate-related and environmentally material loan portfolios, Santander runs a quarterly materiality assessment. It proves fundamental to making decisions about selected industries, customers and regions and to establishing our strategic priorities. It covers climate-related and environmental risks over many time horizons so our management processes (e.g. risk appetite, top risk identification, credit limits and stress testing) can address them. Our risk taxonomy and heatmaps are the basis for categorizing portfolios by industry and region according to their potential exposure to physical or transition-based climate-related and environmental risk. Santander’s materiality assessment follows the guidelines of the Task Force on Climate-related Financial Disclosures (TCFD) and the United Nations Environmental Programme Finance Initiative (UNEP-FI).Because the taxonomy of industries and sub- industries is based on the EU’s NACE codes, it enables us to consistently compile exposure data that serve as a starting point (along with the heatmap for physical and transition-based risks) for quantitative and qualitative measurements of the most material climate change-related risks. It covers practically our entire balance sheet. It also analyses residual value, strategic risk, market risk and liquidity risk in depth. In 2021, we continued making progress with our climate-related risk materiality assessment by raising the level of granularity and including other businesses (namely Santander Consumer Finance and Private Banking). The graph below shows the Group's last materiality assessment at the end of Q3’21. MATERIALITY ASSESSMENT - CLIMATE RISK ANALYSIS AND HEAT MAPPING OF PORTFOLIOS September 2021- Billions euros TR PR SCIB Other segments Power (conventional) 25 2 of which, electricity generation customers with more than 10% of incomes from coal 4 Power (Renewables) 12 Oil & Gas 19 0.3 Mining y metals 9 2 of which coal mining 4 Transport 27 94 Real Estate 6 361 Agriculture 3 4 Construction 20 7 Manufacturing 33 14 Water supply 3 1 Climate sectors 157 485 Other sectors 59 161 Total portfolio 216 646 Low    Moderately low    Medium    High    Very High TR: transitional risk; PR: physical risk Credit risk for SCIB is credit equivalent risk (CER: loans on and off the balance sheet + guarantees + structured financial product (SFP) derivatives. For other segments, it is the drawn-down amount. Other industries: SCIB, Corporates and NACE businesses outside the risk taxonomy perimeter + Individuals and DCB (cards and other consumer credit). Other segments include Retail and commercial banking (Corporates), Individuals, SCF and WM&I. For more details about our materiality assessment, see our 2021 Climate Finance Report on our corporate website. Monitoring Santander uses risk appetite, scenario analyses and other tools to monitor climate-related and environmental risk. Here we delve deeper into each one. Risk appetite sets the volume and type of risks we deem prudent for our business strategy. Along with implementing policies, it is a key tool to monitor climate-related risk, our objectives and our commitments, and to mitigate the risk of failing to meet them. Climate-related matters have been expressly part of our risk appetite since 2019. The board of directors approved a qualitative risk appetite statement on climate. It linked climate change management to our industry-related policies, which prohibit or place restrictions on financing operations with an environmental or social impact in the energy, mining and metals, and soft commodities industries. We review those policies every year to make sure our standards remain consistent with our strategy and best practice. In line with our ambition and commitment to financing the transition to a low-carbon economy, in November 2020 the Group updated our risk appetite consistently with our support for the Paris Agreement while our industry-based policies were combined into our environmental, social and climate change policy. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 501 In February 2021, the Group made its first decarbonization commitments as part of its goal to reach net zero emissions by 2050. They included commitments on the thermal carbon industry. Accordingly, by 2030 we will end financial services to electricity generating customers if 10% of their revenues rely on thermal coal; and eliminate our exposure to coal mining worldwide. We continue to enhance our risk appetite statement to complement the Group’s strategy with available methodologies and data. To start setting climate-related risk appetite metrics, we determine industry targets according to our strategy and follow this conceptual process: Design options: metrics, data availability and frequency Calibration and definition of limits thresholds Policy and procedure analysis Approval government Monitoring According to our first decarbonization commitments, our current qualitative risk appetite statement added a specific quantitative metric the board had approved in November 2021 in accordance with established governance procedures. The metric puts limits and thresholds on counterparties from the thermal carbon industry that our commitments concern. It also gives a path to those limits that is conducive to fulfilling the target by 2030. The process involves permanent contact with affected customers to share Santander’s strategy and to understand and assess their transition planning. Santander will also continue to set alignment targets for industries with a material impact on climate as part of the Net Zero Banking Alliance initiative. The Group's risk appetite will gradually introduce metrics and limits for each one of those industries (subject to established governance procedures). As mentioned earlier, scenario analyses are a management tool to monitor climate-related and environmental risk. Analysis techniques are useful for the Group's internal management and for handling regulatory and supervisory stress testing. We use scenarios determined by the network for greening the financial system (NGFS) and others designed by our Research department to analyse the impact on climate under various circumstances. In 2022, Santander will undergo the Single Supervisory Mechanism’s (SSM) climate and environmental risk stress test. It will have three modules: a qualitative questionnaire; climate risk metrics; and bottom-up stress test projections. Although it may be qualitatively introduced into the Supervisory review and evaluation process (SREP), it is an overall learning exercise without direct quantitative implications about capital. To carry it out, the Group will use a combination of internally developed items and an external provider’s platform and databases to quantify the financial impact of each counterparty’s physical and transition-based risks. According to the graph below, the platform has seven modules and is based on the United Nations Environmental Programme Finance Initiative's (UNEP FI) methodology and other external information. The exercises we conduct entail both a bottom-up analysis of the customer and a top- down analysis of portfolios by industry and geography. Inputs        Model          Outputs 1 Scenario selection 2 Scenario expansion and country downscaling (e.g. damage curve, transition pathways) Financial data of the counterparty Revenue Cost Equity valuation Sector/ geography PD/LGD 3 Physical risk impact 4 Transition Risk impact Chronic impact Acute impact Carbon cost Demand impact 5 Competition module Stage 2 profit revenue, costs 6 Integration module Financial data of the counterparty after climate stress Cost Equity valuation 7 Credit risk modelling Stressed PD & LGD PD: Probability of default. LGD: Loss given default. SSM: Single supervisory mechanism - European Central Bank Banking supervision Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 502 Furthermore, Santander UK took part in the Bank of England’s Climate Biennial Exploratory Scenario (CBES) in 2021. The CBES marks the first time Santander UK conducted an analysis of climate scenarios in what became a learning exercise. That enables us to measure the dimension of our portfolios’ climate change-related risks and understand the challenges involved. The CBES required three scenario models exploring many combinations of physical and transition-based risks over 30 years. It also required closer contact with customers to better understand their plans to adapt to climate change and reflect them in final risk models. Focus was on credit risk and, in particular, on detailed analyses of risks to large corporates. In response to the CBES, Santander UK set out its target operating model, created internal climate-related risk models, engaged with providers specializing in climate modelling, obtained internal and market data to include them within models, and involved hundreds of employees and customers. Its CBES exercise followed a sound governance and control framework. We expect the Bank of England will publish its findings in May 2022. Mitigation In mitigation, we updated our environmental, social and climate change policy, which sets out our public commitments and aims to support our strategy for sensitive, special-attention and prohibited industries. Our loan approval policies follow the EBA's guidelines on loan origination and monitoring. Our internal taxonomy is also considered a mitigating instrument since it helps us inform our customers of the need to have credible plans in place to cease carbon-based activities in the coming years and ensure an orderly transition. The sustainable finance classification system (SFCS) is our internal guide to identify sustainable activities and ensures a blanket approach to monitoring operations, supporting the development of solutions for customers and mitigating the risk of greenwashing. It is also key to designing our sustainable financing proposition and supplements our Global sustainable bond framework and Green finance commitment. Furthermore, for credit approvals, the first line of defence runs due diligence with several special questionnaires. If the process reveals a reputational issue, it will be escalated to the Reputational risk team as a preventative measure. All project finance transactions with SCIB must be analysed according to the Equator Principles (for more details about Santander’s commitment to the Equator Principles, see section ‘Environmental and social risk analysis’ in the Responsible banking chapter). For 2022, we have planned several measures to continue including climate and environmental variables in credit approvals: •Credit committees: Subsidiary committees will inquire about environmental, social and climate change factors. •Customer ratings: They aim to ensure all SCIB corporate ratings include environmental, social and climate change factors. We will broaden the scope to retail banking (corporates). Environmental, social and climate change analysis is gradually being introduced into pricing based on companies’ ratings. However, pricing for green mortgages and other special products already provides discounts under certain conditions. •Collateral: Collateral valuation includes energy certificates. A corporate multidisciplinary working group is analysing and monitoring the most significant claims and disputes, including those related to climate change management that could have an impact on Santander’s reputation. Its work includes mitigation plans and escalations according to the established governance. Santander takes part in international regulatory and supervisory forums and working groups to assess climate risks and opportunities, while anticipating and mitigating potential risks to the Group. Lastly, the Risk function increased the number and capabilities of its resources to manage and monitor climate and environmental risk, for which specialist training proved fundamental. Furthermore, we will gradually give most employees general training in 2022 to raise their awareness. Our Risk pro culture will be essential. In 2022, we also hope to progress our policy on incentives/remuneration tied to climate-related risk management and control. Reporting Santander continues to make progress on internal and external disclosures to ensure communications to stakeholders on climate and environmental risk progress are transparent and accurate according to the law and supervisors’ expectations. Our external reports such as the 2021 Climate finance report (that explains Santander’s position and strategy on climate change) and this Annual report highlight the progress we made climate and environmental risk. We are also working on areas that are closely related to external disclosures such as the green asset ratio (GAR), transparency requirements of the sustainable finance disclosure regulation (SFRD) and climate disclosure requirements under Pillar III. Because of the increasing interest in, and scrutiny of, climate and environmental risk, information on climate-related and environmental risk is becoming more important to the Group’s senior managers. Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 503 #### Glossary 1LoD First Line of Defence 2019 AGM Annual general meeting held on 12 April 2019 2020 AGMs April 2020 AGM and October 2020 AGM 2021 AGM Annual general meeting held on March 26 2021 2022 AGM Annual general meeting called for 31 March on first call or on 1April on second call 2Dii 2 Degree Investing Initiative 2LoD Second Line of Defence Act 5/2021 Law (Act) 5/2021 of 12 April, amending the revised Spanish Companies Act and other financial regulation in regard to the fostering of long-term shareholder engagement by listed companies Active customer Those customers who comply with balance, income and/or transactionality demanded minimums defined according to the business area ADS American Depositary Shares AEAT Agencia Estatal de Administración Tributaria AI Artificial Intelligence ALCO Asset-Liability Committee ALM Asset and Liability Management AML Anti-money laundering API Application Programming Interface APM Alternative Performance Measure April 2020 AGM Annual general meeting held on 3 April 2020 APS Amherst Pierpont Securities ASF Available Stable Funding ASR Recovered write-off assets (Activos en suspenso recuperados) AT1 Additional Tier 1 ATM Automated teller machine ATOMIC Advanced Target Operating Models in Collaboration Available capital The volume of own funds Grupo Santander deems eligible under management criteria to meet its capital needs B2B2C Business to business to customer B2C Business to customer Banco Popular/Popular Banco 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 Committee The Basel Committee on Banking Supervision BAU Business as usual BBLS Bounce Back Loans BCBS Basel III leverage ratio framework BCMS Business Continuity Management System BCP Business continuity plans BIS Bank for International Settlements BMR EU Benchmark Regulation Bn Billion  (1,000,000,000) BNDES Banco Nacional de Desenvolvimiento Económico y Social BOE Official State Bulletin BoE Bank of England bps basis points BRRD Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms, as amended from time to time Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 504 BSI Banco Santander Internacional CAE Chief audit executive CAF Development Bank of Latin America CAO Chief accounting officer CaR Capital at Risk Capital requirements The minimum volume of own funds required by the regulator to ensure solvency based on credit, market and operational risks CARF Conselho Administrativo de Recursos Fiscais CBES Climate Biennial Exploratory Scenario CCCA Collective Commitment to Climate Action CCM Capability Maturity Model CCMV Code of conduct in the stock markets CCO Chief compliance officer CCP Central Counterparties CCPS Contingent convertible preferred securities CCR Counterparty credit risk CCSM Code of conduct in security markets CDI Crest Depositary Interests CDS Credit Default Swaps CEB Council of Europe Development Bank CEO Chief executive officer CER Credit equivalent risk CET1 Common equity tier 1 CFO Chief financial officer CHF Swiss currency CIB Corporate & Investment Banking CIO Chief information officer CNMV Spanish stock market authority (Comisión Nacional del Mercado de Valores) COFINS Contribuiçao para Financiamento da Seguridade Social COMEX Commodity Exchange COP26 UN Climate change conference Corporate Centre Our headquarters in Boadilla and business segment as described in section 4.1 ‘Description of segments’ in the Economic and financial review chapter. Corporation All the governing bodies, organizational 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. COSO Committee of Sponsoring Organizations of the Tradeway Commission Cost of capital 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 analyse efficiency CPGF Corporate Products Governance Forum CRD IV The prudential framework established by the CRD and CRR currently in force CRD V Amendment to the CRD IV package CRE Credit Risk Equivalent CRM Customer Relationship Management CRO Chief risk officer CRR Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms, as amended from time to time CRS The Common Reporting Standard  approved by the OECD Council on 15 July 2014 CSA Credit Support Annex CSLL Social Contribution on Net Income CTO Chief technology officer CVA Credit Valuation Adjustment Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 505 DCB Digital Consumer Bank D&I Diversity & inclusion DI Debt to Income Digital customers Every 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. DLP Data Leakage Protection Dodd-Frank Act The US Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 DTA Deferred Tax Asset DVA Debt Valuation Adjustment E&S Environmental and social EAD Exposure at Default EBA European Banking Authority EBRD European Bank for Reconstruction and Development ECB European Central Bank ECB Recommendation III Recommendation that the ECB issued on 15 December 2020 to repeal ECB Recommendations I and II and ask the European credit institutions it supervises to exercise extreme prudence when deciding on, or paying out, dividends; or performing share buybacks to remunerate shareholders ECL Expected credit loss EIB European Investment Bank EISM Global Systematic Important Bank Eligible capital The amount of own funds considered eligible by the regulator to meet capital requirements, principally accounting capital and reserves EMIR Regulation (EU) 648/2012 on OTC derivatives, central counterparties and trade repositories, as amended from time to time EONIA Euro Overnight Index Average EPS Earnings Per Share ERC Executive risk committee ES Expected Shortfall ESG Environmental, Social and Governance ESMA European Securities and Markets Authority ESRM Environmental and social risk management ETF Exchange Traded Funds EU European Union EVA Economic value added. It 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 EVE Economic Value of Equity EWIs Early Warning Indicators Expected loss Loss due to insolvency that an entity may suffer on average over an economic cycle. It considers insolvency a cost that can be reduced by proper loan approval FATCA Foreign Account Tax Compliance Act FATF Financial Action Task Force FCA Financial Conduct Authority FCA Group Fiat Chrysler Automobiles FCC Financial Crime Compliance FEBEF Fundación Española de Banca para Estudios Financieros FED Federal Reserve Final Cash Dividend The final cash dividend of 0.10 euros per share put to a vote by the board in February 2020 at the April 2020 AGM First Buyback Programme On September 2021 the board resolved to execute a shares buyback programme worth up to 841 million euros as part of shareholder remuneration charged against 2021 FROB Fondo de Reestructuración Ordenada Bancaria FRTB Fundamental Review of the Trading Book Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 506 FSB Financial Stability Board FV Fair value FX Foreign Exchange GAR Green Asset Ratio G-SIB Global Systematic Important Bank GBP Pound sterling GCC General Code of Conduct GCCO Group chief compliance officer GCRO Group chief risk officer GDP Gross Domestic Product GDPR General Data Protection Regulation GloBe Global Anti-Base Erosion GMRA Global master repurchase agreement GMS Global Merchant Services GPPC Global Public Policy Committee GPTW Great Place to Work GRC Governance, risk and compliance GRI Global Reporting Initiative GSGM Group-Subsidiary Governance Model GTS Global Trade Services HQLA High Quality Liquid Assets HR Human Resources IAS International Accounting Standards IASB International Accounting Standards Board IBORs Interbank offered rates ICAAP Internal Capital Adequacy Assessment Process ICAC Accounting and Audit Institute (Instituto de Contabilidad y Auditoría de Cuentas) ICFR Internal control over financial reporting ICO Instituto de Crédito Oficial ICT Information and Communication Technology ID Identification Identified Staff Other executives whose activities may have a significant impact on the Group's risk profile IFC International Finance Corporation IFI Instituciones financieras internacionales IFRS International 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 ILAAP Internal Liquidity Adequacy Assessment Process IMA Internal Model Approach IMF International Monetary Fund IMIs Internal Model Inspections IOSCO Principles for financial benchmarks IPCC Intergovernmental Panel on Climate Change IPO Initial Public Offering IRB Internal Rating Based IRC Incremental Risk Charge IRCS Internal Risk Control System IRPJ Imposto de Renda Pessoa Jurídica IRR Internal rate of return IRRBB Interest rate risk of the banking book IRS Internal Revenue Service ISDA International Swaps and Derivatives Association ISMA International Securities Market Association Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 507 IT Information technology ITS Internal technical standards JPY Japanese currency KPI Key performance indicator KRI Key Risk Indicators LCR Liquidity Coverage Ratio LDA Loss Distribution Approach Leverage ratio This regulatory metric compares a bank's size to its capital to measure how sound and robust it is, dividing Tier1 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 LGD Loss Given Default LIBOR London Interbank Offer Rate Loyal customers 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. LTD Loan to Deposit ratio LTV Loan to Value M/LT Medium and long-term MiFID II Markets in Financial Instruments Directive. Mn Million MRAP Market Risk Advanced Platform MREL Minimum requirement for own funds and eligible liabilities which is required to be met under the BRRD MRM Model Risk Management MtM Mark-to-Market MXN Mexican peso NACE Statistical classification of economic activities in the European Community NCAs National competent authority NDoD New definition of default NFRD Non-financial reporting directive NGFS Network for Greening the Financial System NGO Non-governmental organization NII Net Interest Income Nominal cap Maximum nominal amount of a risk operation, excluding market  transactions NPLs Non-performing loans NPS Net promoter score NSFR Net stable funding ratio NYSE New York Stock Exchange o/w Of which OCI Originated Credit Impairment October 2020 AGM Annual meeting held on 27 October 2020 OECD Organization for Economic Co-operation and Development OM Organised Markets ONP Ordinary net profit OP Operational risk OR Operational risk OSLA Overseas Securities Lender’s Agreement OSSG Official Sector Steering Group OTC Over the counter PB Private Banking P&L Profit and Loss PACTA Paris Agreement Capital Transition Assessment PCAOB Public Company Accounting Oversight Board Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 508 PD Probability of Default People supported in our communities The 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) PIS Programa de Integraçao Social PIT Point in time PIT Point-in-time PLN Polish Zloty POCI Purchased or Originated Credit Impaired POS Point of sale pp percentage point PPI Payment protection insurance PPNR Pre-provision net revenues PPP Paycheck Protection Program PRA UK Prudential Regulatory Authority PRI Principles for responsible Investment PSD2 Payment Services Directive II PwC PricewaterhouseCoopers Auditores, S.L. R&D&i Research, development and innovation RAF Risk appetite framework RAS Risk appetite statement RCC Risk control committee RCSA Risk control self-assessment RDA Risk Data Aggregation REC Equivalent risk of credit RIA Risk Identification and Assessment RoA Return on assets. Ratio between net income and total average assets, or the amount of financial and operational income a company receives in a financial year as compared to the average of the company's total assets. The ratio is considered to be an indicator of how effectively a company is using its assets to generate earnings RoE Return on equity RoRAC Return (net of tax)  on economic capital required internally RoRWA Return (net of tax) on risk weighted assets for a particular business. Grupo Santander uses RoRWA to establish strategies to allocate regulatory capital for maximums returns RoTE Return on tangible  equity RPA Risk profile assessment RRS Risk Reporting Structure RSF Required Stable Funding Rules and regulations of the board Rules and regulations of the board of directors of Banco Santander, S.A. Rules and regulations of the general meeting Rules and regulations of the general meeting of Banco Santander, S.A. RWAs Risk weighted assets S&P 500 The S&P 500 index maintained by S&P Dow Jones Indices LLC SAM Santander Asset Management Santander Consumer US Santander Consumer USA Holdings Inc. SBNA Santander Bank N.A. SC USA Santander Consumer US SCAN Santander Customer Assessment Note SCF Santander Consumer Finance SCIB Santander Corporate & Investment Banking Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 509 SCPs Strategic commercial  plans SCS Success case studies SDE Santander Dividendo Elección SDG Sustainable Development Goals SEA Securities Exchange Act SEC Securities and Exchange Commission Second Buyback Programme On 24 February 2022 the board resolved to execute a shares repurchase programme for an amount of 865 million euros as part of shareholder remuneration charged against 2021 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 SELIC Sistema Especial de Liquidaçâo e Custodia (Brasil) SHUSA Santander Holdings USA, Inc. SICR Significant increase of credit risk SIS Santander Investment Securities SLA Service Level Agreement SMEs Small and medium enterprises SOX Sarbanes-Oxley Act of 2002 Spanish Companies Act Consolidated text of the Spanish Companies Act approved by Royal Legislative Decree 1/2010, of 2 July Spanish Corporate Governance Code CNMV's Good Governance Code for Listed Companies Spanish Securities Markets Act Consolidated text of the Spanish Securities Markets Act approved by Royal Legislative Decree 4/2015, of 23 October SPF Simple, Personal  and Fair SRB European Single Resolution Board SREP Supervisory Review and Evaluation Process SRF Single Resolution Fund SRI Socially Responsible Investment SRT Significant Risk Transfer SSM Single Supervisory Mechanism, the system  of banking supervision in Europe. It comprises  the ECB and the national  supervisory authorities of the participating countries. ST Short-term STEM Science, Technology, Engineering and Mathematics STF Supreme Federal Court of Brazil STR Short-term interest rate SVaR Stressed value at risk T&O Technology and operations T2 Tier 2 TCFD Task Force on Climate-related Financial Disclosures TLAC The total loss-absorbing capacity requirement which is required to be met under the CRD V package TLTRO Targeted longer-term refinancing operations TOM Target Operational Model TRIM Targeted Review of Internal Models TSR Total Shareholder Return UAI Real Estate Unit in Spain UK United Kingdom UN SDG United Nations Sustainable Development Goals UNEP FI United Nations Environmental Program Financial Initiative US United States of America USD United States dollar VaE Value at Earnings VaR Value at Risk Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 510 VAT Value Added Tax Volcker Rule Section 619 of the Dodd-Frank Act VPN Virtual Private Network WBCSD World Business Council for Sustainable Development WFH Working From Home WM&I Wealth Management and Insurance Wolfsberg group Association of thirteen global banks which aims to develop frameworks and guidance for the management of financial crime risks YoY Year over year Contents [Responsible](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [banking](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_85) [Corporate](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [governance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_181) [Economic and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [financial review](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_391) [Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) [and compliance](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_508) Annual report 2021 511 # Auditor's report and consolidated financial statements Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 512 [Auditor’s report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [514](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [525](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_679) [Consolidated balance sheets as of 31 December](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_679) [2020, 2019 and 2018](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_679) [525](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_679) [Consolidated income statements for the years](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_682) [ended 31 December](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_682) [2020, 2019 and 2018](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_679) [529](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_682) [Consolidated statements of recognised income and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_685) [expense for the years ended 31 December 2020,](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_685) [2019 and 2018](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_685) [531](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_685) [Consolidated statements of changes in total equity](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_688) [for the years ended 31 December 2020, 2019 and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_688) [2018](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_688) [532](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_688) [Consolidated statements of cash flows for the years](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_691) [ended 31 December 2020, 2019 and 2018](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_691) [538](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_691) [Notes to the consolidated financial](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [540](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [1. Introduction, basis of presentation of the](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_697) [consolidated financial statements (consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_697) [annual accounts) and other information](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_697) [541](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_697) [2. Accounting policies](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_718) [547](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_718) [3. Santander Group](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_739) [588](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_739) [4. Distribution of the Bank’s profit, shareholder](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_754) [remuneration scheme and earnings per share](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_754) [591](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_754) [5. Remuneration and other benefits paid to the](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_757) [Bank’s directors and senior managers](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_757) [593](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_757) [6. Loans and advances to central banks and credit](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_775) [institutions](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_775) [607](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_775) [7. Debt instruments](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_778) [608](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_778) [8. Equity instruments](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_781) [610](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_781) [9. Trading Derivatives (assets and liabilities)](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_790) [and short positions](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_790) [611](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_790) [10. Loans and advances to customers](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_793) [611](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_793) [11. Trading derivatives](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_796) [617](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_796) [12. Non-current assets](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_799) [617](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_799) [13. Investments](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_802) [617](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_802) [14. Insurance contracts linked to pensions](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_805) [619](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_805) [15. Liabilities and assets under insurance contracts](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_808) [and reinsurance assets](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_808) [619](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_808) [16. Tangible assets](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_811) [621](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_811) [17. Intangible assets – Goodwill](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_814) [624](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_814) [18. Intangible assets - Other intangible assets](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_817) [627](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_817) [19. Other assets](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_823) [628](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_823) [20. Deposits from central banks and credit](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_826) [institutions](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_826) [629](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_826) [21. Customer deposits](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_829) [629](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_829) [22. Marketable debt securities](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_832) [630](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_832) [23. Subordinated liabilities](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_835) [635](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_835) [24. Other financial liabilities](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_838) [637](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_838) [25. Provisions](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_841) [638](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_841) [26. Other liabilities](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_853) [652](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_853) [27. Tax matters](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_856) [652](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_856) [28. Non-controlling interests](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_871) [659](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_871) [29. Other comprehensive income](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_880) [660](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_880) [30. Shareholders’ equity](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_883) [666](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_883) [31. Issued capital](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_886) [666](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_886) [32. Share premium](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_889) [667](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_889) [33. Accumulated retained earnings](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_892) [667](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_892) [34. Other equity instruments and own shares](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_895) [668](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_895) [35. Memorandum items](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_898) [668](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_898) [36. Hedging derivatives](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_901) [669](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_901) [37. Discontinued operations](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_907) [692](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_907) [38. Interest income](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_910) [692](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_910) [39. Interest expense](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_913) [692](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_913) [40. Dividend income](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_916) [693](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_916) [41. Commission income](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_919) [693](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_919) [42. Commission expense](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_922) [693](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_922) [43. Gains or losses on financial assets and liabilities](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_925) [693](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_925) [44. Exchange differences, net](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_928) [694](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_928) [45. Other operating income and expenses](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_931) [695](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_931) [46. Staff costs](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_934) [695](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_934) [47. Other general administrative expenses](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_949) [701](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_949) [48. Gains or losses on non financial assets, net](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_961) [701](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_961) 49[. Gains or losses on non-current assets held for](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_964) [sale not classified as discontinued operations](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_964) [701](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_964) [50. Other disclosures](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_967) [702](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_967) [51. Main and secondary segments reporting](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_970) [713](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_970) 52[. Related parties](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_979) [727](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_979) [53. Risk management](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_982) [754](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1012) [54. Explanation added for translation to English](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1039) [766](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1039) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) [767](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) [Appendix I. Subsidiaries of Banco Santander, S.A.](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1051) [768](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1051) [Appendix II. Societies of which the Group owns more](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1060) [than 5%, entities associated with Grupo Santander](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1060) [and jointly controlled entities](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1060) [790](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1060) [Appendix III. Issuing subsidiaries of shares and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1063) [preference shares](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1063) [796](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1063) [Appendix IV. Notifications of acquisitions and](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1066) [disposals of investments in 2019](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1066) [797](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1066) [Appendix V. Other information on the Group’s banks](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1069) [798](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1069) [Appendix VI. Annual banking report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1072) [804](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1072) Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 513 #### Auditor's report Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 514 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 515 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 516 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 517 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 518 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 519 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 520 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 521 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 522 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 523 #### Consolidated financial statements Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 524 Translation of the consolidated annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Group in Spain (see Notes 1 and 54). In the event of a discrepancy, the Spanish- version prevails. #### Grupo Santander CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2021, 2020 AND 2019 EUR million ASSETS Note 2021 2020\* 2019\* CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEPOSITS ON DEMAND 20 210,689 153,839 101,067 FINANCIAL ASSETS HELD FOR TRADING 116,953 114,945 108,230 Derivatives 9 and 11 54,292 67,137 63,397 Equity instruments 8 15,077 9,615 12,437 Debt instruments 7 26,750 37,894 32,041 Loans and advances 20,834 299 355 Central banks 6 3,608 — — Credit institutions 6 10,397 3 — Customers 10 6,829 296 355 NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS 5,536 4,486 4,911 Equity instruments 8 4,042 3,234 3,350 Debt instruments 7 957 700 1,175 Loans and advances 537 552 386 Central banks 6 — — — Credit institutions 6 — — — Customers 10 537 552 386 FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS 15,957 48,717 62,069 Debt instruments 7 2,516 2,979 3,186 Loans and advances 13,441 45,738 58,883 Central banks 6 — 9,481 6,473 Credit institutions 6 3,152 12,136 21,649 Customers 10 10,289 24,121 30,761 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME 108,038 120,953 125,708 Equity instruments 8 2,453 2,783 2,863 Debt instruments 7 97,922 108,903 118,405 Loans and advances 7,663 9,267 4,440 Central banks 6 — — — Credit institutions 6 — — — Customers 10 7,663 9,267 4,440 FINANCIAL ASSETS AT AMORTIZED COST 1,037,898 958,378 995,482 Debt instruments 7 35,708 26,078 29,789 Loans and advances 1,002,190 932,300 965,693 Central banks 6 15,657 12,499 18,474 Credit institutions 6 39,169 37,838 40,943 Customers 10 947,364 881,963 906,276 HEDGING DERIVATIVES 36 4,761 8,325 7,216 CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK 36 410 1,980 1,702 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 525 CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2021, 2020 AND 2019 EUR million ASSETS Note 2021 2020\* 2019\* INVESTMENTS 13 7,525 7,622 8,772 Joint venture entities 1,692 1,492 1,325 Associated entities 5,833 6,130 7,447 ASSETS UNDER INSURANCE OR REINSURANCE CONTRACTS 15 283 261 292 TANGIBLE ASSETS 33,321 32,735 35,235 Property, plant and equipment 16 32,342 31,772 34,262 For own-use 13,259 13,213 15,041 Leased out under an operating lease 19,083 18,559 19,221 Investment properties 16 979 963 973 Of which leased out under an operating lease 839 793 823 INTANGIBLE ASSETS 16,584 15,908 27,687 Goodwill 17 12,713 12,471 24,246 Other intangible assets 18 3,871 3,437 3,441 TAX ASSETS 25,196 24,586 29,585 Current tax assets 5,756 5,340 6,827 Deferred tax assets 27 19,440 19,246 22,758 OTHER ASSETS 8,595 11,070 10,138 Insurance contracts linked to pensions 14 149 174 192 Inventories 6 5 5 Other 19 8,440 10,891 9,941 NON-CURRENT ASSETS HELD FOR SALE 12 4,089 4,445 4,601 TOTAL ASSETS 1,595,835 1,508,250 1,522,695 \* Presented for comparison purposes only (note 1.d). The accompanying notes 1 to 54 and appendices are an integral part of the consolidated balance sheet as of 31 December 2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 526 CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2021, 2020 AND 2019 EUR million FINANCIAL LIABILITIES HELD FOR TRADING 79,469 81,167 77,139 Derivatives 9 and 11 53,566 64,469 63,016 Short positions 9 12,236 16,698 14,123 Deposits 13,667 — — Central banks 20 1,038 — — Credit institutions 20 6,488 — — Customers 21 6,141 — — Marketable debt securities 22 — — — Other financial liabilities 24 — — — FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS 32,733 48,038 60,995 Deposits 27,279 43,598 57,111 Central banks 20 607 2,490 12,854 Credit institutions 20 1,064 6,765 9,340 Customers 21 25,608 34,343 34,917 Marketable debt securities 22 5,454 4,440 3,758 Other financial liabilities 24 — — 126 Memorandum items: subordinated liabilities 23 — — — FINANCIAL LIABILITIES AT AMORTIZED COST 1,349,169 1,248,188 1,230,745 Deposits 1,078,587 990,391 942,417 Central banks 20 139,757 112,804 62,468 Credit institutions 20 52,235 62,620 90,501 Customers 21 886,595 814,967 789,448 Marketable debt securities 22 240,709 230,829 258,219 Other financial liabilities 24 29,873 26,968 30,109 Memorandum items: subordinated liabilities 23 26,196 21,880 21,062 HEDGING DERIVATIVES 36 5,463 6,869 6,048 CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK 36 248 286 269 LIABILITIES UNDER INSURANCE OR REINSURANCE CONTRACTS 15 770 910 739 PROVISIONS 25 9,583 10,852 13,987 Pensions and other post-retirement obligations 3,185 3,976 6,358 Other long term employee benefits 1,242 1,751 1,382 Taxes and other legal contingencies 1,996 2,200 3,057 Contingent liabilities and commitments 733 700 739 Other provisions 2,427 2,225 2,451 TAX LIABILITIES 8,649 8,282 9,322 Current tax liabilities 2,187 2,349 2,800 Deferred tax liabilities 27 6,462 5,933 6,522 OTHER LIABILITIES 26 12,698 12,336 12,792 LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE — — — TOTAL LIABILITIES 1,498,782 1,416,928 1,412,036 LIABILITIES Note 2021 2020\* 2019\* Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 527 CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2021, 2020 AND 2019 EUR million EQUITY Note 2021 2020\* 2019\* SHAREHOLDERS´ EQUITY 30 119,649 114,620 124,239 CAPITAL 31 8,670 8,670 8,309 Called up paid capital 8,670 8,670 8,309 Unpaid capital which has been called up — — — SHARE PREMIUM 32 47,979 52,013 52,446 EQUITY INSTRUMENTS ISSUED OTHER THAN CAPITAL 34 658 627 598 Equity component of the compound financial instrument — — — Other equity instruments issued 658 627 598 OTHER EQUITY 34 152 163 146 ACCUMULATED RETAINED EARNINGS 33 60,273 65,583 61,028 REVALUATION RESERVES 33 — — — OTHER RESERVES 33 (4,477) (3,596) (3,110) Reserves or accumulated losses in joint venture investments 1,572 1,504 1,210 Others (6,049) (5,100) (4,320) (-) OWN SHARES 34 (894) (69) (31) PROFIT OR LOSS ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT 8,124 (8,771) 6,515 (-) INTERIM DIVIDENDS 4 (836) — (1,662) OTHER COMPREHENSIVE INCOME OR LOSS 29 (32,719) (33,144) (24,168) Items that will not be reclassified to profit or loss (4,241) (5,328) (4,288) Items that may be reclassified to profit or loss (28,478) (27,816) (19,880) NON-CONTROLLING INTEREST 28 10,123 9,846 10,588 Other comprehensive income or loss (2,104) (1,800) (982) Other items 12,227 11,646 11,570 TOTAL EQUITY 97,053 91,322 110,659 TOTAL LIABILITIES AND EQUITY 1,595,835 1,508,250 1,522,695 MEMORANDUM ITEMS: OFF BALANCE SHEET AMOUNTS 35 Loan commitments granted 262,737 241,230 241,179 Financial guarantees granted 10,758 12,377 13,650 Other commitments granted 75,733 64,538 68,895 \* Presented for comparison purposes only (note 1.d). The accompanying notes 1 to 54 and appendices are an integral part of the consolidated balance sheet as of 31 December 2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 528 Interest income 38 46,463 45,741 56,785 Financial assets at fair value through other comprehensive income 2,582 2,840 3,571 Financial assets at amortized cost 40,471 40,365 48,552 Other interest income 3,410 2,536 4,662 Interest expense 39 (13,093) (13,747) (21,502) Interest income/(charges) 33,370 31,994 35,283 Dividend income 40 513 391 533 Income from companies accounted for using the equity method 13 432 (96) 324 Commission income 41 13,812 13,024 15,349 Commission expense 42 (3,310) (3,009) (3,570) Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net 43 628 1,107 1,136 Financial assets at amortized cost 89 (31) 308 Other financial assets and liabilities 539 1,138 828 Gain or losses on financial assets and liabilities held for trading, net 43 1,141 3,211 1,349 Reclassification of financial assets at fair value through other comprehensive income — — — Reclassification of financial assets at amortized cost — — — Other gains (losses) 1,141 3,211 1,349 Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss 43 132 82 292 Reclassification of financial assets at fair value through other comprehensive income — — — Reclassification of financial assets at amortized cost — — — Other gains (losses) 132 82 292 Gain or losses on financial assets and liabilities measured at fair value through profit or loss, net 43 270 (171) (286) Gain or losses from hedge accounting, net 43 (46) 51 (28) Exchange differences, net 44 (562) (2,093) (932) Other operating income 45 2,255 1,920 1,797 Other operating expenses 45 (2,442) (2,342) (2,138) Income from assets under insurance and reinsurance contracts 45 1,516 1,452 2,534 Expenses from liabilities under insurance and reinsurance contracts 45 (1,305) (1,242) (2,414) Total income 46,404 44,279 49,229 Administrative expenses (18,659) (18,320) (20,279) Staff costs 46 (11,216) (10,783) (12,141) Other general administrative expenses 47 (7,443) (7,537) (8,138) Depreciation and amortisation cost 16 and 18 (2,756) (2,810) (3,001) Provisions or reversal of provisions, net 25 (2,814) (2,378) (3,490) CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2021, 2020 AND 2019 EUR million (Debit) Credit Note 2021 2020\* 2019\* Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 529 Impairment or reversal of impairment at financial assets not measured at fair value through  profit or loss and net gains and losses from changes (7,407) (12,382) (9,352) Financial assets at fair value through other comprehensive income (19) (19) (12) Financial assets at amortized cost 10 (7,388) (12,363) (9,340) Impairment or reversal of impairment of investments in subsidiaries, joint ventures and associates, net 17 and 18 — — — Impairment or reversal of impairment on non-financial assets, net (231) (10,416) (1,623) Tangible assets 16 (150) (174) (45) Intangible assets 17 and 18 (71) (10,242) (1,564) Others (10) — (14) Gain or losses on non-financial assets and investments, net 48 53 114 1,291 Negative goodwill recognized in results — 8 — Gains or losses on non-current assets held for sale not classified as discontinued operations 49 (43) (171) (232) Operating profit/(loss) before tax 14,547 (2,076) 12,543 Tax expense or income from continuing operations 27 (4,894) (5,632) (4,427) Profit/(loss) from continuing operations 9,653 (7,708) 8,116 Profit/(loss) after tax from discontinued operations 37 — — — Profit/(loss) for the year 9,653 (7,708) 8,116 Profit/(loss) attributable to non-controlling interests 28 1,529 1,063 1,601 Profit/(loss) attributable to the parent 8,124 (8,771) 6,515 Earnings/(losses) per share Basic 4 0.438 (0.538) 0.347 Diluted 4 0.436 (0.538) 0.346 CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2021, 2020 AND 2019 EUR million (Debit) Credit Note 2021 2020\* 2019\* \* Presented for comparison purposes only (note 1.d). The accompanying notes 1 to 54 and appendices are an integral part of the consolidated income statement for the year ended 31 December 2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 530 EUR million Note 2021 2020\* 2019\* CONSOLIDATED PROFIT/(LOSS) FOR THE YEAR 9,653 (7,708) 8,116 OTHER RECOGNISED INCOME AND EXPENSE (220) (9,794) 267 Items that will not be reclassified to profit or loss 29 754 (1,018) (1,351) Actuarial gains and losses on defined benefit pension plans 1,567 (25) (1,677) Non-current assets held for sale — — — Other recognised income and expense of investments in subsidiaries, joint ventures and associates (1) (4) 1 Changes in the fair value of equity instruments measured at fair value through other comprehensive income (171) (917) (29) Gains or losses resulting from the accounting for hedges of equity instruments measured at fair value through other comprehensive income, net 36 — — — Changes in the fair value of equity instruments measured at fair value through other comprehensive income (hedged item) 117 4 44 Changes in the fair value of equity instruments measured at fair value through other comprehensive income (hedging instrument) (117) (4) (44) Changes in the fair value of financial liabilities at fair value through profit or loss attributable to changes in credit risk (99) 31 (156) Income tax relating to items that will not be reclassified (542) (103) 510 Items that may be reclassified to profit or loss 29 (974) (8,776) 1,618 Hedges of net investments in foreign operations (effective portion) 36 (1,159) 2,340 (1,151) Revaluation gains (losses) (1,159) 2,340 (1,151) Amounts transferred to income statement — — — Other reclassifications — — — Exchanges differences 3,082 (11,040) 1,232 Revaluation gains (losses) 3,082 (11,040) 1,232 Amounts transferred to income statement — — — Other reclassifications — — — Cash flow hedges (effective portion) 36 (938) (53) 8 Revaluation gains (losses) (1,739) 799 (1,104) Amounts transferred to income statement 801 (852) 1,112 Transferred to initial carrying amount of hedged items — — — Other reclassifications — — — Hedging instruments (items not designated) 36 — — — Revaluation gains (losses) — — — Amounts transferred to income statement — — — Other reclassifications — — — Debt instruments at fair value with changes in other comprehensive income (3,250) (100) 2,414 Revaluation gains (losses) 29 (3,063) 692 2,588 Amounts transferred to income statement (545) (1,165) (792) Other reclassifications 358 373 618 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 19 (151) (15) Income tax relating to items that may be reclassified to profit or loss 1,272 228 (870) Total recognised income and expenses for the year 9,433 (17,502) 8,383 Attributable to non-controlling interests 1,255 245 1,911 Attributable to the parent 8,178 (17,747) 6,472 CONSOLIDATED STATEMENTS OF RECOGNISED INCOME AND EXPENSE FOR THE YEARS ENDED 31 DECEMBER 2021, 2020 AND 2019 \* Presented for comparison purposes only (note 1.d). 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 2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 531 CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2021, 2020 AND 2019 EUR million Capital Share premium Equity instruments issued (not capital) Other equity instruments Accumulated retained earnings Balance at 31 December 2020\* 8,670 52,013 627 163 65,583 Adjustments due to errors — — — — — Adjustments due to changes in accounting policies — — — — — Opening balance at 1 January 2021\* 8,670 52,013 627 163 65,583 Total recognised income and expense — — — — — Other changes in equity — (4,034) 31 (11) (5,310) Issuance of ordinary shares — — — — — Issuance of preferred shares — — — — — Issuance of other financial instruments — — — — — Maturity of other financial instruments — — — — — Conversion of financial liabilities into equity — — — — — Capital reduction — — — — — Dividends — (477) — — — Purchase of equity instruments — — — — — Disposal of equity instruments — — — — — Transfer from equity to liabilities — — — — — Transfer from liabilities to equity — — — — — Transfers between equity items — (3,557) — — (5,310) Increases (decreases) due to business combinations — — — — — Share-based payment — — — (62) — Others increases or (-) decreases in equity — — 31 51 — Balance at 31 December 2021 8,670 47,979 658 152 60,273 \* Presented for comparison purposes only (note 1.d). 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 2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 532 Non-controlling interest Revaluation reserves Other reserves (-) Own shares Profit attributable to shareholders of the parent (-) Interim dividends Other comprehensive income Other comprehensive income Other items Total — (3,596) (69) (8,771) — (33,144) (1,800) 11,646 91,322 — — — — — — — — — — — — — — — — — — — (3,596) (69) (8,771) — (33,144) (1,800) 11,646 91,322 — — — 8,124 — 54 (274) 1,529 9,433 — (881) (825) 8,771 (836) 371 (30) (948) (3,702) — — — — — — — 17 17 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (836) — — (648) (1,961) — — (1,645) — — — — — (1,645) — 23 820 — — — — — 843 — — — — — — — — — — — — — — — — — — — (275) — 8,771 — 371 (30) 30 — — — — — — — — (5) (5) — — — — — — — — (62) — (629) — — — — — (342) (889) — (4,477) (894) 8,124 (836) (32,719) (2,104) 12,227 97,053 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 533 CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2021, 2020 AND 2019 EUR million Capital Share premium Equity instruments issued (not capital) Other equity instruments Accumulated retained earnings Balance at 31 December 2019\* 8,309 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 equity 361 (433) 29 17 4,555 Issuance of ordinary shares 361 (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 in equity — — 29 70 — Balance at 31 December 2020\* 8,670 52,013 627 163 65,583 \* Presented for comparison purposes only (note 1.d). 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 2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 534 Non-controlling interest Revaluation reserves Other reserves (-) Own shares Profit attributable to shareholders of the parent (-) Interim dividends Other comprehensive income Other comprehensive income Other items Total — (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 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 535 CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2021, 2020 AND 2019 EUR million Capital Share premium Equity instruments issued (not capital) Other equity instruments Accumulated retained earnings Balance at 31 December 2018\* 8,118 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 equity 191 1,453 33 (88) 4,272 Issuance of ordinary shares 191 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 in equity — — 33 — — Balance at 31 December 2019\* 8,309 52,446 598 146 61,028 \* Presented for comparison purposes only (note 1.d). 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 2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 536 Non-controlling interest Revaluation reserves Other reserves (-) Own shares Profit attributable to shareholders of the parent (-) Interim dividends Other comprehensive income Other comprehensive income Other 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 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 537 A. CASH FLOWS FROM OPERATING ACTIVITIES 56,691 66,153 3,389 Profit or loss for the year 9,653 (7,708) 8,116 Adjustments made to obtain the cash flows from operating activities 21,363 37,836 23,990 Depreciation and amortisation cost 2,756 2,810 3,001 Other adjustments 18,607 35,026 20,989 Net increase/(decrease) in operating assets 27,258 51,385 64,593 Financial assets held-for-trading 2,064 12,390 15,450 Non-trading financial assets mandatorily at fair value through profit or loss 969 (275) (6,098) Financial assets at fair value through profit or loss (32,746) (10,314) 4,464 Financial assets at fair value through other comprehensive income (9,152) 6,549 1,693 Financial assets at amortized cost 73,181 43,541 49,541 Other operating assets (7,058) (506) (457) Net increase/(decrease) in operating liabilities 56,945 90,356 38,469 Financial liabilities held-for-trading (1,386) 7,880 6,968 Financial liabilities designated at fair value through profit or loss (14,316) (10,907) (8,858) Financial liabilities at amortized cost 79,114 96,561 47,622 Other operating liabilities (6,467) (3,178) (7,263) Income tax recovered/(paid) (4,012) (2,946) (2,593) B. CASH FLOWS FROM INVESTING ACTIVITIES (3,715) (7,220) (7,229) Payments 11,669 11,976 14,289 Tangible assets 16 10,015 7,386 12,766 Intangible assets 18 1,388 1,134 1,377 Investments 13 126 525 63 Subsidiaries and other business units 140 2,931 83 Non-current assets held for sale and associated liabilities — — — Other payments related to investing activities — — — Proceeds 7,954 4,756 7,060 Tangible assets 16 6,382 2,014 4,091 Intangible assets 18 — — — Investments 13 672 182 686 Subsidiaries and other business units 6 1,775 218 Non-current assets held for sale and associated liabilities 12 894 785 2,065 Other proceeds related to investing activities — — — C. CASH FLOW FROM FINANCING ACTIVITIES (1,322) (1,909) (10,122) Payments 7,741 6,978 12,159 Dividends 4 1,313 — 3,773 Subordinated liabilities 23 2,684 3,780 5,123 Redemption of own equity instruments — — — Acquisition of own equity instruments 1,645 758 928 Other payments related to financing activities 2,099 2,440 2,335 Proceeds 6,419 5,069 2,037 Subordinated liabilities 23 5,340 4,095 1,090 Issuance of own equity instruments — — — Disposal of own equity instruments 854 721 947 Other proceeds related to financing activities 225 253 — CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 2021, 2020 AND 2019 EUR million Note 2021 2020\* 2019\* Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 538 D. EFFECT OF FOREIGN EXCHANGE RATE DIFFERENCES 5,196 (4,252) 1,366 E. NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 56,850 52,772 (12,596) F. CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 153,839 101,067 113,663 G. CASH AND CASH EQUIVALENTS AT END OF THE YEAR 210,689 153,839 101,067 COMPONENTS OF CASH AND CASH EQUIVALENTS AT END OF THE YEAR Cash 8,142 7,817 8,764 Cash equivalents at central banks 193,102 137,047 75,353 Other financial assets 9,445 8,975 16,950 Less, bank overdrafts refundable on demand — — — TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR 210,689 153,839 101,067 In which, restricted cash — — — CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 2021, 2020 AND 2019 EUR million Note 2021 2020\* 2019\* \* Presented for comparison purposes only (note 1.d). 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 2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 539 #### Notes to the consolidated financial statements Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 540 Banco Santander, S.A., and Companies composing Grupo Santander Notes to the consolidated financial statements (consolidated annual accounts) for the year ended 31 December 2021 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 2021, Grupo Santander consisted of 721 subsidiaries of Banco Santander, S.A. In addition, other 172 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 2019 were approved by the shareholders at the group´s annual general meeting on 3 April 2020. Grupo Santander consolidated financial statements for 2020 were approved by the shareholders at the group´s annual general meeting on 26 March 2021. The Group's 2021 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 2021 and 2020, the Bank of Spain published Circulars 6/2021 of 22 December, 2/2020 and 3/2020 of 11 June, amending Circular 4/2017 of 27 November to credit institutions on Public and Confidential Financial Reporting Standards and Financial Statement Formats. Grupo Santander consolidated financial statements for 2021 were authorised by the Bank's directors (at the board meeting on 24 February 2022) 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 2021, 2020 and 2019 and the consolidated results of its operations and the consolidated cash flows in 2021, 2020 and 2019. 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 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 541 Adoption of new standards and interpretations issued The following modifications came into force and were adopted by the European Union in 2021: •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 became 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 chose 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. Following is a detail of the carrying amount at 31 December 2021 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 amount Loans and advances Debt securities acquired (Assets) Deposits Debt securities issued (Liabilities) Derivatives (Assets) Derivatives (Liabilities) Loan Commitments Referenced to EONIA 15 68 949 284 101 242 — Referenced to LIBOR 45,713 4,325 9,358 8,408 11,806 17,551 24,533 of which USD 39,806 2,749 8,634 6,667 8,387 11,163 24,034 of which GBP 2,957 1,570 253 1,700 3,386 4,899 418 TOTAL 45,728 4,393 10,307 8,692 11,907 17,793 24,533 •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. On 31 March 2021, the IASB published an additional amendment to extend the scope of the practical expedient to 30 June 2022. It is applicable from 1 April 2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 542 •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 is applicable from 1 January 2021. The application of the aforementioned amendments to accounting standards and interpretations did not have any material effects on Grupo Santander consolidated financial statements. Likewise, at the date of approval of these consolidated annual accounts, the following standards which effectively came into force have effective dates after 31 December 2021: •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. •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. •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. In addition, during 2021, although it is still pending adoption by the European Union a transitional option relating to comparative information presented on financial assets in the initial application of IFRS 17, which is intended to help entities avoid temporary accounting mismatches between the financial assets and liabilities of insurance contracts, has been included during 2021 but is still pending adoption by the European Union. It will apply from 1 January 2023. Grupo Santander is still analysing the possible effects of this new standard, however, it should be noted that no material impacts on the consolidated financial statements of Grupo Santander have been identified as a result of its application, except for certain balance sheet reclassifications arising from the different treatment that this new standard establishes for the components of an insurance contract. Finally, at the date of approval of these consolidated annual accounts, the following standards which effectively come into force after 31 December 2021 had not yet been adopted by the European Union: •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. •The amendments to IAS 1 Presentation of Financial Statements require companies to disclose material information about their accounting policies rather than their significant accounting policies. It will be applicable from 1 January 2023. •The amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors clarifies how to distinguish changes in accounting policies, which are generally applied retrospectively, from changes in accounting estimates, which are generally applied prospectively. It will be applicable from 1 January 2023. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 543 •The amendments to IAS 12 Income Taxes require companies to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. In addition, entities should recognise deferred tax assets (to the extent that it is probable that they can be utilised) and deferred tax liabilities at the beginning of the earliest comparative period for all deductible and taxable temporary differences associated with: •Right-of-use assets and lease liabilities, and •Decommissioning, restoration and similar liabilities, and the corresponding amounts recognised as part of the cost of the related assets. The cumulative effect of recognising these adjustments is recognised in retained earnings, or another component of equity, as appropriate. It will be applicable 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 2021 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 is affecting 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 2021 (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 2021, 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 2020 and 2019 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 led to changes in the Group's accounting policies for the recognition, measurement, presentation and breakdown of lease contracts. As a result of its adoption , the impact of the first application recorded by Grupo Santander corresponds, mainly, to the recognition of right-of-use for an amount of 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. Secondly, Grupo Santander chose to apply in advance for the financial statements for the year ended 31 December 2019 the amendment to IFRS 9, IAS 39 and IFRS 7 on Reference Interest Rates (IBOR Reform - Phase 1). Grupo Santander applies IAS 39 for hedge accounting, detailed below are the main assumptions or judgments made by Grupo Santander when applying the amendments to that standard. –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. See information regarding Phase 2 of that Reform in section b of this note and in note 53. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 544 Additionally, the segment information corresponding to the year ended 31 December 2020 and 2019 were restated for comparative purposes in accordance with the Group's new organizational structure, as required by IFRS 8 (see note 51). In addition to the above, the information in note 4.b relating to the shares outstanding in 2019 has been restated due to the capital increase done in 2020 described in note 31.a in accordance with IAS 33 Earnings per Share. 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). Therefore, the information contained in these consolidated financial statements for the financial years 2020 and 2019 is presented solely and exclusively for comparative purposes with the information relating to the year ended 31 December 2021 (see note 2.a.iv). In order to interpret the changes in the balances with respect to 31 December 2021, 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 2021, based on the exchange rates at the end of 2021: Mexican peso (5.55%), US dollar (8.34%) , Brazilian real (0.85%) , Argentine peso (-11.30%), Sterling pound (6.91%), Chilean peso (-9.61%), and Polish zloty (-0.82%); as well as the evolution of the comparable average rates: Mexican peso (1.60%), US dollar (-3.52%), Brazilian real (-8.75%),  Argentine peso ( -8.21%), Sterling pound (3.43%), Chilean peso (0.55%) and Polish zloty (-2.70%). e) Capital management i. Regulatory and economic capital Credit institutions must meet a number of minimum capital and liquidity requirements. These minimum requirements are governed by the European Capital Requirements Regulation, better known as CRR, and the Capital Requirements Directive, CRD. In June 2019, these regulations were significantly amended. The applicable regulations are now CRR II and CRD V. As the Directives need to be transposed into the legal systems of the different Member States in order to be applicable, in the case of Spain, Royal Legislative Decree 7/2021 and Royal Decree 970/2021 were published for this purpose in 2021. In June 2019, CRR II introduced the minimum TLAC (Total Loss Absorbing Capacity) requirement, which only applies to global systemically important banks (G-SIBs). This requirement introduces two metrics: i) a minimum requirement for own funds and eligible liabilities as a percentage of the Total Risk Exposure Amount (TREA) set at 16% during the transition period and 18% from 1 January 2022 after the end of the transition period; and ii) a metric to set a minimum requirement for own funds and eligible liabilities as a percentage of the Total Risk Exposure Amount of 6% during the transition period and 6.75% from 1 January 2022 after the end of the transition period. This year saw the implementation of the EBA Guidelines on the Definition of New Default, which were prepared in accordance with CRR II, on 1 January 2021. The changes to CRR II that are applicable from June 2021 include the introduction of a minimum leverage ratio of 3%, the new standardised EAD calculation for counterparty risk, known as SA-CCR, the long-term liquidity ratio (NSFR), the new limits for large exposures and the requirement to report under the standardised approach for market risk. The CRD V introduces important modifications such as the regulation of Pillar 2G ('guidance', orientation of requirements by Pillar 2). On 27 October 2021, the European Commission published the draft review of  European banking legislation: CRR III and  CRD VI. The banking package consists of the following elements: 1) Implementation of the final Basel III reforms, 2) Contribution to sustainability and green transition and 3) Stronger supervision: ensuring sound management of EU banks and better protection of financial stability. In general, the Commission proposes to start applying the new rules from 1.1.2025, but the amendments to the regulation that concern resolution issues could come into force in the first months of 2022. With regard to the resolution rules, institutions must have an adequate funding structure to ensure that, in the event of financial distress, the institution has sufficient liabilities to absorb losses in order to recover its position or be resolved, while ensuring the protection of depositors and financial stability. The directive that governs the resolution framework mentioned above is the Bank Recovery and Resolution Directive (BRRD). Like the CRR and the CRD, the BRRD was amended in June 2019, so BRRD II refers to all of these amendments. The transposition of this directive into the Spanish legal system took place in 2021 through a Royal Decree. BRRDII has introduced important changes to the Minimum Requirement for Own Funds and Eligible Liabilities (MREL). For example, the TLAC requirement is now considered a Pillar 1 resolution requirement for G-SIBs. For large banks (defined as banks with total assets of more than EUR 100 billion) or banks deemed systemically important by the resolution authority, BRRDII sets a minimum subordination requirement of 13.5% of risk-weighted assets or 5% of the leverage ratio, whichever is higher. For all other institutions, the subordination requirement is set by the resolution authority on a case-by-case basis. Finally, Deposit Guarantee Schemes (DGS) are regulated by Directive 2014/49 or DSGD, which has not undergone any significant changes since its publication in 2014. It aims to harmonise the deposit guarantee schemes of the Member States, thus ensuring stability and balance in the different countries.  It creates an appropriate framework for depositors to have better access to DGSs than was the case before the publication of this Directive through clear coverage, shorter repayment periods, better information and robust funding requirements. This Directive is transposed into Spanish law by Law 11/2015, Royal Decree 1012/2015 and Royal Decree 1041/2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 545 In 2020, the national governments took 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 clarified 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 and for a period not exceeding 9 months. Another measure adopted in 2020 to provide flexibility in meeting the requirements was the approval and entry into force of the CRR "Quick Fix" amending CRR II (urgent and extraordinary amendments to bring about a more flexible regulatory framework in response to COVID-19). The Quick Fix introduces a number of new features, including the extension of the transitional period granted before the pandemic for the entry into force of IFRS 9, due to the sudden and significant increase in expected credit loss provisions to be recognised. The implementation of certain provisions of CRR II has also been delayed, such as those relating to the leverage ratio buffer (postponed until 1 January 2023); the possibility of excluding exposures to central banks from the calculation of the leverage ratio, which should have been applied from June 2021 on, has been brought forward. Other provisions beneficial to institutions have also been brought forward. These include the support factors for SMEs and infrastructure, and the new treatment for software (applicable from the day following the publication date of the Delegated Regulation that implements it). At 31 December 2021 Grupo Santander met the minimum capital requirements established by current legislation (see note 53d). 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. This objective of covering IRB models in the group should be seen in the context of the current supervisory focus on the robustness and adequacy of existing models, as well as the simplification strategy recently agreed with the ECB. 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. 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 Spain, Chile and Mexico. For the purpose of calculating regulatory capital for operational risk, the Group uses the standardised approach provided for the CRR. In 2017 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. Grupo Santander considers the aspects related to climate change in the preparation of the ratings of its wholesale clients if they are relevant. These ratings influence the subsequent assignment of credit parameters for the calculation of the expected loss' estimate. With the reasonable and supportable information available at the date of approval of these consolidated annual accounts, the potential additional impacts of expected losses on the time horizons of the Group's portfolios, taking into account as well the mitigation measures, are not considered material. Grupo Santander, together with the rest of the financial industry, is working on developing the appropriate methodologies to improve the measurement of these losses, when the necessary regulatory developments are more advanced and information is available to carry out a more precise measurement. See additional information in note 53.a. g) Events after the reporting period No significant events occurred from 1 January 2022 to the date on which these consolidated financial statements were authorised for issue, other than those described in these consolidated annual accounts. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 546 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. ▪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, net' 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 547 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'. However, on the basis of the meeting held on 3 March 2020 by the International Financial Reporting Standards Committee (IFRIC), in 2020 Grupo Santander changed its accounting policy with regard to the presentation of exchange differences and the effects of hyperinflation in the operations generated in Argentina, which resulted in a reclassification of EUR  -2,136 million at 31 December 2019  for comparability purposes, from the heading "Other reserves" to "Accumulated other comprehensive income", 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 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 2021 was 50.9%% for the year (36.1% at 31 December 2020). The exchange rate at 31 December 2021 has been of Argentine pesos 116.30 per euro (Argentine pesos 103.16 Argentine pesos per euro at 31 December 2020). The net impact on Other Comprehensive Income in 2021 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 profit of EUR 177 million (loss of EUR 202 million in 2020). 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 Grupo Santander 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 Currency 2021 2020 2019 2021 2020 2019 US dollar (133.3) (123.6) (161.3) (8.6) (4.1) (3.5) Chilean peso (11.4) (20.4) (21.8) (2.4) (4.4) (2.3) Pound sterling (105.9) (107.9) (189.2) (2.3) (1.2) (3.9) Mexican peso (23.1) (21.7) (22.6) (0.9) (2.0) (3.3) Brazilian real (80.8) (75.0) (71.6) (15.4) (12.6) (10.4) Polish zloty (27.5) (26.7) (38.3) (1.1) (2.2) (1.2) Argentine peso (10.7) (7.9) (6.9) (2.5) (1.8) (1.2) 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 Currency 2021 2020 2019 2021 2020 2019 US dollar 136.0 126.1 164.6 8.8 4.2 3.5 Chilean peso 11.6 20.8 22.2 2.4 4.5 2.4 Pound sterling 108.0 110.1 193.0 2.3 1.2 4.0 Mexican peso 23.6 22.1 23.1 0.9 2.0 3.4 Brazilian real 82.4 76.5 73.1 15.7 12.8 10.6 Polish zloty 28.0 27.2 39.0 1.1 2.2 1.2 Argentine peso 11.0 8.0 7.0 2.6 1.8 1.3 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 548 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 2021, 2020 and 2019. 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. 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 2021 Grupo Santander controls a company in which it holds an ownership interest of less than 50% of the share capital, Luri 1, S.A., in liquidation, 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 2021 and 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 549 ▪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. ▪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). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 550 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: •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”. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 551 •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, 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: ▪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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 552 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 program of targeted longer-term refinancing operations (TLTRO III); additionally, the conditions of the initial program were successively modified in the months of March and April 2020, reducing the interest rate by 25 bps to -0.5% from June 2020 to June 2021 and providing that, for banks meeting a certain volume of eligible loans, the interest rate could be -1% for that period. These conditions were extended on December 10, 2020 for the period from June 2021 to June 2022, including the option to cancel or reduce the amount of financing before maturity in windows coinciding with the interest rate review and adjustment periods. The accounting standards indicate that for the recording of amortized cost the entity 'shall use a shorter period when the fees, basis points paid or received, transaction costs, premiums or discounts relate to it, this being the case when the variable to which the fees, basis points paid or received, transaction costs, and discounts or premiums relate is adjusted to market rates prior to the expected maturity of the financial instrument. In this case, the appropriate amortization period is the period until the next adjustment date'. In this case, the applicable interest rate of -1% from June 2020 to June 2021 and from June 2021 to June 2022 corresponds to a specific period after which the funding is adjusted to market rates (specifically, the average rate applied in the Eurosystem's main refinancing operations) and must therefore be accrued until the next adjustment date. The early repayment windows of this funding program are substantive terms, given that at that time of adjustment of the funding cost to market, the entity may opt for renewal or cancellation and obtain new funding at more favorable terms. Grupo Santander has opted to accrue interest in accordance with the specific periods of adjustment to market rates, so that the interest corresponding to that period (-1%) will be recorded in the income statement from June 2020 to June 2022, assuming compliance with the threshold of eligible loans that gives rise to the extra rate. Compliance with the qualifying loan thresholds is assessed at each reporting date and is based on the financial budgets approved by the Group's directors, as well as on the evolution of macroeconomic variables (GDP, unemployment rate, inflation, etc.). If, subsequent to the initial recording of the financial liability, there is a change in the expectations of meeting this threshold of eligible loans, the Group would adjust the carrying amount of the financial liability to the amount resulting from discounting the new estimated flows at the original Effective Interest Rate (EIR), recognizing this difference in profit or loss, without modifying the original EIR. At the end of both periods, the Group has met the financing objective established in the program, although the data relating to the second reference period (October 2020 to December 2021), will not be sent until next May, after validation by the external auditor, as established in the program conditions. ▪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 balance of lease liabilities that 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 553 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 2021, 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. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 554 iii. Valuation techniques The following table summarises the fair values, at the end of each of the years indicated, of the financial assets and liabilities listed below, classified according to the different valuation methodologies used by the Group to determine their fair value: EUR million 2021 2020 2019 Published price quotations in active markets (level 1) Internal Models (level 2 and 3) Total Published price quotations in active markets (level 1) Internal Models (level 2 and 3) Total Published price quotations in active markets (level 1) Internal Models (level 2 and 3) Total Financial assets held for trading 39,678 77,275 116,953 46,379 68,566 114,945 44,581 63,649 108,230 Non-trading financial assets mandatorily at fair value through profit or loss 2,398 3,138 5,536 1,756 2,730 4,486 1,530 3,381 4,911 Financial assets designated at fair value through profit or loss 2,113 13,844 15,957 2,509 46,208 48,717 2,572 59,497 62,069 Financial assets at fair value through other comprehensive income 77,749 30,289 108,038 91,771 29,182 120,953 103,089 22,619 125,708 Hedging derivatives (assets) — 4,761 4,761 — 8,325 8,325 — 7,216 7,216 Financial liabilities held for trading 10,379 69,090 79,469 9,863 71,304 81,167 9,781 67,358 77,139 Financial liabilities designated at fair value through profit or loss 3,620 29,113 32,733 2,118 45,920 48,038 1,484 59,511 60,995 Hedging derivatives (liabilities) — 5,463 5,463 — 6,869 6,869 — 6,048 6,048 Liabilities under insurance or reinsurance contracts — 770 770 — 910 910 — 739 739 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: 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 555 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. 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 2021 amounted to EUR 237 million (resulting in a decrease of 41.9% compared to 31 December 2020) and DVA amounted to EUR 162 million (resulting in a decrease of 30.4% compared to 31 December 2020). These impacts are mainly due to the continuous improvement in credit markets, the creation of particular credit curves for certain counterparties and the introduction of methodological improvements in the calculation of exposures. 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 36.0% compared to 31 December 2019). These impacts were due to the fact that credit spread levels were at levels above 25% compared to 2019 due to the covid-19 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 was mainly due to improvements in the credit quality of counterparties, which led to reductions in credit spreads in percentages of around 40% in the most liquid maturities. 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 2021, 2020 and 2019. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 556 Grupo Santander has not carried out significant reclassifications of financial instruments between levels other than those disclosed in level 3 movement table during 2021 continuing the trend observed in  2020. The main variations over the last few years in the Level 3 volume have been due to purchases/sales of these instruments. There have been no significant variations in the market observability conditions, nor relevant changes in the criteria used for the classification of instruments within the fair value hierarchy. 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). 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 557 Set forth below are the financial instruments at fair value whose measurement was based on internal models (levels 2 and 3) at 31 December 2021, 2020 and 2019: EUR million Fair values calculated using internal models at 2021\* Level 2 Level 3 Valuation techniques Main assumptions ASSETS 121,640 7,667 Financial assets held for trading 76,738 537 Central banks\*\* 3,608 — Present value method Yield curves, FX market prices Credit institutions\*\* 10,397 — Present value method Yield curves, FX market prices Customers\*\* 6,829 — Present value method Yield curves, FX market prices Debt and equity instruments 2,312 24 Present value method Yield curves, FX market prices Derivatives 53,592 513 Swaps 43,700 224 Present value method, Gaussian Copula Yield curves, FX market prices, HPI, Basis, Liquidity Exchange rate options 539 12 Black-Scholes Model Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate options 2,112 182 Black's Model, multifactorial advanced models interest rate Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate futures 409 — Present value method Yield curves, FX market prices Index and securities options 439 41 Black's Model, multifactorial advanced models interest rate Yield curves, Volatility surfaces, FX & EQ market prices, Dividends, Liquidity Other 6,393 54 Present value method, Advanced stochastic volatility models and other Yield curves, Volatility surfaces, FX and EQ market prices, Dividends, Correlation, HPI, Credit, Others Hedging derivatives 4,761 — Swaps 4,204 — Present value method Yield curves, FX market prices, Basis Interest rate options 9 — Black's Model Yield curves, FX market prices, Volatility surfaces Other 548 — Present value method, Advanced stochastic volatility models and other Yield curves, Volatility surfaces, FX market prices, Credit, Liquidity, Others Non-trading financial assets mandatorily at fair value through profit or loss 1,273 1,865 Equity instruments 415 1,231 Present value method Market price, Interest rates curves, Dividends and Others Debt instruments 589 366 Present value method Yield curves Loans and receivables 269 268 Present value method, swap asset model & CDS Yield curves and Credit curves Financial assets designated at fair value through profit or loss 13,426 418 Credit institutions 3,152 — Present value method Yield curves, FX market prices Customers\*\*\* 10,270 18 Present value method Yield curves, FX market prices, HPI Debt instruments 4 400 Present value method Yield curves, FX market prices Financial assets at fair value through other comprehensive income 25,442 4,847 Equity instruments 74 821 Present value method Market price, Yield curves, Dividends and Others Debt instruments 21,585 146 Present value method Yield curves, FX market prices Loans and receivables 3,783 3,880 Present value method Yield curves, FX market prices and Credit curves Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 558 EUR million Fair values calculated using internal models at 2021\* Level 2 Level 3 Valuation techniques Main assumptions LIABILITIES 103,807 629 Financial liabilities held for trading 68,930 160 Central banks\*\* 1,038 — Present value method Market price, Yield curves, Dividends and Others Credit institutions\*\* 6,488 — Present value method Yield curves, FX market prices Customers 6,141 — Present value method Yield curves, FX market prices and Credit curves Derivatives 53,234 160 Swaps 42,438 44 Present value method, Gaussian Copula Yield curves, FX market prices, Basis, Liquidity, HPI Exchange rate options 658 7 Black-Scholes Model Yield curves, Volatility surfaces, FX market prices, Liquidity Index and securities options 446 67 Black-Scholes Model Yield curves, FX market prices Interest rate options 2,720 26 Black's Model, multifactorial advanced models interest rate Yield curves, Volatility surfaces, FX market prices, Liquidity Futures on interest rate and variable income 184 — Present value method Yield curves, Volatility surfaces, FX & EQ market prices, Dividends, Correlation, Liquidity, HPI Other 6,788 16 Present value method, Advanced stochastic volatility models Yield curves, Volatility surfaces, FX & EQ market prices, Dividends, Correlation, Liquidity, HPI, Credit, Others Short positions 2,029 — Present value method Yield curves ,FX & EQ market prices, Equity Hedging derivatives 5,463 — Swaps 4,149 — Present value method Yield curves ,FX & EQ market prices, Basis Other 1,314 — Present value method, Advanced stochastic volatility models and other Yield curves , Volatility surfaces, FX market prices, Credit, Liquidity, Other Financial liabilities designated at fair value through profit or loss 28,644 469 Present value method Yield curves, FX market prices Liabilities under insurance contracts 770 — Present Value Method with actuarial techniques Mortality tables and interest rate curves \*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, mainly, structured loans to corporate clients. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 559 EUR million Fair values calculated using internal models at Fair values calculated using internal models at 2020\* 2019\* Level 2 Level 3 Level 2 Level 3 Valuation techniques ASSETS 146,468 8,543 149,711 6,651 Financial assets held for trading 67,826 740 63,051 598 Credit institutions 3 — — — Present Value method Customers\*\* 296 — 355 — Present Value method Debt and equity instruments 1,453 10 760 65 Present Value method Derivatives 66,074 730 61,936 533 Swaps 54,488 272 51,594 182 Present Value method, Gaussian Copula Exchange rate options 696 22 469 8 Black-Scholes Model Interest rate options 3,129 241 3,073 177 Black's Model, advanced multifactor interest rate models Interest rate futures 1,069 — 190 — Present Value method Index and securities options 554 94 1,164 95 Black's Model, advanced multifactor interest rate models Other 6,138 101 5,446 71 Present Value method, Advanced stochastic volatility models and other Hedging derivatives 8,325 — 7,216 — Swaps 6,998 — 6,485 — Present Value method Interest rate options 25 — 25 — Black’s Model Other 1,302 — 706 — Present Value method, Advanced stochastic volatility models and other Non-trading financial assets mandatorily at fair value through profit or loss 1,796 934 1,780 1,601 Equity instruments 984 505 1,272 550 Present Value method Debt securities issued 555 134 498 675 Present Value method Loans and receivables 257 295 10 376 Present Value method, swap asset model & CDS Financial assets designated at fair value through profit or loss 45,559 649 58,833 664 Central banks 9,481 — 6,474 — Present Value method Credit institutions 11,973 163 21,598 50 Present Value method Customers 24,102 19 30,729 32 Present Value method Debt instruments 3 467 32 582 Present Value method Equity instruments — — — — Present Value method Financial assets  at fair value through other comprehensive  income 22,962 6,220 18,831 3,788 Equity instruments 75 1,223 98 407 Present Value method Debt instruments 18,410 206 17,486 188 Present Value method Loans and receivables 4,477 4,791 1,247 3,193 Present Value method Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 560 EUR million Fair values calculated using internal models at Fair values calculated using internal models at 2020\* 2019\* Level 2 Level 3 Level 2 Level 3 Valuation techniques LIABILITIES 124,098 905 132,582 1,074 Financial liabilities held for trading 71,009 295 67,068 290 Derivatives 63,920 295 61,789 290 Swaps 51,584 81 49,927 115 Present Value method, Gaussian Copula\*\*\* Interest rate options 4,226 49 4,291 34 Black's Model, advanced multifactor interest rate models Exchange rate options 724 1 658 1 Black-Scholes Model Index and securities options 456 97 1,309 88 Black-Scholes Model Interest rate and equity futures 1,054 2 20 2 Present Value method Other 5,876 65 5,584 50 Present Value method, Advanced stochastic volatility models and other Short positions 7,089 — 5,279 — Present Value method Hedging derivatives 6,869 — 6,048 — Swaps 5,821 — 4,737 0 Present Value method Interest rate options 13 — 10 — Black’s Model Other 1,035 — 1,301 — Present Value method, Advanced stochastic volatility models and other Financial liabilities designated at fair value through profit or loss 45,310 610 58,727 784 Present Value method Liabilities under insurance contracts 910 — 739 — 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). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 561 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): •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. •Illiquid equity in non-trading portfolios, classified at fair value through profit or loss and at fair value through equity. •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. •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. •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 units (mainly South America)where for certain underlyings it is not possible to demonstrate observability to these terms. •Debt instruments referenced to certain illiquid interest rates, for which there is no reasonable market observability. 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 2021 arising from models whose significant inputs are unobservable market data (level 3) amounted to EUR 73 million profit (EUR 193 million profit in 2020 and EUR 85 million profit in 2019). The table below shows the effect, at 31 December 2021 and 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: Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 562 2021 Portfolio/Instrument Valuation technique Main unobservable inputs Range Weighted average Impacts (EUR million) (Level 3) Unfavourable scenario Favourable scenario Financial assets held for trading Derivatives Cap&Floor Volatility option model Volatility 10% - 90% 36.30% (0.50) 0.43 CCS Discounted Cash Flows Interest rate (0.7)% - 0.7% 0.73% (0.11) 0.11 CCS Forward estimation Interest rate 4bps - (4)bps (0.09)% (0.03) 0.03 Convertibility curve - inputs: NDFs Offshore Forward estimation Price 0% - 2% 0.61% (0.65) 0.28 EQ Options EQ option pricing model Volatility 0% - 90% 61.20% (0.24) 0.52 EQ Options Local volatility Volatility 10% - 90% 40.00% (6.82) 6.82 FRAs Asset Swap model Interest rate 0% - 4% 1.78% (0.91) 0.73 FX Options FX option pricing model Volatility 0% - 50% 32.14% (0.28) 0.50 Inflation Derivatives Asset Swap model Inflation Swap Rate (50)% - 50% 50.00% (0.56) 0.28 Inflation Derivatives Volatility option model Volatility 0% - 40% 13.29% (0.47) 0.24 IR Futures Asset Swap model Interest rate 0% - 15% 5.91% (1.09) 0.71 IR Options IR option pricing model Volatility 0% - 60% 36.28% (0.20) 0.31 IRS Asset Swap model Interest rate (6)% - 12.80% 10.36% (0.07) 0.13 IRS Discounted Cash Flows Credit spread 103.10bps - 375.6bps 71.91% (7.21) 4.16 IRS Discounted Cash Flows Inflation Swap Rate (0.8)% - 6.5% 1.81% (0.04) 0.01 IRS Discounted Cash Flows Swap Rate 7.7% - 8.2% (2.87)% (0.23) 0.10 IRS Forward estimation Interest rate TIIE91 (8.98)bps  - TIIE91 +11.12bps n.a. (0.27) 0.17 IRS Forward estimation Prepayment rate 6% - 12% n.a. — — IRS Others Others 0.05% n.a. (1.49) — IRS Prepayment modelling Prepayment rate 2.5% - 6.2% 0.44% (0.09) 0.05 Property derivatives Option pricing model Growth rate 0% - 5% 2.50% (2.62) 2.62 Swaptions IR option pricing model Volatility 0% - 40% 26.67% (0.13) 0.27 Debt securities Corporate debt Price based Market price 85% - 115% 15.00% — — Financial assets designated at fair value through profit or loss Loans and advances to customers Loans Discounted Cash Flows Credit spreads 0.1% - 1.4% 0.66% (0.26) 0.26 Mortgage portfolio Black Scholes model Growth rate 0%- 5% 2.50% (1.9) 1.90 Debt securities Corporate debt Discounted Cash Flows Credit spread 0% - 20% 9.88% (1.23) 1.20 Government debt Discounted Cash Flows Discount curve 0% - 10% 8.33% (4.14) 20.69 Other debt securities Others Inflation Swap Rate 0% - 10% 4.74% (5.47) 4.92 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 563 2021 Portfolio/Instrument Valuation technique Main unobservable inputs Range Weighted average Impacts (EUR million) (Level 3) Unfavourable scenario Favourable scenario Non-trading financial assets mandatorily at fair value through profit or loss Debt securities Corporate debt Discounted Cash Flows Margin of a reference portfolio (1)bp - 1bp 0.01 (0.56) 0.60 Property securities Probability weighting Growth rate 0% - 5% 2.50% (1.19) 1.19 Equity instruments Equities Price Based Price 90% - 110% 10.00% (123.1) 123.10 Financial assets at fair value through other comprehensive income Loans and advances to customers Loans Discounted Cash Flows Credit spread n.a. n.a. (19.84) — Loans Discounted Cash Flows Interest rate curve (0.1)% - 0.1% 0.12% (0.07) 0.07 Loans Discounted Cash Flows Margin of a reference portfolio (1)bp - 1bp 1.00% (13.12) 13.04 Loans Forward estimation Credit spread 77bps - 242bps n.a. — — Debt securities Government debt Discounted Cash Flows Interest rate 0.6% - 0.8% 0.09% (0.01) 0.01 Equity instruments Equities Price Based Price 90% - 110% 10.00% (82.13) 82.13 Financial liabilities held for trading Derivatives Cap&Floor Volatility option model Volatility 10% - 90% 36.30% (0.5) 0.43 Financial liabilities designated at fair value through profit or loss Loans and advances to customers Repos/Reverse repos Asset Swap Repo Model Long-term repo spread n.a n.a. (0.36) — Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 564 Financial assets held for trading Derivatives Cap&Floor Volatility option model Volatility 10% - 90% 31.55% (0.07) 0.05 CCS Discounted Cash Flows Interest rate (0.30)% - 0.66% 0.66% — 0.20 Convertibility curve - NDFs Offshore Forward estimation Price 0% - 2% 0.61% (0.72) 0.31 EQ Options EQ option pricing model Volatility 7.86% - 93.67% 48.37% (1.46) 1.81 FRAs Asset Swap model Interest rate 0% - 5% 2.22% (0.78) 0.63 FX Forward Discounted Cash Flows Swap Rate (0.02)% - (0.30)% 0.11% — — FX Options FX option pricing model Volatility 0% - 50% 32.14% (0.39) 0.70 Inflation Derivatives Asset Swap model Inflation Swap Rate (100)% - 50% 83.33% (0.63) 0.31 Inflation Derivatives Volatility option model Volatility 0% - 50% 16.67% (0.47) 0.23 IR Futures Asset Swap model Interest rate 0% - 15% 0.94% (0.94) 0.06 IR Options IR option pricing model Volatility 0% - 100% 19.05% (0.27) 0.06 IRS Asset Swap model Interest rate (6)% - 12.50% 10% (0.08) 0.13 IRS Discounted Cash Flows Swap Rate 5.90% - 6.31% 2.26% (0.01) 0.02 IRS Discounted Cash Flows Credit spread 78.97 bps - 202.37 bps 9.82 bps (2.81) 1.29 IRS Prepayment modelling Prepayment rate 2.47% - 6.22% 0.06% (0.12) 0.05 Property derivatives Option pricing model HPI Forward growth rate and HPI Spot rate 0% - 5% 2.50% (17.82) 17.82 Swaptions IR option pricing model Volatility 0% - 50% 33.33% (0.16) 0.31 Financial assets designated at fair value through profit or loss Loans and advances to customers Repos / Reverse repos Asset Swap Repo Model Long-term repo spread n/a n/a (0.18) 0.23 Mortgage portfolio Black Scholes model HPI Forward growth rate 0% - 5% 2.50% (2.23) 2.23 Other loans Present value method Credit spreads 0.07% - 1.55% 0.74% (0.35) 0.35 Debt securities Government debt Discounted Cash Flows Interest rate 0% - 10% 8.33% (0.78) 3.91 Other debt securities Price based Market Price 90% - 110% 10% (0.15) 0.15 Property securities Probability weighting HPI Forward growth rate and HPI Spot rate 0% - 5% 2.50% (7.24) 7.24 Non-trading financial assets mandatorily at fair value through profit or loss Equity instruments Equities Price Based Price 90% - 110% 10% (50.47) 50.47 Financial assets at fair value through other comprehensive income Loans and advances to customers Loans Discounted Cash Flows Credit spread n/a n/a (6.72) — Loans Discounted Cash Flows Interest rate curve (0.15)% - 0.15% 0.15% (0.09) 0.09 Other loans Present value method Credit spreads 0.15% - 0.53% 0.19% (0.04) 0.04 Debt securities Government debt Discounted Cash Flows Interest rate 1.1% - 1.3% 0.10% — — Equity instruments Equities Price Based Price 90% - 110% 10% (122.14) 122.14 Financial liabilities held for trading Derivatives Cap&Floor Volatility option model Volatility 10% - 90% 34.61% (0.02) 0.01 EQ Options Option pricing model HPI Forward growth rate and HPI Spot rate 0% - 5% 2.50% (6.35) 6.35 2020 Portfolio/ Instrument Impacts (EUR million) (Level 3) Valuation technique Main unobservable inputs Range Weighted average Unfavourable scenario Favourable scenario Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 565 Lastly, the changes in the financial instruments classified as Level 3 in 2021, 2020 and 2019 were as follows: Financial assets held for trading 740 136 (124) (181) — (15) (19) 537 Debt instruments 7 20 (2) (2) — — (1) 22 Equity instruments 3 — (1) — — — — 2 Trading derivatives 730 116 (121) (179) — (15) (18) 513 Swaps 272 5 (33) (35) — 33 (18) 224 Exchange rate options 22 14 (27) 3 — — — 12 Interest rate options 241 7 (39) (27) — — — 182 Index and securities options 94 18 (12) (51) — (8) — 41 Other 101 72 (10) (69) — (40) — 54 Financial assets at fair value through profit or loss 649 59 (120) (11) — (163) 4 418 Credit entities 163 — — — — (163) — — Loans and advances to customers 19 — (2) — — — 1 18 Debt instruments 467 59 (118) (11) — — 3 400 Non-trading financial assets mandatorily at fair value through profit or loss 934 534 (251) 127 — 485 36 1,865 Customers 295 122 (149) — — (3) 3 268 Debt instruments 134 206 (28) 28 — 17 9 366 Equity instruments 505 206 (74) 99 — 471 24 1,231 Financial assets at fair value through other comprehensive income 6,220 5,681 (6,588) — (228) (241) 3 4,847 Loans and advances 4,791 5,597 (6,298) — (37) (173) — 3,880 Debt instruments 206 75 (25) — (43) (68) 1 146 Equity instruments 1,223 9 (265) — (148) — 2 821 TOTAL ASSETS 8,543 6,410 (7,083) (65) (228) 66 24 7,667 Financial liabilities held for trading 295 85 (42) (138) — (21) (19) 160 Trading derivatives 295 85 (42) (138) — (21) (19) 160 Swaps 81 4 (10) (36) — 3 2 44 Exchange rate options 1 2 — 4 — — — 7 Interest rate options 49 26 (19) (8) — — (22) 26 Index and securities options 97 23 (5) (27) — (22) 1 67 Securities and interest rate futures 2 — (2) — — — — — Others 65 30 (6) (71) — (2) — 16 Financial liabilities designated at fair value through profit or loss 610 143 — — — (289) 5 469 TOTAL LIABILITIES 905 228 (42) (138) — (310) (14) 629 01/01/2021 Changes 31/12/2021 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 Other Fair value calculated using internal models (level 3) Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 566 01/01/2020 Changes 31/12/2020 EUR million Fair value calculated using internal models (level 3) Purchases /Issuances Sales/ Settlements Changes in fair value recognized in profit or loss Changes in fair value recognized in equity Level reclassifications Other Fair value calculated using internal models (level 3) Financial assets held for trading 598 52 (98) 330 — (45) (97) 740 Debt instruments 65 7 (27) 1 — — (39) 7 Equity instruments — 3 — — — — — 3 Trading derivatives 533 42 (71) 329 — (45) (58) 730 Swaps 182 — (8) 116 — (8) (10) 272 Exchange rate options 8 — — 15 — — (1) 22 Interest rate options 177 15 (12) 61 — — — 241 Index and securities options 95 25 (43) 85 — (38) (30) 94 Other 71 2 (8) 52 — 1 (17) 101 Financial assets at fair value through profit or loss 664 280 (45) 17 — (91) (176) 649 Credit entities 50 164 — (1) — (50) — 163 Loans and advances to customers 32 — (15) 3 — — (1) 19 Debt instruments 582 116 (30) 15 — (41) (175) 467 Non-trading financial assets mandatorily at fair value through profit or loss 1,601 120 (292) (36) — (119) (340) 934 Loans and advances to customers 376 104 (136) 12 — (30) (31) 295 Debt instruments 675 — (144) (63) — 2 (336) 134 Equity instruments 550 16 (12) 15 — (91) 27 505 Financial assets at fair value through other comprehensive income 3,788 8,795 (7,616) — (390) 571 1,072 6,220 TOTAL ASSETS 6,651 9,247 (8,051) 311 (390) 316 459 8,543 Financial liabilities held for trading 290 40 (14) 130 — (96) (55) 295 Trading derivatives 290 40 (14) 130 — (96) (55) 295 Swaps 115 8 — (7) — (26) (9) 81 Exchange rate options 1 — — 2 — — (2) 1 Interest rate options 34 11 (2) 6 — — — 49 Index and securities options 88 21 (8) 95 — (70) (29) 97 Securities and interest rate futures 2 — — — — — — 2 Others 50 — (4) 34 — — (15) 65 Financial liabilities designated at fair value through profit or loss 784 4 (3) (12) — (32) (131) 610 TOTAL LIABILITIES 1,074 44 (17) 118 — (128) (186) 905 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 567 01/01/2019 Changes 31/12/2019 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 Other Fair value calculated using internal models (level 3) Financial assets held for trading 738 142 (80) 115 — (317) — 598 Debt instruments and equity instruments 153 34 (38) 4 — (88) — 65 Trading derivatives 585 108 (42) 111 — (229) — 533 Swaps 185 10 (14) 22 — (20) (1) 182 Exchange rate options 2 — — 6 — — — 8 Interest rate options 149 — (5) 33 — — — 177 Index and securities options 198 48 (18) 50 — (182) (1) 95 Other 51 50 (5) — — (27) 2 71 Hedging derivatives (Assets) 21 — — — — (21) — — Swaps 21 — — — — (21) — — Financial assets designated at fair value through profit or loss 876 55 (16) 65 — (261) (55) 664 Credit entities 201 — — — — (151) — 50 Loans and advances to customers 560 20 (9) (1) — (496) (42) 32 Debt instruments 115 35 (7) 66 — 386 (13) 582 Non-trading financial assets mandatorily at fair value through profit or loss 1,403 426 (325) 81 — — 16 1,601 Loans and advances to customers 460 126 (252) 21 — — 21 376 Debt instruments 481 199 (7) (10) — — 12 675 Equity instruments 462 101 (66) 70 — — (17) 550 Financial assets at fair value through other comprehensive income 1,435 4,424 (1,698) — (190) (252) 69 3,788 TOTAL ASSETS 4,473 5,047 (2,119) 261 (190) (851) 30 6,651 Financial liabilities held for trading 289 136 (12) 45 — (164) (4) 290 Trading derivatives 289 136 (12) 45 — (164) (4) 290 Swaps 111 6 (5) (17) — 20 — 115 Exchange rate options 7 1 — — — (7) — 1 Interest rate options 26 — — 8 — — — 34 Index and securities options 143 79 (7) 51 — (177) (1) 88 Securities and interest rate futures — 3 — — — — (1) 2 Other 2 47 — 3 — — (2) 50 Hedging derivatives (Liabilities) 6 — — — — (6) — — Swaps 6 — — — — (6) — — Financial liabilities designated at fair value through profit or loss 147 298 (5) 31 — 313 — 784 TOTAL LIABILITIES 442 434 (17) 76 — 143 (4) 1,074 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 568 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 569 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. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 570 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. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 571 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 2021, 2020 and 2019: 31 December 2021 EUR million Assets Gross amount of financial assets Gross amount of financial assets offset in the balance sheet Net amount of financial assets presented in the balance sheet Derivatives 101,485 (42,432) 59,053 Reverse repurchase agreements 72,023 (13,917) 58,106 Total 173,508 (56,349) 117,159 31 December 2020 EUR million Assets Gross amount of financial assets Gross amount of financial assets offset in the balance sheet Net amount of financial assets presented in the balance sheet Derivatives 136,437 (60,975) 75,462 Reverse repurchase agreements 82,865 (16,078) 66,787 Total 219,302 (77,053) 142,249 31 December 2019 EUR million Assets Gross amount of financial assets Gross amount of financial assets offset in the balance sheet Net amount of financial assets presented in the balance sheet Derivatives 126,389 (55,776) 70,613 Reverse repurchase agreements 89,465 (5,168) 84,297 Total 215,854 (60,944) 154,910 31 December 2021 EUR million Liabilities Gross amount of financial liabilities Gross amount of financial liabilities offset in the balance sheet Net amount of financial liabilities presented in the balance sheet Derivatives 101,461 (42,432) 59,029 Reverse repurchase agreements 73,424 (13,916) 59,508 Total 174,885 (56,348) 118,537 31 December 2020 EUR million Liabilities Gross amount of financial liabilities Gross amount of financial liabilities offset in the balance sheet Net amount of financial liabilities presented in the balance sheet Derivatives 132,313 (60,975) 71,338 Reverse repurchase agreements 77,925 (16,078) 61,847 Total 210,238 (77,053) 133,185 31 December 2019 EUR million Liabilities Gross amount of financial liabilities Gross amount of financial liabilities offset in the balance sheet Net amount of financial liabilities presented in the balance sheet Derivatives 124,840 (55,776) 69,064 Reverse repurchase agreements 81,087 (5,168) 75,919 Total 205,927 (60,944) 144,983 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 572 At 31 December 2021, Grupo Santander has offset other items amounting to EUR 1,188 million (EUR 1,194 million and EUR 1,366 million at 31 December  2020 and 2019, respectively). At 31 December 2021 the balance sheet shows the amounts EUR 106,430 million (EUR 130,653 million and EUR 141,201 million at 31 December 2020 and 2019) on derivatives and repos as assets and EUR 104,130 million (EUR 122,416 million and EUR 134,694 million at 31 December 2020 and 2019) 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 573 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 criteria Changes 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 53, 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. 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: Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 574 - 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. 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 scenarios 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 scenarios. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 575 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. Grupo Santander will partially and voluntarily align during 2022 the accounting definition of Stage 3, as well as for the calculation of impairment provision models, to the New Definition of Default, incorporating the criteria defined by the EBA in its implementation guide of the definition of default, capturing the economic deterioration of the operations (days in default - on a daily basis - and materiality thresholds - minimum amount in arrears). The alignment of criteria will be done taking into account the criteria of IFRS 9 as well as the accounting principles of unbiased presentation of financial information. The expected increase in the default rate is estimated at around 24 basis points, with no material impact on the provision figures for credit risk. 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 approach). •Recovery through the execution and sale of the collateral guaranteeing the operations (gone approach). Gone 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: Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 576 •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 reputable 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 on 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. Impairment individual assessment scope 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 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 577 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 2021 are as follows: Gloval Valuation, S.A.U., Tinsa Tasaciones Inmobiliarias, S.A.U., Gesvalt Sociedad de Tasacion, S.A. and Sociedad de tasacion, 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. 1.The assets in a situation of 'stopped development' are included under 'land' At 31 December 2021 the fair value less costs to sell of non-current assets held for sale exceeded their carrying amount by EUR 567 million (EUR 560 million at 31 December 2020); 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 subsequent amendments, 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). 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 578 In the case of real estate assets foreclosed in Spain, which represent 91% 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. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 579 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, licenses, 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. •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: Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 580 •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. 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: 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 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 581 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 use 2.7% Furniture 8.5% Fixtures 8.5% Office and IT equipment 23.8% Lease use rights Less 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). The main aspects contained in the regulation (IFRS 16) adopted by the Group are included below: 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 582 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: –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). 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 (CGUs) (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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 583 An impairment loss recognised for goodwill is not reversed in a subsequent period. In the event of sale or departure of an activity that is part of a CGU, the part of the goodwill that can be assigned to said activity would be written-off, taking as a reference the relative value of the same over the total of the CGU at the time of sale or abandonment. If applicable, the distribution by currency of the remaining goodwill will be performed based on the relative values of the remaining activities. 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. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 584 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 2021 certain court proceedings and claims were in process against the consolidated entities arising from the ordinary course of their operations (see note 25). 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 585 ▪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. 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 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 586 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'. •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. 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 317.4 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. Differences generated by the different accounting and tax treatment of any of the income and expenses recorded directly in equity to be paid or recovered in the future are accounted for as temporary differences. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 587 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 The analysis of the maturities of the balances of certain items in the consolidated balance sheet. 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 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 2021 Grupo Santander received interest amounting to EUR 48,081 million (EUR 43,953 million and EUR 55,269 million in 2020 and 2019, respectively) and paid interest amounting to EUR 12,738 million (EUR 13,690 million and EUR 20,671 million in 2020 and 2019, 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 588 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 in the last three years or pending to be completed: i. Purchase by SHUSA for shares of Santander Consumer USA In August 2021 Santander Holdings USA, Inc. ('SHUSA') and Santander Consumer USA Holdings Inc. ('SC') entered into a definitive agreement pursuant to which SHUSA acquired all outstanding shares of common stock of SC not already owned by SHUSA via an all-cash tender offer (the 'Tender Offer') for USD 41.50 per SC common share (the 'Offer Price'), followed by a second-step consisting of a merge (together with the Offer, the 'Transaction') in which a wholly owned subsidiary of SHUSA was merged with and into SC, with SC surviving as a wholly owned subsidiary of SHUSA, and all outstanding shares of common stock of SC not tendered in the Tender Offer were converted into the right to receive the Offer Price in cash. The Offer Price represented a 14% premium to the closing price of SC common stock of USD 36.43 as of 1 July 2021, the last day prior to the announcement of SHUSA’s initial offer to acquire the remaining outstanding shares of SC’s common stock. On 31 January 2022, after completion of the customary closing conditions, the Transaction was performed and SHUSA increased its share up to the 100% of SC's common stock. The transaction has meant a disbursement of USD 2,510 million (around EUR 2,239 million) for the Group. ii. Acquisition of Amherst Pierpont, a U.S. fixed-income broker dealer On 15 July 2021, Santander Holdings USA, Inc. reached an agreement to acquire Amherst Pierpont Securities, a market-leading independent fixed-income and structured products broker dealer, through the acquisition of its parent holding company, Pierpont Capital Holdings LLC, for a total consideration of approximately USD 600 million (around EUR 530 million). Amherst Pierpont will become part of Santander Corporate & Investment Banking (Santander CIB) Global business line. The transaction is expected to close upon receipt of relevant regulatory approvals. iiiTender offer for shares of Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México On 26 March 2021, Banco Santander, S.A. announced its intention to make a tender offer for all shares of Banco Santander Mexico, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México ('Santander México') that were not owned by Grupo Santander, representing (after the execution of the operation referred to in point vii. below) approximately 8.3% of the share capital of Santander México. The announcement was subsequently supplemented by other publications on 24 May, 8 June and 28 October 2021, in which amendments to some of the terms of the offer were announced. The offer was finally launched on 3 November 2021 and was settled on 10 December. Banco Santander accepted all of the Santander Mexico Shares and Santander Mexico American Depositary Share (ADS) (securities listed on the New York Stock Exchange, each representing 5 shares of Santander Mexico) tendered and not withdrawn representing approximately 4.5% of the share capital of Santander México. After the transaction, Santander Group holds approximately 96.2% of Santander México share capital. The shareholders who have tendered their shares in the offer have received MXN 26.5 (approximately EUR 1) per share of Santander México and USD 6.2486 in cash per each ADS (the USD equivalent of MXN 132.50 per ADS based on the USD/MXN exchange rate on the expiration date of 7 December 2021) which has meant a disbursement of approximately EUR 335 million. This transaction has entailed a decrease of reserves of EUR 41 million and a decrease of EUR 294 million of minority interests. iv.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. v. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 589 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. vi. 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. vii . 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 (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. c) Offshore entities According to current Spanish regulation (Law 11/2021, of 9 July and Royal Decree 1080/1991, of 5 July), Santander has one subsidiary and three branches in the non-cooperative jurisdictions of Jersey, the Isle of Man and the Cayman Islands (offshore entities). Santander also has three other subsidiaries incorporated in non-cooperative jurisdictions that are tax resident in the UK and subject to British tax law. i. Offshore subsidiaries A subsidiary resident in the Isle of Man was liquidated in 2021 so, at the reporting date, Grupo Santander has only one subsidiary resident in Jersey: Abbey National International Limited. In 2021, this subsidiary’s contribution to Santander’s consolidated profit was insubstantial. ii. Offshore branches Grupo Santander also has three 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 (Jersey and Isle of Man, pertain to the UK). The entities mentioned in Sections I and II had 147 employees as of December 2021. iii. Subsidiaries in non-cooperative jurisdictions that are tax resident in the United Kingdom Grupo Santander also has three subsidiaries (one in liquidation) that were incorporated in offshore jurisdictions 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 590 iv. Other offshore holdings From Brazil, Grupo Santander manages Santander Brazil Global Investment Fund SPC, a segregated portfolio company located in the Cayman Islands. It also has two small financial investments in entities located in the Cayman Islands. In 2021, Guaranteed Investment Products 1 PCC Limited, a protected cell company found in Guernsey managed from the UK, was liquidated. Organization for Economic Cooperation and Development (OECD) Grupo Santander is not in any of the non-cooperative jurisdictions the OECD released in November 2021. 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 2021, the EU’s blacklist comprises 9 jurisdictions where Santander is not present. Additionally, the EU’s grey list comprises 15 jurisdictions which have sufficiently committed to adapt legislation to international standards, subject to monitoring by the EU. Within these jurisdictions, Santander is only present in Uruguay and Hong Kong mainly through Banco Santander S.A. in Uruguay and a branch in Hong Kong. The Group's presence in offshore territories at the end of 2021 is as follows: Presence of the Group in non- cooperative jurisdictions Spanish legislation OECD European Commission Blacklist Sub. Branch Sub. Branch Sub. Branch Jersey 1 1 Isle of Man 1 Guernsey\* Bermuda\* Cayman Islands 1 2021 1 3 — — — — 2020 2 3 — — — — \*Additionally, there are 2 entities constituted in Guernsey (1 in liquidation) and 1 in Bermuda, but resident for tax purposes in the United Kingdom. Changes to Spain's tax law On 10 July 2021, Law 11/2021 on measures to prevent and fight against tax fraud was published in the Official Estate Gazette. 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 in entities resident in non- cooperative jurisdictions. Grupo Santander also maintains its policy of reducing the number of these entities. PwC (PricewaterhouseCoopers) member firms audited the financial statements of Grupo Santander’s offshore entities in 2021, 2020 and 2019. 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 distribution of the Bank's net profit against the results for 2021, that the board of directors will propose for approval by the shareholders at the annual general meeting is as follows: EUR million To dividends 1,701 Dividend paid prior to the meeting date\* 836 Complementary dividend\*\* 865 To voluntary reserves\*\*\* 2,231 Net profit for the year 3,932 \*Total amount paid as interim dividend, at the rate of EUR 4.85 fixed cents per eligible share (recorded in 'Shareholders' equity - Interim dividends'). \*\*Fixed dividend of EUR 5.15 gross cents per eligible share, payable in cash as from 2 May 2022. The total amount has been estimated on the assumption that, after the implementation of the second buy-back programme announced on 24 February 2022, the number of the Bank's outstanding shares eligible for the dividend will be 16,804,353,202. \*\*\*Estimated amount corresponding to a final dividend of EUR 865 million. To be increased or reduced by the same amount by which the final dividend is lower or higher, respectively, than that amount. The transcribed proposal comprises the part of the 2021 shareholder remuneration policy that is implemented through cash dividends (the interim dividend paid in November 2021 of  EUR 4.85 cents per share with dividend entitlement and the final dividend expected to be paid as of 2 May 2022, subject to approval by the general meeting of shareholders, of EUR 5.15 cents per share with dividend entitlement). In addition, the 2021 remuneration policy also provided for shareholder remuneration through the implementation of share buyback programs, which are not reflected in the above-transcribed proposal for the appropriation of earnings. The first of these programs, amounting to approximately EUR 841 million, was completed between October and November 2021. Subject to obtaining the appropriate regulatory approvals, a second repurchase program for approximately EUR 865 million is planned to be launched. Capital reduction resolutions are also submitted to the general shareholders' meeting to redeem the treasury shares acquired in each of the two repurchase programs, also subject to the relevant regulatory authorizations. Finally, and although it is not part of the remuneration charged to the 2021 financial year, it should be noted that in May 2021 Banco Santander paid a dividend of EUR 2.75 cents in cash per share corresponding to the 2020 financial year against share premium, for an amount of EUR 477 million, this being the maximum amount allowed in accordance with the limit established by the recommendation of the European Central Bank of 15 December 2020. This payment was made in execution of the premium distribution resolution approved at the General Shareholders' Meeting of Banco Santander held on 27 October 2020. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 591 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: 2021 2020 2019 Profit (Loss) attributable to the Parent (EUR million) 8,124 (8,771) 6,515 Remuneration of contingently convertible preference shares (CCP) (EUR million) (note 23) (566) (552) (595) 7,558 (9,323) 5,920 Of which: Profit (Loss) from discontinued operations (non controlling interest net) (EUR million) — — — Profit (Loss) from continuing operations (PPC net) (EUR million) 7,558 (9,323) 5,920 Weighted average number of shares outstanding 17,272,055,430 17,316,288,908 16,348,415,883 Impact factor correction\* Not applicable Not applicable 710,800,691 Adjusted number of shares 17,272,055,430 17,316,288,908 17,059,216,574 Basic earnings (Loss) per share (euros) 0.438 (0.538) 0.347 Of which, from discounted operations (euros) — — — Basic earnings (Loss) per share from continuing operations (euros) 0.438 (0.538) 0.347 \*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: 2021 2020 2019 Profit (Loss) attributable to the Parent (EUR million) 8,124 (8,771) 6,515 Remuneration of contingently convertible preference shares (CCP) (EUR million) (Note 23) (566) (552) (595) Dilutive effect of changes in profit for the period arising from potential conversion of ordinary shares — — — 7,558 (9,323) 5,920 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) 7,558 (9,323) 5,920 Weighted average number of shares outstanding 17,272,055,430 17,316,288,908 16,348,415,883 Dilutive effect of options/ rights on shares 48,972,459 Not applicable 35,891,644 Impact factor correction\* Not applicable Not applicable 712,361,197 Adjusted number of shares 17,321,027,889 17,316,288,908 17,096,668,724 Diluted earnings (Loss) per share (euros) 0.436 (0.538) 0.346 Of which, from discounted operations (euros) — — — Diluted earnings (Loss) per share from continuing operations (euros) 0.436 (0.538) 0.346 \*Correction factor for the capital increase released on 3 December 2020 (see notes 1.d and 31.a). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 592 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 2021 and 2020: 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 2021 (same amount as in 2020), with two components: (a) an annual emolument and (b) attendance fees. In regard to 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 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 2021 amounted to EUR 4.8 million (4.1 million in 2020). Annual emolument In 2021,  the board voted not to change the fees amount set out in the 2020 policy ahead of the aforementioned exceptional decision and, per the remuneration policy approved at the 2021 AGM. Additionally,  the innovation and technology committee also began to be remunerated, and its members received EUR 25,000 and its Chair, an additional EUR 70,000. The annual amounts received individually by the directors in 2021 and 2020 based on the positions held by them on the board and their membership of the board committees were as follows: 2021 2020 Amount per director in euros 1 Jan to 31 Mar 1 Apr to 31 Dec Members of the board of directors 90,000 22,500 49,500 Members of the executive committee 170,000 42,500 93,500 Members of the audit committee 40,000 10,000 22,000 Members of the appointments committee 25,000 6,250 13,750 Members of the remuneration committee 25,000 6,250 13,750 Members of the risk supervision, regulation and compliance committee 40,000 10,000 22,000 Members of the responsible banking, sustainability and culture committee 15,000 3,750 8,250 Members of the innovation and technology committee 25,000 — — Chairman of the audit committee 70,000 17,500 38,500 Chairman of the appointments committee 50,000 12,500 27,500 Chairman of the remuneration committee 50,000 12,500 27,500 Chairman of the risk supervision, regulation and compliance committee 70,000 17,500 38,500 Chairman of the responsible banking, sustainability and culture committee 50,000 12,500 27,500 Chairman of the innovation and technology committee 70,000 — — Lead director\* 110,000 27,500 60,500 Non-executive vice chairmen 30,000 7,500 16,500 \*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 to 31 December, which is shared by Mr. Bruce Carnegie-Brown, the same reduction was applied to this amount. Accordingly, the amount assigned for 2020 was 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. Like the annual allotment, the board voted not to change the fees amount set out in the 2020 policy ahead of the aforementioned exceptional decision and, per the remuneration policy approved at the 2021 AGM, added attendance fees for innovation and technology committee members (which they did not receive before). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 593 The fees for 2021 and 2020 are as follows: 2021 2020 Attendance fees per director per meeting in euros 1 Jan to 31 Mar 1 Apr to 31 Dec Board of directors 2,600 2,600 2,080 Audit committee and risk supervision, regulation and compliance committee 1,700 1,700 1,360 Other committees (excluding executive committee) 1,500 1,500 1,200 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 2023 and 2024)  will be conditional on none of the malus clauses being triggered. –The accrual of the third, fourth, and fifth portion (payment in 2025, 2026 and 2027), is linked to objectives related to the period 2021—2023 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 2021, 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, he has been considered as an executive director since his appointment as director became effective on 30 May 2020 by virtue of Article 529 duodecies of the Spanish Companies Act in light of his role as CEO and vice-chairman of Banco Santander Brasil, S.A. In 2021 he received as fixed pay for his role as Regional head for South America, the EUR 750,000 euros that had been approved at the 2021 AGM as part of the 2021 remuneration policy. He has not received any other remuneration for executive functions in Banco Santander, S.A. The same policy and principles above apply to Sergio Rial's remuneration as CEO in Santander Brasil. Comparative of Executive Remuneration (Chairman and CEO) The board resolved to maintain the same gross annual salary for Ana Botín and José Antonio Álvarez for 2021 as in 2020. It also maintained the fixed pension contribution of 22% of gross annual salary it had declared in 2020 for 2021. Comparing with the previous year, it should be mentioned that amid the covid-19 health crisis in 2020, Ana Botín and José Antonio Álvarez proposed to reduce their total 2020 compensation (salary and bonus) by 50%. 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. And in 2021, the good business performance (which enabled Banco Santander to reach a 12.73% underlying RoTE, above the end of 2019), the excellent execution of our strategy (with the highest underlying attributable profit of the last 12 years), and the efficient capital management, boosted the bonus pool and thus the variable remuneration of corporate centre employees, (including executive directors). iii. Detail by director The detail, by bank director, of the short-term (immediate) and deferred (not subject to long-term goals) remuneration for 2021 and 2020 is provided below: Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 594 EUR thousand 2021 Bylaw-stipulated emoluments Annual emolument BoardM Executive committee Audit committee Appointments committee Remuneration committee Risk supervision, regulation and compliance oversight committee Responsible banking, sustainability and culture committee Innovation and technology committee Attendance fees and commissions Ana Botín 90 170 — — — — — 25 45 José Antonio Álvarez 90 170 — — — — — 25 45 Bruce Carnegie- Brown 276 170 — 75 75 — — 25 80 Homaira Akbari 90 — 40 — — — 15 25 78 Javier BotínA 90 — — — — — — — 39 Álvaro CardosoB 90 — — — — 28 15 — 50 R.Martín ChávezC 90 — — 25 25 40 — 95 99 Sol Daurella 90 — — 25 25 — 15 — 84 Henrique de CastroD 90 — 40 — 25 — — 25 87 Gina DíezE 90 — — 1 — — — — 39 Luis IsasiF 90 170 — — 25 40 — — 81 Ramiro Mato 90 170 40 — — 40 65 — 94 Sergio RialG 90 — — — — — — — 39 Belén Romana 90 170 40 — — 93 15 25 100 Pamela WalkdenH 90 — 110 — — 27 — — 76 Rodrigo EcheniqueI — — — — — — — — — Ignacio BenjumeaJ — — — — — — — — — Guillermo de la DehesaK — — — — — — — — — Esther Giménez- SalinasL — — — — — — — — — Total 2021 1,536 1,020 270 126 175 268 125 245 1,035 Total 2020 1,303 915 208 133 138 252 135 — 1,066 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. MAlso includes emoluments for other roles in the board. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 595 2021 2020 Short-term and deferred (not subject to long-term goals) salaries of executive directors Fixed Variable - immediate payment Deferred variable In cash In shares In cash In shares Total Pension contribution Other remuneration Total Total Ana Botín 3,176 1,838 1,839 1,103 1,103 9,059 1,041 1,006 11,436 6,819 José Antonio Álvarez 2,541 1,241 1,240 744 745 6,511 783 1,536 9,160 6,019 Bruce Carnegie- Brown — — — — — — — — 700 595 Homaira Akbari — — — — — — — — 248 203 Javier BotínA — — — — — — — — 129 122 Álvaro CardosoB — — — — — — — — 183 243 R.Martín ChávezC — — — — — — — — 374 37 Sol Daurella — — — — — — — — 239 214 Henrique de CastroD — — — — — — — — 267 217 Gina DíezE — — — — — — — — 130 4 Luis IsasiF — — — — — — — 1,000 1,406 943 Ramiro Mato — — — — — — — — 499 431 Sergio RialG 750 — — — — 750 — — 879 63 Belén Romana — — — — — — — — 533 418 Pamela WalkdenH — — — — — — — — 303 214 Rodrigo EcheniqueI — — — — — — — — — 1,956 Ignacio BenjumeaJ — — — — — — — — — 276 Guillermo de la DehesaK — — — — — — — — — 107 Esther Giménez- SalinasL — — — — — — — — — 192 Total 2021 6,467 3,079 3,079 1,847 1,848 16,320 1,824 3,542 26,486 — Total 2020 5,717 514 515 308 309 7,363 2,019 5,537 — 19,073 Footnotes in previous table. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 596 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 2021 2020 Variable subject to Long-term objectives1 In cash In shares Total Total Ana Botín 1,158 1,158 2,316 420 José Antonio Álvarez 782 782 1,563 228 Total 1,940 1,940 3,880 648 1. Corresponds with the fair value of the maximum amount they are entitled to in a total of 3 years: 2025, 2026 and 2027, 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 2021 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 2021 and 2020 variable remuneration plans. In addition to the EUR 750,000 Sergio Rial received as Regional head for South America, he was paid the following amounts as CEO of Santander Brasil (additionally, in the following table, it is also disclosed the variable subject to long-term objectives at 70% of fair value): 2021 BRL thousand EUR thousand Base salary 12,645 1,985 Other fixed benefits 47 7 Pensions 7,350 1,153 Variable remuneration immediately payable and deferred (not linked to long-term objectives) 26,600 4,018 Total 46,642 7,163 EUR thousand 2021 2020 Variable subject to Long-term objectives In cash In shares Total Total Sergio Rial 791 791 1,582 1,311 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 2021 and 2020 the Bank’s directors did not receive any remuneration in respect of these representative duties. On the other hand, in their personal capacity, in 2021 Álvaro Cardoso was paid BRL 2,130 thousand (EUR 334 thousand) as non-executive chairman of Banco Santander Brasil, S.A., Homaira Akbari was paid USD 190 thousand (EUR 161 thousand) as member of the board of Santander Consumer USA (SCUSA) and EUR 52 thousand as member of the Board of PagoNxt, and Henrique de Castro and R. Martín Chávez were each paid the same EUR 52 thousand as members of the board of PagoNxt. Likewise, Pamela Walkden was paid GBP 31 thousand (EUR 36 thousand) as member of Santander UK plc y Santander UK Group Holdings. Likewise, Luis Isasi was paid EUR 1,000 thousand as non-executive chairman of the board of Santander Spain and for attending board and committee meetings (amounts 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. Upon revision in 2021, José Antonio Álvarez’s contract precluded the right to early retirement if terminated. Furthermore, Ana Botín is not entitled to early retirement if she freely resigns; however, she will still be entitled to it if Banco Santander terminates her contract before 31 August 2022, at which time early retirement will no longer be available. As long as she retains that right, she is entitled to an annual allotment equal to her total fixed remuneration, plus 30% of the average of up to her last three variable pays. 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. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 597 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. 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. •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 2021 and 2020 for retirement pensions and supplementary benefits (surviving spouse and child benefits, and permanent disability) were as follows: EUR thousand 2021 2020 Ana Botín 1,041 1,155 José Antonio Álvarez 783 864 Total 1,825 2,019 Following is a detail of the balances relating to each of the executive directors under the welfare system as of  31 December 2021 and 2020: EUR thousand 2021 2020 Ana Botín 48,075 49,444 José Antonio Álvarez 18,821 18,082 Total 66,896 67,526 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 2021 2020 Ana Botín 21,489 21,984 José Antonio Álvarez 18,028 18,703 Total 39,517 40,687 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 2021 and 2020, the Group has disbursed a total amount of EUR  25.5  million and EUR 19.5 million , 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 this reason, it is not possible to disaggregate or individualize the amount that correspond to the directors and executives. As of 31 December 2021 and 2020, 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 2021 and 2020 due to their participation in the deferred variable remuneration systems, which instrumented a portion of their variable remuneration relating to 2021 and prior years, as well as on the deliveries, in shares or in cash, made to them in 2021 and 2020 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 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 598 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 was 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 was 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. Deferred amounts (whether or not contingent on multi-year targets) is earned if the beneficiary continues to work with the group14, 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. On each delivery, the beneficiaries are 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 18 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 2021 has been approved by the Board of Directors and implemented through the sixth 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 2023 and 2024) is conditional on none of the malus clauses being triggered. •The accrual of the third, fourth and fifth parts (instalments in 2025, 2026 and 2027) is linked to the fulfilment of certain objectives related to the 2021‑2023 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 2023 compared to 2020; –The relative performance of the Bank’s total shareholder return (RTA) in the 2021-2023 period in relation to the weighted RTAs of a reference group of 9  credit institutions; –Compliance with the fully loaded ordinary level 1 capital objective for the year 2023. 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 2021 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 599 Malus and clawback clauses are triggered by poor financial performance of Banco Santander, a division or area, or exposures from staff as a result of an executive(s)’s management of, at least, one of these factors: (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, as explained above, he just received a fixed pay for executive duties in Banco Santander, S.A. (head for South America), and 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 2020, 31 December 2020 and 31 December 2021, as well as the gross shares that were delivered to them in 2020 and 2021, 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 multi-year objectives in 2016, 2017, 2018, 2019, 2020 and 2021 were formalized. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 600 Share-based variable remuneration Maximum number of shares to be delivered at January 1,2020 Shares 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) Variable remuneration 2020 (Maximum number of shares to be delivered) 2015 variable remuneration Ms Ana Botín-Sanz de Sautuola y O’Shea 128,809 — — — — — Mr José Antonio Álvarez Álvarez 85,620 — — — — — 214,429 2016 variable remuneration Ms Ana Botín-Sanz de Sautuola y O’Shea 216,308 — — — (72,102) — Mr José Antonio Álvarez Álvarez 145,998 — — — (48,667) — 362,306 (120,769) 2017 variable remuneration Ms Ana Botín-Sanz de Sautuola y O’Shea 275,700 — — (68,925) — — Mr José Antonio Álvarez Álvarez 184,377 — — (46,094) — — 460,077 (115,019) 2018 variable remuneration Ms Ana Botín-Sanz de Sautuola y O’Shea 516,519 — (103,304) — — — Mr José Antonio Álvarez Álvarez 345,161 — (69,032) — — — 861,680 (172,336) 2019 variable remuneration Ms Ana Botín-Sanz de Sautuola y O’Shea 887,193 (354,877) — — — — Mr José Antonio Álvarez Álvarez 592,915 (237,166) — — — — 1,480,108 (592,043) 2020 variable remuneration Ms Ana Botín-Sanz de Sautuola y O’Shea — — — — — 310,615 Mr José Antonio Álvarez Álvarez — — — — — 168,715 Mr Sergio Rial2 — — — — — 355,263 834,593 2021 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. In addition, Mr. Rodrigo Echenique maintains the right to a maximum of 518,517 shares arising from his participation in the corresponding plans during his term as executive director. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 601 Maximum number of shares to be delivered at December 31, 2020 Instruments matured but not consolidated at January 1, 2021 Shares delivered in 2021 (immediate payment 2020 variable remuneration) Shares delivered in 2021 (deferred payment 2019 variable remuneration) Shares delivered in 2021 (deferred payment 2018 variable remuneration) Shares delivered in 2021 (deferred payment 2017 variable remuneration) Shares delivered in 2021 (deferred payment 2016 variable remuneration) Variable remuneration 2021 (Maximum number of shares to be delivered) Maximum number of shares to be delivered at December 31, 2021 128,809 — — — — — — — 128,809 85,620 — — — — — — — 85,620 214,429 214,429 144,206 (34,177) — — — — (72,102) — 37,927 97,331 (23,067) — — — — (48,667) — 25,597 241,537 (57,244) (120,769) 63,524 206,775 (112,692) — — — (68,925) — — 25,158 138,283 (75,364) — — — (46,094) — — 16,825 345,058 (188,057) (115,019) 41,983 413,215 — — (103,304) — — — 309,911 276,129 — — (69,032) — — — 207,097 689,344 (172,336) 517,008 532,316 — — (106,463) — — — — 425,853 355,749 — — (71,150) — — — — 284,599 888,065 (177,613) 710,452 310,615 — (124,246) — — — — — 186,369 168,715 — (67,486) — — — — — 101,229 355,263 — (142,105) — — — — — 213,158 834,593 (333,837) 500,756 — — — — — — — 1,480,622 1,480,622 — — — — — — — 999,259 999,259 — — — — — — — 625,000 625,000 3,104,881 3,104,881 In addition, the table below shows the cash delivered in 2021 and 2020, 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 2021 2020 Cash paid (immediate payment 2020 variable remuneration) Cash paid (deferred payments from 2019, 2018, 2017 and 2016 variable remuneration) Cash paid (immediate payment 2019 variable remuneration) Cash paid (deferred payments from 2018, 2017, 2016 and 2015 variable remuneration) Ms. Ana Botín-Sanz de Sautuola y O’Shea 334 1,550 1,302 1,383 Mr. José Antonio Álvarez Álvarez 181 1,037 870 925 Total 515 2,586 2,172 2,308 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 602 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 2020 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 2021 and 2020 to former board members, upon achievement of the conditions for the receipt thereof (see note 46): MAXIMUM NUMBER OF SHARES TO BE DELIVERED 2021 2020 Deferred conditional variable remuneration plan (2015) — 60,847 Deferred conditional variable remuneration plan and linked to objectives (2016) 60,251 65,502 Deferred conditional variable remuneration plan and linked to objectives (2017) 64,659 47,956 Deferred conditional variable remuneration plan and linked to objectives (2018) 164,462 — Deferred conditional variable remuneration plan and linked to objectives (2019) 130,790 — NUMBER OF SHARES DELIVERED 2021 2020 Deferred conditional variable remuneration plan (2015) 92,557 60,847 Performance shares plan ILP (2015) — — Deferred conditional variable remuneration plan and linked to objectives (2016) 60,254 32,751 Deferred conditional variable remuneration plan and linked to objectives (2017) 32,330 35,132 Deferred conditional variable remuneration plan and linked to objectives (2018) 54,821 — Deferred conditional variable remuneration plan and linked to objectives (2019) 32,698 — In addition, EUR 1,213 thousand and EUR 612 thousand relating to the deferred portion payable in cash of the aforementioned plans were paid each in 2021 and 2020. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 603 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 2021 2020 Loans and credits Guarantees Total Loans and credits Guarantees Total Mrs Ana Botín-Sanz de Sautuola y O´Shea 25 — 25 14 — 14 Mr José Antonio Álvarez Álvarez 4 — 4 5 — 5 Mr Bruce Carnegie-Brown — — — — — — Mr Javier Botín-Sanz de Sautuola y O´Shea 16 — 16 2 — 2 Mrs Sol Daurella Comadrán 69 — 69 22 — 22 Mrs Belén Romana García — — — — — — Mr Ramiro Mato García-Ansorena — — — — — — Mrs Homaira Akbari — — — — — — Mr Álvaro Cardoso de Souza — — — — — — Mr Henrique de Castro — — — — — — Mrs Pamela Ann Walkden — — — — — — Mr Luis Isasi Fernández de Bobadilla — — — — — — Mr Sergio Agapito Lires Rial 1 — 1 — — — Mr R. Martín Chávez Márquez — — — — — — Mrs Gina Lorenza Díez Barroso — — — 6 — 6 115 — 115 49 — 49 g) Senior managers The table below includes the amounts relating to the short-term remuneration of the members of senior management at 31 December 2021 and those at 31 December 2020, excluding the remuneration of the executive directors, which is detailed above: EUR thousand Short-term salaries and deferred remuneration Variable remuneration (bonus) - Immediate payment Deferred variable remuneration Year Number of persons Fixed In cash In shares2 In cash In shares3 Pensions Other remuneration1 Total 2021 15 19,183 8,402 8,402 3,648 3,648 5,542 5,055 53,880 2020 18 21,642 5,739 5,740 2,470 2,471 6,039 6,312 50,413 1.Includes other remuneration items such as life and medical insurance premiums and localization aids. 2.The amount of immediate payment in shares for 2021 is 2,706,819 shares (2,135,700 Santander shares in 2020). 3.The deferred amount in shares not linked to long-term objectives for 2021 is 1,175,191 shares (919,308 Santander shares in 2020). At the annual general meeting on 26 March 2021, shareholders approved the 2021 Digital Transformation Incentive, a variable remuneration scheme that delivers Santander shares and share options if the group hits major milestones on its digital roadmap. In 2021, no senior executives are included in this programme. However, in 2020, three senior executives were 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 was 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). See note 46 to the 2021 Group's consolidated financial statements for further information on the Digital Transformation Incentive. In 2021, the ratio of variable to fixed pay components was 125% of the total for senior managers, well within the maximum limit of 200% set by 2021 AGM. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 604 Also, the detail of the breakdown of the remuneration linked to long- term objectives of the members of senior management at 31 December 2021 and 31 December 2020 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 Year Number of people Cash payment Share payment Total 2021 15 3,830 3,830 7,660 2020 18 2,594 2,594 5,188 1.Relates to the fair value of the maximum annual amounts for years 2025, 2026 and 2027 of the sixth cycle of the deferred conditional variable remuneration plan (2024, 2025 and 2026 for the fifth cycle of the deferred variable compensation plan linked to annual objectives for the year 2020). Senior executive vice presidents who retired in 2021 and, therefore, were not members of senior management at year-end, received in 2021 salaries and other remuneration amounting to EUR 5,294 thousand (EUR 5,984 thousand in 2020). 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 55 thousand (this right has been generated in 2020 for a total amount of EUR 133 thousand). 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 2021 and 31 December 2020 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 2021 2020 Deferred conditional variable remuneration plan (2015) — 179,617 Deferred conditional variable remuneration plan (2017) — 2,786 Deferred conditional variable remuneration plan (2018) 3,475 6,949 Deferred conditional variable remuneration plan and linked to objectives (2016) 150,445 417,818 Deferred conditional variable remuneration plan and linked to objectives (2017) 164,428 791,360 Deferred conditional variable remuneration plan and linked to objectives (2018) 803,056 1,512,992 Deferred conditional variable remuneration plan and linked to objectives (2019) 1,274,450 2,154,312 Deferred conditional variable remuneration plan and linked to objectives (2020) 1,829,720 — 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 2021 and 2020 to the senior management, in addition to the payment of the related cash amounts: Number of shares delivered 2021 2020 Deferred conditional variable remuneration plan (2015) 146,930 179,614 Deferred conditional variable remuneration plan (2017) 2,786 2,786 Deferred conditional variable remuneration plan (2018) 3,474 3,474 Deferred conditional variable remuneration plan and linked to objectives (2016) 131,938 170,185 Deferred conditional variable remuneration plan and linked to objectives (2017) 79,104 219,363 Deferred conditional variable remuneration plan and linked to objectives (2018) 267,686 342,884 Deferred conditional variable remuneration plan and linked to objectives (2019) 321,006 — Deferred conditional variable remuneration plan and linked to objectives (2020) 1,742,419 — 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 605 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 2021 in the pension system for those who were part of senior management during the year amounted to EUR 64.3 million (EUR 59.4 million at 31 December 2020). The net charge to income corresponding to pension and supplementary benefits for widows, orphans and permanent invalidity amounted to EUR 5.5 million in 2021 (EUR 6.4 million in 31 December 2020). In 2021 and 2020 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 100 million (EUR 135.1 million at 31 December 2020). h) Post-employment benefits to former Directors and former senior executive vice presidents The post-employment benefits and settlements paid in 2021 to former directors of the Bank, other than those detailed in note 5.c amounted to EUR 5.6 million and EUR 11.2 million in 2020, respectively. Also, the post-employment benefits and settlements paid in 2021 to former executive vice presidents amounted to EUR 51.6 million and EUR 10.26 million in 2020, 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 2021 (EUR 0.17 million in 2020). Likewise, contributions to insurance policies that hedge pensions and complementary widowhood, orphanhood and permanent disability benefits for previous senior managers amounted to EUR 4.4 million in 2021 (EUR 5.8 million in 2020). During the 2021 financial year, no release or charge 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 2020, five million releases were recorded), and no provisions/releases has been recorded in respect of former senior managers in 2021 and 2020. In addition, 'Provisions - Pension Fund and similar obligations' in the consolidated balance sheet as at 31 December 2021 included EUR 50 million in respect of the post-employment benefit obligations to former Directors of the Bank (EUR 52 million at 31 December 2020) and EUR 114 million corresponding to former senior managers (EUR 159 million at 31 December 2020). i) Pre-retirement and retirement The board of directors  approved 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 606 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 2021 2020 2019 CENTRAL BANKS Classification Financial assets held for trading 3,608 — — Non-trading financial assets mandatorily at fair value through profit or loss — — — Financial assets designated at fair value through profit or loss — 9,481 6,473 Financial assets designated at fair value through other comprehensive income — — — Financial assets at amortised cost 15,657 12,499 18,474 19,265 21,980 24,947 Type Time deposits 13,275 11,757 17,533 Reverse repurchase agreements 5,990 10,223 7,414 Impaired assets — — — Valuation adjustments for impairment — — — 19,265 21,980 24,947 CREDIT INSTITUTIONS Classification Financial assets held for trading 10,397 3 — Non-trading financial assets mandatorily at fair value through profit or loss — — — Financial assets designated at fair value through profit or loss 3,152 12,136 21,649 Financial assets designated at fair value through other comprehensive income — — — Financial assets at amortised cost 39,169 37,838 40,943 52,718 49,977 62,592 Type Time deposits 10,684 7,338 9,699 Reverse repurchase agreements 18,853 20,862 31,180 Non- loans advances 23,188 21,784 21,726 Impaired assets 1 1 1 Valuation adjustments for impairment (8) (8) (14) 52,718 49,977 62,592 CURRENCY Euro 24,286 22,260 32,248 Pound sterling 3,228 4,127 3,659 US dollar 12,639 13,209 14,442 Brazilian real 24,011 26,437 30,919 Other currencies 7,819 5,924 6,271 TOTAL 71,983 71,957 87,539 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'. At 31 December 2021 the exposure by impairment stage of the assets accounted for amounts to EUR 54,833, EUR 0 and EUR 1 million (EUR 50,344, EUR 0 and EUR 1 million in 2020 and EUR 59,430, EUR 0 and EUR 1 million in 2019), and the loan loss provision by impairment stage amounts to EUR 8, EUR 0 and EUR 0 million (EUR 8, EUR 0 and EUR 0 million in 2020 and EUR 14, EUR 0 and EUR 0 million in 2019) in stage 1, stage 2 and stage 3, respectively. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 607 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 2021 2020 2019 Classification Financial assets held for trading 26,750 37,894 32,041 Non-trading financial assets mandatorily at fair value through profit or loss 957 700 1,175 Financial assets designated at fair value through profit or loss 2,516 2,979 3,186 Financial assets designated at fair value through other comprehensive income 97,922 108,903 118,405 Financial assets at amortised cost 35,708 26,078 29,789 163,853 176,554 184,596 Type Spanish government debt securities 20,638 30,397 42,054 Foreign government debt securities 102,976 110,570 107,434 Issued by financial institutions 12,324 10,133 9,670 Other fixed-income securities 27,850 25,337 25,265 Impaired financial assets 280 401 647 Impairment losses (215) (284) (474) 163,853 176,554 184,596 Currency Euro 45,197 58,850 70,357 Pound sterling 6,304 7,372 15,713 US dollar 34,229 29,009 29,846 Brazilian real 35,907 35,139 38,316 Other currencies 42,431 46,468 30,838 Debt securities excluding impairment adjustments 164,068 176,838 185,070 Impairment losses (215) (284) (474) 163,853 176,554 184,596 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. At 31 December 2021, 2020 and 2019 the exposure by impairment stage of the book assets under IFRS 9 amounted to EUR 133,437 million, EUR 134,792 million and EUR 147,575 million in stage 1; EUR 128 million, EUR 72 million and EUR 446 million in stage 2, and EUR 280 million, EUR 401 million and EUR 647 million in stage 3, respectively. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 608 b) Breakdown The breakdown, by origin of the issuer, of debt instruments at 31 December 2021, 2020 and 2019, net of impairment losses, is as follows: EUR million 2021 2020 2019 Private fixed- income Public fixed- income Total % Private fixed- income Public fixed- income Total % Private fixed- income Public fixed- income Total % Spain 3,773 20,638 24,411 14.90% 1,588 30,397 31,985 18.12% 3,634 42,054 45,688 24.75% United Kingdom 3,334 2,097 5,431 3.31% 3,099 2,795 5,894 3.34% 3,806 11,479 15,285 8.28% Portugal 3,008 3,845 6,853 4.18% 3,095 6,462 9,557 5.41% 2,979 7,563 10,542 5.71% Italy 1,215 1,531 2,746 1.68% 1,047 4,688 5,735 3.25% 1,384 3,620 5,004 2.71% Ireland 4,759 52 4,811 2.94% 2,924 2 2,926 1.66% 2,387 2 2,389 1.29% Poland 2,848 12,727 15,575 9.51% 3,126 11,400 14,526 8.23% 460 9,361 9,821 5.32% Other European countries 8,922 3,422 12,344 7.53% 8,211 2,891 11,102 6.29% 7,186 1,784 8,970 4.86% United States 5,634 21,465 27,099 16.54% 6,386 14,645 21,031 11.91% 5,915 15,609 21,524 11.66% Brazil 5,446 29,251 34,697 21.18% 5,179 33,316 38,495 21.80% 5,808 35,036 40,844 22.13% Mexico 517 14,572 15,089 9.21% 435 19,053 19,488 11.04% 708 13,234 13,942 7.55% Chile 51 9,467 9,518 5.81% 41 8,082 8,123 4.60% 50 4,819 4,869 2.64% Other American countries 655 2,128 2,783 1.70% 274 3,098 3,372 1.91% 605 1,095 1,700 0.92% Rest of the world 77 2,419 2,496 1.52% 182 4,138 4,320 2.44% 186 3,832 4,018 2.18% 40,239 123,614 163,853 100% 35,587 140,967 176,554 100% 35,108 149,488 184,596 100% The detail, by issuer rating, of Debt instruments at 31 December 2021, 2020 and 2019 is as follows: EUR million 2021 2020 2019 Private fixed- income Public fixed- income Total % Private fixed- income Public fixed- income Total % Private fixed- income Public fixed- income Total % AAA 15,956 1,773 17,729 10.82% 14,088 2,099 16,187 9.17% 14,737 1,085 15,822 8.57% AA 2,005 26,355 28,360 17.31% 1,714 18,784 20,498 11.61% 5,133 28,325 33,458 18.13% A 8,594 44,359 52,953 32.32% 6,228 53,655 59,883 33.92% 3,238 59,744 62,982 34.12% BBB 5,234 20,304 25,538 15.59% 6,515 31,204 37,719 21.36% 4,889 24,766 29,655 16.06% Below BBB 3,584 30,823 34,407 21.00% 3,431 35,164 38,595 21.86% 1,244 35,466 36,710 19.89% Unrated 4,866 — 4,866 2.97% 3,611 61 3,672 2.08% 5,867 102 5,969 3.23% 40,239 123,614 163,853 100% 35,587 140,967 176,554 100% 35,108 149,488 184,596 100% During 2021, 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 609 The detail, by type of financial instrument, of private fixed-income securities at 31 December 2021, 2020 and 2019, net of impairment losses, is as follows: EUR million 2021 2020 2019 Securitised mortgage bonds 5,806 5,926 5,494 Other asset-backed bonds 6,304 5,479 6,388 Floating rate debt 8,081 7,829 10,348 Fixed rate debt 20,048 16,353 12,878 Total 40,239 35,587 35,108 c) Impairment losses The changes in the impairment losses on debt instruments are summarised below: EUR million 2021 2020 2019 Balance at beginning of year 284 474 635 Net impairment losses for the year\* 28 79 (170) Of which: Impairment losses charged to income 49 91 77 Impairment losses reversed with a credit to income (21) (12) (247) Exchange differences and other items (97) (269) 9 Balance at end of year 215 284 474 Of which: By geographical location of risk: European Union 25 21 14 Latin America 190 263 460 \*Of the EUR 28 million corresponding to net provisions for the year ended 31 December 2021 (EUR 79 million and EUR -170 million at 31 December 2020 and 2019, respectively), EUR 31 million relates to financial assets at amortized cost (EUR 77 million and EUR -176 million at 31 December 2020 and 2019, respectively) and EUR -3 million relates to financial assets designated at fair value through other comprehensive income (EUR 2 million and EUR 6 million at 31 December 2020 and 2019, respectively). At 31 December 2021, 2020 and 2019 the loan loss provision by impairment stage of the assets accounted for under IFRS9 amounted to EUR 26 million, EUR 25 million and EUR 22 million in stage 1, EUR 8 million, EUR 2 million and EUR 6 million in stage 2, and EUR 181 million, EUR 257 million and EUR 446 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 2021 2020 2019 Classification Financial assets held for trading 15,077 9,615 12,437 Non-trading financial assets mandatorily at fair value through profit or loss 4,042 3,234 3,350 Financial assets designated at fair value through other comprehensive income 2,453 2,783 2,863 21,572 15,632 18,650 Type Shares of Spanish companies 3,896 3,364 3,711 Shares of foreign companies 15,184 10,437 12,682 Shares of investment funds 2,492 1,831 2,257 21,572 15,632 18,650 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 2021 2020 2019 Balance at beginning of the year 2,783 2,863 2,671 Net additions (disposals) (276) 833 177 Changes in the fair value of equity instruments measured at fair value through other comprehensive income (EIGR)\* (171) (917) (29) Changes in the RV hedged with micro-hedging transactions 117 4 44 Balance at end of year 2,453 2,783 2,863 \*They do not include fair value movements for currency risk hedged with hedging instruments. c) Notifications of acquisitions of investments The notifications of the acquisitions and disposals of holdings in investees made by the Bank in 2021, 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 610 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 2021 2020 2019 Debit balance Credit balance Debit balance Credit balance Debit balance Credit balance Interest rate risk 31,884 30,192 43,832 41,085 42,614 40,956 Currency risk 19,823 21,894 21,162 22,028 18,085 19,870 Price risk 1,498 891 1,931 944 2,329 1,772 Other risks 1,087 589 212 412 369 418 54,292 53,566 67,137 64,469 63,397 63,016 b) Short positions Following is a breakdown of the short positions (liabilities): EUR million 2021 2020 2019 Borrowed securities Debt instruments 825 625 390 Of which: Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México 825 625 390 Equity instruments 389 289 393 Of which: Banco Santander, S.A. 318 289 308 Short sales Debt instruments 11,022 15,784 13,340 Of which: Banco Santander, S.A. 8,926 8,645 7,980 Banco Santander (Brasil) S.A. 1,952 7,085 5,194 12,236 16,698 14,123 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 2021 2020 2019 Financial assets held for trading 6,829 296 355 Non-trading financial assets mandatorily at fair value through profit or loss 537 552 386 Financial assets designated at fair value through profit or loss 10,289 24,121 30,761 Financial assets at fair value through other comprehensive income 7,663 9,267 4,440 Financial assets at amortized cost 947,364 881,963 906,276 Of which: Impairment losses (22,964) (23,595) (22,242) 972,682 916,199 942,218 Loans and advances to customers disregarding impairment losses 995,646 939,794 964,460 Note 50 contains a detail of the residual maturity periods of 'Financial assets. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 611 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 2021 2020 2019 Loan type and status Commercial credit 49,603 37,459 37,753 Secured loans 542,404 503,014 513,929 Reverse repurchase agreements 33,264 35,702 45,703 Other term loans 269,526 269,143 267,154 Finance leases 38,503 36,251 35,788 Receivable on demand 10,304 7,903 7,714 Credit cards receivables 20,397 19,507 23,876 Impaired assets 31,645 30,815 32,543 995,646 939,794 964,460 Geographical area Spain 216,741 215,330 204,810 European Union (excluding Spain)\* 190,032 192,988 460,338 United States and Puerto Rico 102,491 93,405 100,152 Other OECD countries\* 374,729 338,362 86,327 South America (non - OECD) 94,010 79,629 92,145 Rest of the world 17,643 20,080 20,688 995,646 939,794 964,460 Interest rate formula Fixed rate 593,645 550,883 546,619 Floating rate 402,001 388,911 417,841 995,646 939,794 964,460 \*The amounts referring to the years 2021 and 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. At 31 December 2021, 2020 and 2019 the Group had granted loans amounting to EUR 14,131,  12,104 and 9,993 million to Spanish public sector agencies which had a rating at 31 December 2021 of A (ratings of A at 31 December 2020 and 31 December 2019), and EUR 10,263, 10,779, and 12,218 million to the public sector in other countries (at 31 December 2021, the breakdown of this amount by issuer rating was as follows: 1.2% AAA, 13.4% AA, 5.2% A, 69.9% BBB, 9.7% below BBB and 0.5% without rating). Without considering the public administrations, the amount of the loans and advances at 31 December 2021, 2020 and 2019 amounts to EUR 971,252 million, EUR 916,911 million and EUR 942,249 million, of which, EUR 939,645 million, EUR 886,118 million and EUR 909,741 million are classified as performing, respectively. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 612 Following is a detail, by activity, of the loans to customers at 31 December 2021, net of impairment losses: EUR million Secured loans Net exposure Loan-to-value ratio\*\*\* Total Without collateral Of which property collateral Of which other collateral 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 sector 22,152 21,359 180 613 68 81 26 608 10 Other financial institutions (financial business activity) 70,348 27,770 2,612 39,966 2,532 1,868 1,585 35,871 722 Non-financial corporations and individual entrepreneurs (non-financial business activity) (broken down by purpose) 323,475 182,711 60,112 80,652 24,034 21,064 18,461 57,321 19,884 Of which: Construction and property development 18,936 2,349 9,778 6,809 5,357 4,821 1,695 3,555 1,159 Civil engineering construction 3,061 1,818 219 1,024 108 149 167 688 131 Large companies 174,191 116,018 19,655 38,518 7,789 5,111 5,365 31,122 8,786 SMEs and individual entrepreneurs 127,287 62,526 30,460 34,301 10,780 10,983 11,234 21,956 9,808 Households – other (broken down by purpose) 540,339 96,351 360,447 83,541 98,463 117,198 138,456 55,419 34,452 Of which: Residential 353,623 2,257 350,651 715 91,428 110,574 121,400 24,007 3,957 Consumer loans 167,760 91,829 1,403 74,528 2,927 3,938 13,083 26,721 29,262 Other purposes 18,956 2,265 8,393 8,298 4,108 2,686 3,973 4,691 1,233 Total\* 956,314 328,191 423,351 204,772 125,097 140,211 158,528 149,219 55,068 Memorandum item Refinanced and restructured transactions\*\* 27,781 11,975 11,222 4,584 3,856 2,237 4,678 2,442 2,593 \*In addition, the Group has granted advances to customers amounting to EUR 16,368 million, bringing the total of loans and advances to EUR 972,682 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 2021 provided by the latest available appraisal value of the collateral. Note 53 contains information relating to the forborne loan portfolio. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 613 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 2021, 2020 and 2019: 2021 EUR million Stage 1 Stage 2 Stage 3 Total Balance at the beginning of year 817,906 66,104 30,318 914,328 Movements Transfers To stage 2 from stage 1 (33,051) 33,051 — To stage 3 from stage 1 (6,617) 6,617 — To stage 3 from stage 2 (5,836) 5,836 — To stage 1 from stage 2 17,796 (17,796) — To stage 2 from stage 3 1,865 (1,865) — To stage 1 from stage 3 271 (271) — Net changes on financial assets 62,629 (11,629) (719) 50,281 Write-offs — — (9,089) (9,089) Exchange differences and others 19,766 1,825 460 22,051 Balance at the end of the year 878,700 67,584 31,287 977,571 2020 EUR million Stage 1 Stage 2 Stage 3 Total Balance at the beginning of year 849,939 50,476 31,837 932,252 Movements Transfers To stage 2 from stage 1 (43,170) 43,170 — To stage 3 from stage 1 (5,120) 5,120 — To stage 3 from stage 2 (8,734) 8,734 — To stage 1 from stage 2 13,459 (13,459) — To stage 2 from stage 3 1,831 (1,831) — To stage 1 from stage 3 578 (578) — Net changes on financial assets 53,555 (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 year 817,906 66,104 30,318 914,328 2019 EUR million Stage 1 Stage 2 Stage 3 Total Balance at the beginning of year 795,829 52,183 33,461 881,473 Movements Transfers To stage 2 from stage 1 (28,369) 28,369 — To stage 3 from stage 1 (4,101) 4,101 — To stage 3 from stage 2 (13,240) 13,240 — To stage 1 from stage 2 12,436 (12,436) — To stage 2 from stage 3 2,439 (2,439) — To stage 1 from stage 3 488 (488) — Net changes on financial assets 61,581 (8,092) (3,608) 49,881 Write-offs — — (12,593) (12,593) Exchange differences and others 12,075 1,253 163 13,491 Balance at the end of the year 849,939 50,476 31,837 932,252 In addition, at 31 December 2021, the Group had EUR 420 million (EUR 497 million at 31 December 2020 and EUR 706 million at 31 December 2019) of exposure in assets purchased with impairment of which EUR 358 million still show signs of impairment, which correspond mainly to the business combinations carried out by the Group. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 614 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 2021 2020 2019 Amount at beginning of the year 23,595 22,242 23,307 Impairment losses charged to income for the year 8,762 13,385 11,108 Of which: Impairment losses charged to profit or loss 18,240 20,909 19,192 Impairment losses reversed with a credit to profit or loss (9,478) (7,524) (8,084) Change of perimeter — (82) — Write-off of impaired balances against recorded impairment allowance (9,089) (8,930) (12,593) Exchange differences and other changes (304) (3,020) 420 Amount at end of the year 22,964 23,595 22,242 Which correspond to: Impaired assets 13,550 13,658 13,933 Other assets 9,414 9,937 8,309 Of which: Individually calculated 2,496 2,679 3,555 Collective calculated 20,468 20,916 18,687 In addition, provisions for debt securities amounting to EUR 28 million were recorded at 31 December 2021 (provisions amounting to EUR 79 million and releases amounting EUR 170 million as of 31 December 2020 and 2019, respectively), written-off assets recoveries have been recorded in the year amounting to EUR 1,383 million at 31 December 2021 (EUR 1,221 million and EUR 1,586 million at 31 December 2020 and 2019, respectively) and EUR 0 million were recorded in the account for losses on renegotiation or contractual modification at 31 December 2021 (EUR 139 million and EUR 0 million at 31 December 2020 and 2019, respectively). 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 7,407 million at 31 December 2021 (EUR 12,382 million and EUR 9,352 million at 31 December 2020 and 2019, respectively). Following is the movement of the loan loss provision broken down by impairment stage of loans and advances to customers during 2021, 2020 and 2019: 2021 EUR million Stage 1 Stage 2 Stage 3 Total Loss allowance at the beginning of the year 4,265 5,672 13,658 23,595 Transfers To stage 2 from stage 1 (578) 2,968 2,390 To stage 3 from stage 1 (237) 2,209 1,972 To stage 3 from stage 2 (1,086) 2,474 1,388 To stage 1 from stage 2 254 (1,025) (771) To stage 2 from stage 3 216 (760) (544) To stage 1 from stage 3 8 (67) (59) Net changes of the exposure and modifications in the credit risk 617 (1,557) 5,326 4,386 Write-offs — — (9,089) (9,089) FX and other movements (141) 38 (201) (304) Loss allowance at the end of the year 4,188 5,226 13,550 22,964 2020 EUR million Stage 1 Stage 2 Stage 3 Total Loss allowance at the beginning of the year 3,835 4,474 13,933 22,242 Transfers To stage 2 from stage 1 (1,040) 2,880 1,840 To stage 3 from stage 1 (255) 2,386 2,131 To stage 3 from stage 2 (971) 2,066 1,095 To stage 1 from stage 2 294 (976) (682) To stage 2 from stage 3 303 (727) (424) To stage 1 from stage 3 53 (138) (85) Net changes of the exposure and modifications in the credit risk 1,966 535 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 year 4,265 5,672 13,658 23,595 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 615 2019 EUR million Stage 1 Stage 2 Stage 3 Total Loss allowance at the beginning of the year 3,658 4,743 14,906 23,307 Transfers To stage 2 from stage 1 (964) 3,235 2,271 To stage 3 from stage 1 (214) 1,296 1,082 To stage 3 from stage 2 (3,065) 5,612 2,547 To stage 1 from stage 2 301 (1,048) (747) To stage 2 from stage 3 381 (817) (436) To stage 1 from stage 3 29 (123) (94) Net changes of the exposure and modifications in the credit risk 1,119 (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 year 3,835 4,474 13,933 22,242 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 2021 2020 2019 Balance at beginning of year 30,815 32,543 34,218 Net additions 9,390 10,577 10,755 Written-off assets (9,089) (8,930) (12,593) Changes in the scope of consolidation — (39) — Exchange differences and other 529 (3,336) 163 Balance at end of year 31,645 30,815 32,543 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 2021, the Group’s written-off assets totalled EUR 40,585 million (EUR 39,087 million and EUR 46,209 million at 31 December 2020 and 2019, respectively). 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 2021: EUR million Gross amount Allowance recognised Estimated collateral value\* Without associated real collateral 13,327 7,416 — With real estate collateral 12,907 3,540 9,054 With other collateral 5,411 2,594 2,317 Total 31,645 13,550 11,371 \*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. 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 2021 2020 2019 Retained on the balance sheet 80,600 88,662 93,553 Of which Securitised mortgage assets 19,523 30,145 31,868 Of which: UK assets 5,295 9,034 13,002 Other securitised assets 61,077 58,517 61,685 Total\* 80,600 88,662 93,553 \*Note 22 details the liabilities associated with these securitisation transactions. At 31 December 2021, Grupo Santander had loans that had been fully derecognised and for which it retained servicing amounting to EUR 14,141 million (EUR 13,999 million and EUR 16,786 million at 31 December 2020 and 2019, respectively). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 616 11. Trading derivatives The detail of the notional amounts and the market values of the trading derivatives held by the Group in 2021, 2020 and 2019 is as follows: EUR million 2021 2020 2019 Notional amount Market value Notional amount Market value Notional amount Market value Trading derivatives Interest rate risk Forward rate agreements 147,603 (11) 515,889 — 218,252 (8) Interest rate swaps 3,920,945 1,931 3,789,169 3,638 4,322,199 2,573 Options, futures and other derivatives 508,723 (228) 698,500 (891) 794,140 (907) Credit risk Credit default swaps 13,571 436 12,378 (133) 23,701 (71) Foreign currency risk Foreign currency purchases and sales 329,781 (664) 304,280 (45) 325,720 (441) Foreign currency options 49,680 (114) 45,074 (7) 44,763 (182) Currency swaps 430,644 (1,293) 394,178 (814) 379,176 (1,162) Securities and commodities derivatives and other 69,850 669 70,861 920 61,966 579 Total 5,470,797 726 5,830,329 2,668 6,169,917 381 12. Non-current assets The detail of Non-current assets held for sale in the consolidated balance sheets is as follows: EUR million 2021 2020 2019 Tangible assets 4,089 4,445 4,588 Of which: Foreclosed assets 3,651 4,081 4,485 Of which property assets in Spain\* 3,120 3,485 3,667 Other tangible assets held for sale 438 364 103 Other assets — — 13 Total 4,089 4,445 4,601 \*During 2019, the sale of real estate assets to Cerberus from foreclosures materialized, generating losses of EUR 180 million. At 31 December 2021, the allowances recognised for the total non- current assets held for sale represented 48% (48% at 31 December 2020 and 2019). The charges recorded in those years amounted to EUR 239 million, EUR 250 million and EUR 279 million, respectively, and the recoveries during these exercises are amounted to EUR 98 million, EUR 35 million and EUR 133 million, respectively. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 617 13. Investments a) Breakdown The detail, by company, of Investments is as follows: EUR million 2021 2020 2019 Associated entities 5,833 6,130 7,447 Merlin Properties, SOCIMI, S.A. 1,640 1,581 1,511 Metrovacesa, S.A. 1,087 1,157 1,226 Caceis (note 3) 975 1,077 1,010 Zurich Santander Insurance America, S.L. - Consolidated 826 955 1,009 CNP Santander 418 439 402 Ebury Partners Limited (note 3) 394 388 — Popular Spain Holding de Inversiones, S.L.U. (former Allianz Popular, S.L.) (note 3) — — 409 Project Quasar Investment 2017 S.L.\* — — 1,351 Other companies 493 533 529 Joint Ventures entities 1,692 1,492 1,325 Santander Vida Seguros y Reaseguros, S.A. (note 3) 378 381 170 Santander Caceis Latam Holding 1, S.L. - Consolidated (previously Santander Securites Services Latam Holding, S.L) 334 326 349 U.C.I., S.A. - Consolidated 228 168 206 Fortune Auto Finance Co., ltd 222 172 155 Hyundai Capital UK Limited 201 151 135 Banco RCI Brasil S.A. 92 88 116 Other companies 237 206 194 Total Associated entities and Joint ventures 7,525 7,622 8,772 \*At 31 December 2021 and 2020, the Group did not hold significant influence over this company, despite holding a 49% interest in it, since it did 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 2021, the entities Merlin Properties, SOCIMI, S.A, Metrovacesa S.A. and Compañía Española de Viviendas en Alquiler, S.A. are the only listed companies. Below is a breakdown of the Goodwill of the main investments in joint ventures and associates included in the balance of this heading: EUR million 2021 2020 2019 Goodwill 1,723 1,862 2,043 Of which: Zurich Santander Insurance America, S.L. - Consolidated 526 526 526 Caceis 337 337 466 b) Changes The changes in the investments were as follows: EUR million 2021 2020 2019 Balance at beginning of year 7,622 8,772 7,588 Acquisitions (disposals) of companies and capital increases (reductions) 94 676 (123) Of which: Ebury Partners Limited (note 3) — 409 — Santander Vida Seguros y Reaseguros, S.A. (note 3) — 219 — Changes in the consolidation method (note 3) — (1,359) 1,368 Of which: Project Quasar Investments 2017, S.L. — (956) — Popular Spain Holding de Inversiones, S.L.U. (former Allianz Popular, S.L.) (note 3) — (409) — Caceis — — 1,010 Santander CACEIS Latam Holding 1, S.L. - Consolidado (former Santander Securities Services Latam Holding, S.L.) — — 349 Effect of equity accounting 432 (96) 324 Dividends distributed and reimbursements of share premium (662) (186) (407) Of which: Zurich Santander Insurance America S.L. - Consolidated (230) (80) (158) Caceis (144) — — CNP Santander (60) — (37) Metrovacesa, S.A. (60) — (25) Santander Vida Seguros y Reaseguros, S.A.- Consolidado (31) (37) (29) Merlin Properties, SOCIMI, S.A. (52) (17) (53) Popular Spain Holding de Inversiones, S.L.U. (former Allianz Popular, S.L.) (note 3) — — (52) Other global result (13) (1) 5 Exchange differences and other changes 52 (184) 17 Balance at end of year 7,525 7,622 8,772 c) Impairment adjustments During the years 2021, 2020 and 2019 there was no evidence of significant impairment in the Group's associated interests. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 618 d) Other information A summary of the financial information at the end of December 2021 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 Associates Joint ventures Merlin Properties, SOCIMI, S.A.\* Metrovacesa, S.A.\* Caceis (note 3) Zurich Santander Insurance América, S.L. - Consolidated CNP Santander Ebury Partners Limited (note 3)\*\* Santander Caceis Latam Holding, S.L. - Consolidated U.C.I., S.A. - Consolidated Hyundai Capital UK Limited Fortune Auto Finance Co., LTD Santander Vida Seguros y Reaseguros, S.A.- Consolidated (note 3) Banco RCI Brasil S.A. Current assets 416 2,452 51,995 704 155 688 151 368 1,837 670 112 5 Non current assets 13,062 475 70,137 12,785 2,174 93 385 10,963 2,501 2,511 1,666 1,694 Total assets 13,478 2,927 122,132 13,489 2,329 781 536 11,331 4,338 3,181 1,778 1,699 Current liabilities 180 485 7,708 259 19 768 124 55 1,619 34 193 50 Non current liabilities 6,602 262 110,259 12,441 1,878 28 9 10,856 2,317 2,702 932 1,408 Total liabilities 6,782 747 117,967 12,700 1,897 796 133 10,911 3,936 2,736 1,125 1,458 Attributable profit for the period 56 (164) 187 291 86 (69) 39 6 79 61 76 25 Other accumulated comprehensive income (16) — 24 (675) 2 1 (288) (11) 5 25 1 (228) Rest of equity 6,656 2,344 3,954 1,173 344 53 652 425 318 359 576 444 Total Equity 6,696 2,180 4,165 789 432 (15) 403 420 402 445 653 241 Total liabilities and equity 13,478 2,927 122,132 13,489 2,329 781 536 11,331 4,338 3,181 1,778 1,699 — — — — — — — — — — — — Ordinary activities income 417 150 2,196 3,841 785 124 115 239 845 278 763 165 Profit (loss) from continuing operations 56 (164) 187 291 86 (69) 39 6 79 61 76 25 Profit (loss) for the year from discontinuing operations — — — — — — — — — — — — \*Data as of 31 December 2020, latest accounts available. \*\*Data as of 30 April 2021, latest accounts available. 14. Insurance contracts linked to pensions The detail of Insurance contracts linked to pensions in the consolidated balance sheets is as follows: EUR million 2021 2020 2019 Assets relating to insurance contracts covering post- employment benefit plan obligations: Banco Santander, S.A. 149 174 192 149 174 192 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 619 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 2021 2020 2019 Technical provisions for: Direct insurance and reinsurance assumed Reinsurance 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 risks 56 (50) 6 51 (45) 6 59 (52) 7 Life insurance 209 (150) 59 189 (137) 52 206 (151) 55 Unearned premiums and risks 146 (130) 16 126 (122) 4 139 (132) 7 Mathematical provisions 63 (20) 43 63 (15) 48 67 (19) 48 Claims outstanding 451 (55) 396 561 (59) 502 399 (55) 344 Bonuses and rebates 20 (11) 9 23 (11) 12 22 (10) 12 Other technical provisions 34 (17) 17 86 (9) 77 53 (24) 29 770 (283) 487 910 (261) 649 739 (292) 447 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 620 16. Tangible assets a) Changes The changes in Tangible assets in the consolidated balance sheets were as follows: EUR million Tangible assets Of which: For leasing For own use Leased out under an operating lease Investment property Total For own use Leased out under an operating lease Investment property Total Cost Balances at 1 January 2019 25,428 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 2019 27,108 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 2020 24,896 24,204 1,460 50,560 3,948 — — 3,948 Additions / disposals (net) due to change in the scope of consolidation 66 (257) — (191) 1 — — 1 Additions / disposals (net) 781 (1,076) (64) (359) 96\* — — 96 Transfers, exchange differences and other items (214) 1,552 141 1,479 384 — — 384 Balance at 31 December 2021 25,529 24,423 1,537 51,489 4,429 — — 4,429 Accumulated depreciation Balances at 1 January 2019 (10,524) (8,404) (199) (19,127) — — — — Disposals due to change in the scope of consolidation 3 — 6 9 — — — — Disposals 356 2,149 32 2,537 37 — — 37 Charge for the year (2,021) — (14) (2,035) (807) — — (807) Transfers, exchange differences and other items 212 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) Disposals 527 2,387 11 2,925 167 — — 167 Charge for the year (1,906) — (8) (1,914) (706) — — (706) Transfers, exchange differences and other items 1,850 (2,762) 8 (904) 90 — — 90 Balance at 31 December 2020 (11,543) (5,585) (133) (17,261) (1,217) — — (1,217) Disposals due to change in the scope of consolidation (1) 40 — 39 — — — — Disposals 733 3,390 3 4,126 44 — — 44 Charge for the year (1,733) — (10) (1,743) (612) — — (612) Transfers, exchange differences and other items 529 (3,083) (9) (2,563) (4) — — (4) Balance at 31 December 2021 (12,015) (5,238) (149) (17,402) (1,789) — — (1,789) \*  Includes contract extensions on operating leases and repurchases. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 621 EUR million Tangible assets Of which: For leasing For own use Leased out under an operating lease Investment property Total For own use Leased out under an operating lease Investment property Total Impairment losses Balances at 1 January 2019 (61) (239) (616) (916) — — — — Impairment charge for the year (14) (12) (36) (62) — — — — Releases 8 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) Releases 4 2 5 11 1 — — 1 Disposals due to change in the scope of consolidation — — — — — — — — Disposals 20 — 3 23 — — — — Exchange differences and other 33 31 (28) 36 (6) — — (6) Balances at 31 December 2020 (140) (60) (364) (564) (9) — — (9) Impairment charge for the year (144) (17) (8) (169) (13) — — (13) Releases 10 4 5 19 1 — — 1 Disposals due to change in the scope of consolidation — — — — — — — — Disposals 61 — 3 64 7 — — 7 Exchange differences and other (42) (29) (44) (115) (1) — — (1) Balances at 31 December 2021 (255) (102) (408) (765) (15) — — (15) Tangible assets, net Balances at 31 December 2019 15,041 19,221 973 35,235 4,921 — — 4,921 Balances at 31 December 2020 13,213 18,559 963 32,735 2,722 — — 2,722 Balances at 31 December 2021 13,259 19,083 979 33,321 2,625 — — 2,625 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 622 b) Tangible assets - For own use 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: for leasing Cost Accumulated depreciation Impairment losses Carrying amount Land and buildings 13,972 (2,889) (93) 10,990 4,908 IT equipment and fixtures 5,995 (4,808) — 1,187 2 Furniture and vehicles 6,952 (4,216) — 2,736 11 Construction in progress and other items 189 (61) — 128 — Balances at 31 December 2019 27,108 (11,974) (93) 15,041 4,921 Land and buildings 13,081 (3,215) (133) 9,733 2,716 IT equipment and fixtures 5,562 (4,416) — 1,146 1 Furniture and vehicles 6,085 (3,854) — 2,231 5 Construction in progress and other items 168 (58) (7) 103 — Balances at 31 December 2020 24,896 (11,543) (140) 13,213 2,722 Land and buildings 13,855 (3,675) (240) 9,940 2,570 IT equipment and fixtures 5,543 (4,335) — 1,208 42 Furniture and vehicles 5,982 (3,954) — 2,028 12 Construction in progress and other items 149 (51) (15) 83 — Balances at 31 December 2021 25,529 (12,015) (255) 13,259 2,625 The carrying amount at 31 December 2021 in the foregoing table includes the following approximate amounts EUR 6,753 million (EUR 6,299 million at 31 December 2020 and EUR 7,737 million at 31 December 2019) 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. Of the EUR 19,083 million that the Group had assigned to operating leases at 31 December 2021 (EUR 18,559 million and EUR 19,221 million at 31 December 2020  and 2019, respectively), EUR 12,977 million (EUR 13,455 million and EUR 14,799 million at 31 December 2020 and 2019, respectively ) 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 2021 Maturity Analysis 2022 3,030 2023 3,814 2024 5,644 2025 872 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 623 d) Tangible assets - Investment property The fair value of investment property at 31 December 2021, 2020, 2019 amounted to EUR 1,088, 1,055 and 1,076 million, respectively. A comparison of the fair value of investment property at 31 December 2021, 2020 and 2019 with the net book value shows gross unrealised gains of EUR 109,  92 and 103 million, respectively, 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 2021, 2020 and 2019 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 2021 2020 2019 Banco Santander (Brasil) 3,219 3,109 4,388 SAM Investment Holdings Limited 1,444 1,444 1,173 Santander Consumer Germany 1,304 1,314 1,236 Santander Bank Polska 1,095 1,104 2,427 Santander Portugal 1,040 1,040 1,040 Santander España 1,027 1,027 1,027 Santander Consumer USA 979 904 2,143 Santander Bank, National Association 643 594 1,828 Santander UK 633 592 7,147 Banco Santander - Chile 516 571 589 Grupo Financiero Santander (México) 435 399 460 Santander Consumer Nordics 224 216 496 Other companies 154 157 292 Total Goodwill 12,713 12,471 24,246 The changes in goodwill were as follows: EUR million 2021 2020 2019 Balance at beginning of year 12,471 24,246 25,466 Additions (note 3) 81 429 41 Of which: SAM Investment Holdings Limited — 271 — Santander España — — 4 Impairment losses (6) (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 — — — Exchange differences and other items 167 (2,104) 230 Balance at end of year 12,713 12,471 24,246 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 2021 there was an increase of EUR 167 million (a decrease of EUR 2,104 million in 2020 and an increase of EUR 230 million in 2019), 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. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 624 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 2021, the Group recognised impairment losses of EUR 6 million of immaterial goodwill which were recognised under 'Impairment or reversal of impairment of non-financial assets, net - Intangible assets'. Goodwill is deducted from CET1 for regulatory purposes and therefore an impairment of goodwill has no impact on the Group's capital ratios. In 2020, considering the economic and business environment resulting from covid-19, market conditions and the existing economic uncertainty, an impairment test was performed for certain CGUs during the second quarter. As a result, the Group recognised goodwill impairment of EUR 10,100 million, mainly associated with Santander UK, Santander Bank Polska, Santander Bank, National Association, Santander Consumer USA and Santander Consumer Nordics. In 2019, the Group recorded an impairment of goodwill associated with Santander UK amounting to EUR 1,491 million considering the following reasons: decrease in the profit generation capacity of the cash generating unit in contrast to the forecast made in previous years, the general competitive environment in the UK, the impact of the banking reform on retail businesses and the impact of the uncertainty generated by Brexit on the country's economic growth. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 625 Following is a detail of the main assumptions taken into account in determining the recoverable amount, at 2021 year-end, of the most significant cash-generating units which were valued using the discounted cash flow method: 2021 Projected period Discount rate\* Nominal perpetual growth rate Santander UK 5 years 9.2% 2.3% Santander Bank Polska 5 years 10.3% 3.5% Santander Consumer USA 3 years 10.6% 1.5% Santander Bank, National Association\*\* 5 years 11.6% 3.0% Santander Consumer Germany 5 years 8.3% 1.8% SAM Investment Holdings, Limited 5 years 10.4% 2.5% Santander Portugal 5 years 9.7% 1.8% Santander Consumer Nordics 5 years 9.9% 2.0% \*Post-tax discount rate. \*\*Weighted information of the main assumptions of the segments to which goodwill has been allocated. The discount and nominal perpetual growth rates taken into account in 2020 and 2019 are presented below for comparison purposes: Discount rate\* Nominal perpetual growth rate 2020 2019 2020 2019 Santander UK 9.5% 8.5% 2.3% 2.5% Santander Bank Polska 10.0% 9.2% 3.5% 3.5% Santander Consumer USA 10.7% 9.5% 1.5% 1.5% Santander Bank, National Association\*\* 11.6% 9.6% 2.5% 3.6% Santander Consumer Germany 9.0% 8.2% 1.8% 2.5% SAM Investment Holdings, Limited 10.1% 10.0% 2.5% 2.5% Santander Portugal 9.8% 8.9% 1.8% 2.0% Santander Consumer Nordics 10.1% 8.6% 2.0% 2.5% \*Post-tax discount rate. \*\*Weighted information of the main assumptions of the segments to which goodwill has been allocated. Given the degree of uncertainty of the above key assumptions on which the recoverable amount of the cash-generating units is based, the Group performs a sensitivity analysis which consisted of adjusting +/- 50 basis points  the discount rate, adjusting +/- 50 basis points the growth rate in perpetuity and reducing the cash flow projections by 5%. These changes in the key assumptions in isolation mean that the recoverable amount of all the cash-generating units continues to exceed their amount to be recovered and have been considered by the Group to be reasonably possible in a stable economic environment and in which non-recurring events unrelated to the business operations of the cash-generating units are not contemplated. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 626 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 2021, 2020, and 2019 is as follows: EUR million Estimated useful life 31 December 2020 Net additions and disposals Change in scope of consolidation Amortization and impairment Application of amortization and impairment Exchange differences and other 31 December 2021 Cost 9,376 1,409 5 — (293) 215 10,712 Brand names 37 — — — (34) 1 4 IT developments 3 -7 years 7,900 1,325 4 — (212) 172 9,189 Other 1,439 84 1 — (47) 42 1,519 Accumulated amortisation (5,809) — (2) (1,013) 232 (115) (6,707) Development (5,307) — (1) (922) 178 (97) (6,149) Other (502) — (1) (91) 54 (18) (558) Impairment losses (130) — — (65) 61 — (134) Of which addition — — — (65) — — — Liberation — — — — — — — 3,437 1,409 3 (1,078) — 100 3,871 EUR million Estimated useful life 31 December 2019 Net additions and disposals Change in scope of consolidation Amortization and impairment Application of amortization and impairment Exchange differences and other 31 December 2020 Cost 9,263 1,451 (33) — (241) (1,064) 9,376 Brand names 42 — — — (5) 37 IT developments 3-7 years 7,945 1,123 (34) (224) (910) 7,900 Other 1,276 328 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 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 627 EUR million Estimated useful life 31 December 2018 Net additions and disposals Change in scope of consolidation Amortization and impairment Application of amortization and impairment Exchange differences and other 31 December 2019 Cost 8,680 1,377 (41) — (887) 134 9,263 Brand names 36 2 2 — 2 42 IT developments 3-7 years 7,134 1,374 (19) (639) 95 7,945 Other 1,510 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 In 2021, 2020 and 2019, impairment losses of EUR 65 million, EUR 142 million and EUR 73 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 2021 2020 2019 Transactions in transit 157 88 157 Net pension plan assets (note 25) 1,990 635 903 Prepayments and accrued income 2,610 2,806 3,129 Other (note 2.n) 3,683 7,362 5,752 8,440 10,891 9,941 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 628 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 2021 2020 2019 CENTRAL BANKS Classification Financial liabilities held for trading 1,038 — — Financial liabilities designated at fair value through profit or loss 607 2,490 12,854 Financial liabilities at amortized cost 139,757 112,804 62,468 141,402 115,294 75,322 Type Deposits on demand 10 10 5 Time deposits 134,439 108,090 67,424 Reverse repurchase agreements 6,953 7,194 7,893 141,402 115,294 75,322 CREDIT INSTITUTIONS Classification Financial liabilities held for trading 6,488 — — Financial liabilities designated at fair value through profit or loss 1,064 6,765 9,340 Financial liabilities at amortized cost 52,235 62,620 90,501 59,787 69,385 99,841 Type Deposits on demand 6,139 5,727 9,136 Time deposits 37,332 43,308 61,406 Reverse repurchase agreements 16,198 20,179 29,115 Subordinated deposits 118 171 184 59,787 69,385 99,841 Currency Euro 107,908 104,499 79,008 Pound sterling 42,451 23,339 18,129 US dollar 24,012 26,581 53,403 Brazilian real 11,297 12,356 13,022 Other currencies 15,521 17,904 11,601 TOTAL 201,189 184,679 175,163 In 31 December 2021, the balance of the conditional long-term financing of the European Central Bank (TLTRO- Targeted Long-Term Refinancing Operation-) amounted to EUR 88,894 million,  all corresponding to TLRTO III (EUR 77,732 million  and EUR 46,201 million  at 31 December 2020 and 2019, respectively). In December 2021, the income recognized in the consolidated income statement corresponding to TLTRO III amounts to EUR 868 million (EUR 391 million at 31 December 2020). Grupo Santander´s deposits with central banks in 2021 amounted to EUR 193,102 million (EUR 137,047 million and EUR 75,353 million in 2020 and 2019), of which EUR 99,530 million with the European Central Bank (EUR 71,324 million and EUR 28,182 million in 2020 and 2019, respectively), at an average effective cost of -0.40%. Note 50 contains a detail of the residual maturity periods of financial liabilities at amortised cost. 21. Customer deposits The detail, by classification, geographical area and type, of Customer deposits is as follows: EUR million 2021 2020 2019 Classification Financial liabilities held for trading 6,141 — — Financial liabilities designated at fair value through profit or loss 25,608 34,343 34,917 Financial liabilities at amortized cost 886,595 814,967 789,448 918,344 849,310 824,365 Geographical area Spain 319,565 294,516 271,103 European Union (excluding Spain)\* 112,361 106,013 334,542 United States and Puerto Rico 73,814 59,057 60,011 Other OECD countries\* 321,607 306,243 71,235 South America 90,997 83,481 87,474 918,344 849,310 824,365 Type Demand deposits- 717,728 642,897 588,533 Current accounts 482,649 418,752 373,146 Savings accounts 227,318 216,500 208,701 Other demand deposits 7,761 7,645 6,686 Time deposits- 164,259 171,939 196,921 Fixed-term deposits and other term deposits 162,172 170,127 194,163 Home-purchase savings accounts 38 43 44 Discount deposits 3 3 3 Hybrid financial liabilities 1,906 1,743 2,711 Subordinated liabilities 140 23 — Repurchase agreements 36,357 34,474 38,911 918,344 849,310 824,365 \*The amounts referring to 2021 and 2020 exercises for the United Kingdom geographical area 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. Note 50 contains a detail of the residual maturity periods of financial liabilities at amortised cost. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 629 22. Marketable debt securities a) Breakdown The detail, by classification and type, of Marketable debt securities is as follows: EUR million 2021 2020 2019 Classification Financial liabilities held for trading — — — Financial liabilities designated at fair value through profit or loss 5,454 4,440 3,758 Financial liabilities at amortized cost 240,709 230,829 258,219 246,163 235,269 261,977 Type Bonds and debentures outstanding 194,362 191,577 208,455 Subordinated 25,938 21,686 20,878 Notes and other securities 25,863 22,006 32,644 246,163 235,269 261,977 The distribution of the book value of debt securities issued by contractual maturity at 31 December 2021 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 — — 49 130 656 6,167 18,936 25,938 Senior unsecured debt — 3,033 3,734 10,621 38,731 26,715 28,600 111,434 Senior secured debt — 1,673 5,271 12,364 33,562 13,340 16,718 82,928 Promissory notes and other securities — 9,201 9,304 7,358 — — — 25,863 Debt securities issued — 13,907 18,358 30,473 72,949 46,222 64,254 246,163 The distribution by contractual maturity of the notional amounts of these debt securities issued at 31 December 2021 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 — — 49 129 652 6,128 18,816 25,774 Senior unsecured debt — 3,063 3,771 10,725 39,110 26,976 28,880 112,525 Senior secured debt — 1,663 5,241 12,293 33,369 13,263 16,622 82,451 Promissory notes and other securities — 9,341 9,447 7,471 — — — 26,259 Debt securities issued — 14,067 18,508 30,618 73,131 46,367 64,318 247,009 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 630 b) Bonds and debentures outstanding The detail, by currency of issue, of  'Bonds and debentures outstanding' is as follows: 2021 EUR million Currency of issue 2021 2020 2019 Outstanding issue amount in foreign currency (Million) Annual interest rate (%) Euro 90,348 89,031 89,008 90,348 1.06% US dollar 66,581 61,174 64,952 75,406 2.39% Pound sterling 13,340 16,569 20,178 11,206 2.13% Brazilian real 9,131 8,398 15,292 57,702 1.99% Chilean peso 3,757 5,624 6,848 3,623,635 5.03% Other currencies 11,205 10,781 12,177 Balance at end of year 194,362 191,577 208,455 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 631 The changes in 'Bonds and debentures outstanding' were as follows: EUR million 2021 2020 2019 Balance at beginning of year 191,577 208,455 195,498 Net inclusion of entities in the Group — 785 — Issues 59,937 54,905 64,184 Of which: Santander Consumer USA Holdings Inc. 15,771 12,246 15,631 Banco Santander (Brasil) S.A. 14,996 11,036 13,227 Banco Santander, S.A. 11,766 10,220 12,066 Santander UK Group Holdings plc 3,372 6,320 4,547 Santander Consumo 4, F.T. 1,531 — — SC Germany S.A. (New Compartment: Consumer 2021-1) 1,496 — — Santander Consumer Finance, S.A. 1,169 2,394 5,150 Banco Santander - Chile 1,158 766 1,644 Santander International Products, Plc. 914 1,588 848 Auto ABS French Lease Master Compartiment 2016 900 300 300 Santander Factoring Sp. z o.o. 819 391 375 PSA Banque France 815 385 1,132 Santander Consumer Bank AS 779 773 1,572 PSA Bank Deutschland GmbH 600 — 1,104 Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México 541 1,770 577 PSA Financial Services, Spain, E.F.C, S.A. — 605 — Santander Holdings USA, Inc. — 1,269 2,778 SC Germany S.A., Compartment Consumer 2020-1 — 1,800 — SCF Rahoituspalvelut IX DAC — 650 — Santander Consumer Bank AG — 500 750 SCF Rahoituspalvelut VIII DAC — — 799 Redemptions and repurchases (61,846) (62,699) (52,462) Of which: Banco Santander (Brasil) S.A. (15,182) (14,211) (12,817) Santander Consumer USA Holdings Inc. (15,151) (13,959) (14,517) Santander UK Group Holdings plc (14,695) (14,102) (9,115) Santander Consumer Finance, S.A. (3,779) (4,371) (2,550) Banco Santander, S.A. (3,185) (5,991) (3,303) Banco Santander - Chile (1,030) (1,974) (848) Santander Factoring Sp. z o.o. (920) (299) (407) Auto ABS French Lease Master Compartiment 2016 (900) — — Santander Holdings USA, Inc. (778) (1,201) (1,990) PSA Bank Deutschland GmbH (580) — (902) Santander Consumer Bank AS (348) (936) (1,551) Santander International Products, Plc. (345) (324) (722) PSA Banque France (335) (684) — Banco Santander Totta, S.A. (9) (784) (739) Exchange differences and other movements 4,694 (9,869) 1,235 Balance at year-end 194,362 191,577 208,455 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 632 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, Banco Santander - Chile, Santander Bank Polska S.A. and Banco Santander S.A. - Uruguay. d) Guarantees Set forth below is information on the liabilities secured by assets: EUR million 2021 2020 2019 Asset-backed securities 40,519 35,753 38,616 Of which, mortgage-backed securities 1,487 2,274 3,819 Other mortgage securities 41,779 49,425 50,269 Of which: mortgage-backed bonds 23,197 24,736 24,736 Territorial covered bond 630 869 1,270 82,928 86,047 90,155 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 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). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 633 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 2021 2020 2019 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) 83,088 76,554 84,720 Of which: Loans eligible to cover issues of mortgage-backed securities 64,896 57,382 59,517 Transfers of assets retained on balance sheet: mortgage-backed certificates and other securitised mortgage assets 11,133 17,610 14,569 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 , will enjoy the special privilege established in Article 270.1.1 of the aforementioned Bankruptcy Law. Without prejudice to the foregoing, in accordance with Article 242.10 of the Bankruptcy 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 23,197 million at 31 December 2021 (all of which were denominated in euros), of which EUR 22,747 million were issued by Banco Santander, S.A (with an outstanding face value of EUR 22,266 million), and EUR 450 million were issued by Santander Consumer Finance, S.A. The issues outstanding at 31 December 2021 and 2020 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 634 23. Subordinated liabilities a) Breakdown The detail, by currency of issue, of Subordinated liabilities, deposits and marketable debt securities,  in the consolidated balance sheets is as follows: 2021 EUR million Outstanding issue amount in foreign currency (million) Annual interest rate (%) Currency of issue 2021 2020 2019 Euro 13,857 13,570 12,542 13,857 3.52% US dollar 8,236 5,991 6,506 9,328 4.92% Pound sterling 1,535 565 655 1,289 4.36% Brazilian real 879 — — 5,555 9.65% Other currencies 1,689 1,754 1,359 Balance at end of year 26,196 21,880 21,062 Note 50 contains a detail of the residual maturity periods of subordinated liabilities at each year-end. b) Changes The movement in the balance of subordinated liabilities in the last three years were as follows: EUR million 2021 2020 2019 Balance at beginning of year 21,880 21,062 23,820 Net inclusion of entities in the Group (note 3) — — — Placements 5,340 4,075 1,090 Of which: Banco Santander, S.A. 4,469 3,722 1,056 Banco Santander (Brasil) S.A. 871 — — Banco Santander - Chile — 353 — PSA Bank Deutschland GmbH — — 23 Banca PSA Italia S.p.a. — — 11 Net redemptions and repurchases\* (1,500) (2,838) (4,009) Of which: Banco Santander, S.A. (1,500) (1,671) (3,782) Santander UK plc — (740) (16) Santander UK Group Holdings plc — (316) — Santander Bank, National Association — (111) (19) Banco Santander (Brasil) S.A. — — (124) Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México — — (69) Exchange differences and other movements 476 (419) 161 Balance at end of year 26,196 21,880 21,062 \*The balance relating to issuances, redemptions and repurchases (EUR 3,840 million), together with the interest paid in remuneration of these issuances including PPCC (EUR 1,184 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, 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. At  22  November 2021, Banco Santander, S.A. issued subordinated debentures for a term of eleven years, with a redemption option on the tenth anniversary of the issue date, in the amount of USD 1,000 million (EUR 1,007 million at the exchange rate on the day of issue). The issue bears interest at an annual rate of 3.225%, payable semi-annually, for the first ten years (then repricing at a margin of 160 points over the one-year U.S. government bond). At 4 October 2021, Banco Santander, S.A. issued subordinated debentures for a term of eleven years, with a redemption option on the sixth anniversary of the issue date, amounting to GBP 850 million (EUR 887 million at the exchange rate on the day of issue). The issue bears interest at an annual rate of 2.25%, payable annually for the first six years (then repricing at a margin of 165 points over the 5- year UK government bond). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 635 At 21 September 2021, Banco Santander, S.A. carried out a placement of preferential shares contingently convertible into newly issued ordinary shares of the Bank ('PPCC') for a nominal amount of EUR 1,000 million (issue placed on the market EUR 997 million). The issuance has been carried out at par and the remuneration of the PPCC, whose payment is subject to certain conditions and is also discretionary, has been set at 3.625% per year for the first eight years, being reviewed every five years applying a margin of 376 basis points over the 5-year Mid-Swap Rate. At 11 September 2021, Banco Santander, S.A. proceeded to redeem early and voluntarily the entire issue made on 11 September 2014 of tier 1 contingently convertible preference shares (PPCC) with ISIN code XS110729154 which are traded in the Irish Stock Exchange Market 'Global Exchange Market', for a total nominal amount of EUR 1,500 million . At 12 May 2021, Banco Santander placed the issue of preference shares contingently convertible into newly issued ordinary shares of the Bank, previously announced, for a total nominal amount of  EUR 1,578 million, issued in a Series in Dollars of  USD 1,000 million (EUR 828 million at the exchange rate on the day of issue) and a Series in Euros for an amount of EUR 750 million. The issuance is carried out at par and the remuneration of the PPCC, whose payment is subject to certain conditions and is also discretionary, has been set (i) for the Series in Dollars at 4.750% per annum for the first six years, being revised every five years applying a margin of 375.3 basis points over the 5-year UST rate and (ii) for the Series in Euros by 4.125% per annum for the first seven years, being revised every five years applying a margin of 431.1 basis points over the applicable 5-year euro mid-swap. At 3 December 2020, Banco Santander, S.A. issued subordinated debentures with a ten-year term of USD 1,500 million (EUR 1,222 million at the date of issue). The issue bears interest at an annual rate of 2.749%, payable semiannually. At 22 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. At 12 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. At 14 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 1,500 million (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). At 19 May 2019, the voluntary early redemption of the preferred shares relating to the second issue made on 9 May 2014 (code ISIN XS1066553329) was communicated for an amount of USD 1,500 million (EUR 1,345 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, for the first five years (revised thereafter by applying a margin of 498.9 points over the mid-swap rate). 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 10-year subordinated debenture issue of EUR 1,250 million was carried out. The issue accrues annual interest of 2.125% payable annually. At 25 April and 29 September 2017, Banco Santander, S.A. carried out issues of 'PPCCs', for a nominal amount of EUR 750 million, and EUR 1,000 million respectively. The remuneration of the PPCCs, 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 years 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. At the end of November 2021, Banco Santander (Brasil) S.A. carried out an issue of Subordinated Financial Bills (TIER II) in its local market for a 10-year term, with a repurchase option as of the fifth anniversary of the issue date, in the amount of BRL 5,500 million. The issue price was CDI +2% per annum, payable at maturity. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 636 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 Banco Santander México, S.A. Institución de Banca Múltiple, Grupo Financiero Santander México for a nominal amount of USD 1,300 million 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 1,000 million. The issue bears floating interest at Wibor (6M) + 160 basis points payable semi-annually. The accrued interests from the subordinated liabilities during 2021 amounted to EUR 648 million (EUR 571 million and EUR 645 million during 2020 and 2019, respectively). In addition, interests from the PPCC during 2021 amounted to EUR 566 million (EUR 552 million and EUR 595 million in 2020 and 2019, respectively). 24. Other financial liabilities The detail of Other financial liabilities in the consolidated balance sheets is as follows: EUR million 2021 2020 2019 Trade payables 1,475 1,177 1,279 Clearing houses 650 599 165 Tax collection accounts: Public Institutions 5,315 4,122 4,122 Factoring accounts payable 275 222 409 Unsettled financial transactions 3,779 5,080 3,693 Lease liabilities (note 2.l) 2,856 3,049 5,108 Other financial liabilities 15,523 12,719 15,459 29,873 26,968 30,235 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 2021 was EUR 715 million (EUR 789 and EUR 946 million in 2020 and 2019, respectively). The analysis of the maturities of lease liabilities at December 2021, 2020 and 2019 is shown below: EUR million 2021 2020 2019 Maturity Analysis - Discounted payments Within 1 year 690 594 766 Between 1 and 3 years 933 981 1,254 Between 3 and 5 years 534 637 875 Later than 5 years 699 837 2,213 Total discounted payments at the end of the year 2,856 3,049 5,108 During 2021, 2020 and 2019  there were no significant variable lease payments not included in the valuation of lease liabilities. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 637 25. Provisions a) Breakdown The detail of Provisions in the consolidated balance sheets is as follows: EUR million 2021 2020 2019 Provision for pensions and other obligations post-employments 3,185 3,976 6,358 Other long term employee benefits 1,242 1,751 1,382 Provisions for taxes and other legal contingencies 1,996 2,200 3,057 Provisions for contingent liabilities and commitments (note 2) 733 700 739 Other provisions 2,427 2,225 2,451 Provisions 9,583 10,852 13,987 b) Changes The changes in 'Provisions' in the last three years were as follows: EUR million 2021 Post employment plans Long term employee benefits Contingent liabilities and commitments Other provisions Total Balances at beginning of year 3,976 1,751 700 4,425 10,852 Additions charged to income 100 101 29 2,748 2,978 Interest expense (note 39) 78 13 — — 91 Staff costs (note 47) 67 6 — — 73 Provisions or reversion of provisions (45) 82 29 2,748 2,814 Addition 21 154 473 3,065 3,713 Release (66) (72) (444) (317) (899) Other additions arising from insurance contracts linked to pensions (8) — — — (8) Changes in value recognised in equity (1,705) — — — (1,705) Payments to pensioners and pre-retirees with a charge to internal provisions (201) (605) — — (806) Payments to external funds (440) — — — (440) Amounts used — — — (2,961) (2,961) Transfer, exchange differences and other changes 1,463 (5) 4 211 1,673 Balances at end of year 3,185 1,242 733 4,423 9,583 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 638 EUR million 2020 2019 Post employment plans Long term employee benefits Contingent liabilities and commitments Other provisions Total Post employment plans Long term employee benefits Contingent liabilities and commitments Other provisions Total Balances at beginning of year 6,358 1,382 739 5,508 13,987 5,558 1,239 779 5,649 13,225 Incorporation of Group companies, net (5) — (1) (2) (8) — (1) — — (1) Additions charged to income (217) 782 50 1,934 2,549 173 729 (31) 2,836 3,707 Interest expense (note 39) 84 11 — — 95 128 17 — — 145 Staff costs (note 47) 69 7 — — 76 65 7 — — 72 Provisions or reversion of provisions (370) 764 50 1,934 2,378 (20) 705 (31) 2,836 3,490 Addition 6 787 490 2,258 3,541 10 713 422 4,276 5,421 Release (376) (23) (440) (324) (1,163) (30) (8) (453) (1,440) (1,931) Other additions arising from insurance contracts linked to pensions 2 — — — 2 4 — — — 4 Changes in value recognised in equity 547 — — — 547 1,520 — — — 1,520 Payments to pensioners and pre- retirees with a charge to internal provisions (303) (408) — — (711) (331) (612) — — (943) Benefits paid due to settlements (1,551) — — — (1,551) — — — — — Insurance premiums paid (1) — — — (1) (1) — — — (1) Payments to external funds (333) — — — (333) (455) — — — (455) Amounts used — — — (2,485) (2,485) — — — (2,907) (2,907) Transfer, exchange differences and other changes (521) (5) (88) (530) (1,144) (110) 27 (9) (70) (162) Balances at end of year 3,976 1,751 700 4,425 10,852 6,358 1,382 739 5,508 13,987 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 2021 2020 2019 Provisions for post-employment plans - Spanish entities 1,709 1,881 3,951 Provisions for other similar obligations - Spanish entities 1,188 1,695 1,321 Of which pre-retirements 1,176 1,676 1,303 Provisions for post-employment plans - United Kingdom 44 449 329 Provisions for post-employment plans - Other subsidiaries 1,432 1,646 2,078 Provisions for other similar obligations - Other subsidiaries 54 56 61 Provision for pensions and other obligations post -employments and Other long term employee benefits 4,427 5,727 7,740 Of which defined benefits 4,419 5,719 7,731 i. Spanish entities - Post-employment plans and other similar obligations At 31 December 2021, 2020 and 2019, 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 2019, the provisions accounted for benefit plans and contribution commitments were EUR 688 million. In December 2020, Banco Santander reached an agreement with the workers' representatives to implement an early retirement and incentivized dismissals plan, which was expected to benefit 3,572 employees during 2021, constituting a provision to cover these commitments amounting to EUR 688 million. In addition to this plan, in 2020, 443 employees took advantage of the offer of early retirement and incentivized dismissals, increasing the provision made to cover these commitments to EUR 84 million. In 2021, due to the increase in the number of employees covered by the plan, a provision of EUR 139 million has been recognised. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 639 On 8 July 2021, Banco Santander reached an agreement with the employee representatives for the transformation of defined benefit pension commitments into defined contributions for certain retired personnel from Banco Popular and Banco Pastor. Through the aforementioned Collective Agreement, it was agreed to carry out an offer to replace the life annuities that the passive personnel included in the scope of application of said Collective Agreement had been receiving, for a capitalization fund in the Santander Employees pension plan. The number of beneficiaries who exercised the voluntary option to accept the substitution of the life annuity for a capitalization fund in the Santander Employees pension plan amounted to 1,468 people. The effect of the reduction of the aforementioned commitments is shown in the tables below under the headings 'Benefits paid by settlement' amounting to EUR 166 million and 'Effect reduction / settlement' amounting to EUR 36 million. The expenses incurred by the Spanish companies in 2021, 2020 and 2019 in respect of contributions to defined contribution plans amounted to EUR 91 million, EUR 89 million and EUR 89 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 plans Other similar obligations 2021 2020 2019 2021 2020 2019 Annual discount rate 0.90% 0.60% 0.80% 0.90% 0.60% 0.80% Mortality tables PE2020 M/F Col. Orden 1 PE2020 M/F Col. Orden 1 PERM/F-2000 PE2020 M/F Col. Orden 1 PE2020 M/F Col. Orden 1 PERM/F-2000 Cumulative annual CPI growth 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Annual salary increase rate 1.25%\* 1.25%\* 1.25%\* N/A N/A N/A Annual social security pension increase rate 1.00% 1.00% 1.00% N/A N/A N/A Annual benefit increase rate N/A N/A N/A 0% 0% 0% \*Corresponds to the group’s defined-benefit obligations. 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 2021, 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 5.00% (-50 bp) to -5.06% (+50 bp),respectively, and an increase or decrease in the present value of the long-term obligations of 1.18% (-50 bp) to -1.18% (+50 bp), respectively. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 640 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 plans Other similar obligations 2021 2020 2019 2021 2020 2019 Expected rate of return on plan assets 0.90% 0.60% 0.80% 0.90% 0.60% 0.80% Expected rate of return on reimbursement rights 0.90% 0.60% 0.80% N/A N/A N/A The funding status of the defined benefit obligations in 2021 and the two preceding years is as follows: EUR million Post-employment plans Other similar obligations 2021 2020 2019 2021 2020 2019 Present value of the obligations To current employees 29 60 59 — — — Vested obligations to retired employees 2,797 3,318 5,393 — — — To pre-retirees employees — — — 1,186 1,688 1,317 Long-service bonuses and other benefits — — — 12 18 18 Other 65 41 42 — 1 — 2,891 3,419 5,494 1,198 1,707 1,335 Less - Fair value of plan assets 1,217 1,542 1,547 10 12 14 Provisions - Provisions for pensions 1,674 1,877 3,947 1,188 1,695 1,321 Of which: Internal provisions for pensions 1,560 1,707 3,759 1,188 1,695 1,321 Net pension assets (30) — — — — — Insurance contracts linked to pensions (note 14) 149 174 192 — — — Unrecognised net assets for pensions (5) (4) (4) — — — The amounts recognised in the consolidated income statements in relation to the aforementioned defined benefit obligations are as follows: EUR million Post-employment plans Other similar obligations 2021 2020 2019 2021 2020 2019 Current service cost 5 10 12 1 1 1 Interest cost (net) 24 26 53 11 9 15 Expected return on insurance contracts linked to pensions (1) (1) (2) — — — Provisions or reversion of provisions Actuarial (gains)/losses recognised in the year — — — (15) (3) 7 Past service cost 13 2 3 — — 1 Pre-retirement cost — — 1 139 772 687 Other\* (39) (372) (29) (55) (15) (2) 2 (335) 38 81 764 709 \*Including reduction/settlement effect Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 641 In addition, in 2021 'Other comprehensive income – Items not reclassified to profit or loss – Actuarial gains or (-) losses on defined benefit pension plans' has decreased by EUR 37 million with respect to defined benefit obligations (increase of EUR 84 and EUR 278 million in 2020 and 2019, respectively). The changes in the present value of the accrued defined benefit obligations were as follows: EUR million Post-employment plans Other similar obligations 2021 2020 2019 2021 2020 2019 Present value of the obligations at beginning of year 3,419 5,494 5,427 1,707 1,335 1,204 Incorporation of Group companies, net 6 — — — — (1) Current service cost 5 10 12 1 1 1 Interest cost 36 39 72 11 9 15 Pre-retirement cost — — 1 139 772 687 Effect of curtailment/settlement (61) (372) (29) (55) (15) (2) Benefits paid (248) (359) (400) (589) (392) (599) Benefits paid due to settlements (166) (1,551) — — — — Past service cost 13 2 3 — — 1 Actuarial (gains)/losses (121) 163 407 (15) (3) 7 Demographic actuarial (gains)/losses 9 91 15 (8) (8) (9) Financial actuarial (gains)/losses (130) 72 392 (7) 5 16 Exchange differences and other items 8 (7) 1 (1) — 22 Present value of the obligations at end of year 2,891 3,419 5,494 1,198 1,707 1,335 The changes in the fair value of plan assets and of insurance contracts linked to pensions were as follows: Plan Assets EUR million Post-employment plans Other similar obligations 2021 2020 2019 2021 2020 2019 Fair value of plan assets at beginning of year 1,542 1,547 1,500 12 14 15 Incorporation of Group companies, net 6 — — — — — Expected return on plan assets 12 13 19 — — — Gains/(losses) on settlements (22) — — — — — Benefits paid (263) (94) (108) (2) (2) (2) Contributions/(surrenders) 15 5 8 — — — Actuarial gains/(losses) (76) 76 128 — — — Exchange differences and other items 3 (5) — — — 1 Fair value of plan assets at end of year 1,217 1,542 1,547 10 12 14 Insurance Contracts linked to pensions EUR million Post-employment plans Other similar obligations 2021 2020 2019 2021 2020 2019 Fair value of insurance contracts linked to pensions at beginning of year 174 192 210 — — — Incorporation of Group companies, net — — — — — — Expected return on insurance contracts linked to pensions 1 1 2 — — — Benefits paid (19) (21) (24) — — — Paid premiums 1 — — — — — Actuarial gains/(losses) (8) 2 4 — — — Fair value of insurance contracts linked to pensions at end of year 149 174 192 — — — Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 642 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 2021 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 2021 for the next ten years: EUR million 2022 606 2023 466 2024 402 2025 333 2026 284 2027 to 2031 904 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 89 million in 2021 (EUR 91 million in 2020 and EUR 93 million in 2019). 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: 2021 2020 2019 Annual discount rate 1.90% 1.28% 2.11% Mortality tables The S3 Middle tables weighted at 84% of the CMI\_2020 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%. 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%. Cumulative annual CPI growth 3.37% 2.95% 3.01% Annual salary increase rate 1.00% 1.00% 1.00% Annual pension increase rate 3.21% 2.85% 2.91% 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 2021, 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 9.74% (-50 bp) and -8.67% (+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 6.19% (+50 bp) and -6.00% (-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 2021 and the two preceding years is as follows: EUR million 2021 2020 2019 Present value of the obligations 15,392 15,472 14,297 Less- Fair value of plan assets 17,244 15,575 14,755 Provisions - Provisions for pensions (1,852) (103) (458) Of which: Internal provisions for pensions 44 449 329 Net assets for pensions (1,896) (552) (787) The amounts recognised in the consolidated income statements in relation to the aforementioned defined benefit obligations are as follows: EUR million 2021 2020 2019 Current service cost 33 30 27 Interest cost (net) (6) (12) (24) Provisions or reversal of provisions, net Cost of services provided 6 — — Others — (1) — 33 17 3 In addition, in 2021 'Other comprehensive income – Items not reclassified to profit or loss – Actuarial gains or (-) losses on defined benefit pension plans' decreased by EUR 1,475 million with respect to defined benefit obligations (increase of EUR 568 million and decrease of EUR 601 million at 31 December 2020 and 2019, respectively). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 643 The changes in the present value of the accrued defined benefit obligations were as follows: EUR million 2021 2020 2019 Present value of the obligations at beginning of year 15,472 14,297 12,079 Current service cost 33 30 27 Interest cost 219 284 352 Benefits paid (465) (445) (441) Contributions made by employees 18 17 18 Past service cost 6 — — Actuarial (gains)/losses (933) 2,060 1,594 Demographic actuarial (gains)/losses (17) 34 48 Financial actuarial (gains)/losses (916) 2,026 1,546 Exchange differences and other items 1,042 (771) 668 Present value of the obligations at end of year 15,392 15,472 14,297 The changes in the fair value of the plan assets were as follows: EUR million 2021 2020 2019 Fair value of plan assets at beginning of year 15,575 14,755 12,887 Expected return on plan assets 225 296 376 Benefits paid (463) (443) (441) Contributions 285 274 244 Actuarial gains/(losses) 541 1,492 993 Exchange differences and other items 1,081 (799) 696 Fair value of plan assets at end of year 17,244 15,575 14,755 In 2022 the Group expects to make current contributions to fund these obligations for amounts similar to those made in 2021. The main categories of plan assets as a percentage of total plan assets are as follows: 2021 2020 2019 Equity instruments 10% 9% 12% Debt instruments 51% 55% 46% Properties 10% 10% 11% Other 29% 26% 31% The following table shows the estimated benefits payable at 31 December 2021 for the next ten years: EUR million 2022 462 2023 367 2024 393 2025 408 2026 433 2027 to 2031 2,481 iii. Other foreign subsidiaries Certain of the consolidated foreign entities have acquired commitments to their employees similar to post-employment benefits. At 31 December 2021, 2020 and 2019, 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 106 million in 2021 (EUR 103 million at 31 December 2020  and EUR 110 million at 31 December 2019). 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 8.39% and 8.44%, the CPI 3.00% and the mortality table the AT - 2000 Basic. Any changes in the main assumptions could affect the calculation of the obligations. At 31 December 2021, 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 4.78% and -4.40%, respectively. These changes would be offset in part by increases or decreases in the fair value of the assets. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 644 The funding status of the obligations similar to post-employment benefits and other long-term benefits in 2021 and the two preceding years is as follows: EUR million 2021 Of which business in Brazil 2020 2019 Present value of the obligations 8,018 5,111 8,434 10,717 Less- Of which: with a charge to the participants 106 106 112 176 Fair value of plan assets 7,167 5,288 7,182 8,826 Provisions - Provisions for pensions 745 (283) 1,140 1,715 Of which: Internal provisions for pensions 1,478 432 1,694 2,129 Net assets for pensions (64) (46) (83) (116) Unrecognised net assets for pensions (669) (669) (471) (298) The amounts recognised in the consolidated income statements in relation to these obligations are as follows: EUR million 2021 2020 2019 Current service cost 34 35 32 Interest cost (net) 62 72 101 Provisions or reversion of provisions (Actuarial gains)/losses recognised in the year 11 11 12 Past service cost 3 5 6 Pre-retirement cost (24) — — Other (3) (5) (1) 83 118 150 In addition, in 2021 'Other comprehensive income – Items not reclassified to profit or loss – Actuarial gains or (-) losses on defined benefit pension plans' decreased by EUR 193 million with respect to defined benefit obligations (decreased EUR 105 million and increased EUR 641 million in 2020 and 2019, respectively). The changes in the present value of the accrued obligations were as follows: EUR million 2021 2020 2019 Present value of the obligations at beginning of year 8,434 10,717 9,116 Incorporation of Group companies, net (5) (84) — Current service cost 34 35 32 Interest cost 429 465 651 Pre-retirement cost (24) — — Effect of curtailment/settlement (3) (5) (1) Benefits paid (538) (544) (666) Contributions made by employees 3 3 5 Past service cost 3 5 6 Actuarial (gains)/losses (486) 176 1,652 Demographic actuarial (gains)/losses 16 23 3 Financial actuarial (gains)/losses (502) 153 1,649 Exchange differences and other items 171 (2,334) (78) Present value of the obligations at end of year 8,018 8,434 10,717 The changes in the fair value of the plan assets were as follows: EUR million 2021 2020 2019 Fair value of plan assets at beginning of year 7,182 8,826 7,743 Incorporation of Group companies, net (6) (86) — Expected return on plan assets 411 410 573 Benefits paid (478) (488) (613) Contributions 152 63 214 Actuarial gains/(losses) (155) 536 1,021 Exchange differences and other items 61 (2,079) (112) Fair value of plan assets at end of year 7,167 7,182 8,826 In 2022 the Group expects to make contributions to fund these obligations for amounts similar to those made in 2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 645 The main categories of plan assets as a percentage of total plan assets are as follows: 2021 2020 2019 Equity instruments 12% 11% 8% Debt instruments 83% 84% 84% Properties 1% 1% 1% Other 4% 4% 7% The following table shows the estimated benefits payable at 31 December 2021 for the next ten years: EUR million 2022 538 2023 544 2024 550 2025 555 2026 560 2027 to 2031 2,870 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 2021 2020 2019 Recognised by Spanish companies 1,595 1,647 1,381 Recognised by other EU companies 779 539 1,100 Recognised by other companies 2,049 2,239 3,027 Of which: Brazil 1,339 1,475 2,484 4,423 4,425 5,508 Set forth below is the detail, by type of provision, of the balance at 31 December 2021, 2020 and 2019 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 2021 2020 2019 Provisions for taxes 564 600 759 Provisions for employment-related proceedings (Brazil) 328 437 776 Provisions for other legal proceedings 1,104 1,163 1,522 Provision for customer remediation 745 395 725 Regulatory framework-related provisions 36 69 67 Provision for restructuring 749 810 641 Other 897 951 1,018 4,423 4,425 5,508 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. 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, as well as the impact of Swiss franc (CHF) mortgage portfolios in Poland 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. Lastly, the 'Other' heading contains very atomized and individually insignificant provisions, such as the provisions to cover the operational risk. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 646 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 2021 of the breakdown provisions are shown below: With respect to provisions for labor and other legal proceedings, in Brazil, provisions of EUR 155 million and EUR 168 million were recorded, making payments of EUR 289 million and EUR 205 million, respectively. With respect to provisions for customer compensation an amount of EUR 319 million was provided in Poland to cover the CHF mortgage portfolio in the year. On the regulatory framework side, EUR 69 million was provisioned in the United Kingdom and a utilization of EUR 104 million was made in the year (Bank Levy). In addition, in Poland, EUR 131 million were recorded under the regulatory framework and paid during the year. In addition, the restructuring provision includes provisions of EUR 598 million mainly in the UK and Portugal, as well as the payments made by the Group during the year. e) Litigation and other matters i. Tax-related litigation At 31 December 2021 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 unfavourably in first instance. Therefore, both plaintiffs appealed to the court of second instance. On December 2020, the appeal was decided unfavourably. Against the judgment, the bank filed a motion for clarification which has not been accepted. Currently it is appealed to higher courts. There is a provision recognized for the estimated loss. •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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 647 •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 the amount 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 Pagamento 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 were submitted, and the appeal is pending decision in CARF. 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 848 million, and for lawsuits that qualify as contingent liabilities is EUR 3,690 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 IRS finalized its administrative process to close-out the issue, which resulted in no impact on net income. •Banco Santander appealed before European Courts the Decisions 2011/5/CE of 28 October 2009 (First Decision), and 2011/282/UE of 12 January 2011 (Second Decision) 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 October 2021 the Court of Justice has definitively confirmed these Decisions. The dismissal of the appeal, that only affects these two decisions, has no effect on equity. At the date of approval of these interim financial statements certain other less significant tax-related proceedings are also in progress. ii. Non-tax-related proceedings At 31 December 2021 the main non-tax-related proceedings concerning the Group were as follows: •Payment Protection Insurance (PPI): In recent years Santander UK plc has processed customer claims associated with the sale of payment protection insurance (PPI), derived from the Financial Conduct Authority guidelines.  As of 31 December 2021 there is no provision related to those claims as the deadline for presenting them has already expired. However, customers can still commence in-court litigation for the mis-sale of PPI  and a provision for the best estimate of any obligation to pay compensation in respect of current and future claims is recognized for this purpose. In addition, there is a legal dispute regarding allocation of liability for pre-2005 PPI policies underwritten by two entities (Axa France) that Axa Group acquired from Genworth Financial International Holdings, Inc. in September 2015. The dispute involves 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 the distributor of the policies in dispute and Santander Insurance Services UK Limited (the Santander Entities). In July 2017, the Santander Entities notified Axa France that they did not accept liability for losses on PPI policies relating to the referred period.  Santander UK plc entered in a Complaints Handling Agreement –that included a standstill agreement- agreeing to handle complaints on Axa France, whilst Axa France accepted paying 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 provided written notice to the Santander Entities to terminate the standstill agreement. On 5 March 2021, the Santander Entities were served with a Claim Form and Brief Details of Claim by Axa France, claiming that the Santander Entities are liable to reimburse Axa France for pre-2005 PPI mis-selling losses, currently estimated at GBP 636 million (EUR 739 million). On 22 March 2021, the Santander Entities acknowledged service of the claim and notified the court of their intention to defend the claim in full and issued an application for Axa Frances’s claim to be struck out/summarily dismissed, which is being heard by the Commercial Court on 22 and 23 February 2022. Decision is not expected until second quarter 2022. In the event the claim is not dismissed, there are still ongoing factual issues to be resolved during the  trial, which may have legal consequences including in relation to liability. These issues create uncertainties which mean that it is difficult to reliably predict the outcome or the timing of the resolution of the matter. The provision includes our best estimate of the Santander Entities’ liability for this matter. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 648 •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 claimed the Bank to repay EUR 57 million, which the Bank received for the enforcement of the agreed guarantee, as a result of the aforementioned liquidation.  On 16 September 2021 the Commercial Court Number 10 of Barcelona has ordered Delforca to pay the Bank EUR 66 million plus EUR 11 million in interest and has dismissed the claims filed by Delforca. This decision has been appealed by Delforca, Mobiliaria Monesa and the bankruptcy administrator. The appeal which the Bank has already opposed to will be resolved by the Provincial Court of Barcelona. Separately, Mobiliaria Monesa, S.A. (parent of Delforca) filed in 2009 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:  claim initiated 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 Tribunal Regional do Trabalho (Regional Labour Court) and the High Employment Court (TST) ordered Santander Brazil, 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 Santander Brazil. Santander Bank Brazil filed a rescissory action before the TST to nullify the decisions of the main proceedings and suspend the execution of the judgment, which was deemed inadmissible, therefore its execution was suspended.  The rescissory action was dismissed and a motion for clarification was filed, due to the absence of an explicit argument to deny the rescissory action filed by Santander Brazil. After the decision of the motion for clarification, Santander Brazil filed an extraordinary appeal in the rescissory action in February 2021, which was denied in an interlocutory decision in June 2021 by the TST. As Santander Brazil understands there is a conflict between the TST decision and the doctrine set by the STF, Santander Brazil has appealed this decision. This appeal is pending. In August 2021, a first instance court has ruled that the enforcement of the TST decision shall be carried out individually, at the jurisdiction pertaining to each person. AFABESP appealed this decision.  In December 2021, the Regional Labor Court denied the appeal filed by AFABESP.  This decision has  not been  appealed by AFABESP, and therefore it has become firm. Santander Brazil external advisers 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 31 December 2021. •'Planos Económicos': like the rest of the banking system in Brasil, Santander Brazil has been the target of customer complaints and collective civil suits stemming mainly from legislative changes and its application to bank deposits ('economic plans'). At the end of 2017, an agreement between regulatory entities and the Brazilian Federation of Banks (Febraban) with the purpose of closing the lawsuits was reached and was approved by the Supremo Tribunal Federal. 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 adhesions there may be 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 proceedings for two years from May 2018. On 29 May 2020, the STF 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”. On 31 December 2021, the provision recorded for the economic plan proceedings amounts to EUR 277 million. •Floor clauses:  as a consequence of the acquisition of Banco Popular Español, S.A.U. the Group has been exposed to a material number of transactions with floor clauses. The so-called "floor 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-side 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 20 January, Banco Popular Español, S.A.U. made 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. At 31 December 2021, after having processed most of the customer requests, the potential residual loss associated with ongoing court proceedings is estimated at EUR 46 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., 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 application of the single resolution framework regulation, 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.. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 649 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 Council, 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. On 2 December 2021, the CJEU Advocate General issued his opinion, considering that the Directive precludes former Banco Popular shareholders from bringing claims for compensation  against Banco Santander. The judgement of the CJEU in this case is still pending and is likely to condition the outcome on the judicial proceedings that are currently ongoing. 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 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, which rejected it. In this proceedings, Banco Santander, S.A. could potentially be subsidiarily liable for the civil consequences. 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. At 31 December 2021, the provisions recorded are considered sufficient to cover the risks associated with the court claims that can be estimated to date. However, if additional amounts have to be paid for claims already raised with an undetermined economic interest or for new claims which cannot be reliably estimated because of their specific circumstances, this could have a significant adverse effect on the Santander Group's results and financial situation. •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, Santander Financial Services Plc and Cater Allen International Limited -, in relation to a particular type of tax dividend linked transactions known as cum- ex transactions. The Group is cooperating with the German authorities. According to the state of the investigations, the result and the effects for the Group, which may potentially include the imposition of material financial penalties, cannot be anticipated.  For this reason, the Bank has not recognized any provisions in relation to the potential imposition of financial penalties. •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 sought a compensation for a total amount of approximately EUR 112 million or, an alternative relief for other minor amounts. Banco Santander, S.A. answered to the complaint stating that the conditions to which the appointment was subject to were not met and that the contract required by law was not concluded.  On 17 May 2021, the plaintiff reduced his claims for compensation to EUR 61.9 million. On 9 December 2021, the Court has rendered its decision ordering the Bank to compensate the plaintiff in the amount of EUR 67.8 million. On 13 January 2022, the Court has corrected and supplemented its judgment, reducing the total amount to EUR 51.4 million and establishing that part of this amount (EUR 18.6 million) would have to be paid in shares of Banco Santander and subject to the application of the same terms provided in the applicable Santander executives’ remuneration program (on a deferred basis, and in accordance with the applicable plan in the offer). The Bank will file appeal against the judgment before the Provincial Court of Madrid.  The provisions recorded are considered to be sufficient to cover the risks deriving from this claim. •Universalpay Entidad de Pago, S.L. has filed a lawsuit against Banco Santander, S.A. for breach of the marketing alliance agreement (MAA) and claim payment (EUR 1,050 million). The claim is being processed in the Court of First Instance no. 81 of Madrid. The MAA was originally entered into by Banco Popular Español, S.A.U. and its purpose is the rendering of acquiring services (point of sale payment terminals) for businesses in the Spanish market. The lawsuit is mainly based on the potential breach of clause 6 of the MAA, which establishes certain obligations of exclusivity, non- competition and customer referral. The claim is at a very early stage, and there are factual issues pending resolution, which may have legal consequences and affect any potential liability. This uncertainty makes it impossible to reliably predict the resolution of the issue, the timing or the significance of the potential economic impact. The Bank has answered the complaint. The pretrial hearing could not take place on 16 December 2021 and has been rescheduled on 11 March 2022. •CHF Polish Mortgage Loans: On 3 October 2019, the Court of Justice of the European Union (CJEU) rendered its decision in relation to a judicial proceeding against an unrelated bank in Poland considering that certain contractual clauses in CHF-indexed loan agreements were abusive. 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 case of maintenance of the contract, the court may only integrate the contract with subsidiary provisions of national law and decide, in accordance with those provisions, on the applicable rate. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 650 On 2 September 2021, the Supreme Court was expected to take a position regarding the key issues in disputes concerning loans based on foreign currency, clarifying the discrepancies and unifying case law.  The resolution was not adopted and instead, the Supreme Court referred questions to the CJEU on constitutional issues of the Polish judiciary system. No new date for consideration of the issue has been set and no comprehensive decision by the Supreme Court on CHF of the issue is expected in the near future. In the absence of a comprehensive position of the Supreme Court, it is difficult to expect a full unification of judicial decisions, and decisions of the Supreme Court and CJEU issued on particular issues may be important for shaping further case law on CHF matters. As of 31 December 2021, Santander Bank Polska S.A. and Santander Consumer Bank S.A. maintain a portfolio of mortgages denominated in or indexed to CHF for an approximate amount of 9,265 million zlotys (EUR 2,083 million). During the year, provisions recorded amounted to 1,453 million zlotys (EUR 319 million), leaving the provision fund as of 31 December 2021 at 2,056 million zlotys (EUR 447 million). This provision represents the best estimate at 31 December 2021 given the difficulty to predict the financial impact, as it is for national courts to decide the relevant issues and the process of analyzing and deciding on the KNF proposal described below has not yet been completed. Santander Bank Polska and Santander Consumer Bank Poland will continue to monitor and assess appropriateness of those provisions. In December 2020, the Chairman of the Polish Financial Supervision Authority (KNF) presented a proposal for voluntary settlements between banks and borrowers under which CHF loans would be retrospectively settled as PLN loans bearing an interest rate based on WIBOR plus margin.  This proposal is currently under analysis within Santander Bank Polska S.A. and Santander Consumer Bank S.A., depending on the results of this analysis, Santander Bank Polska and Santander Consumer Bank Poland 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. While the above referred events could lead to significant changes in the level of expected provisions, in the opinion of Santander Bank Polska S.A. and Santander Consumer Bank S.A., it is not possible to reliably estimate the value of their impact on their financial position at 31 December 2021. •Banco Santander Mexico. Dispute regarding a testamentary trust constituted in 1994 by Mr. Roberto Garza Sada in Banca Serfin (currently Santander Mexico) in favor of his four sons in which he affected shares of Alfa, S.A.B. de C.V. (respectively, "Alfa" and the "Trust"). During 1999, Mr. Roberto Garza Sada instructed Santander México in its capacity as trustee to transfer 36,700,000 shares from the Trust's assets to his sons and daughters and himself. These instructions were ratified in 2004 by Mr. Roberto Garza Sada before a Notary Public. Mr. Roberto Garza Sada, passed away on 14 August 2010 and subsequently, in 2012, his daughters filed a complaint against Santander Mexico alleging it had been negligent in its trustee role. The lawsuit was dismissed at first instance in April 2017 and on appeal in 2018. In May 2018, the plaintiffs filed an appeal (recurso de amparo) before the First Collegiate Court of the Fourth Circuit based in Nuevo León, which ruled in favor of the plaintiffs on 7 May 2021, annulling the 2018 appeal judgment and condemning Santander Mexico to the petitions claimed, consisting of the recovery of the amount of 36,700,000 Alfa shares, together with dividends, interest and damages. On 7 June 2021, Santander México filed an appeal for constitutional review against the decision of the Collegiate Court before the Supreme Court of Justice of the Nation, considering that this court was not empowered to resolve substantive issues that had not been raised by the parties, lack of procedural standing, and the absence of a decision imposing the plaintiffs to pay costs. This appeal was rejected by the President of the Supreme Court of Justice of the Nation on 1 October 2021 on the grounds that the matter, although it refers to constitutional matters, is not of exceptional interest. On 6 October 2021, Santander México filed an appeal against this decision before the Supreme Court itself, which was rejected in limine by the President of the Court by order dated 11 October 2021, considering that against the dismissal of the appeal for constitutional review, there is no possible appeal pursuant to the Constitutional Reform of March 2021. Against this decision, on 8 December 2021, a new appeal was filed for this matter to be reviewed by the First Chamber of the Supreme Court of Justice of the Nation, considering that the failure to accept the appeal constitutes a retroactive application of the law, and that this violates the transitory fifth article of the reform of the “Ley de Amparo” published on 7 June 2021. In compliance with the aforementioned ruling of 7th May 2021, the Seventh Civil Chamber of the Superior Court of Justice of Nuevo León has issued a judgement imposing Santander Mexico to pay the benefits claimed by the plaintiffs. As a result of this judgement, Santander Mexico has filed a new appeal (recurso de amparo) and will request that it be resolved by the Supreme Court of Justice of the Nation. Santander México estimates that the actions taken should prevail and reverse the decision against it. However, given the procedural stage of the case, Santander México has classified this risk as possible. The impact of a potential unfavorable resolution for Santander México will be determined in a subsequent proceeding and will also depend on the additional actions that Santander México may take in its defense, so it is not possible to determine it at this time. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 651 •URO Property Holdings, SOCIMI SA: In December 2021, BNP Paribas Trust Corporation UK Limited (“BNP”) informed Uro Property Holdings SOCIMI, SA (“Uro”) – subsidiary from Banco Santander, S.A.-, that it is considering taking legal action against Uro. On 16 February 2022, BNP commenced legal proceedings against Uro in the Commercial Court in London. On 31 December 2021, Uro lost its status as a SOCIMI (Sociedad Anónima Cotizada de Inversión Inmobiliaria). The potential litigation concerns certain terms of a financing granted to Uro which was supported by a bond issue in 2015. BNP, acting as trustee on behalf of the bondholders, claims that based on those terms, and in relation to the loss of SOCIMI status, Uro would be obliged to pay an additional premium above the nominal value of the financing repayment. Uro denies being liable to pay that additional premium and intends to defend the claim. It is estimated that the maximum loss associated with this possible contingency, amounts to approximately EUR 250 million. There is no date for trial hearing yet. Banco Santander 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 additional to those referred to here. With the information available to it, the Group considers that, at 31 December 2021, 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. Disputes in which provisions have been registered but are not disclosed is justified on the basis that it would be prejudicial to the proper defense of the Group. 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 2021 2020 2019 Transactions in transit 545 498 663 Accrued expenses and deferred income 7,084 6,309 6,909 Other 5,069 5,529 5,220 12,698 12,336 12,792 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 June and November 2021 acts with agreement, conformity and non-conformity relating to the corporate income tax financial years 2012 to 2015 were formalised. The adjustments signed in conformity and with agreement  had not 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 2011), 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 2011) and at different administrative instances (tax years 2012-2015). Consequently, no provision has been recorded for this concept. It should also be noted that, in those cases where it has been considered appropriate, the mechanisms available to avoid international double taxation have been used.  At the date of approval of these accounts, the Corporate Income Tax and other taxes audit for periods 2017 to 2019 are ongoing, and subsequent years up to and including 2021, are subject to review. Likewise, relating the Consolidated Tax Group of which Banco Popular Español, S.A.U. was the parent, during 2019, a certificate of disconformity was drawn up for 2017 corporate income tax, with no impact on profit, and the final assessment was  appealed. In relation to this Consolidated Tax Group, the years 2016 and  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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 652 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 2021 2020 2019 Consolidated profit (loss) before tax: From continuing operations 14,547 (2,076) 12,543 From discontinued operations — — — 14,547 (2,076) 12,543 Income tax at tax rate applicable in Spain (30%) 4,364 (623) 3,763 By the effect of application of the various tax rates applicable in each country\* 210 362 243 Of which: Brazil 634 560 502 United Kingdom (158) (43) (80) United States (179) (71) (71) Chile (34) (24) (35) Effect of profit or loss of associates and joint ventures (130) 29 (97) Effect of reassessment of deferred taxes 9 2,500 (612) Permanent differences and other \*\* 441 3,364 1,130 Current income tax 4,894 5,632 4,427 Effective tax rate 33.64% — 35.29% Of which: Continuing operations 4,894 5,632 4,427 Discontinued operations (note 37) — — — Of which: Current taxes 3,799 4,214 3,962 Deferred taxes 1,095 1,418 465 Income tax (receipts)/payments 4,012 2,946 2,593 \*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. 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 2021, 2020 and 2019: EUR million 2021 2020 2019 Other comprehensive income Items not reclassified to profit or loss (510) (82) 500 Actuarial gains or (-) losses on defined benefit pension plans (530) (165) 499 Changes in the fair value of equity instruments measured at fair value through other comprehensive income (13) 92 (42) Financial liabilities at fair value with changes in results attributable to changes in credit risk 33 (9) 43 Items that may be reclassified to profit or loss 1,136 208 (832) Cash flow hedges 278 5 (17) Changes in the fair value of debt instruments through other comprehensive income 857 195 (811) Other recognised income and expense of investments in subsidiaries, joint ventures and associates 1 8 (4) Total 626 126 (332) Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 653 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. 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  involves the payment of 1.5% per annum, in order to maintain the right to monetise which  applies 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 654 The detail of deferred tax assets, by classification as monetizable or non-monetizable assets, and of deferred tax liabilities at 31 December 2021, 2020 and 2019 is as follows: EUR million 2021 2020 2019 Monetizable\* Other Monetizable\* Other Monetizable\* Other Tax assets 10,473 8,967 10,721 8,525 11,233 11,525 Tax losses and tax credits — 1,249 — 1,093 — 3,428 Temporary differences 10,473 7,718 10,721 7,432 11,233 8,097 Of which: Non-deductible provisions — 2,256 — 2,139 — 2,751 Valuation of financial instruments — 600 — 483 — 400 Loan losses 6,888 988 7,134 1,007 7,645 1,086 Pensions 3,585 669 3,587 875 3,587 1,009 Valuation of tangible and intangible assets — 1,509 — 1,373 — 1,317 Tax liabilities — 6,462 — 5,933 — 6,522 Temporary differences — 6,462 — 5,933 — 6,522 Of which: Valuation of financial instruments — 1,419 — 1,791 — 2,073 Valuation of tangible and intangible assets — 3,081 — 2,311 — 1,962 Investments in Group companies — 337 — 440 — 831 \*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. Likewise, Grupo Santander, due to losses incurred in 2020, converted EUR 642 million of monetizable tax assets into credit against the Tax Administration in its Corporate Income Tax return. This tax return is subject to review by the Tax Authorities. 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 behaviour 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 655 During 2020, taking into account the uncertainties about the economic impacts derived from the covid-19 health crisis, the Group reassessed the ability to generate future taxable income in relation to the recoverability of deferred tax assets recorded in the main Group companies. Management considered that the recovery period of these assets would not be affected and that it was 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 changes in the key assumptions on which the projected results of its tax group are based, arising from the impact of covid-19, 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 2021 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 9,954 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 1,902 million for other temporary differences and EUR 632 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 5,204 million, of which EUR 2,909 million were for monetizable temporary differences, EUR 1,984 million for other temporary differences and EUR 311 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 1,503 million, of which EUR 1,215 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 656 The changes in Tax assets - Deferred and Tax liabilities - Deferred in the last three years were as follows: EUR million Balances at 31 December 2020 (Charge)/ Credit to income Foreign currency balance translation differences and other items (Charge)/Credit to asset and liability valuation adjustments Acquisition for the year (net) Balances at 31 December 2021 Deferred tax assets 19,246 (209) 193 209 1 19,440 Tax losses and tax credits 1,093 129 28 — — 1,250 Temporary differences 18,153 (338) 165 209 1 18,190 Of which monetizable 10,721 (273) 25 — — 10,473 Deferred tax liabilities (5,933) (886) (170) 528 (1) (6,462) Temporary differences (5,933) (886) (170) 528 (1) (6,462) 13,313 (1,095) 23 737 0 12,978 EUR million Balance at 31 December 2019 (Charge)/ Credit to income Foreign currency balance translation differences and other items (Charge)/Credit to asset and liability valuation adjustments Acquisition for the year (net) Balance at 31 December 2020 Deferred tax assets 22,758 (1,016) (2,465) 38 (69) 19,246 Tax losses and tax credits 3,427 (2,065) (266) — (3) 1,093 Temporary differences 19,331 1,049 (2,199) 38 (66) 18,153 Of which monetizable 11,233 613 (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 Balances at 31 December 2018 (Charge)/ Credit to income Foreign currency balance translation differences and other items (Charge)/Credit to asset and liability valuation adjustments Acquisition for the year (net) Balance at 31 December 2019 Deferred tax assets 23,258 215 (610) (92) (13) 22,758 Tax losses and tax credits 4,276 (301) (548) — — 3,427 Temporary differences 18,982 516 (62) (92) (13) 19,331 Of which monetizable 10,866 427 (60) — — 11,233 Deferred tax liabilities (5,568) (680) 92 (366) 0 (6,522) Temporary differences (5,568) (680) 92 (366) — (6,522) 17,690 (465) (518) (458) (13) 16,236 Also, the Group did not recognise deferred tax assets relating to tax losses and deductions and other incentives amounting to approximately EUR 9,800 million, the use of which EUR 375 million is subject, among other requirements, to time limits. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 657 f) Tax reforms The following significant tax reforms were approved in 2021 and previous years: In Spain, Royal Decree-Law 3-2016 was approved in December 2016, which meant the reduction of the limits for the integration of deferred monetizable tax assets and for the set-off of negative tax bases and deductions in order to avoid double taxation as well as the compulsory impairment reversion for deductible participations in previous years in five years, and the non deductibility of the losses generated from the transmission of participations. In 2020 the General State Budget Law for 2021 established, among other tax measures, the non deductibility in Corporation Tax of management fees on participations whose dividends or capital gains are exempt, determining the amount of these  expenses as a 5% of the dividends or capital gains. Likewise in 2021 the General State Budget Law for 2022 was approved. This law establishes a minimum effective tax rate of 15% (18% for financial entities) on Corporation Tax base. In the United Kingdom, in March 2021 it was announced that the main Corporation Tax rate will increase from 1 April 2023 to 25% from 19%. This increase was enacted in Finance Act 2021. In Brazil, the Constitutional Amendment 103/19 was adopted on 12 November 2019, modifying the social security system, including, among other measures, an increase in the CSLL tax rate for banks 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 banks from 40% to 45%. In addition, in 2021, the provisional measure (Medida Provisoria) 1,034/2021, temporarily increases, from 1 July 2021 to 31 December 2021, the rate of a Social Contribution on the Net Income (CSLL) of the banks to 25% from 20%, and for other financial institutions to 20% from 15%, being the joint taxation for banks 50% (25% IR and 25% CSLL), and 45% for other financial institutions. In the IOF (Tax on financial operations) on credit operations, as of 1 January 2021 the rate of 0,38% (0% for part of 2020) is reinstated, and for settled transactions from 20 September to 31 December 2021, a temporary increase in the IOF rates applicable for credit transactions was approved (annual rate 1.5%% to 2.04%% for legal persons and 3% to 4.8% for natural persons). In Argentina, Law n.º 27630 (BOE of 16 June 2021) amended, with retroactive effect to 1 January 2021, the rate applicable to the Corporate Income Tax, establishing a progressive rate scale which for Banco Santander Río S.A. represents an increase from 30% to 35%. In addition, the 7% withholding on dividend distribution is maintained (however, the distribution of pre-2018 reserves is not subject to withholding tax). In addition, during the first quarter of the year, there was an increase in the tax on gross income to financial institutions in both, the City of Buenos Aires (from 7% to 8%) and the Province of Buenos Aires (from 7% to 9%). Additionally, the adjustment for tax inflation that was to be applied on a transitional basis in 1/3 of 2019, has been lowered to 1/6 in 2019, with the rest being deferred over the next five years 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. Build Back Better Act, approved in the House of Representatives on November 19, 2021, includes significant tax increases and measures impacting large corporations and other high-income taxpayers, such as the introduction of a 15% Minimum Tax on Financial Statement Pre-Tax Book Income, changes to the Base Erosion Anti-Abuse Tax  and a new excise tax on Share Buy-Backs. Build Back Better Act is pending to be passed by the Senate 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. On 22 December 2021, the European Commission has proposed a Directive ensuring a minimum effective tax rate for the global activities of large multinational groups. The proposal follows closely the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting and sets out how the principles of the 15% effective tax rate – agreed by 137 countries – will be applied in practice within the European Union (EU). It includes a common set of rules (GloBe Rules) on how to calculate this effective tax rate, so that it is properly and consistently applied across the EU. 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 2021/22. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 658 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 2021 2020 2019 Santander Bank Polska S.A. 1,559 1,676 1,597 Grupo PSA 1,543 1,622 1,569 Santander Consumer USA Holdings Inc. 1,255 986 1,565 Banco Santander - Chile 1,042 1,218 1,101 Banco Santander (Brasil) S.A. 1,023 1,014 1,167 Banco Santander México, S.A. Institución de Banca Múltiple, Grupo Financiero Santander México 202 461 333 Other companies\* 1,970 1,806 1,655 8,594 8,783 8,987 Profit/(Loss) for the year attributable to non-controlling interests 1,529 1,063 1,601 Of which: Santander Consumer USA Holdings Inc. 494 201 230 Grupo PSA 311 255 266 Banco Santander - Chile 292 198 283 Banco Santander (Brasil) S.A. 251 233 373 Santander Bank Polska S.A. 75 81 162 Banco Santander México, S.A. Institución de Banca Múltiple, Grupo Financiero Santander México 62 61 195 Other companies 44 34 92 TOTAL 10,123 9,846 10,588 \*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 2,200 million (the Group having acquired GBP 1,050 million). Carrying amount of EUR 1,363 million in 2021 (EUR 1,275 million and EUR 1,346 million in 2020 and 2019, respectively). b) Changes The changes in Non-controlling interests are summarised as follows: EUR million 2021 2020 2019 Balance at the end of the previous year 9,846 10,588 10,889 Balance at beginning of year 9,846 10,588 10,889 Other comprehensive income\* (304) (818) 310 Other 581 76 (611) Profit attributable to non-controlling interests 1,529 1,063 1,601 Modification of participation rates\*\* (390) (632) (1,623) Change of perimeter (5) (54) 110 Dividends paid to minority shareholders (648) (465) (895) Changes in capital and other concepts\* 95 164 196 Balance at end of year 10,123 9,846 10,588 \*Mainly due to exchange differences. \*\*Includes the effect of the Public Offers for the acquisition of shares of Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México in 2021 and 2019 (see note 3.c). The foregoing changes are shown in the consolidated statement of changes in total equity. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 659 c) Other information The financial information on the subsidiaries with significant non- controlling interests at 31 December 2021 is summarised below: EUR million\* Santander Bank Polska S.A. Banco Santander (Brasil) S.A. Banco Santander (Chile), S.A. Grupo Financiero Santander México, S.A.B. de C.V. Santander Consumer USA Total assets 49,788 159,447 71,987 78,383 43,966 Total liabilities 45,071 146,662 67,282 71,162 35,064 Net assets 4,717 12,785 4,705 7,221 8,902 Total income 1,646 10,884 2,457 3,579 4,725 Total profit 230 2,589 928 896 2,510 \*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. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 660 a) Breakdown of Other comprehensive income - Items that will not be reclassified in results and Items that can be classified in results EUR million 2021 2020 2019 Other comprehensive income (32,719) (33,144) (24,168) Items that will not be reclassified to profit or loss (4,241) (5,328) (4,288) Actuarial gains and losses on defined benefit pension plans (3,986) (5,002) (4,764) Non-current assets held for sale — — — Share in other income and expenses recognised in investments, joint ventures and associates (8) (2) 1 Other valuation adjustments — — — Changes in the fair value of equity instruments measured at fair value with changes in other comprehensive income (157) (308) 514 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) 275 159 44 Changes in the fair value of equity instruments measured at fair value with changes in other comprehensive income (hedging instrument) (275) (159) (44) Changes in the fair value of financial liabilities measured at fair value through profit or loss attributable to changes in credit risk (90) (16) (39) Items that may be reclassified to profit or loss (28,478) (27,816) (19,880) Hedges of net investments in foreign operations (Effective portion) (4,283) (3,124) (5,464) Exchange differences (23,887) (26,911) (16,701) Hedging derivatives. Cash flow hedges (Effective portion) (276) 295 300 Changes in the fair value of debt instruments measured at fair value with changes in other comprehensive income 436 2,411 2,321 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 (468) (487) (336) 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 (decrease of EUR 1,567 million in the year) is shown in the consolidated statement of recognised income. The release against equity in 2021 amounts to EUR 1,705 million - see note 25.b -, with the following breakdown: •Reduction of EUR 37 million in the accumulates actuarial losses relating to the Group´s entities in Spain, mainly due to the evolution experienced by the discount rate -increase from 0.60% to 0.90%. •Reduction of EUR 1,475 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– increase from 1.28% to 1.90%. •Reduction of EUR 91 million in accumulated actuarial losses corresponding to the Group’s business in Brazil, mainly due to the increase  in the discount rate -from 6.82% to 8.39% in pension benefits and 7.14% to 8.44% in medical benefits-. •Reduction of EUR 102 million in the accumulated actuarial losses corresponding to the Group's businesses in other geographical areas. The other modification in accumulated actuarial profit or losses is an increase of EUR 138 million as a result of the evolution of exchange rates, mainly in United Kingdom (appreciation of the pound sterling). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 661 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 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 2021, 2020 and 2019 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 2021 Capital gains by valuation Capital losses by valuation Net gains/losses by valuation Fair Value Equity instruments Domestic Spain 25 (663) (638) 759 International Rest of Europe 39 (58) (19) 170 United States 13 (4) 9 31 Latin America and rest 496 (5) 491 1,493 573 (730) (157) 2,453 Of which: Publicly listed 500 (44) 456 1,521 Non publicly listed 73 (686) (613) 932 EUR million 2020 Capital gains by valuation Capital losses by valuation Net gains/losses by valuation Fair Value Equity instruments Domestic Spain 28 (849) (821) 1,032 International Rest of Europe 65 (76) (11) 314 United States 7 (4) 3 25 Latin America and rest 525 (4) 521 1,412 625 (933) (308) 2,783 Of which: Publicly listed 525 (31) 494 1,424 Non publicly listed 100 (902) (802) 1,359 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 662 EUR million 2019 Capital gains by valuation Capital losses by valuation Net gains/losses by valuation Fair Value Equity instruments Domestic Spain 21 (445) (424) 184 International Rest of Europe 68 (72) (4) 379 United States 15 (3) 12 44 Latin America and rest 934 (4) 930 2,256 1,038 (524) 514 2,863 Of which: Publicly listed 936 (14) 922 2,283 Non publicly listed 102 (510) (408) 580 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 2021 reflects the positive effect of the generalized appreciation of some currencies, especially the pound sterling and the US dollar, whereas the change in 2020 reflected the negative effect of the generalized depreciation of the main currencies, especially the Brazilian real, the pound sterling and the US dollar. The change in 2019 showed 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. Of the change in the balance in these years, a profit of EUR 167 million, a loss of EUR 2,104 million and a profit of EUR 230 million in 2021, 2020 and 2019, respectively relate to the measurement of goodwill. The detail, by country is as follows: EUR million 2021 2020 2019 Net balance at end of year\* (28,170) (30,035) (22,165) Of which: Brazilian real (17,440) (17,417) (13,579) Pound sterling (3,415) (4,205) (3,135) Mexican peso (3,088) (3,091) (2,439) Argentine peso\* (2,109) (2,288) (2,094) Chilean peso (2,039) (1,776) (1,560) US dollar 1,536 387 1,654 Polish zloty (809) (788) (501) Other (806) (857) (511) \*Grupo Santander 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 an amount of EUR -1,984 million from the heading 'Other reserves' to 'Accumulated other comprehensive income' (see note 2.a and 33.b). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 663 The breakdown of translation differences by currency is as follows: EUR million 2021 Of which: Currency Balance at the beginning of the year Balance at the end of the year Movement From goodwill From results\* From net assets Brazilian real (16,032) (15,913) 119 30 19 70 Pound sterling (4,602) (3,504) 1,098 41 38 1,019 Mexican peso (2,393) (2,012) 381 26 29 326 Argentine peso (2,287) (2,109) 178 — — 178 Chilean peso (1,450) (1,852) (402) (55) (43) (304) US dollar 1,253 2,775 1,522 125 102 1,295 Polish zloty (638) (678) (40) (9) (1) (30) Other (762) (594) 168 9 11 148 Total Group (26,911) (23,887) 3,024 167 155 2,702 \*Profit and loss items are translated into euros at the average exchange rate for the year as described in note 2 a) ii. EUR million 2020 Of which: Currency Balance at the beginning of the year Balance at the end of the year Movement From goodwill From results\* From net assets Brazilian real (10,704) (16,032) (5,328) (1,280) (190) (3,858) Pound sterling (3,329) (4,602) (1,273) (455) (4) (814) Mexican peso (1,547) (2,393) (846) (59) (2) (785) Argentine peso (2,094) (2,287) (193) — — (193) Chilean peso (1,181) (1,450) (269) (18) 15 (266) US dollar 2,833 1,253 (1,580) (143) (58) (1,379) Polish zloty (249) (638) (389) (133) (5) (251) Other (430) (762) (332) (16) (10) (306) Total Group (16,701) (26,911) (10,210) (2,104) (254) (7,852) \*Profit and loss items are translated into euros at the average exchange rate for the year as described in note 2 a) ii. 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). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 664 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). 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 2021, 2020 and 2019 is as follows: EUR million 31 December 2021 Revaluation gains Revaluation losses Net revaluation gains/ (losses) Fair value Debt instruments Government debt securities and debt Instruments issued by central banks Spain 271 — 271 12,917 Rest of Europe 544 (118) 426 20,397 Latin America and rest of the world 334 (438) (104) 49,847 Private-sector debt securities 80 (237) (157) 22,424 1,229 (793) 436 105,585 EUR million 31 December 2020 Revaluation gains Revaluation losses Net revaluation gains/ (losses) Fair value Debt instruments Government debt securities and debt Instruments issued by central banks Spain 693 — 693 19,314 Rest of Europe 915 (69) 846 23,116 Latin America and rest of the world 785 (73) 712 51,026 Private-sector debt securities 181 (21) 160 24,714 2,574 (163) 2,411 118,170 EUR million 31 December 2019 Revaluation gains Revaluation losses Net revaluation gains/ (losses) Fair value Debt instruments Government debt securities and debt Instruments issued by central banks Spain 947 (2) 945 32,413 Rest of Europe 664 (38) 626 19,052 Latin America and rest of the world 839 (121) 718 51,284 Private-sector debt securities 81 (49) 32 20,096 2,531 (210) 2,321 122,845 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 665 Since 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 2021, 2020 and 2019, 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 19 million and EUR 12 million in 2021, 2020 and 2019, 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 2021 2020 2019 Balance at beginning of year (489) (335) (320) Revaluation gains/(losses) 7 (170) (22) Net amounts transferred to profit or loss 6 16 7 Balance at end of year (476) (489) (335) Of which: Zurich Santander Insurance América, S.L. (332) (298) (171) 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 during the year are set forth below. 31. Issued capital a) Changes 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 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. Equally, Banco Santander's share capital at 31 December 2021 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. Includes 259,930,273 shares corresponding to the first share repurchase program for which it has been agreed (together with the shares that are finally to be acquired under the second share repurchase program) to submit their redemption to the general shareholders meeting subject to the pertinent regulatory authorizations (see notes 4 and 34). 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 2021, 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 2021, 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 (13.35%), Chase Nominees Limited (9.15%),  The Bank of New York Mellon Corporation (5.21%), Citibank New York (3.74%) and EC Nominees Limited (3.34%). 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 2021, neither Banco Santander's shareholder registry nor the CNMV's registry showed any shareholder residing in a non-cooperative jurisdiction 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. Banco Santander´s Bylaws are fully aligned with Spanish law and do not establish any different conditions for share capital increases. At 31 December 2021 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. and Getnet Adquirência e Serviços para Meios de Pagamento S.A. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 666 At 31 December 2021 the number of Banco Santander shares owned by third parties and managed by Group management companies (mainly portfolio, collective investment undertaking and pension fund managers) or jointly managed was 45 million shares, which represented 0.26% of Banco Santander’s share capital (39 and 40 million shares, representing 0.22% and 0.24% of the share capital in 2020 and 2019, respectively). In addition, the number of Banco Santander shares owned by third parties and received as security was 231 million shares (equal to 1.33% of the Bank’s share capital). At 31 December 2021 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). The increased produced in 2019 was 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 was due to the reduction of EUR 361 million to cover the capital increase on 3 December (see note 31). The decreased produced in 2021 for an amount of EUR 4,034 million has been the consequence of applying the result obtained by Banco Santander during the financial year 2020, consisting of losses of EUR 3,557 million, as reflected in the consolidated statements of changes in total equity, and the charge of the dividend for the fiscal year 2020 for an amount of EUR 477 million (see note 4.a and consolidated statements of changes in total equity). Also, in 2020 and 2019 an amount of EUR 72 million and EUR 38 million, respectively,  were transferred from the Share premium account to the Legal reserve (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 2021 2020 2019 Restricted reserves 2,543 2,460 2,595 Legal reserve 1,734 1,734 1,662 Own shares 755 672 879 Revaluation reserve Royal Decree-Law 7/1996 43 43 43 Reserve for retired capital 11 11 11 Unrestricted reserves 4,243 10,422 10,664 Voluntary reserves\* 6,123 6,128 4,603 Consolidation reserves attributable to the Bank (1,880) 4,294 6,061 Reserves of subsidiaries 47,438 47,601 43,449 Reserves of entities accounted for using the equity method 1,572 1,504 1,210 55,796 61,987 57,918 \*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 and 2019, Banco Santander transferred EUR 72 million and EUR 38 million, respectively, from the Share premium account to the Legal reserve. 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 2021 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 667 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 2021 2020 2019 Banco Santander (Brasil) S.A. (Consolidated Group) 14,325 14,067 12,400 Santander UK Group 8,558 8,447 8,079 Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México 4,913 4,230 3,810 Santander Consumer Finance Group 4,753 4,186 4,012 Banco Santander - Chile 3,502 3,404 3,116 Banco Santander Totta, S.A. (Consolidated Group) 3,194 2,960 2,823 Group Santander Holdings USA 2,940 4,793 4,528 Banco Santander Río S.A. 2,318 2,161 1,895 Santander Bank Polska S.A. 1,990 1,748 1,738 Santander Investment, S.A. 1,307 1,335 146 Santander Seguros y Reaseguros, Compañía Aseguradora, S.A. 869 695 823 Banco Santander International SA (former Banco Santander (Suisse) SA) 277 247 348 Other companies and consolidation adjustments (1,508) (672) (269) 47,438 47,601 43,449 Of which, restricted 3,392 3,155 3,193 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 2021 amounted to EUR 658 million. Additionally, at 31 December 2021 the Group had other equity instruments amounting to EUR 152 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. At December 31, 2020, the number of treasury shares held by the Group was 28,439,022 (0.164% of the issued share capital). During 2021, 524,312,848 shares of the Bank were acquired at an average price of EUR 3.14 per share, of which 259,930,273 shares (1.499% of the issued share capital) relate to the First Share Buyback Program at a weighted average price of EUR 3.235 per share (note 4); and 275,159,930 shares were transferred at an average price of EUR 3.10 per share - of which 55,750,000 shares correspond to  two extraordinary donations made by Banco Santander to the Banco Santander Foundation. As of December 31, 2021, the Group holds 277,591,940 shares of the Bank's issued share capital (1.60%). The effect on equity, net of tax, arising from the purchase and sale of Bank shares is of EUR 23 million profit  in 2021 (EUR 1 million profit and EUR 6 million loss in 2020 and 2019, 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: 2021 2020 2019 Loans commitment granted 262,737 241,230 241,179 Of which doubtful 615 274 352 Financial guarantees granted 10,758 12,377 13,650 Of which doubtful 188 124 154 Financial guarantees 10,715 12,358 13,619 Credit derivatives sold 43 19 31 Other commitments granted 75,733 64,538 68,895 Of which doubtful 781 548 747 Technical guarantees 40,158 33,526 33,890 Other 35,575 31,012 35,005 The breakdown as at 31 December 2021 of the exposures and the provision fund (see note 25) out of balance sheet by impairment stage is EUR 337,113 million and EUR 372 million (EUR 310,435 million and EUR 377 million in 2020 and EUR 316,116 million and EUR 417 million in 2019) in stage 1, EUR 10,531 million and EUR 200 million (EUR 6,764 million and EUR 182 million in 2020 and EUR 6,355 million and EUR 145 million in 2019) in stage 2 and EUR 1,584 million and EUR 161 million (EUR 946 million and EUR 141 million in 2020 and EUR 1,253 million and EUR 177 million in 2019) 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 in the related contract to the nominal amount of the guarantee. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 668 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 2021 2020 2019 Investment funds 145,987 131,965 142,988 Pension funds 16,078 15,577 11,843 Assets under management 24,862 20,712 22,079 186,927 168,254 176,910 ii. Non-managed marketed funds At 31 December 2021 there are non-managed marketed funds totalling EUR 48,385 million (EUR 38,563 million and EUR 49,490 million at 31 December 2020 and 2019, respectively). c) Third-party securities held in custody At 31 December 2021 the Group held in custody debt securities and equity instruments totalling EUR 236,153 million (EUR 209,269 million and EUR 229,381 million at 31 December 2020 and 2019, respectively) entrusted to it by third parties. 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 4.85% of the total hedging derivatives: EUR million USD LIBOR Total hedging instruments affected Fair value hedges 14,223 Interest rate risk 14,223 Cash flow hedges 12,034 Interest rate risk 12,034 26,257 Post-transition date agreement Fair value hedges 11,241 Interest rate risk 11,241 Cash flow hedges 7,830 Interest rate risk 7,830 19,071 As for the hedged items directly affected by the uncertainties related to the IBOR reforms, their nominal amount is shown below, which represents 2.02% of the total notional amount hedged: EUR million USD LIBOR Total hedge items directly affected Fair value hedges 190 Interest rate risk 190 Cash flow hedges 11926 Interest rate risk 11,926 12,116 Post-transition date agreement Fair value hedges 190 Interest rate risk 190 Cash flow hedges 7732 Interest rate risk 7,732 7,922 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 669 The following tables contains the detail of the hedging derivatives according to the type of hedging, the hedge risk and the main products used as of 31 December 2021, 2020 and 2019: Million euros 2021 Carrying amount Nominal value Assets Liabilities Changes in fair value used for calculating hedge ineffectiveness Balance sheet line items Fair value hedges 206,957 2,528 2,656 1,079 Interest rate risk 176,176 2,227 1,778 591 Hedging derivatives Of which: Interest rate swap 66,904 1,668 920 (377) Call money swap 97,321 1 734 714 Exchange rate risk 21,238 7 423 287 Hedging derivatives Fx forward 13,909 7 423 22 Future interest rate 7,329 — — 265 Interest rate and exchange rate risk 9,326 294 452 200 Hedging derivatives Of which: Interest rate swap 1,650 12 9 (7) Currency swap 7,397 281 443 192 Inflation risk 44 — 1 — Hedging derivatives Credit risk 173 — 2 1 Hedging derivatives Cash flow hedges 160,397 2,034 2,157 (1,703) Interest rate risk 99,648 156 420 (526) Hedging derivatives Of which: Future interest rate 7,652 — — (155) Interest rate swap 69,471 70 155 (212) Call money swap 16,846 20 182 (409) Exchange rate risk 27,343 396 657 (112) Hedging derivatives Of which: FX forward 8,381 280 42 26 Currency swap 15,004 100 606 (133) Interest rate and exchange rate risk 21,609 1,425 400 (815) Hedging derivatives Of which: Interest rate swap 3,604 95 2 (112) Currency swap 17,005 1,330 393 (702) Inflation risk 11,741 52 679 (247) Hedging derivatives Of which: Currency swap 10,503 51 678 (232) Equity risk 56 5 1 (3) Hedging derivatives Hedges of net investments in foreign operations 25,594 199 650 — Exchange rate risk 25,594 199 650 — Hedging derivatives FX forward 25,594 199 650 — 392,948 4,761 5,463 (624) Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 670 EUR million 2020 Carrying amount Nominal value Assets Liabilities Changes in fair value used for calculating hedge ineffectiveness Balance sheet line items Fair value hedges 199,260 4,199 4,671 (451) Interest rate risk 181,582 3,528 3,850 (456) Hedging derivatives Of which: Interest rate swap 94,713 2,985 2,747 (27) Call money swap 69,740 184 886 (486) Exchange rate risk 9,037 293 47 11 Hedging derivatives Of which: FX forward 8,422 210 47 11 Interest rate and exchange rate risk 8,434 378 771 (11) Hedging derivatives Of which: Currency swap 7,704 370 757 (4) Credit risk 207 — 3 5 Hedging derivatives Cash flow hedges 139,156 3,436 1,739 232 Interest rate risk 74,731 478 522 75 Hedging derivatives Of which: Future interest rate 7,492 — 322 (208) Interest rate swap 46,547 237 108 135 Call money swap 12,123 204 7 145 Exchange rate risk 23,483 555 802 (401) Hedging derivatives Of which: FX forward 9,151 265 195 (155) Currency swap 13,425 283 600 (103) Interest rate and exchange rate risk 27,021 2,362 275 679 Hedging derivatives Of which: Currency swap 19,682 2,100 264 550 Inflation risk 13,907 36 140 (129) Hedging derivatives Of which: Interest rate swap 5,218 262 — 129 Currency swap 10,206 26 136 (132) Equity risk 14 5 — 8 Hedging derivatives Hedges of net investments in foreign operations 22,210 690 459 3 Exchange rate risk 22,210 690 459 3 Hedging derivatives FX forward 22,210 690 459 — 360,626 8,325 6,869 (216) Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 671 EUR million 2019 Carrying amount Nominal value Assets Liabilities Changes in fair value used for calculating hedge ineffectiveness Balance sheet line items Fair value hedges 202,548 3,570 3,649 (1,522) Interest rate risk 183,586 3,032 3,160 (1,346) Hedging derivatives Of which: Future interest rate 12,325 — 32 (476) Interest rate swap 117,439 2,651 2,297 (429) Call money swap 44,791 91 472 (295) Exchange rate risk 10,006 73 55 (60) Hedging derivatives Of which: Fx forward 9,722 49 54 (60) Interest rate and exchange rate risk 8,698 465 428 (116) Hedging derivatives Of which: Currency swap 7,552 449 423 (67) Inflation risk 0 — 0 5 Hedging derivatives Credit risk 258 — 6 (5) Hedging derivatives Cash flow hedges 135,439 3,398 1,618 (1,540) Interest rate risk 55,810 277 261 (267) Hedging derivatives Of which: Futures 21,655 33 147 (93) Interest rate swap 21,492 99 97 (105) Call money swap 6,164 30 12 8 Exchange rate risk 31,803 463 660 (405) Hedging derivatives Of which: FX forward 10,595 237 216 (145) Currency swap 11,030 214 433 (365) Futures 9,290 — — 113 Interest rate and exchange rate risk 38,938 2,625 640 (826) Hedging derivatives Of which: Interest rate swap 7,347 133 5 201 Currency swap 27,044 2,492 622 (1,020) Inflation risk 8,830 33 53 (44) Hedging derivatives Of which: FX forward 2,230 5 4 4 Currency swap 6,511 28 42 (44) Equity risk 58 — 4 2 Hedging derivatives Hedges of net investments in foreign operations 24,477 248 781 0 Exchange rate risk 24,477 248 781 0 Hedging derivatives FX forward 24,477 248 781 — 362,464 7,216 6,048 (3,062) Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 672 Considering the main entities or groups within the Group by the weight of their hedging, the main types of hedging that are being carried out in Santander UK Group Holdings plc group and Banco Santander, 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 market rate variability risk, 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. 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 hedges, are carried out through interest rate swaps, cross currency swaps and exchange rate derivatives (forex swaps and forex forward). In addition, Banco Santander, S.A. manages the interest and exchange risk of debt issues in its 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 mix of both by applying differentiated fair value hedging strategies for interest rate risk and cash flow hedging strategies to hedge 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/income 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 modelled 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 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 673 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 7,000 million. 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 consolidation 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. For 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 674 The following table sets out the maturity profile of the hedging instruments used in Grupo Santander non-dynamic hedging strategies: EUR million 31 December 2021 Up to one month One to three months Three months t o one year One year to five years More than five years Total Fair value hedges 5,546 11,786 45,119 114,828 29,678 206,957 Interest rate risk 4,324 9,978 33,873 103,216 24,785 176,176 Of which: Interest rate swap 267 2,138 4,189 42,398 17,912 66,904 Call money swap 3,716 7,527 25,588 56,120 4,370 97,321 Exchange rate risk 598 1,712 11,013 5,550 2,365 21,238 Fx forward 598 1,712 11,013 586 — 13,909 Future interest rate — — — 4,964 2,365 7,329 Interest rate and exchange rate risk 624 77 199 5,898 2,528 9,326 Of which: Interest rate swap — — — 1,232 418 1,650 Currency swap 624 72 198 4,437 2,066 7,397 Inflation risk — — — 44 — 44 Credit risk — 19 34 120 — 173 Cash flow hedges 17,674 3,208 20,459 102,833 16,223 160,397 Interest rate risk 13,047 1,061 9,875 68,867 6,798 99,648 Of which: Future interest rate 7,097 — 244 311 — 7,652 Interest rate swap 2,336 310 7,759 58,930 136 69,471 Call money swap 1,202 751 858 7,920 6,115 16,846 Exchange rate risk 3,438 1,348 3,195 15,506 3,856 27,343 Of which: FX forward 2,406 1,309 1,947 2,719 — 8,381 Currency swap 1,032 39 1,248 9,885 2,800 15,004 Interest rate and exchange rate risk 860 336 5,924 11,165 3,324 21,609 Of which: Interest rate swap — — — 2,505 1,099 3,604 Currency swap 860 336 5,924 7,660 2,225 17,005 Inflation risk 329 463 1,463 7,246 2,240 11,741 Of which: Currency swap 82 339 597 7,245 2,240 10,503 Equity risk — — 2 49 5 56 Hedges of net investments in foreign operations: 4,097 5,346 13,235 2,916 — 25,594 Exchange rate risk 4,097 5,346 13,235 2,916 — 25,594 FX forward 4,097 5,346 13,235 2,916 — 25,594 27,317 20,340 78,813 220,577 45,901 392,948 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 675 EUR million 31 December 2020 Up to one month One to three months Three months t o one year One year to five years More than five years Total Fair value hedges 7,132 14,221 44,897 95,343 37,667 199,260 Interest rate risk 5,616 9,667 39,921 90,913 35,465 181,582 Of which: Interest rate swap 3,943 4,804 24,807 33,333 27,826 94,713 Call money swap 1,021 4,662 11,241 49,624 3,192 69,740 Exchange rate risk 1,516 4,264 3,257 — — 9,037 Of which: Fx forward 901 4,264 3,257 — — 8,422 Interest rate and exchange rate risk — 282 1,711 4,239 2,202 8,434 Of which: Currency swap — 282 1,711 3,607 2,104 7,704 Credit risk — 8 8 191 — 207 Cash flow hedges 10,489 11,629 44,127 61,186 11,725 139,156 Interest rate risk 6,019 6,707 33,070 26,959 1,976 74,731 Of which: Future interest rate 5,213 — — 2,279 — 7,492 Interest rate swap 806 4,626 29,511 11,219 385 46,547 Call money swap — 1,502 1,550 7,890 1,181 12,123 Exchange rate risk 1,746 2,336 4,616 13,071 1,714 23,483 Of which: FX forward 1,532 2,243 3,040 2,336 — 9,151 Currency swap 214 93 1,576 9,828 1,714 13,425 Interest rate and exchange rate risk 1,691 972 5,634 15,687 3,037 27,021 Of which: Interest rate swap 816 — 981 2,402 1,019 5,218 Currency swap 875 972 4,653 11,164 2,018 19,682 Inflation risk 1,033 1,614 807 5,456 4,997 13,907 Of which: Currency swap 33 181 229 4,766 4,997 10,206 Equity risk — — — 13 1 14 Hedges of net investments in foreign operations: 2,435 5,086 12,831 1,858 — 22,210 Exchange rate risk 2,435 5,086 12,831 1,858 — 22,210 FX forward 2,435 5,086 12,831 1,858 — 22,210 20,056 30,936 101,855 158,387 49,392 360,626 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 676 EUR million 31 December 2019 Up to one month One to three months Three months to one year One year to five years More than five years Total Fair value hedges 5,816 14,591 43,236 90,707 48,198 202,548 Interest rate risk 5,468 9,055 37,627 86,119 45,317 183,586 Of which: Future interest rate 16 — 606 6,066 5,637 12,325 Interest rate swap 734 3,532 24,382 62,474 26,317 117,439 Call money swap 4,674 5,318 12,085 14,653 8,061 44,791 Exchange rate risk 333 4,090 5,172 411 — 10,006 Of which: Fx forward 329 4,090 5,082 221 — 9,722 Interest rate and exchange rate risk 15 1,432 437 3,933 2,881 8,698 Credit risk — 14 — 244 0 258 Cash flow hedges 16,506 5,912 38,678 62,119 12,224 135,439 Interest rate risk 13,023 2,179 13,011 26,332 1,265 55,810 Of which: Futures 12,304 385 3,196 5,770 — 21,655 Interest rate swap 460 864 7,441 12,585 142 21,492 Call money swap — 398 1,253 3,925 588 6,164 Exchange rate risk 2,300 2,572 14,324 11,753 854 31,803 Of which: Future interest rate — — 9,290 — — 9,290 FX forward 2,173 1,746 3,404 3,272 — 10,595 Currency swap 127 826 1,630 7,593 854 11,030 Interest rate and exchange rate risk 1,086 308 9,221 20,782 7,541 38,938 Of which: Interest rate swap — — 1,917 2,880 2,550 7,347 Currency swap 1,086 308 5,553 15,106 4,991 27,044 Inflation risk 97 853 2,114 3,204 2,562 8,830 Of which: FX forward — 117 1,205 908 — 2,230 Currency swap 97 736 909 2,207 2,562 6,511 Equity risk — — 8 48 2 58 Hedges of net investments in foreign operations 2,735 4,191 14,192 3,359 — 24,477 Exchange rate risk 2,735 4,191 14,192 3,359 — 24,477 FX forward 2,735 4,191 14,192 3,359 — 24,477 25,057 24,694 96,106 156,185 60,422 362,464 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 677 Additionally, for Santander UK Group Holdings plc and Banco Santander, S.A., both the maturity profile, the average interest and exchange rate of hedging instruments by maturity buckets are shown: Santander UK Group Holdings plc group 31 December 2021 EUR million Up to one month One to three months Three months to one year One year to five years More than five years Total Fair value hedges Interest rate risk Interest rate instruments Nominal 3,716 7,408 25,525 53,427 5,942 96,018 Average fixed interest rate (%) GBP 0.590 0.420 0.090 0.910 3.130 Average fixed interest rate (%) EUR 0.510 1.740 1.080 0.810 2.610 Average fixed interest rate (%) USD 1.910 0.960 1.440 2.760 4.050 Interest rate and foreign exchange rate risk Exchange and interest rate instruments Nominal — — 127 683 165 975 Average GBP/EUR exchange rate — — 1.205 1.159 1.171 Average fixed interest rate (%) EUR — — 3.290 2.030 2.620 Cash flow hedges Interest rate risk Interest rate instruments Nominal 1,203 572 1,036 8,967 6,115 17,893 Average fixed interest rate (%) GBP 1.970 0.440 0.080 1.290 0.970 Foreign exchange risk Exchange and interest rate instruments Nominal 3,218 1,114 2,448 10,897 3,584 21,261 Average GBP/JPY exchange rate — 142.905 148.856 — — Average GBP/EUR exchange rate 1.165 — 1.185 1.159 1.174 Average GBP/USD exchange rate 1.344 1.342 1.332 1.339 1.388 Interest rate and foreign exchange rate risk Exchange and interest rate instruments Nominal 739 — 1,000 8,112 2,860 12,711 Average GBP/EUR exchange rate 1.277 — 1.386 1.202 1.200 Average GBP/USD exchange rate — — — 1.609 1.381 Average fixed interest rate (%) GBP 2.260 — 1.170 2.720 3.410 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 678 31 December 2020 EUR million Up to one month One to three months Three months to one year One year to five years More than five years Total Fair value hedges Interest rate risk Interest rate instruments Nominal 2,704 8,481 30,946 53,170 9,050 104,351 Average fixed interest rate (%) GBP 0.690 0.650 0.820 0.730 3.720 Average fixed interest rate (%) EUR 1.180 0.230 3.020 0.980 2.340 Average fixed interest rate (%) USD 1.870 1.720 2.890 2.490 4.160 Interest rate and foreign exchange rate risk Exchange and interest rate instruments Nominal — — 147 776 260 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 Nominal 1,602 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 rate 1.293 1.316 1.323 1.304 — Interest rate and foreign exchange rate risk Exchange and interest rate instruments Nominal 1,630 — 3,858 11,816 2,792 20,096 Average GBP/EUR exchange rate — — 1.354 1.253 1.197 Average GBP/USD exchange rate 1.465 — — 1.609 1.381 Average fixed interest rate (%) GBP 2.010 — 3.180 2.480 3.390 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 679 31 December 2019 EUR million Up to one month One to three months Three months to one year One year to five years More than five years Total Fair value hedges Interest rate risk Interest rate instruments Nominal 5,118 6,822 32,210 51,307 15,397 110,854 Average fixed interest rate (%) GBP 0.770 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 Nominal 1,395 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 rate 1.286 1.252 1.293 1.299 — Interest rate and foreign exchange rate risk Exchange and interest rate instruments Nominal 954 — 7,626 15,089 7,291 30,960 Average GBP/EUR exchange rate 1.274 — 1.169 1.311 1.209 Average GBP/USD exchange rate — — 1.536 1.581 1.450 Average fixed interest rate (%) GBP 2.490 — 2.160 2.870 2.960 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 680 Banco Santander, S.A. Fair value hedges Interest rate risk Interest rate instruments Nominal 14 1,822 3,038 21,507 10,031 36,412 Average fixed interest rate (%) GBP — — — 2.139 1.750 Average fixed interest rate (%) EUR 3.859 0.989 (0.031) 1.212 1.532 Average fixed interest rate (%) CHF — — — 0.828 0.403 Average fixed interest rate (%) JPY — — — 0.465 — Average fixed interest rate (%) USD 4.746 1.449 3.459 2.737 3.374 Average fixed interest rate (%) RON — — — 4.211 3.200 Foreign exchange risk Exchange and interest rate instruments Nominal 503 1,634 10,350 586 — 13,073 Average GBP/EUR exchange rate — 0.882 0.865 0.876 — Average USD/EUR exchange rate 1.187 1.172 1.180 — — Average CNY/EUR exchange rate 7.859 7.717 7.412 — — Average PEN/USD exchange rate — 4.003 — — — Average JPY/EUR exchange rate 132.688 130.741 — — — Interest rate and foreign exchange rate risk Exchange and interest rate instruments Nominal 116 1,109 53 3,255 1,279 5,812 Average fixed interest rate (%) AUD/EUR — — — 4.000 4.661 Average fixed interest rate (%) CZK/EUR — — — 0.860 — Average fixed interest rate (%) RON/EUR — — — 4.849 — Average fixed interest rate (%) HKD/EUR — — — 2.580 — Average fixed interest rate (%) JPY/EUR — — — 0.730 1.144 Average fixed interest rate (%) NOK/EUR — — — — 3.605 Average fixed interest rate (%) CHF/EUR — — — 0.760 1.243 Average fixed interest rate (%) USD/COP — 5.140 9.470 6.789 7.153 Average fixed interest rate (%) COP/USD — — — (0.140) — Average fixed interest rate (%) USD/CLP — — — 3.450 — Average AUD/EUR exchange rate — — — 1.499 1.529 Average CZK/EUR exchange rate — — — 25.506 — Average EUR/GBP exchange rate — 1.176 — — — Average EUR/USD exchange rate — — — 0.891 — Average HKD/EUR exchange rate — — — 8.782 — Average JPY/EUR exchange rate — — — 132.966 126.605 Average MXN/EUR exchange rate — — 14.696 — — Average NOK/EUR exchange rate — — — — 9.606 Average RON/EUR exchange rate — — — 4.815 4.927 Average CHF/EUR exchange rate — — — 1.092 1.105 Average USD/CLP exchange rate — — — 0.001 — Average NZD/EUR exchange rate — — — — 1.666 Average USD/MXN exchange rate — — — 0.050 — Credit risk Credit risk instruments Nominal — 19 34 120 — 173 31 December 2021 EUR million Up to one month One to three months Three months to one year One year to five years More than five years Total Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 681 Cash flow hedges Interest rate and foreign exchange rate risk Interest rate and foreign exchange rate instruments Nominal — 9 1,169 1,848 408 3,434 Average fixed interest rate (%) EUR/PEN — — 3.441 — — Average fixed interest rate (%) EUR/AUD — 1.632 — — — Average fixed interest rate (%) AUD/EUR — — — 0.305 — Average EUR/GBP exchange rate — — 1.102 1.113 — Average EUR/USD exchange rate — — — 0.882 — Average AUD/EUR exchange rate — — — 1.604 1.562 Average RON/EUR exchange rate — — — 4.885 — Average JPY/EUR exchange rate — — — 120.568 — Average CHF/EUR exchange rate — — — — 1.102 Average NOK/EUR exchange rate — — — — 10.242 Average CZK/EUR exchange rate — — — 26.131 — Average EUR/PEN exchange rate — — 0.208 — — Average EUR/AUD exchange rate — 0.624 — — — Interest rate risk Bond Forward instruments Nominal 4,279 — 5,191 38,314 — 47,784 Average fixed interest rate (%) EUR — — (0.465) (0.258) — Average fixed interest rate (%) USD — — 1.765 — — Average fixed interest rate (%) AUD — — — 1.650 — Hedges of net investments in foreign operations Exchange rate risk Exchange and interest rate instruments Nominal 3,778 4,848 11,815 2,916 — 23,357 Average BRL/EUR exchange rate 6.663 6.758 6.841 — — Average CLP/EUR exchange rate 943.354 929.690 949.615 — — Average COP/EUR exchange rate — — 4,538.997 — — Average GBP/EUR exchange rate 0.854 0.857 0.855 0.875 — Average MXN/EUR exchange rate 25.541 25.335 25.192 — — Average PLN/EUR exchange rate 4.592 4.582 4.634 — — Average USD/EUR exchange rate — — 1.167 1.233 — 31 December 2021 EUR million Up to one month One to three months Three months to one year One year to five years More than five years Total Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 682 Fair value hedges Interest rate risk Interest rate instruments Nominal 2,073 409 2,165 17,430 14,294 36,371 Average fixed interest rate (%) GBP — — — 1.375 4.072 Average fixed interest rate (%) EUR 0.647 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 (%) USD 0.698 0.570 2.031 3.004 3.562 Average fixed interest rate (%) RON — — — 3.610 — Foreign exchange risk Exchange and interest rate instruments Nominal 833 4,149 3,008 — — 7,990 Average GBP/EUR exchange rate — 0.901 0.916 — — Average USD/EUR exchange rate 1.165 1.171 1.178 — — Average COP/USD exchange rate 3,628.140 3,603.595 — — — Average CNY/EUR exchange rate 8.108 8.102 7.997 — — Average SAR/EUR exchange rate 4.484 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/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/CLP exchange rate — — 0.001 — — Average USD/MXN exchange rate — — 0.050 — — 31 December 2020 EUR million Up to one month One to three months Three months to one year One year to five years More than five years Total Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 683 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 Nominal 3,164 5,000 23,000 4,279 — 35,443 Average fixed interest rate (%) EUR — (0.258) (0.250) (0.236) — Hedges of net investments in foreign operations Exchange rate risk Exchange and interest rate instruments Nominal 2,229 4,554 11,570 1,858 — 20,211 Average BRL/EUR exchange rate 5.270 5.308 6.332 — — Average CLP/EUR exchange rate 869.633 861.546 864.339 932.215 — Average COP/EUR exchange rate — — 4.471 — — Average GBP/EUR exchange rate 0.909 0.916 0.907 — — Average MXN/EUR exchange rate 23.121 25.456 26.788 — — Average PLN/EUR exchange rate 4.427 4.420 4.516 — — 31 December 2020 EUR million Up to one month One to three months Three months to one year One year to five years More than five years Total Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 684 Fair value hedges Interest rate risk Interest rate instruments Nominal 8 106 1,406 16,707 10,219 28,446 Average fixed interest rate (%) GBP — — — 1.430 6.820 Average fixed interest rate (%) EUR 5.300 2.410 3.200 0.790 2.580 Average fixed interest rate (%) CHF — — — 0.800 0.400 Average fixed interest rate (%) JPY — — — 0.460 — Average fixed interest rate (%) USD — — 2.050 3.120 3.930 Foreign exchange risk Exchange and interest rate instruments Nominal 211 3,903 4,777 — — 8,891 Average GBP/EUR exchange rate — 0.860 0.870 — — Average USD/EUR exchange rate — 1.120 1.120 — — Average USD/CLP exchange rate 747.720 747.900 746.700 — — Average CNY/EUR exchange rate — 7.910 8.010 — — Average SAR/EUR exchange rate 4.160 0.042 — — — Interest rate and foreign exchange rate risk Exchange and interest rate instruments Nominal 14 289 346 2,599 949 4,197 Average fixed interest rate (%) AUD/EUR — — — 4.000 4.660 Average fixed interest rate (%) CZK/EUR — — — 0.860 — Average fixed interest rate (%) EUR/COP — — 6.160 — — Average fixed interest rate (%) RON/EUR — — — 4.850 — Average fixed interest rate (%) HKD/EUR — — 2.520 2.580 — Average fixed interest rate (%) JPY/EUR — — 0.540 0.660 1.280 Average fixed interest rate (%) NOK/EUR — — — — 3.610 Average fixed interest rate (%) CHF/EUR — — — — 1.240 Average fixed interest rate (%) USD/COP 7.540 — 5.670 7.620 7.220 Average AUD/EUR exchange rate — — — 1.499 1.508 Average CZK/EUR exchange rate — — — 25.407 26.030 Average EUR/GBP exchange rate — 1.171 — — — Average HKD/EUR exchange rate — — 8.719 8.782 — Average JPY/EUR exchange rate — — 130.470 132.461 125.883 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/MXN exchange rate — — — 0.052 — 31 December 2019 EUR million Up to one month One to three months Three months to one year One year to five years More than five years Total Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 685 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 Nominal 11,626 — 1,792 5,443 — 18,861 Hedges of net investments in foreign operations Exchange rate risk Exchange and interest rate instruments Nominal 2,592 3,838 13,595 3,359 — 23,384 Average BRL/EUR exchange rate 4.590 4.740 4.740 4.880 — Average CLP/EUR exchange rate 822.130 822.320 811.640 824.360 — Average COP/EUR exchange rate — — 3,828.610 — — Average GBP/EUR exchange rate 0.890 0.910 0.940 — — Average MAD/EUR exchange rate — 10.770 10.870 — — Average MXN/EUR exchange rate 23.490 23.100 23.270 — — Average PLN/EUR exchange rate 4.370 4.380 4.390 — — 31 December 2019 EUR million Up to one month One to three months Three months to one year One year to five years More than five years Total Other geographies 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 fixed 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 686 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. Finally, it also holds a portfolio of long-term corporate bonds with inflation-indexed rates, thus exposed to changes in market value due to changes 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 687 Regarding the hedged items, the products that are being hedged are mainly: borrowed deposits, financial deposits, loans, government bonds as assets and financial bonds as liabilities. The following table shows the detail of the type of hedging, the risk that is hedged and which products are being hedged  at 31 December 2021,  2020 and 2019: Fair value hedges 193,949 51,395 462 453 Loans and advances / Deposits and Debt securities / Debt securities issued (1,061) — — Interest rate risk 125,479 47,347 727 366 (543) — — Exchange rate risk 64,531 — (282) — (343) — — Interest and Exchange rate risk 3,714 4,048 15 87 (173) — — Inflation risk 46 — — — — — — Credit risk 179 — 2 — (2) — — Cash flow hedges Deposits and loans and advances / Debt securities / Variable income portfolio / Rest of other assets and liabilities 1,538 (414) (150) Interest rate risk 400 (540) (54) Exchange rate risk 440 81 8 Interest and Exchange rate risk 69 330 — Inflation risk 628 (289) (104) Equity risk 1 4 0 Net foreign investments hedges 3,282 — — — Equity instruments — 0 3 Exchange rate risk 3,282 — — — — — 3 197,231 51,395 462 453 477 (414) (147) EUR million 31 December 2021 Carrying amount of hedged items Accumulated amount of fair value adjustments on the hedged item Balance sheet line item Change in fair value of hedged item for ineffectiveness assessment Cash flow reserves or conversion reserves Assets Liabilities Assets Liabilities Continuing hedges Discontinued hedges Fair value hedges 141,608 52,055 3,369 2,914 Loans and advances / Deposits and Debt securities / Debt securities issued 553 — — Interest rate risk 128,279 48,137 3,183 2,727 469 — — Exchange rate risk 8,718 — 40 — (13) — — Interest and Exchange rate risk 4,391 3,918 143 187 100 — — Credit risk 220 — 3 — (3) — — Cash flow hedges Deposits and loans and advances / Debt securities / Variable income portfolio / Rest of other assets and liabilities 532 420 (43) Interest rate risk 314 (87) (11) Exchange rate risk 204 (68) — Interest and Exchange rate risk (87) 680 — Inflation risk 105 (111) (32) Equity risk (4) 6 — Net foreign investments hedges 22,150 — — — Equity instruments — (11) 14 Exchange rate risk 22,150 — — — — (11) 14 163,758 52,055 3,369 2,914 1,085 409 (29) EUR million 31 December 2020 Carrying amount of hedged items Accumulated amount of fair value adjustments on the hedged item Balance sheet line item Change in fair value of hedged item for ineffectiveness assessment Cash flow reserves or conversion reserves Assets Liabilities Assets Liabilities Continuing hedges Discontinued hedges Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 688 Fair value hedges 134,958 60,487 2,768 2,298 Loans and advances / Deposits and Debt securities / Debt securities issued 1,583 — — Interest rate risk 122,560 55,538 2,764 2,099 1,370 — — Exchange rate risk 8,613 — 19 — 58 — — Interest and Exchange rate risk 3,532 4,949 (21) 199 154 — — Inflation risk — — — — (4) — — Credit risk 253 — 6 — 5 — — Cash flow hedges Deposits and loans and advances / Debt securities / Variable income portfolio / Rest of other assets and liabilities (204) 522 (79) Interest rate risk (128) 4 (74) Exchange rate risk (32) 130 (4) Interest and Exchange rate risk (169) 510 — Inflation risk 20 (22) — Equity risk 7 (2) (1) Other risks 98 (98) — Net foreign investments hedges 1,070 — — — Equity instruments — — — Exchange rate risk 1,070 — — — — — — 136,028 60,487 2,768 2,298 1,379 522 (79) EUR million 31 December 2019 Carrying amount of hedged items Accumulated amount of fair value adjustments on the hedged item Balance sheet line item Change in fair value of hedged item for ineffectiveness assessment Cash flow reserves or conversion reserves Assets Liabilities Assets Liabilities Continuing hedges Discontinued hedges Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 689 The cumulative amount of adjustments of the fair value hedging instruments that remain in the balance for hedges items that are no longer adjusted by profit and loss of coverage as at 31 December 2021 is EUR 460 million (EUR 729 million in 2020 and EUR 340 million in 2019). The net impact of the hedges are shown in the following table: Fair value hedges 18 Gains or losses financial assests/liabilities Interest rate risk 46 Exchange rate risk (55) Interest rate and exchange rate risk 27 Cash flow hedges (941) (63) Gains or losses financial assests/liabilities (801) Interest margin/Gains or losses financial assests/liabilities Interest rate risk (494) (33) 269 Exchange rate risk 155 2 (262) Interest rate and exchange rate risk (350) (35) (350) Inflation risk (249) 3 (458) Equity risk (3) — — (941) (45) (801) EUR million 31 December 2021 Earnings/ (losses) recognised in another cumulative overall result Ineffective recognised in the income statement Reclassified amount of reserves to the income statement due to: Line of the income statement that includes the ineffectiveness of cash flows Cover transaction affecting the income statement Line of the income statement that includes reclassified items Fair value hedges 104 Gains or losses financial assests/liabilities Interest rate risk 9 Exchange rate risk 1 Interest rate and exchange rate risk 92 Credit risk 2 Cash flow hedges (67) (53) Gains or losses financial assests/liabilities 851 Interest margin/Gains or losses financial assests/liabilities Interest rate risk 69 7 118 Exchange rate risk (194) 9 (132) Interest rate and exchange rate risk 170 (62) 844 Inflation risk (121) (7) 21 Equity risk 9 — — Net foreign investments hedges 3 — Gains or losses financial assests/liabilities — Exchange rate risk 3 — — (64) 51 851 EUR million 31 December 2020 Earnings/ (losses) recognised in another cumulative overall result Ineffective coverage recognised in the income statement Reclassified amount of reserves to the income statement due to: Line of the income statement that includes the ineffectiveness of cash flows Cover transaction affecting the income statement Line of the income statement that includes reclassified items Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 690 Fair value hedges 58 Gains or losses financial assests/liabilities Interest rate risk 5 Risk of Exchange rate (3) Risk of interest rate and exchange rate 56 Inflation risks — Cash flow hedges 8 (86) Gains or losses financial assests/liabilities (1,112) Interest margin/Gains or losses financial assests/liabilities Interest rate risk (263) 1 8 Exchange rate risk 145 (34) (364) Interest rate and exchange rate risk 168 (53) (769) Inflation risk (44) — 13 Equity risk 2 — — Net foreign investments hedges — — Gains or losses financial assests/liabilities — Exchange rate risk — — — 8 (28) (1,112) EUR million 31 December 2019 Earnings/ (losses) recognised in another cumulative overall result Ineffective coverage recognised in the income statement Reclassified amount of reserves to the income statement due to: Line of the income statement that includes the ineffectiveness of cash flows Cover transaction affecting the income statement Line of the income statement that includes reclassified items Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 691 The following table shows the movement in the impact of equity for the year: EUR million 2021 2020 2019 Balance at beginning of year 295 300 277 Cash flow hedges Interest rate risk (494) 67 (264) Amounts transferred to income statements (269) (118) (8) Gain or loss in value CFE - recognized in equity (225) 185 (256) Exchange rate risk 155 (194) 146 Amounts transferred to income statements 262 132 364 Gain or loss in value CFE - recognized in equity (107) (326) (218) Interest rate and exchange rate risk (350) 170 168 Amounts transferred to income statements 350 (844) 769 Gain or loss in value CFE - recognized in equity (700) 1,014 (601) Inflation risk (249) (121) (44) Amounts transferred to income statements 458 (21) (13) Gain or loss in value CFE - recognized in equity (707) (100) (31) Equity risk (3) 9 2 Amounts transferred to income statements — — — Gain or loss in value CFE - recognized in equity (3) 9 2 Net foreign investments hedges Exchange rate risk — 3 — Amounts transferred to income statements — — — Gain or loss in value CFE - recognized in equity — 3 — Non-controlling interest 92 56 32 Taxes 278 5 (17) Balance at end of year (276) 295 300 37. Discontinued operations No operations were discontinued in 2021, 2020 or 2019. 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 2021, 2020 and 2019 is as follows: EUR million 2021 2020 2019 Loans and advances, central banks 476 431 1,314 Loans and advances, credit institutions 916 894 1,785 Debt instruments 5,724 5,022 6,378 Loans and advances, customers 38,649 38,788 46,180 Other interest 698 606 1,128 46,463 45,741 56,785 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 2021, 2020 and 2019 is as follows: EUR million 2021 2020 2019 Central banks deposits 338 366 468 Credit institution deposits 1,140 1,652 2,576 Customer deposits 5,452 5,599 10,137 Debt securities issued and subordinated liabilities 4,838 5,119 6,679 Marketable debt securities 4,190 4,548 6,034 Subordinated liabilities (note 23) 648 571 645 Provisions for pensions (note 25) 91 95 145 Lease Liabilities 125 186 273 Other interest expense 1,109 730 1,224 13,093 13,747 21,502 Most of the interest expense and similar charges was generated by the Group’s financial liabilities that are measured at amortised cost. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 692 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 2021 2020 2019 Dividend income classified as: Financial assets held for trading 369 272 388 Non-trading financial assets mandatorily at fair value through profit or loss 32 31 34 Financial assets at fair value through other comprehensive income 112 88 111 513 391 533 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 2021 2020 2019 Coming from collection and payment services Bills 214 265 328 Demand accounts 1,408 1,284 1,382 Cards 3,138 2,986 3,858 Orders 503 484 478 Cheques and other 139 110 155 5,402 5,129 6,201 Coming from non-banking financial products Investment funds 992 888 943 Pension funds 161 170 180 Insurance 2,467 2,289 2,631 3,620 3,347 3,754 Coming from Securities services Securities underwriting and placement 431 394 364 Securities trading 319 316 281 Administration and custody 402 336 485 Asset management 369 316 293 1,521 1,362 1,423 Other Foreign exchange 522 500 612 Financial guarantees 415 409 521 Commitment fees 442 366 293 Other fees and commissions 1,890 1,911 2,545 3,269 3,186 3,971 13,812 13,024 15,349 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 2021 2020 2019 Commissions assigned to third parties 1,993 1,856 2,350 Cards 1,355 1,249 1,616 By collection and return of effects 16 12 12 Other fees assigned 622 595 722 Other commissions paid 1,317 1,153 1,220 Brokerage fees on lending and deposit transactions 60 26 27 Sales of insurance and pension funds 341 248 232 Other fees and commissions 916 879 961 3,310 3,009 3,570 43. Gains or losses on financial assets and liabilities The following information is presented below regarding the gains or losses recorded for financial assets or liabilities: a) Breakdown The detail, by origin, of Gains/losses on financial assets and liabilities: EUR million 2021 2020 2019 Gains or losses on financial assets and liabilities not measured at fair value through profit or loss, net 628 1,107 1,136 Financial assets at amortized cost 89 (31) 308 Other financial assets and liabilities 539 1,138 828 Of which debt instruments 567 1,179 804 Gains or losses on financial assets and liabilities held for trading, net\* 1,141 3,211 1,349 Gains or losses on non-trading financial assets and liabilities mandatory at fair value through profit or loss 132 82 292 Gains or losses on financial assets and liabilities measured at fair value through profit or loss, net\* 270 (171) (286) Gains or losses from hedge accounting, net (46) 51 (28) 2,125 4,280 2,463 \*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. Annual report 2021 693 As explained in note 44, the above breakdown should be analysed in conjunction with the 'Exchange differences, net': EUR million 2021 2020 2019 Exchange differences, net (562) (2,093) (932) 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 2021 2020 2019 Loans and receivables: 34,812 46,589 59,624 Central banks 3,608 9,481 6,473 Credit institutions 13,549 12,139 21,649 Customers 17,655 24,969 31,502 Debt instruments 30,223 41,573 36,402 Equity instruments 19,119 12,849 15,787 Derivatives 54,292 67,137 63,397 138,446 168,148 175,210 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 2021 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 includes reverse repos amounting to EUR 26,060 million at 31 December 2021. Also, mortgage-backed assets totalled EUR 1,299 million. •Debt instruments include EUR 24,117 million of Spanish and foreign government securities. At 31 December 2021 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. The detail of the amount of the liability balances is as follows: EUR million 2021 2020 2019 Deposits 40,946 43,598 57,111 Central banks 1,645 2,490 12,854 Credit institutions 7,552 6,765 9,340 Customer 31,749 34,343 34,917 Marketable debt securities 5,454 4,440 3,758 Short positions 12,236 16,698 14,123 Derivatives 53,566 64,469 63,016 Other financial liabilities — — 126 112,202 129,205 138,134 At 31 December 2021, 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 2021  is EUR 81 million lower than their carrying amount (EUR 119 million at 31 December 2020 and EUR 26 million at 31 December 2019). Within Deposits, there are repurchase agreements amounting to EUR 14,057 million at 31 December 2021. 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. Grupo Santander 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). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 694 45. Other operating income and expenses Other operating income and Other operating expenses in the consolidated income statements include: EUR million 2021 2020 2019 Insurance activity 211 210 120 Income from insurance and reinsurance contracts issued 1,516 1,452 2,534 Of which: Insurance and reinsurance premium income 1,381 1,349 2,404 Reinsurance income (note 15) 135 103 130 Expenses of insurance and reinsurance contracts (1,305) (1,242) (2,414) Of which: Claims paid, other insurance-related expenses and net provisions for insurance contract liabilities (1,097) (1,063) (2,183) Reinsurance premiums paid (208) (179) (231) Other operating income 2,255 1,920 1,797 Non- financial services 291 362 379 Other operating income 1,964 1,558 1,418 Other operating expense (2,442) (2,342) (2,138) Non-financial services (283) (350) (351) Other operating expense: (2,159) (1,992) (1,787) Of which, credit institutions deposit guarantee fund and single resolution fund (1,016) (1,005) (911) 24 (212) (221) 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. 46. Staff costs a) Breakdown The detail of Staff costs is as follows: EUR million 2021 2020 2019 Wages and salaries 8,466 8,070 8,987 Social Security costs 1,323 1,277 1,426 Additions to provisions for defined benefit pension plans (note 25) 73 76 72 Contributions to defined contribution pension funds 286 283 292 Other Staff costs 1,068 1,077 1,364 11,216 10,783 12,141 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 2021 2020 2019 Banco Santander, S.A. 24,512 27,503 30,009 Executive directors and Senior management 19 21 20 Other line personnel 23,343 26,527 29,147 Branches abroad 1,150 955 842 Rest of Spain 10,348 8,878 8,269 Santander UK plc 15,463 16,790 17,961 Santander Brasil 46,269 44,554 47,253 Other companies\* 95,913 96,166 97,622 192,505 193,891 201,114 \*Does not include staff affected by discontinued operations. The number of employees, at the end of 2021, 2020 and 2019, was 197,070, 191,189 and 196,419, respectively. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 695 The functional breakdown (final employment), by gender, at 31 December 2021 is as follows: FUNCTIONAL BREAKDOWN BY GENDER Senior executives Other executives Other personnel Men Women Men Women Men Women Europe 1,039 390 6,865 3,926 29,934 37,773 North America 223 60 1,181 583 18,299 23,226 South America 318 115 2,955 1,934 29,137 39,112 1,580 565 11,001 6,443 77,370 100,111 The same information, expressed in percentage terms at 31 December 2021 is as follows: Functional breakdown by gender Senior executives Other executives Other personnel Men Women Men Women Men Women Europe 73% 27% 64% 36% 44% 56% North America 79% 21% 67% 33% 44% 56% South America 73% 27% 60% 40% 43% 57% 74% 26% 63% 37% 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 2021, is as follows: Number of employees\* 2021 Senior management 10 Management 115 Collaborators 3,578 3,703 \*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 number of Group employees with disabilities at 2020 and 2019, was 3,577 and 3,584, respectively. Likewise, the average number of employees of Banco Santander, S.A. with disabilities, equal to or greater than 33%, during 2021 was 288 (319 and 318 employees during 2020 and 2019). At the end of fiscal year 2021, there were 307 employees (317 and 295 employees at 31 December, 2020 and 2019, respectively). c) Share-based payments The main share-based payments granted by the Group in force at 31 December, 2021, 2020 and 2019 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) Deferred Multiyear Objectives Variable Remuneration Plan; (iii) Digital Transformation Award. The characteristics of the plans are set forth below: Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 696 (i) Deferred and conditional variable remuneration plan (2015, 2016, 2017, 2018, 2019, 2020 and 2021) 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, tenth and eleventh 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, tenth and eleventh 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, eighth, ninth, tenth and eleventh cycles (2017 to 2021), 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 over3 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 years period. Seventh, eighth, ninth, tenth and eleventh cycle (2017, 2018, 2019, 2020 and 2021): •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. Deferred variable remuneration systems Description and plan beneficiaries Conditions Calculation Base Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 697 (ii)Deferred Multiyear Objectives Variable Remuneration Plan (2016, 2017, 2018, 2019, 2020 and 2021) 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, 2020 and 2021 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 years  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 a 5 years period. •Other beneficiaries: 60% paid immediately and 40% deferred over a 3 years period. The second, third, fourth, fifth and sixth cycles (2017, 2018, 2019,2020 and 2021 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 years and five years 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, fourth fifth and sixth cycle (2017, 2018, 2019, 2020 and 2021) the metrics for the deferred portion subject to long-term objectives (last third or last three fifths, respectively, for the cases of three years and five years deferrals) are: •EPS growth in 2019, 2020, 2021, 2022 and 2023 (over 2016, 2017, 2018, 2019 and 2020, 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, fifth and sixth cycle) for the 2019-2021, 2020-2022 and 2010-2023  period. •Compliance with the fully-loaded common equity tier 1 (“CET1”) ratio target for financial years 2019, 2020, 2021,2022 and 2023, respectively. Deferred variable remuneration systems Description and plan beneficiaries Conditions Calculation Base Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 698 (iii) Digital Transformation Award (2019, 2020 and 2021) The 2019, 2020 and 2021 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 implementing 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 milestones for 2021 are: (i)in relation to Pago Nxt Consumer payment platform: implementation of Superdigital platform in seven countries, acquisition of over 1.5 million active customer base and accelerating growth through B2B (business to business) and B2B2C (business to business to customer) partnerships, acquiring more than 50% of the new customers through these channels, which are more cost-effective; (ii)in relation to Digital Consumer Bank: launching online API for checkout lending in the European Union and completion of controllable items for Openbank launch in USA; (iii)in relation to One Santander strategy: implementation in Europe of One Common Mobile Experience and, specifically, implementation of Europe ONE app for individual customers in at least three of the four countries by December 2021; and be among the three-top rated entities in terms of Mobile NetPromoter Score (Mobile NPS) in at least two of the four countries by December 2021; (iv) In relation to cloud adoption: host 75% of migratable virtual machines on cloud technology (either public cloud or OHE) by December 2021. For these purposes, mainframes, physical servers and servers with non-x86 operating systems will be considered non-migratable. 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 years 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 years deferrals and employees not subject to deferrals, delivery shall be done on the third anniversary from their granting. 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. Vested share options can be exercised until maturity, with all options lapsing after ten years (for granting the 2019 incentive) and eight years (for granting the 2020 and 2021 incentive). The total achievement for 2021 Digital Incentive was 77.5% (85% en 2020 and 83% en 2019). Deferred variable remuneration systems Description and plan beneficiaries Conditions Calculation Base Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 699 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 granted Employee group Number of persons\*\* Date of commencement of exercise period Date of expiry of exercise period Plans outstanding at 01/01/2019 26.838 Options granted (sharesave) 9,594 2.83 2019 Employees 5,606 01/11/19 01/11/22 01/11/19 01/11/24 Options exercised (7,978) 2.83 Options cancelled (net) or not exercised (5,081) 3.42 Plans outstanding at 31/12/2019 23,373 Options granted (sharesave) 11,642 1.65 2020 Employees 5,012 01/11/20 01/11/23 01/11/20 01/11/25 Options exercised (860) 2.75 Options cancelled (net) or not exercised (12,993) 2.96 Plans outstanding at 31/12/2020 21,162 Options granted (sharesave) 9,414 2.43 2021 Employees 4,142 11/01/21 11/01/24 11/01/21 11/01/26 Options exercised (48) 1.86 Options cancelled (net) or not exercised (4,592) 2.95 Plans outstanding at 31/12/2021 25,936 \*At  31 December, 2021, 2020 and 2019, the euro/pound sterling exchange rate was EUR 1.1904 GBP 1, EUR 1.1168 GBP 1; EUR 1.1754 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,  April 3, 2020 and March 26, 2021, 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 2019, 2020 and 2021: 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 2019, 2020 and 2021 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 an analytical model that also reflects the correlation between EUR and GBP. This model uses assumptions on the share price, the EUR/ GBP FX rate, the EUR/GBP risk-free interest rate, dividend yields, the expected volatilities of both the underlying shares and EUR/GBP for the expected lives of options granted. The weighted average grant- date fair value of options granted during the year was GBP 0.20 (GBP 0.21 and GBP 0.49 reported in 2020 and 2019, respectively). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 700 47. Other general administrative expenses a) Breakdown The detail of Other general administrative expenses is as follows: EUR million 2021 2020 2019 Technology and systems 2,182 2,119 2,161 Property, fixtures and supplies (note 2.k) 789 827 975 Technical reports 689 672 677 Taxes other than income tax 558 537 522 Advertising 510 523 685 Communications 401 473 518 Surveillance and cash courier services 306 325 416 Insurance premiums 109 88 86 Per diems and travel expenses 69 73 226 Other administrative expenses 1,830 1,900 1,872 7,443 7,537 8,138 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 2021 2020 2019 Audit fees 103.7 99.4 102.4 Audit-related fees 6.0 6 7.8 Tax fees 0.7 0.8 0.7 All other fees 2.4 1.2 2.3 Total 112.8 107.4 113.2 The 'Audit fees' heading includes mainly, audit fees for the Banco Santander, S.A. individual and consolidated financial statements, 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 limited review of the financial statements 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 263.8 million in 2021 (EUR 172.4 million and EUR 227.6 million in 2020 and 2019, 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 2021, 2020 and 2019 is as follows: Number of branches Group 2021 2020 2019 Spain 1,998 2,989 3,286 Group 7,881 8,247 8,666 9,879 11,236 11,952 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 follows: EUR million 2021 2020 2019 Gains Tangible and intangible assets 87 89 131 Investments 2 60 1,219 Of which: Custody Business (note 3) — — 989 Prisma — — 194 89 149 1,350 Losses Tangible and intangible assets (36) (34) (55) Investments — (1) (4) (36) (35) (59) 53 114 1,291 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 balance 2021 2020 2019 Tangible assets (52) (171) (232) Impairment (141) (215) (146) Gain (loss) on sale 89 44 (86) Other gains and other losses 9 — — (43) (171) (232) Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 701 50. Other disclosures a) Residual maturity periods The detail, by maturity, of the balances of certain items in the consolidated balance sheet at 31 December 2021, 2020 and 2019  is presented below: 31 December 2021 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 Assets Cash, cash balances at Central Banks and other deposits on demand 210,689 — — — — — — 210,689 Financial assets at fair value through other comprehensive income — 10,378 9,507 10,447 20,001 17,745 37,507 105,585 Debt instruments — 10,352 9,246 9,609 19,133 16,494 33,088 97,922 Loans and advances — 26 261 838 868 1,251 4,419 7,663 Customers — 26 261 838 868 1,251 4,419 7,663 Financial assets at amortized cost 35,520 89,819 72,018 121,272 154,345 130,456 434,468 1,037,898 Debt instruments — 2,229 1,983 4,171 2,205 15,388 9,732 35,708 Loans and advances 35,520 87,590 70,035 117,101 152,140 115,068 424,736 1,002,190 Central banks — 14,544 — — — — 1,113 15,657 Credits institutions 11,849 11,042 9,760 4,542 93 150 1,733 39,169 Customers 23,671 62,004 60,275 112,559 152,047 114,918 421,890 947,364 246,209 100,197 81,525 131,719 174,346 148,201 471,975 1,354,172 Liabilities Financial liabilities at amortized cost 718,435 98,928 70,085 99,223 194,879 98,210 69,409 1,349,169 Deposits 711,377 81,269 45,687 64,096 117,585 52,658 5,915 1,078,587 Central banks 92 4,657 1,204 2,130 91,651 40,013 10 139,757 Credit institutions 12,854 3,493 12,715 12,507 4,712 1,981 3,973 52,235 Customer deposits 698,431 73,119 31,768 49,459 21,222 10,664 1,932 886,595 Marketable debt securities\* \*\* — 13,599 17,951 29,798 71,333 45,198 62,830 240,709 Other financial liabilities 7,058 4,060 6,447 5,329 5,961 354 664 29,873 718,435 98,928 70,085 99,223 194,879 98,210 69,409 1,349,169 Difference (assets less liabilities) (472,226) 1,269 11,440 32,496 (20,533) 49,991 402,566 5,003 \*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 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 702 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 Assets Cash, cash balances at Central Banks and other deposits on demand 153,839 — — — — — — 153,839 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 Loans and advances — — 176 719 1,558 1,333 5,481 9,267 Customers — — 176 719 1,558 1,333 5,481 9,267 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 Loans and advances 51,513 54,190 58,961 103,801 147,340 115,119 401,376 932,300 Central banks — 10,762 — — 673 — 1,064 12,499 Credits institutions 21,337 4,405 4,545 3,910 3,207 34 400 37,838 Customers 30,176 39,023 54,416 99,891 143,460 115,085 399,912 881,963 205,352 63,711 64,708 117,299 170,322 141,678 467,317 1,230,387 Liabilities Financial liabilities at amortized cost 640,613 84,875 90,394 93,296 175,238 80,041 83,731 1,248,188 Deposits 632,305 64,630 67,707 61,142 109,856 32,464 22,287 990,391 Central banks 150 5,204 5,295 3,216 83,112 15,827 — 112,804 Credit institutions 14,370 7,158 15,227 9,940 5,618 5,934 4,373 62,620 Customer deposits 617,785 52,268 47,185 47,986 21,126 10,703 17,914 814,967 Marketable debt securities\* — 14,981 18,276 30,994 59,526 47,143 59,909 230,829 Other financial liabilities 8,308 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 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 703 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 Assets Cash, cash balances at Central Banks and other deposits on demand 101,067 — — — — — — 101,067 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 Loans and advances — 54 5 135 1,612 926 1,708 4,440 Customers — 54 5 135 1,612 926 1,708 4,440 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 Loans and advances 51,702 72,327 74,382 113,438 147,816 99,942 406,086 965,693 Central banks — 17,086 — — — — 1,388 18,474 Credit institutions 17,665 6,223 4,602 7,435 3,963 428 627 40,943 Customers 34,037 49,018 69,780 106,003 143,853 99,514 404,071 906,276 152,769 80,823 78,933 124,200 169,466 121,573 491,630 1,219,394 Liabilities Financial liabilities at amortized cost 619,003 99,203 88,546 159,120 134,799 61,282 68,792 1,230,745 Deposits 607,051 76,101 61,627 111,190 64,781 14,224 7,443 942,417 Central banks 99 462 64 33,229 28,424 190 — 62,468 Credit institutions 23,526 14,494 18,922 14,245 9,327 5,668 4,319 90,501 Customer deposits 583,426 61,145 42,641 63,716 27,030 8,366 3,124 789,448 Marketable debt securities\* — 16,008 22,569 47,808 65,545 46,577 59,712 258,219 Other financial liabilities 11,952 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 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 704 The detail of the undiscounted contractual maturities of the existing financial liabilities at amortised cost at 31 December 2021, 2020 and 2019 is as follows: 31 December 2021 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 Deposits 705,129 75,102 45,552 62,896 116,343 52,031 5,884 1,062,937 Central banks 83 4,657 1,205 2,131 91,327 39,579 10 138,992 Credit institutions 12,683 3,491 12,693 11,867 4,504 1,945 3,950 51,133 Customer 692,363 66,954 31,654 48,898 20,512 10,507 1,924 872,812 Marketable debt securities — 14,067 18,508 30,618 73,131 46,367 64,318 247,009 Other financial liabilities 7,059 4,060 6,447 5,329 5,961 354 663 29,873 712,188 93,229 70,507 98,843 195,435 98,752 70,865 1,339,819 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 Deposits 629,043 62,872 67,567 60,465 108,326 32,260 22,228 982,761 Central banks 150 5,204 5,293 3,217 82,803 15,827 — 112,494 Credit institutions 14,334 7,158 15,209 9,606 5,031 5,903 4,333 61,574 Customer 614,559 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 liabilities 8,308 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 Deposits 603,126 75,899 61,107 109,747 63,013 14,027 7,228 934,147 Central banks 99 454 41 32,805 28,255 190 — 61,844 Credit institutions 23,348 14,491 18,810 14,134 8,519 5,478 4,113 88,893 Customer 579,679 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 liabilities 11,952 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 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 705 Below is a breakdown of contractual maturities for the rest of financial assets and liabilities as of 31 December 2021, 2020 and 2019 : 31 December 2021 EUR million Within 1 months 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 trading 13,120 8,767 20,627 20,047 15,105 39,287 116,953 Derivatives 1,456 3,487 7,426 12,285 11,980 17,658 54,292 Equity instruments — — — — — 15,077 15,077 Debt instruments 922 2,056 8,585 5,766 2,869 6,552 26,750 Loans and advances 10,742 3,224 4,616 1,996 256 — 20,834 Central banks 3,608 — — — — — 3,608 Credits institutions 4,827 780 3,982 808 — — 10,397 Customers 2,307 2,444 634 1,188 256 — 6,829 Financial assets designated at fair value through profit or loss 844 1,607 2,928 3,686 2,334 4,558 15,957 Debt instruments 2 62 142 699 700 911 2,516 Loans and advances 842 1,545 2,786 2,987 1,634 3,647 13,441 Credit institutions 455 683 1,476 205 10 323 3,152 Customers 387 862 1,310 2,782 1,624 3,324 10,289 Non-trading financial assets mandatorily at fair value through profit or loss 116 — 49 127 67 5,177 5,536 Equity instruments — — — — — 4,042 4,042 Debt instruments 4 — 40 4 6 903 957 Loans and advances 112 — 9 123 61 232 537 Customers 112 — 9 123 61 232 537 Financial assets at fair value through other comprehensive income — — — — — 2,453 2,453 Equity instruments — — — — — 2,453 2,453 Hedging derivatives 239 129 857 748 1,270 1,518 4,761 Changes in the fair value of hedged items in portfolio hedges of interest rate risk 227 202 (11) (304) 19 277 410 TOTAL FINANCIAL ASSETS 14,546 10,705 24,450 24,304 18,795 53,270 146,070 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 706 31 December 2021 EUR million Within 1 months 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 trading 22,746 3,396 9,234 15,709 12,750 15,634 79,469 Derivatives 1,742 2,743 7,583 14,868 11,912 14,718 53,566 Shorts positions 8,337 222 1,290 728 743 916 12,236 Deposits 12,667 431 361 113 95 — 13,667 Central banks 994 44 — — — — 1,038 Credits institutions 5,534 385 361 113 95 — 6,488 Customers 6,139 2 — — — — 6,141 Financial liabilities designated at fair value through profit or loss 2,756 4,244 1,685 4,669 1,225 18,154 32,733 Deposits 2,743 4,131 1,246 2,801 764 15,594 27,279 Central banks 569 — 38 — — — 607 Credits institutions 128 109 487 30 178 132 1,064 Customers 2,046 4,022 721 2,771 586 15,462 25,608 Marketable debt securities\* 13 113 439 1,868 461 2,560 5,454 Hedging derivatives 360 253 930 1,667 824 1,429 5,463 Changes in the fair value of hedged items in portfolio hedges of interest rate risk 40 5 16 58 49 80 248 TOTAL FINANCIAL LIABILITIES 25,902 7,898 11,865 22,103 14,848 35,297 117,913 \*Includes promissory notes, certificates of deposit and other short-term debt issues (see note 22). 31 December 2021 EUR million Within 1 months 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 granted 116,823 6,706 27,587 51,999 49,781 9,841 262,737 Financial guarantees granted 2,414 1,203 4,251 1,749 687 454 10,758 Other commitments granted 46,614 5,745 12,008 7,297 1,539 2,530 75,733 MEMORANDUM ITEMS 165,851 13,654 43,846 61,045 52,007 12,825 349,228 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 707 31 December 2020 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 trading 5,760 6,734 27,753 22,473 18,014 34,211 114,945 Derivatives 4,288 5,268 10,044 15,526 13,681 18,330 67,137 Equity instruments — — — — — 9,615 9,615 Debt instruments 1,472 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 loss 12,500 14,834 7,205 3,680 3,933 6,565 48,717 Debt instruments 181 78 162 407 719 1,432 2,979 Loans and advances 12,319 14,756 7,043 3,273 3,214 5,133 45,738 Central banks 343 9,138 — — — — 9,481 Credit institutions 6,935 1,514 2,728 590 12 357 12,136 Customers 5,041 4,104 4,315 2,683 3,202 4,776 24,121 Non-trading financial assets mandatorily at fair value through profit or loss 275 — — — 69 4,142 4,486 Equity instruments — — — — — 3,234 3,234 Debt instruments 85 — — — — 615 700 Loans and advances 190 — — — 69 293 552 Central banks — — — — — — — Credits institutions — — — — — — — Customers 190 — — — 69 293 552 Financial assets at fair value through other comprehensive income — — — — — 2,783 2,783 Equity instruments — — — — — 2,783 2,783 Hedging derivatives 1,534 469 1,293 1,107 1,083 2,839 8,325 Changes in the fair value of hedged items in portfolio hedges of interest rate risk 173 8 132 205 381 1,081 1,980 TOTAL FINANCIAL ASSETS 20,242 22,045 36,383 27,465 23,480 51,621 181,236 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 708 31 December 2020 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 trading 16,754 3,727 6,286 17,635 16,036 20,729 81,167 Derivatives 1,132 3,206 5,800 17,566 16,036 20,729 64,469 Shorts positions 15,622 521 486 69 — — 16,698 Deposits — — — — — — — Central banks — — — — — — — Credits institutions — — — — — — — Customers — — — — — — — Marketable debt securities — — — — — — — Other financial liabilities — — — — — — — Financial liabilities designated at fair value through profit or loss 13,468 1,732 2,228 2,893 1,121 26,596 48,038 Deposits 13,459 1,709 1,954 2,497 518 23,461 43,598 Central banks 841 866 783 — — — 2,490 Credits institutions 3,673 112 935 1,493 171 381 6,765 Customers 8,945 731 236 1,004 347 23,080 34,343 Marketable debt securities 9 23 274 396 603 3,135 4,440 Other financial liabilities — — — — — — — Hedging derivatives 2,619 200 588 748 641 2,073 6,869 Changes in the fair value of hedged items in portfolio hedges of interest rate risk 3 6 40 74 64 99 286 TOTAL FINANCIAL LIABILITIES 32,844 5,665 9,142 21,350 17,862 49,497 136,360 31 December 2020 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 granted 104,725 9,496 28,207 47,876 40,458 10,468 241,230 Financial guarantees granted 1,809 852 3,732 4,134 1,169 681 12,377 Other commitments granted 39,205 4,529 10,497 5,101 3,207 1,999 64,538 MEMORANDUM ITEMS 145,739 14,877 42,436 57,111 44,834 13,148 318,145 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 709 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 trading 4,864 3,522 19,740 21,603 18,083 40,418 108,230 Derivatives 3,329 2,233 6,552 15,855 14,925 20,503 63,397 Equity instruments — — — — — 12,437 12,437 Debt instruments 1,531 1,289 13,188 5,748 3,141 7,144 32,041 Loans and advances 4 — — — 17 334 355 Credits institutions — — — — — — — Customers 4 — — — 17 334 355 Financial assets designated at fair value through profit or loss 24,110 13,167 7,602 5,175 3,878 8,137 62,069 Debt instruments 457 10 81 652 381 1,605 3,186 Loans and advances 23,653 13,157 7,521 4,523 3,497 6,532 58,883 Central banks 1,744 4,729 — — — — 6,473 Credit institutions 13,186 4,946 1,534 1,015 9 959 21,649 Customers 8,723 3,482 5,987 3,508 3,488 5,573 30,761 Non-trading financial assets mandatorily at fair value through profit or loss 272 0 4 11 117 4,507 4,911 Equity instruments — — — — — 3,350 3,350 Debt instruments — — — 11 117 1,047 1,175 Loans and advances 272 — 4 — — 110 386 Central banks — — — — — — — Credits institutions — — — — — — — Customers 272 — 4 — — 110 386 Financial assets at fair value through other comprehensive income — — — — — 2,863 2,863 Equity instruments — — — — — 2,863 2,863 Hedging derivatives 807 86 601 1,646 904 3,172 7,216 Changes in the fair value of hedged items in portfolio hedges of interest rate risk 267 1 24 112 265 1,033 1,702 TOTAL FINANCIAL ASSETS 30,320 16,776 27,971 28,547 23,247 60,130 186,991 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 710 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 trading 10,851 3,427 7,130 17,244 16,905 21,582 77,139 Derivatives 2,672 1,973 6,591 16,965 16,023 18,792 63,016 Shorts positions 8,179 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 loss 21,929 2,259 5,307 3,565 1,450 26,485 60,995 Deposits 21,904 2,225 4,909 2,429 780 24,864 57,111 Central banks 8,831 1,228 2,795 — — — 12,854 Credits institutions 4,133 521 1,857 2,132 11 686 9,340 Customers 8,940 476 257 297 769 24,178 34,917 Marketable debt securities 14 34 398 1,021 670 1,621 3,758 Other financial liabilities 11 — — 115 — — 126 Hedging derivatives 1,997 337 848 678 528 1,660 6,048 Changes in the fair value of hedged items in portfolio hedges of interest rate risk 3 6 26 53 59 122 269 TOTAL FINANCIAL LIABILITIES 34,780 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 granted 98,630 16,529 30,370 37,097 48,072 10,481 241,179 Financial guarantees granted 2,176 1,791 5,626 1,933 1,364 760 13,650 Other commitments granted 44,950 3,052 9,957 4,606 4,132 2,198 68,895 MEMORANDUM ITEMS 145,756 21,372 45,953 43,636 53,568 13,439 323,724 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 711 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 2021 2020 2019 Assets Liabilities Assets Liabilities Assets Liabilities Cash, cash balances at central banks and other deposits on demand 105,457 — 76,882 — 65,205 — Financial assets/liabilities held for trading 65,345 49,314 66,448 50,494 60,526 45,262 Non-trading financial assets mandatorily at fair value through profit or loss 2,460 — 2,248 — 2,611 — Other financial assets/liabilities at fair value through profit or loss 1,230 9,103 24,015 18,347 25,938 29,593 Financial assets at fair value through other comprehensive income 78,086 — 79,688 — 76,402 — Financial assets at amortized cost 680,774 — 610,152 — 656,564 — Investments 1,666 — 1,671 — 1,355 — Tangible assets 22,350 — 21,617 — 24,662 — Intangible assets 10,066 — 9,609 — 21,942 — Financial liabilities at amortized cost — 796,395 — 726,516 — 752,188 Liabilities under insurance contracts — 10 — 13 — 13 Other 22,631 20,420 26,433 22,801 25,410 23,428 990,065 875,242 918,763 818,171 960,615 850,484 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 2021 2020 2019 Assets Carrying amount Fair value Level 1 Level 2 Level 3 Carrying amount Fair value Level 1 Level 2 Level 3 Carrying amount Fair value Level 1 Level 2 Level 3 Loans and advances 1,002,190 1,006,711 — 69,840 936,871 932,300 940,258 — 65,755 874,503 965,693 975,523 — 82,045 893,478 Debt instruments 35,708 35,378 13,558 12,158 9,662 26,078 26,532 6,753 11,899 7,880 29,789 30,031 10,907 9,971 9,153 1,037,898 1,042,089 13,558 81,998 946,533 958,378 966,790 6,753 77,654 882,383 995,482 1,005,554 10,907 92,016 902,631 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 712 ii) Financial liabilities measured at other than fair value EUR million 2021 2020 2019 Liabilities\* Carrying amount Fair value Level 1 Level 2 Level 3 Carrying amount Fair value Level 1 Level 2 Level 3 Carrying amount Fair value Level 1 Level 2 Level 3 Deposits 1,078,587 1,076,876 — 286,613 790,263 990,391 990,807 — 263,517 727,290 942,417 942,397 — 245,143 697,254 Debt instruments 240,709 246,697 109,346 115,034 22,317 230,829 241,174 91,771 125,031 24,372 258,219 266,784 84,793 149,516 32,475 1,319,296 1,323,573 109,346 401,647 812,580 1,221,220 1,231,981 91,771 388,548 751,662 1,200,636 1,209,181 84,793 394,659 729,729 \*At 31 December 2021, Grupo Santander had other financial liabilities that amounted to EUR 29,873 million, EUR 26,968 million in 2020 and EUR 30,109 million in 2019. The main valuation methods and inputs used in the estimates at 31 December 2021 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 deposits 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. 51. Primary and secondary segments reporting Grupo Santander bases 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. Grupo Santander prepares 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. On 9 April 2021, Grupo Santander announced that, starting and effective with the financial information for the first quarter of 2021, Grupo Santander would carry out a change in the reportable segments to reflect our new organizational and management structure. These changes in the reportable segments aim to align the segment information with their management and have no impact on the group’s accounting figures. The main changes, which have been applied to management information for all periods included in the consolidated financial statements, are the following: 1.Primary segments –Creation of the new Digital Consumer Bank (DCB) segment, which includes: • Santander Consumer Finance (SCF), previously included in the Europe segment, and the consumer finance business in the United Kingdom, previously recorded in the country. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 713 •Grupo Santander fully digital bank Openbank and the Open Digital Services (ODS) platform, which were previously included in the Santander Global Platform segment. –Santander Global Platform (SGP), which incorporated our global digital services under a single unit, is no longer a primary segment. Its activities have been distributed as follows: •Openbank and Open Digital Services (ODS), which, as mentioned above, are now included under the new Digital Consumer Bank reporting segment. •The business recorded in Global Payment Services (Merchant Solutions -GMS-, Trade Solutions -GTS- and Consumer Solutions -Superdigital and Pago FX-) has been allocated to the three main geographic segments, Europe, North America and South America, with no impact on the information reported for each country. 2. Secondary segments –Creation of the PagoNxt segment, which incorporates simple and accessible digital payment solutions to drive customer loyalty and allows us to combine our most disruptive payment businesses into a single autonomous company, providing global technology solutions for our banks and new customers in the open market, and which has been structured into three businesses, previously included in SGP: •Merchant Solutions: acquiring solutions for merchants. •Trade Solutions: solutions for SMEs and companies operating internationally. •Consumer Solutions: payment solutions for individuals aimed at underbanked populations. –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. –Elimination of the Santander Global Platform reporting segment: •Openbank and ODS are now recorded in the Retail Banking segment. •The remaining Santander Global Platform businesses form the new PagoNxt reporting segment. Grupo Santander recasted the corresponding information of earlier periods considering the changes included in this section. As stated above, group consolidated figures remain unchanged. a) 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 business activity carried out in the region, except that included in Digital Consumer Bank. Detailed financial information is provided on Spain, the UK, 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 business unit Banco Santander International, Santander Investment Securities (SIS) and the New York branch. •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. •Digital Consumer Bank: includes Santander Consumer Finance, which incorporates the entire consumer finance business in Europe, Openbank and ODS. 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 Grupo Santander’s central services (charged to the areas), except for corporate and institutional expenses related to the Grupo Santander’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 Grupo Santander's balance sheet. There are no customers located in any of the areas that generate income exceeding 10% of Total income. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 714 The condensed balance sheets and income statements of the various primary segments are as follows: EUR million 2021 Balance sheet (condensed) Europe North America South America Digital Consumer Bank Corporate Centre Intra-Group eliminations Total Total assets 981,154 244,734 257,805 159,683 215,467 (263,008) 1,595,835 Loans and advances to customers 590,610 137,428 123,920 113,937 6,787 — 972,682 Cash, balances at central banks and credit institutions and other deposits on demand 256,433 34,857 43,134 33,482 88,918 (174,152) 282,672 Debt instruments 67,068 38,500 51,451 5,280 1,554 — 163,853 Other financial assets 37,250 12,555 23,809 47 2,203 — 75,864 Other asset accounts 29,793 21,394 15,491 6,937 116,005 (88,856) 100,764 Total liabilities 936,057 215,955 237,364 147,108 136,450 (174,152) 1,498,782 Customer deposits 619,486 121,989 120,500 55,327 1,042 — 918,344 Central banks and credit institutions 193,307 35,059 44,303 49,109 53,563 (174,152) 201,189 Marketable debt securities 73,629 38,061 23,461 36,710 74,302 — 246,163 Other financial liabilities\*\*\* 38,706 14,652 40,490 1,397 430 — 95,675 Other liabilities accounts\*\*\*\* 10,929 6,194 8,610 4,565 7,113 — 37,411 Total equity 45,097 28,779 20,441 12,575 79,017 (88,856) 97,053 Other customer funds under management 114,698 13,949 57,428 852 — — 186,927 Investment funds 82,641 12,112 51,234 — — — 145,987 Pension funds 15,994 84 — — — — 16,078 Assets under management 16,063 1,753 6,194 852 — — 24,862 Other non-managed marketed customer funds 25,572 20,213 103 2,497 — — 48,385 \*Including Trading derivatives and Equity instruments. \*\*Including Hedging derivatives, Changes in the fair value of hedged items in portfolio hedges of interest risk, Investments in joint ventures and associated entities, 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 715 EUR million 2020 Balance sheet (condensed) Europe North America South America Digital Consumer Bank Corporate Centre Intra-Group eliminations Total Total assets 942,620 223,797 238,746 146,851 182,587 (226,351) 1,508,250 Loans and advances to customers 563,581 120,571 113,745 113,258 5,044 — 916,199 Cash, balances at central banks and credit institutions and other deposits on demand 213,561 28,666 43,154 21,754 61,174 (142,513) 225,796 Debt instruments 81,271 38,403 49,304 5,659 1,917 — 176,554 Other financial assets\* 48,313 15,439 17,342 30 1,645 — 82,769 Other asset accounts\*\* 35,894 20,718 15,201 6,150 112,807 (83,838) 106,932 Total liabilities 899,990 199,735 218,918 134,241 106,557 (142,513) 1,416,928 Customer deposits 582,353 102,924 111,808 51,399 826 — 849,310 Central banks and credit institutions 167,014 38,017 42,040 41,567 38,554 (142,513) 184,679 Marketable debt securities 84,201 36,583 21,280 35,965 57,240 — 235,269 Other financial liabilities\*\*\* 54,634 16,182 35,456 1,370 493 — 108,135 Other liabilities accounts\*\*\*\* 11,788 6,029 8,334 3,940 9,444 — 39,535 Total equity 42,630 24,062 19,828 12,610 76,030 (83,838) 91,322 Other customer funds under management 99,301 12,501 55,965 475 12 — 168,254 Investment funds 71,239 10,864 49,850 — 12 — 131,965 Pension funds 15,487 90 — — — — 15,577 Assets under management 12,575 1,547 6,115 475 — — 20,712 Other non-managed marketed customer funds 21,913 15,920 72 658 — — 38,563 \*Including Trading derivatives and Equity instruments. \*\*Including Hedging derivatives, Changes in the fair value of hedged items in portfolio hedges of interest risk, Investments in joint ventures and associated entities, 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 716 EUR million 2019 Balance sheet (condensed) Europe North America South America Digital Consumer Bank Corporate Centre Intra-Group eliminations Total Total assets 926,768 223,972 253,919 140,273 168,352 (190,589) 1,522,695 Loans and advances to customers 563,101 133,727 125,122 114,504 5,764 — 942,218 Cash, balances at central banks and credit institutions and other deposits on demand 171,974 22,904 51,379 17,440 32,804 (107,895) 188,606 Debt instruments 101,189 33,749 45,622 3,196 840 — 184,596 Other financial assets\* 53,918 10,822 14,864 37 2,406 — 82,047 Other asset accounts\*\* 36,586 22,770 16,932 5,096 126,538 (82,694) 125,228 Total liabilities 882,479 199,993 231,361 128,107 77,991 (107,895) 1,412,036 Customer deposits 559,720 98,915 114,817 50,120 793 — 824,365 Central banks and credit institutions 156,201 38,952 41,999 33,652 12,254 (107,895) 175,163 Marketable debt securities 94,882 44,097 29,840 38,661 54,497 — 261,977 Other financial liabilities\*\*\* 59,241 11,773 34,072 1,652 636 — 107,374 Other liabilities accounts\*\*\*\* 12,435 6,256 10,633 4,022 9,811 — 43,157 Total equity 44,289 23,979 22,558 12,166 90,361 (82,694) 110,659 Other customer funds under management 86,558 14,319 76,023 — 11 — 176,911 Investment funds 62,203 11,703 69,071 — 11 — 142,988 Pension funds 11,746 98 — — — — 11,844 Assets under management 12,609 2,518 6,952 — — — 22,079 Other non-managed marketed customer funds 32,707 15,872 60 851 — — 49,490 \*Including 'Trading derivatives' and 'Equity instruments'. \*\*Including 'Hedging derivatives', 'Changes in the fair value of hedged items in portfolio hedges of interest risk', 'Investments in joint ventures and associated entities'', '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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 717 The condensed income statements for the primary segments are as follows: EUR million 2021 Underlying income statement (condensed) Europe North America South America Digital Consumer Bank Corporate centre Total Net interest income 10,952 8,204 11,323 4,281 (1,390) 33,370 Net fee income 4,344 1,644 3,721 821 (28) 10,502 Gains (losses) on financial transactions\* 756 224 716 8 (141) 1,563 Other operating income\*\* 260 914 (407) 229 (27) 969 Total income 16,312 10,986 15,353 5,339 (1,586) 46,404 Administrative expenses, depreciation and amortisation (8,318) (4,967) (5,379) (2,405) (346) (21,415) Net operating income\*\*\* 7,994 6,019 9,974 2,934 (1,932) 24,989 Net loan-loss provisions\*\*\*\* (2,293) (1,210) (3,251) (527) (155) (7,436) Other gains (losses) and provisions\*\*\*\*\* (1,290) (145) (474) (194) (190) (2,293) Operating profit/(loss) before tax 4,411 4,664 6,249 2,213 (2,277) 15,260 Tax on profit (1,362) (1,055) (2,365) (536) 242 (5,076) Profit from continuing operations 3,049 3,609 3,884 1,677 (2,035) 10,184 Net profit from discontinued operations — — — — — — Consolidated profit 3,049 3,609 3,884 1,677 (2,035) 10,184 Non-controlling interests 71 556 556 345 2 1,530 Attributable profit to the parent 2,978 3,053 3,328 1,332 (2,037) 8,654 \*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 29 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 29 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 718 EUR million 2020 Underlying income statement (condensed) Europe North America South America Digital Consumer Bank Corporate Centre Total Net interest income 9,912 8,470 10,723 4,263 (1,374) 31,994 Net fee income 4,000 1,684 3,589 771 (29) 10,015 Gains (losses) on financial transactions\* 868 251 765 16 287 2,187 Other operating income\*\* (106) 628 (209) 116 (25) 404 Total income 14,674 11,033 14,868 5,166 (1,141) 44,600 Administrative expenses, depreciation and amortisation (8,275) (4,677) (5,357) (2,329) (329) (20,967) Net operating income\*\*\* 6,399 6,356 9,511 2,837 (1,470) 23,633 Net loan-loss provisions\*\*\*\* (3,345) (3,917) (3,924) (957) (31) (12,174) Other gains (losses) and provisions\*\*\*\*\* (970) (132) (320) 49 (412) (1,785) Operating profit/(loss) before tax 2,084 2,307 5,267 1,929 (1,913) 9,674 Tax on profit (593) (574) (1,923) (495) 69 (3,516) Profit from continuing operations 1,491 1,733 3,344 1,434 (1,844) 6,158 Net profit from discontinued operations — — — — — — Consolidated profit 1,491 1,733 3,344 1,434 (1,844) 6,158 Non-controlling interests 78 261 437 301 — 1,077 Attributable profit to the parent 1,413 1,472 2,907 1,133 (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. \*\*\*\*'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 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 recognised in results and Gains or losses on non-current assets held for sale not classified as discontinued operations. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 719 EUR million 2019 Underlying income statement (condensed) Europe North America South America Digital Consumer Bank Corporate Centre Total Net interest income 10,072 8,926 13,316 4,221 (1,252) 35,283 Net fee income 4,423 1,776 4,787 843 (50) 11,779 Gains (losses) on financial transactions\* 1,045 229 564 (10) (297) 1,531 Other operating income\*\* 399 673 (242) 90 (19) 901 Total income 15,939 11,604 18,425 5,144 (1,618) 49,494 Administrative expenses, depreciation and amortisation (8,912) (4,983) (6,673) (2,339) (373) (23,280) Net operating income\*\*\* 7,027 6,621 11,752 2,805 (1,991) 26,214 Net loan-loss provisions\*\*\*\* (1,333) (3,656) (3,789) (508) (35) (9,321) Other gains (losses) and provisions\*\*\*\*\* (792) (203) (749) 18 (238) (1,964) Operating profit/(loss) before tax 4,902 2,762 7,214 2,315 (2,264) 14,929 Tax on profit (1,340) (681) (2,640) (599) 157 (5,103) Profit from continuing operations 3,562 2,081 4,574 1,716 (2,107) 9,826 Net profit from discontinued operations — — — — — — Consolidated profit 3,562 2,081 4,574 1,716 (2,107) 9,826 Non-controlling interests 167 426 664 326 (9) 1,574 Attributable profit to the parent 3,395 1,655 3,910 1,390 (2,098) 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 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 720 b) Secondary segments At this secondary level, Grupo Santander is structured into Retail Banking, Santander Corporate & Investment Banking (SCIB), Wealth Management & Insurance (WM&I) and PagoNxt. •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 WM&I. The results of the hedging positions in each country are also included, conducted within the sphere of their respective assets and liabilities committees. •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 (Santander Private Banking) and the insurance business (Santander Insurance). •PagoNxt: this includes digital payment solutions, providing global technology solutions for Grupo Santander's banks and new customers in the open market. It is structured in three businesses: Merchant Solutions, International Trade and Consumer. Although WM&I and PagoNxt 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 are 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 721 The condensed income statements are as follows: EUR million 2021 Underlying income statement (condensed) Retail Banking Santander Corporate & Investment Banking Wealth Management & Insurance PagoNxt Corporate centre Total Net interest income 31,389 2,995 375 1 (1,390) 33,370 Net fee income 7,011 1,750 1,276 493 (28) 10,502 Gains (losses) on financial transactions\* 920 684 101 (1) (141) 1,563 Other operating income\*\* 316 264 414 2 (27) 969 Total income 39,636 5,693 2,166 495 (1,586) 46,404 Administrative expenses, depreciation and amortisation (17,193) (2,301) (902) (673) (346) (21,415) Net operating income\*\*\* 22,443 3,392 1,264 (178) (1,932) 24,989 Net loan-loss provisions\*\*\*\* (7,114) (130) (27) (10) (155) (7,436) Other gains (losses) and provisions\*\*\*\*\* (2,064) (10) 10 (39) (190) (2,293) Operating profit/(loss) before tax 13,265 3,252 1,247 (227) (2,277) 15,260 Tax on profit (4,052) (938) (304) (24) 242 (5,076) Profit/(loss) from continuing operations 9,213 2,314 943 (251) (2,035) 10,184 Net profit/(loss) from discontinued operations — — — — — — Consolidated profit/(loss) 9,213 2,314 943 (251) (2,035) 10,184 Non-controlling interests 1,344 146 36 2 2 1,530 Attributable profit/(loss) to the parent 7,869 2,168 907 (253) (2,037) 8,654 \*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 29 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 29 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 722 EUR million 2020 Underlying income statement (condensed) Retail Banking Santander Corporate & Investment Banking (SCIB) Wealth Management & Insurance PagoNxt Corporate Centre Total Net interest income 30,056 2,918 394 (1) (1,373) 31,994 Net fee income 6,986 1,543 1,154 362 (30) 10,015 Gains (losses) on financial transactions\* 1,133 670 98 (1) 287 2,187 Other operating income\*\* (153) 201 384 (3) (25) 404 Total income 38,022 5,332 2,030 357 (1,141) 44,600 Administrative expenses, depreciation and amortisation (17,285) (2,038) (872) (443) (329) (20,967) Net operating income\*\*\* 20,737 3,294 1,158 (86) (1,470) 23,633 Net loan-loss provisions\*\*\*\* (11,633) (470) (29) (12) (30) (12,174) Other gains (losses) and provisions\*\*\*\*\* (1,237) (135) — (2) (411) (1,785) Operating profit/(loss) before tax 7,867 2,689 1,129 (100) (1,911) 9,674 Tax on profit (2,525) (773) (270) (15) 67 (3,516) Profit/(loss) from continuing operations 5,342 1,916 859 (115) (1,844) 6,158 Net profit/(loss) from discontinued operations — — — — — — Consolidated profit/(loss) 5,342 1,916 859 (115) (1,844) 6,158 Non-controlling interests 921 118 37 1 — 1,077 Attributable profit/(loss) to the parent 4,421 1,798 822 (116) (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 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 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 723 EUR million 2019 Underlying income statement (condensed) Retail Banking Santander Corporate & Investment Banking (SCIB) Wealth Management & Insurance PagoNxt Corporate Centre Total Net interest income 33,308 2,728 479 20 (1,252) 35,283 Net fee income 8,663 1,520 1,190 456 (50) 11,779 Gains (losses) on financial transactions\* 1,025 689 117 (3) (297) 1,531 Other operating income\*\* 291 289 340 — (19) 901 Total income 43,287 5,226 2,126 473 (1,618) 49,494 Administrative expenses, depreciation and amortisation (19,280) (2,281) (939) (407) (373) (23,280) Net operating income\*\*\* 24,007 2,945 1,187 66 (1,991) 26,214 Net loan-loss provisions\*\*\*\* (9,132) (155) 23 (21) (36) (9,321) Other gains (losses) and provisions\*\*\*\*\* (1,623) (91) (13) — (237) (1,964) Operating profit/(loss) before tax 13,252 2,699 1,197 45 (2,264) 14,929 Tax on profit (4,132) (815) (280) (33) 157 (5,103) Profit/(loss) from continuing operations 9,120 1,884 917 12 (2,107) 9,826 Net profit/(loss) from discontinued operations — — — — — — Consolidated profit/(loss) 9,120 1,884 917 12 (2,107) 9,826 Non-controlling interests 1,364 171 50 (2) (9) 1,574 Attributable profit/(loss) to the parent 7,756 1,713 867 14 (2,098) 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 724 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 2021 Reconciliation of underlying results to statutory results Underlying results Adjustments Statutory results Net interest income 33,370 — 33,370 Net fee income 10,502 — 10,502 Gains (losses) on financial transactions\* 1,563 — 1,563 Other operating income\*\* 969 — 969 Total income 46,404 — 46,404 Administrative expenses, depreciation and amortisation (21,415) — (21,415) Net operating income\*\*\* 24,989 — 24,989 Net loan-loss provisions\*\*\*\* (7,436) — (7,436) Other gains (losses) and provisions\*\*\*\*\* (2,293) (713) (3,006) Operating profit/(loss) before tax 15,260 (713) 14,547 Tax on profit (5,076) 182 (4,894) Adjusted profit for the year from continuing operations 10,184 (531) 9,653 Profit from discontinued operations (net) — — — Consolidated profit/(loss) 10,184 (531) 9,653 Non-controlling interests (1,530) 1 (1,529) Attributable profit/(loss) to the parent 8,654 (530) 8,124 \*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 29 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 29 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 for net impact of EUR -530 million, mainly in the United Kingdom and Portugal. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 725 EUR million 2020 Reconciliation of underlying results to statutory results Underlying results Adjustments Statutory results Net interest income 31,994 — 31,994 Net fee income 10,015 — 10,015 Gains (losses) on financial transactions\* 2,187 — 2,187 Other operating income\*\* 404 (321) 83 Total income 44,600 (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 tax 9,674 (11,750) (2,076) Tax on profit (3,516) (2,116) (5,632) Adjusted profit for the year from continuing operations 6,158 (13,866) (7,708) Profit from discontinued operations (net) — — — Consolidated profit/(loss) 6,158 (13,866) (7,708) Non-controlling interests 1,077 (14) 1,063 Attributable profit/(loss) to the parent 5,081 (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'. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 726 EUR million 2019 Reconciliation of underlying results to statutory results Underlying results Adjustments Statutory results Net interest income 35,283 — 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) Adjusted profit for the year from continuing operations 9,826 (1,710) 8,116 Profit from discontinued operations (net) — — — Consolidated profit/(loss) 9,826 (1,710) 8,116 Non-controlling interests 1,574 27 1,601 Attributable profit/(loss) to the parent 8,252 (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 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'. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 727 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 2021 Associates and joint ventures Members of the board of directors Executive vicepresident Other related parties Assets 9,386 — 14 384 Cash, cash balances at central banks and other deposits on demand 131 — — — Loans and advances: credit institutions 437 — — — Loans and advances: customers 8,148 — 14 384 Debt instruments 496 — — — Others 174 — — — Liabilities 3,405 8 11 197 Financial liabilities: credit institutions 867 — — — Financial liabilities: customers 2,464 8 11 197 Marketable debt securities — — — — Others 74 — — — Income statement 1,265 — — 1 Interest income 90 — — 1 Interest expense (13) — — — Gains/losses on financial assets and liabilities and others (32) — — — Commission income 1,268 — — — Commission expense (48) — — — Other 3,965 2 2 76 Financial guarantees granted and Others 11 1 1 17 Loan commitments and Other commitments granted 314 1 1 13 Derivative financial instruments 3,640 — — 46 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 728 EUR million 2020 Associates and joint ventures Members of the board of directors Executive vicepresident Other related parties Assets 8,473 — 24 95 Cash, cash balances at central banks and other deposits on demand 151 — — — Loans and advances: credit institutions 562 — — — Loans and advances: customers 6,934 — 24 95 Debt instruments 423 — — — Others 403 — — — Liabilities 3,593 4 16 159 Financial liabilities: credit institutions 944 — — — Financial liabilities: customers 2,557 4 16 159 Marketable debt securities 12 — — — Others 80 — — — Income statement 1,269 — — 3 Interest income 106 — — 2 Interest expense (8) — — — Gains/losses on financial assets and liabilities and others 49 — — — Commission income 1,154 — — 1 Commission expense (32) — — — Other 4,097 1 1 52 Financial guarantees granted and Others 14 — — 3 Loan commitments and Other commitments granted 253 1 1 13 Derivative financial instruments 3,830 — — 36 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 729 EUR million 2019 Associates and joint ventures Members of the board of directors Executive vicepresident Other related parties Assets 9,659 — 26 104 Cash, cash balances at central banks and other deposits on demand 740 — — — Loans and advances: credit institutions 961 — — — Loans and advances: customers 6,950 — 26 104 Debt instruments 848 — — — Others 160 — — — Liabilities 2,689 41 12 57 Financial liabilities: credit institutions 563 — — — Financial liabilities: customers 2,064 41 12 57 Marketable debt securities — — — — Others 62 — — — Income statement 1,386 — — 2 Interest income 111 — — 1 Interest expense (15) — — — Gains/losses on financial assets and liabilities and others 47 — — — Commission income 1,269 — — 1 Commission expense (26) — — — Other 4,219 7 3 49 Financial guarantees granted and Others 17 5 2 38 Loan commitments and Other commitments granted 197 1 1 6 Derivative financial instruments 4,005 1 — 5 The remaining required information is detailed in notes 5, 14 and 46.c. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 730 53. Risk management a) Risk principles and culture 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 who must understand the risks associated with their functions and not assume risks with an impact that exceeds the Group’s risk appetite or is unknown. 2.Involvement of senior managers, with consistent risk management and control through their conduct, actions and communications, as well as oversight of the risk culture and make sure Grupo Santander maintain the risk profile within the defined risk appetite. 3.Independent risk management and control functions, according to the three lines of defence model of Grupo Santander. 4.A forward-looking, comprehensive approach to risk management and control for all businesses and risk types. 5.Complete and timely information to identify, assess, manage and disclose risks to the appropriate level. Grupo Santander’s holistic control structure stands on these principles and includes strategic tools and processes set out in the risk appetite statement, such as annual planning and budget planning, scenario analysis, the risk reporting structure and risk identification and assessment. 1. Risk factors Grupo Santander's risks categorization ensures effective risk management, control and reporting. The risk framework distinguishes these 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. It includes the structural risk relates to market movements or balance sheets behaviour will change the value or profit generation of assets or liabilities in the banking book. •Liquidity risk occurs if liquid financial resources are insufficient or too costly to obtain in order to meet liabilities when they fall due. •Capital risk is the risk that arises from the possibility of having an inadequate quantity or quality of capital to meet internal business objectives, regulatory requirements or market expectations in the area of structural risk. Grupo Santander also takes into account, on an ongoing basis in its management of the risk function, operational, regulatory compliance, model, reputational and strategic risks. Besides, environmental and climate-related risk drivers are considered as factors that could impact the existing risks in the medium-to-long-term. These elements include, on the one hand, those derived from the physical effects of climate change, generated by one-off events as well as by chronic changes in the environment and, on the other hand, those derived from the process of transition to a development model with lower emissions, including legislative, technological or behaviour of economic agents changes. The analysis of climate change scenarios has continued to advance during 2021 in the Group to try to cover the different casuistry related to the risks of transition to a low-carbon economy and/or the effects derived from the physical risk of possible climatic events in certain geographies where the Group operates. Grupo Santander continues to make progress in the credit granting process following the EBA guidelines as well as in the development of a more restrictive financing policy, taking special account of the most sensitive sectors/activities, which includes ceasing to provide financial services to medium term to electricity generation customers with more than 10% of revenues dependent on coal and eliminate exposure to coal mining production in the world. Grupo Santander has scheduled a series of actions to continue integrating climatic and environmental factors in the credit admission process, through i) their incorporation in the assessment processes of local credit committees, ii) their inclusion in the assignment of corporate ratings in the wholesale market (with a future expansion to retail banking) and in the process of setting prices through the entities' own ratings and the specific pricing that already exists for specific products with discount rates based on the fulfillment of various conditions , and iii) the inclusion of energy certificates in the valuation of collaterals. Additionally, Grupo Santander has increased focus on the impact of climate risk in relation to market, structural and liquidity risk, which arise from the possibility that changes in climate may adversely affect the value of a financial instrument, a portfolio or the Group as a whole. This risk may have an impact both on financial instruments value or portfolios and on Santander's liquidity. Grupo Santander measures this risk through stress scenarios for both market and liquidity risk, which arises from the possibility that climate change may adversely affect the value of a financial instrument, a portfolio or the Group as a whole 2. Risk governance Grupo Santander  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. 2.1 Lines of defence Grupo Santander model of three lines of defence effectively manages and controls risks: –First line: formed by businesses and functions that take or originate exposure to risk, it recognizes, measures, controls, monitors and reports on risks according to internal risk management regulation. Risk origination must be consistent with the approved risk appetite and related limits. –Second line: formed by the Risk and Compliance and Conduct functions, it independently oversees and challenges the first line’s risk management. Its duties include ensuring that risks are Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 731 managed according to the risk appetite defined by senior management and strengthening our risk culture throughout Grupo Santander. –Third line: the Internal Audit function, which is independent to ensure the board of directors and senior managers with high- quality and efficient internal controls, governance and risk management systems, helping to safeguard our value, solvency and reputation. The Risk, Compliance & Conduct and Internal Audit functions are separate and independent. Each has direct access to the board of directors and its committees. 2.2 Risk committee structure The board of directors is ultimately responsible for risk and compliance management and control. It revises and approves the bank's risk frameworks and appetite, while promoting a strong risk culture across the Group. The board relies on its risk supervision, regulation and compliance committee for risk control and on the group’s executive committee for risk approval. The Group chief risk officer (Group CRO), who decides risk strategy and promotes proper risk culture, is in charge of overseeing all risks and challenging and advising business lines on risk management. The Group chief compliance officer (Group CCO), who decides compliance and conduct strategy, is in charge of controlling the risks within their purview and must provide the Group CRO with a complete overview on the situation of risks being monitored. Both the Group CRO and the Group 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 compliance and conduct committees are executive committees and have been delegated powers by the board. Furthermore, risk functions have forums and regular meetings to manage and control the risks within their purview. Executive committees also delegate some duties to subordinate forums. Their responsibilities include: •Reporting to the Group CRO, the Group CCO, the risk control committee and the compliance and conduct committee on risk management according to risk appetite; •monitoring and ensuring proper management of each risk factor; and •overseeing measures to comply with supervisors and auditors' expectations. Besides, Grupo Santander, in order to establish an adequate control environment for the management of each risk factors, the Risk and Compliance and Conduct functions have effective internal regulation to create the right environment to manage and control all risks. Grupo Santander can also dictate new governance measures for special situations. During the Brexit crisis transition process, it set up separate steering committees and working groups with Santander UK. Also, to cope with the covid-19 crisis, it created special situation forums, in which close coordination with subsidiaries, local contingency plan activation and scenario analysis enhanced allocated resources and governance. 2.3 The Group's relationship with subsidiaries In all subsidiaries, the risk and compliance management and control model is consistent with the frameworks approved by Grupo Santander's board of directors, which they adhere to through their own boards and can only adapt according to local law and regulation. In its duty to carry out aggregate risk oversight, Grupo Santander validates and challenges subsidiaries’ internal regulation and transactions, which results in a common risk management model across the Group. In 2021, Grupo Santander continued to strengthen the regional subsidiary relations model, based on regions, to find synergies for common operations and platforms building on the global and regional scale; to streamline processes; and to tighten control mechanisms so Grupo Santander's business can grow, allocate capital more efficiently and offer the best service to customers. In this sense, each local CRO interact regularly with their regional head of risk, the Group CRO and the Group CCO in periodic regional or country control meetings. Local and global Risk and Compliance functions also hold follow-up meetings to address special matters. The Group CRO and the Group CCO and regional heads of risk are involved in appointing, setting of objectives, reviewing and compensating their local counterparts to ensure proper risk management. Grupo Santander enhances its relations with subsidiaries and its advanced risk management model through: •Close collaboration between countries in the same region to carry out common initiatives efficiently; •structural change, subsidiary benchmarks and a strategic vision for the function to implement advanced risk management infrastructures and practices; •the exchange of best practices to strengthen processes and drive innovation in order to achieve a quantitative impact.; •identification of talent in risk and compliance teams, promoting international mobility through a global risk talent programme and tightening succession plans. 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 Grupo Santander deem prudent for the business strategy, even in unforeseen circumstances. It considers adverse scenarios that could have a negative impact on capital, liquidity and profitability. The board sets the Group's risk appetite statement (RAS) every year. Grupo Santander subsidiaries' boards also set their own risk appetites annually. Each of those risk appetites translates into risk management limits and policies based on risk type, portfolio and segment. 3.1.1. Business model and risk appetite fundamentals Grupo Santander's risk appetite is consistent with the risk culture and business model built on customer focus, scale and diversification. At the core of Grupo Santander's risk appetite are: Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 732 •A medium-low and predictable target risk profile that is centred on retail and commercial banking, internationally diversified operations and strong market share; •Stable, recurrent earnings and shareholder remuneration, sustained by a sound base of capital, liquidity and sources of funding; •Independent subsidiaries that manage their own capital and liquidity, with risk profiles that do not compromise Grupo Santander’s solvency; •An independent risk function with involvement by senior management to embed a strong risk culture and drive a sustainable return on capital; •A global and holistic vision through a meticulous control and monitoring of risks, businesses and markets; •A focus on products Grupo Santander know well; •A conduct model that protects Grupo Santander`s customers; and •A remuneration policy that aligns employees and executives' interests with risk appetite and long-term results. 3.1.2. Corporate risk appetite principles The principles that inform Grupo Santander's risk appetite are: •The board and senior management's responsibility for risk appetite; •An enterprise-wide view of risk, back-testing and challenge of risk profile based on quantitative metrics and qualitative indicators; •A forward-looking view based on plausible assumptions and adverse/stress scenarios to reflect the desired risk profile in the short and medium term; •Strategic and business plans embedded in daily management by policies and limits; •Common standards that align each subsidiary's appetite with the Group's; and •Regular reviews, best practice and regulatory requirements, with mechanisms in place to keep the risk profile stable and mitigate non-compliance. 3.1.3. Structure of limits, monitoring and control 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 -but- plausible stress scenario. 2 Solvency •Minimum capital position Grupo Santander can tolerate in a stress scenario. •Maximum leverage Grupo Santander can tolerate in a stress scenario. 3 Liquidity •Minimum structural liquidity position. •Minimum liquidity horizon Grupo Santander can tolerate in peak stress scenario. •Minimum liquidity coverage position. 4 Concentration •Concentration in single names, industries 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: ◦Financial crime compliance (FCC) ◦Cyber and security risk ◦Model risk ◦Reputational risk 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. 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 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 733 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. Limits 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 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 and is based on customer segmentation: •For SCIB, monitoring is initially a function of business managers and risk analysts which provide an up-to-date view of customers’ credit quality to predict a potential customer's deterioration. •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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 734 •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's 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, credit impaired loans, write-offs and foreclosed assets. Grupo Santander may uses mechanisms to rapidly reduce assets like sales of foreclosed assets or credit impaired 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 735 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 data Credit risk with customers \*\* (EUR million) Credit impaired loans (EUR million) NPL ratio (%) 2021 2020 2019 2021 2020 2019 2021 2020 2019 Europe 636,123 606,997 605,969 19,822 20,272 21,054 3.12 3.34 3.47 Spain 221,100 221,341 213,668 12,758 13,796 14,824 5.77 6.23 6.94 UK 262,869 252,255 264,297 3,766 3,138 2,736 1.43 1.24 1.04 Portugal 41,941 40,693 37,978 1,442 1,584 1,834 3.44 3.89 4.83 Poland 33,497 31,578 33,566 1,210 1,496 1,447 3.61 4.74 4.31 North America 149,792 131,626 143,839 3,632 2,938 3,165 2.42 2.23 2.20 US 112,808 99,135 105,792 2,624 2,025 2,331 2.33 2.04 2.20 Mexico 36,984 32,476 38,047 1,009 913 834 2.73 2.81 2.19 South America 141,874 129,590 143,428 6,387 5,688 6,972 4.50 4.39 4.86 Brazil 85,702 74,712 88,893 4,182 3,429 4,727 4.88 4.59 5.32 Chile 41,479 42,826 42,000 1,838 2,051 1,947 4.43 4.79 4.64 Argentina 5,481 4,418 5,044 198 93 171 3.61 2.11 3.39 Digital Consumer Bank 117,049 116,381 117,399 2,490 2,525 2,470 2.13 2.17 2.10 Corporate Centre 6,277 4,862 5,872 903 344 138 14.38 7.08 2.34 Total Group 1,051,115 989,456 1,016,507 33,234 31,767 33,799 3.16 3.21 3.32 \*Management perimeter according to the reported segments \*\* Includes gross lending to customers, guarantees and documentary credits. Key figures by geographic region are described below at 31 December 2021: •Europe:  the NPL ratio fell 22 bps to 3.12% from 2020 due to a significant reduction in credit impaired loans in Spain and Poland, offsetting the increase observed in the UK. •North America: the NPL ratio increased 19 bps to 2.42% from 2020, mainly due to increases at SC USA. NPL stock rose 24% year- on-year. •South America: the NPL ratio rose 11 bps to 4.50%. comparing to 2020, due to the increase observed in Argentina (+150 bps) and Brazil (+29 bps), offsetting the decrease in Chile (-36 bps). •Digital Consumer Bank: The NPL ratio decreased 4 bp to 2.13% comparing to 2020, despite the decrease in automobile financing. Information on the estimation of impairment losses Estimation of expected credit losses: The covid-19 health crisis, since its beginning in 2020, was unexpected, unpredictable and severe, but it is estimated to be of a temporary nature. Grupo Santander's 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 736 These conceptual phases do not occur sequentially but overlap in time. Additionally, the continuous interaction and coordination between the different subsidiaries proved 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. Estimation of expected loss In the context described above on the measures taken in relation to covid-19, many regulators and supervisors 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 general recommendation (including IASB, ESMA, EBA and ECB) was not to mechanistically apply the usual techniques for calculating expected losses under IFRS 9, in order to avoid that this variability of economic conditions would translate into volatility in results, with its potential pro-cyclical effects on the economy. Thus, Grupo Santander has analysed losses under IFRS 9 on the basis of three types of elements: 1.Continuous monitoring of customers Monitoring the credit quality of customers could have been more complex in the current circumstances. 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 it was reflected by the IASB, macroeconomic uncertainty makes the usual application of IFRS 9 expected loss calculation models difficult but did not exempt the incorporation of the prospective feature of the standard. To this end, the European Central Bank 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. During 2021, this uncertainty has been reduced as vaccination progressed, hospitalisation rates gradually declined, allowing, in some cases, for the reduction of restriction measures. In parallel, support measures expired while maintaining the good performance of the portfolios. This implies that once the economic scenarios have been stabilising and converging to their potential growth, these new economic scenarios have been gradually updated in the models by returning to the standard forward-looking calculation. 3.    Additional elements Additional elements will be required when necessary because they have not been captured under the two previous elements. This has included, 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 has evaluated 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, in 2021 Grupo Santander has maintained the criteria and thresholds for classification applied prior to the start of the pandemic, eliminating regulatory criteria of the effect of moratorium classification as they have expired, as well as the collective analyses associated with these groups of loans. Regarding moratorium measures, a rigorous identification and periodic monitoring of the credit quality of the clients and their payment behaviour have been carried out and, through a specific individual or collective evaluation, the timely detection of the Significant Increase in Credit Risk (SICR). As part of governance processes, Grupo Santander issued guideline documents to all subsidiaries to ensure consistent standards and governance in managing the new treatment and particular impacts on pandemic-related provisions. The guidelines included instructions on how to calculate the macroeconomic impact of the crisis using overlay and potential collective assessments that considered impairment caused by covid-19. Those documents also include a monitoring guide to ensure the appropriateness of special insolvency fund adjustments for covid-19-related situations and anticipate any other necessary adjustment. 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. 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. 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 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 737 table below shows the impairment losses associated with each stage as of 31 December 2021, 2020 and 2019.In addition, depending on the transactions credit quality, the exposure is divided into three categories according to Standard & Poor's rating scale: EXPOSURE AND IMPAIRMENT LOSSES BY STAGE EUR million 2021 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 565,443 13,798 — 579,241 From BB- to CCC 237,525 56,170 — 293,695 Default — — 30,711 30,711 Total exposure \*\* 802,968 69,968 30,711 903,647 Impairment losses\*\*\* 4,149 5,103 12,873 22,125 EXPOSURE AND IMPAIRMENT LOSSES BY STAGE EUR million 2020 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 489,518 9,124 — 498,642 From BB- to CCC 276,516 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 EXPOSURE AND IMPAIRMENT LOSSES BY STAGE EUR million 2019 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 552,763 5,532 — 558,295 From BB- to CCC 306,880 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. \*\*Total exposure includes loan balances (drawn amounts) and off balance (letters of credit + guarantees) and excludes REPOs, FV portfolio, trading portfolio and undrawn commitments. \*\*\*Includes provisions for undrawn authorized lines (loan commitments) The remaining units that form the totality of the Group exposure, contributed EUR 102,631 million in stage 1; EUR 1,870 million in stage 2, and EUR 2,522 million  in stage 3 (in 2020 EUR 98,121 million in stage 1; EUR 3,613 million in stage 2, and EUR 1,322 million in stage 3. In 2019, EUR 38,174 million in stage 1; EUR 1,422 million in stage 2, and EUR 1,056 million in stage 3), and impairment losses of EUR 408 million in stage 1; EUR 322 million for stage 2, and EUR 841 million in stage 3 (in 2020, EUR 180 million, EUR 393 million and EUR 277 million and in 2019, EUR 264 million, EUR 306 million and EUR 91 million in stage 1, stage 2 and stage 3, respectively). The remaining exposure, including all financial instruments not included before, amounts to EUR 349,228 million (EUR 478,093 million in 2020 and EUR 507,479 million in 2019), and it includes all undrawn authorized lines (loan commitments). As of 31 December 2021, the Group had EUR 420 million net of provisions (EUR 497 million and EUR 706 million at 31 December 2020 and 2019, 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 consistent 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 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 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 incur 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 738 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 far 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 evolution 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: •  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. Since the start of the pandemic in 2020, at the end of December 2021, Grupo Santander granted a total of EUR 93,112 million in payment moratoria, equivalent to 9.68% of the loan portfolio. From the total moratoria, 99.8% had expired at 31 December 2021, from which 74.6% were classified in stage 1, 18.7% in stage 2 and 6.7% in stage 3. At December 2020, 79.1% of total moratoria has expired, from which 82.4% classified in stage 1, 14.5% in stage 2 and 3.1% in stage 3. At the end of December 2021, total lending under government liquidity programmes amounted to EUR 39,879 million. By geography, Spain represent 68% of total exposure granted to these types of programmes, with an average coverage of ICO guarantees of 77%. UK constitutes the 13% of total exposure with an average coverage of 98%. Quantification of additional provisions for covid-19 In relation to the measures in the insolvency funds, the Group set up additional provisions during 2020 based on a collective analysis of vulnerable sectors, and segments affected by the crisis derived from the covid-19 pandemic, as well as an estimate of the additional impairment of the loan and advance portfolio caused by the economic effects of the pandemic, realistically reflecting the structural deterioration of the economy at the date of construction of the estimate. This estimate was made on the basis of the information available at that date, which was affected by the high degree of uncertainty at the time of the estimate, and was aligned with the projections generated by the ECB. This macroeconomic scenario included a balance between short- and long-term forecasts, without being a 'through the cycle' scenario. The convergence of these scenarios with pre-crisis paths was expected to occur in the first quarter of 2022 for most macroeconomic indicators (except for house prices, which were expected to converge in the first quarter of 2023). Grupo Santander has continuously and regularly monitored the following aspects during 2021 and 2020: (1) the evolution of the pandemic and the macroeconomic outlook, (2) forecasts from institutions and central banks, and (3) the evolution of portfolios in each of the countries where Grupo Santander is present. Based on that monitoring, the Group updates and evaluates the adequacy of the macroeconomic scenarios in accordance with the established governance, when reliable and supportable information is available. At the end of 2021, we updated the most recent scenarios to calculate IFRS 9 provisions by recalibrating and revising the forward-looking information and risk model parameters. Following that process, during 2021 the model update included the macroeconomic scenarios. Out of the EUR 3,105 million at the end of December 2020, EUR 1,235 million overlay remain in additional provisions, motivated by several countries' government relief measures, in particular income support measures in the US, payment holiday extensions for longer periods in Portugal, and from continued volatility in the UK. 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. 3.1. United Kingdom Credit risk with customers in the UK grew 4.2% (-2.5% in local currency) year-on-year to EUR  262,869 million. The UK accounts for 25% of Santander’s loan portfolio. Since the pandemic began, Santander granted 368,000 moratoriums and EUR 5,280 million in government-backed loans to help our customers. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 739 The NPL ratio in 2021, 1.43%, increased as compared to 2020 (+19 bps) due to the increase in SME segment, as well as the decrease of the portfolio in the wholesale segment. The profile of the different segments remains stable. Mortgage portfolio Because of its size, we closely monitor Santander UK’s mortgage portfolio for the entity itself and Grupo Santander. As of December 2021, it amounted to EUR 209,949 million, growing by +4.3% in local currency. It comprises residential mortgages granted to new and existing customers which are first lien mortgages. There are no second or more liens on mortgaged properties. 2021 was a year of strong mortgage activity, mainly due to the higher demand after the covid-19 restrictions were lifted and the reduction of the stamp duty rates up until September. As a consequence, Santander UK achieved all-time high mortgage lending origination levels in June. In accordance with Santander's risk management principles, properties are appraised independently before we approve a new mortgage. In line with market practice and legislation, property values used as collateral for granted mortgages are updated quarterly by an independent agency's automatic appraisal system. 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, 2021, 2020 and 2019, is shown below. In addition, the exposure is divided in three tranches of the Standard & Poor's rating scale, according to their current credit quality: EXPOSURE AND IMPAIRMENT LOSSES BY STAGE EUR million 2021 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 210,418 9,088 — 219,506 From BB- to CCC 13,063 11,601 — 24,664 Default — — 3,508 3,508 Total exposure \*\* 223,481 20,689 3,508 247,678 Impairment losses\*\*\* 135 372 460 967 EXPOSURE AND IMPAIRMENT LOSSES BY STAGE EUR million 2020 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 184,065 2,227 — 186,292 From BB- to CCC 34,965 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 EXPOSURE AND IMPAIRMENT LOSSES BY STAGE EUR million 2019 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 238,985 2,032 — 241,017 From BB- to CCC 40,281 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. \*\*Total exposure includes loan balances (drawn amounts) and off balance (letters of credit + guarantees) and excludes REPOs, FV portfolio, trading portfolio and undrawn commitments. \*\*\*Includes provisions for undrawn authorized lines (loan commitments) The Government support measures taken in the United Kingdom in 2020 as response to the covid-19 pandemic have gradually expired and at the end of December 2021, Santander UK had granted, since the start of the pandemic, a total amount of EUR 40,949 million moratoriums, equivalent to 16.53% of the loan portfolio. 100% of the moratoriums granted had expired at 31 December 2021, from which 81.7% were in stage 1, 15.2% in stage 2 and 3.1% in stage 3 (at the end of 2020, of the total moratoriums, 93.5% had expired, of which 83.6% were in stage 1, 14.7% in stage 2 and 1.7% in stage 3). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 740 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 2021 for the next five years of the main macroeconomic indicators used by Santander UK to estimate expected losses is presented below: 2022 - 2026 Variables Pessimistic scenario 3 Pessimistic scenario 2 Pessimistic scenario 1 Base scenario Optimistic scenario 1 Interest rate -0.1% 2.0% 0.8% 0.7% 1.1% Unemployment rate 8.4% 6.4% 5.1% 4.4% 4.0% Housing price change -5.0% -3.0% -1.5% 2.2% 1.5% GDP growth — 1.0% 1.3% 2.2% 2.6% Each of the macroeconomic scenarios is associated with a given weight. 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 2021, 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: 2021 2020 2019 Pessimistic scenario 3 5% 10% — Pessimistic scenario 2 20% 25% 15% Pessimistic scenario 1 25% 15% 30% Base scenario 45% 45% 40% Optimistic scenario 1 5% 5% 10% Optimistic scenario 2 — — 5% 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, as of December 2021, is as follows: Change in Provision Mortgages Corporates GDP Growth -100 bp 19.1% 5.7% 100 bp -6.7% -1.0% Housing price change -100 bp 4.0% 3.1% 100 bp -3.7% -0.6% Unemployment rate -100 bp -9.6% -0.4% 100 bp 21.0% 0.4% 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. In addition, for each portfolio, a series of specific qualitative criteria is defined to indicate that the exposure has experienced 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 credit 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 221,100 million (21% of Grupo Santander’s total). It is appropriately diversified among products and customer segments. Amid economic and credit recovery, as macroeconomic figures improved after the end of the covid-19 lockdowns in 2020, consumer loans (especially mortgages) grew significantly, as the corporate and SME lending remained below 2020 numbers, as we maintained positions with customers in liquidity support programmes (i.e. ICO lines of credit) without having to seek new financing. Total credit risk decreased -0.1% from December 2020. The ICO loans in Corporate and SME lending amounted to a significant EUR 27,294 (around half of them were extended according to the current regulation). The credit portfolio’s NPL ratio was 5.77%, 46 bp lower than in December 2020.  This better overall portfolio performance was driven by customer support programmes; the regularization of several restructured positions; and portfolio sales. The additional provisions raised to mitigate the potential impacts from the exceptional circumstances of the covid-19 pandemic, increased the NPL coverage ratio to 52% (+5 bp vs. December 2020). On the other hand, the non-performing portfolio declined mainly from loans with the highest expected losses. The cost of credit reflects the rise in Covid-19 provisions, with slight improvement at the end of 2021 compared to December 2020. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 741 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, 2021, 2020 and 2019, is shown below. In addition, the exposure is divided in three tranches of the Standard & Poor's rating scale, according to their current credit quality: EXPOSURE AND IMPAIRMENT LOSSES PER STAGE EUR million 2021 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 153,120 908 — 154,028 From BB- to CCC 33,233 14,740 — 47,973 Default — — 12,761 12,761 Total exposure \*\* 186,353 15,648 12,761 214,762 Impairment losses\*\*\* 422 580 5,005 6,007 EXPOSURE AND IMPAIRMENT LOSSES PER STAGE EUR million 2020 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 146,992 1,517 — 148,509 From BB- to CCC 40,630 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 EXPOSURE AND IMPAIRMENT LOSSES PER STAGE EUR million 2019 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 139,673 1,315 — 140,988 From BB- to CCC 42,603 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. \*\*Total exposure includes loan balances (drawn amounts) and off balance (letters of credit + guarantees) and excludes REPOs, FV portfolio, trading portfolio and undrawn commitments. \*\*\*Includes provisions for undrawn authorized lines (loan commitments) The real estate unit in Spain (UAI) was consolidated within Santander Spain in 2019,  (this process was completed in 2020). Consequently, unlike in 2019, in 2021 and 2020 the perimeter is aligned. 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 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 stage 1, stage 2 and stage 3, respectively. The Government support measures taken in Spain in 2020 as response to the covid-19 pandemic have gradually expired and at the end of December 2021 Santander Spain had granted, since the start of the pandemic in 2020, a total amount of EUR 9,819 million moratoriums, equivalent to 4.87% of the loan portfolio. Of the total moratoriums, 99.6% had expired at 31 December 2021, from which 75.6% was in stage 1, 14.9% in stage 2 and 9.5% in stage 3. At the end of 2020, of the total moratoria, 26.4% had expired, of which 77.2% were in stage 1, 15% in stage 2 and 7.8% 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 as of 2021, is presented below: 2022-2026 Variables Pessimistic scenario Base scenario Optimistic scenario Interest rate 0.6% -0.2% -0.2% Unemployment rate 18.3% 13.0% 11.2% Housing price change 1.6% 2.6% 3.2% GDP growth 1.1% 2.9% 3.7% Each macroeconomic scenarios is associated with a given weight. As for its allocation, Santander Spain associates the Base scenario with the highest weight, while associating the lower weights to the most extreme scenarios: 2021 2020 2019 Pessimistic scenario 30% 30% 30% Base scenario 40% 40% 40% Optimistic scenario 1 30% 30% 30% 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 Mortgages Corporates Others GDP Growth -100 bp 11.9% 5.4% 4.9% 100 bp -4.9% -2.9% -2.7% Housing price change -100 bp 4.1% 3.2% 3.3% 100 bp -2.5% -1.7% -1.4% With regards to the stage 2 classification determination, the quantitative criteria applied in Santander Spain are based on identifying whether an increase in the PD for the expected lifetime of the transaction when compared to the one at its origination 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 742 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 experienced 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 credit 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 62,324 million in 2021 (EUR 59,605 million  and EUR 62,236 million in 2020 and 2019, respectively), 99.33% of which have a mortgage guarantee ( 99.35% and 99.51% in 2020 and 2019, respectively). 2021 EUR Million Gross amount Of which: impaired Home purchase loans to families 62,324 1,860 Without mortgage guarantee 419 115 With mortgage guarantee 61,905 1,745 2020 EUR Million Gross amount Of which: impaired Home purchase loans to families 59,605 1,850 Without mortgage guarantee 387 75 With mortgage guarantee 59,218 1,775 2019 EUR Million Gross amount Of which: impaired Home purchase loans to families 62,236 2,649 Without mortgage guarantee 306 14 With mortgage guarantee 61,930 2,635 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% (27% and 26% in 2020 and 2019, respectively). •The 89.41% of the portfolio has a LTV below 80% calculated as total risk/latest available house appraisal. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 743 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): 2021 Loan to value ratio EUR Million Less 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 amount 16,479 19,391 19,479 4,376 2,180 61,905 Of which impaired 187 240 349 313 656 1,745 Businesses portfolio Credit risk with SME and corporates amounted to EUR 117,544 million, 3.1% lower than in December 2020, mainly due to the fall in the portfolio of SMEs. This is Santander Spain's main lending segment, accounting for 51% of the total. Most of the portfolio corresponds to customers with an assigned credit analyst to monitor their loans throughout the risk cycle. The portfolio is broadly diversified and not concentrated by sector of activity. 2021 was a year of stability in the portfolio figures after the significant growth in 2020 due to the liquidity support programmes (ICO), which after the initial grace period have begun to be amortised. The portfolio’s NPL ratio stood at 7.50% in December 2021. Even though total risk decreased, the NPL ratio increased by 8 bp compared to December 2020, due to lower portfolio volume, while the stock of credit impaired loans slightly reduced. 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 in charge of their management and risk areas that cover the entire life cycle of these operations. 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 2021 2020 2019 Balance at beginning of year 2,871 2,939 4,812 Foreclosed assets (1) (6) (29) Reductions (230) (24) (1,685) Written-off assets (15) (38) (159) Balance at end of year 2,625 2,871 2,939 The NPL ratio of this portfolio ended the year at 5.07% (compared with 6.13% and  9.73% at December 2020 and 2019, 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 30.08% (32.95% and 35.31% in 2020 and 2019, respectively). 2021 EUR Million Gross amount Excess of gross exposure over maximum recoverable amount of effective collateral Specific allowance Financing for construction and property development (including land) (business in Spain) 2,625 380 53 Of which impaired 133 22 40 Memorandum items written- off assets 650 — — Memorandum items: Data from the public con solidated balance sheet 2021 EUR Million Carrying amount Total loans and advances to customers excluding the Public sector (business in Spain) (Book value) 239,328 Total consolidated assets (Total business) (Book value) 1,595,835 Impairment losses and credit risk allowances. Coverage for unimpaired assets (business in Spain) 1,472 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 744 At year-end, the distribution of this portfolio was as follows: 2021 EUR Million Loans: gross amount 1. Without mortgage guarantee 180 2. With mortgage guarantee 2,445 2.1 Completed buildings 1,412 2.1.1 Residential 876 2.1.2 Other 536 2.2 Buildings and other constructions under construction 969 2.2.1 Residential 907 2.2.2 Other 62 2.3 Land 64 2.3.1 Developed consolidated land 46 2.3.2 Other land 18 Total 2,625 Policies and strategies in place for the management of these risks The policies in force for the management of this portfolio are periodically reviewed and approved on a regular basis by Santander's senior management. 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: •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 2021, the net balance of these assets amounted to EUR 3,591 million gross amount: of EUR 7,364 million; recognised allowance: of EUR 3,773 million, of which EUR 2,729 million related to impairment after the foreclosure date. 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). At 31 December, 2019, the net balance of these assets amounted to EUR 4,190 million (gross amount: EUR 8,226 million; recognised allowance: EUR 4,036 million, of which EUR  2,812 million related to impairment after the foreclosure date). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 745 The following table shows the detail of the assets foreclosed by the businesses in Spain at the end of 2021: 2021 EUR Million Gross carrying amount Valuation adjustments Of which impairment losses on assets since time of foreclosure Net Carrying amount Property assets arising from financing provided to construction and property development companies 6,313 3,376 2,455 2,937 Of which: Completed buildings 1,900 799 627 1,101 Residential 470 181 143 289 Other 1,430 618 484 812 Buildings under construction 112 57 42 55 Residential 56 26 17 30 Other 56 31 25 25 Land 4,301 2,520 1,786 1,781 Developed land 1,506 805 496 701 Other land 2,795 1,715 1,290 1,080 Property assets from home purchase mortgage loans to households 838 310 211 528 Other foreclosed property assets 213 87 63 126 Total property assets 7,364 3,773 2,729 3,591 In addition, the Group has shareholdings in entities holding foreclosed assets amounting to EUR 701 million (mainly Project Quasar Investment 2017, S.L. with EUR 655 million), and equity instruments foreclosed or received in payment of debts amounting to EUR 16 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 at prices in accordance with the market situation and the offer of wholesale buyers. The gross movement in foreclosed properties were as follows (EUR billion): EUR Billion 2021 2020 2019 Gross additions 0.4 0.5 0.7 Disposals (1.1) (0.9) (2.7) Difference (0.7) (0.4) (2.0) 3.3. United States Santander US’s credit risk increased to EUR 112,808 million by the end of December 2021. It makes up 11% of Grupo Santander's total credit risk and includes these business units: Santander Bank, National Association (SBNA) At 78% of total credit risk, retail and commercial banking is Santander Bank, National Association’s main business. 24% of the portfolio is with individuals, and approximately 76% with corporates. The bank's primary goals include expanding the SCIB business — 22% of total credit risk — 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 business; and strengthening its auto finance partnerships. Its 15.1% hike in lending spanned all segments. Excluding the FX effect, the increase was lower, standing at 9.2%. The NPL ratio increased to 0.85% (+4 bp in the year) as of December 2021 the cost of credit fell to -0.06% due to the release of  provisions based on better-than-expected market performance, customer behaviour (support programmes and fiscal stimulus) and greater workout recoveries. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 746 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, 2021, 2020 and 2019, is shown below. In addition, the exposure is divided in three tranches of the Standard & Poor's rating scale, according to their current credit quality: EXPOSURE AND IMPAIRMENT LOSSES BY STAGE EUR million 2021 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 38,191 1,157 — 39,348 From BB- to CCC 12,212 3,117 — 15,329 Default — — 477 477 Total exposure \*\* 50,403 4,274 477 55,154 Impairment losses\*\*\* 263 314 45 622 EXPOSURE AND IMPAIRMENT LOSSES BY STAGE EUR million 2020 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 18,105 1,778 — 19,883 From BB- to CCC 24,380 2,977 — 27,357 Default — — 403 403 Total exposure \*\* 42,485 4,755 403 47,643 Impairment losses\*\*\* 344 316 42 702 EXPOSURE AND IMPAIRMENT LOSSES BY STAGE EUR million 2019 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 27,078 763 — 27,841 From BB- to CCC 32,273 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. \*\*Total exposure includes loan balances (drawn amounts) and off-balance (letters of credit + guarantees) and excludes REPOs, FV portfolio, trading portfolio and undrawn commitments. \*\*\*Includes provisions for undrawn authorized lines (loan commitments). The Government support measures taken in the United States in 2020 as response to the covid-19 pandemic have gradually expired and at the end of December 2021 SBNA had granted, since the start of the pandemic in 2020, a total amount of EUR 3,723 million moratoriums, equivalent to 7.32% of the loan portfolio. Of the total moratoriums granted,99.9% expired at 31 December, 2021, from which 67.9% were in stage 1, 26.2% in stage 2 and 5.9% in stage 3 (at the end of 2020, of the total moratoriums, 90% had expired, of which 62.1% were in stage 1, 35.3% in stage 2 and 2.6% in stage 3). Total loans granted under government liquidity programmes in SBNA amounted to EUR 221 million at 31 December 2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 747 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 2021 for a period of five years of the main macroeconomic indicators used Santander Bank, National Association to estimate expected losses is presented below: 2022 - 2026 Variables Pessimistic scenario 2 Pessimistic scenario 1 Base scenario Optimistic scenario Interest rate (annual averaged) 0.2% 1.2% 1.3% 1.7% Unemployment rate 6.6% 4.6% 3.8% 3.3% House price change 1.2% 1.7% 2.3% 2.8% GDP growth 2.3% 2.8% 2.7% 3.3% Each of the macroeconomic scenarios is associated with a given weight. 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: 2021 2020 2019 Pessimistic scenario 2 18% 18% 18% Pessimistic scenario 1 20% 20% 20% Base scenario 33% 33% 33% Optimistic scenario 30% 30% 30% In the case of SBNA, no additional 'long-run' scenario was generated for the calculation of the post model adjustment The additional provisions for covid-19 were calculated using the internal 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 as of 2021 is as follows: Change in Provision Mortgages Corporates GDP Growth -100 bp 2.0% 7.4% 100 bp -1.4% -4.6% Housing price change -100 bp 3.7% 12.4% 100 bp -2.0% -6.3% Unemployment rate -100 bp -5.5% -15.1% 100 bp 6.6% 22.8% 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 bp to 20 bp  In the case of some portfolios, the behaviour score complements this criterion. In the case of wholesale 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 experienced 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 credit 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 Inc. Santander Consumer USA Inc. (SC USA) presents higher risk indicators than other Santander US units due to the nature of its business, which focuses on auto finance via loans and leasing. The focus continues to be on managing the relationship between profitability and risk, via management of prices adjusted to the credit quality of the customer/transaction, while improving the dealers' experience. In 2021, loan originations grew more than 4% year-on-year, returning to the pre-pandemic prime and non-prime mix on the back of the commercial relationship we have with Stellantis Group. The production mix resumed the segmentation between prime and non- prime prior to the pandemic. Auto originations continued to increase, driven mainly by hikes in used car prices and demand. As of December, the NPL ratio rose to 6.27% (+101 bp in the year) and the cost of credit stood at 1.54% (-654 bp YoY). Annual net credit losses fell year on year due to customer support programmes (triggered by the health crisis), federal fiscal stimulus packages and greater recovery driven by a surge in used car prices. Due to the increase in defaults, the non-performing coverage ratio fell to 176% (-54 bp in the year). Furthermore, leases carried out exclusively under the Stellantis Group agreement (primarily with highly creditworthy customers) dropped 5% to EUR 13,600 million, providing stable and recurring earnings. Risk management and residual value mitigation measures remain 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 2021,  2020 and 2019, is shown below. In addition, the Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 748 exposure is divided in three tranches of the Standard & Poor's rating scale, according to their current credit quality: EXPOSURE AND IMPAIRMENT LOSSES BY STAGE EUR million 2021 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 1,218 39 — 1,257 From BB- to CCC 18,876 7,861 — 26,737 Default — — 1,658 1,658 Total exposure \*\* 20,094 7,900 1,658 29,652 Impairment losses\*\*\* 524 1,741 572 2,837 EXPOSURE AND IMPAIRMENT LOSSES BY STAGE EUR million 2020 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 1,689 12 — 1,701 From BB- to CCC 21,491 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 EXPOSURE AND IMPAIRMENT LOSSES BY STAGE EUR million 2019 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 1,029 14 — 1,043 From BB- to CCC 20,083 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. \*\*Total exposure includes loan balances (drawn amounts) and off-balance (letters of credit + guarantees) and excludes REPOs, FV portfolio, trading portfolio and undrawn commitments. \*\*\*Includes provisions for undrawn authorized lines (loan commitments). Since the start of the pandemic in 2020, SC USA has granted a total amount of EUR 5,370 million moratoriums, equivalent to 18.11% of the loan portfolio, at the end of 31 December 2021. 100% of the moratoriums granted had expired at 31 December, 2021, which 2.8% were in stage 1, 68.7% in stage 2 and 28.5% in stage 3 (at the end of 2020, of the total moratoriums, 89.8% had expired, of which 78.5% were in stage 1, 14.6%in stage 2 and 6.9% 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. SC USA reassessed the suitability of macroeconomic scenarios and adjusted them in light of new information. At the end of 2021, we updated the most recent scenarios to calculate IFRS 9 provisions by recalibrating and revising the forward-looking information and risk model parameters. After this process, there are additional provisions amounting to EUR 849 million mainly due to the volatility of used car prices and the end of public aid. The car price index during 2021 presents an unusually high value, as a result of the exceptional covid-19 context. In relation to the methodology used to calculate impairment losses, Santander Consumer USA Inc. 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, 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 of 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 749 The evolution forecasted in 2021 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: 2022 - 2026 Variables Pessimistic scenario 2 Pessimistic scenario 1 Base scenario Optimistic scenario Interest rate (annual averaged) 0.2% 1.2% 1.3% 1.7% Unemployment rate 6.6% 4.6% 3.8% 3.3% House price change 1.2% 1.7% 2.3% 2.8% GDP growth 2.3% 2.8% 2.7% 3.3% ManheimA index -2.3% -1.9% -1.9% -1.8% A. US used vehicle price car index. Each of the macroeconomic scenarios is associated with a given weight. 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: 2021 2020 2019 Pessimistic scenario 2 18% 18% 18% Pessimistic scenario 1 20% 20% 20% Base scenario 33% 33% 33% Optimistic scenario 30% 30% 30% In the case of SC USA, no additional 'long-run' scenario was generated for the calculation of the post model adjustment. The additional provisions for covid-19 were calculated using the internal 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 at the end of 2021 is as follows: Change in provision SC Auto Manheim index -100 bp 1.1% 100 bp -0.7% Unemployment Rate -100 bp -4.0% 100 bp 4.6% House Price Change -100 bp 2.6% 100 bp -1.5% GDP growth -100 bp 1.8% 100 bp -1.2% 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. 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 credit 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. Positive economic recovery due to the reopening of the service sector, in line with the advances in the vaccination campaigns and the lift of restrictions, although international supply problems have continued to hamper industry growth. Santander Brasil's credit risk amounted to EUR 85,702 million. It increased by 15% from 2020. Minus the exchange rate effect, it grew by 13%.  As of December 2021, Santander Brasil accounts for 8% of Grupo Santander's loan book. The SME portfolio (Varejo PJ) grew significantly due to the contribution of  the different billing clusters that make the portfolio and its different products. State-backed guarantees to combat the effects of the pandemic ended in December 2020, although a new window opened in July 2021. Net loan-loss provisions stood at EUR 2,715 million (-10% compared to 2020), a decrease driven by additional provision made in 2020 related to covid-19. In local currency, provisions declined by 35%. Cost of credit decreased to 3.73% from 4.35% at the end of 2020, driven by the aforementioned provisions evolution. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 750 Information on the estimation of impairment losses The detail of Banco Santander (Brasil) S.A. exposure and impairment losses associated with each of the stages at 31December, 2021, 2020 and 2019, is shown below. In addition, the exposure is divided in three tranches of the Standard & Poor's rating scale, according to their current credit quality: EXPOSURE AND IMPAIRMENT LOSSES EUR million 2021 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 46,558 575 — 47,133 From BB- to CCC 28,582 4,785 — 33,367 Default — — 4,182 4,182 Total exposure \*\* 75,140 5,360 4,182 84,682 Impairment losses\*\*\* 1,232 909 2,510 4,651 EXPOSURE AND IMPAIRMENT LOSSES EUR million 2020 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 38,686 210 — 38,896 From BB- to CCC 26,166 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 EXPOSURE AND IMPAIRMENT LOSSES EUR million 2019 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 45,765 308 — 46,073 From BB- to CCC 32,698 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. \*\*Total exposure includes loan balances (drawn amounts) and off-balance (letters of credit + guarantees) and excludes REPOs, FV portfolio, trading portfolio and undrawn commitments. \*\*\*Includes provisions for undrawn authorized lines (loan commitments). The Government support measures taken in Brazil in 2020 as response to the covid-19 pandemic have gradually expired and at the end of December 2021, Santander Brazil had granted, since the start of the pandemic, a total amount of EUR 3,835 million moratoriums, equivalent to 5.35% of the loan portfolio. Of the total moratoriums granted, 99.7% expired at 31 December 2021, from which 70.8% were in stage 1, 17.4% in stage 2 and 11.8% in stage 3. At the end of 2020, of the total moratoriums 92.4% had expired, of which 75.6% were in stage 1, 17.6% in stage 2 and 6.8% of in stage 3. Total loans granted by liquidity programmes in Brazil amounted to EUR 1,563 million as of 31 December 2021. 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: 2022-2026 Variables Pessimistic scenario Base scenario Optimistic scenario Interest rate (annual averaged) 13.3% 6.7% 4.8% Unemployment rate 13.3% 12.1% 8.8% House price change 2.6% 8.7% 13.2% GDP growth -1.0% 2.1% 4.5% Burden income 38.9% 34.9% 29.2% Each macroeconomic scenario is associated with a given weight. Regarding its assignation, Brazil links the highest weight to the base scenario whilst links the lowest weights to the most extreme scenarios: 2021 2020 2019 Pessimistic scenario 10% 10% 10% Base scenario 80% 80% 80% Optimistic scenario 10% 10% 10% 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 at the end of 2021 as follows: Change in provision Consumer Corporate Other GDP growth -100 bp 0.4% 1.3% 1.9% 100 bp -0.1% -0.6% -0.9% Burden income -100 bp -0.3% -0.5% -1.3% 100 bp 0.7% 2.0% 2.9% Interest rate (SELIC) -100 bp -0.1% -0.5% -0.8% 100 bp 0.6% 2.9% 3.6% 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 increase in credit risk has occurred when the rating reduction 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 credit 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. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 751 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 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 5% of the outstanding credit risk with customers (lending to customers plus off-balance sheet risks) as of December 2021. The detail, by activity and geographical area of  the Group's risk concentration at 31 December  2021 is as follows: EUR million 2021 Total Spain Other EU countries America Rest of the world Central banks and Credit institutions 327,984 93,520 59,499 81,647 93,318 Public sector 149,623 35,258 26,276 82,194 5,895 Of which: Central government 124,807 23,188 24,525 71,639 5,455 Other central government 24,816 12,070 1,751 10,555 440 Other financial institutions (financial business activity) 120,294 14,228 40,344 35,818 29,904 Non-financial companies and individual entrepreneurs (non- financial business activity) (broken down by purpose) 415,297 121,795 86,183 141,139 66,180 Of which: Construction and property development 21,523 3,607 3,392 7,309 7,215 Civil engineering construction 5,857 2,397 2,442 847 171 Large companies 248,955 58,030 49,343 94,496 47,086 SMEs and individual entrepreneurs 138,962 57,761 31,006 38,487 11,708 Households – other (broken down by purpose) 543,804 88,763 95,458 122,809 236,774 Of which: Residential 353,752 63,487 35,978 40,265 214,022 Consumer loans 169,897 18,078 56,879 75,837 19,103 Other purposes 20,155 7,198 2,601 6,707 3,649 Total 1,557,002 353,564 307,760 463,607 432,071 \*  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'. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 752 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. Grupo Santander´s local sovereign exposure, in currencies other than the official currency of the country of issuance, is not significant ( EUR 10,013 million,  2.6% of total sovereign risk) according to our management criteria. Furthermore, exposure to non-local sovereign issuers involving cross-border risk1 is even less significant (EUR 7,011 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 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\*: 2021 2020 2019 AAA 15% 18% 20% AA 32% 25% 24% A 26% 25% 18% BBB 11% 14% 15% Less than BBB 16% 18% 23% \*Internal ratings are applied. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 753 1  Countries that are not considered low risk by Banco de España. 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 2021: 2021 2020 Portfolio Country Financial assets designated at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets at amortized cost Non-trading financial assets mandatorily at fair value through profit or loss Total net direct exposure Total net direct exposure Spain 2,574 2,805 14,178 — 19,557 24,245 Portugal (20) 2,287 4,277 — 6,544 8,730 Italy (73) 634 323 — 884 4,015 Greece — — — — — — Ireland — — 9 — 9 — Rest Eurozone (233) 1,231 2,631 — 3,629 4,054 UK (538) 676 228 — 366 (97) Poland (15) 10,819 489 — 11,293 10,947 Rest of Europe — 77 1,291 — 1,368 1,070 US 1,050 13,803 7,616 — 22,469 15,548 Brazil 8,733 16,432 3,394 — 28,559 27,717 Mexico 2,150 10,253 1,106 — 13,509 21,029 Chile 56 1,134 4,881 — 6,071 6,955 Rest of America 94 651 680 — 1,425 958 Rest of the World 2 1,524 1,811 — 3,337 4,752 TOTAL 13,780 62,326 42,914 — 119,020 129,923 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. Total volume of forborne portfolio, at the end of December 2021, stood at EUR 36,042 million. After years of decreases due to the positive macroeconomic situation of the group's main geographies, the forborne stock remained practically flat in 2020. The portfolio increased by 24% in 2021, as a result of greater volume of forbearance carried out to attend to the needs of customers facing financial difficulties. In terms of credit quality, 43% of the loans  is classified as doubtful, with a coverage ratio of 41%. The following terms are used with the meanings specified below: •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 there of 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 754 Current refinancing and restructuring balances Amounts in EUR million, except number of transactions that are in units 2021 Total Without real guarantee With real guarantee Maximum amount of the actual collateral that can be considered Impairment of accumulated value or accumulated losses in fair value due to credit risk Number of transactions Gross amount Number of transactions Gross amount Real estate guarantee Rest of real guarantees Credit entities — — — — — — — Public sector 32 18 15 7 2 — 4 Other financial institutions and: individual shareholder 1,002 93 720 200 102 79 30 Non-financial institutions and individual shareholder 248,375 11,548 47,865 8,915 5,517 1,206 4,367 Of which financing for constructions and property development 8,576 113 1,321 550 390 40 176 Other warehouses 3,650,507 4,491 451,930 10,771 6,063 3,615 3,860 Total 3,899,916 16,150 500,530 19,893 11,684 4,900 8,261 Financing classified as non-current assets and disposable groups of items that have been classified as held for sale — — — — — — — Current refinancing and restructuring balances Amounts in EUR million, except number of transactions that are in units 2021 Of which, non-performing/Doubtful Without real guarantee With real guarantee Maximum amount of the actual collateral that can be considered Impairment of accumulated value or accumulated losses in fair value due to credit risk Number of transactions Gross amount Number of transactions Gross amount Real estate guarantee Rest of real guarantees Credit entities — — — — — — — Public sector 7 1 14 5 2 — 4 Other financial institutions and: individual shareholder 421 51 528 67 54 7 27 Non-financial institutions and individual shareholder 116,009 4,377 32,263 5,261 3,308 424 3,891 Of which financing for constructions and property development 4,638 63 849 301 172 34 148 Other warehouses 1,839,629 1,879 162,177 3,898 2,641 434 2,382 Total 1,956,066 6,308 194,982 9,231 6,005 865 6,304 Financing classified as non-current assets and disposable groups of items that have been classified as held for sale — — — — — — — In 2021, 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 2,480 million, without these modifications having a material impact on the income statement. Also, during 2021, 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 1,868 million. The transactions presented in the foregoing tables were classified at 31 December 2021 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 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 passed 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 755 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 57% of the forborne loan transactions are classified as other than non-performing. Particularly noteworthy are the level of existing guarantees (46% of transactions are secured by collateral) and the coverage provided by specific allowances (representing 23% of the total forborne loan portfolio and 41% of the non-performing portfolio). c) Market, structural and liquidity risk 1. Activities subject to market risk and types of market risk 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 movements in interest rates that reduce the value of a financial instrument, a portfolio or the Grupo Santander. It can affect loans, deposits, debt securities, most assets and liabilities held for trading, and derivatives. ◦Inflation rate risk arises from movements in inflation that can reduce the value of a financial instrument, a portfolio or the entire group. It can affect loans, debt securities and derivatives (e.g. inflation swaps and futures) whose profitability is linked to inflation. ◦Exchange rate risk is the possibility of loss because the currency of a long or open position will depreciate against the base currency. It can affect debt in subsidiaries whose local currency is not the euro, as well as loans denominated in a foreign currency. ◦Equity risk is the possibility of loss from open positions in securities if their market price or expected future dividends fall. It affects shares, stock market indices,  convertible bonds and derivatives with shares as the underlying asset (put, call, equity swaps, etc.). •Credit spread risk is the possibility of loss from open positions in fixed-income securities or credit derivatives if their yield curve, or the recovery rate of their issuer or type change. A spread is the yield difference between financial instruments against a benchmark (e.g. the internal rate of return (IRR) of government bonds and interbank interest rates). •Commodity price risk is the possibility of loss from movements in commodity prices. Grupo Santander's commodity exposure is minor and stems mainly from commodity derivatives. •Volatility risk is the possibility of loss caused by movements in interest rates, exchange rates, the stock market, credit spreads and other risk factors affecting portfolio value. It is inherent to all financial instruments whose value considers volatility (especially options contracts). Derivative contracts (such as options, futures, forwards and swaps) can mitigate market risks partially or fully. Additionally, other more complex hedging market risks are considered, such as correlation risk, market liquidity risk, prepayment or cancellation risk, and underwriting risk. Balance sheet liquidity risk (unlike market liquidity risk) is the possibility of loss caused by forced disposal of assets or cash flow imbalance if the bank meets its payment obligations late or at excessive cost. It can cause losses by forced asset sales or impacts on margins due to the mismatch between expected cash inflows and outflows. Pension and actuarial risks (explained at the end of this section) also depend on market variables. Grupo Santander aim to comply with the Basel Committee’s Fundamental Review of the Trading Book (FRTB) and the EBA’s Guidelines on the management of interest rate risk arising from non- trading book activities. The purpose of several projects Grupo Santander runs is to provide risk control managers and teams with the best market risk management tools under the right governance framework for the models Grupo Santander uses for metric reporting; and to comply with regulation on the risks mentioned above. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 756 2. Trading market risk management Setting market risk limits in a dynamic process according to the risk appetite in the annual limits plan prepared by senior management and extended 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. 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: EUR million Main market risk metric Balance sheet amount VaR Other Main risk factor for 'Other' balance Assets subject to market risk Cash, cash balances at central banks and other deposits on demand 210,689 210,689 Interest rate Financial assets held for trading 116,953 116,953 Non-trading financial assets mandatorily at fair value through profit or loss 5,536 4,042 1,494 Interest rate, spread Financial assets designated at fair value through profit or loss 15,957 5,489 10,468 Interest rate, spread Financial assets designated at fair value through other comprehensive income 108,038 2,453 105,585 Interest rate, spread Financial assets at amortized cost 1,037,898 1,037,898 Interest rate, spread Hedging derivatives 4,761 4,761 Interest rate, exchange rate Changes in the fair value of hedged items in portfolio hedges of interest risk 410 410 Interest rate Other assets 95,593 Total assets 1,595,835 Liabilities subject to market risk Financial liabilities held for trading 79,469 79,469 Financial liabilities designated at fair value through profit or loss 32,733 390 32,343 Interest rate, spread Financial liabilities at amortized cost 1,349,169 1,349,169 Interest rate, spread Hedging derivatives 5,463 5,463 Interest rate, exchange rate Changes in the fair value of hedged items in portfolio hedges of interest rate risk 248 248 Interest rate Other liabilities 31,700 Total liabilities 1,498,782 Equity 97,053 Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 757 The following table displays the latest and average VaR values at 99% by risk factor over the last three years. It also shows the minimum and maximum VaR values in 2021 and 97.5% ES at the end of December 2021: VaR STATISTICS AND EXPECTED SHORTFALL BY RISK FACTORA EUR million. VaR at 99% and ES at 97.5% with one day time horizon 2021 2020 2019 VaR (99%) ES (97.5%) VaR VaR Min Average Max Latest Latest Average Latest Average Latest Total Trading 6.8 10.5 15.9 12.3 11.9 12.5 8.3 12.1 10.3 Diversification effect (6.3) (12.9) (26.6) (13.4) (15.0) (13.0) (11.8) (8.1) (9.8) Interest rate 6.0 9.6 15.3 9.1 9.4 9.2 5.4 10.0 9.2 Equities 2.2 3.5 7.7 5.1 5.1 4.4 3.1 2.9 4.8 Exchange rate 1.9 4.2 8.0 5.7 5.6 5.9 6.0 3.9 2.6 Credit spread 2.6 4.8 8.0 5.1 6.0 5.5 4.5 3.4 3.5 Commodities 0.4 1.3 3.5 0.7 0.8 0.5 1.1 0.0 0.0 Total Europe 6.1 9.3 16.1 9.9 9.7 10.5 8.0 6.3 10.1 Diversification effect (5.2) (9.3) (16.9) (12.6) (13.1) (10.7) (8.9) (6.9) (8.4) Interest rate 5.3 7.7 11.7 7.1 6.7 7.9 6.5 6.0 8.2 Equities 1.8 3.3 8.3 5.8 5.2 4.3 3.0 1.9 4.9 Exchange rate 1.6 2.8 5.0 4.5 4.9 3.5 2.9 1.9 1.9 Credit spread 2.6 4.8 8.0 5.1 6.0 5.5 4.5 3.4 3.5 Commodities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total North America 1.6 2.5 7.4 2.7 2.8 6.6 2.9 3.5 3.8 Diversification effect 0.2 (0.7) (2.9) (0.6) (0.5) (2.2) (1.0) (1.3) (2.1) Interest rate 1.3 2.5 7.0 2.7 2.7 3.4 3.3 2.6 3.4 Equities 0.0 0.1 1.5 0.0 0.0 0.3 0.1 0.2 0.1 Exchange rate 0.1 0.6 1.8 0.6 0.6 5.1 0.5 2.0 2.4 Total South America 3.3 5.9 10.5 6.3 6.4 5.6 4.5 9.5 6.0 Diversification effect (1.2) (4.9) (16.0) (5.1) (3.8) (3.8) (5.4) (2.9) (3.7) Interest rate 3.0 5.5 12.2 5.8 6.3 5.2 4.1 7.8 5.9 Equities 0.4 1.2 3.2 1.1 1.0 1.0 0.5 2.0 1.7 Exchange rate 0.7 2.8 7.6 3.8 2.1 2.7 4.2 2.6 2.1 Commodities 0.4 1.3 3.5 0.7 0.8 0.5 1.1 0.0 0.0 A. In South and North America, VaR levels of credit spreads and commodities are not shown separately due to their low or null materiality. At the end of December, VaR had increased by EUR 4 million higher than at  the end of 2020; however, average VaR fell by EUR 2.0 million. Average VaR fell for most risk factors owing to low market volatility throughout the year. By region, average VaR decreased in Europe and especially in North America with lower exchange rate volatility. By risk factor, VaR has followed a generally stable trend in recent years. For many factors, temporary VaR increases generally owe more to short-term price volatility than to significant changes in positions. Backtesting Actual losses can differ from predicted losses because of the VaR’s limitations. Grupo Santander measures the accuracy of the VaR calculation model to make sure it is reliable. The most important tests Grupo Santander runs involve backtesting: •Backtesting of hypothetical P/L and of the entire trading book showed no exceptions to 99% VaR and VaE in 2021. •The exceptions observed in the past year are consistent with the assumptions of the VaR calculation model. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 758 IBOR Reform Regulatory and supervisory context In 2013, IOSCO published the Principles for Financial Benchmarks (IOSCO Principles) that establish standards for the development of benchmarks. Subsequently, the FSB established the Official Sector Steering Group (OSSG) for the application of the IOSCO Principles to the IBOR (Interbank Offered Rates) indices. Since then, the central banks and regulators of various jurisdictions have organized working groups to recommend alternative indices to indices such as the EONIA (Euro Overnight Index Average) and the LIBORs (London Interbank Offered Rates). On 13 September 2018, the European Central Bank's working group recommended that the euro short-term interest rate (€STR) replace the EONIA. From 2 October 2019, the date on which the €STR was made available, the EONIA changed its methodology to be calculated as €STR plus a spread of 8.5 basis points. This change in the EONIA methodology was intended to facilitate the transition of the EONIA market to €STR before its definitive cessation on 3 January 2022. On 5 March 2021, the Financial Conduct Authority (FCA) announced the final dates for the cessation of LIBORs: –On 31 December 2021, the publication of USD LIBOR (1 week and 2 months term), CHF LIBOR (all terms), GBP LIBOR (overnight term, 1 week, 2 months and 12 months), JPY LIBOR (overnight term, 1 week, 2 months, and 12 months) and EUR LIBOR (all terms). –On 31 December 2021, the calculation methodology of some LIBORs was reformed to publish temporary synthetic LIBORs that became non-representative: GBP LIBOR (1-month, 3-month and 6- month terms) and JPY LIBOR (1-month term, 3 months and 6 months). –On 30 June 2023, the publication of the USD LIBOR will cease (overnight terms, 1 month, 3 months, 6 months and 12 months). In October 2020, the International Swaps and Derivatives Association (ISDA) launched the fallbacks Protocol and Supplement for IBORs (effective 25 January 2021), and provided market participants with of new derivatives fallbacks of LIBORs (among others IBOR, such as EURIBOR) for current derivative contracts and for new contracts. Additionally, on 19 August 2021, ISDA launched a new protocol that allowed entities to incorporate a fallback to the EONIA as the rate applicable to collateral in ISDA collateral agreements (known as CSAs). Banco Santander SA and various Santander Group entities have adhered to these protocols. On December 2020, the Council of the European Union endorsed the modification of the EU Benchmark Regulation (BMR), giving the European Commission the power to establish a legislative solution that proposes a replacement rate to indices the cessation of which could cause a significant disturbance to the functioning of financial markets in the EU. In this context, on 14 and 21 October 2021, the European Commission published the Implementing Regulations regarding the designation of a substitute reference index for CHF LIBOR and EONIA. Given the relevance of the IBOR indices, the volume of contracts and exposures is very high in the banking sector. Santander Group has a significant number of contracts linked to these interest rates. The most relevant are EURIBOR, EONIA, and LIBOR. These benchmarks are widely used, including derivative products, corporate loans, retail, discount products, deposits, repos, securities lending, collateral agreements, and floating rate notes, among others. LIBOR and EONIA Reform The main risks to which Santander is exposed arising from the transition of the EONIA and LIBORs are: (i) legal risks arising from potential changes in the documentation required for new or existing operations; (ii) financial and accounting risks derived from market risk models and from the valuation, coverage, cancellation and recognition of the financial instruments associated with the reference indices; (iii) business risk that revenues from LIBOR-linked products decline; (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 communications with customers 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. The global program ensures that all affected business units and subsidiaries have a consistent understanding of the risks associated with the transition and can take appropriate steps to mitigate them. This transition program incorporates the recommendations, guidelines and milestones defined by the regulators and working groups of the different jurisdictions. The structure of the program focuses on the following areas: Technology and Operations, Legal, Customer Relations, Risk Management and Models, Conduct and Communication, and Accounting and Finance. During 2021, the IBOR Transition Program has focused on making all the contractual, commercial, operational and technological changes necessary to undertake the transition of the LIBOR and EONIA rates that have been discontinued in 2021. In 2022, the program will continue to attend to the next steps of the transition related to the management of the contract history and the milestone of the cessation of the LIBOR dollar of June 2023. In addition, Grupo Santander continues to participate, throughout 2022, in the initiatives developed by the public and private sectors related to the reform of the interest rate reference indices. Additionally, see information included in notes 1.b and 36. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 759 3. Structural balance sheet risks 3.1. Main aggregates and variations Consistent with previous years, the market risk profile of Grupo Santander’s balance sheet remained moderate in 2021 in terms of asset, shareholders’ equity and NII volumes. Each subsidiary’s finance division manages interest rate risk from commercial banking and is responsible for handling structural risk from interest rate fluctuations. To measure interest rate risk, Grupo Santander uses statistical models based on strategies to mitigate structural risk with interest- rate instruments (such as bonds and derivatives) to keep risk profile within risk appetite. The NII and EVE sensitivities below are based on scenarios of parallel interest rate movements from -100 to +100 basis points. Structural VaR With such a homogeneous metric as VaR, we can fully monitor market risk in the banking book We differentiate fixed income based on interest rates and credit spreads in ALCO portfolios, FX rates and shares. In general, the structural VaR of Grupo Santander total assets and equity is minor. STRUCTURAL VaR EUR million. Structural VaR 99% with a temporary horizon of one day. 2021 2020 2019 Min Average Max Latest Average Latest Average Latest Structural VaR 895.8 993.7 1,090.7 1,011.9 911.1 903.2 511.4 729.2 Diversification effect (158.8) (327.3) (431.4) (240.2) (349.8) (263.4) (304.2) (402.0) VaR Interest Rate\* 224.2 400.7 540.5 287.8 465.1 345.5 345.6 629.7 VaR Exchange Rate 521.3 600.6 655.2 655.2 499.9 502.6 308.1 331.7 VaR Equities 309.1 319.7 326.4 309.1 295.9 318.5 161.9 169.8 \* Includes credit spread VaR on ALCO portfolios. Structural interest rate risk •Europe In general, the NII and EVE of Grupo Santander's main balance sheets (i.e. Santander España and Santander UK) show positive sensitivity to rising interest rates. Across our footprint, exposure was moderate in relation to annual budget and capital levels in 2021. At the end of December 2021, under the scenarios previously described, the most significant NII sensitivity risk concentration in euros amounted to EUR 703 million; in pounds sterling, EUR 541 million; in Polish złoty EUR 65 million; and in the US dollar, EUR 54 million. The most significant EVE risk concentration amounted to EUR 3,684 million; in the yield curve of the euro; of the pound sterling, EUR 1,056 million ; of the US dollar, EUR 221 million; and of the Polish zloty EUR 56 million, all relating to the interest rate cut risks. •North America In general, the NII and EVE of Grupo Santander's North American balance sheets tend to show positive sensitivity to rising interest rates. Exposure was moderate in relation to annual budget and capital levels in 2021. At the end of December, the most significant risk to NII was mainly in the US and amounted to EUR 152 million. •South America The EVE and NII of our Grupo Santander's South American balance sheets are positioned for interest rate cuts. Exposure in all countries was moderate in relation to the annual budget and capital levels in 2020. In 2021, exposure was moderate in relation to annual budget and capital levels. At the end of December, the most significant risks to NII were mainly in Chile (EUR 86 million) and Brazil (EUR 83 million). The most significant risks to EVE were recorded in Brazil (EUR 271 million) and Chile (EUR 258 million). Structural foreign currency rate risk/results hedging Grupo Santander's structural FX risk stems mainly from the income and hedging of foreign currency transactions for permanent financial investments. In the dynamic management of this risk, Grupo Santander aims to limit the impact of FX rate movements on the core capital ratio. In 2021, the hedged of the different currencies that have an impact on our core capital ratio was close to 100%. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 760 In December 2021, the permanent exposures (with potential impact on shareholders’ equity) were, from largest to smallest, in US dollars, British pounds sterling, Brazilian reais, Mexican pesos, Chilean pesos and Polish złoty. Grupo Santander uses FX derivatives to hedge part of those permanent positions. The Finance division manages FX risk and hedging for the expected profits and dividends of subsidiaries whose base currency is not the euro. Structural equity risk Grupo Santander holds equity positions in its banking and trading books. They are either equity instruments or stock, depending on the share of ownership or control. By the end of December 2021, the equities and shareholdings in the banking book were diversified among Spain, China, Morocco, Poland and other countries. Most of them invest in the financial and insurance sectors. Grupo Santander has minor equity exposure to property and other sectors. Structural equity positions are exposed to market risk. VaR is calculated for these positions with a set of market prices and proxies. At the end of December 2021, VaR at a 99% confidence level over a one day horizon was EUR 325 million (EUR 319 million and EUR 170 million at the end of 2020 and 2019, respectively). 3.2. Methodologies Structural interest rate risk As part of structural risk, interest rate risk in the banking book (IRRBB) is the main source of balance sheet risk. Grupo Santander measures the potential impact of interest rate movements on EVE and NII. Because changing rates may generate impacts, Grupo Santander must manage and control many subtypes of interest rate risk, such as repricing risk, curve risk, basis risk and option risk (e.g. behavioural or automatic). Interest rate risk in the balance sheet and market conditions and outlooks could necessitate certain financial measures to achieve Grupo Santander's desired risk profile (such as selling positions or setting interest rates on products we market). The metrics Grupo Santander uses to monitor IRRBB include NII and EVE sensitivity to interest rate movements. •Net interest income sensitivity Net interest income (NII) is the difference between interest income from assets and the interest cost of liabilities in the banking book over a typical one- to three-year horizon (one year being standard in Grupo Santander). Because NII sensitivity is the difference in income between a selected scenario and the base scenario, its values can be as many as considered scenarios. It enables us to see short-term risks and supplement economic value of equity (EVE) sensitivity. •Economic value of equity sensitivity Economic value of equity (EVE) is the difference between the current value of all assets minus the current value of all liabilities in the banking book. It does not include shareholders’ equity and non- interest-bearing instruments. Because EVE sensitivity is the difference in EVE between a selected scenario and the base scenario, it can have as many values as considered scenarios. It enables us to see long-term risks and supplement NII sensitivity. Structural exchange-rate risk/hedging of results Every day, Grupo Santander measures FX positions, VaR and P/L. Structural equity risk Grupo Santander measures equity positions, VaR and P/L. 4. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 761 •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. Grupo Santander 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. i. Liquidity risk measurement Grupo Santander measures liquidity risk with tools and metrics that account for the appropriate risk factors. a) Liquidity buffer The liquidity buffer is the total liquid assets a bank has to cope with cash outflows during periods of stress. The assets are free of encumbrances and can be used immediately to generate liquidity without losses or excessive discounts. The liquidity buffer is a tool for calculating most liquidity metrics. It is also a metric with defined limits for each subsidiary. b) Liquidity Coverage Ratio (LCR) The liquidity coverage ratio (LCR) is a regulatory metric. Its purpose is to promote the short-term resilience of a bank’s liquidity profile and make sure it has enough high-quality liquid assets to withstand a considerable idiosyncratic or market stress scenario over 30 calendar days. c) Wholesale liquidity metric The wholesale liquidity metric measures the number of days Grupo Santander would survive if it used liquid assets to cover lost liquidity from a wholesale deposit run-off (without possible renewal) over a set time horizon. Grupo Santander also uses it as an internal short- term liquidity metric to reduce risk from dependence on wholesale funding. d) Net Stable Funding Ratio (NSFR) The net stable funding ratio (NSFR) is a regulatory metric we use to measure long-term liquidity risk. It is the ratio of available stable funding to required stable funding. It requires banks to keep a robust balance sheet, with off-balance-sheet assets and operations financed by stable liabilities. e) Asset Encumbrance metrics Grupo Santander calculates two metrics to measure asset encumbrance risk. On the one hand, the asset encumbrance ratio gives the proportion of encumbered assets to total assets; on the other, the structural asset encumbrance ratio gives the proportion of encumbered assets by structural funding transaction (namely long- term collateralized issues and credit transactions with central banks). f) Other additional liquidity indicators In addition to traditional tools to measure short and long-term liquidity and funding risk, Grupo Santander has a set of additional liquidity indicators to complement those and to measure other non- covered liquidity risk factors. These include concentration metrics, such as the main and the five largest funding counterparties, or the distribution of funding by maturity. In addition, we calculate a number of metrics on the institution’s ability to generate liquidity through collateralized financing, such as overcollateralization, eligibility ratios assets without charges and deadlines for their placement. g) Liquidity scenario analysis As liquidity stress tests, four standard scenarios have been defined: i.An idiosyncratic scenario of events detrimental only to Santander; ii.a local market scenario of events highly detrimental to a base country’s financial system or real economy; iii.a global market scenario of events highly detrimental to the global financial system; and iv.combined scenario consisting of a combination of more severe idiosyncratic and market events (local and global) occurring simultaneously and interactively. Grupo Santander uses these stress test outcomes as tools to determine risk appetite and support business decision-making. h) Liquidity early warning indicators The system of early warning indicators (EWI) consists of quantitative and qualitative liquidity indicators that help predict stress situations and weaknesses in the funding and liquidity structure of Grupo Santander entities. External indicators relate to market-based financial variables; internal indicators relate to our own performance. i) Intraday liquidity metrics Grupo Santander follows Basel regulation and calculates several metrics and stress scenarios for intraday liquidity risk to maintain a high level of control. ii. Liquidity coverage ratio and net stable financing ratio As regards the liquidity coverage ratio (LCR), the regulatory requirement for this ratio, set at 100%, has been at its maximum level since 2018. Below is a breakdown of the composition of the Group's liquid assets under the criteria set out in the supervisory prudential reporting (Commission Implementing Regulation (EU) 2017/2114 of 9 November 2017) for the determination of high quality liquid assets for the calculation of the LCR ratio (HQLA): Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 762 EUR million 2021 2020 Amount weighted applicable Amount weighted applicable High-quality liquid assets-HQLAs Cash and reserves available at central banks 206,507 149,893 Marketable assets Level 1 81,925 104,270 Marketable assets Level 2A 3,422 5,272 Marketable assets Level 2B 5,446 4,200 Total high-quality liquid assets 297,300 263,635 In relation to the net stable funding ratio (NSFR), its definition was approved by the Basel Committee in October 2014. The transposition of this requirement to the European regulation took place in June 2019 with the publication in the Official Gazette of the European Union of Regulation (EU) 2019/876 of the European Parliament and of the Council of May 20, 2019. The Regulation establishes that entities must have a net stable financing ratio, as defined in the Regulation, higher 100% from June 2021. For this reason, the figures for 2019 and 2020 for this ratio are calculated using the Basel methodology, while those for 2021 already include the requirement as transposed into European regulations. The liquidity coverage ratio, broken down by component, and the net stable funding ratio for the Group at year-end 2021 and 2020 are presented below: EUR million 2021 2020 High-quality liquid assets-HQLAs (numerator) 297,300 263,635 Total net cash outflows (denominator) 181,953 157,368 Cash outflows 233,294 204,813 Cash inflows 51,341 47,445 LCR ratio (%) 163% 168% NSFR ratio (%) 126% 120% As regards the funding structure, given the predominantly commercial nature of the Group's balance sheet, the loan portfolio is mainly financed by customer deposits. Note 22) 'Debt securities' shows the composition of these liabilities on the basis of their nature and classification, the movements and maturity profile of the debt securities issued by the Group, reflecting the strategy of diversification by products, markets, issuers and maturities followed by the Group in its approach to the wholesale markets. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 763 The residual maturities of the liabilities associated with the assets and guarantees received and committed are presented below, as of 31 of December of 2021 (EUR thousand million): Residual maturities of the liabilities Unmatured <=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 years Total Committed assets 39.5 32.7 8.2 29.6 106.8 37.1 80.1 20.7 10.4 365.1 Guarantees received committed 24.2 15.3 12.8 25.8 1.9 0.4 0.4 — — 80.8 The reported Group information as required by the EBA at 2021 year- end is as follows: ON-BALANCE-SHEET ENCUMBERED ASSETS EUR billion Carrying amount of encumbered assets Fair value of encumbered assets Fair value of non- encumbered assets Carrying amount of non-encumbered assets Loans and advances 262.8 984.4 Equity instruments 8.4 8.4 13.1 13.1 Debt securities 61.0 61.1 102.9 102.8 Other assets 32.9 130.3 Total assets 365.1 1,230.7 ENCUMBRANCE OF COLLATERAL RECEIVED EUR billion Fair value of encumbered collateral received or own debt securities issued Fair value of collateral received or own debt securities issued available for encumbrance Collateral received 80.8 31.5 Loans and advances 1.2 — Equity instruments 5.4 7.0 Debt securities 74.2 24.5 Other collateral received — — Own debt securities issued other than own covered bonds or ABSs — 0.6 ENCUMBERED ASSETS AND COLLATERAL RECEIVED AND MATCHING LIABILITIES 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) 325.2 445.9 On-balance-sheet encumbered assets amounted to EUR 365,100 million, of which 72% are loans (mortgage loans, corporate loans, etc.). Guarantees received committed amounted to EUR 80,800 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 445,900 million of encumbered assets, which give rise to EUR 325,200 million matching liabilities. As of December 2021, total asset encumbrance in funding operations represented 26.1% of the Group’s extended balance sheet under EBA criteria (total assets plus guarantees received: EUR 1,708,000 million as of December 2021). This percentage has decreased from 26.6% that presented the Group as of December 2020, mainly as a result of the increase in the balance sheet. 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 2022, 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 10.64% of tier 1 and a minimum total ratio of 13.01%. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 764 In 2021, the solvency target set was achieved. Santander’s CET1 ratio stood at 12.51%1 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 2021 2020 2019 Subscribed capital 8,670 8,670 8,309 Share premium account 47,979 52,013 52,446 Reserves 56,606 62,777 56,526 Treasury shares (894) (69) (31) Attributable profit 8,124 (8,771) 6,515 Approved dividend\*\*\* (836) — (1,662) Shareholders’ equity on public balance sheet 119,649 114,620 122,103 Valuation adjustments (32,719) (33,144) (22,032) Non-controlling interests 10,123 9,846 10,588 Total Equity on public balance sheet 97,053 91,322 110,659 Goodwill and intangible assets (16,132) (15,711) (28,478) Eligible preference shares and participating securities 10,050 9,102 9,039 Accrued dividend\*\*\* (895) (478) (1,761) Other adjustments\* (7,624) (5,734) (9,923) Tier 1\*\* 82,452 78,501 79,536 \*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. \*\*\*Assumes 20% of ordinary profit, see note 4.a for proposed distribution of results. The following table shows the capital coefficients and a detail of the eligible internal resources of the Group: 2021 2020 2019 Capital coefficients Level 1 ordinary eligible capital (EUR million) 72,402 69,399 70,497 Level 1 additional eligible capital (EUR million) 10,050 9,102 9,039 Level 2 eligible capital (EUR million) 14,865 12,514 11,531 Risk-weighted assets (EUR million) 578,930 562,580 605,244 Level 1 ordinary capital coefficient (CET 1) 12.51% 12.34% 11.65% Level 1 additional capital coefficient (AT1) 1.73% 1.61% 1.49% Level 1 capital coefficient (TIER1) 14.24% 13.95% 13.14% Level 2 capital coefficient (TIER 2) 2.57% 2.23% 1.91% Total capital coefficient 16.81% 16.18% 15.05% 1. Figures calculated by applying the transitional provisions of IFRS 9 ELIGIBLE CAPITAL EUR million 2021 2020 2019 Eligible capital Common Equity Tier I 72,402 69,399 70,497 Capital 8,670 8,670 8,309 (-) Treasure shares and own shares financed (966) (126) (63) Share Premium 47,979 52,013 52,446 Reserves 58,157 64,766 57,368 Other retained earnings (34,784) (34,937) (22,933) Minority interests 6,736 6,669 6,441 Profit net of dividends 6,394 (9,249) 3,092 Deductions (19,784) (18,407) (34,163) Goodwill and intangible assets (16,064) (15,711) (28,478) Others (3,720) (2,696) (5,685) Additional Tier I 10,050 9,102 9,039 Eligible instruments AT1 10,102 8,854 9,209 T1-excesses-subsidiaries (52) 248 (170) Residual value of dividends — — — Others — — — Tier II 14,865 12,514 11,531 Eligible instruments T2 15,424 13,351 12,360 Gen. funds and surplus loans loss prov. IRB 75 — — T2-excesses -  subsidiaries (634) (837) (829) Others — — — Total eligible capital 97,317 91,015 91,067 Note: Banco Santander, S.A. and its affiliates had not taken part in any State aid programmes. Leverage ratio Basel III established the leverage ratio as a non-risk sensitive measure aimed at limiting excessive balance sheet growth relative to available capital. The Group performs the calculation in accordance with Regulation (EU) 2019/876 of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio. 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) further excluding the exposures referred to in Article 429a(1) of the regulation. •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). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 765 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 implemented this final definition of the leverage ratio in June 2021, however, the new calibration of the ratio (the additional surcharge for G-SIBs) will take effect from January 2023. EUR million 2021 2020 2019 Leverage Level 1 Capital 82,452 78,501 79,536 Exposure 1,536,516 1,471,480 1,544,614 Leverage Ratio 5.37% 5.33% 5.15% 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. 54. Explanation added for translation to English These accompanying Consolidated Financial Statements, translation of the Consolidated Financial Statements originally issued in Spanish, are presented on the basis of the regulatory financial reporting framework applicable to the Group in Spain (see note 1.b). Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) financial statements [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 766 #### Appendix Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 767 Appendix I 2 & 3 Triton Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Real estate 78 107 12 A & L CF (Guernsey) Limited (n) Guernsey 0.00% 100.00% 100.00% 100.00% Leasing 0 0 0 A & L CF June (2) Limited (e) United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 A & L CF June (3) Limited (e) United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 6 (2) 0 A & L CF March (5) Limited (d) United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 1 0 0 A & L CF September (4) Limited (f) United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 21 0 0 A3T Luxco 1 S.A. Luxembourg 0.00% 100.00% 100.00% — Holding company 4 (1) 4 A3T Luxco 2 S.A. Luxembourg 100.00% 0.00% 100.00% — Holding company (18) 18 0 Abbey Business Services (India) Private Limited (d) India 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Abbey Covered Bonds (Holdings) Limited United Kingdom — (b) — — Securitization 0 0 0 Abbey Covered Bonds (LM) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 0 0 0 Abbey Covered Bonds LLP United Kingdom — (b) — — Securitization 75 168 0 Abbey National Beta Investments Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Abbey National Business Office Equipment Leasing Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Abbey National International Limited Jersey 0.00% 100.00% 100.00% 100.00% Financial services 4 0 4 Abbey National Nominees Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Abbey National PLP (UK) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Abbey National Property Investments United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 296 (3) 165 Abbey National Treasury Services Investments Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Abbey National Treasury Services Overseas Holdings United Kingdom 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Abbey National UK Investments United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Abbey Stockbrokers (Nominees) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Abbey Stockbrokers Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securities company 0 0 0 Abent 3T, S.A.P.I de C.V. Mexico 0.00% 100.00% 100.00% — Electricity production 115 (18) 5 Ablasa Participaciones, S.L. Spain 100.00% 0.00% 100.00% 100.00% Holding company 210 23 894 Aduro S.A. Uruguay 0.00% 100.00% 100.00% 100.00% Payments and collection services 0 0 2 Aevis Europa, S.L. Spain 96.34% 0.00% 96.34% 96.34% Cards 1 0 1 AFB SAM Holdings, S.L. Spain 1.00% 99.00% 100.00% 100.00% Holding company 0 0 0 Afisa S.A. Chile 0.00% 100.00% 100.00% 100.00% Fund management company 4 0 4 Aljardi SGPS, Lda. Portugal 0.00% 100.00% 100.00% 100.00% Holding company 1,195 (3) 1,148 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 768 Allane Leasing GmbH Austria 0.00% 46.95% 100.00% 100.00% Renting (2) 0 0 Allane Location Longue Durée S.a.r.l. France 0.00% 46.95% 100.00% 100.00% Renting 10 3 0 Allane Mobility Consulting AG Switzerland 0.00% 46.95% 100.00% 100.00% Consulting services 1 0 0 Allane Mobility Consulting B.V. Netherlands 0.00% 46.95% 100.00% 100.00% Consulting services (2) 0 0 Allane Mobility Consulting GmbH Germany 0.00% 46.95% 100.00% 100.00% Consulting services 1 1 0 Allane Mobility Consulting Österreich GmbH Austria 0.00% 46.95% 100.00% 100.00% Consulting services 0 0 0 Allane Mobility Consulting S.a.r.l France 0.00% 46.95% 100.00% 100.00% Consulting services (1) 0 0 Allane Schweiz AG Switzerland 0.00% 46.95% 100.00% 100.00% Renting 13 0 0 Allane SE Germany 0.00% 46.95% 92.07% 92.07% Leasing 192 0 175 Allane Services GmbH & co. KG Germany 0.00% 46.95% 100.00% 100.00% Services 1 0 0 Allane Services Verwaltungs GmbH Germany 0.00% 46.95% 100.00% 100.00% Management of portfolios 0 0 0 Alliance & Leicester Cash Solutions Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Alliance & Leicester Commercial Bank Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Alliance & Leicester Investments (Derivatives) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Alliance & Leicester Investments (No.2) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Alliance & Leicester Investments Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Alliance & Leicester Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Alliance & Leicester Personal Finance Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company (241) 0 0 Altamira Santander Real Estate, S.A. Spain 100.00% 0.00% 100.00% 100.00% Real estate (369) (161) 0 Alternative Leasing, FIL (Compartimento B) Spain 100.00% 0.00% 100.00% 99.99% Investment fund 75 3 75 Amazonia Trade Limited United Kingdom 100.00% 0.00% 100.00% 100.00% Holding company 0 0 0 AN (123) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Andaluza de Inversiones, S.A. Spain 0.00% 100.00% 100.00% 100.00% Holding company 37 0 27 ANITCO Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Apê11 Tecnologia e Negócios Imobiliários S.A. Brazil 0.00% 80.92% 90.00% — Real estate 6 0 9 Aquanima Brasil Ltda. Brazil 0.00% 100.00% 100.00% 100.00% E-commerce 2 1 0 Aquanima Chile S.A. Chile 0.00% 100.00% 100.00% 100.00% Services 2 1 0 Aquanima México S. de R.L. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% E-commerce 2 1 2 Aquanima S.A. Argentina 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Artarien S.A. (o) Uruguay 0.00% 100.00% 100.00% — Insurance auxiliary services 0 0 0 Asto Digital Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 39 (26) 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 769 Athena Corporation Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Financial services (9) 0 0 Atlantes Azor No. 2 Portugal — (b) — — Securitization 0 0 0 Atlantes Mortgage No. 2 Portugal — (b) — — Securitization 0 0 0 Atlantes Mortgage No. 3 Portugal — (b) — — Securitization 0 0 0 Atlantes Mortgage No. 4 Portugal — (b) — — Securitization 0 0 0 Atlantes Mortgage No. 5 Portugal — (b) — — Securitization 0 0 0 Atlantes Mortgage No. 7 Portugal — (b) — — Securitization 0 0 0 Atual - Fundo de Invest Multimercado Crédito Privado Investimento no Exterior Brazil 0.00% 89.91% 100.00% 100.00% Investment fund 325 18 308 Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. Brazil 0.00% 89.91% 100.00% 100.00% Financial services 410 15 383 Auto ABS Belgium Loans 2019, SA/NV Belgium — (b) — — Securitization 0 0 0 Auto ABS DFP Master Compartment France 2013 France — (b) — — Securitization 0 0 0 Auto ABS French Leases 2018 France — (b) — — Securitization 0 0 0 Auto ABS French Leases 2021 France — (b) — — Securitization 0 0 0 Auto ABS French Leases Master Compartiment 2016 France — (b) — — Securitization 0 0 0 Auto ABS French Loans Master France — (b) — — Securitization 0 0 0 Auto ABS French LT Leases Master France — (b) — — Securitization 0 0 0 Auto ABS Italian Balloon 2019-1 S.R.L. Italy — (b) — — Securitization 0 0 0 Auto ABS Italian Loans 2018-1 S.R.L. Italy — (b) — — Securitization 0 0 0 Auto ABS Italian Rainbow Loans 2020-1 S.R.L. Italy — (b) — — Securitization 0 0 0 Auto ABS Spanish Loans 2018-1, Fondo de Titulización Spain — (b) — — Securitization 0 0 0 Auto ABS Spanish Loans 2020-1, Fondo de Titulización Spain — (b) — — Securitization 0 0 0 Auto ABS UK Loans 2017 Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Auto ABS UK Loans 2017 Plc United Kingdom — (b) — — Securitization 0 0 0 Auto ABS UK Loans 2019 Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Auto ABS UK Loans 2019 Plc United Kingdom — (b) — — Securitization (3) 0 0 Auto ABS UK Loans Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Auto ABS UK Loans PLC United Kingdom — (b) — — Securitization (10) 2 0 Autodescuento, S.L. Spain 0.00% 93.89% 93.89% 93.89% Vehicles purchase by Internet 1 1 18 Autohaus24 GmbH Germany 0.00% 46.95% 100.00% 100.00% Renting (2) 0 0 Auttar HUT Processamento de Dados Ltda. Brazil 0.00% 89.91% 100.00% 100.00% IT services 4 1 5 Aviación Antares, A.I.E. Spain 99.99% 0.01% 100.00% 100.00% Renting 48 5 28 Aviación Británica, A.I.E. Spain 99.99% 0.01% 100.00% 100.00% Renting 22 4 6 Aviación Centaurus, A.I.E. Spain 99.99% 0.01% 100.00% 100.00% Renting 7 18 25 Aviación Comillas, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Renting 7 0 8 Aviación Intercontinental, A.I.E. Spain 99.97% 0.03% 100.00% 100.00% Renting 66 (24) 42 Aviación Laredo, S.L. Spain 99.00% 1.00% 100.00% 100.00% Air transport 3 0 3 Aviación Oyambre, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Renting 1 0 1 Aviación Santillana, S.L. Spain 99.00% 1.00% 100.00% 100.00% Renting 3 1 2 Aviación Suances, S.L. Spain 99.00% 1.00% 100.00% 100.00% Air transport 5 1 3 Aviación Tritón, A.I.E. Spain 99.99% 0.01% 100.00% 100.00% Renting 22 7 19 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 770 Aymoré Crédito, Financiamento e Investimento S.A. Brazil 0.00% 89.91% 100.00% 100.00% Finance company 205 160 328 Azor Mortgages PLC (j) Ireland — (b) — — Securitization 0 0 0 Banca PSA Italia S.p.A. Italy 0.00% 50.00% 50.00% 50.00% Banking 320 72 153 Banco Bandepe S.A. Brazil 0.00% 89.91% 100.00% 100.00% Banking 832 24 770 Banco de Albacete, S.A. Spain 100.00% 0.00% 100.00% 100.00% Banking 14 0 9 Banco Hyundai Capital Brasil S.A. Brazil 0.00% 44.96% 50.00% 50.00% Banking 51 5 25 Banco Madesant - Sociedade Unipessoal, S.A. Portugal 0.00% 100.00% 100.00% 100.00% Banking 1,076 (3) 1,073 Banco PSA Finance Brasil S.A. Brazil 0.00% 44.96% 50.00% 50.00% Banking 37 4 18 Banco Santander - Chile Chile 0.00% 67.12% 67.18% 67.18% Banking 2,963 803 2,827 Banco Santander (Brasil) S.A. Brazil 0.04% 89.88% 90.50% 90.58% Banking 10,104 2,373 10,795 Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México como Fiduciaria del Fideicomiso 100740 Mexico 0.00% 96.24% 100.00% 100.00% Finance company 66 11 74 Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México como Fiduciaria del Fideicomiso 2002114 Mexico 0.00% 96.47% 100.00% 100.00% Holding company 8 0 7 Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México como Fiduciaria del Fideicomiso GFSSLPT Mexico 0.00% 96.64% 100.00% 100.00% Finance company 14 1 14 Banco Santander de Negocios Colombia S.A. Colombia 94.90% 5.10% 100.00% 100.00% Banking 134 6 141 Banco Santander International United States 0.00% 100.00% 100.00% 100.00% Banking 1,110 85 1,195 Banco Santander International SA Switzerland 0.00% 100.00% 100.00% 100.00% Banking 1,113 49 815 Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México Mexico 21.19% 75.04% 96.24% 91.80% Banking 6,376 778 7,425 Banco Santander Perú S.A. Peru 100.00% 0.00% 100.00% 100.00% Banking 194 37 122 Banco Santander Río S.A. Argentina 0.00% 99.31% 99.26% 99.26% Banking 1,532 92 550 Banco Santander S.A. Uruguay 97.75% 2.25% 100.00% 100.00% Banking 359 69 191 Banco Santander Totta, S.A. Portugal 0.00% 99.86% 99.96% 99.96% Banking 3,857 303 3,415 Bansa Santander S.A. Chile 0.00% 100.00% 100.00% 100.00% Real estate 21 1 22 BEN Benefícios e Serviços Instituição de Pagamento S.A. Brazil 0.00% 89.91% 100.00% 100.00% Payment services 11 (1) 9 Bilkreditt 6 Designated Activity Company (j) Ireland — (b) — — Securitization 0 0 0 Bilkreditt 7 Designated Activity Company Ireland — (b) — — Securitization 0 0 0 Bond Company Merger Sub LLC United States 0.00% 100.00% 100.00% — Inactive 0 0 0 Bond First Merger Sub Inc. United States 0.00% 100.00% 100.00% — Inactive 0 0 0 Bond Fourth Merger Sub LLC United States 0.00% 100.00% 100.00% — Inactive 0 0 0 Bond Second Merger Sub LLC United States 0.00% 100.00% 100.00% — Inactive 0 0 0 Bond Third Merger Sub LLC United States 0.00% 100.00% 100.00% — Inactive 0 0 0 BRS Investments S.A. Argentina 5.10% 94.90% 100.00% 100.00% Finance company 41 23 35 Cántabra de Inversiones, S.A. Spain 100.00% 0.00% 100.00% 100.00% Holding company (118) 262 187 Cántabro Catalana de Inversiones, S.A. Spain 100.00% 0.00% 100.00% 100.00% Holding company 275 3 267 Canyon Multifamily Impact Fund IV LLC (c) United States 0.00% 98.00% 98.00% 98.00% Real estate 26 0 27 Capital Street Delaware LP United States 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Capital Street Holdings, LLC United States 0.00% 100.00% 100.00% 100.00% Holding company 14 0 14 Capital Street REIT Holdings, LLC United States 0.00% 100.00% 100.00% 100.00% Holding company 1,212 1 1,213 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 771 Capital Street S.A. Luxembourg 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Carfax (Guernsey) Limited (j) (n) Guernsey 0.00% 100.00% 100.00% 100.00% Insurance brokerage 0 0 0 Casa de Bolsa Santander, S.A. de C.V., Grupo Financiero Santander México Mexico 0.00% 99.97% 99.97% 99.97% Securities company 55 2 58 Cater Allen Holdings Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Cater Allen International Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Cater Allen Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Banking 685 34 265 Cater Allen Lloyd's Holdings Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Cater Allen Syndicate Management Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 CCAP Auto Lease Ltd. United States 0.00% 80.22% 100.00% 100.00% Leasing 182 162 276 Centro de Capacitación Santander, A.C. Mexico 0.00% 96.24% 100.00% 100.00% Non-profit institute 1 0 1 Certidesa, S.L. Spain 0.00% 100.00% 100.00% 100.00% Aircraft rental (59) (5) 0 Chrysler Capital Auto Funding I LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 30 24 0 Chrysler Capital Auto Funding II LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 4 (4) 0 Chrysler Capital Auto Receivables LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 0 0 0 Chrysler Capital Master Auto Receivables Funding 2 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company (217) (27) 0 Chrysler Capital Master Auto Receivables Funding 4 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company (3) (4) 0 Chrysler Capital Master Auto Receivables Funding LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 61 48 0 Cobranza Amigable, S.A.P.I. de C.V. Mexico 0.00% 85.00% 100.00% 100.00% Collection services 4 0 3 Community Development and Affordable Housing Fund LLC (c) United States 0.00% 96.00% 96.00% 96.00% Asset management 0 0 0 Compagnie Generale de Credit Aux Particuliers - Credipar S.A. France 0.00% 50.00% 100.00% 100.00% Banking 363 161 428 Compagnie Pour la Location de Vehicules - CLV France 0.00% 50.00% 100.00% 100.00% Banking 20 2 26 Compartment German Auto Loans 2021-1 Luxembourg — (b) — — Securitization 0 0 0 Comunidad Laboral Trabajando Argentina S.A. (j) Argentina 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Consulteam Consultores de Gestão, Unipessoal, Lda. Portugal 100.00% 0.00% 100.00% 100.00% Real estate 0 0 0 Consumer Lending Receivables LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 0 0 0 Crawfall S.A. (g) (j) Uruguay 100.00% 0.00% 100.00% 100.00% Services 0 0 0 Darep Designated Activity Company Ireland 100.00% 0.00% 100.00% 100.00% Reinsurances 8 0 7 Decarome, S.A.P.I. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% Finance company 50 5 51 Deva Capital Advisory Company, S.L. Spain 0.00% 100.00% 100.00% 100.00% Advisory services 1 1 2 Deva Capital Holding Company, S.L. Spain 100.00% 0.00% 100.00% 100.00% Holding company 226 (9) 228 Deva Capital Investment Company, S.L. Spain 0.00% 100.00% 100.00% 100.00% Holding company 111 4 111 Deva Capital Management Company, S.L. Spain 0.00% 100.00% 100.00% 100.00% Advisory services 17 (10) 7 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 772 Deva Capital Servicer Company, S.L. Unipersonal Spain 0.00% 100.00% 100.00% 100.00% Holding company 97 4 96 Digital Procurement Holdings N.V. Netherlands 0.00% 100.00% 100.00% 100.00% Holding company 5 0 1 Diners Club Spain, S.A. Unipersonal Spain 100.00% 0.00% 100.00% 75.00% Cards 10 (1) 9 Dirección Estratega, S.C. Mexico 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Drive Auto Receivables Trust 2017-3 United States — (b) — — Securitization 38 53 0 Drive Auto Receivables Trust 2018-1 United States — (b) — — Securitization 25 45 0 Drive Auto Receivables Trust 2018-2 United States — (b) — — Securitization (6) 77 0 Drive Auto Receivables Trust 2018-3 United States — (b) — — Securitization (31) 82 0 Drive Auto Receivables Trust 2018-4 United States — (b) — — Securitization (41) 82 0 Drive Auto Receivables Trust 2018-5 United States — (b) — — Securitization (37) 79 0 Drive Auto Receivables Trust 2019-1 United States — (b) — — Securitization (29) 83 0 Drive Auto Receivables Trust 2019-2 United States — (b) — — Securitization (51) 97 0 Drive Auto Receivables Trust 2019-3 United States — (b) — — Securitization (69) 136 0 Drive Auto Receivables Trust 2019-4 United States — (b) — — Securitization (92) 149 0 Drive Auto Receivables Trust 2020-1 United States — (b) — — Securitization (122) 156 0 Drive Auto Receivables Trust 2020-2 United States — (b) — — Securitization (135) 181 0 Drive Auto Receivables Trust 2021-1 United States — (b) — — Securitization 0 (115) 0 Drive Auto Receivables Trust 2021-2 United States — (b) — — Securitization 0 (310) 0 Drive Auto Receivables Trust 2021-3 United States — (b) — — Securitization 0 (275) 0 Ductor S.à r.l. (f) Luxembourg 100.00% 0.00% 100.00% — Holding company 26 1 20 EDT FTPYME Pastor 3 Fondo de Titulización de Activos Spain — (b) — — Securitization 0 0 0 Elcano Renovables, S.L Spain 0.00% 70.00% 70.00% — Holding company 1 0 1 Electrolyser, S.A. de C.V. Mexico 0.00% 96.24% 100.00% 100.00% Services 0 0 0 Entidad de Desarrollo a la Pequeña y Micro Empresa Santander Consumo Perú S.A. Peru 100.00% 0.00% 100.00% 100.00% Finance company 27 6 33 Erestone S.A.S. France 0.00% 90.00% 90.00% 90.00% Inactive 1 0 1 Esfera Fidelidade S.A. Brazil 0.00% 89.91% 100.00% 100.00% Services 58 56 102 Evidence Previdência S.A. Brazil 0.00% 89.91% 100.00% 100.00% Insurance 132 (12) 95 Eyemobile Tecnologia S.A. Brazil 0.00% 53.95% 60.00% — IT services 2 0 1 F1rst Tecnologia e Inovação Ltda. Brazil 0.00% 89.91% 100.00% 100.00% IT services 2 2 4 Financeira El Corte Inglés, Portugal, S.F.C., S.A. Portugal 0.00% 51.00% 100.00% 100.00% Finance company 8 0 4 Financiera El Corte Inglés, E.F.C., S.A. Spain 0.00% 51.00% 51.00% 51.00% Finance company 260 59 140 Finsantusa, S.L. Unipersonal Spain 0.00% 100.00% 100.00% 100.00% Holding company 1,259 (2) 1,020 First National Motor Business Limited (j) United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 0 0 0 First National Motor Contracts Limited (j) United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 0 0 0 First National Motor Facilities Limited (j) United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 0 0 0 First National Motor Finance Limited (j) United Kingdom 0.00% 100.00% 100.00% 100.00% Advisory services 0 0 0 First National Motor Leasing Limited (j) United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 0 0 0 First National Motor plc United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 First National Tricity Finance Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 6 0 6 Fondation Holding Auto ABS Belgium Loans Belgium — (b) — — Securitization 0 0 0 Fondo de Titulización de Activos Santander Consumer Spain Auto 2014-1 Spain — (b) — — Securitization 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 773 Fondo de Titulización PYMES Santander 13 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización PYMES Santander 14 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización PYMES Santander 15 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización Santander Consumer Spain Auto 2016-1 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización Santander Consumer Spain Auto 2016-2 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización Santander Financiación 1 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización, RMBS Santander 7 Spain — (b) — — Securitization 0 0 0 Fondos Santander, S.A. Administradora de Fondos de Inversión (en liquidación) (j) Uruguay 0.00% 100.00% 100.00% 100.00% Fund management company 0 0 0 Fortensky Trading, Ltd. Ireland 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Fosse (Master Issuer) Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Fosse Funding (No.1) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization (134) 136 0 Fosse Master Issuer PLC United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 5 (6) 0 Fosse PECOH Limited United Kingdom — (b) — — Inactive 0 0 0 Fosse Trustee (UK) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 0 0 0 FTPYME Banesto 2, Fondo de Titulización de Activos Spain — (b) — — Securitization 0 0 0 Fundo de Investimento em Direitos Creditórios Atacado- Não Padronizado Brazil — (b) — — Investment fund 130 (6) 0 Fundo de Investimentos em Direitos Creditórios Multisegmentos NPL Ipanema VI – Não padronizado Brazil — (b) — — Investment fund 194 23 0 Gamma, Sociedade Financeira de Titularização de Créditos, S.A. Portugal 0.00% 99.86% 100.00% 100.00% Securitization 7 0 8 GC FTPYME Pastor 4 Fondo de Titulización de Activos Spain — (b) — — Securitization 0 0 0 Gentium Payments Processing FZ-LLC United Arab Emirates 0.00% 100.00% 100.00% — Financial services 4 (2) 2 Gesban México Servicios Administrativos Globales, S.A. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% Services 1 0 0 Gesban Santander Servicios Profesionales Contables Limitada Chile 0.00% 100.00% 100.00% 100.00% Accounting services 1 0 0 Gesban Servicios Administrativos Globales, S.L. Spain 99.99% 0.01% 100.00% 100.00% Services 5 0 1 Gesban UK Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Payments and collection services 1 0 0 Gestión de Instalaciones Fotovoltaicas, S.L. Unipersonal Spain 0.00% 100.00% 100.00% 100.00% Renewable energies 1 0 0 Gestión de Inversiones JILT, S.A. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Services 5 (2) 5 Gestora de Procesos S.A. en liquidación (j) Peru 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Getnet Adquirência e Serviços para Meios de Pagamento S.A. Brazil 0.04% 89.88% 89.91% 100.00% Payment services 340 75 297 Getnet Europe, Entidad de Pago, S.L. Spain 0.00% 100.00% 100.00% 100.00% Payment services 215 6 218 Getnet Sociedade de Credito Direto S.A. Brazil 0.00% 89.91% 100.00% — Finance company 12 1 12 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 774 Gira, Gestão Integrada de Recebíveis do Agronegócio S.A. Brazil 0.00% 71.93% 80.00% — Consulting services 1 (1) 2 Golden Bar (Securitisation) S.R.L. Italy — (b) — — Securitization 0 0 0 Golden Bar Stand Alone 2016-1 Italy — (b) — — Securitization 0 0 0 Golden Bar Stand Alone 2018-1 Italy — (b) — — Securitization 0 0 0 Golden Bar Stand Alone 2019-1 Italy — (b) — — Securitization 0 0 0 Golden Bar Stand Alone 2020-1 Italy — (b) — — Securitization 0 0 0 Golden Bar Stand Alone 2020-2 Italy — (b) — — Securitization 0 0 0 Golden Bar Stand Alone 2021-1 Italy — (b) — — Securitization 0 0 0 Grupo Empresarial Santander, S.L. Spain 99.62% 0.38% 100.00% 100.00% Holding company 3,348 637 2,406 Grupo Financiero Santander México, S.A. de C.V. Mexico 100.00% 0.00% 100.00% 100.00% Holding company 4,837 584 4,510 Guaranty Car, S.A. Unipersonal Spain 0.00% 100.00% 100.00% 100.00% Automotive 2 1 2 Hipototta No. 13 Portugal — (b) — — Securitization 0 0 0 Hipototta No. 4 FTC Portugal — (b) — — Securitization (51) (2) 0 Hipototta No. 4 plc Ireland — (b) — — Securitization (3) (1) 0 Hipototta No. 5 FTC Portugal — (b) — — Securitization (39) (2) 0 Hipototta No. 5 plc Ireland — (b) — — Securitization (11) (2) 0 Holbah II Limited Bahamas 0.00% 100.00% 100.00% 100.00% Holding company 404 0 557 Holbah Santander, S.L. Unipersonal Spain 0.00% 100.00% 100.00% 100.00% Holding company 213 349 785 Holmes Funding Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization (3) 11 0 Holmes Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Holmes Master Issuer plc United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization (11) (1) 0 Holmes Trustees Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 0 0 0 Hyundai Capital Bank Europe GmbH Germany 0.00% 51.00% 51.00% 51.00% Banking 701 (6) 391 Ibérica de Compras Corporativas, S.L. Spain 97.17% 2.83% 100.00% 100.00% E-commerce 7 1 6 Independence Community Bank Corp. United States 0.00% 100.00% 100.00% 100.00% Holding company 3,501 85 3,587 Insurance Funding Solutions Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Interfinance Holanda B.V. Netherlands 100.00% 0.00% 100.00% 100.00% Holding company 0 0 0 Inversiones Capital Global, S.A. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Holding company 105 (6) 111 Inversiones Marítimas del Mediterráneo, S.A. Spain 0.00% 100.00% 100.00% 100.00% Inactive 5 (1) 0 Isar Valley S.A. Luxembourg — (b) — — Securitization 0 0 0 Isla de los Buques, S.A. Spain 99.98% 0.02% 100.00% 100.00% Finance company 1 0 1 Klare Corredora de Seguros S.A. Chile 0.00% 33.63% 50.10% 50.10% Insurance brokerage 6 (3) 1 Landcompany 2020, S.L. Spain 17.66% 82.34% 100.00% 100.00% Real estate management 1,779 (78) 1,704 Langton Funding (No.1) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization (22) 22 0 Langton Mortgages Trustee (UK) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 0 0 0 Langton PECOH Limited United Kingdom — (b) — — Inactive 0 0 0 Langton Securities (2008-1) plc United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 1 (1) 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 775 Langton Securities (2010-1) PLC United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 2 (2) 0 Langton Securities (2010-2) PLC United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 0 0 0 Langton Securities Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Laparanza, S.A. Spain 61.59% 0.00% 61.59% 61.59% Agricultural holding 28 0 16 Liderança Serviços Especializados em Cobranças Ltda. Brazil 0.00% 89.91% 100.00% — Collection services (1) 2 1 Liquetine, S.L Spain 0.00% 70.00% 100.00% — Renewable energies 0 0 1 Liquidity Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Factoring (1) 0 0 Luri 1, S.A., en liquidación (j) (m) Spain 46.00% 0.00% 46.00% 46.00% Real estate 0 0 0 Luri 6, S.A. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Real estate investment 1,366 (8) 1,373 MAC No. 1 Limited United Kingdom — (b) — — Mortgage credit company 0 0 0 Master Red Europa, S.L. Spain 96.34% 0.00% 96.34% 96.34% Cards 1 0 1 Mata Alta, S.L. Spain 0.00% 61.59% 100.00% 100.00% Real estate 0 0 0 Max Merger Sub, Inc. United States 0.00% 100.00% 100.00% — Inactive 0 0 0 Mercadotecnia, Ideas y Tecnología, S.A. de C.V. Mexico 0.00% 70.00% 70.00% — Payment methods 1 3 15 Merciver, S.L. Spain 99.90% 0.10% 100.00% 100.00% Financial advisory 1 0 1 Mercury Trade Finance Solutions S.A.S. Colombia 0.00% 50.10% 100.00% — IT services 0 0 0 Mercury Trade Finance Solutions, S.A. de C.V. Mexico 0.00% 50.10% 100.00% 100.00% IT services 0 0 0 Mercury Trade Finance Solutions, S.L. Spain 0.00% 50.10% 50.10% 50.10% IT services 10 1 24 Mercury Trade Finance Solutions, S.p.A. Chile 0.00% 50.10% 100.00% 100.00% IT services 1 0 0 Merlion Aviation One Designated Activity Company Ireland — (b) — — Renting 25 6 0 Mortgage Engine Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Financial services (7) (4) 0 Motor 2016-1 Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Motor 2016-1 PLC United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 0 0 0 Motor 2017-1 Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Motor 2017-1 PLC United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization (6) 6 0 Motor Securities 2018-1 Designated Activity Company Ireland — (b) — — Securitization (1) (1) 0 Mouro Capital I LP United Kingdom 0.00% 100.00% 100.00% 100.00% Investment fund 281 211 249 Multiplica SpA Chile 0.00% 100.00% 100.00% 100.00% Payment services 4 0 4 Naviera Mirambel, S.L. Spain 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Naviera Trans Gas, A.I.E. Spain 99.99% 0.01% 100.00% 100.00% Renting 21 (3) 40 Naviera Trans Iron, S.L. Spain 100.00% 0.00% 100.00% 100.00% Leasing 24 0 21 Naviera Trans Ore, A.I.E. Spain 99.99% 0.01% 100.00% 100.00% Renting 25 3 17 Naviera Transcantábrica, S.L. Spain 100.00% 0.00% 100.00% 100.00% Leasing 5 0 4 Naviera Transchem, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Leasing 1 0 1 NeoAuto S.A.C. Peru 0.00% 55.00% 55.00% 55.00% Vehicles purchase by Internet 1 0 1 Newcomar, S.L., en liquidación (j) Spain 40.00% 40.00% 80.00% 80.00% Real estate 1 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 776 Novimovest – Fundo de Investimento Imobiliário Portugal 0.00% 78.63% 78.74% 78.74% Investment fund 254 4 203 NW Services CO. United States 0.00% 100.00% 100.00% 100.00% E-commerce 6 0 2 Open Bank Argentina S.A. Argentina 0.00% 99.66% 100.00% 100.00% Banking 35 (8) 33 Open Bank, S.A. Spain 100.00% 0.00% 100.00% 100.00% Banking 451 10 462 Open Digital Market, S.L. Spain 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Open Digital Services Argentina S.A.U. Argentina 0.00% 100.00% 100.00% — IT services 0 0 0 Open Digital Services, S.L. Spain 99.97% 0.03% 100.00% 100.00% Services 176 (108) 18 Open Mx Servicios Administrativos, S.A. de C.V. Mexico 0.00% 100.00% 100.00% — Financial services 0 0 0 Operadora de Carteras Gamma, S.A.P.I. de C.V. Mexico 100.00% 0.00% 100.00% 100.00% Holding company 8 1 6 Optimal Investment Services SA Switzerland 100.00% 0.00% 100.00% 100.00% Fund management company 33 9 29 Optimal Multiadvisors Ireland Plc / Optimal Strategic US Equity Ireland Euro Fund (e) (p) Ireland 0.00% 0.00% 0.00% 54.10% Fund management company 0 0 0 Optimal Multiadvisors Ireland Plc / Optimal Strategic US Equity Ireland US Dollar Fund (e) (p) Ireland 0.00% 0.00% 0.00% 51.93% Fund management company 0 0 0 PagoFX Europe S.A. Belgium 0.00% 100.00% 100.00% 100.00% Payment services 2 (1) 1 PagoFX UK Ltd United Kingdom 0.00% 100.00% 100.00% 100.00% Payment services 5 (3) 2 PagoNxt Ltd United Kingdom 100.00% 0.00% 100.00% — Holding company 0 0 0 PagoNxt Merchant SoluçõesTecnológicas Brasil Ltda. Brazil 0.00% 100.00% 100.00% 100.00% IT services 57 (20) 37 PagoNxt Merchant Solutions, S.L. Spain 0.00% 100.00% 100.00% 100.00% Holding company 913 (46) 938 PagoNxt One Trade UK Ltd United Kingdom 0.00% 100.00% 100.00% — Financial services 0 0 0 PagoNxt OneTrade España, E.D.E., S.L. Spain 0.00% 100.00% 100.00% — Financial services 0 0 0 PagoNxt Solutions, S.L. Spain 0.00% 100.00% 100.00% 100.00% Payment services 90 (61) 29 PagoNxt Trade Services, S.L. Spain 0.00% 100.00% 100.00% 100.00% Services 197 (58) 140 PagoNxt Trade, S.L. Spain 0.00% 100.00% 100.00% 100.00% IT services 244 (71) 172 PagoNxt, S.L. Spain 100.00% 0.00% 100.00% 100.00% Holding company 1,815 (153) 1,838 Parasant SA Switzerland 100.00% 0.00% 100.00% 100.00% Holding company 1,162 (2) 927 Paytec Logística e Armazém Ltda. Brazil 0.00% 89.91% 100.00% — Logistics services 0 0 0 Paytec Tecnologia em Pagamentos Ltda. Brazil 0.00% 89.91% 100.00% — Commerce 3 0 3 PBD Germany Auto 2018 UG (Haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 PBD Germany Auto Lease Master 2019 Luxembourg — (b) — — Securitization 0 0 0 PBD Germany Auto Lease Master S.A, Compartment 2021-1 Luxembourg — (b) — — Securitization 0 0 0 PBD Germany Auto Loan 2021 UG (Haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 PBE Companies, LLC United States 0.00% 100.00% 100.00% 100.00% Real estate 110 0 110 PECOH Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Pereda Gestión, S.A. Spain 99.99% 0.01% 100.00% 100.00% Holding company 45 35 4 Phoenix C1 Aviation Designated Activity Company Ireland — (b) — — Renting 13 4 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 777 Phoenix S.A. Uruguay 0.00% 100.00% 100.00% — Payment methods 0 0 3 PI Distribuidora de Títulos e Valores Mobiliários S.A. Brazil 0.00% 89.91% 100.00% 100.00% Securities company 79 (6) 66 Pingham International, S.A. (j) Uruguay 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Pony S.A. Luxembourg — (b) — — Securitization 0 0 0 Portal Universia Argentina S.A. Argentina 0.00% 75.75% 75.75% 75.75% Internet 0 0 0 Portal Universia Portugal, Prestação de Serviços de Informática, S.A. Portugal 0.00% 100.00% 100.00% 100.00% Internet 0 0 0 Prime 16 – Fundo de Investimentos Imobiliário Brazil 0.00% 89.91% 100.00% 100.00% Investment fund 31 (2) 24 PSA Bank Deutschland GmbH Germany 0.00% 50.00% 50.00% 50.00% Banking 517 57 229 PSA Banque France France 0.00% 50.00% 50.00% 50.00% Banking 1,068 74 463 PSA Consumer Finance Polska Sp. z o.o. Poland 0.00% 40.22% 100.00% 100.00% Finance company 3 1 0 PSA Finance Belux S.A. Belgium 0.00% 50.00% 100.00% 50.00% Finance company 91 15 52 PSA Finance Polska Sp. z o.o. Poland 0.00% 40.22% 50.00% 50.00% Finance company 33 5 10 PSA Finance UK Limited United Kingdom 0.00% 50.00% 100.00% 50.00% Finance company 339 65 181 PSA Financial Services Nederland B.V. Netherlands 0.00% 50.00% 100.00% 50.00% Finance company 52 17 32 PSA Financial Services Spain, E.F.C., S.A. Spain 0.00% 50.00% 50.00% 50.00% Finance company 739 53 363 PSA Renting Italia S.p.A. Italy 0.00% 50.00% 100.00% 100.00% Renting 9 11 3 PSRT 2019-A United States — (b) — — Securitization 58 53 0 Punta Lima Wind Farm, LLC United States 0.00% 100.00% 100.00% 100.00% Renewable energies 44 (1) 43 Punta Lima, LLC United States 0.00% 100.00% 100.00% 100.00% Leasing 44 (1) 43 Retail Company 2021, S.L. Unipersonal Spain 100.00% 0.00% 100.00% — Real estate 262 (3) 262 Retop S.A. (f) Uruguay 100.00% 0.00% 100.00% 100.00% Finance company 14 14 45 Return Capital S.A. Brazil 0.00% 89.91% 100.00% 100.00% Collection services (1) 4 3 Riobank International (Uruguay) SAIFE (p) Uruguay 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Roc Aviation One Designated Activity Company Ireland — (b) — — Renting (2) (2) 0 Roc Shipping One Designated Activity Company Ireland — (b) — — Renting (4) 0 0 Rojo Entretenimento S.A. Brazil 0.00% 85.06% 94.60% 94.60% Services 21 0 17 SAM Asset Management, S.A. de C.V., Sociedad Operadora de Fondos de Inversión Mexico 0.00% 100.00% 100.00% 100.00% Fund management company 20 21 162 SAM Investment Holdings, S.L. Spain 92.37% 7.63% 100.00% 100.00% Management of funds 1,326 74 1,597 SANB Promotora de Vendas e Cobrança S.A. Brazil 0.00% 89.91% 100.00% 100.00% Finance company 3 (1) 2 Sancap Investimentos e Participações S.A. Brazil 0.00% 89.91% 100.00% 100.00% Holding company 139 39 142 Santander (CF Trustee Property Nominee) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Santander (CF Trustee) Limited (d) United Kingdom — (b) — — Inactive 0 0 0 Santander (UK) Group Pension Schemes Trustees Limited (d) United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Santander Ahorro Inmobiliario 1, S.A. Spain 98.53% 0.00% 98.53% 98.53% Real estate rental 1 0 1 Santander Ahorro Inmobiliario 2, S.A. Spain 99.91% 0.00% 99.91% 99.91% Real estate rental 1 0 1 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 778 Santander Asesorías Financieras Limitada Chile 0.00% 67.44% 100.00% 100.00% Securities company 53 2 37 Santander Asset Finance (December) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 73 5 0 Santander Asset Finance plc United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 287 11 173 Santander Asset Management - S.G.O.I.C., S.A. Portugal 0.00% 100.00% 100.00% 100.00% Fund management company 7 5 12 Santander Asset Management Chile S.A. Chile 0.01% 99.94% 100.00% 100.00% Securities investment (5) 0 0 Santander Asset Management Luxembourg, S.A. Luxembourg 0.00% 100.00% 100.00% 100.00% Fund management company 4 4 0 Santander Asset Management S.A. Administradora General de Fondos Chile 0.00% 100.00% 100.00% 100.00% Fund management company 13 9 132 Santander Asset Management UK Holdings Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Holding company 195 5 186 Santander Asset Management UK Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Management of funds and portfolios 41 15 201 Santander Asset Management, LLC (j) Puerto Rico 0.00% 100.00% 100.00% 100.00% Management 0 (1) 0 Santander Asset Management, S.A., S.G.I.I.C. Spain 0.00% 100.00% 100.00% 100.00% Fund management company 248 61 393 Santander Back-Offices Globales Mayoristas, S.A. Spain 100.00% 0.00% 100.00% 100.00% Services 2 1 1 Santander Banca de Inversión Colombia, S.A.S. Colombia 100.00% 0.00% 100.00% 100.00% Advisory services 2 0 2 Santander Bank & Trust Ltd. Bahamas 0.00% 100.00% 100.00% 100.00% Banking 66 (1) 22 Santander Bank Polska S.A. Poland 67.41% 0.00% 67.41% 67.41% Banking 4,984 199 4,270 Santander Bank, National Association United States 0.00% 100.00% 100.00% 100.00% Banking 10,197 444 10,637 Santander Brasil Administradora de Consórcio Ltda. Brazil 0.00% 89.91% 100.00% 100.00% Services 107 53 144 Santander Brasil Gestão de Recursos Ltda. Brazil 0.08% 99.92% 100.00% 100.00% Securities investment 396 30 470 Santander Capital Desarrollo, SGEIC, S.A. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Management company of investment entities 5 0 3 Santander Capital Structuring, S.A. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% Investment companies 11 0 0 Santander Capitalização S.A. Brazil 0.00% 89.91% 100.00% 100.00% Insurance 9 58 60 Santander Cards Ireland Limited Ireland 0.00% 100.00% 100.00% 100.00% Cards (8) 0 0 Santander Cards Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Cards 100 0 100 Santander Cards UK Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 163 0 115 Santander Chile Holding S.A. Chile 22.11% 77.73% 99.84% 99.84% Holding company 1,490 310 1,208 Santander Consulting (Beijing) Co., Ltd. China 0.00% 100.00% 100.00% 100.00% Advisory services 9 0 4 Santander Consumer (UK) plc United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 853 296 310 Santander Consumer Auto Receivables Funding 2013-B2 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company (283) 200 0 Santander Consumer Auto Receivables Funding 2013-B3 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 101 70 0 Santander Consumer Auto Receivables Funding 2018-L1 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 182 75 0 Santander Consumer Auto Receivables Funding 2018-L3 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 63 49 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 779 Santander Consumer Auto Receivables Funding 2018-L5 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 53 99 0 Santander Consumer Auto Receivables Funding 2019-B1 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company (140) 190 0 Santander Consumer Auto Receivables Funding 2019-L2 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 58 87 0 Santander Consumer Auto Receivables Funding 2019-L3 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 32 36 0 Santander Consumer Auto Receivables Funding 2020-B1 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company (98) 82 0 Santander Consumer Auto Receivables Funding 2020-L1 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 71 39 0 Santander Consumer Auto Receivables Funding 2020-L2 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 7 11 0 Santander Consumer Auto Receivables Funding 2021-B1 LLC United States 0.00% 80.22% 100.00% — Inactive 0 0 0 Santander Consumer Auto Receivables Funding 2021-B2 LLC United States 0.00% 80.22% 100.00% — Inactive 0 0 0 Santander Consumer Auto Receivables Funding 2021-L1 LLC United States 0.00% 80.22% 100.00% — Inactive 0 0 0 Santander Consumer Auto Receivables Grantor Trust 2021-D United States 0.00% 80.22% 100.00% — Inactive 0 0 0 Santander Consumer Auto Receivables Trust 2021-D United States 0.00% 80.22% 100.00% — Inactive 0 0 0 Santander Consumer Bank AG Germany 0.00% 100.00% 100.00% 100.00% Banking 3,313 461 5,070 Santander Consumer Bank AS Norway 0.00% 100.00% 100.00% 100.00% Banking 2,540 202 2,313 Santander Consumer Bank GmbH Austria 0.00% 100.00% 100.00% 100.00% Banking 399 45 363 Santander Consumer Bank S.A. Poland 0.00% 80.44% 100.00% 100.00% Banking 743 35 484 Santander Consumer Bank S.p.A. Italy 0.00% 100.00% 100.00% 100.00% Banking 824 178 603 Santander Consumer Banque S.A. France 0.00% 100.00% 100.00% 100.00% Banking 544 40 492 Santander Consumer Credit Services Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company (39) 0 0 Santander Consumer Finance Global Services, S.L. Spain 0.00% 100.00% 100.00% 100.00% IT 6 2 5 Santander Consumer Finance Inc. Canada 96.42% 0.00% 96.42% 96.42% Holding company 63 0 94 Santander Consumer Finance Limitada Chile 49.00% 34.23% 100.00% 100.00% Finance company 63 20 41 Santander Consumer Finance Oy Finland 0.00% 100.00% 100.00% 100.00% Finance company 314 54 165 Santander Consumer Finance Schweiz AG Switzerland 0.00% 100.00% 100.00% 100.00% Leasing 50 7 60 Santander Consumer Finance, S.A. Spain 100.00% 0.00% 100.00% 100.00% Banking 8,807 601 10,022 Santander Consumer Financial Solutions Sp. z o.o. Poland 0.00% 80.44% 100.00% 100.00% Leasing 2 0 2 Santander Consumer Finanse Sp. z o.o. w likwidacji (j) Poland 0.00% 80.44% 100.00% 100.00% Services 16 0 12 Santander Consumer Holding Austria GmbH Austria 0.00% 100.00% 100.00% 100.00% Holding company 364 20 518 Santander Consumer Holding GmbH Germany 0.00% 100.00% 100.00% 100.00% Holding company 5,564 309 6,077 Santander Consumer Inc. Canada 0.00% 96.42% 100.00% 100.00% Finance company 66 16 46 Santander Consumer International Puerto Rico LLC Puerto Rico 0.00% 80.22% 100.00% 100.00% Services 9 0 7 Santander Consumer Leasing GmbH Germany 0.00% 100.00% 100.00% 100.00% Leasing 20 109 101 Santander Consumer Mobility Services, S.A. Spain 0.00% 100.00% 100.00% 100.00% Renting 12 0 12 Santander Consumer Multirent Sp. z o.o. Poland 0.00% 80.44% 100.00% 100.00% Leasing 27 4 5 Santander Consumer Operations Services GmbH Germany 0.00% 100.00% 100.00% 100.00% Services 11 1 18 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 780 Santander Consumer Receivables 10 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 764 286 0 Santander Consumer Receivables 11 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 420 196 0 Santander Consumer Receivables 3 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 315 60 0 Santander Consumer Receivables 7 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 303 369 0 Santander Consumer Receivables Funding LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 1 3 0 Santander Consumer Renting, S.L. Spain 0.00% 100.00% 100.00% 100.00% Leasing 37 1 38 Santander Consumer S.A. Argentina 0.00% 99.31% 100.00% 100.00% Finance company 7 (2) 6 Santander Consumer S.A. Compañía de Financiamiento Colombia 79.02% 20.98% 100.00% — Finance company 6 (1) 6 Santander Consumer Services GmbH Austria 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Santander Consumer Services, S.A. Portugal 0.00% 100.00% 100.00% 100.00% Finance company 11 2 6 Santander Consumer Spain Auto 2019-1, Fondo de Titulización Spain — (b) — — Securitization 0 0 0 Santander Consumer Spain Auto 2020-1, Fondo de Titulización Spain — (b) — — Securitization 0 0 0 Santander Consumer Spain Auto 2021-1, Fondo de Titulización Spain — (b) — — Securitization 0 0 0 Santander Consumer Technology Services GmbH Germany 0.00% 100.00% 100.00% 100.00% IT services 21 3 22 Santander Consumer USA Holdings Inc. United States 0.00% 80.22% 80.22% 80.24% Holding company 4,688 2,871 6,705 Santander Consumer USA Inc. United States 0.00% 80.22% 100.00% 100.00% Finance company 5,257 (917) 3,481 Santander Consumo 4, F.T. Spain — (b) — — Securitization 0 0 0 Santander Consumo, S.A. de C.V., S.O.F.O.M., E.R., Grupo Financiero Santander México Mexico 0.00% 96.24% 100.00% 100.00% Cards 1,123 222 1,295 Santander Corredora de Seguros Limitada Chile 0.00% 67.20% 100.00% 100.00% Insurance brokerage 72 2 50 Santander Corredores de Bolsa Limitada Chile 0.00% 83.23% 100.00% 100.00% Securities company 47 2 40 Santander Corretora de Câmbio e Valores Mobiliários S.A. Brazil 0.00% 89.91% 100.00% 100.00% Securities company 114 13 115 Santander Corretora de Seguros, Investimentos e Serviços S.A. Brazil 0.00% 89.91% 100.00% 100.00% Holding company 567 166 656 Santander Customer Voice, S.A. Spain 99.50% 0.50% 100.00% 100.00% Services 2 0 1 Santander de Titulización, S.G.F.T., S.A. Spain 81.00% 19.00% 100.00% 100.00% Fund management company 5 3 2 Santander Digital Assets, S.L. Spain 100.00% 0.00% 100.00% 100.00% IT services 0 2 4 Santander Drive Auto Receivables LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 0 0 0 Santander Drive Auto Receivables Trust 2017-3 United States — (b) — — Securitization 52 29 0 Santander Drive Auto Receivables Trust 2018-1 United States — (b) — — Securitization 41 39 0 Santander Drive Auto Receivables Trust 2018-2 United States — (b) — — Securitization 18 37 0 Santander Drive Auto Receivables Trust 2018-3 United States — (b) — — Securitization 1 52 0 Santander Drive Auto Receivables Trust 2018-4 United States — (b) — — Securitization 4 46 0 Santander Drive Auto Receivables Trust 2018-5 United States — (b) — — Securitization (4) 50 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 781 Santander Drive Auto Receivables Trust 2019-1 United States — (b) — — Securitization (15) 58 0 Santander Drive Auto Receivables Trust 2019-2 United States — (b) — — Securitization (23) 80 0 Santander Drive Auto Receivables Trust 2019-3 United States — (b) — — Securitization (38) 86 0 Santander Drive Auto Receivables Trust 2020-1 United States — (b) — — Securitization (111) 134 0 Santander Drive Auto Receivables Trust 2020-2 United States — (b) — — Securitization (131) 175 0 Santander Drive Auto Receivables Trust 2020-3 United States — (b) — — Securitization (241) 271 0 Santander Drive Auto Receivables Trust 2020-4 United States — (b) — — Securitization (242) 233 0 Santander Drive Auto Receivables Trust 2021-1 United States — (b) — — Securitization 0 (43) 0 Santander Drive Auto Receivables Trust 2021-2 United States — (b) — — Securitization 0 (162) 0 Santander Drive Auto Receivables Trust 2021-3 United States — (b) — — Securitization 0 (263) 0 Santander Drive Auto Receivables Trust 2021-4 United States — (b) — — Securitization 0 (272) 0 Santander Drive Auto Receivables Trust 2022-1 United States — (b) — — Inactive 0 0 0 Santander Drive Auto Receivables Trust 2022-2 United States — (b) — — Inactive 0 0 0 Santander Drive Auto Receivables Trust 2022-3 United States — (b) — — Inactive 0 0 0 Santander Drive Auto Receivables Trust 2022-4 United States — (b) — — Inactive 0 0 0 Santander Equity Investments Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 41 (11) 35 Santander España Servicios Legales y de Cumplimiento, S.L. Spain 99.97% 0.03% 100.00% 100.00% Services 9 1 8 Santander Estates Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Real estate 3 (10) 0 Santander European Hospitality Opportunities Luxembourg 100.00% 0.00% 100.00% — Investment fund 1 0 1 Santander F24 S.A. Poland 0.00% 67.41% 100.00% 100.00% Finance company 0 0 0 Santander Facility Management España, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Real estate 417 (3) 392 Santander Factoring S.A. Chile 0.00% 99.84% 100.00% 100.00% Factoring 37 0 37 Santander Factoring Sp. z o.o. Poland 0.00% 67.41% 100.00% 100.00% Financial services 27 11 1 Santander Factoring y Confirming, S.A., E.F.C. Spain 100.00% 0.00% 100.00% 100.00% Factoring 208 70 126 Santander Finance 2012-1 LLC United States 0.00% 100.00% 100.00% 100.00% Financial services 3 0 3 Santander Financial Exchanges Limited United Kingdom 100.00% 0.00% 100.00% 100.00% Inactive 0 0 0 Santander Financial Services plc United Kingdom 0.00% 100.00% 100.00% 100.00% Banking 356 32 401 Santander Financial Services, Inc. Puerto Rico 0.00% 100.00% 100.00% 100.00% Finance company 22 (7) 14 Santander Financiamientos S.A. Peru 100.00% 0.00% 100.00% — Finance company 8 (1) 8 Santander Financing S.A.S. Colombia 100.00% 0.00% 100.00% 100.00% Financial advisory 1 (1) 1 Santander Finanse Sp. z o.o. Poland 0.00% 67.41% 100.00% 100.00% Financial services 60 7 19 Santander Fintech Holdings, S.L. Spain 100.00% 0.00% 100.00% 100.00% Holding company 79 (14) 61 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 782 Santander Fintech Limited United Kingdom 100.00% 0.00% 100.00% 100.00% Finance company 218 (7) 144 Santander Fundo de Investimento Santillana Multimercado Crédito Privado Investimento No Exterior (e) Brazil — (b) — — Investment fund 413 19 432 Santander Fundo de Investimento SBAC Referenciado di Crédito Privado (h) Brazil 0.00% 89.91% 100.00% 100.00% Investment fund 1,440 11 1,303 Santander Gestión de Recaudación y Cobranzas Ltda. Chile 0.00% 99.84% 100.00% 100.00% Financial services 6 0 5 Santander Global Cards & Digital Solutions Brasil S.A. Brazil 0.00% 100.00% 100.00% 100.00% IT consulting 0 0 0 Santander Global Consumer Finance Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 7 0 7 Santander Global Facilities, S.A. de C.V. Mexico 100.00% 0.00% 100.00% 100.00% Real estate management 125 3 127 Santander Global Facilities, S.L. Spain 100.00% 0.00% 100.00% 100.00% Real estate 73 2 70 Santander Global Services S.A. (j) Uruguay 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Santander Global Sport, S.A. Spain 100.00% 0.00% 100.00% 100.00% Sports activity 21 (2) 19 Santander Global Technology and Operations Brasil Ltda. Brazil 0.00% 100.00% 100.00% 100.00% IT services 3 0 1 Santander Global Technology and Operations Chile Limitada Chile 0.00% 100.00% 100.00% 100.00% IT services 22 2 20 Santander Global Technology and Operations, S.L. Spain 100.00% 0.00% 100.00% 100.00% IT services 434 19 370 Santander Green Investment, S.L. Spain 99.97% 0.03% 100.00% — Holding company 14 0 14 Santander Guarantee Company United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 5 0 3 Santander Hipotecario 1 Fondo de Titulización de Activos Spain — (b) — — Securitization 0 0 0 Santander Hipotecario 2 Fondo de Titulización de Activos Spain — (b) — — Securitization 0 0 0 Santander Hipotecario 3 Fondo de Titulización de Activos Spain — (b) — — Securitization 0 0 0 Santander Holding Imobiliária S.A. Brazil 0.00% 89.91% 100.00% 100.00% Real estate 71 1 65 Santander Holding Internacional, S.A. Spain 99.95% 0.05% 100.00% 100.00% Holding company 4,031 26 2,247 Santander Holdings USA, Inc. United States 100.00% 0.00% 100.00% 100.00% Holding company 17,120 2,633 12,579 Santander Inclusión Financiera, S.A. de C.V., S.O.F.O.M., E.R., Grupo Financiero Santander México Mexico 0.00% 96.24% 100.00% 100.00% Finance company 14 (7) 7 Santander Insurance Agency, U.S., LLC United States 0.00% 100.00% 100.00% 100.00% Insurance 1 0 1 Santander Insurance Services UK Limited United Kingdom 100.00% 0.00% 100.00% 100.00% Asset management 44 0 44 Santander Intermediación Correduría de Seguros, S.A. Spain 100.00% 0.00% 100.00% 100.00% Insurance brokerage 24 2 18 Santander International Products, Plc. (l) Ireland 99.99% 0.01% 100.00% 100.00% Finance company 1 0 0 Santander Inversiones S.A. Chile 0.00% 100.00% 100.00% 100.00% Holding company 968 201 1,032 Santander Investment Bank Limited Bahamas 0.00% 100.00% 100.00% 100.00% Banking 577 15 529 Santander Investment Chile Limitada Chile 0.00% 100.00% 100.00% 100.00% Finance company 473 6 321 Santander Investment Securities Inc. United States 0.00% 100.00% 100.00% 100.00% Securities company 456 32 488 Santander Investment, S.A. Spain 100.00% 0.00% 100.00% 100.00% Banking 1,408 77 245 Santander Investments GP 1 S.à.r.l. Luxembourg 0.00% 100.00% 100.00% 100.00% Management of funds 1 0 1 Santander Inwestycje Sp. z o.o. Poland 0.00% 67.41% 100.00% 100.00% Securities company 17 1 7 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 783 Santander ISA Managers Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Management of funds and portfolios 37 8 6 Santander Lease, S.A., E.F.C. Spain 100.00% 0.00% 100.00% 100.00% Leasing 61 11 51 Santander Leasing Poland Securitization 01 Designated Activity Company Ireland — (b) — — Securitization 0 0 0 Santander Leasing S.A. Poland 0.00% 67.41% 100.00% 100.00% Leasing 133 9 28 Santander Leasing S.A. Arrendamento Mercantil Brazil 0.00% 89.91% 100.00% 100.00% Leasing 1,709 59 1,590 Santander Leasing, LLC United States 0.00% 100.00% 100.00% 100.00% Leasing 0 1 2 Santander Lending Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Mortgage credit company 243 10 247 Santander Mediación Operador de Banca-Seguros Vinculado, S.A. Spain 100.00% 0.00% 100.00% 100.00% Insurance intermediary 49 1 3 Santander Merchant Platform Operations, S.A. de C.V. Mexico 0.00% 98.16% 100.00% 100.00% Financial services 1 1 2 Santander Merchant Platform Services, S.A. de C.V. Mexico 0.00% 98.16% 100.00% 100.00% Financial services 1 0 1 Santander Merchant Platform Solutions México, S.A. de C.V. Mexico 0.00% 98.16% 100.00% 100.00% Holding company 119 28 134 Santander Merchant Platform Solutions S.A. Argentina 0.00% 99.66% 100.00% 100.00% Payment methods 15 (6) 10 Santander Merchant Platform Solutions Uruguay S.A. Uruguay 0.00% 100.00% 100.00% 100.00% Payment methods 5 0 5 Santander Merchant S.A. Argentina 5.10% 94.90% 100.00% 100.00% Finance company 1 0 2 Santander Mortgage Holdings Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Financial services (1) (23) 0 Santander Paraty Qif PLC Ireland 0.00% 89.91% 100.00% 100.00% Investment companies 261 0 235 Santander Pensiones, S.A., E.G.F.P. Spain 0.00% 100.00% 100.00% 100.00% Pension fund management company 83 16 184 Santander Pensões - Sociedade Gestora de Fundos de Pensões, S.A. Portugal 100.00% 0.00% 100.00% 100.00% Pension fund management company 3 0 3 Santander Prime Auto Issuance Notes 2018-A Designated Activity Company Ireland — (b) — — Securitization (15) 10 0 Santander Prime Auto Issuance Notes 2018-B Designated Activity Company Ireland — (b) — — Securitization (17) (12) 0 Santander Prime Auto Issuance Notes 2018-C Designated Activity Company Ireland — (b) — — Securitization (6) (1) 0 Santander Prime Auto Issuance Notes 2018-D Designated Activity Company Ireland — (b) — — Securitization (24) (2) 0 Santander Prime Auto Issuance Notes 2018-E Designated Activity Company Ireland — (b) — — Securitization (10) (4) 0 Santander Private Banking Gestión, S.A., S.G.I.I.C. Spain 100.00% 0.00% 100.00% 100.00% Fund management company 52 12 35 Santander Private Banking s.p.a. in Liquidazione (j) Italy 100.00% 0.00% 100.00% 100.00% Finance company 13 1 7 Santander Private Banking UK Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Holding company 304 0 414 Santander Private Real Estate Advisory & Management, S.A. Spain 99.99% 0.01% 100.00% 100.00% Real estate 4 0 4 Santander Private Real Estate Advisory, S.A. Spain 100.00% 0.00% 100.00% 100.00% Real estate 14 1 15 Santander Real Estate, S.A. Spain 100.00% 0.00% 100.00% 100.00% Inactive 1 0 1 Santander Retail Auto Lease Funding LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 784 Santander Retail Auto Lease Trust 2019- A United States — (b) — — Securitization 67 89 0 Santander Retail Auto Lease Trust 2019- B United States — (b) — — Securitization 42 71 0 Santander Retail Auto Lease Trust 2019- C United States — (b) — — Securitization 45 59 0 Santander Retail Auto Lease Trust 2020- A United States — (b) — — Securitization 48 33 0 Santander Retail Auto Lease Trust 2020- B United States — (b) — — Securitization 26 40 0 Santander Retail Auto Lease Trust 2021- A United States — (b) — — Securitization 0 63 0 Santander Retail Auto Lease Trust 2021- B United States — (b) — — Securitization 0 63 0 Santander Retail Auto Lease Trust 2021- C United States — (b) — — Securitization 0 88 0 Santander Retail Auto Lease Trust 2022- A United States — (b) — — Inactive 0 0 0 Santander Retail Auto Lease Trust 2022- B United States — (b) — — Inactive 0 0 0 Santander Retail Auto Lease Trust 2022- C United States — (b) — — Inactive 0 0 0 Santander Revolving Auto Loan Trust 2019-A United States — (b) — — Securitization (112) 111 0 Santander Revolving Auto Loan Trust 2021-A United States — (b) — — Inactive 0 0 0 Santander Río Asset Management Gerente de Fondos Comunes de Inversión S.A. Argentina 0.00% 100.00% 100.00% 100.00% Fund management company 6 7 3 Santander Río Trust S.A. Argentina 0.00% 99.97% 100.00% 100.00% Services 0 0 0 Santander Río Valores S.A. Argentina 5.10% 94.25% 100.00% 100.00% Securities company 3 1 4 Santander RMBS 6, Fondo de Titulización Spain — (b) — — Securitization 0 0 0 Santander S.A. Sociedad Securitizadora Chile 0.00% 67.24% 100.00% 100.00% Fund management company 0 0 0 Santander Secretariat Services Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Santander Securities LLC United States 0.00% 100.00% 100.00% 100.00% Securities company 39 4 43 Santander Seguros y Reaseguros, Compañía Aseguradora, S.A. Spain 100.00% 0.00% 100.00% 100.00% Insurance 1,434 191 1,188 Santander Servicios Corporativos, S.A. de C.V. Mexico 0.00% 96.24% 100.00% 100.00% Services 11 0 11 Santander Servicios Especializados, S.A. de C.V. Mexico 0.00% 96.24% 100.00% 100.00% Services 3 0 3 Santander Technology USA, LLC United States 0.00% 100.00% 100.00% 100.00% IT services 80 (12) 69 Santander Tecnología Argentina S.A. Argentina 0.00% 99.35% 100.00% 100.00% IT services 3 2 4 Santander Tecnología México, S.A. de C.V. Mexico 0.00% 96.24% 100.00% 100.00% IT services 45 1 45 Santander Tecnología y Operaciones España, S.L. Spain 100.00% 0.00% 100.00% 100.00% IT services 46 (4) 37 Santander Totta Seguros, Companhia de Seguros de Vida, S.A. Portugal 0.00% 99.91% 100.00% 100.00% Insurance 117 25 47 Santander Totta, SGPS, S.A. Portugal 99.91% 0.00% 99.91% 99.91% Holding company 3,550 54 5,351 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 785 Santander Towarzystwo Funduszy Inwestycyjnych S.A. Poland 50.00% 33.70% 100.00% 100.00% Fund management company 4 25 15 Santander Trade Services Limited Hong Kong 0.00% 100.00% 100.00% 100.00% Inactive 19 3 16 Santander UK Group Holdings plc United Kingdom 77.67% 22.33% 100.00% 100.00% Finance company 14,302 1,783 16,444 Santander UK Investments United Kingdom 100.00% 0.00% 100.00% 100.00% Finance company 53 (2) 48 Santander UK Operations Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Services 27 2 18 Santander UK plc United Kingdom 0.00% 100.00% 100.00% 100.00% Banking 16,029 937 15,741 Santander UK Technology Limited United Kingdom 0.00% 100.00% 100.00% 100.00% IT services 39 4 7 Santander Wealth Management International SA Switzerland 0.00% 100.00% 100.00% 100.00% Asset management 0 0 0 Santusa Holding, S.L. Spain 69.76% 30.24% 100.00% 100.00% Holding company 8,423 637 6,524 SC Austria Finance 2020-1 Designated Activity Company Ireland — (b) — — Securitization 0 0 0 SC Germany Auto 2014-2 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany Auto 2016-2 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany Auto 2018-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization (1) 0 0 SC Germany Auto 2019-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany Consumer 2014-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany Consumer 2018-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany Mobility 2019-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany S.A. Luxembourg — (b) — — Securitization 0 0 0 SC Germany S.A., Compartment Consumer 2020-1 Luxembourg — (b) — — Securitization 0 0 0 SC Germany S.A., Compartment Consumer 2021-1 Luxembourg — (b) — — Securitization 0 0 0 SC Germany S.A., Compartment Mobility 2020-1 Luxembourg — (b) — — Securitization 0 0 0 SC Germany Vehicles 2013-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany Vehicles 2015-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Poland Consumer 15-1 Sp. z.o.o. (j) Poland — (b) — — Securitization 0 0 0 SC Poland Consumer 16-1 Sp. z o.o. Poland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto I Limited (j) Ireland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto II Limited (j) Ireland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto IX Limited Ireland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto KIMI VI Limited (j) Ireland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto VII Limited Ireland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto VIII Limited Ireland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto X Limited Ireland — (b) — — Securitization 0 0 0 SCF Eastside Locks GP Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Real estate management 0 0 0 SCF Rahoituspalvelut I Designated Activity Company (j) Ireland — (b) — — Securitization 0 0 0 SCF Rahoituspalvelut II Designated Activity Company (j) Ireland — (b) — — Securitization 0 0 0 SCF Rahoituspalvelut IX DAC Ireland — (b) — — Securitization 1 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 786 SCF Rahoituspalvelut KIMI VI Designated Activity Company (j) Ireland — (b) — — Securitization 0 0 0 SCF Rahoituspalvelut VII Designated Activity Company Ireland — (b) — — Securitization 0 0 0 SCF Rahoituspalvelut VIII Designated Activity Company Ireland — (b) — — Securitization 0 0 0 SCF Rahoituspalvelut X DAC Ireland — (b) — — Securitization 0 0 0 SCM Poland Auto 2019-1 DAC Ireland — (b) — — Securitization 0 0 0 SDMX Superdigital, S.A. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% Payment platform 0 0 2 Secucor Finance 2013-I Designated Activity Company (i) (j) Ireland — (b) — — Securitization 0 0 0 Secucor Finance 2021-1, DAC Ireland — (b) — — Securitization 0 0 0 Services and Promotions Delaware Corp. United States 0.00% 100.00% 100.00% 100.00% Holding company 58 2 60 Services and Promotions Miami LLC United States 0.00% 100.00% 100.00% 100.00% Real estate 51 3 53 Servicio de Alarmas Controladas por Ordenador, S.A. Spain 99.99% 0.01% 100.00% 100.00% Security 2 0 1 Servicios de Cobranza, Recuperación y Seguimiento, S.A. de C.V. Mexico 0.00% 85.00% 85.00% 85.00% Finance company 34 1 32 Sheppards Moneybrokers Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Shiloh III Wind Project, LLC United States 0.00% 100.00% 100.00% 100.00% Renewable energies 324 1 325 Silk Finance No. 5 Portugal — (b) — — Securitization 1 9 0 SMPS Merchant Platform Solutions México, S.A de C.V Mexico 0.00% 98.16% 100.00% 100.00% Payments and collection services 112 27 141 Sociedad Integral de Valoraciones Automatizadas, S.A. Spain 100.00% 0.00% 100.00% 100.00% Appraisals 1 1 1 Sociedad Operadora de Tarjetas de Pago Santander Getnet Chile S.A. Chile 0.00% 67.12% 100.00% 100.00% Payments and collection services 20 (8) 8 Socur S.A. (f) Uruguay 100.00% 0.00% 100.00% 100.00% Finance company 43 23 59 Solarlaser Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Solution 4Fleet Consultoria Empresarial S.A. Brazil 0.00% 71.93% 80.00% — Vehicle rental 3 0 2 Sovereign Community Development Company United States 0.00% 100.00% 100.00% 100.00% Holding company 38 1 39 Sovereign Delaware Investment Corporation United States 0.00% 100.00% 100.00% 100.00% Holding company 134 1 135 Sovereign Lease Holdings, LLC United States 0.00% 100.00% 100.00% 100.00% Financial services 221 1 221 Sovereign REIT Holdings, Inc. United States 0.00% 100.00% 100.00% 100.00% Holding company 7,501 74 7,575 Sovereign Spirit Limited (n) Bermudas 0.00% 100.00% 100.00% 100.00% Leasing 0 0 0 SSA Swiss Advisors AG Switzerland 0.00% 100.00% 100.00% — Asset management 0 0 3 Sterrebeeck B.V. Netherlands 100.00% 0.00% 100.00% 100.00% Holding company 4,058 713 10,331 Suleyado 2003, S.L. Unipersonal Spain 0.00% 100.00% 100.00% 100.00% Securities investment 25 0 24 Summer Empreendimentos Ltda. Brazil 0.00% 89.91% 100.00% 100.00% Real estate management 3 0 3 Super Pagamentos e Administração de Meios Eletrônicos S.A. Brazil 0.00% 100.00% 100.00% 100.00% Payment services 30 (7) 79 Superdigital Argentina S.A.U. Argentina 0.00% 100.00% 100.00% 100.00% IT services 1 (1) 1 Superdigital Colombia S.A.S. Colombia 0.00% 100.00% 100.00% 99.97% IT services 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 787 Superdigital Holding Company, S.L. Spain 0.00% 100.00% 100.00% 100.00% Holding company 103 3 106 Superdigital Perú S.A.C. Peru 0.00% 100.00% 100.00% 100.00% Financial services 1 0 0 Suzuki Servicios Financieros, S.L. Spain 0.00% 51.00% 51.00% 51.00% Intermediation 9 3 0 Svensk Autofinans WH 1 Designated Activity Company Ireland — (b) — — Securitization 0 0 0 Swesant SA Switzerland 0.00% 100.00% 100.00% 100.00% Holding company 19 42 0 SX Negócios Ltda. Brazil 0.00% 89.91% 100.00% 100.00% Telemarketing 10 2 11 Tabasco Energía España, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Holding company 6 0 0 Taxagest Sociedade Gestora de Participações Sociais, S.A. Portugal 0.00% 99.87% 100.00% 100.00% Holding company 56 0 0 Teatinos Siglo XXI Inversiones S.A. Chile 50.00% 50.00% 100.00% 100.00% Holding company 1,497 277 2,064 Tekutina Private Limited India 0.00% 100.00% 100.00% — Financial services 1 0 1 The Alliance & Leicester Corporation Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Real estate 14 0 14 The Best Specialty Coffee, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Restaurant services 3 0 2 Time Retail Finance Limited (j) United Kingdom 0.00% 100.00% 100.00% 100.00% Services 0 0 0 TIMFin S.p.A. Italy 0.00% 51.00% 51.00% 51.00% Finance company 53 (8) 28 Tonopah Solar I, LLC United States 0.00% 100.00% 100.00% 100.00% Holding company 5 0 5 Tornquist Asesores de Seguros S.A. (j) Argentina 0.00% 99.99% 99.99% 99.99% Inactive 0 0 0 Toro Corretora de Títulos e Valores Mobiliários Ltda. Brazil 0.00% 53.95% 60.00% — Securities investment 11 (2) 5 Toro Investimentos S.A. Brazil 0.00% 53.95% 100.00% — Consulting services 5 (1) 2 Totta (Ireland), PLC (h) Ireland 0.00% 99.86% 100.00% 100.00% Finance company 451 9 450 Totta Urbe - Empresa de Administração e Construções, S.A. Portugal 0.00% 99.86% 100.00% 100.00% Real estate 102 (5) 100 Trabajando.com Mexico, S.A. de C.V. en liquidación (j) Mexico 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Trade Maps 3 Hong Kong Limited Hong-Kong — (b) — — Securitization 0 0 0 Trade Maps 3 Ireland Limited (j) Ireland — (b) — — Securitization 0 0 0 Trans Rotor Limited (j) United Kingdom 100.00% 0.00% 100.00% 100.00% Renting 0 0 0 Transolver Finance EFC, S.A. Spain 0.00% 51.00% 51.00% 51.00% Leasing 67 4 17 Tresmares Growth Fund Santander, SCR, S.A. Spain 100.00% 0.00% 100.00% 100.00% Holding company 32 0 32 Tresmares Santander Direct Lending, SICC, S.A. Spain 99.60% 0.00% 99.60% 99.60% Management of funds 414 6 413 Tuttle and Son Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Universia Brasil S.A. Brazil 0.00% 100.00% 100.00% 100.00% Internet 0 0 0 Universia Chile S.A. Chile 0.00% 86.84% 86.84% 86.84% Internet 0 0 0 Universia Colombia S.A.S. Colombia 0.00% 100.00% 100.00% 100.00% Internet 0 0 0 Universia España Red de Universidades, S.A. Spain 0.00% 89.45% 89.45% 89.45% Internet 2 0 2 Universia Holding, S.L. Spain 100.00% 0.00% 100.00% 100.00% Holding company 19 (3) 17 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 788 Universia México, S.A. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% Internet 0 0 0 Universia Perú, S.A. Peru 0.00% 99.76% 99.76% 100.00% Internet 0 0 0 Universia Uruguay, S.A. Uruguay 0.00% 100.00% 100.00% 100.00% Internet 0 0 0 Uro Property Holdings, SOCIMI, S.A. (c) Spain 99.99% 0.00% 99.99% 99.99% Real estate investment 163 9 179 Verbena FCVS - Fundo de Investimentos em Direitos Creditórios Brazil — (b) — — Investment fund (3) 3 0 Wallcesa, S.A. Spain 100.00% 0.00% 100.00% 100.00% Financial services (936) 9 0 Wave Holdco, S.L. Spain 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Waypoint Insurance Group, Inc. United States 0.00% 100.00% 100.00% 100.00% Holding company 9 0 9 WIM Servicios Corporativos, S.A. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% Advisory services 0 0 0 WTW Shipping Designated Activity Company Ireland 100.00% 0.00% 100.00% 100.00% Leasing 15 1 9 Yera Servicer Company 2021, S.L. Unipersonal Spain 0.00% 100.00% 100.00% — Real estate management 19 (1) 18 Subsidiaries of Banco Santander, S.A.1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount a.Amount according to the provisional books of each company at the date of publication of these annexes generally referring to 31 December 2021 without taking into account, where applicable, interim dividends paid during the year. In the carrying amount (cost net of provision), the Group's percentage ownership has been applied to the figure for each holding company, disregarding goodwill impairments made in the consolidation process. The figures for foreign companies are converted into euros at the year-end exchange rate. b.Companies over which effective control is maintained. c.Data as at 31 December 2020, latest available accounts. d.Data as at 31 March 2021, latest accounts available. e.Data as at 30 June 2021, last accounts available. f.Data as at 30 September 2021, last accounts available. g.Data as at 31 July 2021, last accounts available. h.Data as at 30 November 2021, last accounts available. i.Data as at 31 January 2021, latest available accounts. j.Company in liquidation as at 31 December 2021. k.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 companies controlled by the parent company or by 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 the companies indirectly dependent on it, is that corresponding to the dependent company that directly participates in the share capital of the latter. l.Company resident for tax purposes in Spain. m.See note 2.b.i. n.Company resident for tax purposes in the United Kingdom. o.Data as at 28 February 2021, last accounts available. p.Companies in liquidation. Pending registration. (1) Companies issuing preference shares are listed in Annex III, together with other relevant information. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 789 Appendix II Abra 1 Limited (k) Caymand Island — (h) — — Leasing Joint venture — — — Achmea Tussenholding, B.V. (b) Netherlands 8.89% 0.00% 8.89% 8.89% Holding company - 356 356 20 Administrador Financiero de Transantiago S.A. Chile 0.00% 13.42% 20.00% 20.00% Payment and collection services Associated 56 18 2 Aegon Santander Portugal Não Vida - Companhia de Seguros, S.A. Portugal 0.00% 48.95% 49.00% 49.00% Insurance Joint venture 56 14 9 Aegon Santander Portugal Vida - Companhia de Seguros Vida, S.A. Portugal 0.00% 48.95% 49.00% 49.00% Insurance Joint venture 129 23 18 Aeroplan - Sociedade Construtora de Aeroportos, Lda. (e) Portugal 0.00% 19.97% 20.00% 20.00% Inactive - 0 0 0 Aguas de Fuensanta, S.A. (e) (k) Spain 36.78% 0.00% 36.78% 36.78% Food - — — — Alcuter 2, S.L. (k) Spain 37.23% 0.00% 37.23% 37.23% Technical services - — — — Alma UK Holdings Ltd United Kingdom 30.00% 0.00% 30.00% — Holding company Joint venture 4 4 (1) Altamira Asset Management, S.A. (consolidado) Spain 0.00% 15.00% 15.00% 15.00% Real estate - 236 3 (2) Apolo Fundo de Investimento em Direitos Creditórios Brazil 0.00% 29.97% 33.33% 33.33% Investment fund Joint venture 454 421 33 Arena Communications Network, S.L. (consolidado) (b) Spain 20.00% 0.00% 20.00% 20.00% Advertising Associated 296 99 (6) Attijariwafa Bank Société Anonyme (consolidado) (b) Morocco 0.00% 5.10% 5.10% 5.11% Banking - 54,011 4,809 352 Autopistas del Sol S.A. (b) Argentina 0.00% 14.17% 14.17% 14.17% Motorway concession - 169 82 0 Banco RCI Brasil S.A. Brazil 0.00% 35.87% 39.89% 39.89% Banking Joint venture 1,699 217 25 Banco S3 Caceis México, S.A., Institución de Banca Múltiple Mexico 0.00% 50.00% 50.00% 50.00% Banking Joint venture 157 67 4 Bank of Beijing Consumer Finance Company China 0.00% 20.00% 20.00% 20.00% Finance company Associated 1,369 120 8 Bank of Shanghai Co., Ltd. (consolidado) (b) China 6.54% 0.00% 6.54% 6.54% Banking - 342,252 23,563 2,903 CACEIS (consolidado) France 0.00% 30.50% 30.50% 30.50% Custody services Associated 122,132 3,979 187 Câmara Interbancária de Pagamentos - CIP Brazil 0.00% 16.07% 17.87% 17.65% Payment and collection services - 342 235 69 Cantabria Capital, SGEIC, S.A. Spain 50.00% 0.00% 50.00% 50.00% Venture capital Associated 0 0 0 Car10 Tecnologia e Informação S.A. Brazil 0.00% 41.96% 46.67% — Internet Joint venture 8 2 (1) CCPT - ComprarCasa, Rede Serviços Imobiliários, S.A. Portugal 0.00% 49.98% 49.98% 49.98% Real estate services Joint venture 0 0 0 Centro de Compensación Automatizado S.A. Chile 0.00% 22.37% 33.33% 33.33% Payment and collection services Associated 14 9 3 Centro para el Desarrollo, Investigación y Aplicación de Nuevas Tecnologías, S.A. (b) Spain 0.00% 49.00% 49.00% 49.00% Technology Associated 3 2 0 CNP Santander Insurance Europe Designated Activity Company Ireland 49.00% 0.00% 49.00% 49.00% Insurance brokerage Associated 1,004 191 42 CNP Santander Insurance Life Designated Activity Company Ireland 49.00% 0.00% 49.00% 49.00% Insurance brokerage Associated 1,294 151 43 CNP Santander Insurance Services Ireland Limited Ireland 49.00% 0.00% 49.00% 49.00% Services Associated 31 4 1 Comder Contraparte Central S.A Chile 0.00% 8.37% 12.47% 12.47% Financial services Associated 34 11 1 Companhia Promotora UCI Brazil 0.00% 25.00% 25.00% 25.00% Financial services Joint venture 1 (1) 0 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 790 Compañia Española de Financiación de Desarrollo, Cofides, S.A., SME (b) Spain 20.18% 0.00% 20.18% 20.18% Finance company - 153 140 10 Compañía Española de Seguros de Crédito a la Exportación, S.A., Compañía de Seguros y Reaseguros (consolidado) (b) Spain 23.33% 0.55% 23.88% 23.88% Credit insurance - 942 385 34 Compañía Española de Viviendas en Alquiler, S.A. Spain 24.07% 0.00% 24.07% 24.07% Real estate Associated 528 333 14 Compañía para los Desarrollos Inmobiliarios de la Ciudad de Hispalis, S.L., en liquidación (l) (e) Spain 21.98% 0.00% 21.98% 21.98% Real estate development - 38 6 0 Connecting Visions Ecosystems, S.L. Spain 19.90% 0.00% 19.90% 19.90% Consulting services Joint venture 2 2 (1) Corkfoc Cortiças, S.A. (c) Portugal 0.00% 27.55% 27.58% 27.58% Cork industry - 3 20 0 Corridor Texas Holdings LLC (consolidado) (b) United States 0.00% 33.40% 33.40% 36.30% Holding company - 190 163 (5) Desarrollo Eólico las Majas VI, S.L. Spain 45.00% 0.00% 45.00% — Renewable energies Joint venture 28 6 0 Ebury Partners Limited (consolidado) (d) (m) United Kingdom 0.00% 44.06% 51.28% 50.41% Payment services Associated 781 55 (69) Energias Renovables de Ormonde 25, S.L. Spain 0.00% 55.00% 55.00% — Renewable energies Joint venture 0 0 0 Energias Renovables de Ormonde 26, S.L. Spain 0.00% 55.00% 55.00% — Renewable energies Joint venture 0 0 0 Energias Renovables de Ormonde 27, S.L. Spain 0.00% 55.00% 55.00% — Renewable energies Joint venture 0 0 0 Energias Renovables de Ormonde 30, S.L. Spain 0.00% 55.00% 55.00% — Renewable energies Joint venture 1 0 0 Energias Renovables de Titania, S.L. Spain 0.00% 55.00% 55.00% — Renewable energies Joint venture 0 0 0 Energias Renovables Gladiateur 45, S.L. Spain 0.00% 55.00% 55.00% — Renewable energies Joint venture 0 0 0 Energias Renovables Prometeo, S.L. Spain 0.00% 55.00% 55.00% — Renewable energies Joint venture 0 0 0 Euro Automatic Cash Entidad de Pago, S.L. Spain 50.00% 0.00% 50.00% 50.00% Payment services Associated 57 46 (12) European Hospitality Opportunities S.à r.l. (o) Luxembourg 0.00% 49.00% 49.00% — Holding company Joint venture — — — Evolve SPV S.r.l. Italy — (h) — — Securitizations Joint venture 105 0 7 FAFER- Empreendimentos Urbanísticos e de Construção, S.A. (b) (e) Portugal 0.00% 36.57% 36.62% 36.62% Real estate - 0 1 0 Federal Reserve Bank of Boston (b) United States 0.00% 20.09% 20.09% 25.73% Banking - 194,429 1,573 (1) Fondo de Titulización de Activos UCI 11 Spain — (h) — — Securitizations Joint venture 133 0 0 Fondo de Titulización de Activos UCI 14 Spain — (h) — — Securitizations Joint venture 346 0 0 Fondo de Titulización de Activos UCI 15 Spain — (h) — — Securitizations Joint venture 426 0 0 Fondo de Titulización de Activos UCI 16 Spain — (h) — — Securitizations Joint venture 597 0 0 Fondo de Titulización de Activos UCI 17 Spain — (h) — — Securitizations Joint venture 517 0 0 Fondo de Titulización Hipotecaria UCI 12 Spain — (h) — — Securitizations Joint venture 189 0 0 Fondo de Titulización, RMBS Prado III Spain — (h) — — Securitizations Joint venture 0 0 0 Fondo de Titulización, RMBS Prado IV Spain — (h) — — Securitizations Joint venture 288 0 0 Fondo de Titulización, RMBS Prado IX Spain — (h) — — Securitizations Joint venture 499 0 0 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 791 Fondo de Titulización, RMBS Prado V Spain — (h) — — Securitizations Joint venture 309 0 0 Fondo de Titulización, RMBS Prado VI Spain — (h) — — Securitizations Joint venture 340 0 0 Fondo de Titulización, RMBS Prado VII Spain — (h) — — Securitizations Joint venture 481 0 0 Fondo de Titulización, RMBS Prado VIII Spain — (h) — — Securitizations Joint venture 467 0 0 Fortune Auto Finance Co., Ltd China 0.00% 50.00% 50.00% 50.00% Finance company Joint venture 3,181 384 61 Fremman limited United Kingdom 33.00% 0.00% 4.99% 4.99% Finance company Associated 2 0 (3) Gestora de Inteligência de Crédito S.A. Brazil 0.00% 17.98% 20.00% 20.00% Collection Joint venture 186 21 (10) Gire S.A. Argentina 0.00% 57.93% 58.33% 58.33% Payment and collection services Associated 158 25 13 HCUK Auto Funding 2017-2 Ltd United Kingdom — (h) — — Securitizations Joint venture 833 0 0 Healthy Neighborhoods Equity Fund I LP (b) United States 0.00% 22.37% 22.37% 22.37% Real estate - 14 14 (2) Hyundai Capital UK Limited United Kingdom 0.00% 50.01% 50.01% 50.01% Finance company Joint venture 4,338 323 79 Hyundai Corretora de Seguros Ltda. Brazil 0.00% 44.96% 50.00% 50.00% Insurance brokerage Joint venture 1 0 0 Imperial Holding S.C.A. (e) (i) Luxembourg 0.00% 36.36% 36.36% 36.36% Securities investment - 0 (112) 0 Imperial Management S.à r.l. (b) (e) Luxembourg 0.00% 40.20% 40.20% 40.20% Holding company - 0 0 0 Indice Iberoamericano de Investigación y Conocimiento, A.I.E. Spain 0.00% 51.00% 51.00% 51.00% Information system Joint venture 1 (6) (1) Inmoalemania Gestión de Activos Inmobiliarios, S.A. Spain 0.00% 20.00% 20.00% 20.00% Holding company - 0 0 0 Innohub S.A.P.I. de C.V. Mexico 0.00% 20.00% 20.00% 20.00% IT services Associated 1 3 (2) Inverlur Aguilas I, S.L. Spain 0.00% 50.00% 50.00% 50.00% Real estate Joint venture 0 0 0 Inverlur Aguilas II, S.L. Spain 0.00% 50.00% 50.00% 50.00% Real estate Joint venture 1 1 0 Inversiones Ibersuizas, S.A. (b) Spain 25.42% 0.00% 25.42% 25.42% Venture capital - 31 19 10 Inversiones ZS América Dos Ltda. Chile 0.00% 49.00% 49.00% 49.00% Real estate and securities investment Associated 269 269 34 Inversiones ZS América SpA Chile 0.00% 49.00% 49.00% 49.00% Real estate and securities investment Associated 395 396 35 J.C. Flowers I L.P. (b) United States 0.00% 11.10% 0.00% 0.00% Holding company - 2 2 (1) JCF AIV P L.P. (b) Canada 0.00% 7.67% 4.99% 4.99% Holding company - 5 5 0 LB Oprent, S.A. Spain 40.00% 0.00% 40.00% 38.33% Industrial machinery rent Associated 4 1 1 Loop Gestão de Pátios S.A. Brazil 0.00% 32.10% 35.70% 35.70% Business services Joint venture 7 2 (1) Mapfre Santander Portugal - Companhia de Seguros, S.A. Portugal 0.00% 49.94% 49.99% 49.99% Insurance Associated 13 8 (3) Massachusetts Business Development Corp. (consolidado) (b) United States 0.00% 21.61% 21.61% 21.61% Finance company - 55 11 1 MB Capital Fund IV, LLC (b) United States 0.00% 21.51% 21.51% 21.51% Finance company - 18 17 1 Merlin Properties, SOCIMI, S.A. (consolidado) (b) Spain 19.07% 5.70% 24.77% 24.81% Real estate investment Associated 13,478 6,640 56 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 792 Metrovacesa, S.A. (consolidado) (b) Spain 31.94% 17.50% 49.44% 49.45% Real estate development Associated 2,927 2,343 (164) New PEL S.à r.l. (c) (e) Luxembourg 0.00% 7.67% 0.00% 0.00% Holding company - 0 0 0 NIB Special Investors IV-A LP (n) Canada 0.00% 0.00% 0.00% 4.99% Holding company - — — — NIB Special Investors IV-B LP (n) Canada 0.00% 0.00% 0.00% 4.99% Holding company - — — — Niuco 15, S.L. (k) Spain 37.23% 0.00% 37.23% 37.23% Technical services - — — — Ocyener 2008, S.L. Spain 0.00% 45.00% 45.00% — Holding company Associated 2 1 1 Operadora de Activos Beta, S.A. de C.V. Mexico 49.99% 0.00% 49.99% 49.99% Finance company Associated 0 0 0 Pag10 Fomento Mercantil Eireli Brazil 0.00% 41.96% 46.67% — Factoring Joint venture 0 0 0 Payever GmbH Germany 0.00% 10.00% 10.00% 10.00% Software Associated 3 2 0 Play Digital S.A. Argentina 0.00% 15.59% 15.70% — Payment platform Associated 11 23 (12) POLFUND - Fundusz Poręczeń Kredytowych S.A. Poland 0.00% 33.70% 50.00% 50.00% Management Associated 28 20 0 Portland SPV S.r.l. Italy — (h) — — Securitizations Joint venture 234 0 0 Procapital - Investimentos Imobiliários, S.A. (c) (e) Portugal 0.00% 39.96% 40.00% 40.00% Real estate - 2 13 0 Project Quasar Investments 2017, S.L. (consolidado) (b) Spain 49.00% 0.00% 49.00% 49.00% Holding company - 6,984 2,638 (1,852) Promontoria Manzana, S.A. (consolidado) (b) Spain 20.00% 0.00% 20.00% 20.00% Holding company Associated 1,068 319 (38) PSA Corretora de Seguros e Serviços Ltda. Brazil 0.00% 44.96% 50.00% 50.00% Insurance Joint venture 0 0 0 PSA Insurance Europe Limited Malta 0.00% 50.00% 50.00% 50.00% Insurance Joint venture 254 59 26 PSA Life Insurance Europe Limited Malta 0.00% 50.00% 50.00% 50.00% Insurance Joint venture 110 13 20 Redbanc S.A. Chile 0.00% 22.44% 33.43% 33.43% Services Associated 29 9 1 Redsys Servicios de Procesamiento, S.L. (consolidado) Spain 24.90% 0.06% 24.96% 20.06% Cards Associated 108 71 4 Relevante e Astuto, S.A. Portugal 0.00% 70.00% 70.00% — Real estate management Joint venture 5 0 0 Retama Real Estate, S.A. Spain 0.00% 50.00% 50.00% 50.00% Services Joint venture 30 (45) (1) Rías Redbanc S.A. Uruguay 0.00% 25.00% 25.00% 25.00% Services - 3 1 0 RMBS Green Belem I Portugal — (h) — — Securitizations Joint venture 309 0 0 S3 Caceis Brasil Distribuidora de Títulos e Valores Mobiliários S.A. Brazil 0.00% 50.00% 50.00% 50.00% Securities investment Joint venture 207 143 18 S3 Caceis Brasil Participações S.A. Brazil 0.00% 50.00% 50.00% 50.00% Holding company Joint venture 163 145 18 Sancus Green Investments II, S.C.R., S.A. (o) Spain 0.00% 43.29% 43.29% — Venture capital - — — — Santander Alternatives SICAV RAIF (c) Luxembourg 0.00% 48.03% 48.03% 100.00% Investment company - 13 12 0 Santander Assurance Solutions, S.A. Spain 0.00% 66.67% 66.67% 73.99% Insurance intermediary Joint venture 10 4 1 Santander Auto S.A. Brazil 0.00% 44.96% 50.00% 50.00% Insurance Associated 25 5 2 Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. Poland 0.00% 33.03% 49.00% 49.00% Insurance Associated 299 20 21 Santander Aviva Towarzystwo Ubezpieczeń S.A. Poland 0.00% 33.03% 49.00% 49.00% Insurance Associated 94 39 12 Santander Caceis Colombia S.A. Sociedad Fiduciaria Colombia 0.00% 50.00% 50.00% 50.00% Finance company Joint venture 7 7 (1) Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 793 Santander Caceis Latam Holding 1, S.L. Spain 0.00% 50.00% 50.00% 50.00% Holding company Joint venture 722 716 5 Santander Caceis Latam Holding 2, S.L. Spain 0.00% 50.00% 50.00% 50.00% Holding company Joint venture 2 2 0 Santander Generales Seguros y Reaseguros, S.A. Spain 0.00% 49.00% 49.00% 49.00% Insurance Joint venture 732 206 39 Santander Mapfre Seguros y Reaseguros, S.A. Spain 0.00% 49.99% 49.99% 49.99% Insurance Associated 90 57 (13) Santander Vida Seguros y Reaseguros, S.A. Spain 0.00% 49.00% 49.00% 49.00% Insurance Joint venture 1,036 367 36 Sedesa Seguros de Depósitos S.A. (b) Argentina 0.00% 13.47% 13.56% — Fund management - 2 2 0 Sepacon 31, S.L. (k) Spain 37.23% 0.00% 37.23% 37.23% Technical services - — — — Servicios de Infraestructura de Mercado OTC S.A Chile 0.00% 8.37% 12.48% 12.48% Services Associated 37 13 0 SIBS-SGPS, S.A. (b) Portugal 0.00% 16.52% 16.55% 16.55% Portfolio management - 365 59 41 Siguler Guff SBIC Fund LP (b) United States 0.00% 20.00% 20.00% 20.00% Investment fund - 8 1 0 Sistema de Tarjetas y Medios de Pago, S.A. (b) Spain 20.61% 0.00% 20.61% 18.11% Payment methods Associated 673 4 0 Sistemas Técnicos de Encofrados, S.A. (consolidado) (b) Spain 27.15% 0.00% 27.15% 27.15% Building materials - 89 14 0 Sociedad Conjunta para la Emisión y Gestión de Medios de Pago, E.F.C., S.A. Spain 45.70% 0.00% 45.70% 45.70% Payment services Joint venture 107 36 1 Sociedad de Garantía Recíproca de Santander, S.G.R. (b) Spain 25.35% 0.25% 25.60% 25.73% Financial services - 17 11 0 Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, S.A. (b) Spain 22.21% 0.00% 22.21% 22.21% Financial services - 27,586 230 (1,073) Sociedad Interbancaria de Depósitos de Valores S.A. Chile 0.00% 19.66% 29.29% 29.29% Securities deposit Associated 7 6 1 Solar Maritime Designated Activity Company (b) Ireland — (h) — — Leasing Joint venture 113 (7) 0 Stephens Ranch Wind Energy Holdco LLC (consolidado) (b) United States 0.00% 17.10% 17.10% 19.20% Renewable energies - 218 208 (7) Tbforte Segurança e Transporte de Valores Ltda. Brazil 0.00% 17.06% 18.98% 19.81% Security Associated 101 62 2 Tbnet Comércio, Locação e Administração Ltda. Brazil 0.00% 17.06% 18.98% 19.81% Telecommunic ations Associated 69 66 2 Tecban Serviços Integrados Ltda. Brazil 0.00% 17.06% 18.98% — IT services Associated 0 0 0 Tecnologia Bancária S.A. Brazil 0.00% 17.06% 19.81% 19.81% ATM Associated 428 115 26 Tikgi Aviation One Designated Activity Company Ireland — (h) — — Renting - 224 (2) 1 Tonopah Solar Energy Holdings I, LLC (consolidado) (b) United States 0.00% 26.80% 26.80% 26.80% Holding company Joint venture 0 0 0 Trabajando.com Chile S.A. Chile 0.00% 33.33% 33.33% 33.33% Services Associated 2 (1) 1 Transbank S.A. Chile 0.00% 16.78% 25.00% 25.00% Cards Associated 1,366 101 (13) Tresmares Growth Fund II, SCR, S.A. Spain 40.00% 0.00% 40.00% 40.00% Holding company - 49 45 (2) Tresmares Growth Fund III, SCR, S.A. Spain 40.00% 0.00% 40.00% 40.00% Holding company - 38 34 (2) U.C.I., S.A. Spain 50.00% 0.00% 50.00% 50.00% Holding company Joint venture 448 127 (6) UCI Hellas Credit and Loan Receivables Servicing Company S.A. Greece 0.00% 50.00% 50.00% 50.00% Financial services Joint venture 1 1 0 UCI Holding Brasil Ltda. Brazil 0.00% 50.00% 50.00% 50.00% Holding company Joint venture 1 0 0 UCI Mediação de Seguros Unipessoal, Lda. Portugal 0.00% 50.00% 50.00% 50.00% Insurance brokerage Joint venture 0 0 0 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 794 UCI Servicios para Profesionales Inmobiliarios, S.A. Spain 0.00% 50.00% 50.00% 50.00% Real estate services Joint venture 1 0 0 Unicre-Instituição Financeira de Crédito, S.A. Portugal 0.00% 21.83% 21.86% 21.86% Finance company Associated 409 99 20 Unión de Créditos Inmobiliarios, S.A., EFC Spain 0.00% 50.00% 50.00% 50.00% Mortgage credit company Joint venture 11,294 459 7 VCFS Germany GmbH Germany 0.00% 50.00% 50.00% 50.00% Marketing Joint venture 1 0 0 Venda de Veículos Fundo de Investimento em Direitos Creditórios Brazil — (h) — — Securitizations Joint venture 107 103 4 Volvo Car Financial Services UK Limited United Kingdom 0.00% 50.01% 50.01% 50.00% Leasing Joint venture 927 81 (4) Webmotors S.A. Brazil 0.00% 62.94% 70.00% 70.00% Services Joint venture 54 32 10 Zurich Santander Brasil Seguros e Previdência S.A. Brazil 0.00% 48.79% 48.79% 48.79% Insurance Associated 11,892 365 106 Zurich Santander Brasil Seguros S.A. Brazil 0.00% 48.79% 48.79% 48.79% Insurance Associated 156 (2) 29 Zurich Santander Holding (Spain), S.L. Spain 0.00% 49.00% 49.00% 49.00% Holding company Associated 1,182 936 246 Zurich Santander Holding Dos (Spain), S.L. Spain 0.00% 49.00% 49.00% 49.00% Holding company Associated 587 384 204 Zurich Santander Insurance América, S.L. Spain 49.00% 0.00% 49.00% 49.00% Holding company Associated 1,996 1,490 475 Zurich Santander Seguros Argentina S.A. (j) Argentina 0.00% 49.00% 49.00% 49.00% Insurance Associated 60 18 18 Zurich Santander Seguros de Vida Chile S.A. Chile 0.00% 49.00% 49.00% 49.00% Insurance Associated 213 23 30 Zurich Santander Seguros Generales Chile S.A. Chile 0.00% 49.00% 49.00% 49.00% Insurance Associated 249 45 13 Zurich Santander Seguros México, S.A. Mexico 0.00% 49.00% 49.00% 49.00% Insurance Associated 887 34 88 Zurich Santander Seguros Uruguay S.A. Uruguay 0.00% 49.00% 49.00% 49.00% Insurance Associated 32 14 7 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results a.Amount according to the provisional books at the date of publication of these annexes of each company generally referring to 31 December 2021, unless otherwise indicated because the annual accounts have not yet been prepared. Data for foreign companies are converted into euros at the year-end exchange rate. b.Data as at 31 December 2020, latest available accounts. c.Data as at 31 December 2019, latest available accounts. d.The Group is entitled to receive 51.28% of the dividends distributed by the company. e.Company in liquidation as at 31 December 2021. f.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 companies controlled by the parent company or by 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 the companies indirectly dependent on it, is that corresponding to the dependent company that directly participates in the share capital of the latter. g.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 financial statements must give (in accordance with articles 48 of the Commercial Code and 260 of the Spanish Companies Act). h.Companies over which joint control is maintained. i.Data as at 31 October 2020, latest available accounts. j.Data as at 30 June 2021, latest available accounts. k.Company with no financial information available. l.Data as at 30 November 2018, latest available accounts. m.Data as at 30 April 2021, latest available accounts. n.Company in liquidation. Pending registration. o.Company recently incorporated, no accounts available. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 795 Appendix III Issuing subsidiaries of shares and preference shares % of ownership held by Banco Santander EUR million (a) Company Location Direct Indirect Activity Capital Reserves Cost of preferred Net results Emisora Santander España, S.A. Unipersonal Spain 100.00% 0.00% Finance company 2 0 0 0 Santander UK (Structured Solutions) Limited United Kingdom 0.00% 100.00% Finance company 0 0 0 0 Sovereign Real Estate Investment Trust United States 0.00% 100.00% Finance company 4,931 (3,219) 43 74 a.Amount according to the books of each interim company as at 31 December 2021, converted into euro (in the case of foreign companies) at the year-end exchange rate. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 796 Appendix IV Notifications of acquisitions and disposals of investments in 2021 Details of the notifications of acquisitions and disposals of participations for 2021 in accordance with Article 125 of the Securities Market Law may be found below: On 10 May 2021, Banco Santander, S.A. notified to the CNMV of the increase of its stake in REPSOL above the 3% threshold up to 3.584%, dated as of 4 May 4 2021. On 25 June 2021, Banco Santander, S.A. notified to the CNMV of the decrease of its stake in REPSOL, S.A. below the 3% threshold up to 2.718%, dated as of 21 June 2021. On 26 November 2021, Banco Santander, S.A. notified to the CNMV of the increase of its stake in REPSOL above the 3% threshold up to 3.829%, dated as of 22 November 2021. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 797 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 2021, 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 2021, there were no approved capital increases. c)Share capital authorised by the shareholders at the general meeting The shareholders resolved at the Annual General Meeting held on 18 March 2021, to authorise unconditionally, the company to carry out the following repurchases of the  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 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 798 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 2021 year-end, the bank’s treasury shares consisted of 15,755,205 ordinary shares and 15,755,205 preferred shares, with a total of 31,510,410 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 2021, 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. 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 2021, 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 2021 there were no approved capital increases. c) Capital authorised by the shareholders at the general meeting Not applicable. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 799 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 December 8, 2021 the period for the acceptance of the public offering to acquire up to 561,353,228 shares of Banco Santander México that were not held directly by Banco Santander, S.A., which represented the 8.27% of the capital stock Banco Santander Méxcio. As a result of the offer Banco Santander, S.A. increased its position in Banco Santander México from 91.64% to 96.15%, with the remaining 3.76% held by minority shareholders, 0.08% in own shares and 0.01% to Gesban México Servicios Administrativos Globales, 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 Gesban México Servicios Administrativos Globales,, 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 1,438,256,710 shares which represent the 21.19% 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 32,485,600,110.00 Mexican pesos (thirty-two thousand four hundred eighty-five million six hundred thousand one hundred ten  Mexican pesos) represented by a total of 8,592,294,357 (eight thousand five hundred ninety-two million two hundred ninety-four thousand three hundred fifty-seven) shares with a nominal value of 3.780782962 Mexican pesos (three Mexican pesos 780782962/1000000000) each one; divided in 4,385,824,012 (four thousand three hundred eighty-five million eight hundred twenty-four thousand twelve) stocks  “F” Series and 4,206,470,345 four thousand two hundred six million four hundred seventy thousand three hundred forty-five) 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 for the conversion of obligations into shares of the Company is  6,825,447,481.00 Mexican pesos, (six thousand eight hundred twenty-five million four hundred forty- seven thousand four hundred eighty-one), represented by a total of 1,805 ,300,000 (one thousand eight hundred five million three hundred thousand) shares with a nominal value of  3,780782962 Mexican pesos (three pesos 780782962/1000000000 ) each; divided into 921,514,867 (nine hundred twenty-one million five hundred fourteen thousand eight hundred sixty-seven) Series “F” shares and 883,785,133 (eight hundred eighty-three million seven hundred eighty-five thousand one hundred thirty-three) Series “B shares ". 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: Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 800 Instrument Type Term Amount Available Issuance Program of unsecured bonds and unsecured certificates of deposit Revolving 4-Mar-26 55,000 million Mexican pesos, or its equivalent in UDIs, dollars or any other foreign currency $27,461 million Mexican pesos With fix rate according to Banxico 31/Dec/ 2021 Private banking structured bonds Act Not Revolving\* 16-Ago-34 20,000 million Mexican pesos $3,356  million Mexican pesos Structured bonds without public offering Not Revolving 16-Feb-32 10,000 million Mexican pesos $10,000 million Mexican pesos Senior Bonds Not Revolving 09-Nov-22 1,000 million American dollars N/A Capital Notes (Tier 2 Capital) Not Revolving 1-Oct-2028 1,300 million American dollars N/A Senior notes 144.ª/RegS Not Revolving 17- Abr-2025 1,750 million American dollars N/A Subordinated Notes, perpetual and convertible (Tier 1) Not Revolving Perpetual 700 million American dollars N/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 will 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. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 801 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. On September 15, 2021, Banco Santander Mexico issued abroad the “Perpetual Subordinated Non-Preferred Contingent Convertible Additional Tier 1 Notes”, up to an amount of 700,000,000.00. American dollars. On the same date, the Bank paid the “2016 Obligations” above mentioned, on a fixed initial rate of 4.625% up to an amount of 700,000,000.00.American dollars. 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 1,256,195,888 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 423,060 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. b) Capital increases in progress At 31 December 2021, 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 2021, 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 2021, there were no approved capital increases. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 802 c) Capital authorised by the shareholders at the general meeting Share capital at 31 December 2021 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 promotion agency. 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, 2021, 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, 2021, there were no equity increases in progress. c) Capital authorised by the shareholders at the general meeting There was no share capital increase in 2021. 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. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 803 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 16,200 million, including more than EUR 7,600 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 4,012 million in 2021, with an effective tax rate of 27.6%) 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. 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 4,894 million in 2021, representing an effective rate of 33.6%, or, discounting extraordinary results, EUR 5,076 million, which represents an effective rate of 33.3%,  see note 27 and 51.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 2021. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 804 The breakdown of information is as follows : 2021 Jurisdiction Turnover (millions of euros) Employees Gross profit or loss before tax (EUR million) Tax on profit or loss (EUR million) Germany 1,659 5,097 650 204 Argentina 1,362 8,637 274 115 Austria 177 348 86 17 Bahamas 4 26 (2) 2 Belgium 75 171 58 3 Brazil1 10,585 45,191 4,383 1,385 Canada 55 203 20 5 Chile 2,406 10,334 1,140 180 China 22 72 1 — Colombia 49 334 6 4 United Arab Emirates — 24 (2) — Spain2 7,026 33,408 (1,588) 399 United States 7,389 14,994 3,693 376 Denmark 176 218 113 10 Finland 117 166 64 14 France 823 975 474 93 Greece — 18 (4) — Hong Kong 94 172 13 3 India — 47 — — Ireland (37) 2 (31) 1 Isle of Man 15 67 5 1 Italy 507 937 279 46 Jersey 36 73 21 1 Luxembourg 179 18 158 41 Mexico 3,529 25,428 1,086 207 Norway 255 524 95 22 Netherlands 95 268 55 51 Peru 110 292 56 26 Poland 1,929 12,314 435 206 Portugal 1,371 6,189 477 17 Puerto Rico 4 18 (12) — United Kingdom 5,722 20,820 2,292 525 Singapore 12 19 6 1 Sweden 180 251 58 26 Switzerland 138 280 45 4 Uruguay 340 1,457 143 27 Consolidated Group Total 46,404 189,392 14,547 4,012 1.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 432 million. 2.Includes the Corporate Centre. At 31 December 2021, the Group’s return on assets (ROA) was 0.62%. Contents [Auditor's](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_664) [Consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_676) [Notes to the consolidated](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [financial statements](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_694) [Appendix](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_1048) Annual report 2021 805 Pursuant to Article 253, section 1 of the revised Spanish Companies Act (Ley de Sociedades de Capital), the board of directors of Banco Santander, S.A. draws up the consolidated financial statements (comprising the consolidated balance sheet, income statement, statement of recognized income and expense, statement of changes in total equity, statement of cash flows and the notes to the consolidated financial statements) and the consolidated directors’ report for the 2021 fiscal year in eXtensible HyperText Markup Language (XHTML) format and, with respect to the main financial statements, with tags in the standard eXtensible Business Reporting Language (XBRL), all of which conforms to the single electronic reporting format required under Directive 2004/109/EC and Delegated Regulation (EU) 2019/815. The directors of Banco Santander, S.A., listed below with an indication of their respective positions, declare that, to the best of their knowledge, the company's consolidated financial statements for the 2021 financial year were drawn up in accordance with the applicable accounting principles and give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and of the undertakings included in the consolidation taken as a whole, and that the consolidated directors’ report includes a fair review of the development, performance and position of the company and of the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Boadilla del Monte (Madrid), 24 February 2022 ANA PATRICIA BOTÍN-SANZ DE SAUTUOLA Y O’SHEA Chair BRUCE CARNEGIE-BROWN                                              JOSÉ ANTONIO ÁLVAREZ ÁLVAREZ Vice Chair                                                                          Vice Chair and Chief Executive Officer Annual report 2021 806 MEMBERS: HOMAIRA AKBARI LUIS ISASI FERNÁNDEZ DE BOBADILLA FRANCISCO JAVIER BOTÍN-SANZ DE SAUTUOLA Y O’SHEA HENRIQUE MANUEL DRUMMOND BORGES CIRNE DE CASTRO SOL DAURELLA COMADRÁN SERGIO AGAPITO LIRES RIAL GINA DÍEZ BARROSO R. MARTÍN CHÁVEZ MÁRQUEZ RAMIRO MATO GARCÍA-ANSORENA BELÉN ROMANA GARCÍA ÁLVARO ANTONIO CARDOSO DE SOUZA PAMELA ANN WALKDEN Annual report 2021 807 #### 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-39000013. 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. Annual report 2021 808 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 Annual report 2021 809 Annual report 2021 810 ### Part 2. ### Supplemental information Annual report 2021 811 Table of contents: 1.[Supplemental information to the consolidated directors' report](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9089) [813](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9089) [Corporate governance code](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9084) [813](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9084) [Branches](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9074) [813](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9074) [Important events](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9079) [813](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9079) 2.Financial statements of Banco Santander, S.A. [814](#ib70c1dbd4c724ce7b3d4a599ad10bdc6_9069) Auditor's report Annual accounts Annual report 2021 812 1. Supplemental information to the  consolidated directors' report 1.1. Corporate governance code The CNMV’s Good Governance Code for Listed Companies (Spanish Corporate Governance Code), referred to in section 9 of the ‘Corporate governance’ chapter and to which Banco Santander is subject, is publicly available on the website of the CNMV (Comisión Nacional del Mercado de Valores), https://www.cnmv.es/DocPortal/ Publicaciones/CodigoGov/CBG\_2020\_ENen.PDF. 1.2. Branches Details of Santander’s branches are set out in note 3 to the consolidated annual accounts. 1.3. Important events No significant events occurred from 1 January 2022 to 24 February 2022, being the date on which the consolidated financial statements were authorized for issue (see note 1.g to the consolidated financial statements). The following significant events occurred from 25 February 2022 to the date of filing of this report: Early redemption of CoCos On 1 March 2022, we announced our decision to carry out the optional early redemption of all outstanding Non-Step-Up Non- Cumulative Contingent Convertible Perpetual Preferred Tier 1 Securities, with a nominal total value of EUR 750 million, with ISIN code XS1602466424 and common code 160246642, which are traded on the Global Exchange Market of the Irish Stock Exchange (the ‘CoCos’). The redemption of all of the outstanding CoCos, which was authorized by the European Central Bank, will be carried out on the First Reset Date falling on 25 April 2022 (the ‘First Reset Date’), pursuant to Conditions of the Preferred Securities of the relevant prospectus of the CoCos (Offering Circular dated 19 April 2017) (the ‘Terms and Conditions’). Our decision to exercise the optional early redemption right is irrevocable. The early redemption price, which will be equal to the outstanding nominal value (liquidation preference in the terminology of the prospectus) of each CoCo plus any accrued and unpaid distribution associated to each CoCo up to (but excluding) the First Reset Date, will be paid to the holders of the Preferred Securities by the Principal Paying Agent, in accordance with the Terms and Conditions, on 25 April 2022. Buy-Back Programme On 14 March 2022, Banco Santander announced the commencement of a new program to repurchase own shares (the "Buy-Back Programme" or the "Programme") for a maximum amount of 865 million euros. The Buy-Back Programme will be executed pursuant to the resolutions adopted by the general shareholders´ meeting held on 3 April 2020, and will have the following characteristics: •Purpose of the Buy-Back Programme: to reduce the Bank’s share capital through the redemption of the shares acquired under the Programme in the share capital reduction submitted for approval by the 2022 Annual Shareholders' Meeting. •Maximum investment: the Buy-Back Programme will have a maximum monetary amount of €865 million (equivalent to approximately 20% of the Group's underlying profit in the second half of 2021). •Maximum price: Banco Santander intends to implement the Buy-Back Programme in a way that causes the average purchase price of shares not to exceed 4.12 euro, corresponding to the tangible book value per share at 31 December 2021. •Maximum number of shares: The maximum number of shares that may be acquired pursuant to the Programme will depend on the average price at which they are acquired, but will not exceed 10 % of the Bank’s share capital. •Other conditions: shares will be purchased at market price, subject to some restrictions. Annual report 2021 813 2. Financial statements of Banco Santander, S.A. Annual report 2021 814 #### Banco Santander, S.A. #### Auditor’s report, Annual accounts and directors’ report for the year ended31 December 2021 Translation of annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to Banco Santander in Spain (see notes 1 and 49). In the event of a discrepancy, the Spanish-language version prevails. #### Banco Santander, S.A. #### Financial statements for the year ended31 December 2021 Translation of annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to Banco Santander in Spain (see notes 1 and 49). In the event of a discrepancy, the Spanish-language version prevails. Translation of annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to Banco Santander in Spain (see notes 1 and 49). In the event of a discrepancy, the Spanish-language version prevails. #### Banco Santander, S.A. BALANCE SHEETS AS OF 31 DECEMBER 2021 AND 2020 EUR Million CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEPOSITS ON DEMAND 6 91,736 67,561 FINANCIAL ASSETS HELD FOR TRADING 86,085 81,437 Derivatives 9 & 11 42,023 53,362 Equity instruments 8 14,619 9,758 Debt instruments 7 14,320 18,243 Loans and advances 15,123 74 Central banks 6 1,118 — Credit institutions 6 6,980 3 Customers 10 7,025 71 Memorandum items: lent or delivered as guarantees with disposal or pledge rights 31 22,440 8,540 NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS 2,355 2,225 Equity instruments 8 908 305 Debt instruments 7 734 671 Loans and advances 713 1,249 Central banks 6 — — Credit institutions 6 — — Customers 10 713 1,249 Memorandum items: lent or delivered as guarantees with disposal or pledge rights 31 154 329 FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS 13,403 33,899 Debt instruments 7 — — Loans and advances 13,403 33,899 Central banks 6 — 482 Credit institutions 6 3,445 9,888 Customers 10 9,958 23,529 Memorandum items: lent or delivered as guarantees with disposal or pledge rights 31 — 3,642 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME 15,035 22,623 Equity instruments 8 & 25 1,705 1,942 Debt instruments 7 & 25 9,394 15,146 Loans and advances 3,936 5,535 Central banks 6 — — Credit institutions 6 — — Customers 10 3,936 5,535 Memorandum items: lent or delivered as guarantees with disposal or pledge rights 31 2,348 2,293 ASSETS Note 2021 2020\* 2 FINANCIAL ASSETS AT AMORTIZED COST 339,053 311,020 Debt instruments 7 17,208 11,413 Loans and advances 321,845 299,607 Central banks 6 26 21 Credit institutions 6 35,084 34,159 Customers 10 286,735 265,427 Memorandum items: lent or delivered as guarantees with disposal or pledge rights 31 1,513 2,607 HEDGING DERIVATIVES 32 1,648 3,137 CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK 32 120 206 INVESTMENTS 88,549 84,890 Group entities 13 85,272 81,560 Joint venture entities 257 248 Associated entities 13 3,020 3,082 TANGIBLE ASSETS 15 6,515 6,680 Property, plant and equipment 6,244 6,462 For own-use 5,392 5,715 Leased out under an operating lease 852 747 Investment property 271 218 Of which, Leased out under an operating lease 271 218 Memorandum items: acquired in financial leasing 2,695 2,879 INTANGIBLE ASSETS 16 896 948 Goodwill 396 458 Other intangible assets 500 490 TAX ASSETS 24 9,622 9,282 Current tax assets 1,003 721 Deferred tax assets 8,619 8,561 OTHER ASSETS 1,940 4,174 Insurance contracts linked to pensions 14, 17 & 23 381 423 Inventories 17 — — Other 17 1,559 3,751 NON-CURRENT ASSETS HELD FOR SALE 12 993 1,287 TOTAL ASSETS 657,950 629,369 ASSETS Note 2021 2020\* \* Presented for comparison purposes only (note 1.d). The accompanying notes 1 to 49  and Appendices are an integral part of the balance sheet as of 31 December 2021. 3 Translation of annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to Banco Santander in Spain (see notes 1 and 49). In the event of a discrepancy, the Spanish-language version prevails. BALANCE SHEETS AS OF 31 DECEMBER 2021 AND 2020 EUR Million LIABILITIES Note 2021 2020\* FINANCIAL LIABILITIES HELD FOR TRADING 56,969 61,014 Derivatives 9 & 11 40,672 50,676 Short positions 9 9,244 10,338 Deposits 7,053 — Central banks 18 44 — Credit institutions 18 5,718 — Customers 19 1,291 — Marketable debt securities 20 — — Other financial liabilities 22 — — FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS 12,743 16,890 Deposits 12,743 16,890 Central banks 18 607 1,469 Credit institutions 18 1,067 4,496 Customers 19 11,069 10,925 Marketable debt securities 20 — — Other financial liabilities 22 — — Memorandum items: subordinated liabilities — — FINANCIAL LIABILITIES AT AMORTIZED COST 510,272 474,619 Deposits 396,154 376,837 Central banks 18 64,649 60,372 Credit institutions 18 35,262 40,725 Customers 19 296,243 275,740 Marketable debt securities 20 104,094 87,902 Other financial liabilities 22 10,024 9,880 Memorandum items: subordinated liabilities 20 & 21 20,399 17,124 HEDGING DERIVATIVES 32 2,076 1,780 CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK — — PROVISIONS 23 4,349 5,007 Pensions and other post-retirement obligations 1,677 1,849 Other long term employee benefits 1,053 1,581 Taxes and other legal contingencies 516 496 Contingent liabilities and commitments 190 157 Other provisions 913 924 TAX LIABILITIES 24 1,697 1,555 Current tax liabilities 176 45 Deferred tax liabilities 1,521 1,510 OTHER LIABILITIES 17 3,271 3,567 LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE — — TOTAL LIABILITIES 591,377 564,432 \* Presented for comparison purposes only (note 1.d). The accompanying notes 1 to 49 and Appendices are an integral part of the balance sheet as of 31 December 2021. 4 Translation of annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to Banco Santander in Spain (see notes 1 and 49). In the event of a discrepancy, the Spanish-language version prevails. BALANCE SHEETS AS OF 31 DECEMBER 2021 AND 2020 EUR Million EQUITY Note 2021 2020\* SHAREHOLDERS’ EQUITY 26 68,375 66,498 CAPITAL 8,670 8,670 Called up paid capital 27 8,670 8,670 Unpaid capital which has been called up — — Memorandum items: uncalled up capital — — SHARE PREMIUM 28 47,979 52,013 EQUITY INSTRUMENTS ISSUED OTHER THAN CAPITAL 30 658 627 Equity component of compound financial instruments — — Other equity instruments issued 658 627 OTHER EQUITY INSTRUMENTS 30 147 157 ACCUMULATED RETAINED EARNINGS 29 9,683 9,683 REVALUATION RESERVES — — OTHER RESERVES 29 (1,017) (1,095) (-) OWN SHARES 30 (841) — RESULTS FOR THE PERIOD 4 3,932 (3,557) (-) INTERIM DIVIDENDS 4 (836) — OTHER COMPREHENSIVE INCOME OR LOSS (1,802) (1,561) ITEMS THAT WILL NOT BE RECLASSIFIED TO PROFIT OR LOSS 25 (1,858) (1,882) Actuarial gains or - losses in defined benefit pension plans (1,329) (1,351) Non-current assets and disposal groups that have been classified as held for sale — — Changes in the fair value of equity instruments measured at fair value with changes in other comprehensive income (468) (537) Ineffectiveness 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] 271 154 Changes in the fair value of equity instruments measured at fair value with changes in other comprehensive income [hedging instrument] (271) (154) Changes in the fair value of financial liabilities at fair value through profit or loss attributable to changes in credit risk (61) 6 ITEMS THAT MAY BE RECLASSIFIED TO PROFIT OR LOSS 25 56 321 Hedge of net investments in foreign operations [effective part] — — Currency conversion — — Hedging derivatives. Cash flow hedge reserve [effective part] (87) (189) Changes in the fair value of debt instruments measured at fair value with changes in other comprehensive income 143 510 Hedging instruments [non-designated items] — — Non-current assets and disposal groups that have been classified as held for sale — — TOTAL EQUITY 66,573 64,937 TOTAL LIABILITIES AND EQUITY 657,950 629,369 MEMORANDUM ITEMS Financial guarantees granted 31 10,489 10,135 Loan commitments granted 31 111,410 96,959 Other commitments granted 31 59,421 50,686 \* Presented for comparison purposes only (note 1.d). The accompanying notes 1 to 49 and Appendices are an integral part of the balance sheet as of 31 December 2021. 5 Translation of annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to Banco Santander in Spain (see notes 1 and 49). In the event of a discrepancy, the Spanish-language version prevails. INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 EUR Million Interest income 34 6,405 6,528 Financial assets at fair value through other comprehensive income 236 256 Financial assets at amortized cost 4,847 5,078 Other interest income 1,322 1,194 Interest expense 35 (2,785) (3,160) Expenses for capital stock repayable on demand — — Interest income/(changes) 3,620 3,368 Dividend income 36 5,489 5,642 Commission income 37 3,119 2,811 Commission expense 38 (541) (494) Gains or losses on financial assets and liabilities not measured at fair value through profit or loss, net 39 318 578 Financial assets at amortized cost 39 19 10 Other financial assets and liabilities 39 299 568 Gains or losses on financial assets and liabilities held for trading, net 39 175 (29) Reclassification of financial assets at fair value through other comprehensive income — — Reclassification of financial assets at amortized cost — — Other gains (losses) 175 (29) Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss 39 (45) (290) Reclassification of financial assets at fair value through other comprehensive income — — Reclassification of financial assets at amortized cost — — Other gains (losses) (45) (290) Gains or losses on financial assets and liabilities measured at fair value through profit or loss, net 39 38 4 Gains or losses from hedge accounting, net 39 (28) 10 Exchange differences, net 40 (205) 372 Other operating income 41 441 404 Other operating expenses 41 (894) (785) Total income 11,487 11,591 Administrative expenses (4,673) (4,602) Staff costs 42 (2,707) (2,586) Other general administrative expenses 43 (1,966) (2,016) Depreciation and amortisation cost 15 & 16 (570) (625) Provisions or reversal of provisions, net 23 (758) (1,133) Impairment or reversal of impairment at financial assets not measured at fair value through profit or loss and net gains and losses from changes 7 &10 (2,287) (2,559) Financial assets at fair value through other comprehensive income (1) (4) Financial assets at amortized cost (2,286) (2,555) Impairment or reversal of impairment of investments in subsidiaries, joint ventures and associates, net 44 800 (5,921) Impairment or reversal on non-financial assets, net (85) (63) Tangible assets 15 (85) (62) Intangible assets 16 — (1) Others — — Gain or losses on non-financial assets and investments, net 45 — 1,142 (Debit) Credit Note 2021 2020\* 6 Negative goodwill recognised in results — — Gains or losses on non-current assets held for sale not classified as discontinued operations 12 & 46 (50) (77) Operating profit/(loss) before tax 3,864 (2,247) Tax expense or income from continuing operations 24 68 (1,310) Profit/(loss) from continuing operations 3,932 (3,557) Profit/(loss) after tax — — Profit/(loss) for the year 3,932 (3,557) (Debit) Credit Note 2021 2020\* \* Presented for comparison purposes only (note 1.d). The accompanying notes 1 to 49 and Appendices are an integral part of the income statement the year ended  as of 31 December 2021. 7 Translation of annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to Banco Santander in Spain (see notes 1 and 49). In the event of a discrepancy, the Spanish-language version prevails. STATEMENTS OF RECOGNISED INCOME AND EXPENSES  FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 EUR Million Note 2021 2020\* PROFIT/LOSS FOR THE YEAR 3,932 (3,557) OTHER RECOGNISED INCOME AND EXPENSES 25 (662) (1,221) Items that will not be reclassified to profit or loss (397) (858) Actuarial gains and losses on defined benefit pension plans 29 (77) Other recognised income and expense of investments in subsidiaries, joint venture and associates — — Changes in the fair value of equity instruments measured at fair value through other comprehensive income, net (347) (796) 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) 117 4 Changes in the fair value of equity instruments measured at fair value through other comprehensive income  (hedging instrument) (117) (4) Changes in the fair value of financial liabilities at fair value through profit or loss attributable to changes in credit risk (93) 4 Income tax relating to items that will not be reclassified 24 14 11 Items that may be reclassified to profit or loss (265) (363) Hedges of net investments in foreign operations (Effective portion) — — Revaluation gains (losses) — — Amounts transferred to income statement — — Other reclassifications — — Exchanges differences — — Revaluation gains (losses) — — Amounts transferred to income statement — — Other reclassifications — — Cash flow hedges (Effective portion) 146 (206) Revaluation gains or (losses) 152 (239) Amounts transferred to income statement (6) 33 Transferred to initial carrying amount of hedged items — — Other reclassifications — — 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 (524) (316) Revaluation gains (losses) (243) 244 Amounts transferred to income statement (281) (560) Other reclassifications — — Non-current assets held for sale — — Revaluation gains (losses) — — Amounts transferred to income statement — — Other reclassifications — — Income tax related to items that may be reclassified to profit or loss 24 113 159 Total recognised income and expenses for the year 3,270 (4,778) \* Presented for comparison purposes only (note 1.d). The accompanying notes 1 to 49 and Appendices are an integral part of the statement of recognized income and expenses for the year ended  as of 31 December 2021. 8 Translation of annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to Banco Santander in Spain (see notes 1 and 50). In the event of a discrepancy, the Spanish-language version prevails. STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 EUR Million Capital Share premium Equity instruments issued (not capital) Other equity instruments Accumulated retained earnings Revaluation reserves Other reserves (-) Own Equity shares Result for the period (-) Interim dividends Other comprehensive income Total Balance at 31 December 2020\* 8,670 52,013 627 157 9,683 — (1,095) — (3,557) — (1,561) 64,937 Adjustments due to errors — — — — — — — — — — — — Adjustments due to changes in accounting policies — — — — — — — — — — — — Opening balance at 1 January 2021\* 8,670 52,013 627 157 9,683 — (1,095) — (3,557) — (1,561) 64,937 Total recognised income and expense — — — — — — — — 3,932 — (662) 3,270 Other changes in equity — (4,034) 31 (10) — — 78 (841) 3,557 (836) 421 (1,634) Issuance of ordinary shares — — — — — — — — — — — — Issuance of preferred shares — — — — — — — — — — — — Issuance of other financial instruments — — — — — — — — — — — — Maturity of other financial instruments — — — — — — — — — — — — Conversion of financial liabilities into equity — — — — — — — — — — — — Capital reduction — — — — — — — — — — — — Dividends — (477) — — — — — — — (836) — (1,313) Purchase of equity instruments — — — — — — — (1,446) — — — 1,446 Disposal of equity instruments — — — — — — — 605 — — — 605 Transfer from equity to liabilities — — — — — — — — — — — — Transfer from liabilities to equity — — — — — — — — — — — — Transfers between equity items — (3,557) — — — — (421) — 3,557 — 421 — Increases (decreases) due to business combinations — — — — — — — — — — — — Share-based payment — — — (62) — — — — — — — (62) Others increases or (-) decreases of the equity — — 31 52 — — 499 — — — — 582 Of which, discretionary allocation to social funds (only savings banks and credit cooperatives) — — — — — — — — — — — — Balance at 31 December 2021 8,670 47,979 658 147 9,683 — (1,017) (841) 3,932 (836) (1,802) 66,573 \* Presented for comparison purposes only (note 1.d). The accompanying notes 1 to 49 and Appendices are an integral part of the statement of changes in total equity for the year ended  as of 31 December 2021. 9 Translation of annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to Banco Santander in Spain (see notes 1 and 49). In the event of a discrepancy, the Spanish-language version prevails. STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 EUR Million Capital Share premium Equity instruments issued (not capital) Other equity instruments Accumulated retained earnings Revaluation reserves Other reserves (-) Own Equity shares Result for the period (-) Interim dividends Other comprehensive income Total Balance at 31 December 2019\* 8,309 52,446 598 144 7,814 — (617) — 3,530 (1,662) (340) 70,222 Adjustments due to errors — — — — — — — — — — — — Adjustments due to changes in accounting policies — — — — — — — — — — — — Opening balance at 1 January 2020\* 8,309 52,446 598 144 7,814 — (617) — 3,530 (1,662) (340) 70,222 Total recognised income and expense — — — — — — — — (3,557) — (1,221) (4,778) Other changes in equity 361 (433) 29 13 1,869 — (478) — (3,530) 1,662 — (507) Issuance of ordinary shares 361 (72) — — — — 70 — — — — 359 Issuance of preferred shares — — — — — — — — — — — — Issuance of other financial instruments — — — — — — — — — — — — Maturity of other financial instruments — — — — — — — — — — — — Conversion of financial liabilities into equity — — — — — — — — — — — — Capital reduction — — — — — — — — — — — — Dividends — (361) — — — — — — — — — (361) Purchase of equity instruments — — — — — — — (615) — — — (615) Disposal of equity instruments — — — — — — — 615 — — — 615 Transfer from equity to liabilities — — — — — — — — — — — — Transfer from liabilities to equity — — — — — — — — — — — — Transfers between equity items — — — (1) 1,869 — — — (3,530) 1,662 — — Increases (decreases) due to business combinations — — — — — — — — — — — — Share-based payment — — — (53) — — — — — — — (53) Other increases or (-) decreases of the equity — — 29 67 — — (548) — — — — (452) Of which, discretionary allocation to social funds (only savings banks and credit cooperatives) — — — — — — — — — — — — Balance at 31 December 2020\* 8,670 52,013 627 157 9,683 — (1,095) — (3,557) — (1,561) 64,937 \* Presented for comparison purposes only (note 1.d). The accompanying notes 1 to 49 and Appendices are an integral part of the statements of changes in total equity for the year ended 31 December 2021. 10 Translation of annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to Banco Santander in Spain (see notes 1 and 49). In the event of a discrepancy, the Spanish-language version prevails. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 EUR Million A. CASH FLOWS FROM OPERATING ACTIVITIES 20,034 37,842 Profit or loss for the year 4 3,932 (3,557) Adjustments made to obtain the cash flows from operating activities 2,052 12,938 Depreciation and amortization cost 15 & 16 570 625 Other adjustments 1,482 12,313 Net increase/(decrease) in operating assets 9,622 (7,513) Financial assets held-for-trading 4,648 (5,146) Non-trading financial assets mandatorily at fair value through profit or loss 130 (394) Financial assets designated at fair value through profit or loss (20,496) (15,962) Financial assets at fair value through other comprehensive income (7,166) (9,299) Financial assets at amortized cost 36,675 26,903 Other operating assets (4,169) (3,615) Net increase/(decrease) in operating liabilities 24,024 21,199 Financial liabilities held-for-trading (4,045) (3,341) Financial liabilities designated at fair value through profit or loss (4,147) (7,374) Financial liabilities at amortized cost 32,660 35,268 Other operating liabilities (444) (3,354) Income tax recovered/(paid) (352) (251) B. CASH FLOWS FROM INVESTING ACTIVITIES 4,083 (3,263) Payments 2,266 8,001 Tangible assets 15 501 489 Intangible assets 16 110 73 Investments 13 1,655 7,439 Subsidiaries and other business units — — Non-current assets held for sale and associated liabilities — — Other payments related to investing activities — — Proceeds 6,349 4,738 Tangible assets 15 119 118 Intangible assets 16 — — Investments 13 & 36 5,959 4,398 Subsidiaries and other business units — — Non-current assets held for sale and associated liabilities 271 222 Other proceeds related to investing activities — — C. CASH FLOW FROM FINANCING ACTIVITIES (277) 1,087 Payments 5,322 3,250 Dividends 4 1,313 — Subordinated liabilities 21 2,248 2,348 Redemption of own equity instruments — — Acquisition of own equity instruments 1,446 615 Other payments related to financing activities 315 287 Proceeds 5,045 4,337 Subordinated liabilities 21 4,440 3,722 Issuance of own equity instruments — — Disposal of own equity instruments 605 615 Other proceeds related to financing activities — — D. EFFECT OF FOREIGN EXCHANGE RATE CHANGES 335 (576) Note 2021 2020\* 11 E. NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 24,175 35,090 F. CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 67,561 32,471 G. CASH AND CASH EQUIVALENTS AT END OF THE YEAR 91,736 67,561 MEMORANDUM ITEMS COMPONENTS OF CASH AND CASH EQUIVALENTS AT END OF THE YEAR Cash 1,184 1,302 Cash equivalents at central banks 88,268 63,984 Other financial assets 2,284 2,275 Less - Bank overdrafts refundable on demand — — TOTAL OF CASH AND CASH EQUIVALENTS AT END OF THE YEAR 91,736 67,561 Note 2021 2020\* \* Presented for comparison purposes only (note 1.d). The accompanying notes 1 to 49 and Appendices are an integral part of the statement of cash flows for the year ended as of 31 December 2021. 12 Translation of annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to Banco Santander in Spain (see notes 1 and 49). In case of discrepancy, the Spanish version prevails. #### Banco Santander, S.A. Notes to the financial statements (annual accounts) for the year ended 31 December 2021. 1. Introduction, basis of presentation of the financial statements (annual accounts) and other information #### a) Introduction Banco Santander, S.A. ('the Bank' 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 ('Grupo 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. Banco Santander annual accounts for the financial year 2020 were approved in the Banco Santander general shareholders' meeting held on 26 March 2021. The Group's 2021 consolidated financial statements, the financial statements of Banco Santander 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. Appendix IX includes the list of agents that assist Banco Santander on the performance of its business activities in Spain. #### b) Basis of presentation of the financial statements #### (annual accounts) Banco Santander financial statements for the year ended 2021 have been formulated by Banco Santander directors (at the Board of Directors meeting on February 24, 2022) in accordance with Bank of Spain Circular 4/2017 and subsequent amendments, as well as the commercial regulations applicable to the Bank. Accounting principles, policies and measurement criteria are applied by the bank as set forth in note 2, in order to faithfully represent Banco Santander´s equity and financial position as of 31 December 2021 and 2020, results of its operations, recognized revenue and expenditure, changes in total equity and cash flows pertaining to financial year 2021 and 2020. These annual accounts have been prepared using the accounting records maintained by Banco Santander. The notes to the financial statements contain additional information to that presented on the balance sheet, income statement, statement of recognized income and expense, statement of changes in total equity and 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 related interpretations The following is a summary of the main Bank of Spain Circulars issued that became applicable to Banco Santander in financial year 2021: Bank of Spain Circular 1/2021, of January 28, which modifies Circular 1/2013, of May 24, on the Risk Information Center, and Circular 5/2012, of June 27 , to credit institutions and payment service providers, on transparency of banking services and responsibility in granting loans. (BOE of January 30, 2021). The main objective of this circular is to adapt Bank of Spain Circulars 1/2013 of May 24 over the Risk Information Center and Circular 5/2012 over the transparency of banking services and responsibility in the granting of loans to the changes in the regulation of the Risk Information Center (CIR), as well as to update the official reference rates by Order ETD/699/2020 (by 13 which the order Order ECO/ 697/2004 and Order 23 EHA/2899/2011, on transparency and protection of banking services clients). On July 27, the Rev. Credit OM was published in the Official State Bulletin (BOE) where, among other regulations, Order ECO/697/2004 of March 11 on the Central Risk Information (hereinafter,'OM de la CIR') was modified. Among the objectives of this order is to improve the information available to lenders in performing solvency analyses of potential borrowers, avoiding over-indebtedness positions that lead borrowers to fail to comply with their financial obligations. Having the appropriate information that allows a solid assessment of solvency to prevent situations of excessive indebtedness, takes on special relevance in the context of the economic and social impact caused by the covid-19 health crisis. On the other hand, the exceptional situation created by covid-19 has made it necessary to deploy different financial measures to mitigate the economic impact of the pandemic. These measures have been articulated in four royal decree-laws that describe the conditions to finance individuals, companies and the self-employed in relation to the implementation of moratoriums and government guarantees, as well as private moratoriums promoted by associated entities. In order to comply with the regulations over information possessed by lenders, imposed  by said royal decree laws, and to support  the supervision and inspection efforts by the Bank of Spain, reporting entities were requested to send the CIR certain information regarding the characteristics of  loans affected by the aforementioned measures. Additionally, the second rule of the circular modifies certain  aspects of Circular 5/2012, in regards to official interest rates by the modification of Order EHA/2899/2011. This change is intended, among other ends, to increase the amount of official interest rate alternatives  available to entities, who then apply them in granting loans and modifying existing contracts. In order to accomplish this,  a review is conducted of the different official reference rates available and modifications are made to naming conventions of existing rates. In this regard, the circular updates the list of official rates within the Transparency OM and establishes the scope and procedures for determining the new indices. The application of the circular has not had a significant effect on the  Bank's annual accounts. Bank of Spain Circular 2/2021, of January 28, which modifies Bank of Spain Circular 8/2015, of December 18, to the entities and branches subscribed to the Deposit Guarantee Fund of Credit Institutions, over information to determine the basis for calculating contributions to the Deposit Guarantee Fund for Credit Institutions. (BOE of February 2, 2021). The objective of this circular is to incorporate changes made to Royal Decree 2017/2008 into the Bank of Spain circular 8/2015, establishing how to collect new information which must be made available to the Bank of Spain, credit institutions, and FGD-subscribed branches. This is outlined within 'Information in determining the basis for calculating contributions to the Deposit Guarantee Fund'  as well as the 'Received deposit registry’, which appear in annexes 1 and 2, respectively, of the aforementioned Circular 8/2015. The regulation modifies Circular 8/2015 as follows: •The fourth rule has been modified to set the minimum frequency by which entities and FGD- subscribed branches must update the detailed deposits received registry (as regulated in annex 2). Specifically, updates must include information related to securities and cash balances held by investment companies, opened with the entity or FGD-subscribed branch and in the name of the investment services company on behalf of its clients. •Schedule 1, 'Information to determine the basis for calculating contributions to the Deposit Guarantee Fund', has been replaced by another schedule of the same name, schedule 1, which consists of two parts, A and B. In part A’s template, 'Information regarding the compartmentalization of deposit and securities guarantees', information is kept until the establishment of this circular are sent by the entities attached to the FGD and the necessary adjustments are made to collect the information on the deposits constituted by investment services companies in instrumental and temporary cash accounts opened in the name of the investment services company in the reporting entity on behalf of its clients, as established in articles 30 quater and 43.3 of the Royal Decree 217/2008. In addition, for admissible deposits, the detail is disaggregated between those by offices located in Spain ('Business in Spain') and those branches in other European Union countries ('Business in branches in other Member States of the European Union'). Lastly, part B has been added to annex 1 of Circular 8/2015, which includes a breakdown by country of residence of the branches containing eligible and guaranteed deposits. The application of the circular has not had a significant effect on the  Bank's annual accounts. 14 Bank of Spain Circular 3/2021 of May 13, which modifies Circular 5/2012, of June 27,  regarding the definition of the reference interest rate based on the Euro short-term rate (EUR STR) to credit institutions and payment service providers, on transparency of banking services and responsibility in granting loans. (BOE of May 17, 2021). The main objective of this circular is to adapt the definition of the index based on the Euro short-term rate (EUR STR). For the purposes of its consideration as an official rate, included in annex 8, section six, of Circular 5/2012, of June 27, to credit institutions and payment service providers, on transparency of banking services and responsibility in granting loans, following the publication of the European Central Bank's Guideline (EU) 2021/565, of 17 March 2021, which modifies Guideline (EU) 2019/1265, on the short-term interest rate of the euro (EUR STR) (ECB / 2021/10), which establishes the preparation and daily publication, as of April 15, 2021, of compound average rates based on EUR STR. The application of the circular has not had a significant effect on the  Bank's annual accounts. Bank of Spain Circular 4/2021 of 25 November, to credit institutions and other supervised entities, on models of reserved statements in matters of market conduct, transparency and customer protection, and on the registration of claims. (BOE of 1 December 2021). The purpose of this circular is to establish the content and frequency of the models of reserved statements in matters of market conduct, transparency and customer protection that must be sent to the Bank of Spain. Further, the circular declares minimum amounts of claims information that said entities must have at the disposal of the Bank of Spain. The application of the circular has not had a significant effect on the  Bank's annual accounts. Bank of Spain Circular 5/2021 of 22 December, which modifies Circular 2/2016 of February 2 to credit institutions, on supervision and solvency, which completes the adaptation of the Spanish legal system to Directive 2013/36/EU and Regulation (EU) No. 575/2013. (BOE of 23 December 2021) (Correction of BOE errors of December 30, 2021). This circular covers the principles of necessity, effectiveness, proportionality, legal certainty, transparency, and efficiency, as outlined in article 129 of Law 39/2015 of October 1, on the Common Administrative Procedure of Public Administrations. In regards to the principles of necessity and effectiveness, this circular is a necessary tool for the development of the framework applicable to the new macroprudential tools that the Bank of Spain has at its disposal, in accordance with Royal Decree-Law 22 /2018 and Royal Decree 102/2019. This Decree-Law’s ultimate objective is to identify, prevent and mitigate the development of systemic risk and ensure a sustainable contribution by the financial system to economic growth: •Capital buffer requirements, as established in articles 43 to 49 of Law 10/2014. •The establishment of limits to sector concentration, in accordance with article 69 ter of Law 10/2014. •The setting of conditions over the granting of loans and other operations, by virtue of article 69 quater of Law 10/2014. The application of the circular has not had a significant effect on the  Bank's annual accounts. Bank of Spain Circular 6/2021 of 22 December, which modifies Circular 4/2017 of 27 November, to credit institutions, on public and reserved financial information standards, and models of financial statements, and Circular 4/2019 of November 26, to financial credit establishments, on standards of public and reserved financial information, and models of financial statements. (BOE of 29 December 2021). The main objective of this circular is to update Circular 4/2017 (27 of November), pertaining to credit institutions, specifically over public and reserved financial information standards, as well as financial statement models. Firstly, among the modifications that this circular incorporates in Circular 4/2017 of November 27, there includes changes in the international financial reporting standards adopted in the European Union (IFRS-EU) with regard to International Accounting Standard No. 39 and International Financial Reporting Standards 4, 7, 9 and 16. The mentioned changes are the result of an International Accounting Standards Board (IASB) project that responds to the reform of benchmark interest rate indices known as IBOR (InterBank Offered Rates). The additional detail required by the amendments to Circular 6/2021 relating to hedging relationships are included in note 32. Note 49 includes a description of Group and Bank management progress in the transition to reference rate alternatives, as well as detail over changes in risk management strategy. 15 The following is a breakdown of the carrying amount, at 31 December 2021, of financial assets, financial liabilities, derivatives and loan commitments that continue to reference the indices subject to IBOR Reform: EUR million Gross Carrying amount Loans and advances Debt securities acquired (Assets) Deposits Debt securities issued (Liabilities) Derivatives (Assets) Derivatives (Liabilities) Loan Commitments Referenced to EONIA — 68 524 284 121 244 — Referenced to LIBOR 17,608 1,649 56 2,419 9,101 13,335 948 of which USD 15,740 491 56 2,419 5,719 8,383 764 of which GBP 1,656 1,158 — — 3,370 4,922 162 TOTAL 17,608 1,717 580 2,703 9,222 13,579 948 Secondly, the models and instructions used in preparing the confidential financial statements known as FINREP, among other aspects, have been modified by Commission Execution Regulation (EU) 2021/451 of December 17, 2020, which establishes technical standards for the implementation of Regulation (EU) No. 575/2013 of the European Parliament and of the Council in relation to the communication of information for supervisory purposes by entities, which also  repeals the Execution Regulation (EU) No. 680/2014. By virtue of this implemented regulation, changes have been made to FINREP in relation to restructured, refinanced or refinancing operations (forborne exposures). This circular makes adjustments to the treatment of restructured, refinanced or refinancing operations included in annex 9, ‘Analysis and coverage of credit risk’, of Circular 4/2017 dated November 27, in order to keep it aligned with that of FINREP. Thirdly, the European Banking Authority (EBA) guidelines on the granting and monitoring of loans (EBA/ GL/2020/06) aim to, among other objectives, to improve practices, processes and procedures related to the granting of credit operations. The aforementioned guidelines have been leveraged by the Bank of Spain, the scope of which applying to both less significant credit institutions and for credit financial establishments. The European Central Bank has within it’s domain significant credit institutions. Fourthly, this circular modifies annex 9 of Circular 4/2017, dated November 27, updating the alternative solutions for collective estimations of credit risk loss coverage and discounts on the reference value of the assets awarded or received in the payment of debts. Said modification includes updates to data used in the operations declared by  entities under the periphery of the Bank of Spain and, in the case of alternative solutions, it incorporates updated forecasts on future macroeconomic conditions. Regarding the use of updated alternative solutions, it should be noted that, in accordance with the provisions of points 52 and 53 of annex 9 of Circular 4/2017, dated November 27, the decision over whether to develop internal methodologies for collective estimations of the provisions for credit losses or resort to alternative solutions is one the entity makes itself. Although these alternative solutions will not be established until June 30, 2022, Banco Santander uses internal methodologies to calculate value corrections for impairment (see notes 2.d.iii and 2.i). Fifthly, Circular 4/2017, dated November 27, was modified to reflect the update in the statistical data requirements of the Economic and Monetary Union (EMU), in accordance with the modifications established by Regulation (EU) 2021 /379 of the European Central Bank, dated January 22, regarding balance sheet items of credit institutions and the monetary financial institutions sector (recast) (ECB/2021/2). The new information that has been requested consists, on the one hand, of additional data requirements to improve the analysis of monetary and credit evolution and, on the other, of modifications of some of the existing data requirements and definitions to facilitate better integration with other statistical data sets. Finally, specific modifications are made to the reserved individual financial statements pertaining to Circular 4/2017, dated  November 27, in order to introduce new data requirements to verify compliance with regulations or collect statistical information, as well as to make the adjustments and corrections identified as necessary since the last update of said circular. The application of the circular has not had a significant effect on the  Bank's annual accounts. 16 Bank of Spain Circular 5/2020, of November 25, to payment institutions and electronic money institutions, on public and reserved financial reporting rules and model financial statements, and amending Circular 6/2001 of 29 October on holders of currency exchange establishments and Circular 4/2017 of 27 November, to credit institutions, on public and reserved financial reporting rules, and model financial statements. (Official Gazette of 4 December 2020). This circular establishes the accounting framework for payment and electronic money institutions. It also sets out the accounting documents that such entities and their affiliates have to draw up, including the model public and reserved financial statements. It also determines the rules for recognition, valuation, presentation, and information to be included in the report, as well as a breakdown of model financial statement information to be used in preparing the annual accounts. This circular acts as the accounting regulation for credit institutions, either by setting criteria similar to those communicated directly from credit institutions, or referring to the rules of Bank of Spain Circular 4/2017 of November 27 on credit rules on public and reserved financial information and models of financial statements. The application of the circular has not had a significant effect on the  Bank's annual accounts. #### c)  Use of critical estimates The results and the determination of equity are sensitive to the accounting policies, measurement bases and estimates used by the directors of Banco Santander in preparing the financial statements. The main accounting policies and measurement bases are set forth in note 2. In the financial statements estimates were occasionally made by the senior management of Banco 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 highest quality information available, relate primarily 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, 8, 10, 12, 13, 15, 16 and 49). •The assumptions used in the actuarial calculation of the post-employment benefit liabilities and commitments and other obligations  (see note 23). •The useful life of the tangible and intangible assets (see notes 15 and 16). •Assessment of the impairment of investments in group, joint venture and associated entities (see note 13). •The measurement of goodwill (see note 16). •The calculation of provisions and the consideration of contingent liabilities (see note 23). •The fair value of certain unquoted assets and liabilities (see notes 6, 7, 8, 9, 10, 11, 18, 19 and 20). •The recoverability of deferred tax assets and the income tax expense (see note 24). •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 Bank’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 is affecting the economic activity worldwide and, as a result, the Bank's operations and financial results, and which generates uncertainty in the Bank's estimates. Therefore, the Bank'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 2021 (see notes 16, 24 and 49). Although these estimates have been made on the basis of the best information available at the end of the year 2021, and considering information updated at the date of preparation of these 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 income statement. #### d) Comparative information The information contained in the 2021 annual accounts for the 2020 financial year is presented, solely and exclusively, for comparison with the information relating to 2021. #### e) Capital management i. Regulatory and economic capital Credit institutions must meet a number of minimum capital and liquidity requirements. These minimum requirements are governed by the European Capital Requirements Regulation, better known as CRR, and the Capital Requirements Directive, CRD. In June 2019, these regulations were significantly amended. The applicable regulations are now CRR II and CRD V. 17 As the Directives need to be transposed into the legal systems of the different Member States in order to be applicable, in the case of Spain, Royal Legislative Decree 7/2021 and Royal Decree 970/2021 were published for this purpose in 2021. In June 2019, CRR II introduced the minimum TLAC (Total Loss Absorbing Capacity) requirement, which only applies to global systemically important banks (G-SIBs). This requirement introduces two metrics: i) a minimum requirement for own funds and eligible liabilities as a percentage of the Total Risk Exposure Amount (TREA) set at 16% during the transition period and 18% from 1 January 2022 after the end of the transition period; and ii) a metric to set a minimum requirement for own funds and eligible liabilities as a percentage of the Total Risk Exposure Amount of 6% during the transition period and 6.75% from 1 January 2022 after the end of the transition period. This year saw the implementation of the EBA Guidelines on the Definition of New Default, which were prepared in accordance with CRR II, on 1 January 2021. The changes to CRR II that are applicable from June 2021 include the introduction of a minimum leverage ratio of 3%, the new standardised EAD calculation for counterparty risk, known as SA-CCR, the long-term liquidity ratio (NSFR), the new limits for large exposures and the requirement to report under the standardised approach for market risk. The CRD V introduces important modifications such as the regulation of Pillar 2G ('guidance', orientation of requirements by Pillar 2). On 27 October 2021, the European Commission published the draft review of  European banking legislation: CRR III and  CRD VI. The banking package consists of the following elements: 1) Implementation of the final Basel III reforms, 2) Contribution to sustainability and green transition and 3) Stronger supervision: ensuring sound management of EU banks and better protection of financial stability. In general, the Commission proposes to start applying the new rules from 1.1.2025, but the amendments to the regulation that concern resolution issues could come into force in the first months of 2022. With regard to the resolution rules, institutions must have an adequate funding structure to ensure that, in the event of financial distress, the institution has sufficient liabilities to absorb losses in order to recover its position or be resolved, while ensuring the protection of depositors and financial stability. The directive that governs the resolution framework mentioned above is the Bank Recovery and Resolution Directive (BRRD). Like the CRR and the CRD, the BRRD was amended in June 2019, so BRRD II refers to all of these amendments. The transposition of this directive into the Spanish legal system took place in 2021 through a Royal Decree. BRRDII has introduced important changes to the Minimum Requirement for Own Funds and Eligible Liabilities (MREL). For example, the TLAC requirement is now considered a Pillar 1 resolution requirement for G- SIBs. For large banks (defined as banks with total assets of more than EUR 100 billion) or banks deemed systemically important by the resolution authority, BRRDII sets a minimum subordination requirement of 13.5% of risk-weighted assets or 5% of the leverage ratio, whichever is higher. For all other institutions, the subordination requirement is set by the resolution authority on a case-by-case basis. Finally, Deposit Guarantee Schemes (DGS) are regulated by Directive 2014/49 or DSGD, which has not undergone any significant changes since its publication in 2014. It aims to harmonise the deposit guarantee schemes of the Member States, thus ensuring stability and balance in the different countries.  It creates an appropriate framework for depositors to have better access to DGSs than was the case before the publication of this Directive through clear coverage, shorter repayment periods, better information and robust funding requirements. This Directive is transposed into Spanish law by Law 11/2015, Royal Decree 1012/2015 and Royal Decree 1041/2021. In 2020, the national governments took 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 clarified 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 and for a period not exceeding 9 months. Another measure adopted in 2020 to provide flexibility in meeting the requirements was the approval and entry into force of the CRR "Quick Fix" amending CRR II (urgent and extraordinary amendments to bring about a more flexible regulatory framework in response to COVID-19). The Quick Fix introduces a number of new features, 18 including the extension of the transitional period granted before the pandemic for the entry into force of IFRS 9, due to the sudden and significant increase in expected credit loss provisions to be recognised. The implementation of certain provisions of CRR II has also been delayed, such as those relating to the leverage ratio buffer (postponed until 1 January 2023); the possibility of excluding exposures to central banks from the calculation of the leverage ratio, which should have been applied from June 2021 on, has been brought forward. Other provisions beneficial to institutions have also been brought forward. These include the support factors for SMEs and infrastructure, and the new treatment for software (applicable from the day following the publication date of the Delegated Regulation that implements it). At 31 December 2021, the Bank met the minimum capital requirements established by current legislation (see note 49.d). ii. Plan for the roll-out of advanced approaches and authorisation from the supervisory authorities Banco Santander following the Group's policies, 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. This objective of covering IRB models in the Group and the Bank should be seen in the context of the current supervisory focus on the robustness and adequacy of existing models, as well as the simplification strategy recently agreed with the ECB. 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 Banco Santander 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. 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 Spain, Chile and Mexico. For the purpose of calculating regulatory capital for operational risk, the Group and the Bank use the standardised approach provided for the CRR. In 2017 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, and therefore the Bank, do not have any environmental liability, expenses, assets, provisions or contingencies that might be material with respect to its equity, financial position or results. Grupo and Banco Santander consider the aspects related to climate change in the preparation of the ratings of its wholesale clients if they are relevant. These ratings influence the subsequent assignment of credit parameters for the calculation of the expected loss' estimate. With the reasonable and supportable information available at the date of approval of these consolidated annual accounts, the potential additional impacts of expected losses on the time horizons of the Group's portfolios, taking into account as well the mitigation measures, are not considered material. Grupo Santander, together with the rest of the financial industry, is working on developing the appropriate methodologies to improve the measurement of these losses, when the necessary regulatory developments are more advanced and information is available to carry out a more precise measurement. See additional information in note 49.a. #### g) Customer Care Service Annual Report As required by the Article 17 of Ministry of Economy Order ECO/734/2004, of 11 March, on the services and departments of Customer Service and the Customer Ombudsmen of Financial Institutions, the annual report presented by the Head of the department to the board meeting held on March 2022 is summarised in the directors' report. #### h) Deposit Guarantee Fund and Resolution Fund i.Deposit Guarantee Fund Banco Santander participates in the Deposit Guarantee Fund (DGF). The annual contribution to be made by the entities to this fund, established by Royal Decree - Law 16/2011 of October 14, by which the DGF is created in accordance with the wording given by the Tenth Final Disposition of Law 11/2015 of June 18 on Recovery and Resolution of credit institutions and investment services companies (in force since June 20, 2015), is determined by the Management Committee of the DGF and is established based on the guaranteed deposits of each entity and their risk profile. The annual contribution to be made by the entities to this fund is determined by the Management Committee of the FGD, and consists of the contribution based on the guaranteed deposits of each entity corrected for their risk profile, which includes the phase of the economic cycle and the impact of pro- cyclical contributions, according to section 3 of article 6 of the Royal Decree-Law 16/2011. 19 The purpose of the FGD is to guarantee deposits with credit institutions up to the limit established in the mentioned Royal Decree-Law. The expense incurred by the contributions accrued to this organism in the year 2021 has amounted to EUR 225 million (EUR 239 million in the year 2020), which are recorded under ‘Other operating expenses’ in the profit and loss account attached (see note 41). ii. National Resolution Fund Law 11/2015 regulates the creation of the National Resolution Fund, whose financial resources should reach, by 31 December 2024, at least 1% of the amount of secured deposits, through contributions from credit institutions and investment firms established in Spain. The details of the calculation of contributions to this Fund is regulated by Commission Delegated Regulation (EU) 2015/63 of 21 October 2014 and is calculated by the Orderly Banking Resolution Fund, on the basis of the information provided by each entity. iii. Single Resolution Fund On January 1, 2016, the Single Resolution Fund (SRF), which was implemented by Regulation (EU) No. 806/2014 of the European Parliament and of the Council, became operational. The rules governing the banking union provide that banks will pay contributions to the SRF over eight years. The Single Resolution Board (SRB) is responsible for calculating the contributions to be made by credit institutions and investment firms to the SRF. These contributions are based, as of fiscal year 2016, on: (a) a flat-rate contribution (or base annual contribution), pro rata with respect to the total liabilities, excluding own funds, guaranteed deposits of all institutions authorized in the territory of the participating member states; and (b) a risk-adjusted contribution, which will be based on the criteria set out in Article 103(7) of Directive 2014/59/ EU, taking into account the principle of proportionality, without creating distortions between structures of the banking sector of the member states. The amount of this contribution will accrue from the 2016 financial year, on an annual basis. The expenditure incurred by the contribution made to the National Fund and the Single Resolution Fund amounted to EUR 307 million in 2021 (EUR 262 million in the year 2020), which are recognised under ‘Other operating expenses’ in the accompanying income statement (see note 41). #### i) Merger by absorption i. Merger by absorption between Banco Santander, S.A. (as absorbing company) and Popular Spain Holding de Inversiones, S.L.U., Santander Investment I, S.A.U. and Administración de Bancos Latinoamericanos Santander, S.L. (as absorbed companies). On June 29, 2021, the members of the respective boards of directors of Banco Santander, S.A. (as absorbing company) and Popular Spain Holding de Inversiones, S.L.U., Santander Investment I, S.A.U. and Administration of Latin American Banks Santander, S.L. (as absorbed companies) drafted and signed the common project for the merger by absorption. Under Articles 49 and 51 of Law 3/2009, of April 3, on Structural Modifications of Commercial Companies ("LME"), it was not necessary for this merger to be approved by the general shareholders' meetings (or, as the case may be, by the sole shareholder) of the absorbed companies, since Banco Santander, S.A. had a direct holding in the case of Popular Spain Holding de Inversiones, S.L.U. and Santander Investment I, S.A.U., and in the case of Administración de Bancos Latinoamericanos Santander, S.L., partly directly and partly indirectly through another absorbed company (Santander Investment I, S.A.U.), partly through another absorbed company (Santander Investment I, S.A.U.), and, in the case of Administración de Bancos Latinoamericanos Santander, S.L., partly directly and partly indirectly through another of the absorbed companies (Santander Investment I, S.A.U.); nor was approval by the shareholders' meeting of Banco Santander, S.A. necessary, since shareholders representing at least 1% of the share capital did not require it, in accordance with Article 51.1 of the LME. Consequently, the board of directors of Banco Santander, S.A. on June 29, 2021 approved both the common merger plan and the merger that is the object of the merger. Once the mandatory authorization by the Minister of Economic Affairs and Digital Transformation was obtained (twelfth additional provision of Law 10/2014, of June 26, on the regulation, supervision and solvency of credit institutions), on 16 December 2021, the corresponding merger deed was executed and, having been registered in the Commercial Registry of Cantabria, the dissolution without liquidation of Popular Spain Holding de Inversiones, S.L.U. took place with effect from 20 December 2021, Santander Investment I, S.A.U. and Administración de Bancos Latinoamericanos Santander, S.L. and the transfer en bloc, on a universal basis, of all their respective assets and liabilities to Banco Santander, S.A., which acquired them by universal succession and without solution of continuity. It should be noted that the merger, for accounting purposes, was recorded by Banco Santander, S.A. in 2021. 20 Since the absorbed companies were fully owned by Banco Santander, S.A., in the case of Popular Spain Holding de Inversiones, S.L.U. and Santander Investment I, S.A.U. and directly and indirectly in the case of Administración de Bancos Latinoamericanos Santander, S.L., in accordance with article 49.1, in relation to article 26, of the LME, the Bank did not increase capital. Once the merger became effective on December 20, 2021, all the shares and participations of the absorbed companies were fully amortized, extinguished and cancelled. The merger balance sheets were considered to be those included in the financial statements for the year ended December 31, 2020, prepared by the administrative bodies of each of the companies participating in the merger. The merger balance sheets of Banco Santander, S.A., Popular Spain Holding de Inversiones, S.L.U., Santander Investment I, S.A.U. and Administración de Bancos Latinoamericanos Santander, S.L. were duly verified by their respective auditors. In accordance with the provisions of the applicable accounting regulations, for accounting purposes, 1 January 2021 was set as the date from which the transactions of the absorbed companies were to be considered as carried out by Banco Santander, S.A. for the merger. Likewise, the transaction constitutes a merger of those regulated in article 76.1.c) of Law 27/2014, of November 27, on Corporate Income Tax ("LIS"). Pursuant to Article 89.1 of the LIS, the merger was subject to the tax regime established in Chapter VII of Title VII and in the second additional provision of the LIS, as well as in Article 45, paragraph I.B.10 of the Consolidated Text of the Law on Transfer Tax and Stamp Duty, approved by Royal Legislative Decree 1/1993, of September 24. The information required by Article 86.1 of the Law with respect to the merger is included in these notes to the consolidated financial statements (appendix VIII). The following are the balance sheets of companies absorbed as of 31 December 2020: POPULAR SPAIN HOLDING DE INVERSIONES, S.L.U. Balance as of December 31, 2020 EUR thousands ASSETS 2020 EQUITY AND LIABILITIES 2020 NON-CURRENT ASSETS 90,882 EQUITY 500,854 Deferred tax asset 90,882 SHAREHOLDERS EQUITY 500,854 Capital 100 Share premium 726,127 Reserves 40 Loss for the period (225,413) CURRENT ASSETS 410,154 CURRENT LIABILITIES 182 Clients, Group companies and Associates 60,095 Commercial creditors and other accounts payable 182 Other credits with public administrations 44 Cash and other equivalent liquid assets 350,015 TOTAL ASSETS 501,036 TOTAL EQUITY AND LIABILITIES 501,036 SANTANDER INVESTMENT I, S.A.U. Balance as of December 31, 2020 EUR thousands ASSETS 2020 EQUITY AND LIABILITIES 2020 NON-CURRENT ASSETS 1,857,418 EQUITY 217,897 Long term investments in Group companies and Associates 1,857,417 SHAREHOLDERS EQUITY 217,897 Other long term financial assets 1 Capital 601 Reserves 228,318 Loss form previous periods (11,022) NON-CURRENT LIABILITIES 1,640,630 Long term debts to Group companies and Associates 1,629,500 Deferred tax liabilities 11,130 CURRENT ASSETS 2,682 CURRENT LIABILITIES 1,573 Long-term investments in Group companies and Associates. Loans to companies 4 Short term debts to Group companies and Associates 1,548 Cash and other equivalent liquid assets 2,678 Commercial creditors and other accounts payable 25 TOTAL ASSETS 1,860,100 TOTAL EQUITY AND LIABILITIES 1,860,100 21 ADMINISTRACIÓN DE BANCOS LATINOAMERICANOS SANTANDER, S.L. Balance as of December 31, 2020 EUR thousands ASSETS 2020 EQUITY AND LIABILITIES 2020 NON-CURRENT ASSETS 2,513,961 EQUITY 2,537,251 Long-term equity investments in Group companies and Associates 569,949 SHAREHOLDERS EQUITY 2,537,251 Long-term debt investments in Group companies and Associates 1,944,003 Capital 394,685 Other long-term financial assets 8 Reserves 2,176,029 Long-term debt investments in  third parties 1 Negative results from previous exercises (24,034) Loss of the period (9,429) NON-CURRENT LIABILITIES 22,931 Deferred tax liabilities 22,931 CURRENT ASSETS 46,671 CURRENT LIABILITIES 450 Commercial debts receivable  and others accounts bills 2 Short term debts 19 Short-term debt investments in Group companies and Associates 843 Debts with Group companies and Associates in the short term 408 Cash and cash equivalents 45,826 Commercial debts and other accounts payable 23 TOTAL ASSETS 2,560,632 TOTAL EQUITY AND LIABILITIES 2,560,632 In accordance with the provisions of the applicable regulations, because of the accounting record of the merger by absorption carried out by the Bank in 2021, an increase of EUR 1,037 million in the Bank's voluntary reserves in that year was recorded as a result of the decrease on the participation of the absorbed companies (see note 29). ii. Merger by absorption between Banco Santander, S.A. (absorbing company) and Santander Global Property, S.L.U., Inmobiliaria Viagracia, S.A.U. and BPE Financiaciones, S.A.U. (as absorbed companies) On 30 June 2020, the directors of Banco Santander, S.A., the joint administrators of Santander Global Property, S.L.U. and the respective solidary administrators of Inmobiliaria Viagracia, S.A.U. and BPE Financiaciones, S.A.U. approved and signed the joint merger project between Banco Santander, S.A. (as an absorbing company) and Santander Global Property, S.L.U., Inmobiliaria Viagracia, S.A.U. and BPE Financiaciones, S.A.U. (as absorbed companies). Under Articles 49.1 and 51 of Law 3/2009 of 3 April on Structural Modifications of Commercial Companies (’LME’), approval of this merger was not required by the sole partner of the companies acquired, as it was entirely owned by Banco Santander, nor by the shareholders meeting of Banco Santander, to not required by its shareholders in accordance with Article 51 of the LME. Likewise, the said transaction constitutes a merger of those regulated in Article 76.1.c) of Law 27/2014, of 27 November, on Corporate Tax (‘LIS’). The information required in Article 86.1 of the aforementioned Act with regard to merger is incorporated into this report (Annex VIII). Once obtained the mandatory authorization of the Ministry of Economic Affairs and Digital Transformation (additional provision twelfth Law 10/2014, of 26 June, on the management, supervision and solvency of credit institutions) on December 23, 2020, the corresponding merger deed was granted and, registered in the Commercial Register of Cantabria, with effect from December 23, 2020, the extinction without liquidation of Santander Global Property, S.L.U., Inmobiliaria Viagracia, S.A.U. and BPE Financiaciones, S.A.U., respectively, and the bulk transfer of all of their respective assets to Banco Santander, S.A., which acquired them by succession universal and without continuity solution. It should be noted that the merger, for accounting purposes, was registered by Banco Santander, S.A. in the financial year 2020. Since the companies acquired were wholly owned by Banco Santander, in accordance with Article 49.1 in conjunction with Article 26 of the LME, Banco Santander did not increase capital. The merger with effect from 23 December 2020 became effective, all the shares of the companies absorbed were fully amortized, extinguished and cancelled. For the purposes of Spanish legislation, those included in the annual accounts for the financial year ended 31 December 2019, formulated by the board of directors of each of the companies participating in the merger, were considered as merger balance sheets. The merger balance sheets of Banco Santander, S.A. and BPE Financiaciones, S.A.U. have been duly verified by their respective auditors. The merger balance sheets of the remaining companies absorbed have not been subject to auditor verification, as they were not required to audit their accounts. In accordance with the provisions of the applicable accounting rules, for accounting purposes, the merger was fixed on 1 January 2020 as the date from which the transactions of the companies absorbed were to be considered to be carried out by Banco Santander, S.A. 22 Furthermore, in accordance with Article 89.1 of the LIS, the merger was subject to the tax regime laid down in Title VII, Chapter VII and the second additional provision of the LIS, as well as Article 45, paragraph I.B.10 of the Consolidated Text of the Law on Tax on Property Transfers and Documented Legal Acts, approved by Royal Legislative Decree 1/1993 of 24 September. The following are the balance sheets of companies absorbed as of 31 December 2019: SANTANDER GLOBAL PROPERTY, S.L.U. Balance at December 31, 2019 EUR thousands ASSETS 2019 EQUITY AND LIABILITIES 2019 NON-CURRENT ASSETS 94 EQUITY 252,984 Deferred tax asset 94 SHAREHOLDERS EQUITY 252,984 Capital 211,087 Share premium 36,414 Reserves 10,560 Loss for previous periods (5,071) Loss for the period (6) CURRENT ASSETS 252,893 CURRENT LIABILITIES 3 Other credits with Public Administrations 29 Short term debt 3 Investments in Group companies and Associates 2 Cash and cash equivalent 252,862 TOTAL ASSETS 252,987 TOTAL EQUITY AND LIABILITIES 252,987 INMOBILIARIA VIAGRACIA, S.A.U. Balance at December 31, 2019 EUR thousands ASSETS 2019 EQUITY AND LIABILITIES 2019 NON-CURRENT ASSETS 37,295 EQUITY 92,554 Real Estate Investments 7,666 SHAREHOLDERS EQUITY 90,876 Long term investments in Group companies and Associates 26,634 Capital 4,688 Long term financial investments 2,990 Share premium 10,370 Deferred tax asset 5 Reserves 86,604 Loss for previous periods (12,237) Loss for the period 1,451 ADJUSTMENTS FOR CHANGES IN VALUE 1,678 Financial instruments HTC&S 1,678 NON-CURRENT LIABILITIES 802 Long term debts to Group companies and Associates 83 Deferred tax liabilities 719 CURRENT ASSETS 56,513 CURRENT LIABILITIES 452 Cash and cash equivalent 56,513 Short term debts with Group companies and Associates 428 Commercial debts and other accounts payable 24 TOTAL ASSETS 93,808 TOTAL EQUITY AND LIABILITIES 93,808 BPE FINANCIACIONES, S.A.U. Balance at December 31, 2019 EUR thousands ASSETS 2019 EQUITY AND LIABILITIES 2019 NON-CURRENT ASSETS — EQUITY 880 SHAREHOLDERS EQUITY 880 Capital 100 Reserves 840 Loss for the period (60) CURRENT ASSETS 662,680 CURRENT LIABILITIES 661,800 Short term investments in Group companies and Associates 661,797 Short term debit 500,916 Cash and cash equivalent 883 Short term debts to Group companies and Associates 160,772 Commercial debts and other accounts payable 11 Accruals expenses 101 TOTAL ASSETS 662,680 TOTAL EQUITY AND LIABILITIES 662,680 Pursuant to the provisions of the applicable legislation, as a result of the accounting record of the above- mentioned merger by absorption by Banco Santander in the financial year 2020, Banco Santander's voluntary reserves have been reduced by EUR 1 million due to the decrease in the financial year participation of the absorbed companies (see note 29). #### j) Events after the reporting period No significant events occurred from 1 January 2022 to the date on which these financial statements were authorized for issue, other than those described in these annual accounts. 23 2. Accounting policies The following accounting principles, policies and measurement criteria have been applied in the preparation of the financial statements: #### a) Foreign currency transactions The functional currency of Banco Santander is the euro. Therefore, all balances and transactions denominated in currencies other than the euro are deemed to be denominated in foreign currency. The balances in the financial statements 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. In general, balances denominated in foreign currencies, including those branches in countries outside the Monetary Union, have been converted to euros using the official average exchange rates of the Spanish spot currency market ((through the US dollar's quotation on local markets, for non-monetary currencies. listed on the Spanish market) at the end of each fiscal year. 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, net' in the income statement, except for exchange differences arising on financial instruments at fair value through profit or loss, which are recognised in the 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 25). #### b) Investments in group entities, joint ventures and associates Group entities are those over which the Bank has the capacity to exercise control; capacity which is generally but not exclusively manifested by the direct or indirect ownership of at least 50% of the voting rights of the investees or, even if this percentage is lower or zero, if, as in the case of agreements with their shareholders, the Bank is granted such control. Control is understood to be the power to direct the financial and operating policies, by law, by statute or by agreement, of an entity in order to obtain benefits from its activities. 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. Associated entities are those 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. The shareholdings in group, multi-group and associated entities are presented on the balance sheet at their acquisition cost, net of any deterioration that, where relevant, those shares may have suffered. Where there is evidence of impairment of these shares, the amount of such impairment is equivalent to the difference between their recoverable amount and their book value. Impairment losses are recorded under the heading ‘Impairment or reversal of impairment of investments in joint ventures or associates’ in the profit and loss account. Appendices I and II contain significant information on these companies. In addition, note 13 provides information on the most significant acquisitions and disposals in 2021 and 2020. #### 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. 24 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). 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 Bank 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, Banco Santander 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 Banco Santander 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 23). •Contracts and obligations relating to employee remuneration based on own equity instruments  (see note 30). 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. Banco Santander´s business models refer to the way in which it manages its financial assets to generate cash flows. In defining these models, the Bank  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. Banco Santander 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 Banco Santander 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. 25 •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 Bank 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. Bank of Spain Circular 4/2017 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. Banco Santander uses the following criteria for the classification of financial debt instruments: •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, 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 Bank of Spain Circular 4/2017 and subsequent amendments with changes in profit or loss, unless the Bank, 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 Bank, other than those represented by securities, as well as finance lease receivables and other debit balances of a financial nature in favour of the Bank, 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: 26 –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 Bank 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 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 Bank 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: •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 Bank'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 the Bank, 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: 27 –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 program of targeted longer-term refinancing operations (TLTRO III); additionally, the conditions of the initial program were successively modified in the months of March and April 2020, reducing the interest rate by 25 bps to -0.5% from June 2020 to June 2021 and providing that, for banks meeting a certain volume of eligible loans, the interest rate could be -1% for that period. These conditions were extended on December 10, 2020 for the period from June 2021 to June 2022, including the option to cancel or reduce the amount of financing before maturity in windows coinciding with the interest rate review and adjustment periods. The accounting standards indicate that for the recording of amortized cost the entity 'shall use a shorter period when the fees, basis points paid or received, transaction costs, premiums or discounts relate to it, this being the case when the variable to which the fees, basis points paid or received, transaction costs, and discounts or premiums relate is adjusted to market rates prior to the expected maturity of the financial instrument. In this case, the appropriate amortization period is the period until the next adjustment date'. In this case, the applicable interest rate of -1% from June 2020 to June 2021 and from June 2021 to June 2022 corresponds to a specific period after which the funding is adjusted to market rates (specifically, the average rate applied in the Eurosystem's main refinancing operations) and must therefore be accrued until the next adjustment date. The early repayment windows of this funding program are substantive terms, given that at that time of adjustment of the funding cost to market, the entity may opt for renewal or cancellation and obtain new funding at more favorable terms. Banco Santander has opted to accrue interest in accordance with the specific periods of adjustment to market rates, so that the interest corresponding to that period (-1%) will be recorded in the income statement from June 2020 to June 2022, assuming compliance with the threshold of eligible loans that gives rise to the extra rate. Compliance with the qualifying loan thresholds is assessed at each reporting date and is based on the financial budgets approved by the Bank's directors, as well as on the evolution of macroeconomic variables (GDP, unemployment rate, inflation, etc.). If, subsequent to the initial recording of the financial liability, there is a change in the expectations of meeting this threshold of eligible loans, the Bank would adjust the carrying amount of the financial liability to the amount resulting from discounting the new estimated flows at the original Effective Interest Rate (EIR), recognizing this difference in profit or loss, without modifying the original EIR. At the end of both periods, the Bank has met the financing objective established in the program, although the data relating to the second reference period (October 2020 to December 2021), will not be sent until next May, after validation by the external auditor, as established in the program conditions. •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 Bank 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 Banco Santander, 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 balance of lease liabilities that started to be recorded in 2019 as a result of the application of Bank of Spain Circular 2/2018 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 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 Bank liability in respect of derivatives, including embedded derivatives separated from hybrid financial instruments, designated as hedging instruments in hedge accounting. 28 #### 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, Bank of Spain Circular 4/2017 states that regular way purchases or sales of financial assets shall be recognised and derecognised on the trade date or on the settlement date. Banco 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 2021, 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 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 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 Bank 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. 29 The amounts at which the financial assets are recognised represent, in all material respects, the Bank maximum exposure to credit risk at each reporting date. Also, Banco 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 2021 and 2020 of financial assets and liabilities classified on the basis of the various measurement methods used by the Bank to determine their fair value: EUR million 2021 2020 Published price quotations in active Markets (Level 1) Internal Models (Level 2 and 3) Total Published price quotations in active Markets (Level 1) Internal Models (Level 2 and 3) Total Financial assets held for trading 28,995 57,090 86,085 27,514 53,923 81,437 Non-trading financial assets mandatorily at fair value through profit or loss 454 1,901 2,355 48 2,177 2,225 Financial assets designated at fair value through profit or loss — 13,403 13,403 — 33,899 33,899 Financial assets at fair value through other comprehensive income 9,857 5,178 15,035 14,315 8,308 22,623 Hedging derivatives (assets) — 1,648 1,648 — 3,137 3,137 Financial liabilities held for trading 9,404 47,565 56,969 10,562 50,452 61,014 Financial liabilities designated at fair value through profit or loss — 12,743 12,743 — 16,890 16,890 Hedging derivatives (liabilities) — 2,076 2,076 — 1,780 1,780 30 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 which applies to the Bank, 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: 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. 31 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. The Debit Valuation Adjustment (DVA) is a valuation adjustment similar to the CVA but, in this case, it arises as a result of the Bank’s own risk assumed by its counterparties in OTC derivatives. The CVA at 31 December 2021 amounted to EUR 237 million (resulting in a decrease of 41.9% compared to 31 December 2020) and DVA amounted to EUR 162 million (resulting in a decrease of 30.4% compared to 31 December 2020). These impacts are mainly due to the continuous improvement in credit markets, the creation of particular credit curves for certain counterparties and the introduction of methodological improvements in the calculation of exposures. 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 36.0% compared to 31 December 2019). These impacts were due to the fact that credit spread levels were at levels above 25% compared to 2019 due to the covid-19 pandemic. The CVA at 31 December 2021 amounted to EUR 178 million (resulting in a reduction of 29.36% compared to 31 December 2020) and DVA amounted to EUR 63 million (resulting in a reduction of 8.69% compared to 31 December 2020). The variations are due to the fact that credit spreads for the most liquid maturities have been decreased in percentages over 40%. At the end of December 2020, CVA adjustment of EUR 252 million (an increase of 25.50% compared to 31 December 2019) and DVA adjustment of EUR 69 million (an increase of 25,45% compared to 31 December 2019) were recorded. Variations are due to the reduction of credit spreads by percentages exceeding 25% in more liquid terms. 32 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 2021 and 2020. Grupo Santander has not carried out significant reclassifications of financial instruments between levels other than those disclosed in level 3 movement table during 2021 continuing the trend observed in  2020. The main variations over the last few years in the Level 3 volume have been due to purchases/sales of these instruments. There have been no significant variations in the market observability conditions, nor relevant changes in the criteria used for the classification of instruments within the fair value hierarchy. In 2021, the amount reclassified to Level 3 by Banco Santander is EUR 626 million (EUR 523 million in 2020). They are mainly due to reclassifications to level 3 of loan positions for which there has been less access to price contributors and actual market transactions with which to demonstrate their observability, and to a lesser extent to certain debt instruments which, based on the Bank's criteria, do not qualify as observable instruments. 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 and the Bank calculate and apply 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. Set forth below are Grupo Santander´s financial instruments at fair value whose measurement was based on internal models (levels 2 and 3) at 31 December 2021 and 2020: 33 EUR million Fair values calculated using internal models at 2021\* Level 2 Level 3 Valuation techniques Main assumptions ASSETS 121,640 7,667 Financial assets held for trading 76,738 537 Central banks\*\* 3,608 — Present value method Yield curves, FX market prices Credit institutions\*\* 10,397 — Present value method Yield curves, FX market prices Customers\*\* 6,829 — Present value method Yield curves, FX market prices Debt and equity instruments 2,312 24 Present value method Yield curves, FX market prices Derivatives 53,592 513 Swaps 43,700 224 Present value method, Gaussian Copula Yield curves, FX market prices, HPI, Basis, Liquidity Exchange rate options 539 12 Black-Scholes Model Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate options 2,112 182 Black's Model, multifactorial advanced models interest rate Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate futures 409 — Present value method Yield curves, FX market prices Index and securities options 439 41 Black's Model, multifactorial advanced models interest rate Yield curves, Volatility surfaces, FX & EQ market prices, Dividends,  Liquidity Other 6,393 54 Present value method, Advanced stochastic volatility models and other Yield curves, Volatility surfaces, FX and EQ market prices, Dividends, Correlation, HPI, Credit, Others Hedging derivatives 4,761 — Swaps 4,204 — Present value method Yield curves, FX market prices, Basis Interest rate options 9 — Black's Model Yield curves, FX market prices, Volatility surfaces Other 548 — Present value method, Advanced stochastic volatility models and other Yield curves, Volatility surfaces, FX market prices, Credit, Liquidity, Others Non-trading financial assets mandatorily at fair value through profit or loss 1,273 1,865 Equity instruments 415 1,231 Present value method Market price, Interest rates curves, Dividends and Others Debt instruments 589 366 Present value method Yield curves Loans and receivables 269 268 Present value method, swap asset model & CDS Yield curves and Credit curves Financial assets designated at fair value through profit or loss 13,426 418 Credit institutions 3,152 — Present value method Yield curves, FX market prices Customers\*\*\* 10,270 18 Present value method Yield curves, FX market prices, HPI Debt instruments 4 400 Present value method Yield curves, FX market prices Financial assets at fair value through other comprehensive income 25,442 4,847 Equity instruments 74 821 Present value method Market price, Yield curves, Dividends and Others Debt instruments 21,585 146 Present value method Yield curves, FX market prices Loans and receivables 3,783 3,880 Present value method Yield curves, FX market prices and Credit curves 34 EUR million Fair values calculated using internal models at 2021\* Level 2 Level 3 Valuation techniques Main assumptions LIABILITIES 103,807 629 Financial liabilities held for trading 68,930 160 Central banks\*\* 1,038 — Present value method Market price, Yield curves, Dividends and Others Credit institutions\*\* 6,488 — Present value method Yield curves, FX market prices Customers 6,141 — Present value method Yield curves, FX market prices and Credit curves Derivatives 53,234 160 Swaps 42,438 44 Present value method, Gaussian Copula Yield curves, FX market prices, Basis, Liquidity, HPI Exchange rate options 658 7 Black-Scholes Model Yield curves, Volatility surfaces, FX market prices, Liquidity Index and securities options 446 67 Black-Scholes Model Yield curves, FX market prices Interest rate options 2,720 26 Black's Model, multifactorial advanced models interest rate Yield curves, Volatility surfaces, FX market prices, Liquidity Futures on interest rate and variable income 184 — Present value method Yield curves, Volatility surfaces, FX & EQ market prices, Dividends, Correlation, Liquidity, HPI Other 6,788 16 Present value method, Advanced stochastic volatility models Yield curves, Volatility surfaces, FX & EQ market prices, Dividends, Correlation, Liquidity, HPI, Credit, Others Short positions 2,029 — Present value method Yield curves ,FX & EQ market prices, Equity Hedging derivatives 5,463 — Swaps 4,149 — Present value method Yield curves ,FX & EQ market prices, Basis Other 1,314 — Present value method, Advanced stochastic volatility models and other Yield curves , Volatility surfaces, FX market prices, Credit, Liquidity, Other Financial liabilities designated at fair value through profit or loss 28,644 469 Present value method Yield curves, FX market prices Liabilities under insurance contracts 770 — Present Value Method with actuarial techniques Mortality tables and interest rate curves \*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, mainly, structured loans to corporate clients. 35 EUR million Fair values calculated using internal models at 2020\* Level 2 Level 3 Valuation techniques ASSETS 146,468 8,543 Financial assets held for trading 67,826 740 Credit institutions 3 — Present Value method Customers\*\* 296 — Present Value method Debt and equity instruments 1,453 10 Present Value method Derivatives 66,074 730 Swaps 54,488 272 Present Value method, Gaussian Copula Exchange rate options 696 22 Black-Scholes Model Interest rate options 3,129 241 Black's Model, advanced multifactor interest rate models Interest rate futures 1,069 — Present Value method Index and securities options 554 94 Black's Model, advanced multifactor interest rate models Other 6,138 101 Present Value method, Advanced stochastic volatility models and other Hedging derivatives 8,325 — Swaps 6,998 — Present Value method Interest rate options 25 — Black’s Model Other 1,302 — Present Value method, Advanced stochastic volatility models and other Non-trading financial assets mandatorily at fair value through profit or loss 1,796 934 Equity instruments 984 505 Present Value method Debt securities issued 555 134 Present Value method Loans and receivables 257 295 Present Value method, swap asset model & CDS Financial assets designated at fair value through profit or loss 45,559 649 Central banks 9,481 — Present Value method Credit institutions 11,973 163 Present Value method Customers 24,102 19 Present Value method Debt instruments 3 467 Present Value method Financial assets  at fair value through other comprehensive  income 22,962 6,220 Equity instruments 75 1,223 Present Value method Debt instruments 18,410 206 Present Value method Loans and receivables 4,477 4,791 Present Value method 36 EUR million Fair values calculated using internal models at 2020\* Level 2 Level 3 Valuation techniques LIABILITIES 124,098 905 Financial liabilities held for trading 71,009 295 Derivatives 63,920 295 Swaps 51,584 81 Present Value method, Gaussian Copula Interest rate options 4,226 49 Black's Model, advanced multifactor interest rate models Exchange rate options 724 1 Black-Scholes Model Index and securities options 456 97 Black-Scholes Model Interest rate and equity futures 1,054 2 Present Value method Other 5,876 65 Present Value method, Advanced stochastic volatility models and other Short positions 7,089 — Present Value method Hedging derivatives 6,869 — Swaps 5,821 — Present Value method Interest rate options 13 — Black’s Model Other 1,035 — Present Value method, Advanced stochastic volatility models and other Financial liabilities designated at fair value through profit or loss 45,310 610 Present Value method Liabilities under insurance contracts 910 — 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). 37 The same information from the previous table, but referred to Banco Santander, S.A., is presented below: EUR million Fair values calculated using internal models at 2021\* Level 2 Level 3 Valuation techniques Main assumptions ASSETS 74,210 5,010 Financial assets held for trading 56,612 478 Central banks \*\* 1,118 — Present value method Yield curves, FX market prices Credit institutions\*\* 6,980 — Present value method Yield curves, FX market prices Customers\*\* 7,025 — Present value method Yield curves, FX market prices Debt and equity instruments 120 — Present value method Yield curves, FX market prices Derivatives 41,369 478 Swaps 33,316 281 Present value method, Gaussian Copula Yield curves, FX market prices, HPI, Basis, Liquidity Exchange rate options 5,554 9 Black-Scholes Model Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate options 2,186 183 Black's Model, multifactorial advanced models interest rate Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate futures 10 — Present value method Yield curves, FX market prices Index and securities options 210 5 Black's Model, multifactorial advanced models interest rate Yield curves, Volatility surfaces, FX & EQ market prices, Dividends,  Liquidity Other 93 — Present value method, Advanced stochastic volatility models and other Yield curves, Volatility surfaces, FX and EQ market prices, Dividends, Correlation, HPI, Credit, Others Hedging derivatives 1,648 — Swaps 1,447 — Present value method Yield curves, FX market prices, Basis Exchange rate options 195 — Black-Scholes Model Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate options 6 — Black's Model Yield curves, FX market prices, Volatility surfaces Non-trading financial assets mandatorily at fair value through profit or loss 1,360 541 Equity instruments 87 369 Present value method Market price, Interest rates curves, Dividends and Others Debt instruments 585 148 Present value method Yield curves Loans and receivables 688 24 Present value method, swap asset model & CDS Yield curves and Credit curves Financial assets designated at fair value through profit or loss 13,403 — Credit institutions 3,445 — Present value method Yield curves, FX market prices Customers\*\*\* 9,958 — Present value method Yield curves, FX market prices, HPI Financial assets at fair value through other comprehensive income 1,187 3,991 Equity instruments — 753 Present value method Market price, Yield curves, Dividends and Others Debt instruments 489 — Present value method Yield curves, FX market prices Loans and receivables 698 3,238 Present value method Yield curves, FX market prices and Credit curves 38 EUR million Fair values calculated using internal models at 2021\* Level 2 Level 3 Valuation techniques Main assumptions LIABILITIES 62,058 326 Financial liabilities held for trading 47,382 183 Central banks\*\* 44 — Present value method Market price, Yield curves, Dividends and Others Credit institutions\*\* 5,718 — Present value method Yield curves, FX market prices Customers 1,291 — Present value method Yield curves, FX market prices and Credit curves Derivatives 40,329 183 Swaps 31,529 114 Present value method, Gaussian Copula Yield curves, FX market prices, Basis, Liquidity, HPI Exchange rate options 5,368 7 Black-Scholes Model Yield curves, Volatility surfaces, FX market prices, Liquidity Index and securities options 2,686 33 Black-Scholes Model Yield curves, FX market prices Interest rate options 10 18 Black's Model, multifactorial advanced models interest rate Yield curves, Volatility surfaces, FX market prices, Liquidity Futures on interest rate and variable income 494 — Present value method Yield curves, Volatility surfaces, FX & EQ market prices, Dividends, Correlation, Liquidity, HPI Other 242 11 Present value method, Advanced stochastic volatility models Yield curves, Volatility surfaces, FX & EQ market prices, Dividends, Correlation, Liquidity, HPI, Credit, Others Hedging derivatives 2,076 — Swaps 1,244 — Present value method Yield curves ,FX & EQ market prices, Basis Exchange rate options 608 — Black-Scholes Model Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate options 1 — Black's Model Yield curves , Volatility surfaces, FX market prices, Liquidity Other 223 — Present value method, Advanced stochastic volatility models and other Yield curves , Volatility surfaces, FX market prices, Credit, Liquidity, Other Financial liabilities designated at fair value through profit or loss 12,600 143 Central banks 607 — Present value method Yield curves, FX market prices Credit institutions 1,067 — Present value method Yield curves, FX market prices Customers 10,926 143 Present value method Yield curves, FX market prices Liabilities under insurance contracts — — Present Value Method with actuarial techniques Mortality tables and interest rate curves \*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, mainly, structured loans to corporate clients. 39 EUR million Fair values calculated using internal models at 2020\* Level 2 Level 3 Valuation techniques Main assumptions ASSETS 94,940 6,504 Financial assets held for trading 53,331 592 Credit institutions — — Present value method Yield curves, FX market prices Customers \*\* 74 — Present value method Yield curves, FX market prices Debt and equity instruments 781 — Present value method Yield curves, FX market prices Derivatives 52,476 592 Swaps 44,123 326 Present value method, Gaussian Copula Yield curves, FX market prices, HPI, Basis, Liquidity Exchange rate options 5,692 19 Black-Scholes Model Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate options 1,708 241 Black’s Model, multifactorial advanced models interest rate Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate futures 56 — Present value method Yield curves, FX market prices Index and securities options 820 6 Black’s Model, multifactorial advanced models interest rate and others Yield curves, Volatility surfaces, FX & EQ market prices, Dividends, Liquidity Other 77 — Present value method, Advanced stochastic volatility models and other Yield curves, Volatility surfaces, FX and EQ market prices, Dividends, Correlation, HPI, Credit, Others Hedging derivatives 3,137 — Swaps 2,429 — Present value method Yield curves, FX market prices, Basis Exchange rate options 688 — Black-Scholes Model Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate options 20 — Black´s Model Yield curves, FX market prices, Volatility surfaces Other — — Present value method, Advanced stochastic volatility models and other Yield curves, Volatility surfaces, FX marketprices, Credit, Liquidity, Others Non-trading financial assets mandatorily at fair value through profit or loss 1,835 342 Equity instruments 82 185 Present value method Market price, Interest rates curves, Dividends and Others Debt instruments 530 131 Present value method Yield curves Loans and receivables 1,223 26 Present value method, swap asset model & CDS Yield curves and Credit curves Financial assets designated at fair value through profit or loss 33,736 163 Central banks 482 — Present value method Yield curves, FX market prices Credit institutions 9,725 163 Present value method Yield curves, FX market prices Customers 23,529 — Present value method Yield curves, FX market prices, HPI Debt instruments — — Present value method Yield curves, FX market prices Financial assets at fair value through other comprehensive income 2,901 5,407 Equity instruments — 1,002 Present value method Market price, Yield curves, Dividends and Others Debt instruments 1,771 — Present value method Yield curves, FX market prices Loans and receivables 1,130 4,405 Present value method Yield curves, FX market prices and Credit curves 40 EUR million Fair values calculated using internal models at 2020\* Level 2 Level 3 Valuation techniques Main assumptions LIABILITIES 68,640 482 Financial liabilities held for trading 50,258 194 Derivatives 50,258 194 Swaps 40,047 127 Present value method, Gaussian Copula Yield curves, FX market prices, Basis, Liquidity, HPI Exchange rate options 5,224 1 Black-Scholes Model Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate options 3,825 50 Black's Model, multifactorial advanced models interest rate Yield curves, Volatility surfaces, FX market prices, Liquidity Index and securities options 45 14 Black-Scholes Model Yield curves, FX market prices, Volatility surfaces, Liquidity Interest rate and equity futures 424 — Present value method Yield curves, Volatility surfaces, FX & EQ market prices, Dividends, Correlation, Liquidity, HPI Other 693 2 Present value method, Advanced stochastic volatility models Yield curves, Volatility surfaces, FX & EQ market prices, Dividends, Correlation, Liquidity, HPI, Credit, Others Short positions — — Present value method Yield curves ,FX & EQ market prices, Equity Hedging derivatives 1,780 — Swaps 1,051 — Present value method Yield curves ,FX & EQ market prices, Basis Exchange rate options 386 — Black-Scholes Model Yield curves, Volatility surfaces, FX market prices, Liquidity Interest rate options 81 — Black's Model Yield curves , Volatility surfaces, FX market prices, Liquidity Other 262 — Present value method, Advanced stochastic volatility models and other Yield curves , Volatility surfaces, FX market prices, Credit, Liquidity, Other Financial liabilities designated at fair value through profit or loss 16,602 288 Central banks 1,470 — Present value method Yield curves, FX market prices Credit institutions 4,496 — Present value method Yield curves, FX market prices Customers 10,636 288 Present value method Yield curves, FX market prices Liabilities under insurance contracts — — Present Value Method with actuarial techniques Mortality tables and interest rate curves \*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). 41 Financial Instruments (level 3) Set forth below are the Group and the Bank´s main financial instruments measured using unobservable market data as significant inputs of the internal models (level 3): •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. •Illiquid equity in non-trading portfolios, classified at fair value through profit or loss and at fair value through equity. •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. •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. •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 units (mainly South America)where for certain underlyings it is not possible to demonstrate observability to these terms. •Debt instruments referenced to certain illiquid interest rates, for which there is no reasonable market observability. 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 balance sheet and the gains and losses arising from these financial instruments are reasonable. The net amount recorded in the 2021 financial year results of the Bank derived from valuation models whose significant inputs are non-observable market data (level 3) amounts to EUR 19 million profit for the Bank (EUR 186 million profit in 2020). The table below shows the effect, at 31 December 2021 and 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: 42 Financial assets held for trading Derivatives Cap&Floor Volatility option model Volatility 10% - 90% 36.30% (0.50) 0.43 CCS Discounted Cash Flows Interest rate (0.7)% - 0.7% 0.73% (0.11) 0.11 CCS Forward estimation Interest rate 4bps - (4)bps (0.09)% (0.03) 0.03 Convertibility curve - inputs: NDFs Offshore Forward estimation Price 0% - 2% 0.61% (0.65) 0.28 EQ Options EQ option pricing model Volatility 0% - 90% 61.20% (0.24) 0.52 EQ Options Local volatility Volatility 10% - 90% 40.00% (6.82) 6.82 FRAs Asset Swap model Interest rate 0% - 4% 1.78% (0.91) 0.73 FX Options FX option pricing model Volatility 0% - 50% 32.14% (0.28) 0.50 Inflation Derivatives Asset Swap model Inflation Swap Rate (50)% - 50% 50.00% (0.56) 0.28 Inflation Derivatives Volatility option model Volatility 0% - 40% 13.29% (0.47) 0.24 IR Futures Asset Swap model Interest rate 0% - 15% 5.91% (1.09) 0.71 IR Options IR option pricing model Volatility 0% - 60% 36.28% (0.20) 0.31 IRS Asset Swap model Interest rate (6)% - 12.80% 10.36% (0.07) 0.13 IRS Discounted Cash Flows Credit spread 103.10bps - 375.6bps 71.91% (7.21) 4.16 IRS Discounted Cash Flows Inflation Swap Rate (0.8)% - 6.5% 1.81% (0.04) 0.01 IRS Discounted Cash Flows Swap Rate 7.7% - 8.2% (2.87)% (0.23) 0.10 IRS Forward estimation Interest rate TIIE91 (8.98)bps  - TIIE91 +11.12bps n.a. (0.27) 0.17 IRS Forward estimation Prepayment rate 6% - 12% n.a. — — IRS Others Others 0.05% n.a. (1.49) — IRS Prepayment modelling Prepayment rate 2.5% - 6.2% 0.44% (0.09) 0.05 Property derivatives Option pricing model Growth rate 0% - 5% 2.50% (2.62) 2.62 Swaptions IR option pricing model Volatility 0% - 40% 26.67% (0.13) 0.27 Debt securities Corporate debt Price based Market price 85% - 115% 15.00% — — Financial assets designated at fair value through profit or loss Loans and advances to customers Loans Discounted Cash Flows Credit spreads 0.1% - 1.4% 0.66% (0.26) 0.26 Mortgage portfolio Black Scholes model Growth rate 0%- 5% 2.50% (1.90) 1.90 Debt securities Corporate debt Discounted Cash Flows Credit spread 0% - 20% 9.88% (1.23) 1.20 Government debt Discounted Cash Flows Discount curve 0% - 10% 8.33% (4.14) 20.69 Other debt securities Others Inflation Swap Rate 0% - 10% 4.74% (5.47) 4.92 2021 Portfolio/Instrument Valuation technique Main unobservable inputs Range Weighted average Impacts (EUR million) (Level 3) Unfavourable scenario Favourable scenario 43 Non-trading financial assets mandatorily at fair value through profit or loss Debt securities Corporate debt Discounted Cash Flows Margin of a reference portfolio (1)bp - 1bp 1.00% (0.56) 0.60 Property securities Probability weighting Growth rate 0% - 5% 2.50% (1.19) 1.19 Equity instruments Equities Price Based Price 90% - 110% 10.00% (123.10) 123.10 Financial assets at fair value through other comprehensive income Loans and advances to customers Loans Discounted Cash Flows Credit spread n.a. n.a. (19.84) — Loans Discounted Cash Flows Interest rate curve (0.1)% - 0.1% 0.12% (0.07) 0.07 Loans Discounted Cash Flows Margin of a reference portfolio (1)bp - 1bp 1.00% (13.12) 13.04 Loans Forward estimation Credit spread 77bps - 242bps n.a. — — Debt securities Government debt Discounted Cash Flows Interest rate 0.6% - 0.8% 0.09% (0.01) 0.01 Equity instruments Equities Price Based Price 90% - 110% 10.00% (82.13) 82.13 Financial liabilities held for trading Derivatives Cap&Floor Volatility option model Volatility 10% - 90% 36.30% (0.50) 0.43 Financial liabilities designated at fair value through profit or loss Loans and advances to customers Repos/Reverse repos Asset Swap Repo Model Long-term repo spread n.a n.a. (0.36) — 2021 Portfolio/Instrument Valuation technique Main unobservable inputs Range Weighted average Impacts (EUR million) (Level 3) Unfavourable scenario Favourable scenario 44 Financial assets held for trading Derivatives Cap&Floor Volatility option model Volatility 10% - 90% 31.55% (0.07) 0.05 CCS Discounted Cash Flows Interest rate (0.30)% - 0.66% 0.66% — 0.20 Convertibility curve - NDFs Offshore Forward estimation Price 0% - 2% 0.61% (0.72) 0.31 EQ Options EQ option pricing model Volatility 7.86% - 93.67% 48.37% (1.46) 1.81 FRAs Asset Swap model Interest rate 0% - 5% 2.22% (0.78) 0.63 FX Forward Discounted Cash Flows Swap Rate (0.02)% - (0.30)% 0.11% — — FX Options FX option pricing model Volatility 0% - 50% 32.14% (0.39) 0.70 Inflation Derivatives Asset Swap model Inflation Swap Rate (100)% - 50% 83.33% (0.63) 0.31 Inflation Derivatives Volatility option model Volatility 0% - 50% 16.67% (0.47) 0.23 IR Futures Asset Swap model Interest rate 0% - 15% 0.94% (0.94) 0.06 IR Options IR option pricing model Volatility 0% - 100% 19.05% (0.27) 0.06 IRS Asset Swap model Interest rate (6)% - 12.50% 10% (0.08) 0.13 IRS Discounted Cash Flows Swap Rate 5.90% - 6.31% 2.26% (0.01) 0.02 IRS Discounted Cash Flows Credit spread 78.97 bps - 202.37 bps 9.82 bps (2.81) 1.29 IRS Prepayment modelling Prepayment rate 2.47% - 6.22% 0.06% (0.12) 0.05 Property derivatives Option pricing model HPI Forward growth rate and HPI Spot rate 0% - 5% 2.50% (17.82) 17.82 Swaptions IR option pricing model Volatility 0% - 50% 33.33% (0.16) 0.31 Financial assets designated at fair value through profit or loss Loans and advances to customers Repos / Reverse repos Asset Swap Repo Model Long-term repo spread n/a n/a (0.18) 0.23 Mortgage portfolio Black Scholes model HPI Forward growth rate 0% - 5% 2.50% (2.23) 2.23 Other loans Present value method Credit spreads 0.07% - 1.55% 0.74% (0.35) 0.35 Debt securities Government debt Discounted Cash Flows Interest rate 0% - 10% 8.33% (0.78) 3.91 Other debt securities Price based Market Price 90% - 110% 10% (0.15) 0.15 Property securities Probability weighting HPI Forward growth rate and HPI Spot rate 0% - 5% 2.50% (7.24) 7.24 Non-trading financial assets mandatorily at fair value through profit or loss Equity instruments Equities Price Based Price 90% - 110% 10.00% (50.47) 50.47 2020 Portfolio/ Instrument Valuation technique Main unobservable inputs Range Weighted average Impacts (EUR million) (Level 3) Unfavourable scenario Favourable scenario 45 Financial assets at fair value through other comprehensive income Loans and advances to customers Loans Discounted Cash Flows Credit spread n/a n/a (6.72) — Loans Discounted Cash Flows Interest rate curve (0.15)% - 0.15% 0.15% (0.09) 0.09 Other loans Present value method Credit spreads 0.15% - 0.53% 0.19% (0.04) 0.04 Debt securities Government debt Discounted Cash Flows Interest rate 1.1% - 1.3% 0.10% — — Equity instruments Equities Price Based Price 90% - 110% 10% (122.14) 122.14 Financial liabilities held for trading Derivatives Cap&Floor Volatility option model Volatility 10% - 90% 34.61% (0.02) 0.01 EQ Options Option pricing model HPI Forward growth rate and HPI Spot rate 0% - 5% 2.50% (6.35) 6.35 2020 Portfolio/ Instrument Valuation technique Main unobservable inputs Range Weighted average Impacts (EUR million) (Level 3) Unfavourable scenario Favourable scenario 46 Lastly, the changes in the financial instruments classified as Level 3, at Grupo Santander, in 2021 and 2020: 01/01/2021 Changes 31/12/2021 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 Other Fair value calculated using internal models (level 3) Financial assets held for trading 740 136 (124) (181) — (15) (19) 537 Debt instruments 7 20 (2) (2) — — (1) 22 Equity instruments 3 — (1) — — — — 2 Trading derivatives 730 116 (121) (179) — (15) (18) 513 Swaps 272 5 (33) (35) — 33 (18) 224 Exchange rate options 22 14 (27) 3 — — — 12 Interest rate options 241 7 (39) (27) — — — 182 Index and securities options 94 18 (12) (51) — (8) — 41 Other 101 72 (10) (69) — (40) — 54 Financial assets at fair value through profit or loss 649 59 (120) (11) — (163) 4 418 Credit entities 163 — — — — (163) — — Loans and advances to customers 19 — (2) — — — 1 18 Debt instruments 467 59 (118) (11) — — 3 400 Non-trading financial assets mandatorily at fair value through profit or loss 934 534 (251) 127 — 485 36 1,865 Customers 295 122 (149) — — (3) 3 268 Debt instruments 134 206 (28) 28 — 17 9 366 Equity instruments 505 206 (74) 99 — 471 24 1,231 Financial assets at fair value through other comprehensive income 6,220 5,681 (6,588) — (228) (241) 3 4,847 Loans and advances 4,791 5,597 (6,298) — (37) (173) — 3,880 Debt instruments 206 75 (25) — (43) (68) 1 146 Equity instruments 1,223 9 (265) — (148) — 2 821 TOTAL ASSETS 8,543 6,410 (7,083) (65) (228) 66 24 7,667 Financial liabilities held for trading 295 85 (42) (138) — (21) (19) 160 Trading derivatives 295 85 (42) (138) — (21) (19) 160 Swaps 81 4 (10) (36) — 3 2 44 Exchange rate options 1 2 — 4 — — — 7 Interest rate options 49 26 (19) (8) — — (22) 26 Index and securities options 97 23 (5) (27) — (22) 1 67 Securities and interest rate futures 2 — (2) — — — — — Others 65 30 (6) (71) — (2) — 16 Financial liabilities designated at fair value through profit or loss 610 143 — — — (289) 5 469 TOTAL LIABILITIES 905 228 (42) (138) — (310) (14) 629 47 01/01/2020 Changes 31/12/2020 EUR million Fair value calculated using internal models (level 3) Purchases /Issuances Sales/ Settlements Changes in fair value recognized in profit or loss Changes in fair value recognized in equity Level reclassifications Other Fair value calculated using internal models (level 3) Financial assets held for trading 598 52 (98) 330 — (45) (97) 740 Debt instruments 65 7 (27) 1 — — (39) 7 Equity instruments — 3 — — — — — 3 Trading derivatives 533 42 (71) 329 — (45) (58) 730 Swaps 182 — (8) 116 — (8) (10) 272 Exchange rate options 8 — — 15 — — (1) 22 Interest rate options 177 15 (12) 61 — — — 241 Index and securities options 95 25 (43) 85 — (38) (30) 94 Other 71 2 (8) 52 — 1 (17) 101 Financial assets at fair value through profit or loss 664 280 (45) 17 — (91) (176) 649 Credit entities 50 164 — (1) — (50) — 163 Loans and advances to customers 32 — (15) 3 — — (1) 19 Debt instruments 582 116 (30) 15 — (41) (175) 467 Non-trading financial assets mandatorily at fair value through profit or loss 1,601 120 (292) (36) — (119) (340) 934 Loans and advances to customers 376 104 (136) 12 — (30) (31) 295 Debt instruments 675 — (144) (63) — 2 (336) 134 Equity instruments 550 16 (12) 15 — (91) 27 505 Financial assets at fair value through other comprehensive income 3,788 8,795 (7,616) — (390) 571 1,072 6,220 TOTAL ASSETS 6,651 9,247 (8,051) 311 (390) 316 459 8,543 Financial liabilities held for trading 290 40 (14) 130 — (96) (55) 295 Trading derivatives 290 40 (14) 130 — (96) (55) 295 Swaps 115 8 — (7) — (26) (9) 81 Exchange rate options 1 — — 2 — — (2) 1 Interest rate options 34 11 (2) 6 — — — 49 Index and securities options 88 21 (8) 95 — (70) (29) 97 Securities and interest rate futures 2 — — — — — — 2 Others 50 — (4) 34 — — (15) 65 Financial liabilities designated at fair value through profit or loss 784 4 (3) (12) — (32) (131) 610 TOTAL LIABILITIES 1,074 44 (17) 118 — (128) (186) 905 48 The same information on the movement of financial instruments classified in Level 3, but referred to Banco Santander, S.A., in 2021 and 2020, is presented below: 01/01/2021 Changes 31/12/2021 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 Other Fair value calculated using internal models (level 3) Financial assets held for trading 592 27 (86) (65) — 30 (20) 478 Debt instruments and equity instrument — 2 — — — — (2) — Trading derivatives 592 25 (86) (65) — 30 (18) 478 Swaps 326 6 (21) (45) — 33 (18) 281 Exchange rate options 19 13 (27) 4 — — — 9 Interest rate options 241 6 (38) (26) — — — 183 Index and securities options 6 — — 2 — (3) — 5 Other — — — — — — — — Hedging derivatives (Assets) — — — — — — — — Swaps — — — — — — — — Financial assets at fair value through profit or loss 163 — — — — (163) — — Credit entities 163 — — — — (163) — — Loans and advances to customers — — — — — — — — Debt instruments — — — — — — — — Non-trading financial assets mandatorily at fair value through profit or loss 342 208 (17) 2 — 5 1 541 Customers 26 4 (4) (2) — — — 24 Debt instruments 131 18 (6) — — 5 — 148 Equity instruments 185 186 (7) 4 — — 1 369 Financial assets at fair value through other comprehensive income 5,407 5,046 (5,959) — (263) (240) — 3,991 Loans and advances 4,405 4,972 (5,951) — (14) (174) — 3,238 Debt instruments — 74 (8) — — (66) — — Equity instruments 1,002 — — — (249) — — 753 TOTAL ASSETS 6,504 5,281 (6,062) (63) (263) (368) (19) 5,010 Financial liabilities held for trading 195 55 (39) (35) — 29 (22) 183 Trading derivatives 195 55 (39) (35) — 29 (22) 183 Swaps 128 6 (8) (45) — 33 — 114 Exchange rate options 1 2 — 4 — — — 7 Interest rate options 50 26 (19) (2) — — (22) 33 Index and securities options 14 — (9) 17 — (4) — 18 Securities and interest rate futures — — — — — — — — Others 2 21 (3) (9) — — — 11 Hedging derivatives (Liabilities) — — — — — — — — Swaps — — — — — — — — Financial liabilities designated at fair value through profit or loss 289 143 — — — (289) — 143 TOTAL LIABILITIES 484 198 (39) (35) — (260) (22) 326 49 01/01/2020 Changes 31/12/2020 EUR million Fair value calculated using internal models (level 3) Purchases /Issuances Sales/ Settlements Changes in fair value recognized in profit or loss Changes in fair value recognized in equity Level reclassifications Other Fair value calculated using internal models (level 3) Financial assets held for trading 449 21 (33) 200 — 11 (56) 592 Debt instruments and equity instrument 36 7 (11) — — — (32) — Trading derivatives 413 14 (22) 200 — 11 (24) 592 Swaps 209 — (10) 123 — 8 (4) 326 Exchange rate options 5 — — 15 — — (1) 19 Interest rate options 197 14 (12) 61 — — (19) 241 Index and securities options 2 — — 1 — 3 — 6 Other — — — — — — — — Hedging derivatives (Assets) 4 — — — — — (4) — Swaps 4 — — — — — (4) — Financial assets at fair value through profit or loss 50 164 — (1) — (50) — 163 Credit entities 50 164 — (1) — (50) — 163 Loans and advances to customers — — — — — — — — Debt instruments — — — — — — — — Non-trading financial assets mandatorily at fair value through profit or loss 620 18 (13) 1 — — (284) 342 Loans and advances to customers 26 2 (2) — — — — 26 Debt instruments 457 — (9) (2) — — (315) 131 Equity instruments 137 16 (2) 3 — — 31 185 Financial assets at fair value through other comprehensive income 2,924 8,356 (7,280) — (378) 558 1,227 5,407 TOTAL ASSETS 4,047 8,559 (7,326) 200 (378) 519.00 883 6,504 Financial liabilities held for trading 355 19 (12) 13 — 4 (185) 194 Trading derivatives 355 19 (12) 13 — 4 (185) 194 Swaps 127 8 (2) (3) — 2 (5) 127 Exchange rate options 1 — — 2 — — (2) 1 Interest rate options 218 11 (6) 6 — — (179) 50 Index and securities options 3 — (1) 9 — 2 1 14 Securities and interest rate futures — — — — — — — — Others 6 — (3) (1) — — — 2 Hedging derivatives (Liabilities) 4 — — — — — (4) — Swaps 4 — — — — — (4) — Financial liabilities designated at fair value through profit or loss 287 2 (1) 1 — — (1) 288 TOTAL LIABILITIES 646 21 (13) 14 — 4 (190) 482 50 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 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 Bank´s equity until the asset giving rise to them is impaired or derecognised, at which time they are recognised in the 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 Banco Santander uses 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 Bank 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 Bank's management of own risks. 51 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 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 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 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. 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 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 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 Bank 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 Bank 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: 52 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 Bank 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.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, the Bank 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 Bank of Spain Circular 4/2017 and subsequent modifications. 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. 53 #### f) Offsetting of financial instruments Financial asset and liability balances are offset, i.e. reported in the balance sheet at their net amount, only if Banco Santander currently has a legally enforceable right to off set the recognised amounts and intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously. On the table below is the detail of financial assets and liabilities that were offset on the balance sheet as of 31 December 2021 and 2020: EUR million 2021 Assets Gross amount of financial assets Gross amount of financial assets offset on the balance sheet Net amount of financial assets presented on the balance sheet Derivatives 83,426 (39,755) 43,671 Repos 39,517 (11,298) 28,219 Total 122,943 (51,053) 71,890 EUR million 2020 Assets Gross amount of financial assets Gross amount of financial assets offset on the balance sheet Net amount of financial assets presented on the balance sheet Derivatives 114,555 (58,056) 56,499 Repos 39,935 (8,856) 31,079 Total 154,490 (66,912) 87,578 EUR million 2021 Liabilities Gross amount of financial liabilities Gross amount of financial liabilities offset on the balance sheet Net amount of financial liabilities presented on the balance sheet Derivatives 82,503 (39,755) 42,748 Repos 26,036 (11,298) 14,738 Total 108,539 (51,053) 57,486 EUR million 2020 Liabilities Gross amount of financial liabilities Gross amount of financial liabilities offset on the balance sheet Net amount of financial liabilities presented on the balance sheet Derivatives 110,512 (58,056) 52,456 Repos 19,447 (8,856) 10,591 Total 129,959 (66,912) 63,047 Furthermore, most of the derivatives and temporary acquisition of uncompensated assets on the balance sheet are subject to netting and collateral agreements. At December 31, 2021 the balance sheet amounts EUR 69,151 million on derivatives and temporary acquisition of assets and EUR 54,875 million on derivatives and repos as liabilities that are subject to netting and collateral arrangements (EUR 85,714 million and EUR 61,252 million in 2020, respectively). #### g) Impairment of financial assets i. Definition Banco 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 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 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 Bank 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 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. 54 •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 Bank considers for the evaluation of effective guarantees are set out below in relation to the individual analysis. ii. Financial instruments presentation For the purposes of estimating the impairment amount, and in accordance with its internal policies, the Bank 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 and the Bank consider the following criteria: Quantitative criteria Changes 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, and therefore the Bank, 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 49, 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 Bank in the normal management of credit risk. Irregular positions of more than 30 days and renewals are common criteria applied by the Bank and common to all the Group's  units. Also,, 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. 55 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. Banco 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. 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 case, except in the case of operations with real guarantees that cover more than 10% of the amount of the operation, in general the Bank considers as remote recovery: the operations of holders that are in the liquidation phase of the insolvency creditors, doubtful operations due to delinquency that have been in this category for more than 4 years and doubtful operations due to delinquency whose part not covered by real guarantees has been maintained with 100% credit risk coverage. for more than two years. 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. 56 iii. Impairment valuation assessment Banco 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 Bank of Spain Circular 4/2017 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 Bank 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 Bank 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 Bank 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. Banco Santander performs retrospective and monitoring tests to evaluate the reasonableness of the collective estimate. 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 scenarios 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 scenarios. Banco 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. Banco 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. Furthermore, where applicable, these guarantees are appropriately reflected in the mitigation of the significant increase in risk, considering their nature as personal guarantees. 57 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 Bank based their 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 Bank of Spain Circular 4/2017. •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 Bank'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 Bank 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 Bank of Spain Circular 4/2017,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. Grupo Santander will partially and voluntarily align during 2022 the accounting definition of Stage 3, as well as for the calculation of impairment provision models, to the New Definition of Default, incorporating the criteria defined by the EBA in its implementation guide of the definition of default, capturing the economic deterioration of the operations (days in default - on a daily basis - and materiality thresholds - minimum amount in arrears). The alignment of criteria will be done taking into account the criteria of IFRS 9 as well as the accounting principles of unbiased presentation of financial information. The expected increase in the default rate is estimated at around 24 basis points, with no material impact on the provision figures for credit risk. In addition, the Bank 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.). Bank of Spain Circular 4/2017 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 Bank 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 Grupo Santander  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 Bank assesses the existence of significant risk increase in all its financial instruments. This information is provided in more detail in note 49 b. iv. Detail of individual estimate of impairment For the individual estimate of the assessment for impairment of the financial asset, the Bank has a specific methodology to estimate the value of the cash flows expected to be collected: •Recovery through the debtor's ordinary activities (going approach). •Recovery through the execution and sale of the collateral guaranteeing the operations (gone approach). Gone approach: a. Evaluation of the effectiveness of guarantees Banco Santander the effectiveness of all the guarantees associated considering the following: •The time required to execute these guarantees. •Banco 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 Bank considers that a guarantee is effective if its effectiveness depends substantially on the solvency of the debtor, as could be the case: 58 •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 reputable 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 Banco 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 on current market values. c.Adjustments to the value of guarantees and estimation of future cash flow inflows and outflows. Banco 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 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, estimating: •Period of adjudication. •Estimated time of sale of the asset. In addition, the Bank 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 Bank applies an additional adjustment ('index forward') in order to adjust the value of the guarantees to future valuation expectations. v. Impairment individual assessment scope Banco  Santander determines the perimeter over which it makes an estimate of the assessment for impairment on an individual basis based on a relevance threshold and the stage in which the operations are located. In general, the Bank 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 Bank'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 59 position, financial 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 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 Banco Santander as total or partial settlement of their debtors’ payment obligations to them are deemed to be 'Non-current assets held for sale', unless the Bank has 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 Bank obtains, at the foreclosure date, the fair value of the related asset through a request for appraisal by external appraisal agencies. Banco 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 Bank 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 whichthe Bank worked in Spain in 2021 are as follows: Gloval Valuation, S.A.U., Tinsa Tasaciones Inmobiliarias, S.A.U., Gesvalt Sociedad de Tasacion, S.A. and Sociedad de tasacion, S.A. '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 2021 the fair value less costs to sell of non-current assets held for sale exceeded their carrying amount by EUR 229 million (EUR 198 million in 2020); however, in accordance with the applicable legislation, 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 Bank of Spain Circular 4/2017  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 subsequent amendments, 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. 60 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). 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 91% 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. 61 1 The assets in a situation of 'stopped development' are included under 'land' 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. 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, licenses, 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. •Land Valuation model. The methodology followed by the Bank 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 Banco Santander 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. Banco 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 Banco Santander 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 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. 62 #### j) Insurance contracts linked to pensions The item 'Insurance contracts linked to pensions', included within the heading 'Other assets' (see note 2.n), will include the fair value of the insurance policies to cover pension commitments that must be recorded as a Separate asset for not meeting the requirements established in regulation 35 of Bank of Spain Circular 4/2017 and subsequent modifications, to be considered plan assets. #### k) Tangible assets Tangible assets includes the amount of buildings, land, furniture, vehicles, computer hardware and other fixtures owned by Banco Santander or acquired under finance leases. Tangible assets are classified by use as follows: i. Property, plant and equipment for own use Property, plant and equipment for own use – including tangible assets received by the Bank 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 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 use 2.0% Furniture 10.0% Fixtures 5.0% IT equipment 25.0% Vehicles 16.0% Other 5.0% Lease use rights Less than the lease term or the useful life of the underlying asset At the end of each reporting period, Banco Santander assesses 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, Banco Santander recognises 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 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 Banco 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. 63 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 Bank 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 The main aspects contained in the regulation Bank of Spain Circular 2/2018 adopted by the Bank are included below: When the Bank 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 Bank. 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 Bank 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: •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 Bank; in this regard, the Bank 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 Bank, has its own financing this has been used as the starting point for determining the incremental borrowing rate. 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. 64 Banco Santander 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). #### 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 Bank. Only assets whose cost can be estimated reliably and from which the Bank considers 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 subsidiaries, joint ventures and associates 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 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 (CGUs) (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 Banco Santander’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. Goodwill, in accordance with Bank of Spain Circular 4/2017, is to be amortized over a 10-year period unless otherwise stated. The debits to the income statements for the amortisation of these assets are recorded under the section ‘Amortisation’ in the income statement. 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 income statement. An impairment loss recognised for goodwill is not reversed in a subsequent period. In the event of sale or departure of an activity that is part of a CGU, the part of the goodwill that can be assigned to said activity would be written-off, taking as a reference the relative value of the same over the total of the CGU at the time of sale or abandonment. If applicable, the distribution by currency of the remaining goodwill will be performed based on the relative values of the remaining activities. ii. Other intangible assets Other intangible assets includes the amount of identifiable intangible assets, such as purchased customer lists and computer software. In accordance with Rule Twenty Eight of Bank of Spain Circular 4/2017, for the financial statements (individual and consolidated) not subject to the framework of International Financial Reporting Standards, intangible assets will be considered assets with a limited useful life. An intangible assets useful life may not exceed the period during which the entity is entitled to use the asset. If the right of use is for a limited period that can be renewed, the useful life will include the renewal period only when there is evidence that the renewal will be carried out without significant cost. When the useful life of assets cannot be estimated reliably, they will be amortized over a period of ten years. In the absence of evidence to the contrary, the useful life of goodwill, if applicable, shall also be ten years. Intangible assets shall be amortized in accordance with the criteria established for the tangible assets (a maximum period of 10 years). Banco Santander reviews, at least at the end of each year, the amortisation period and the amortisation method of each of its intangible assets and, if it considers that they are not appropriate, the impact will be treated as a change in its accounting estimates. 65 The intangible asset amortisation charge is recognised under 'Depreciation and amortisation' in the income statement. In both cases, Banco Santander recognises 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 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 Bank’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 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 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 balance sheet, and the amount of any other assets not included in other items. #### 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 Bank, 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 Banco Santander, 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 Bank. They include the present obligations of the Bank when it is not probable that an outflow of resources embodying economic benefits will be required to settle them. Banco Santander does not recognise the contingent liability. The Bank will disclose a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote. ▪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 Bank. Contingent assets are not recognised in the  balance sheet or in the 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. Banco Santander`s 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. 66 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 23): •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 Bank 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 Banco Santander. 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 2021 certain court proceedings and claims were in process against Banco Santander arising from the ordinary course of their operations (see note 23). #### 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 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  Banco 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 Banco 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 Banco Santander  right to receive them arises. ii. Commissions, fees and similar items Fee and commission income and expenses are recognised in the 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. 67 •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. Banco Santander initially recognises the financial guarantees provided on the liability side of the 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 Bank 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 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 23). These provisions are recognised and reversed with a charge or credit, respectively, to 'Provisions or reversal of provisions', net, in the 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 balance sheet', are reclassified to the appropriate provision. #### v) 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. Banco Santander’s post-employment obligations to its employees are deemed to be defined contribution plans when the Bank makes pre-determined contributions (recognised under Personnel expenses in the 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 23). Defined contribution plans The contributions made in this connection in each year are recognised under 'Personnel expenses' in the 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 balance sheet. Defined benefit plans Banco Santander recognises under 'Provisions - Provision for pensions and similar obligations on the liability side of the 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 Banco Santander, but by a legally separate third party that is not a party related to the  Bank. •They are only available to pay or fund post- employment benefits and they cannot be returned to the  Bank 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 the Bank. 68 If Banco 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 Bank  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 balance sheet. Banco 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'. •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 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). #### w) 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 income statement (see note 23). #### x) 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. #### y) Income tax The income tax expense is recognised in the income statement, except when they arise from a transaction whose results are recognised directly in equity. 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 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 Bank 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. Deferred tax assets are only recognised for temporary differences to the extent that it is considered probable that the Bank 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 69 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 Bank entities will have sufficient future taxable profits against which they can be utilised. Differences generated by the different accounting and tax treatment of any of the income and expenses recorded directly in equity to be paid or recovered in the future 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 (see note 24). #### z) Residual maturity periods In note 48 its presented the analysis of the maturities of the balances of certain items in the balance sheet. #### aa) Statement of recognised income and expenses This statement presents the income and expenses generated by the Bank as a result of its business activity in the year, and a distinction is made between the income and expenses recognised in the income statement for the year and the other income and expenses recognised directly in equity. Accordingly, this statement presents: a.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 recognised income and expense, calculated as the sum of a) to d) above. 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. #### ab) 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 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 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 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 equity. #### ac) Statement of cash flows The following terms are used in the 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. Banco Santander classifies as cash and cash equivalents the balances recognised under 'Cash, cash balances at central banks' and 'Other deposits on demand' in the 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 2021, Banco Santander received interest amounting to EUR 6,242 million and paid interest amount to EUR 3,424 million (EUR 6,510 and 3,447 million, respectively in 2020). Also, the dividends received and paid by Banco Santander are detailed in notes 4 and 36. 70 3. Santander Group 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. 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 in the last two years or pending to be completed: i. Purchase by SHUSA for shares of Santander Consumer USA In August 2021 Santander Holdings USA, Inc. ('SHUSA') and Santander Consumer USA Holdings Inc. ('SC') entered into a definitive agreement pursuant to which SHUSA acquired all outstanding shares of common stock of SC not already owned by SHUSA via an all-cash tender offer (the 'Tender Offer') for USD 41.50 per SC common share (the 'Offer Price'), followed by a second-step consisting of a merge (together with the Offer, the 'Transaction') in which a wholly owned subsidiary of SHUSA was merged with and into SC, with SC surviving as a wholly owned subsidiary of SHUSA, and all outstanding shares of common stock of SC not tendered in the Tender Offer were converted into the right to receive the Offer Price in cash. The Offer Price represented a 14% premium to the closing price of SC common stock of USD 36.43 as of 1 July 2021, the last day prior to the announcement of SHUSA’s initial offer to acquire the remaining outstanding shares of SC’s common stock. On 31 January 2022, after completion of the customary closing conditions, the Transaction was performed and SHUSA increased its share up to the 100% of SC's common stock. The transaction has meant a disbursement of USD 2,510 million (around EUR 2,239 million) for the Group. ii. Acquisition of Amherst Pierpont, a U.S. fixed-income broker dealer On 15 July 2021, Santander Holdings USA, Inc. reached an agreement to acquire Amherst Pierpont Securities, a market-leading independent fixed-income and structured products broker dealer, through the acquisition of its parent holding company, Pierpont Capital Holdings LLC, for a total consideration of approximately USD 600 million (around EUR 530 million). Amherst Pierpont will become part of Santander Corporate & Investment Banking (Santander CIB) Global business line. The transaction is expected to close upon receipt of relevant regulatory approvals. iii. Tender offer for shares of Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México On 26 March 2021, Banco Santander, S.A. announced its intention to make a tender offer for all shares of Banco Santander Mexico, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México ('Santander México') that were not owned by Grupo Santander, representing (after the acquisition of shares of Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México in fiscal year 2019) approximately 8.3% of the share capital of Santander México. The announcement was subsequently supplemented by other publications on 24 May, 8 June and 28 October 2021, in which amendments to some of the terms of the offer were announced. The offer was finally launched on 3 November 2021 and was settled on 10 December. Banco Santander accepted all of the Santander Mexico Shares and Santander Mexico American Depositary Share (ADS) (securities listed on the New York Stock Exchange, each representing 5 shares of Santander Mexico) tendered and not withdrawn representing approximately 4.5% of the share capital of Santander México. After the transaction, Santander Group holds approximately 96.2% of Santander México share capital. 71 The shareholders who have tendered their shares in the offer have received MXN 26.5 (approximately EUR 1) per share of Santander México and USD 6.2486 in cash per each ADS (the USD equivalent of MXN 132.50 per ADS based on the USD/MXN exchange rate on the expiration date of 7 December 2021) which has meant a disbursement of approximately EUR 335 million. This transaction has entailed a decrease of reserves of EUR 41 million and a decrease of EUR 294 million of minority interests, for the purposes of the Group. iv. 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. v. 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. #### c)  Offshore entities According to current Spanish regulation (Law 11/2021, of 9 July and Royal Decree 1080/1991, of 5 July), Santander has one subsidiary and three branches in the non-cooperative jurisdictions of Jersey, the Isle of Man and the Cayman Islands (offshore entities). Santander also has three other subsidiaries incorporated in non- cooperative jurisdictions that are tax resident in the UK and subject to British tax law. i. Offshore subsidiaries A subsidiary resident in the Isle of Man was liquidated in 2021 so, at the reporting date, Grupo Santander has only one subsidiary resident in Jersey: Abbey National International Limited. In 2021, this subsidiary’s contribution to Santander’s consolidated profit was insubstantial. ii. Offshore branches Grupo Santander also has three 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 (Jersey and Isle of Man, pertain to the UK). The entities mentioned in Sections I and II had 147 employees as of December 2021. iii. Subsidiaries in non-cooperative jurisdictions that are tax resident in the United Kingdom Grupo Santander also has three subsidiaries (one in liquidation) that were incorporated in offshore jurisdictions 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. iv. Other offshore holdings From Brazil, Grupo Santander manages Santander Brazil Global Investment Fund SPC, a segregated portfolio company located in the Cayman Islands. It also has two small financial investments in entities located in the Cayman Islands. In 2021, Guaranteed Investment Products 1 PCC Limited, a protected cell company found in Guernsey managed from the UK, was liquidated. 72 Organization for Economic Cooperation and Development (OECD) Grupo Santander is not in any of the non-cooperative jurisdictions the OECD released in November 2021. 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 2021, the EU’s blacklist comprises 9 jurisdictions where Santander is not present. Additionally, the EU’s grey list comprises 15 jurisdictions which have sufficiently committed to adapt legislation to international standards, subject to monitoring by the EU. Within these jurisdictions, Santander is only present in Uruguay and Hong Kong mainly through Banco Santander S.A. in Uruguay and a branch in Hong Kong. The Group's presence in offshore territories at the end of 2021 is as follows: Presence of the Group in non- cooperative jurisdictions Spanish legislation OECD European Commission Blacklist Sub. Branch Sub. Branch Sub. Branch Jersey 1 1 Isle of Man 1 Guernsey\* Bermuda\* Cayman Islands 1 2021 1 3 — — — — 2020 2 3 — — — — \*Additionally, there are 2 entities constituted in Guernsey (1 in liquidation) and 1 in Bermuda, but resident for tax purposes in the United Kingdom. Changes to Spain's tax law On 10 July 2021, Law 11/2021 on measures to prevent and fight against tax fraud was published in the Official Estate Gazette. 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 in entities resident in non-cooperative jurisdictions. Grupo Santander also maintains its policy of reducing the number of these entities. PwC (PricewaterhouseCoopers) member firms audited the financial statements of Grupo Santander’s offshore entities in 2021 and 2020. d) Consolidated balance sheet, income statement, statement of recognized income and expenses, statement of changes in total equity and cash-flow statement The Group's consolidated balance sheets at December 31, 2021 and 2020 and the consolidated income statements, consolidated statements of recognized income and expense, consolidated statements of changes in total equity and consolidated statements of cash flows for the years then ended are as follows: 73 CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2021 AND 2020 EUR million CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEPOSITS ON DEMAND 210,689 153,839 FINANCIAL ASSETS HELD FOR TRADING 116,953 114,945 Derivatives 54,292 67,137 Equity instruments 15,077 9,615 Debt instruments 26,750 37,894 Loans and advances 20,834 299 Central banks 3,608 — Credit institutions 10,397 3 Customers 6,829 296 NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS 5,536 4,486 Equity instruments 4,042 3,234 Debt instruments 957 700 Loans and advances 537 552 Central banks — — Credit institutions — — Customers 537 552 FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS 15,957 48,717 Debt instruments 2,516 2,979 Loans and advances 13,441 45,738 Central banks — 9,481 Credit institutions 3,152 12,136 Customers 10,289 24,121 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME 108,038 120,953 Equity instruments 2,453 2,783 Debt instruments 97,922 108,903 Loans and advances 7,663 9,267 Central banks — — Credit institutions — — Customers 7,663 9,267 FINANCIAL ASSETS AT AMORTIZED COST 1,037,898 958,378 Debt instruments 35,708 26,078 Loans and advances 1,002,190 932,300 Central banks 15,657 12,499 Credit institutions 39,169 37,838 Customers 947,364 881,963 HEDGING DERIVATIVES 4,761 8,325 CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK 410 1,980 INVESTMENTS 7,525 7,622 Joint venture entities 1,692 1,492 Associated entities 5,833 6,130 ASSETS UNDER INSURANCE OR REINSURANCE CONTRACTS 283 261 ASSETS 2021 2020\* 74 TANGIBLE ASSETS 33,321 32,735 Property, plant and equipment 32,342 31,772 For own-use 13,259 13,213 Leased out under an operating lease 19,083 18,559 Investment properties 979 963 Of which leased out under an operating lease 839 793 INTANGIBLE ASSETS 16,584 15,908 Goodwill 12,713 12,471 Other intangible assets 3,871 3,437 TAX ASSETS 25,196 24,586 Current tax assets 5,756 5,340 Deferred tax assets 19,440 19,246 OTHER ASSETS 8,595 11,070 Insurance contracts linked to pensions 149 174 Inventories 6 5 Other 8,440 10,891 NON-CURRENT ASSETS HELD FOR SALE 4,089 4,445 TOTAL ASSETS 1,595,835 1,508,250 ASSETS 2021 2020\* \* Presented for comparison purposes only. 75 CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2021 AND 2020 EUR million LIABILITIES 2021 2020\* FINANCIAL LIABILITIES HELD FOR TRADING 79,469 81,167 Derivatives 53,566 64,469 Short positions 12,236 16,698 Deposits 13,667 — Central banks 1,038 — Credit institutions 6,488 — Customers 6,141 — Marketable debt securities — — Other financial liabilities — — FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS 32,733 48,038 Deposits 27,279 43,598 Central banks 607 2,490 Credit institutions 1,064 6,765 Customers 25,608 34,343 Marketable debt securities 5,454 4,440 Other financial liabilities — — Memorandum items: subordinated liabilities — — FINANCIAL LIABILITIES AT AMORTIZED COST 1,349,169 1,248,188 Deposits 1,078,587 990,391 Central banks 139,757 112,804 Credit institutions 52,235 62,620 Customers 886,595 814,967 Marketable debt securities 240,709 230,829 Other financial liabilities 29,873 26,968 Memorandum items: subordinated liabilities 26,196 21,880 HEDGING DERIVATIVES 5,463 6,869 CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK 248 286 LIABILITIES UNDER INSURANCE OR REINSURANCE CONTRACTS 770 910 PROVISIONS 9,583 10,852 Pensions and other post-retirement obligations 3,185 3,976 Other long term employee benefits 1,242 1,751 Taxes and other legal contingencies 1,996 2,200 Contingent liabilities and commitments 733 700 Other provisions 2,427 2,225 TAX LIABILITIES 8,649 8,282 Current tax liabilities 2,187 2,349 Deferred tax liabilities 6,462 5,933 OTHER LIABILITIES 12,698 12,336 LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE — — TOTAL LIABILITIES 1,498,782 1,416,928 \* Presented for comparison purposes only. 76 CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2021 AND 2020 EUR million EQUITY 2021 2020\* SHAREHOLDERS´ EQUITY 119,649 114,620 CAPITAL 8,670 8,670 Called up paid capital 8,670 8,670 Unpaid capital which has been called up — — SHARE PREMIUM 47,979 52,013 EQUITY INSTRUMENTS ISSUED OTHER THAN CAPITAL 658 627 Equity component of the compound financial instrument — — Other equity instruments issued 658 627 OTHER EQUITY 152 163 ACCUMULATED RETAINED EARNINGS 60,273 65,583 REVALUATION RESERVES — — OTHER RESERVES (4,477) (3,596) Reserves or accumulated losses in joint venture investments 1,572 1,504 Others (6,049) (5,100) (-) OWN SHARES (894) (69) PROFIT OR LOSS ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT 8,124 (8,771) (-) INTERIM DIVIDENDS (836) — OTHER COMPREHENSIVE INCOME OR LOSS (32,719) (33,144) Items that will not be reclassified to profit or loss (4,241) (5,328) Items that may be reclassified to profit or loss (28,478) (27,816) NON-CONTROLLING INTEREST 10,123 9,846 Other comprehensive income or loss (2,104) (1,800) Other items 12,227 11,646 TOTAL EQUITY 97,053 91,322 TOTAL LIABILITIES AND EQUITY 1,595,835 1,508,250 MEMORANDUM ITEMS: OFF BALANCE SHEET AMOUNTS Loan commitments granted 262,737 241,230 Financial guarantees granted 10,758 12,377 Other commitments granted 75,733 64,538 \*Presented for comparison purposes only (note 1.d). 77 CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER  2021 AND 2020 EUR million Interest income 46,463 45,741 Financial assets at fair value through other comprehensive income 2,582 2,840 Financial assets at amortized cost 40,471 40,365 Other interest income 3,410 2,536 Interest expense (13,093) (13,747) Interest income/(charges) 33,370 31,994 Dividend income 513 391 Income from companies accounted for using the equity method 432 (96) Commission income 13,812 13,024 Commission expense (3,310) (3,009) Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net 628 1,107 Financial assets at amortized cost 89 (31) Other financial assets and liabilities 539 1,138 Gain or losses on financial assets and liabilities held for trading, net 1,141 3,211 Reclassification of financial assets at fair value through other comprehensive income — — Reclassification of financial assets at amortized cost — — Other gains (losses) 1,141 3,211 Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss 132 82 Reclassification of financial assets at fair value through other comprehensive income — — Reclassification of financial assets at amortized cost — — Other gains (losses) 132 82 Gain or losses on financial assets and liabilities measured at fair value through profit or loss, net 270 (171) Gain or losses from hedge accounting, net (46) 51 Exchange differences, net (562) (2,093) Other operating income 2,255 1,920 Other operating expenses (2,442) (2,342) Income from assets under insurance and reinsurance contracts 1,516 1,452 Expenses from liabilities under insurance and reinsurance contracts (1,305) (1,242) Total income 46,404 44,279 Administrative expenses (18,659) (18,320) Staff costs (11,216) (10,783) Other general administrative expenses (7,443) (7,537) Depreciation and amortisation cost (2,756) (2,810) Provisions or reversal of provisions, net (2,814) (2,378) Impairment or reversal of impairment at financial assets not measured at fair value through  profit or loss and net gains and losses from changes (7,407) (12,382) Financial assets at fair value through other comprehensive income (19) (19) Financial assets at amortized cost (7,388) (12,363) Impairment or reversal of impairment of investments in subsidiaries, joint ventures and associates, net — — Impairment or reversal of impairment on non-financial assets, net (231) (10,416) Tangible assets (150) (174) Intangible assets (71) (10,242) Others (10) — Gain or losses on non-financial assets and investments, net 53 114 Negative goodwill recognized in results — 8 (Debit) Credit 2021 2020\* 78 Gains or losses on non-current assets held for sale not classified as discontinued operations (43) (171) Operating profit/(loss) before tax 14,547 (2,076) Tax expense or income from continuing operations (4,894) (5,632) Profit/(loss) from continuing operations 9,653 (7,708) Profit/(loss) after tax from discontinued operations — — Profit/(loss) for the year 9,653 (7,708) Profit/(loss) attributable to non-controlling interests 1,529 1,063 Profit/(loss) attributable to the parent 8,124 (8,771) Earnings/(losses) per share Basic 0.438 (0.538) Diluted 0.436 (0.538) (Debit) Credit 2021 2020\* \* Presented for comparison purposes only (note 1.d). 79 CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSE FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 EUR million 2021 2020\* CONSOLIDATED PROFIT/(LOSS) FOR THE YEAR 9,653 (7,708) OTHER RECOGNISED INCOME AND EXPENSE (220) (9,794) Items that will not be reclassified to profit or loss 754 (1,018) Actuarial gains and losses on defined benefit pension plans 1,567 (25) Non-current assets held for sale — — Other recognised income and expense of investments in subsidiaries, joint ventures and associates (1) (4) Changes in the fair value of equity instruments measured at fair value through other comprehensive income (171) (917) 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) 117 4 Changes in the fair value of equity instruments measured at fair value through other comprehensive income (hedging instrument) (117) (4) Changes in the fair value of financial liabilities at fair value through profit or loss attributable to changes in credit risk (99) 31 Income tax relating to items that will not be reclassified (542) (103) Items that may be reclassified to profit or loss (974) (8,776) Hedges of net investments in foreign operations (effective portion) (1,159) 2,340 Revaluation gains (losses) (1,159) 2,340 Amounts transferred to income statement — — Other reclassifications — — Exchanges differences 3,082 (11,040) Revaluation gains (losses) 3,082 (11,040) Amounts transferred to income statement — — Other reclassifications — — Cash flow hedges (effective portion) (938) (53) Revaluation gains (losses) (1,739) 799 Amounts transferred to income statement 801 (852) Transferred to initial carrying amount of hedged items — — Other reclassifications — — 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 (3,250) (100) Revaluation gains (losses) (3,063) 692 Amounts transferred to income statement (545) (1,165) Other reclassifications 358 373 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 19 (151) Income tax relating to items that may be reclassified to profit or loss 1,272 228 Total recognised income and expenses for the year 9,433 (17,502) Attributable to non-controlling interests 1,255 245 Attributable to the parent 8,178 (17,747) \*Presented for comparison purposes only (note 1.d). 80 CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020 EUR million Non-controlling interest Capital Share premium Equity instruments issued (not capital) Other equity instruments Accumulated retained earnings Revaluation reserves Other reserves (-) Own shares Profit attributable to shareholders of the parent (-) Interim dividends Other comprehensive income Other comprehensive income Other items Total Balance at 31 December 2020\* 8,670 52,013 627 163 65,583 — (3,596) (69) (8,771) — (33,144) (1,800) 11,646 91,322 Adjustments due to errors — — — — — — — — — — — — — — Adjustments due to changes in accounting policies — — — — — — — — — — — — — — Opening balance at 1 January 2021\* 8,670 52,013 627 163 65,583 — (3,596) (69) (8,771) — (33,144) (1,800) 11,646 91,322 Total recognised income and expense — — — — — — — — 8,124 — 54 (274) 1,529 9,433 Other changes in equity — (4,034) 31 (11) (5,310) — (881) (825) 8,771 (836) 371 (30) (948) (3,702) Issuance of ordinary shares — — — — — — — — — — — — 17 17 Issuance of preferred shares — — — — — — — — — — — — — — Issuance of other financial instruments — — — — — — — — — — — — — — Maturity of other financial instruments — — — — — — — — — — — — — — Conversion of financial liabilities into equity — — — — — — — — — — — — — — Capital reduction — — — — — — — — — — — — — — Dividends — (477) — — — — — — — (836) — — (648) (1,961) Purchase of equity instruments — — — — — — — (1,645) — — — — — (1,645) Disposal of equity instruments — — — — — — 23 820 — — — — — 843 Transfer from equity to liabilities — — — — — — — — — — — — — — Transfer from liabilities to equity — — — — — — — — — — — — — — Transfers between equity items — (3,557) — — (5,310) — (275) — 8,771 — 371 (30) 30 — Increases (decreases) due to business combinations — — — — — — — — — — — — (5) (5) Share-based payment — — — (62) — — — — — — — — — (62) Others increases or (-) decreases in equity — — 31 51 — — (629) — — — — — (342) (889) Balance at 31 December 2021 8,670 47,979 658 152 60,273 — (4,477) (894) 8,124 (836) (32,719) (2,104) 12,227 97,053 \* Presented for comparison purpose only (note 1.d). 81 CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2020 AND 2019 EUR million Non-controlling interest Capital Share premium Equity instruments issued (not capital) Other equity instruments Accumulated retained earnings Revaluation reserves Other reserves (-) Own shares Profit attributable to shareholders of the parent (-) Interim dividends Other comprehensive income Other comprehensive income Other items Total Balance at 31 December 2019\* 8,309 52,446 598 146 61,028 — (3,110) (31) 6,515 (1,662) (24,168) (982) 11,570 110,659 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 — (3,110) (31) 6,515 (1,662) (24,168) (982) 11,570 110,659 Total recognised income and expense — — — — — — — — (8,771) — (8,976) (818) 1,063 (17,502) Other changes in equity 361 (433) 29 17 4,555 — (486) (38) (6,515) 1,662 — — (987) (1,835) Issuance of ordinary shares 361 (72) — — — — 70 — — — — — 5 364 Issuance of preferred shares — — — — — — — — — — — — — — Issuance of other financial instruments — — — — — — — — — — — — — — Maturity of other financial instruments — — — — — — — — — — — — — — Conversion of financial liabilities into equity — — — — — — — — — — — — — — Capital reduction — — — — — — — — — — — — — — Dividends — (361) — — — — — — — — — — (465) (826) Purchase of equity instruments — — — — — — — (758) — — — — — (758) Disposal of equity instruments — — — — — — 1 720 — — — — — 721 Transfer from equity to liabilities — — — — — — — — — — — — — — Transfer from liabilities to equity — — — — — — — — — — — — — — Transfers between equity items — — — — 4,555 — 298 — (6,515) 1,662 — — — — Increases (decreases) due to business combinations — — — — — — — — — — — — (54) (54) Share-based payment — — — (53) — — — — — — — — — (53) Others increases or (-) decreases in equity — — 29 70 — — (855) — — — — — (473) (1,229) Balance at 31 December 2020\* 8,670 52,013 627 163 65,583 — (3,596) (69) (8,771) — (33,144) (1,800) 11,646 91,322 \* Presented for comparison purposes only (note 1.d). 82 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 2021 AND 2020 EUR million A. CASH FLOWS FROM OPERATING ACTIVITIES 56,691 66,153 Profit or loss for the year 9,653 (7,708) Adjustments made to obtain the cash flows from operating activities 21,363 37,836 Depreciation and amortisation cost 2,756 2,810 Other adjustments 18,607 35,026 Net increase/(decrease) in operating assets 27,258 51,385 Financial assets held-for-trading 2,064 12,390 Non-trading financial assets mandatorily at fair value through profit or loss 969 (275) Financial assets at fair value through profit or loss (32,746) (10,314) Financial assets at fair value through other comprehensive income (9,152) 6,549 Financial assets at amortized cost 73,181 43,541 Other operating assets (7,058) (506) Net increase/(decrease) in operating liabilities 56,945 90,356 Financial liabilities held-for-trading (1,386) 7,880 Financial liabilities designated at fair value through profit or loss (14,316) (10,907) Financial liabilities at amortized cost 79,114 96,561 Other operating liabilities (6,467) (3,178) Income tax recovered/(paid) (4,012) (2,946) B. CASH FLOWS FROM INVESTING ACTIVITIES (3,715) (7,220) Payments 11,669 11,976 Tangible assets 10,015 7,386 Intangible assets 1,388 1,134 Investments 126 525 Subsidiaries and other business units 140 2,931 Non-current assets held for sale and associated liabilities — — Other payments related to investing activities — — Proceeds 7,954 4,756 Tangible assets 6,382 2,014 Intangible assets — — Investments 672 182 Subsidiaries and other business units 6 1,775 Non-current assets held for sale and associated liabilities 894 785 Other proceeds related to investing activities — — C. CASH FLOW FROM FINANCING ACTIVITIES (1,322) (1,909) Payments 7,741 6,978 Dividends 1,313 — Subordinated liabilities 2,684 3,780 Redemption of own equity instruments — — Acquisition of own equity instruments 1,645 758 Other payments related to financing activities 2,099 2,440 Proceeds 6,419 5,069 Subordinated liabilities 5,340 4,095 Issuance of own equity instruments — — Disposal of own equity instruments 854 721 Other proceeds related to financing activities 225 253 D. EFFECT OF FOREIGN EXCHANGE RATE DIFFERENCES 5,196 (4,252) 2021 2020\* 83 E. NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 56,850 52,772 F. CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 153,839 101,067 G. CASH AND CASH EQUIVALENTS AT END OF THE YEAR 210,689 153,839 COMPONENTS OF CASH AND CASH EQUIVALENTS AT END OF THE YEAR Cash 8,142 7,817 Cash equivalents at central banks 193,102 137,047 Other financial assets 9,445 8,975 Less, bank overdrafts refundable on demand — — TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR 210,689 153,839 In which, restricted cash — — 2021 2020\* \* Presented for comparison purposes only (note 1.d). 84 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 distribution of the Bank's net profit against the results for 2021, that the board of directors will propose for approval by the shareholders at the annual general meeting is as follows: EUR million To dividends 1,701 Dividend paid prior to the meeting date\* 836 Complementary dividend\*\* 865 To voluntary reserves\*\*\* 2,231 Net profit for the year 3,932 \*Total amount paid as interim dividend, at the rate of EUR 4.85 fixed cents per eligible share (recorded in 'Shareholders' equity - Interim dividends'). \*\*Fixed dividend of EUR 5.15 gross cents per eligible share, payable in cash as from 2 May 2022. The total amount has been estimated on the assumption that, after the implementation of the second buy- back programme announced on 24 February 2022, the number of the Bank's outstanding shares eligible for the dividend will be 16,804,353,202. \*\*\*Estimated amount corresponding to a final dividend of EUR 865 million. To be increased or reduced by the same amount by which the final dividend is lower or higher, respectively, than that amount. The transcribed proposal comprises the part of the 2021 shareholder remuneration policy that is implemented through cash dividends (the interim dividend paid in November 2021 of  EUR 4.85 cents per share with dividend entitlement and the final dividend expected to be paid as of 2 May 2022, subject to approval by the general meeting of shareholders, of EUR 5.15 cents per share with dividend entitlement). In addition, the 2021 remuneration policy also provided for shareholder remuneration through the implementation of share buyback programs, which are not reflected in the above-transcribed proposal for the appropriation of earnings. The first of these programs, amounting to approximately EUR 841 million, was completed between October and November 2021. Subject to obtaining the appropriate regulatory approvals, a second repurchase program for approximately EUR 865 million is planned to be launched. Capital reduction resolutions are also submitted to the general shareholders' meeting to redeem the treasury shares acquired in each of the two repurchase programs, also subject to the relevant regulatory authorizations. Finally, and although it is not part of the remuneration charged to the 2021 financial year, it should be noted that in May 2021 Banco Santander paid a dividend of EUR 2.75 cents in cash per share corresponding to the 2020 financial year against share premium, for an amount of EUR 477 million, this being the maximum amount allowed in accordance with the limit established by the recommendation of the European Central Bank of 15 December 2020. This payment was made in execution of the premium distribution resolution approved at the General Shareholders' Meeting of Banco Santander held on 27 October 2020. #### 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 21) 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: 2021 2020 Profit (Loss) attributable to the Parent (EUR million) 8,124 (8,771) Remuneration of contingently convertible preference shares (CCP) (EUR million) (note 21) (566) (552) 7,558 (9,323) Of which: Profit (Loss) from discontinued operations (non controlling interest net) (EUR million) — — Profit (Loss) from continuing operations (PPC net) (EUR million) 7,558 (9,323) Weighted average number of shares outstanding 17,272,055,430 17,316,288,908 Impact factor correction Not applicable Not applicable Adjusted number of shares 17,272,055,430 17,316,288,908 Basic earnings (Loss) per share (euros) 0.438 (0.538) Of which, from discounted operations (euros) — — Basic earnings (Loss) per share from continuing operations (euros) 0.438 (0.538) 85 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 21) 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: 2021 2020 Profit (Loss) attributable to the Parent (EUR million) 8,124 (8,771) Remuneration of contingently convertible preference shares (CCP) (EUR million) (note 21) (566) (552) Dilutive effect of changes in profit for the period arising from potential conversion of ordinary shares — — 7,558 (9,323) 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) 7,558 (9,323) Weighted average number of shares outstanding 17,272,055,430 17,316,288,908 Dilutive effect of options/ rights on shares 48,972,459 Not applicable Impact factor correction Not applicable Not applicable Adjusted number of shares 17,321,027,889 17,316,288,908 Diluted earnings (Loss) per share (euros) 0.436 (0.538) Of which, from discounted operations (euros) — — Diluted earnings (Loss) per share from continuing operations (euros) 0.436 (0.538) 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 2021 and 2020. #### 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 2021 (same amount as in 2020), with two components: (a) an annual emolument and (b) attendance fees. In regard to 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 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 2021 amounted to EUR 4.8 million (4.1 million in 2020). 86 Annual emolument In 2021,  the board voted not to change the fees amount set out in the 2020 policy ahead of the aforementioned exceptional decision and, per the remuneration policy approved at the 2021 AGM. Additionally,  the innovation and technology committee also began to be remunerated, and its members received EUR 25,000 and its Chair, an additional EUR 70,000. The annual amounts received individually by the directors in 2021 and 2020 based on the positions held by them on the board and their membership of the board committees were as follows: 2021 2020 Amount per director in euros 1 Jan to 31 Mar 1 Apr to 31 Dec Members of the board of directors 90,000 22,500 49,500 Members of the executive committee 170,000 42,500 93,500 Members of the audit committee 40,000 10,000 22,000 Members of the appointments committee 25,000 6,250 13,750 Members of the remuneration committee 25,000 6,250 13,750 Members of the risk supervision, regulation and compliance committee 40,000 10,000 22,000 Members of the responsible banking, sustainability and culture committee 15,000 3,750 8,250 Members of the innovation and technology committee 25,000 — — Chairman of the audit committee 70,000 17,500 38,500 Chairman of the appointments committee 50,000 12,500 27,500 Chairman of the remuneration committee 50,000 12,500 27,500 Chairman of the risk supervision, regulation and compliance committee 70,000 17,500 38,500 Chairman of the responsible banking, sustainability and culture committee 50,000 12,500 27,500 Chairman of the innovation and technology committee 70,000 — — Lead director\* 110,000 27,500 60,500 Non-executive vice chairmen 30,000 7,500 16,500 \*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 to 31 December, which is shared by Mr. Bruce Carnegie-Brown, the same reduction was applied to this amount. Accordingly, the amount assigned for 2020 was 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. Like the annual allotment, the board voted not to change the fees amount set out in the 2020 policy ahead of the aforementioned exceptional decision and, per the remuneration policy approved at the 2021 AGM, added attendance fees for innovation and technology committee members (which they did not receive before). The fees for 2021 and 2020 are as follows: Attendance fees per director per meeting in euros 2021 2020 1 Jan to 31 Mar 1 Apr to 31 Dec Board of directors 2,600 2,600 2,080 Audit committee and risk supervision, regulation and compliance committee 1,700 1,700 1,360 Other committees (excluding executive committee) 1,500 1,500 1,200 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 2023 and 2024)  will be conditional on none of the malus clauses being triggered. 87 –The accrual of the third, fourth, and fifth portion (payment in 2025, 2026 and 2027), is linked to objectives related to the period 2021—2023 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  2021, 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, he has been considered as an executive director since his appointment as director became effective on 30 May 2020 by virtue of Article 529 duodecies of the Spanish Companies Act in light of his role as CEO and vice-chairman of Banco Santander Brasil, S.A. In 2021 he received as fixed pay for his role as Regional head for South America, the EUR 750,000 euros that had been approved at the 2021 AGM as part of the 2021 remuneration policy. He has not received any other remuneration for executive functions in Banco Santander, S.A. The same policy and principles above apply to Sergio Rial's remuneration as CEO in Santander Brasil. Comparative of Executive Remuneration (Chairman and CEO) The board resolved to maintain the same gross annual salary for Ana Botín and José Antonio Álvarez for 2021 as in 2020. It also maintained the fixed pension contribution of 22% of gross annual salary it had declared in 2020 for 2021. Comparing with the previous year, it should be mentioned that amid the covid-19 health crisis in 2020, Ana Botín and José Antonio Álvarez proposed to reduce their total 2020 compensation (salary and bonus) by 50%. 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. And in 2021, the good business performance (which enabled Banco Santander to reach a 12.73% underlying RoTE, above the end of 2019), the excellent execution of our strategy (with the highest underlying attributable profit of the last 12 years), and the efficient capital management, boosted the bonus pool and thus the variable remuneration of corporate centre employees, (including executive directors). iii. Detail by director The detail, by bank director, of the short-term (immediate) and deferred (not subject to long-term goals) remuneration for 2021 and 2020 is provided below: 88 EUR thousand 2021 2020 Bylaw-stipulated emoluments Annual emolument Short-term and deferred (not subject to long-term goals) salaries of executive directors BoardM Executive committee Audit committee Appointments committee Remuneration committee Risk supervision, regulation and compliance oversight committee Responsible banking, sustainability and culture committee Innovation and technology committee Attendance fees and commissions Fixed Variable- immediate payment Deferred variable In cash In shares In cash In shares Total Pension contribution Other remuneration Total Total Ana Botín 90 170 — — — — — 25 45 3,176 1,838 1,839 1,103 1,103 9,059 1,041 1,006 11,436 6,819 José Antonio Álvarez 90 170 — — — — — 25 45 2,541 1,241 1,240 744 745 6,511 783 1,536 9,160 6,019 Bruce Carnegie-Brown 276 170 — 75 75 — — 25 80 — — — — — — — — 700 595 Homaira Akbari 90 — 40 — — — 15 25 78 — — — — — — — — 248 203 Javier BotínA 90 — — — — — — — 39 — — — — — — — — 129 122 Álvaro CardosoB 90 — — — — 28 15 — 50 — — — — — — — — 183 243 R.Martín ChávezC 90 — — 25 25 40 — 95 99 — — — — — — — — 374 37 Sol Daurella 90 — — 25 25 — 15 — 84 — — — — — — — — 239 214 Henrique de CastroD 90 — 40 — 25 — — 25 87 — — — — — — — — 267 217 Gina DíezE 90 — — 1 — — — — 39 — — — — — — — — 130 4 Luis IsasiF 90 170 — — 25 40 — — 81 — — — — — — — 1,000 1,406 943 Ramiro Mato 90 170 40 — — 40 65 — 94 — — — — — — — — 499 431 Sergio RialG 90 — — — — — — — 39 750 — — — — 750 — — 879 63 Belén Romana 90 170 40 — — 93 15 25 100 — — — — — — — — 533 418 Pamela WalkdenH 90 — 110 — — 27 — — 76 — — — — — — — — 303 214 Rodrigo EcheniqueI — — — — — — — — — — — — — — — — — — 1,956 Ignacio BenjumeaJ — — — — — — — — — — — — — — — — — — 276 Guillermo de la DehesaK — — — — — — — — — — — — — — — — — — 107 Esther Giménez- SalinasL — — — — — — — — — — — — — — — — — — 192 Total 2021 1,536 1,020 270 126 175 268 125 245 1,035 6,467 3,079 3,079 1,847 1,848 16,320 1,824 3,542 26,486 — Total 2020 1,303 915 208 133 138 252 135 — 1,066 5,717 514 515 308 309 7,363 2,019 5,537 — 19,073 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. MAlso includes emoluments for other roles in the board. 89 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 42. EUR thousand 2021 2020 Variable subject to Long-term objectives1 In cash In shares Total Total Ana Botín 1,158 1,158 2,316 420 José Antonio Álvarez 782 782 1,563 228 Total 1,940 1,940 3,880 648 1.Corresponds with the fair value of the maximum amount they are entitled to in a total of 3 years: 2025, 2026 and 2027, 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 2021 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 42). 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 2021 and 2020 variable remuneration plans. In addition to the EUR 750,000 Sergio Rial received as Regional head for South America, he was paid the following amounts as CEO of Santander Brasil (additionally, in the following table, it is also disclosed the variable subject to long-term objectives at 70% of fair value): 2021 BRL thousand EUR thousand Base salary 12,645 1,985 Other fixed benefits 47 7 Pensions 7,350 1,153 Variable remuneration immediately payable and deferred (not linked to long-term objectives) 26,600 4,018 Total 46,642 7,163 EUR thousand 2021 2020 Variable subject to Long-term objectives In cash In shares Total Total Sergio Rial 791 791 1,582 1,311 #### 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 2021 and 2020 the Bank’s directors did not receive any remuneration in respect of these representative duties. On the other hand, in their personal capacity, in 2021 Álvaro Cardoso was paid BRL 2,130 thousand (EUR 334 thousand) as non-executive chairman of Banco Santander Brasil, S.A., Homaira Akbari was paid USD 190 thousand (EUR 161 thousand) as member of the board of Santander Consumer USA (SCUSA) and EUR 52 thousand as member of the Board of PagoNxt, and Henrique de Castro and R. Martín Chávez were each paid the same EUR 52 thousand as members of the board of PagoNxt. Likewise, Pamela Walkden was paid GBP 31 thousand (EUR 36 thousand) as member of Santander UK plc y Santander UK Group Holdings. Likewise, Luis Isasi was paid EUR 1,000 thousand  as non-executive chairman of the board of Santander Spain and for attending board and committee meetings (amounts paid by Banco Santander, S.A.). 90 #### 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. Upon revision in 2021, José Antonio Álvarez’s contract precluded the right to early retirement if terminated. Furthermore, Ana Botín is not entitled to early retirement if she freely resigns; however, she will still be entitled to it if Banco Santander terminates her contract before 31 August 2022, at which time early retirement will no longer be available. As long as she retains that right, she is entitled to an annual allotment equal to her total fixed remuneration, plus 30% of the average of up to her last three variable pays. 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. 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. 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. •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 2021 and 2020 for retirement pensions and supplementary benefits (surviving spouse and child benefits, and permanent disability) were as follows: EUR thousand 2021 2020 Ana Botín 1,041 1,155 José Antonio Álvarez 783 864 Total 1,825 2,019 91 Following is a detail of the balances relating to each of the executive directors under the welfare system as of 31 December 2021 and 2020: EUR thousand 2021 2020 Ana Botín 48,075 49,444 José Antonio Álvarez 18,821 18,082 Total 66,896 67,526 #### 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 2021 2020 Ana Botín 21,489 21,984 José Antonio Álvarez 18,028 18,703 Total 39,517 40,687 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 2021 and 2020, the Group has disbursed a total amount of EUR  25.5 million and EUR 19.5 million , 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 this reason, it is not possible to disaggregate or individualize the amount that correspond to the directors and executives. As of 31 December 2021 and 2020, 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 2021 and 2020 due to their participation in the deferred variable remuneration systems, which instrumented a portion of their variable remuneration relating to 2021 and prior years, as well as on the deliveries, in shares or in cash, made to them in 2021 and 2020 once the conditions for the receipt thereof had been met (see note 42): 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 was 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 was 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. 92 Deferred amounts (whether or not contingent on multi- year targets) is earned if the beneficiary continues to work with the group14, 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. On each delivery, the beneficiaries are 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 18 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 2021 has been approved by the Board of Directors and implemented through the sixth 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 2023 and 2024) is conditional on none of the malus clauses being triggered. •The accrual of the third, fourth and fifth parts (instalments in 2025, 2026 and 2027) is linked to the fulfilment of certain objectives related to the 2021‑2023 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 2023 compared to 2020; –The relative performance of the Bank’s total shareholder return (RTA) in the 2021-2023 period in relation to the weighted RTAs of a reference group of 9  credit institutions; –Compliance with the fully loaded ordinary level 1 capital objective for the year 2023. 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 2021 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. 93 Malus and clawback clauses are triggered by poor financial performance of Banco Santander, a division or area, or exposures from staff as a result of an executive(s)’s management of, at least, one of these factors: (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, as explained above, he just received a fixed pay for executive duties in Banco Santander, S.A. (head for South America), and 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 2020, 31 December 2020 and 31 December 2021, as well as the gross shares that were delivered to them in 2020 and 2021, 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 multi-year objectives in 2016, 2017, 2018, 2019, 2020 and 2021 were formalized. 94 2015 variable remuneration Ms Ana Botín-Sanz de Sautuola y O’Shea 128,809 — — — — — 128,809 — — — — — — — 128,809 Mr José Antonio Álvarez Álvarez 85,620 — — — — — 85,620 — — — — — — — 85,620 214,429 214,429 214,429 2016 variable remuneration Ms Ana Botín-Sanz de Sautuola y O’Shea 216,308 — — — (72,102) — 144,206 (34,177) — — — — (72,102) — 37,927 Mr José Antonio Álvarez Álvarez 145,998 — — — (48,667) — 97,331 (23,067) — — — — (48,667) — 25,597 362,306 (120,769) 241,537 (57,244) (120,769) 63,524 2017 variable remuneration Ms Ana Botín-Sanz de Sautuola y O’Shea 275,700 — — (68,925) — — 206,775 (112,692) — — — (68,925) — — 25,158 Mr José Antonio Álvarez Álvarez 184,377 — — (46,094) — — 138,283 (75,364) — — — (46,094) — — 16,825 460,077 (115,019) 345,058 (188,057) (115,019) 41,983 2018 variable remuneration Ms Ana Botín-Sanz de Sautuola y O’Shea 516,519 — (103,304) — — — 413,215 — — (103,304) — — — 309,911 Mr José Antonio Álvarez Álvarez 345,161 — (69,032) — — — 276,129 — — (69,032) — — — 207,097 861,680 (172,336) 689,344 (172,336) 517,008 2019 variable remuneration Ms Ana Botín-Sanz de Sautuola y O’Shea 887,193 (354,877) — — — — 532,316 — — (106,463) — — — — 425,853 Mr José Antonio Álvarez Álvarez 592,915 (237,166) — — — — 355,749 — — (71,150) — — — — 284,599 1,480,108 (592,043) 888,065 (177,613) 710,452 Share-based variable remuneration Maximum number of shares to be delivered at January 1,2020 Shares 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) Variable remuneration 2020 (Maximum number of shares to be delivered) Maximum number of shares to be delivered at December 31, 2020 Instruments matured but not consolidated at January 1, 2021 Shares delivered in 2021 (immediate payment 2020 variable remuneration) Shares delivered in 2021 (deferred payment 2019 variable remuneration) Shares delivered in 2021 (deferred payment 2018 variable remuneration) Shares delivered in 2021 (deferred payment 2017 variable remuneration) Shares delivered in 2021 (deferred payment 2016 variable remuneration) Variable remuneration 2021 (Maximum number of shares to be delivered) Maximum number of shares to be delivered at December 31, 2021 95 2020 variable remuneration Ms Ana Botín-Sanz de Sautuola y O’Shea — — — — — 310,615 310,615 — (124,246) — — — — — 186,369 Mr José Antonio Álvarez Álvarez — — — — — 168,715 168,715 — (67,486) — — — — — 101,229 Mr Sergio Rial2 — — — — — 355,263 355,263 — (142,105) — — — — — 213,158 834,593 834,593 (333,837) 500,756 2021 variable remuneration1 Ms Ana Botín-Sanz de Sautuola y O’Shea — — — — — — — — — — — — — 1,480,622 1,480,622 Mr José Antonio Álvarez Álvarez — — — — — — — — — — — — — 999,259 999,259 Mr Sergio Rial2 — — — — — — — — — — — — — 625,000 625,000 3,104,881 3,104,881 Share-based variable remuneration Maximum number of shares to be delivered at January 1,2020 Shares 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) Variable remuneration 2020 (Maximum number of shares to be delivered) Maximum number of shares to be delivered at December 31, 2020 Instruments matured but not consolidated at January 1, 2021 Shares delivered in 2021 (immediate payment 2020 variable remuneration) Shares delivered in 2021 (deferred payment 2019 variable remuneration) Shares delivered in 2021 (deferred payment 2018 variable remuneration) Shares delivered in 2021 (deferred payment 2017 variable remuneration) Shares delivered in 2021 (deferred payment 2016 variable remuneration) Variable remuneration 2021 (Maximum number of shares to be delivered) Maximum number of shares to be delivered at December 31, 2021 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. In addition, Mr. Rodrigo Echenique maintains the right to a maximum of 518,517 shares arising from his participation in the corresponding plans during his term as executive director. 96 In addition, the table below shows the cash delivered in 2021 and 2020, 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 2021 2020 Cash paid (immediate payment 2020 variable remuneration) Cash paid (deferred payments from 2019, 2018, 2017 and 2016 variable remuneration) Cash paid (immediate payment 2019 variable remuneration) Cash paid (deferred payments from 2018, 2017, 2016 and 2015 variable remuneration) Ms. Ana Botín-Sanz de Sautuola y O’Shea 334 1,550 1,302 1,383 Mr. José Antonio Álvarez Álvarez 181 1,037 870 925 Total 515 2,586 2,172 2,308 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 2020 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 2021 and 2020 to former board members, upon achievement of the conditions for the receipt thereof (see note 42): MAXIMUM NUMBER OF SHARES TO BE DELIVERED 2021 2020 Deferred conditional variable remuneration plan (2015) — 60,847 Deferred conditional variable remuneration plan and linked to objectives (2016) 60,251 65,502 Deferred conditional variable remuneration plan and linked to objectives (2017) 64,659 47,956 Deferred conditional variable remuneration plan and linked to objectives (2018) 164,462 — Deferred conditional variable remuneration plan and linked to objectives (2019) 130,790 — NUMBER OF SHARES DELIVERED 2021 2020 Deferred conditional variable remuneration plan (2015) 92,557 60,847 Performance shares plan ILP (2015) — — Deferred conditional variable remuneration plan and linked to objectives (2016) 60,254 32,751 Deferred conditional variable remuneration plan and linked to objectives (2017) 32,330 35,132 Deferred conditional variable remuneration plan and linked to objectives (2018) 54,821 — Deferred conditional variable remuneration plan and linked to objectives (2019) 32,698 — In addition, EUR 1,213 thousand and EUR 612 thousand relating to the deferred portion payable in cash of the aforementioned plans were paid each in 2021 and 2020. 97 #### 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 2021 2020 Loans and credits Guarantees Total Loans and credits Guarantees Total Mrs Ana Botín-Sanz de Sautuola y O´Shea 25 — 25 14 — 14 Mr José Antonio Álvarez Álvarez 4 — 4 5 — 5 Mr Bruce Carnegie-Brown — — — — — — Mr Javier Botín-Sanz de Sautuola y O´Shea 16 — 16 2 — 2 Mrs Sol Daurella Comadrán 69 — 69 22 — 22 Mrs Belén Romana García — — — — — — Mr Ramiro Mato García-Ansorena — — — — — — Mrs Homaira Akbari — — — — — — Mr Álvaro Cardoso de Souza — — — — — — Mr Henrique de Castro — — — — — — Mrs Pamela Ann Walkden — — — — — — Mr Luis Isasi Fernández de Bobadilla — — — — — — Mr Sergio Agapito Lires Rial 1 — 1 — — — Mr R. Martín Chávez Márquez — — — — — — Mrs Gina Lorenza Díez Barroso — — — 6 — 6 115 — 115 49 — 49 #### g) Senior managers The table below includes the amounts relating to the short-term remuneration of the members of senior management at 31 December 2021 and those at 31 December 2020, excluding the remuneration of the executive directors, which is detailed above: EUR thousand Short-term salaries and deferred remuneration Variable remuneration (bonus) - Immediate payment Deferred variable remuneration Year Number of persons Fixed In cash In shares2 In cash In shares3 Pensions Other remuneration1 Total 2021 15 19,183 8,402 8,402 3,648 3,648 5,542 5,055 53,880 2020 18 21,642 5,739 5,740 2,470 2,471 6,039 6,312 50,413 1.Includes other remuneration items such as life and medical insurance premiums and localization aids. 2.The amount of immediate payment in shares for 2021 is 2,706,819 shares (2,135,700 Santander shares in 2020). 3.The deferred amount in shares not linked to long-term objectives for 2021 is 1,175,191 shares (919,308 Santander shares in 2020). 98 At the annual general meeting on 26 March 2021, shareholders approved the 2021 Digital Transformation Incentive, a variable remuneration scheme that delivers Santander shares and share options if the group hits major milestones on its digital roadmap. In 2021, no senior executives are included in this programme. However, in 2020, three senior executives were 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 was 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). See note 42 to the 2021, Bank’s financial statement for further information on the Digital Transformation Incentive. In 2021, the ratio of variable to fixed pay components was 125% of the total for senior managers, well within the maximum limit of 200% set by 2021 AGM. Also, the detail of the breakdown of the remuneration linked to long-term objectives of the members of senior management at 31 December 2021 and 31 December 2020 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 42): EUR thousand Variable remuneration subject to long-term objectives1 Year Number of people Cash payment Share payment Total 2021 15 3,830 3,830 7,660 2020 18 2,594 2,594 5,188 1.Relates to the fair value of the maximum annual amounts for years 2025, 2026 and 2027 of the sixth cycle of the deferred conditional variable remuneration plan (2024, 2025 and 2026 for the fifth cycle of the deferred variable compensation plan linked to annual objectives for the year 2020). Senior executive vice presidents who retired in 2021 and, therefore, were not members of senior management at year-end, received in 2021 salaries and other remuneration amounting to EUR 5,294 thousand (EUR 5,984 thousand in 2020). 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 55 thousand (this right has been generated in 2020 for a total amount of EUR 133 thousand). 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 2021 and 31 December 2020 relating to the deferred portion under the various plans then in force is the following (see note 42): Maximum number of shares to be delivered 2021 2020 Deferred conditional variable remuneration plan (2015) — 179,617 Deferred conditional variable remuneration plan (2017) — 2,786 Deferred conditional variable remuneration plan (2018) 3,475 6,949 Deferred conditional variable remuneration plan and linked to objectives (2016) 150,445 417,818 Deferred conditional variable remuneration plan and linked to objectives (2017) 164,428 791,360 Deferred conditional variable remuneration plan and linked to objectives (2018) 803,056 1,512,992 Deferred conditional variable remuneration plan and linked to objectives (2019) 1,274,450 2,154,312 Deferred conditional variable remuneration plan and linked to objectives (2020) 1,829,720 — 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 2021 and 2020 to the senior management, in addition to the payment of the related cash amounts: Number of shares delivered 2021 2020 Deferred conditional variable remuneration plan (2015) 146,930 179,614 Deferred conditional variable remuneration plan (2017) 2,786 2,786 Deferred conditional variable remuneration plan (2018) 3,474 3,474 Deferred conditional variable remuneration plan and linked to objectives (2016) 131,938 170,185 Deferred conditional variable remuneration plan and linked to objectives (2017) 79,104 219,363 Deferred conditional variable remuneration plan and linked to objectives (2018) 267,686 342,884 Deferred conditional variable remuneration plan and linked to objectives (2019) 321,006 — Deferred conditional variable remuneration plan and linked to objectives (2020) 1,742,419 — 99 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 2021 in the pension system for those who were part of senior management during the year amounted to EUR 64.3 million (EUR 59.4 million at 31 December 2020). The net charge to income corresponding to pension and supplementary benefits for widows, orphans and permanent invalidity amounted to EUR 5.5 million in 2021 (EUR 6.4 million in 31 December 2020). In 2021 and 2020 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 100 million (EUR 135.1 million at 31 December 2020). #### h) Post-employment benefits to former Directors and  former executive vice presidents The post-employment benefits and settlements paid in 2021 to former directors of the Bank, other than those detailed in note 5.c amounted to EUR 5.6 million and EUR 11.2 million in 2020, respectively. Also, the post- employment benefits and settlements paid in 2021 to former executive vice presidents amounted to EUR 51.6 million and EUR 10.26 million in 2020, 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 2021 (EUR 0.17 million in 2020). Likewise, contributions to insurance policies that hedge pensions and complementary widowhood, orphanhood and permanent disability benefits for previous senior managers amounted to EUR 4.4 million in 2021 (EUR 5.8 million in 2020). During the 2021 financial year, no release or charge 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 2020, five million releases were recorded), and no provisions/releases has been recorded in respect of former senior managers in 2021 and 2020. In addition, 'Provisions - Pension Fund and similar obligations' in the consolidated balance sheet as at 31 December 2021 included EUR 50 million in respect of the post-employment benefit obligations to former Directors of the Bank (EUR 52 million at 31 December 2020) and EUR 114 million corresponding to former senior managers (EUR 159 million at 31 December 2020). 100 #### i) Pre-retirement and retirement The board of directors  approved 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. 101 6. Loans and advances to central banks and credit institutions Set forth below is the breakdown of ‘Loans and advances to credit institutions’ according to their classification, nature and currency of the transactions: EUR million 2021 2020 CENTRAL BANKS Classification Financial assets held for trading 1,118 — Financial assets designated at fair value through profit or loss — 482 Financial assets designated at fair value through other comprehensive income — — Financial assets at amortized cost 26 21 1,144 503 Breeakdown by product Reverse repurchase agreements 1,118 482 Other term loans 25 20 Advances different from loans 1 1 Of which, impaired assets — — Of which, valuation adjustments for impairment — — 1,144 503 Currency Euro 1,143 502 US Dollars 1 1 1,144 503 CREDIT INSTITUTIONS Classification Financial assets held for trading 6,980 3 Financial assets designated at fair value through profit or loss 3,445 9,888 Financial assets designated at fair value through other comprehensive income — — Financial assets at amortized cost 35,084 34,159 45,509 44,050 Breakdown by product Reverse repurchase agreements 13,602 15,897 Other term loans 21,192 17,671 Non-loans advances 10,715 10,482 Of which, impaired assets — — Of which, valuation adjustments for impairment (4) (6) 45,509 44,050 Currency Euro 32,341 30,815 Pound sterling 1,493 1,555 US dollar 11,395 10,632 Chilean pesos 3 741 Brazilian real — — Other currencies 277 307 45,509 44,050 TOTAL 46,653 44,553 102 The loans and advances classified in the 'Financial assets held for trading' portfolio correspond to temporary acquisitions of assets from Spanish and foreign institutions. Deposits in credit institutions classified as 'Financial assets at amortized cost' are mainly term accounts and guarantees given in cash to credit institutions. The loans and advances to credit institutions classified under 'Financial assets at amortized' are mainly time accounts and deposits. In addition, at December 31, 2021, there were outstanding balances with central banks and credit institutions of EUR 88,268 million and EUR 2,284 million, respectively (2020: EUR 63,984 million and EUR 2,275 million, respectively). The increase occurs due to the liquidity management carried out by the Bank. These balances are included under 'Cash, cash balances at central banks and other deposits on demand'. Note 48 shows the details of the maturity terms of 'Financial assets at amortized cost' and 'Cash, cahs balances at central banks and other deposits on demand'. The breakdown as of December 31, 2021 of the exposure and the provision fund for fiancial assets at amortized cost is EUR 35,114 million and EUR 4 million, respectively, all in Phase 1 (EUR 34,187 million and EUR 6 million, also Phase 1, in 2020). 103 7. Debt instruments The detail, by classification, type, listing status and currency, of ‘Debt instruments’ in the accompanying balance sheets is as follows: EUR millon 2021 2020 Classification Financial assets held for trading 14,320 18,243 Non-trading financial assets mandatorily at fair value through profit or loss 734 671 Financial assets designated at fair value through profit or loss — — Financial assets designated at fair value through other comprehensive income 9,394 15,146 Financial assets at amortized cost 17,208 11,413 41,656 45,473 Type Central banks 892 362 Public sector 13,358 23,681 Credit institutions 14,771 10,123 Other financial institutions 11,356 10,169 Non-financial institutions 1,279 1,138 Of which, impaired assets 144 134 Of which, value adjustments for impairment (148) (74) 41,656 45,473 Currency Euro 27,246 32,431 US dollar 7,764 6,105 Pound sterling 4,161 3,903 Brazilian real 1,245 1,491 Other currencies 1,240 1,543 41,656 45,473 As of December 31, 2021, the nominal amount of the debt securities subject to own obligations, mostly as collateral for financing lines received by the Bank, amounts to EUR  14,877 million  (EUR 9,495 million as of December 31 2020), of which EUR 8,067 million correspond to Spanish Public Debt (EUR 5,512 million as of December 31, 2020). The breakdown as of December 31, 2021 of the exposure, by phase of impairment, of the assets subject to impairment is EUR 26,606 million in phase 1 and EUR 144 million in phase 3. In 2020 it was EUR 26,500 million in phase 1 and EUR 134 million in phase 3. The breakdown as of December 31, 2021 of the provision fund by phase of impairment of assets subject to impairment is EUR 33 million in phase 1 and EUR 115 million in phase 3. In 2020 it was EUR 9 million in phase 1 and EUR 65 million in phase 3. Note 25.e) shows the details of ‘Other comprehensive income‘ accumulated in Equity for the  ‘Financial Assets designated at fair value through other comprehensive income‘. Note 48 contains details of the maturity periods of ‘Loans and Advances and Financial Assets designated at fair value through other comprehensive income’. 104 8. Equity instruments #### a) Breakdown The detail, by classification and type, of Equity instruments in the accompanying balance sheets is as follows: EUR million 2021 2020 Classification Financial assets held for trading 14,619 9,758 Non-trading financial assets mandatorily at fair value through profit or loss 908 305 Financial assets designated at fair value through other comprehensive income 1,705 1,942 17,232 12,005 Type Shares of Spanish companies 3,818 3,276 Shares of foreign companies 12,843 8,396 Investment fund units and shares 571 333 17,232 12,005 Note 25.c contains a detail of the ‘Other comprehensive income’, recognized in equity, on ‘Financial assets designated at fair value through other comprehensive income’. #### b) Changes The changes in ‘Non-trading financial assets mandatorily at fair value through profit or loss’ and ‘Financial assets at fair value through other comprehensive income’ during 2021 and 2020 were as follows: Of which Project Quasar Investments 2017, S.L. — 956 Disposals and capital reductions (4) (372) Of which Saudi British Bank — (326) Valuation adjustment and other items\* (235) (975) Balance at end of the year 1,705 1,942 EUR million 2021 2020\* Balance at December 31 of the previous year 1,942 1,856 Purchases and capital increases 2 1,433 \* Changes in value occurred during the year 2020, due to the fall in prices of listed companies covered under this heading. During the 2021 financial year, there has been a reduction in the fair value of the stake in Project Quasar Investments 2017, S.L. derived from the updating of the valuation of the assets of said company, for an import of EUR 250 million. In September 2020, as a result of the loss control over Project Quasar Investments 2017, S.L., Banco Santander's holding in the portfolio, until then registered under the heading 'Associated Entities' (see note 13 a.ii) and amounting to EUR 956 million, was reclassified to this portfolio. Also, on September 7, 2020  and on December 1, 2020, Banco Santander proceeded to sell its shares owned by Saudi British Bank, which resulted in a reduction of its share valued at that time EUR 326 million. #### c) Notifications of acquisitions of investments The notifications of the acquisitions and disposals of holdings in investees made by the Bank in 2021, 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. 9. 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 Banco Santander at 31 December 2021 and 2020 is as follows: EUR million 2021 2020 Debit balance Credit balance Debit balance Credit Interest rate 26,763 23,483 35,280 31,484 Equity instruments 1,393 955 1,873 918 Currency and Gold 13,739 15,911 16,062 17,986 Credit 104 252 77 223 Commodities — — — — Others 24 71 70 65 Total 42,023 40,672 53,262 50,676 105 #### b) Short positions The following is a breakdown of  short positions: EUR million 2021 2020 Securities lending Equity instruments 318 289 Uncovered on assignments Debt instruments 8,926 10,049 Total 9,244 10,338 10. Loans and advances to customers #### a) Detail The detail, by classification, of ‘Loans and advances to customers’ on the balance sheets is as follows: EUR million 2021 2020 Financial assets held for trading 7,025 71 Non-trading financial assets mandatorily at fair value through profit or loss 713 1,249 Financial assets designated at fair value through profit or loss 9,958 23,529 Financial assets at fair value through other comprehensive income 3,936 5,535 Financial assets at amortized cost 286,735 265,427 Loans and advances to customers (carrying amount) 308,367 295,811 Of which Impairment losses (6,899) (6,981) Loans and advances to customers disregarding impairment losses 315,266 302,792 Note 48 shows the details of the maturity periods of financial assets at amortized cost. At 31 December 2021 and 2020, there were no loans and advances to customers for material amounts without fixed maturity dates. 106 #### b) Breakdown The following is a breakdown of the loans and advances granted to Banco Santander´s clients, which include exposure to the Bank´s credit risk in its main activity, without considering the balance of impairment reserve or the valuation adjustments depending on the modality and situation of the operations, the geographical area of the residence of the borrower and the modality of interest rate of the operation: EUR million 2021 2020 Loan type and status On demand and with a short prior period 3,167 2,473 Credit cards receivables 1,269 1,264 Commercial credit 27,423 15,920 Finance leases 2,965 2,951 Reverse repurchase agreements 6,459 14,700 Other term loans 255,799 246,679 Non loans advances 11,285 11,824 Of which Impaired assets 12,882 13,524 Impairment losses (6,899) (6,981) Book value 35,084 295,811 Gross book value 315,266 302,792 Geographical area Spain 211,525 213,407 European Union (excluding Spain) 28,469 27,949 United States of America and Puerto Rico 25,065 22,624 Other OECD countries 28,186 20,224 Latin America (non-OECD) 9,548 7,704 Rest of the world 12,473 10,884 315,266 302,792 Interest rate: Fixed rate 143,101 137,397 Floating rate 172,165 165,395 315,266 302,792 At December 31, 2021 and 2020 the Bank had EUR 13,819 and 11,767 million, respectively, of loans and advances granted to Spanish public administrations whose rating at December 31, 2021 is A (rating at December 31, 2020 was A ) and with  EUR 2,085 and 1,691 million, respectively, granted to the Public Sector of other countries (as of December 31, 2021 this amount was composed, based on the rating of the issuer as follows: 1% AAA, 19% AA, 20% A, 12% BBB and 48% lower than BBB). The above-mentioned ratings were obtained by converting the internal ratings awarded to customers by Banco Santander (see note 49) into the external ratings classification established by Standard & Poor's, in order to make them more readily comparable. Without considering the Public Administrations, the amount of the loans and advances at 31 December 2021 and 2020 amounts to EUR 299,362 million and EUR 289,334 million, of which EUR 286,480 million and EUR 275,810 million are classified as performing, respectively. 107 The following is a detail, by activity, of the loans to customers at 31 December 2021, net of impairment losses: EUR million Total\* Without collateral Secured loans Net exposure Loan-to-value ratio\*\*\* Of which, property collateral Of which, other collateral 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 sector 14,030 13,280 163 587 56 79 25 590 — Other financial institutions and individual traders (business financial activity) 54,658 38,209 1,198 15,251 572 614 222 14,628 413 Non-financial companies and individual entrepreneurs (non-financial business activity) (broken down by purpose) 150,865 107,895 21,371 21,599 8,968 7,388 4,735 16,563 5,316 Of which Construction and property development (including land) 2,418 11 2,388 19 1,011 763 500 24 109 Civil engineering construction 1,690 943 33 714 16 76 10 603 42 Large companies 96,636 74,601 5,847 16,188 2,773 2,318 1,443 12,014 3,487 SMEs and individual traders 50,121 32,340 13,103 4,678 5,168 4,231 2,782 3,922 1,678 Other households (broken down by purpose) 77,529 9,035 66,938 1,556 18,584 21,058 21,118 5,069 2,665 Of which Residential 61,961 746 61,023 192 16,680 19,288 19,345 4,166 1,736 Consumer loans 8,607 7,782 412 413 193 154 239 160 79 Other purposes 6,961 507 5,503 951 1,711 1,616 1,534 743 850 Total\* 297,082 168,419 89,670 38,993 28,180 29,139 26,100 36,850 8,394 Memorandum item Refinanced and restructured transactions\*\* 15,301 7,542 6,472 1,287 1,517 1,466 1,144 1,514 2,118 \* Not including loan advances. \*\*Includes the net balance of value adjustments associated with impaired assets. \*\*\*The ratio is the carrying amount of the transactions at 31 December 2021 calculated using  the latest available appraisal value of the collateral. 108 Note 49 contains information relating to the forborne loan portfolio. Below is a breakdown of the movement in gross exposure by impairment stage of loans and advances from customers recorded under the headings ‘Financial assets at amortized cost’ and ‘Financial assets at fair value through other comprehensive income’ under Bank of Spain Circular 4/2017 to 31 December 2021 and 2020: 2021 EUR million Stage 1 Stage 2 Stage 3 Total Balance at beginning of the year 252,388 12,031 13,524 277,943 Movements Transfers Transfer to Stage 2 from Stage 1 (8,873) 8,873 — Transfer to Stage 3 from Stage 1 (1,368) 1,368 — Transfer to Stage 3 from Stage 2 (1,116) 1,116 — Transfer to Stage 1 from Stage 2 1,386 (1,386) — Transfer to Stage 2 from Stage 3 357 (357) — Transfer to Stage 1 from Stage 3 36 (36) — Net changes on financial assets 24,411 (2,051) (278) 22,082 Failed (2,455) (2,455) Differences in change and other movements Balance at end of the year 267,980 16,708 12,882 297,570 2020 EUR million Stage 1 Stage 2 Stage 3 Total Balance at beginning of the year 226,826 9,288 13,994 250,108 Movements Transfers Transfer to Stage 2 from Stage 1 (6,288) 6,288 — Transfer to Stage 3 from Stage 1 (812) 812 — Transfer to Stage 3 from Stage 2 (1,910) 1,910 — Transfer to Stage 1 from Stage 2 1,818 (1,818) — Transfer to Stage 2 from Stage 3 301 (301) — Transfer to Stage 1 from Stage 3 259 (259) — Net changes on financial assets 30,585 (118) (702) 29,765 Failed — — (1,930) (1,930) Differences in change and other movements Balance at end of the year 252,388 12,031 13,524 277,943 As of December 31, 2021, the total net exposure of loans and advances to the Bank's customers is EUR 290,671 million, of which EUR 267,471 million correspond to phase 1, EUR 16,002 million to phase 2 and EUR 7,198 millionto phase 3. This exposure includes EUR 233 million (EUR 284 million as of December 31, 2020) in impaired assets purchased with impairment, classified in phase 3, which correspond mainly to business combinations carried out by the Bank. 109 c) Impairment losses on loans and advances to customers at amortized 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 amortized cost and at fair value through other comprehensive income ‘Loans and advances to customers’: EUR million 2021 2020 Balance at beginning of the year 6,981 6,245 Net impairment losses charged to income for the year 2,304 2,577 Of which Impairment losses charged to profit or loss 3,535 4,075 Impairment losses reversed with a credit to profit or loss (1,231) (1,498) Write-off of impaired balances against recorded impairment allowance (2,455) (1,930) Exchange differences and other changes 69 89 Balance at end of the year 6,899 6,981 Of which — By status of the asset Impaired assets 5,684 5,782 Of which, due to country risk 7 — Other assets 1,208 1,199 Balance at end of the year 6,899 6,981 Of which Individually calculated 881 909 Collective calculated 6,018 6,072 The net provision charged to results for the year includes provisions for renegotiation or contractual modification for EUR 75 million (EUR 38 million on December 31, 2020). Taking into account the assets in suspense recovered, which amount to EUR 89 million as of December 31, 2021 (EUR 82 million as of December 31, 2020) and adding to the net provision of the previous table, the impairment of 'Credit Entities  and Debt Securities' (see notes 6 and 7), the amount recorded under the heading 'Impairment or reversal of impairment of financial assets not measured at fair value through profit or loss and net gains or losses' , due to changes in 'Financial assets at fair value with changes in other comprehensive income' and 'Financial assets at amortized cost', amounts to EUR 2,287 million as of December 31, 2021 (EUR 2,559 million as of December 31, 2020) . The following is the movement of loan loss provisions broken down by impairment stage of loans and advances to customers, during 2021 and 2020: 2021 EUR million Stage 1 Stage 2 Stage 3 Total Balance at beginning of the year 485 714 5,782 6,981 Transfers Transfer to Stage 2 from Stage 1 (19) 248 229 Transfer to Stage 3 from Stage 1 (52) 240 188 Transfer to Stage 3 from Stage 2 (119) 384 265 Transfer to Stage 1 from Stage 2 4 (76) (72) Transfer to Stage 2 from Stage 3 23 (77) (54) Transfer to Stage 1 from Stage 3 1 (13) (12) Net changes of the exposure and modifications in the credit risk 71 (84) 1,773 1,760 Changes due to update in the methodology of estimates of the entity Write-offs (2,455) (2,455) FX and other movements 19 — 50 69 Gross carrying amount end of the year 509 706 5,684 6,899 110 2020 EUR million Stage 1 Stage 2 Stage 3 Total Balance at beginning of the year 335 513 5,397 6,245 Transfers Transfer to Stage 2 from Stage 1 (138) 242 104 Transfer to Stage 3 from Stage 1 (94) 382 288 Transfer to Stage 3 from Stage 2 (122) 288 166 Transfer to Stage 1 from Stage 2 10 (82) (72) Transfer to Stage 2 from Stage 3 22 (65) (43) Transfer to Stage 1 from Stage 3 6 (19) (13) Net changes of the exposure and modifications in the credit risk 359 131 1,657 2,147 Changes due to update in the methodology of estimates of the entity Write-offs (1,930) (1,930) FX and other movements 7 10 72 89 Gross carrying amount end of the year 485 714 5,782 6,981 #### d) Impaired assets The detail of the movement in the balance of financial assets classified as ‘Loans and advances to customers’ and considered to be impaired by reason of their credit risk: EUR million 2021 2020 Balance at beginning of the year 13,524 13,994 Net additions 1,813 1,460 Written-off assets (2,455) (1,930) Other changes — — Balance at end of the year 12,882 13,524 This amount, once the corresponding provisions have been deducted, is Banco Santander´s best estimate of the discounted value of the  cashflows that are expected to be recovered from impaired assets. At 31 December 2021, the balance of the assets written- off amounted to EUR 8,198 million. (December 2020: EUR 8,660 million). The following are the credit impaired financial assets and related guarantees maintained to mitigate potential losses as of 31 December 2021: EUR million Gross amount Allowance recognized Estimated collateral value\* Without associated real collateral 4,881 2,973 — With associated real collateral 7,093 2,275 4,508 With other collateral 908 436 255 Total 12,882 5,684 4,763 \* Collects the estimated value of the collateral associated with each loan. Consequently, it does not include any other cash flow that could be obtained, such as those from the personal guarantees of the accredited. When classifying assets in the previous table, the main factors considered by Banco Santander 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. #### e)Transferred credits The heading 'Loans and advances to customers' includes, among others, those loans transferred to third parties by securitisation on which risks and profits are maintained, albeit partially, which is why and in accordance with the accounting regulations that apply, they cannot be removed from the balance sheet. This is mainly due to mortgage loans, loans to companies and consumer loans. The breakdown of securitised loans held on the balance sheet, taking into account the nature of the financial instrument from which they originate, is shown below. EUR million 2021 2020 Retained on the balance sheet 15,347 20,113 Of which, mortgage assets are securitized through: Mortgage transfer certificates (nota 20.c)\* 11,133 17,610 Total 15,347 20,113 \*Note 19 reports the liabilities associated with securitization operations, discounting the bonds of the securitization funds repurchased by the Bank. 111 The evolution of this activity responds to its use as a regulatory capital management tool and as a resource for the diversification of Banco Santander's liquidity sources. During 2021 and 2020 the Bank didn't derecognized any of the securitizations carried out in years mentioned before, and the balance derecognized at those dates corresponds to securitizations carried out in previous years. On the other hand, as of December 31, 2021, Banco Santander has credits derecognized from the balance sheet and on which the administration maintains for an amount of EUR 2,397 million (EUR 2,783 million as of December 31, 2020). Within the total loans written off the balance sheet, as of December 31, 2021, there are EUR 845 million (EUR 1,005 million in 2020) of securitized assets. #### f) Guarantee Below is the breakdown of the liabilities issued guaranteed by assets, discounting own values as of 31 December 2021 and 2020: EUR million 2021 2020 Liabilities secured by assets: Mortgage-backed bonds 22,274 23,589 Asset-backed securities 2,290 381 Territorial bonds 625 872 Total 25,189 24,842 The mortgage-backed bonds (‘cédulas hipotecarias’) are secured by mortgage loans with average maturities of more than ten years. In order to calculate the amount of the qualifying assets, the following transactions are excluded from the total base of the unsecuritized mortgage portfolio: –Transactions classified as at pre-action stage and procedural stage. –Transactions without appraisal by a specialist valuer. –Transactions exceeding 80% of the appraized value in residential financing and 60% in the case of other assets. –Second mortgages or mortgages with insufficient collateral. –Transactions without insurance or with insufficient insurance. The asset-backed securities, including asset-backed securities and notes issued by special-purpose vehicles (SPVs), are secured by: –Mortgage loans to individuals to finance the acquisition and refurbishment of homes with an average maturity of more than ten years. –Personal consumer finance loans with no specific guarantee and unsecured loans with an average maturity of five years. –Loans to SMEs (non-financial small and medium- sized enterprises) secured by State guarantees, and loans to companies (SMEs -self-employed, microbusinesses, small and medium-sized enterprises- and large companies) secured by property mortgages, the borrower's personal guarantee, guarantees and other collateral other than property mortgages, with an average maturity of seven years. –Mortgage and non-mortgage loans to finance municipalities, autonomous communities and subsidiaries with an average maturity of more than ten years. –Asset-backed securities issued by various European special-purpose vehicles backed by German and Italian loans for the purchase of vehicles and Italian personal loans, with an average maturity of eight years. –Commercial credit of Banco Santander (ordinary and occasional invoice discounting and advances to customers on legitimate receivables) with an average maturity of 45 days. The fair value of the guarantees received by Banco Santander (financial and non-financial assets) which the Bank is authorized to sell or pledge even if the owner of the guarantee has not defaulted is scantly material taking into account the Bank's financial statements as a whole. 112 11. Trading derivatives The detail of the notional and/or contractual amounts and the market values of the trading derivatives held by the Bank in 2021 and 2020 is as follows: EUR million 2021 2020 Notional value Market value Notional value Market value Held for trading: Interest rate 4,163,388 3,280 4,423,110 3,795 Options 203,013 (304) 247,858 (441) Other 3,960,375 3,584 4,175,252 4,236 Equity instruments 55,548 439 50,733 955 Options 36,920 (231) 39,270 4 Other 18,628 670 11,463 951 Currency 687,473 (2,172) 618,977 (1,925) Options 43,666 48 39,842 41 Other 643,807 (2,220) 579,135 (1,966) Credit 12,856 (147) 11,652 (146) Hedging default derivative and total through out 12,856 (147) 11,652 (146) Securities and commodities derivatives and other 5,518 (49) 6,067 7 4,924,783 1,351 5,110,539 2,686 113 12. Non-current assets held for #### sale The balance detail under this heading of the attached balance sheets is shown below: EUR million 2021 2020 Foreclosed assets 966 1,001 Other assets leased out under an operating lease 27 231 Investment property — 55 Total 993 1,287 As of December 31, 2021, reducing the balance of this heading, there were EUR 644 million corresponding to value adjustments due to impairment of said assets, which entails a coverage of 39.3% of them (EUR 626 million, with a coverage of 32.7%, in the 2021 financial year) of which EUR 70 million have been recorded during the 2020 financial year (EUR 68 million in the 2020 financial year) under the heading 'Gains or losses from non-current assets and groups disposal of items classified as held for sale not eligible as discontinued operations' (see Note 46) At December 31, 2021 there are no liabilities associated in disposable groups of items that have been classified as held for sale associated with other non-current assets and alienable groups of items that have been classified as held for sale. 13. Investments #### a) Associated entities ‘Investments - Associates’ in the accompanying balance sheets includes Banco Santander`s ownership interests in associates (see note 2.b). Appendix II contains a detail of these companies, indicating the percentages of direct or indirect ownership and other relevant information. At 31 December 2021 there were no capital increases in progress at any associated company. i. Breakdown The detail of the balance of this heading of the attached balances, based on the contracting currency and the admission or non-listing of the securities, is as follows: EUR million 2021 2020 Currency: Euro 3,020 3,082 Foreign Currency — — 3,020 3,082 Listing status: Listed 1,917 1,978 Unlisted 1,103 1,104 3,020 3,082 ii. Changes The changes in 2021 and 2020 in ‘Investments - Associates’’, disregarding impairment losses, were as follows, (see note 13.a.iii): EUR million 2021 2020 Balance at the beginning of the year 3,363 5,432 Purchases, capital increases and mergers 20 512 Of which Popular Spain Holding de Inversiones, S.L.U. (before Allianz Popular, S.L.) — 414 Merlín Properties, SOCIMI, S.A. 6 87 Redsys Servicios de Procesamiento, S.L. 10 — Promontoria Manzana, S.A. — 3 Disposals, reductions and mergers: (78) (9) Of which Merlin Properties, SOCIMI, S.A. (25) — Metrovacesa, S.A. (52) — Promontoria Manzana, S.A. — (4) Transfers — (2,535) Of which Popular Spain Holding de Inversiones, S.L.U. (before Allianz Popular, S.L.) — (834) Project Quasar Investment 2017, S.L. — (1,701) Other changes (net) 7 (37) Balance at end of the year 3,312 3,363 114 In April 2021, the company Merlín Properties, SOCIMI, S.A. has made a distribution of dividends charged to the issue premium, with Banco Santander receiving an amount of EUR 27 million, which has led to the recording of a reduction in the cost of the participation of EUR 25 million and the recording of an income of EUR 2 million. Additionally, during the 2021 financial year, Banco Santander has acquired, through various purchases in the stock market, shares of the entity Merlín Properties, SOCIMI, S.A. for a net total of EUR 6 million. In May and December 2021, Metrovacesa, S.A. made two distributions of dividends charged to the unrestricted reserve (issue premium), with Banco Santander receiving two payments of EUR 19 million. These operations have entailed a reduction in the cost of the participation of EUR 52 million and an impairment application of EUR 14 million. In July 2021 and September 2021, as a result of changes in the composition of the Spanish banking sector, Banco Santander has exercised its preferential acquisition right, included in the partners' agreement dated June 29, 2021, of shares in Redsys Servicios of Procesamiento, S.L. for imports of EUR 2 million and EUR 8 million, respectively, until reaching the maximum established share of 24.9%. On January 31, 2020, Banco Santander proceeded to repurchase 60% of the stake in Allianz Popular, S.L., reaching a 100% stake in this company. The total cost of this participation after this acquisition has been fixed at EUR 834 million, and then reclassify it to the heading of 'Group Entities' (see note 13.b.ii). In addition, during the year 2020, Banco Santander acquired shares of Merlín Properties, SOCIMI, S.A. through various purchases on the stock market for a net total of EUR 87 million. Also, in September 2020, on the occasion of the loss of control over the entity Project Quasar Investments 2017, S.L., Banco Santander's share in the same, amounting to EUR 1,701 million  (EUR 956 million  net impairment fund), was reclassified to the portfolio of Equity Instruments (see note 8.b.ii). iii. Impairment losses The changes in the balance of this item were as follows: EUR million 2021 2020 Balance at the beginning of the year 281 572 Net impairment losses (reversals) (note 44) 24 460 Other changes (13) (751) Balance at end of the year 292 281 #### b) Group entities ‘Investments - Group entities’ includes the equity instruments owned by Banco Santander and issued by subsidiaries belonging to Grupo Santander. Relevant information on these companies is provided in Appendix I. i. Breakdown The detail, by currency and listing status, of ‘Investments - Subsidiaries’ on the balance sheets as at 31 December 2021 and 2020 is as follows: EUR million 2021 2020 Currency: Euro 45,780 44,346 Pound Sterling 13,303 12,163 Other currencies 26,189 25,051 85,272 81,560 Listing status: Listed 6,338 5,968 Unlisted 78,934 75,592 85,272 81,560 115 ii. Changes The changes in 2021 and 2020 in ‘Investments - Subsidiaries’, disregarding impairment losses, were as follows: EUR million 2021 2020 Balance at beginning of the year 93,918 89,318 Acquisitions, contributions, capital increase payments and mergers 6,593 7,108 Of which Contingently convertible debt (AT1) 996 — PagoNXT, S.L. (before Santander Digital Businesses, S.L.) 917 1,030 Ablasa Participaciones, S.L. 616 — Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México 343 — PagoNXT Merchant Solutions, S.L. (before Santander Merchant Platform Solutions, S.L.) 296 — Tresmares Santander Direct Lending, SICC, S.A. 274 — Retail Company 2021, S.L.U. 262 — Banco Santander de Negocios Colombia S.A. 178 — Openbank, S.A. 170 — Open Digital Services, S.L. 161 — Deva Capital Holding Company, S.L. 96 — Santander Fintech Holding, S.L. 62 — Landcompany 2020, S.L. (before Landmark Ibérica, S.L.) 21 33 Santander Totta, SGPS, S.A. — 4,949 SAM Investment Holdings, S.L. — 292 Uro Property Holdings, SOCIMI, S.A. (OCI portfolio transfer) — 179 Disposals, capital reductions and mergers (4,841) (3,725) Of which Contingently convertible debt (AT1) (1,157) — Popular Spain Holding de Inversiones, S.L.U. (before  Allianz Popular, S.L.) (542) (292) PagoNXT Merchant Solutions, S.L. (before Santander Merchant Platform Solutions, S.L.) (296) (150) Sterrebeck B.V. (264) — Getnet Europe, Entidad de Pago, S.L. (before Santander España Merchant Services, Entidad de Pago, S.L.) (185) — Grupo Empresarial Santander, S.L. (141) — Banco Santander (Brasil) S.A. — (2,478) Santander Global Property, S.L.U. — (255) Inmobiliaria Viagracia, S.A.U. — (109) Inversiones Capital Global, S.A. Unipersonal — (67) BPE Financiaciones, S.A.U. — (1) Transfers — 1,013 Of which Popular Spain Holding de Inversiones, S.L.U. (before Allianz Popular, S.L.) — 834 FX and other movements\* 1,054 204 Balance at end of the year 96,724 93,918 \*  In 2020 it includes EUR 2,507 million  corresponding to the contingently convertible debt instruments (AT1) transferred under this heading. 116 On May 14, 2021, Banco Santander has subscribed a capital increase in the company Landcompany 2020, S.L. (formerly Landmark Iberia, S.L.) through a non-monetary contribution of land for a total amount of EUR 21 million, reaching a participation percentage of 17.66%. In June 2021, the companies PagoNxt Merchant Solutions, S.L. (formerly Santander Merchant Platform Solutions, S.L.), Grupo Empresarial Santander, S.L. and Sterrebeck B.V. drafted two partial spin-off projects pursuant to which the spun-off companies (Grupo Empresarial Santander, S.L. and Sterrebeck B.V.) transfer en bloc and by universal succession a part of their assets consisting of all the shares representing the share capital of Getnet Adquirência e Serviços para Meios de Pagamento S.A. (Getnet Brasil) of its ownership to the beneficiary company (PagoNxt Mechant Solutions, S.L.). This has led to a capital increase in PagoNxt Merchant Solutions, S.L. and a decrease in Grupo Empresarial Santander, S.L. and Sterrebeck B.V. for amounts of EUR 141 million and EUR 264 million, respectively. The Bank, as shareholder of the spun-off companies, has received shares of PagoNxt Merchant Solutions, S.L. On the other hand, throughout the 2021 financial year, Banco Santander has made various monetary contributions to the equity of the company PagoNxt, S.L. (formerly Santander Digital Businesses, S.L.) amounting EUR 407 million. Likewise, during the 2021 financial year it has also subscribed non-monetary contributions to this company for a total of EUR 510 million, through the contribution of its participation in the following companies: EUR 215 million by Getnet Europe, Entidad de Pago, S.L. (formerly Santander España Merchant Services, Entidad de Pago, S.L.) and EUR 295 million for PagoNxt Merchant Solutions, S.L. (formerly Santander Merchant Platform Solutions, S.L.). In July 2021, the Bank proceeded to purchase the remaining 8% of its stake in Parque Solar Páramo, S.L. for an amount of EUR 6 million, transferring it from the portfolio of investments in joint ventures to the portfolio of investments in subsidiaries (see note 13.c.). Subsequently, this interest was transferred to the heading 'Non-current assets held for sale', due to Management's intention to sell them during the year (see note 12). On July 5, 2021, the merger by absorption of Santander Global Operations, S.A. was signed (absorbed company) by Santander Global Tecnhnology, S.L. (absorbing company), with dissolution without liquidation of the absorbed company and en bloc transfer of its assets to the absorbing company. The new company resulting from the merger is renamed Santander Global Technology and Operations, S.L. On October 21, 2021, within the process of rationalizing and optimizing the corporate structure of Grupo Santander, a segregation project was signed by virtue of which Banco Santander has segregated the autonomous economic unit that integrates the branch management business empty bank offices, with closure project or leased to third parties not linked to the banking activity of Banco Santander (split company), including the contracts linked to them and the employees currently in charge of their management, in favor of a newly creation called Retail Company 2021, S.L.U (beneficiary company). The amount of the segregation has risen to EUR 262 million. On December 7, 2021, within the framework of the Public Offer for the Acquisition of shares of Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México, for up to all of the Series B shares representing the capital stock, Banco Santander has acquired 4.51% of the shares of said company, both in Mexico and in the United States. This has meant a disbursement of EUR 343 million, including the expenses of the operation. On December 16, 2021, the deed of merger by absorption by the Bank of the companies Popular Spain Holding de Inversiones, S.L.U. (formerly Allianz Popular, S.L.), Santander Investment I, S.A.U. and Administration of Bancos Latinoamericanos Santander, S.L., incorporating, among other assets, the companies Ablasa Participaciones, S.L. and Banco Santander de Negocios Colombia. The net amount registered under this heading for this operation was EUR 223 million, with a credit in reserves of  EUR 1,039 million. Also, throughout the 2021 financial year Banco Santander has subscribed capital increases and made partner contributions, the most relevant being: EUR 274 million euros to Tresmares Santander Direct Lending, SICC, S.A., EUR 170 million to Open Bank, S.A., EUR 161 million to Open Digital Services, S.L., EUR 96 million to Deva Capital Holding Company, S.L. and EUR 62 million to Santander Fintech Holdings, S.L. On January 31, 2020, Banco Santander proceeded to transfer to this heading 100% of its stake in Popular Spain Holding de Inversiones, S.L.U. (formerly Allianz Popular, S.L.) amounting  EUR 834 million  (see note 13.a.ii). Next, on 28 April 2020, Popular Spain Holding de Inversiones, S.L.U. approved a refund of the issuance premium of EUR 292 million to Banco Santander by transferring a credit right derived from the deferred price of two contracts for the sale of shares. Banco Santander also made a contribution to their own funds of SAM Investment Holdings, S.L. for the same amount, by the assignment of the said right. On May 8, 2020, Banco Santander signed two successive capital increases by Landcompany 2020, S.L. (before Landmark Iberia, S.L.) through non-cash contributions of land totaling EUR 33 million, reaching a share rate of 17.22%. On  June 30, 2020, the sole partner of Investments Capital Global, S.A.U. approved a partial distribution of the shared premium, which has meant a decrease Banco Santander´s share in the company of EUR 67 million. 117 In September 2020, Banco Santander acquired 85.03% of the shares of Uro Property Holdings, SOCIMI, S.A. reaching a total share of 99.99%. As a result of this acquisition, this stake was enforced under this heading at a total cost of EUR 179 million. On December 22, 2020, in the context of the reorganization of the shareholder of Banco Santander (Brasil) S.A. within the Group, Banco Santander sold 13.89% of its stake in that entity to Grupo Empresarial Santander, S.L. for EUR 3,605 million. As a result of this sale, the Bank recorded a profit of EUR 1,127 million (see note 45). Also, on December 23, 2020, the deeds of merger by absorption by Banco Santander of the entities Santander Global Property, S.L.U., Inmobiliaria Viagracia, S.A.U. and BPE Financiaciones, S.A.U. raised to the public. The amount discharged under this heading for this operation was EUR 365 million. In addition, on December 28, 2020, Banco Santander acquired 99.85% of Santander Totta, SGPS, S.A. shares from Santusa Holding, S.A. for an amount of EUR 4,949 million. In addition, during the year 2020, Banco Santander made various monetary contributions to the own funds of the company PagoNxt, S.L. (formerly Santander Digital Businesses, S.L.) totaling EUR 754 million. In addition, it signed capital increases during 2020 and made non-cash contributions to this company totaling EUR 276 million, by contributing its participation in the following companies: EUR 45 million by Ebury Partners Limited, EUR 31 million by Moneybit, S.L. (currently PagoNxt Trade Services, S.L.) EUR 150 million for Santander Merchant Solutions, S.L. (before PagoNxt Merchant Solutions, S.L.) and EUR 50 million for PagoNxt Solutions, S.L. iii. Impairment losses The changes in the balance of this item were as follows: EUR million 2021 2020 Balance at beginning of the year 12,358 7,095 Net impairment losses (reversals) (note 44) (851) 5,466 Other changes (55) (203) Balance at end of the year 11,452 12,358 The Management carries out an analysis of the potential loss of value of the investments in subsidiaries, joint ventures and associates that it has registered with respect to their book value. Said analysis is carried out using different parameters, such as equity value, listed value and recoverable value, which is obtained from estimates of expected cash flows or net worth corrected by tacit capital gains existing on the date of the valuation. In accordance with the foregoing, Banco Santander has carried out in December 2021 the evaluation of its investees. The provisions for impairment made by the Bank during the 2021 financial year include EUR 144 million corresponding to the impairment of the stake held in Open Digital Services, S.L. Additionally, during the year impairment releases have been made that include EUR 887 million corresponding to the stake in Santander UK Group Holdings plc, derived from the results obtained by the group of entities of which it is the parent and the positive evolution of the interest rate of exchange affected. During the 2020 financial year, considering the expected evolution of the macroeconomic variables included in the valuation of its investees and the impact of the covid-19 crisis, the Bank made provisions for impairment that included EUR 4,313 million corresponding to the impairment of the investment held in Santander UK Group Holdings plc. #### c) Joint venture entities The cost of the investee entities registered under this heading as of 31 of December 2021 amounts to EUR 451 million, while impairment provisions recorded at that date are EUR 194 million ( EUR 420 millon and EUR 172 million in 2020). In July 2021, Banco Santander proceeded to purchase the remaining 8% of its stake in Parque Solar Páramo, S.L. for an amount of EUR 6 million, transferring it to the Group's portfolio of investments in subsidiaries (see note 13.b.ii). Likewise, in December 2021, UCI, S.A. approved a capital increase, corresponding to Banco Santander an amount of EUR 30 million. During the 2021 financial year, Banco Santander has provided impairment for a net amount of EUR 27 million for the entities registered under this heading, mainly by the company UCI, S.A., while in the 2020 financial year it released provisions of EUR 5 million for the same company. 14. Insurance contracts linked to pensions The detail of Insurance contracts linked to pensions in the accompanying balance sheets are as follows: EUR million 2021 2020 Assets relating to insurance contracts covering post-employment benefit plan obligations (notes 17 and 23) 381 423 Total 381 423 118 15. Tangible assets #### a) Changes The movement under this heading of the balance sheet during the financial year 2021 and 2020 was 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 Total For own use Leased out under an operating lease Investment property Total Cost Opening balance at 1 January 2020 8,597 850 337 9,784 2,946 — — 2,946 Additions/disposals (net) 174 126 — 300 8 — — 8 Transfers and other (455) — (10) (465) — — — — Balance at 31 December 2020 8,316 976 327 9,619 2,954 — — 2,954 Additions/disposals (net) 110 147 (2) 255 (51) — — (51) Transfers and others (627) — 55 (572) (8) — — (8) Balance at 31 December 2021 7,799 1,123 380 9,302 2,895 — — 2,895 Accumulated depreciation Opening balance at 1 January 2020 (2,298) (199) (21) (2,518) (268) — — (268) Charge for the year (453) (99) (2) (554) (262) — — (262) Disposals 43 69 — 112 28 — — 28 Transfers and others 195 — 7 202 — — — — Balance at 31 December 2020 (2,513) (229) (16) (2,758) (502) — — (502) Charge for the year (455) (114) (4) (573) (276) — — (276) Disposals 93 72 — 165 84 — — 84 Transfers and others 606 — (2) 604 133 — — 133 Balance at 31 December 2021 (2,269) (271) (22) (2,562) (561) — — (561) Impairment losses Opening balance at 1 January 2020 (46) — (89) (135) — — — — Charge for the year (62) — — (62) — — — — Disposals — — — — — — — — Transfers and others 20 — (4) 16 — — — — Balance at 31 December 2020 (88) — (93) (181) — — — — Charge for the year (85) — — (85) — — — — Disposals — — — — — — — — Transfers and others 35 — 6 41 — — — — Balance at 31 December 2021 (138) — (87) (225) — — — — Tangible assets, net Balance at 31 December 2020 5,715 747 218 6,680 2,452 — — 2,452 Balance at 31 December 2021 5,392 852 271 6,515 2,334 — — 2,334 119 #### b) Property, plant and equipment for own use The detail, by class of asset, of ‘Property, plant and equipment - For own use’ on the balance 2021 and 2020 sheets is as follows: EUR million Cost Accumulated depreciation Impairment losses Carrying amount Of which, right-of- use for operating lease Land and buildings 5,514 (644) (88) 4,782 2,452 Furniture, fixtures and vehicles 2,130 (1,322) — 808 — Computer hardware 634 (547) — 87 — Other 38 — — 38 — Balance at 31 December 2020 8,316 (2,513) (88) 5,715 2,452 Land and buildings 5,389 (740) (138) 4,511 2,334 Furniture, fixtures and vehicles 2,037 (1,278) — 759 — Computer hardware 326 (251) — 75 — Other 47 — — 47 — Balance at 31 December 2021 7,799 (2,269) (138) 5,392 2,334 The carrying amount at 31 December 2021 in the table above includes the following approximate amounts: •EUR 3 million (31 December 2020: EUR 2 million) relating to property, plant and equipment owned by Banco Santander's branches located abroad. •EUR 484 million (31 December 2020: EUR 549 million) relating to property, plant and equipment held under finance leases by Banco Santander, of which EUR 360 million related to leases in effect as of 31 December 2021 (31 December 2020: EUR 427 million). #### c)Tangible assets - Leased out under an operating lease Banco Santander has assets assigned under operating lease where the company is the lessor and they do not meet the accounting requirements to be classified as financial leases. The net cost of these leases is recorded as an asset and is depreciated on a straight-line basis over the contractual term of the lease up to the expected residual value. The expected residual value and, consequently, the monthly depreciation expense may change during the term of the lease. The Bank estimates expected residual values using independent data sources and internal statistical models. Likewise, it evaluates the estimate of the residual value of said leases and adjusts the depreciation rate based on the change in the expected value of the asset at the end of the lease. Banco Santander periodically evaluates its investment in operating leases and whenever there are indications of impairment, such as a systemic and material decrease in the values of the assigned assets. If assets leased under operating leases are considered to be impaired, impairment is measured as the amount by which the assets' carrying amount exceeds fair value as estimated by discounted cash flows. During the years 2021 and 2020, the Bank has not recorded any material impairment for this concept. During the 2021 financial year, no significant variable payments have been made not included in the valuation of lease assets. 120 16. Intangible assets #### a) Goodwill The detail of the 'Goodwill', on the balance sheets is as follows: EUR million 2021 2020 Santander España 623 623 Amortization charge (227) (165) Balance at end of year 396 458 The movement during the years 2021 and 2020 has been as follows: EUR million 2021 2020 Balance at beginning of the year 458 521 Additions (note 3) — — Amortization charge (62) (63) Impairment losses — — Disposals or changes in scope — — Balance at end of year 396 458 Neither in 2021, nor in 2020 has goodwill been generated. All of the goodwill recorded at the end of the 2021 and 2020 financial years comes from the following corporate operations that were carried out in the 2018 financial year: •Merger by absorption of Banco Popular Español, S.A.U. On June 7, 2017, Banco Santander acquired 100% of the share capital of Banco Popular Español, S.A.U. Subsequently, on September 28, 2018, the deed of merger by absorption of Banco Popular Español, S.A.U. was registered in the Mercantile Registry of Cantabria by Banco Santander, S.A. with accounting effects January 1, 2018, transferring to the books of Banco Santander a gross goodwill of EUR 248 million. •Repurchase of the credit and debit card business marketed by Grupo Banco Popular in Spain and Portugal generating the business combination a goodwill of EUR 375 million. In accordance with Bank of Spain Circular 4/2017, the goodwill is amortized within a period of ten years. In addition, the Bank periodically reviews the term and method of amortization and, if deemed inappropriate, the impact will be treated as a change in accounting estimates. As of 31 December 2021 and 31 December 2020, the amount of goodwill recorded by Banco Santander, net of accumulated depreciation, amounted to EUR 396 million and EUR 458 million, respectively. Banco Santander, at least annually and whenever there are indicators of impairment, conducts an analysis of the potential loss of value of the trade funds it has recorded in respect of their recoverable value. The first step in carrying out this analysis requires the identification of the cash-generating units, which are the smallest identifiable groups of assets in Banco Santander  that generate cash inflows and are largely independent of the cash flows of other assets or asset groups. For the purposes of those mentioned in the preceding paragraph, the Bank's administrators have identified the commercialbanking business in Spain as the cash- generating unit to which to allocate goodwill arising both by the acquisition and subsequent merger by absorption of Banco Popular Español, S.A.U. and by the repurchase of the credit and debit cards from Grupo Banco Popular. Its carrying value is determined taking into account the book value of all the assets and liabilities that make up the commercial banking business in Spain, together with the corresponding goodwill. The recoverable amount of Santander España cash- generating unit has been determined as the fair value of such cash-generating unit obtained using quotes, market references (multiples) or internal estimates. Based on previous data, and in accordance with the estimates of the Bank's administrators, during the years 2021 and 2020 the Bank has not recorded any amount under the heading 'Impairment in value or reversal of impairment in value of non-financial assets - intangible assets' in concept of impairment of goodwill. #### b) Other intangible assets i. Breakdown The detail of Intangible assets  ‘Other intangible assets’ on the balance sheets is as follows: EUR million 2021 2020 With finite useful life IT Developments 1,106 996 Accumulated amortization (606) (506) Balance at end of year 500 490 121 ii. Changes The changes in Intangible assets ‘Other intangible assets’ on the balance sheets were as follows: EUR million 2021 2020 Balance at end of prior year 490 164 Net additions and disposals 110 447 Amortization charge (100) (120) Impairments losses — (1) Balance at end of year 500 490 17. Other assets and Other liabilities The detail of ‘Other assets and Other liabilities’ on the accompanying balance sheets is as follows: EUR million Assets Liabilities 2021 2020 2021 2020 Transactions in transit 11 — — 20 Insurance contracts linked to pensions (note 14) 381 423 — — Inventory — — — — Prepayments and accrued income 504 447 2,133 1,789 Other\* 1,044 3,304 1,138 1,758 Total 1,940 4,174 3,271 3,567 \* Includes, mainly, unsettled transactions. 122 18. Deposits from central banks and credit institutions The detail by classification, type and currency of ‘Deposits from central banks’ and ‘Deposits from credit institutions’ on the accompanying balance sheets is as follows: EUR million 2021 2020 CENTRAL BANKS Classification Financial liabilities held for trading 44 — Financial liabilities designated at fair value through profit or loss 607 1,469 Financial liabilities at amortized cost 64,649 60,372 65,300 61,841 Type Time deposits 63,161 60,932 Deposits available with prior notice — — Repurchase agreements 2,139 909 65,300 61,841 Currency Euro 60,343 56,306 US dollar 2,809 4,909 Pound Sterling 2,110 593 Other currencies 38 33 65,300 61,841 CREDIT INSTITUTIONS Classification Financial liabilities held for trading 5,718 — Financial liabilities designated at fair value through profit or loss 1,067 4,496 Financial liabilities at amortized cost 35,262 40,725 42,047 45,221 Nature Current accounts / Intraday deposits 15,989 14,280 Time deposits 15,698 23,869 Deposits available with prior notice — — Repurchase agreements 10,360 7,072 42,047 45,221 Currency Euro 31,067 32,063 US dollar 7,737 8,963 Pound Sterling 2,577 3,541 Other currencies 666 654 42,047 45,221 Total 107,347 107,062 Banco Santander, following the various long-term financing programmes of the European Central Bank (TLTRO), mantain deposits at amortized cost from the TLTRO III programme amounting to EUR 61,183 million as of 31 December 2020 (EUR 56,288 million as at 31 December 2021 from TLTRO III). As of December 2021, the income recognized in the profit and loss account, corresponding to TLTRO III, is EUR 608 million (EUR 299 millions as at 31 December 2020). The deposits classified in the 'Liabilities held for trading' portfolio correspond to temporary transfers of assets of Spanish and foreign institutions. 123 Note 48 contains a detail of the residual maturity periods of financial liabilities at amortized cost. 19. Customer deposits The detail by classification, type, sector and geographical area, of ‘Customer deposits’ is as follows: EUR million 2021 2020 Classification Financial liabilities held for trading 1,291 — Financial liabilities designated at fair value through profit or loss 11,069 10,925 Financial liabilities at amortized cost 296,243 275,740 308,603 286,665 Type Current accounts / Intraday deposits 269,721 247,394 Time deposits 36,644 36,660 Deposits available with prior notice — — Repurchase agreements 2,238 2,611 Of which, subordinated deposits — — Of which, issued securities 2,290 381 308,603 286,665 Sector Public sector 23,231 21,754 Other financial companies 43,610 47,169 Non-financial companies 95,810 75,877 Households 145,952 141,865 308,603 286,665 Geographical area Spain 262,261 249,522 European Union (excluding Spain) 25,002 21,801 United States and Puerto Rico 9,027 7,902 Other OECD countries 6,699 3,116 Latin America (non-OECD) 2,796 2,385 Rest of the world 2,818 1,939 308,603 286,665 Funds received under ‘Financial asset’ transfers in the table above include the liabilities associated with securitisation transactions (see note 10.e). Note 48 contains a detail of the residual maturity periods of financial liabilities at amortized cost. 124 20. Marketable debt securities #### a) Breakdown The detail by classification and type, of ‘Marketable debt securities’ in the accompanying balance sheets is as follows: EUR million 2021 2020 Classification: Financial liabilities at amortized cost 104,094 87,902 104,094 87,902 Type: Certificates of deposit 4,444 3,921 Guaranteed bonds 62,454 55,110 Mortgage bonds 49,764 44,343 Others mortgage bonds and guaranteed bonds 12,690 10,767 Other issued securities (note 21) 76,890 59,209 Of which, subordinated liabilities 20,399 17,124 Treasury shares\* (41,018) (32,430) Valuation adjustments 1,324 2,092 104,094 87,902 \* At 31 December  2021 y 2020, the registered balance corresponds mainly to guaranteed bonds. Note 48 contains a detail of the residual maturity periods of financial liabilities at amortized cost. #### b) Certificates of deposit The detail of certificates of deposits by currency of issuance is as follows: 2021 EUR million Outstanding issue amount in foreign currency (million) Annual interest rate\* Currency of issuance 2021 2020 US dollar 1,564 2,351 1,772 0.35% Hong Kong Dollars 2,880 21 2,419 0.17% Pound Sterling — 1,549 — —% Balance at end of the year 4,444 3,921 \* Average interest rates for different issue based on their nominal values. 125 i. Changes The movement that has occurred in the certificate of deposit account during the years 2021 and 2020 is as follows: EUR million 2021 2020 Balance at end of the prior year 3,921 3,661 Issues 15,684 10,193 Redemptions (15,386) (9,530) Exchange differences and other changes 225 (403) Balance at end of the year 4,444 3,921 As at 31 December 2021, the Bank  issued certificates of deposit issues amounting to EUR 15,684 million (EUR 10,193 million as at 31 December 2020), with an average maturity of 3 months (6 months during the 2020 financial year), of which EUR 15,386 million have been amortized (EUR 9,530 million as at December 2020). #### c) Mortgage bonds The detail by currency of issuance, of ‘Marketable mortgage-backed securities’ is as follows: 2021 EUR million Annual interest rate\* Currency of issuance 2021 2020 Euros 49,764 44,343 0.82% Balance at end of the year 49,764 44,343 \* Average interest rate of the various issues based on their nominal values. i. Changes The changes in 2021 and 2020 in ‘Marketable mortgage- backed securities’ were as follows: EUR million 2021 2020 Balance at the end of the prior year 44,343 41,199 Reclassification of deposits — — Issues 12,720 6,250 Of which April 2020 — 2,750 May 2020 — 1,000 June 2020 — 2,000 October 2020 — 500 June 2021 6,000 — July 2021 4,970 — September 2021 1,000 — December 2021 750 — Transfers 1 (66) Amortizations on maturity (7,300) (3,040) Balance at end of the year 49,764 44,343 ii. Disclosures required pursuant to the Mortgage Market Law 2/1981, of 25 March, of the Spanish Royal Decree 716/2009, of 24 April, implementing certain provisions of this Law, and to Bank of Spain Circular 7/2010, of 30 November, and Bank of Spain Circular 5/2011, of 30 November The members of the board of directors hereby state that the Bank  and the companies of the Group that 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 and Banco 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 and Banco Santander have specialised document comparison procedures and tools for verifying customer information and solvency (see note 49). Grupo and Banco Santander’s procedures envisage that each mortgage originated in the mortgage market must be individually valued by an appraisal company not related to the  Group. 126 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 and the Bank 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 and the Bank 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 committee on which the various areas of the Group and the Bank 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 and the Bank 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. Mortgage-backed bonds The mortgage-backed bonds ('cédulas hipotecarias') issued by the Bank 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 , will enjoy the special privilege established in Article 270.1.1 of the aforementioned Bankruptcy Law. Without prejudice to the foregoing, in accordance with Article 242.10 of the Bankruptcy 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. 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 and Bank had replacement assets assigned to them. The following is a detail, by their main features and nominal amounts, of the marketable mortgage-backed bonds outstanding at 31 December 2021 and 2020: 127 Issues Euros Issue February 2006 ES0413900129 1,500 1,500 1,500 3.87% Issue May 2007 ES0413900160 1,500 1,500 1,500 4.63% Issue January  2010 ES0413900194 100 100 100 —% Issue November  2014 ES0413900368 1,750 1,750 1,750 1.13% Issue November 2014 ES0413900376 1,250 1,250 1,250 2.00% Issue September 2015 ES0413900384 1,000 1,000 1,000 0.75% Issue January  2016 ES0413900392 1,000 1,000 1,000 1.50% Issue February 2016 ES0413900400 907 907 907 2.04% Issue March 2016 ES0413900418 100 100 100 1.52% Issue June 2016 ES0413900434 — 4,000 Issue December 2016 ES0413900467 — 250 Issue June 2017 ES0413900475 350 350 350 0.13% Issue June 2017 ES0413900483 — 2,000 Issue June 2017 ES0413900491 2,000 2,000 2,000 0.16% Issue November  2017 ES0413900509 12 12 12 —% Bonds Pitch 300 300 300 5.13% Issue April 2013 ES0413790256 — 200 Issue July 2013 ES0413790264 15 15 15 5.28% Issue July 2013 ES0413790280 400 400 1,250 1.19% Issue July 2013 ES0413790298 500 500 1,500 1.44% Issue July 2013 ES0413790306 1,500 1,500 1,500 1.69% Issue December 2013 ES0413790322 — 100 Issue February  2014 ES0413790330 1,000 1,000 1,500 1.95% Issue March 2014 ES0413790348 200 200 200 1.08% Issue March 2014 ES0413790389 250 250 250 0.23% Issue April 2015 ES0413790397 1,000 1,000 1,000 1.00% Issue June 2015 ES0413790405 575 575 575 —% Issue October  2015 ES0413790421 — 750 Issue March 2016 ES0413790439 1,500 1,500 1,500 1.00% Issue December 2016 ES0413790462 250 250 250 1.13% Issue March 2017 ES0413790470 1,000 1,000 1,000 0.25% Issue April 2017 ES0413790488 1,600 1,600 1,600 0.51% Issue July 2014 (Banco Pastor) ES0405035009 1,000 1,000 1,000 2.72% Issue June 2018 ES0413900517 350 350 350 —% Issue October 2018 ES0413900533 1,000 1,000 1,000 1.12% Issue October 2018 ES0413900525 2,000 2,000 2,000 0.29% Issue November 2018 ES0413900541 200 200 200 0.40% Issue May 2019 ES0413900558 1,500 1,500 1,500 0.88% Issue July 2019 ES0413900566 1,500 1,500 1,500 0.25% Issue December 2019 ES0413900574 1,750 1,750 1,750 0.13% Issue February 2020 ES0413900590 1,250 1,250 1,250 0.01% Issue February 2020 ES0413900608 1,250 1,250 1,250 0.10% Issue February 2020 ES0413900582 250 250 250 0.05% Issue March 2020 ES0413900616 1,000 1,000 1,000 0.01% Issue April 2020 ES0413900624 2,000 2,000 2,000 0.27% Issue October 2020 ES0413900699 500 500 500 0.01% Issue June 2021 ES0413900723 4,000 — 4,000 0.18% Issue June 2021 ES0413900731 2,000 — 2,000 0.19% Issue July 2021 ES0413900749 4,000 — 4,000 0.18% Code ISIN EUR million Annual interest rate (%) 2021 2020 Nominal amount 128 Issue July 2021 ES0413900756 220 — 220 0.18% Issue July 2021 ES0413900764 750 — 750 0.02% Issue September 2021 ES0413900772 1,000 — 1,000 0.11% Issue December 2021 ES0413900780 750 — 750 —% Balance at end of the year 49,829 44,409 52,179 Code ISIN EUR million Annual interest rate (%) 2021 2020 Nominal amount The detail of the principal amount of Banco Santander mortgage securities outstanding at 31 December 2021 and 2020 is as follows: EUR million Principal amount 2021 2020 1. Mortgage bonds outstanding — — 2. Mortgage-backed bonds issued (note 10.f) 49,829 44,409 Of which, recognized in liabilities 22,274 23,589 2.1. Debt instruments. Issued through a public offering 49,829 44,409 - Term to maturity of up to one year 7,700 7,300 -Term to maturity of one to two years 1,125 7,700 -Term to maturity of two to three years 3,000 1,125 -Term to maturity of three to five years 7,150 6,250 -Term to maturity of five to ten years 26,947 16,627 -Term to maturity of more than ten years 3,907 5,407 2.2. Debt instruments. Other issues — — 2.3 Deposits — — 3. Mortgage transfer certificates issued (1) — — 4. Mortgage transfer certificates issued (1) (2) 11,133 17,610 4.1.  Issued through a public offering (note 10.e) 11,133 17,610 (1) Relating solely to mortgage loans and credits not derecognized. (2) The average term to maturity weighted by amount, expressed in months, rounded up, was 496 months . 129 Asset transactions According  to Bank of Spain Circulars 7/2010 and 5/2011, of 30 November, on the implementation of certain aspects of the mortgage market, the table below details: the principal amount of all the mortgage loans and credits, those that are eligible pursuant to Royal Degree 716/2009 on the regulation of the Spanish mortgage market for the purposes of calculating the limit of mortgage-backed bond issues, the mortgage loans and credits covering mortgage bond issues, those that have been transferred through mortgage participation certificates or mortgage transfer certificates, and the uncommitted transactions relating to Banco Santander. The breakdown of the mortgage loans at 31 December 2021 and 2020 indicating their eligibility and computability for mortgage market regulatory purposes, is as follows: EUR million Principal amount 2021 2020 Total mortgage loans and credits (1) 94,975 95,114 Mortgage participation certificates issued 1,699 1,811 Of which, loans recognized in assets — — Mortgage transfer certificates issued 11,590 18,305 Of which, loans recognized in assets (note 10.e) 11,133 17,610 Mortgage loans and credits backing mortgage and mortgage-backed bond issues (2) 81,686 74,998 i) Non-eligible mortgage loans and credits (3) 17,744 18,652 -  Which comply with the eligibility requirements, except for the limit established  in Article 5.1 of Royal Decree 716/2009 11,357 11,621 -  Other non-eligible loans 6,387 7,031 ii) Eligible mortgage loans and credits (4) 63,942 56,346 -  Un-measurable amounts (5) — — -  Measurable amounts 63,942 56,346 a)   Mortgage loans and credits covering mortgage bond issues — — b)   Mortgage loans and credits eligible to cover mortgage-backed bond issues 63,942 56,346 (1) Including mortgage loans and credits acquired through mortgage participation certificates and mortgage transfer certificates, irrespective of whether they have been derecognized. (2) Total loans less mortgage participation certificates issued, mortgage transfer certificates issued and mortgage loan securing borrowings. (3) Due to non-compliance with the requirements of Art. 3 of Royal Decree 716/2009. (4) Pursuant to Art. 3 of Royal Decree 716/2009, without taking into account the measurement limits established in Art. 12 of Royal Decree 716/2009. (5) Pursuant to Art. 12 of Royal Decree 716/2009. 130 The following is a detail of the principal amount of the outstanding mortgage loans and credits and of the principal amount of the loans and credits that are eligible pursuant to Royal Decree 716/2009, without considering the measurement limits established under Article 12 of Royal Decree 716/2009, by origin, currency, payment status, average term to maturity, interest rate, borrower and type of guarantee: EUR million Principal amount 2021 2020 Mortgage loans and credits backing mortgage and mortgage-backed bond issues Of which, eligible loans\* Mortgage loans and credits backing mortgage and mortgage-backed bond issues Of which, eligible loans\* By origin of transactions Originated by the entity 80,951 63,246 74,238 55,621 From subrogations 735 696 760 725 81,686 63,942 74,998 56,346 By currency Euro 80,984 63,942 74,299 56,346 Other currencies 702 — 699 — 81,686 63,942 74,998 56,346 By payment status Current 73,299 62,148 66,215 54,967 Past due 8,387 1,794 8,783 1,379 81,686 63,942 74,998 56,346 By term to maturity Less than 10 years 25,460 15,418 26,072 15,185 10 to 20 years 30,185 26,059 27,436 23,249 20 to 30 years 25,125 22,125 20,301 17,445 More than 30 years 916 340 1,189 467 81,686 63,942 74,998 56,346 By interest rate Fixed-rate loans 20,601 17,944 13,623 10,921 Floating-rate loans 61,085 45,998 61,375 45,425 81,686 63,942 74,998 56,346 By borrower Legal entities and individual traders 23,554 12,877 25,492 13,290 Of which, property developments(including land) 2,572 — 2,837 — Other individuals and non-profit institutions serving households 58,132 51,065 49,506 43,056 81,686 63,942 74,998 56,346 By type of guarantee Completed buildings – residential 63,465 53,989 55,297 46,001 Of which, officially sponsored housing 8,837 6,419 4,996 3,452 Completed buildings – commercial 5,744 3,652 6,908 3,782 Completed buildings – other 9,035 5,212 9,085 5,343 Buildings under construction – residential 1,031 — 1,225 1 Of which, officially sponsored housing 33 — 99 — Buildings under construction – commercial 67 — 46 — Buildings under construction – other 46 5 57 1 Land – developed consolidated land 1,110 382 801 434 Land – other 1,188 702 1,579 784 81,686 63,942 74,998 56,346 \* Pursuant to Art. 3 of Royal Decree 716/2009, without taking into account measurement limits established in Art. 12 of Royal Decree 716/2009. 131 The following is a detail, by loan-to-value ratio, of the principal amount of the eligible mortgage loans and credits pursuant to Royal Decree 716/2009, without considering the measurement limits established in Article 12 of Royal Decree 716/2009: EUR million 31 December 2021 Principal amount by LTV range <=40% >40%, <= 60% >60%, <= 80% >80% TOTAL Mortgage loans and credits for mortgage and mortgage-backed bond issues 24,614 23,674 15,654 — 63,942 Home property 18,771 19,564 15,654 — 53,989 Other property 5,843 4,110 — — 9,953 \* Pursuant to Art. 3 of Royal Decree 716/2009, without taking into account measurement limits established in Art. 12 of Royal Decree 716/2009. The following is a detail of the changes in 2021 in the principal amount of eligible and non-eligible mortgage loans and credits pursuant to Royal Decree 716/2009: EUR million Eligible mortgage loans and credits\* Non-eligible mortgage loans and credits\*\* Balance at 31 December  2020 56,346 18,652 Period additions: 16,897 12,618 Originated by Banco Santander 10,256 3,595 Subrogations from other entities 11 6 Other 6,630 9,017 Period disposals: 9,301 13,526 Repayments on maturity 205 2,206 Early repayments 3,558 2,260 Other\*\*\* 5,538 9,060 Balance at 31 December 2021 63,942 17,744 \* Pursuant to Art. 3 of Royal Decree 716/2009, without taking into account the measurement limits established in Art. 12 of Royal Decree 716/2009. \*\* That do not comply with the requirements of Art. 3 of Royal Decree 716/2009. \*\*\* The Bank performs a reappraisal its mortgage portfolio on a regular basis and, as a result, the measurable amount is updated. Below is a breakdown of the available balances of the mortgage loans and credits that back the issuance of mortgage bonds and mortgage bonds: EUR million Principal amount\* 2021 2020 Potentially eligible \*\* 662 589 Non-eligible 1,608 1,387 \* Amounts committed less amounts drawn down, including amounts delivered to property developers only when the housing units are sold. \*\* Pursuant to Art. 3 of Royal Decree 716/2009. #### d) Other mortgage bonds and guaranteed bonds The balance of ‘Other mortgage bonds and guaranteed bonds’ relates to the rest of covered bonds and certificates. The breakdown, by issue currency and interest rate, is as follows: 2021 Currency of issuance EUR million Annual interest rate\* 2021 2020 Euro 8,452 7,671 0.18% US dollar 4,238 3,096 0.58% Balance at end of the year 12,690 10,767 \* Average interest rate of the various securities at 31 December 2021 based on their nominal amounts. Internationalisation bonds were repaid early in February 2020, replaced by internationalisation bonds, issued in April 2020. 132 i. Changes The following movement in 2021 and 2020 in the ‘Other non-convertible marketable securities’ account was as follows: 2021 EUR million Annual interest rate (%)\*\* Maturity date 2021 2020 Balance at end of the prior year 10,767 8,411 Issues 1,851 10,145 Of which — — April, 2020 — 1,100 —% abr-25 April, 2020 — 1,200 —% abr-27 April, 2020 — 3,095 0.66% abr-27 June, 2021 — 750 0.07% jun-27 June, 2021 — 2,000 0.06% jun-27 July, 2021 — 2,000 0.01% jul-27 March, 2021 851 — 0.26% mar-26 May, 2021 1,000 — 0.20% may-31 Amortizations (218) (7,789) Exchange differences 290 — Balance at end of the year 12,690 10,767 In May 2021, Banco Santander has amortized the outstanding territorial bonds as of December 2020 for an amount of EUR 218 million. In March 2021, Internalization Bonds were issued for an amount of USD 1,000 million (EUR 851 million) and in May, Territorial Bonds were issued for an amount of EUR 1,000 million. In February 2020 Banco Santander has amortized the live internationalization bonds to December 2019 in the amount of EUR 2,639 million. In addition, there have been other depreciations in territorial ballot cards amounting to EUR 4,900 million. Three new issues of territorial cards were made in the financial year two of them amounting to 2 billion and a third EUR 750 million. In April 2020, 3 new issues of internalization cards amounting EUR 5,396 million  were formalized. ii. Territorial bonds The members of the board of directors have stated that in the territorial bond issuances Banco Santander has established specific policies and procedures in relation to the financing activities of public entities pursuant to Bank of Spain Circular 4/2017, of 27 November. The following is a detail of the total principal amount of the loans used to secure the territorial bonds outstanding at 31 December 2021: EUR million Principal amount\* Central governments 103 Autonomous or regional governments 10,216 Local governments 769 Total 11,088 \* Unrepaid portion of the loan nominal amounts. The following is a detail of the territorial bonds issued and outstanding at 31 December 2021: EUR million Principal amount Issued through a public offering — Other emissions 6,154 Of which,treasury shares 5,529 Term to maturity of up to one year 309 Term to maturity of one to two years 95 Term to maturity of two to three years 250 Term to maturity of three to five years — Term to maturity of five to ten years 5,500 Term to maturity of more than ten years — The coverage ratio of the territorial bonds with respect to the loans was 55.50% at 31 December 2021 (54.39% at 31 December 2020). 133 iii. Internationalization bonds The following is a detail of the face value of all loans that serve as collateral to live internationalization bonds as of December 31, 2021: Nominal value (EUR million) Eligible loans under Article 34.6 and 7 of Law 14/2013 11,806 Less: loans that support the issuance of internationalization bonds — Less: loans in arrears to be deducted in the calculation of the emission limit, in accordance with Article 13 of Royal Decree 579/2014 — Total loans included in the base of the emission limit 11,806 Below is a detail of the internationalization bonds issued live on December 31, 2021: Nominal value (EUR million) (1) Debt securities. Issued by public offer — Of which, own values — Residual maturity up to one year — Residual maturity greater than one year and up to two years — Residual maturity greater than two and up to three years — Residual maturity greater than three and up to five years — Residual maturity greater than five and up to ten years — (2) Debt securities. Other emissions — Of which, own values 6,538 Residual maturity up to one year 6,538 Residual maturity greater than one year and up to two years — Residual maturity greater than two and up to three years — Residual maturity greater than two and up to three years — Residual maturity greater than three and up to five years 1,983 Residual maturity greater than five and up to ten years 4,555 Residual maturity greater than ten years — (3) Deposits — Residual maturity up to one year — Residual maturity greater than one year and up to two years — Residual maturity greater than two and up to three years — Residual maturity greater than three and up to five years — Residual maturity greater than five and up to ten years — Residual maturity greater than ten years — TOTAL 6,538 The coverage ratio of internationalization bonds on loans is 55.38% as of December 31, 2021 (55.11% as of December 31, 2020) 134 21. Other issuances #### a) Breakdown The following is a breakdown of the balance under this heading on the attached balance sheets, taking into account their nature and currency of the transactions: EUR million\* 2021 2020 Type Other issuances 76,890 59,209 Of which, subordinated liabilities 20,399 17,124 76,890 59,209 Currency Euro 39,266 34,321 US dollar 27,628 18,848 Pound Sterling 5,240 2,692 Other currencies \*\* 4,756 3,348 76,890 59,209 \* This amount includes the principal, in other currencies. \*\* As of December 31, 2021, the most significant currencies are yen (EUR 1,283 million), Swiss Frankfurt (EUR 1,431 million) and Australian Dollar (EUR 1,310 million). #### b) Changes The changes in ‘Subordinated marketable debt securities’ in the foregoing table for the years 2021 and 2020 are as follows: EUR million 2021 2020 Balance at the end of prior year 59,209 59,273 Issues 43,474 28,255 Redemptions (28,107) (26,297) Exchange differences 2,314 (2,022) Balance at end of the year 76,890 59,209 Within the sub-heading Other Non-convertible Marketable Securities there are commercial paper issues as well as other issuances made by Banco Santander. •Commercial paper On April 15, 2021, Banco Santander has approved the annual renewal of the 'European Commercial Paper Issuance Program' for a maximum nominal global amount of up to EUR 15,000 million. On November 22, 2021, the 'American Commercial Paper Issuance Program' was renewed for a global nominal amount of up to USD 25,000 million. As of December 31, 2021, the interest rate is between -0.88% and 0.33% per year, with the average nominal interest rate being 0.125% per year. At the end of the 2020 financial year, the interest rate was between -0.66% and 3.0% per year, with the average nominal interest rate being 1.059% per year. On 16 April 2020, Banco Santander  approved the annual renewal of the 'European Commercial Paper Issue Programme' for a maximum nominal global amount of up to EUR 15,000 million. On November 2020, the 'American Commercial Paper Issue Program' was renewed for a nominal global amount of up to USD 15,000 million. •Remaining emissions During the 2021 fiscal year, Banco Santander, S.A. has reported 37 issues for a nominal amount of EUR 11,846 million (without considering perpetual issues amounting to EUR 2,568 million , see note 21.c), of which the Bank has repurchased a balance of EUR 74 million. The average remuneration of these issues has been set at 1.30% per year. During the financial year 2020, Banco Santander reported 17 issues at a nominal amount of EUR 8,088 million (excluding perpetual issues amounting to EUR 1,500 million, see note 21.c). The average remuneration of these emissions has been set at 1.63% per annum. 135 #### c)  Other disclosures This caption includes contingent convertible or redeemable preferred participations, as well as other subordinated financial instruments issued, which do not qualify as equity (preferred shares). 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 , are detailed below: Issues by Banco Santander, S.A. At  22  November 2021, Banco Santander, S.A. issued subordinated debentures for a term of eleven years, with a redemption option on the tenth anniversary of the issue date, in the amount of USD 1,000 million (EUR 1,007 million at the exchange rate on the day of issue). The issue bears interest at an annual rate of 3.225%, payable semi-annually, for the first ten years (then repricing at a margin of 160 points over the one-year U.S. government bond). At 4 October 2021, Banco Santander, S.A. issued subordinated debentures for a term of eleven years, with a redemption option on the sixth anniversary of the issue date, amounting to GBP 850 million  (EUR 887 million at the exchange rate on the day of issue). The issue bears interest at an annual rate of 2.25%, payable annually for the first six years (then repricing at a margin of 165 points over the 5-year UK government bond). At 21 September 2021, Banco Santander, S.A. carried out a placement of preferential shares contingently convertible into newly issued ordinary shares of the Bank ('PPCC') for a nominal amount of EUR 1,000 million (issue placed on the market EUR 997 million. The issuance has been carried out at par and the remuneration of the PPCC, whose payment is subject to certain conditions and is also discretionary, has been set at 3.625% per year for the first eight years, being reviewed every five years applying a margin of 376 basis points over the 5-year Mid-Swap Rate. At 11 September 2021, Banco Santander, S.A. proceeded to redeem early and voluntarily the entire issue made on 11 September 2014 of tier 1 contingently convertible preference shares (PPCC) with ISIN code XS110729154 which are traded in the Irish Stock Exchange Market 'Global Exchange Market', for a total nominal amount of EUR  1,500 million. At 12 May 2021, Banco Santander placed the issue of preference shares contingently convertible into newly issued ordinary shares of the Bank, previously announced, for a total nominal amount of  EUR 1,578 million, issued in a Series in Dollars of  USD 1,000 million (EUR 828 million at the exchange rate on the day of issue) and a Series in Euros for an amount of EUR 750 million. The issuance is carried out at par and the remuneration of the PPCC, whose payment is subject to certain conditions and is also discretionary, has been set (i) for the Series in Dollars at 4.750% per annum for the first six years, being revised every five years applying a margin of 375.3 basis points over the 5-year UST rate and (ii) for the Series in Euros by 4.125% per annum for the first seven years, being revised every five years applying a margin of 431.1 basis points over the applicable 5-year euro mid-swap. At 3 December 2020, Banco Santander, S.A. issued subordinated debentures with a ten-year term of USD 1,500 million (EUR 1,222 million at the date of issue). The issue bears interest at an annual rate of 2.749%, payable semiannually. At 22 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. At 12 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. At 14 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 1,500 million (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). At 19 May 2019, the voluntary early redemption of the preferred shares relating to the second issue made on 9 May 2014 (code ISIN XS1066553329) was communicated for an amount of USD 1,500 million (EUR 1,345 million) at the redemption date. 136 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, for the first five years (revised thereafter by applying a margin of 498.9 points over the mid-swap rate). 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 10-year subordinated debenture issue of EUR 1,250 million was carried out. The issue accrues annual interest of 2.125% payable annually. At 25 April and 29 September 2017, Banco Santander, S.A. carried out issues of 'PPCCs', for a nominal amount of EUR 750 million, and EUR 1,000 million respectively. The remuneration of the PPCCs, 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 years Mid-Swap Rate) for the issue disbursed in September.) 22. Other financial liabilities #### a) Breakdown The following is a detail of ‘Other financial liabilities’ on the accompanying balance sheets: EUR million 2021 2020 Trade payables 888 721 Payment obligations 2,711 2,864 Public agency revenue collection accounts 4,506 3,498 Unsettled financial transactions 617 797 Other accounts 1,302 2,000 Total 10,024 9,880 #### b) Average payment period to suppliers Set forth below are the disclosures required by Additional Provision Three of Law 15/2010, of 5 July (amended by Final Provision Two of Law 31/2014, of 3 December), prepared in accordance with the Spanish Accounting and Audit Institute (ICAC) Resolution of 29 January 2016 on the disclosures to be included in notes to financial statements in relation to the average period of payment to suppliers in commercial transactions. 2021 2020 Days Average period of payment to suppliers 10 11 Ratio of transactions paid 10 11 Ratio of transactions pending payments — — EUR million Total payments made 2,848 2,966 Total payments outstanding — — In accordance with the ICAC Resolution, the average period of payment to suppliers was calculated by taking into account commercial transactions relating to the supply of goods or services for which payment has accrued since the date of issuance of Law 31/2014, of December, 3. For the sole purpose of the disclosures provided for in the Resolution, suppliers are considered to be the trade creditors for the supply of goods or services. “Average period of payment to suppliers” is taken to be the period that elapses from the delivery of the goods or the provision of the services by the supplier to the effective payment of the transaction, Note 48 contains a detail of the maturity periods of ‘Other financial liabilities’ at each year-end. #### c) Lease liabilities The total lease cash outflow in fiscal year 2021 was EUR 301 million (EUR 324 millon during 2020). The analysis of maturities corresponding to lease liabilities, as of December 31, 2021, is as follows: EUR million 2021 2020 Maturity Analysis – Discounted payments Within 1 year 351 289 Between 1 and 3 years 445 485 Between 3 and 5 years 317 349 Later than 5 years 1,336 1,411 Total Discounted payments at 31 December 2021 2,449 2,534 During 2021, no significant variable payments have been made not included in the measurement of lease liabilities. 137 23. Provisions #### a) Breakdown The detail of ‘Provisions’ in the balance sheets at 31 December 2021 and 2020 is as follows: EUR million 2021 2020 Provision for pensions and similar obligations 2,730 3,430 Of which Pensions and similar defined benefit obligations post-employment 1,677 1,849 Other long-term remunerations to employees 1,053 1,581 Restructuring 439 484 Provisions for taxes and other legal contingencies 516 496 Provisions for commitments and guarantees given 190 157 Other provisions 474 440 Total 4,349 5,007 #### b) Changes The changes in ‘Provisions’ in 2021 and 2020 were as follows: EUR million 2021 2020 Post- employment Long – Term Contingent liabilities and commitments Other provisions Total Post- employment Long - Term Contingent liabilities and commitments Other provisions Total Balance at end of prior year 1,849 1,581 157 1,420 5,007 3,918 1,220 180 1,172 6,490 Changes in value recognized in equity (29) — — — (29) 77 — — — 77 Additions charged to income (9) 24 24 747 786 (340) 728 (20) 804 1,172 (Interest income)/ Interest expense (notes 34 and 35) 12 11 — — 23 20 8 — — 28 Staff costs (note 42) 4 1 — — 5 10 1 — — 11 Provisions or reversal of  provision (25) 12 24 747 758 (370) 719 (20) 804 1,133 Payments to pensioners and pre-retirees (164) (552) — — (716) (1,817) (367) — — (2,184) Amounts used and other changes 30 — 9 (738) (699) 11 — (3) (556) (541) Balances at end of year 1,677 1,053 190 1,429 4,349 1,849 1,581 157 1,420 5,007 138 #### c) Provision for pensions and similar obligations The detail of ‘Provision for pensions and similar obligations’ at 31 December 2021 and 2020 is as follows: EUR million 2021 2020 Provisions for pensions and similar defined benefit plan obligations 2,730 3,430 Of which Provisions for pensions 1,677 1,849 Provisions for similar obligations 1,053 1,581 Of which, pre-retirements 1,041 1,567 Provisions for pensions and similar defined contribution plan obligations — — Total provisions for pensions and similar obligations 2,730 3,430 i. Defined contribution plans At the end of 2012, Banco Santander reached an agreement with workers' representatives to transform the defined benefit commitments derived from the collective agreement into defined contribution plans. Similarly, the contracts for senior management staff with pension commitments in the defined benefit modality were amended to transform them into a defined contribution provision system. Almost all of the pension commitments with active personnel correspond to defined contribution plans. The total contributions made to these plans during 2021 amounted to EUR 77 million (EUR 80 million during 2020) (see nota 42). ii. Defined Benefit Plans In addition to the previous defined contribution plans, as of December 31, 2021, Banco Santander maintained definite service commitments. Below is the present value of the Bank`s commitments in post-employment remuneration for defined benefit programs, as well as the value of the reimbursement entitlements for insurance contracts linked to those obligations as of 31 December 2021 and preceding years: EUR million 2021 2020 2019 Present value of the obligations To current employees 42 78 78 To retired employees 2,806 3,304 5,378 Other — — — 2,848 3,382 5,456 Fair value of plan assets (1,205) (1,537) (1,543) Assets not recognized 5 4 5 Provisioned assets on the balance sheet 29 — — Provisions - Provisions for pensions 1,677 1,849 3,918 Of which Internal provisions for pensions 1,296 1,426 3,407 Insurance contracts linked to pensions (note 14) 381 423 511 Of which Group insurance entities 232 249 319 Other insurers 149 174 192 On July 8, 2021, the Bank reached an agreement with the employees' representatives for the transformation of the defined benefit pension commitments into defined contribution for certain retired personnel from Banco Popular and Banco Pastor. Through the previously mentioned Collective Agreement, an aggrement has been to carry out an offer to replace the annuities that the passive personnel included in the scope of application of said Collective Agreement had been receiving with a capitalization fund in the Santander Employees pension plan. The number of beneficiaries who exercised the voluntary option to accept the substitution of the life annuity for a capitalization fund in the Santander Employees pension plan amounted to 1,468 people. The effect of the reduction of the aforementioned commitments is shown in the tables below under the headings 'Benefits paid by settlement' amounting to EUR 166 million and 'Effect reduction / settlement' amounting to EUR 36 million. In December 2019 Banco Santander reached an agreement with the workers' representatives to offer during 2020 to part of its passive staff, the possibility of collecting in the form of a single consideration or split in a maximum of 5 equal annuities, the pensionable rights derived from the collective agreement. 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 installments of a maximum of 5 annuities amounted to 15,613 people. The effect of the reduction of the aforementioned commitments is shown in the following tables. 139 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: EUR million 2021 2020 Annual discount rate 0.90% 0.60% Expected return on plan assets rate 0.90% 0.60% Mortality tables PE2020 M/F Col. Orden 1 PE2020 M/F Col. Orden 1 Cumulative annual CPI growth 1.00% 1.00% Annual pension increase rate 1.00% 1.00% 3.The discount rate used for the flows was determined referencing to high-quality corporate bonds. 4.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. 5.The fair value of insurance contracts was determined as the present value of the related payment obligations, taking into account the following assumptions: EUR million 2021 2020 Expected rate of return on reimbursement rights 0.90% 0.60% The amounts recognized in the accompanying income statements in relation to the aforementioned defined benefit obligations are as follows: EUR million 2021 2020 Service cost: Current service cost (note 42) 4 10 Past service cost (including reductions) 13 2 Pre-retirement cost — — Settlements (38) (372) Net interest (note 35) 24 26 Expected return on insurance contracts linked to pensions (note 34) (12) (6) Total (9) (340) In addition, in 2021 ‘Other comprehensive income – items not reclassified to profit or loss - Actuarial gains or (-) losses on defined benefit pension plans’ has caused an additional actuarial profits of EUR 30,7 million in respect to defined benefit obligations (2020: EUR 78,7 million of actuarial loss). The changes in 2021 and 2020 of the present value of the accrued defined benefit obligations were as follows: EUR million 2021 2020 Present value of the obligations at beginning of the year 3,382 5,456 Current service cost 4 10 Interest cost 36 39 Pre-retirement cost — — Settlements (60) (372) Benefits paid for settlements (166) (1,551) Other benefits paid (245) (356) Past service cost 13 2 Actuarial (gains)/losses\* (122) 160 Exchanges rate differences and others 6 (6) Present value of the obligations at end of the year 2,848 3,382 \* Included  in 2021 are demographic actuarial losses of EUR 9 million and financial actuarial profits of EUR 131 million (2020: demographic actuarial losses of EUR 90  million and financial actuarial losses of EUR 70 million). 140 The changes in 2021 and 2020 in the fair value of the plan assets are as follows: EUR million 2021 2020 Fair value of plan assets at beginning of year 1,537 1,543 Expected return on plan assets 12 13 Benefits paid (262) (94) Contributions payable by the employer 14 5 Settlements gains/(losses) (22) — Exchange rate differences and others 5 (6) Actuarial gains/(losses) (79) 76 Fair value of plan assets at end of year 1,205 1,537 The changes in 2021 and 2020 in the fair value of the insurance contracts linked to pensions are as follows: EUR million 2021 2020 Fair value of insurance contracts linked to pensions at beginning of the year 423 511 Expected return on insurance contracts (note 34) 12 6 Actuarial gains/(losses) (12) 5 Premiums paid/(surrenders) — (7) Benefits paid (42) (92) Fair value of insurance contracts linked to pensions at end of the year (note 14) 381 423 Plan assets and pension insurance contracts linked to pensions are mainly appear in insurance policies. iii. Other long-term employee benefits In various years, Banco Santander offered to some certain of its employees the possibility of leaving its employ prior to their retirement. Therefore, provisions are recognized to cover the obligations to pre-retirees -in terms of both salaries and other employee benefit costs- from the date of their pre-retirement to the date of their effective retirement. The present value of the aforementioned obligations and the fair value of the assets arising from insurance contracts linked to these obligations at 31 December 2021 and for the preceding years are as follows: EUR million 2021 2020 2019 Present value of the obligations: To pre-retirees 1,052 1,580 1,220 Long-service bonuses and other benefits 11 13 14 1,063 1,593 1,234 Fair value of plan assets (10) (12) (14) Provisions - Provisions for pensions 1,053 1,581 1,220 Insurance plans linked to pensions — — — Group insurers — — — Other insurance entities — — — In December 2020, Banco Santander reached an agreement with the workers' representatives to implement an early retirement and incentivized termination plan, which is expected to benefit 3,572 employees during 2021, with the provision set up to cover these commitments amounting to EUR 674 million. In addition, the provision set up to cover the dismissal of employees who have taken advantage of early retirement offers and incentivized dismissals during 2020 amounted to EUR 63 million. In 2021, to complete the plan announced in 2020, EUR 82 million have been allocated, increasing the number of early retirements and incentivized dismissals to 3,643 employees in the total period. The amount of the other long-term remuneration commitments defined benefit has been determined on the basis of work performed by independent actuaries, applying the following criteria to quantify them: 1.Valuation method: projected unit credit method. 2.Actuarial assumptions used: unbiased and mutually compatible. Specifically, the most significant actuarial assumptions used in the calculations were as follows: EUR million 2021 2020 Annual discount rate 0.90% 0.60% Expected return on plan assets rate 0.90% 0.60% Mortality tables PE2020 M/F Col. Orden 1 PE2020 M/F Col. Orden 1 Cumulative annual CPI growth 1.00% 1.00% Annual benefit increase rate Entre 0% y 1,5% Entre 0% y 1,5% 141 3.The discount rate used for the flows was determined by reference to high-quality corporate bonds. 4.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. 5.The amounts recognised in the income statement in relation to the aforementioned defined benefit obligations are as follows: EUR million 2021 2020 Service cost: Current service cost 1 1 Interest cost (note 35) 11 8 Extraordinary charges Actuarial (gains)/losses recognized in the year (14) (3) Pre-retirement cost 81 737 Other (55) (15) Total 24 728 The changes in 2021 and 2020 in the present value of the accrued obligations for other long-term benefits were as follows: EUR million 2021 2020 Present value of the obligations at beginning of the year 1,593 1,234 Current service cost 1 1 Cost per interest (note 35) 11 8 Past service cost — — Pre-retirement cost 81 737 Effect of curtailment/settlement (55) (15) Benefits paid (554) (369) Actuarial (gains)/losses (14) (3) Other — — Present value of the obligations at end of the year 1,063 1,593 The movement that has occurred, during the years 2021 and 2020, in the fair value of the assets of the plan, has been as follows: EUR million 2021 2020 Fair value of plan assets at the beginning of the year 12 14 Expected return on plan assets — — Benefits paid (2) (2) Contributions by the employer — — Contributions by the employee and others — — Actuarial gains / (losses) — — Present value of the obligations at end of the year 10 12 iv. Sensitivity analysis Any changes in the main assumptions could affect the calculation of the obligations, At 31 December 2021, 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 post-employment obligations of 5.00% and -5.06%, respectively, and an increase or decrease in the present value of the long- term obligations of 1.18% and -1.18%, These changes would be offset in part by increases or decreases in the fair value of the assets and insurance contracts linked to pensions. The following table shows the estimate of benefits to be paid as of December 31, 2021 for the next ten years: EUR Million 2022 571 2023 436 2024 376 2025 311 2026 267 2027 to 2030 878 142 #### 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 Bank 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. ‘Provisions for taxes and other legal contingencies’ include proceedings and other legal proceedings such as judicial, arbitral or administrative proceedings initiated against Banco Santander. Qualitative information on the main disputes is provided in note 23.e. For their part, the provisions for restructuring include only costs arising from restructuring processes incurred at Banco Santander. The Bank'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 Bank 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. Regarding the provision for restructuring, in 2020 EUR 299 million were allocated in relation to the agreement reached with the worker's' representatives in order to implement an early retirement and incentivized dismissal plan, in that said year. The amounts associated with this plan were recorded according to their nature under the heading 'Provisions for restructuring' and under the heading 'Provisions for pensions and similar obligations', explained in note 23.c above. The increase in the provision for restructuring was offset by the application of EUR 99 million in 2020. As for the 'Other provisions' contains very atomized and individually insignificant provisions, such as the provisions corresponding to cover other operational risks of the Bank. #### e) Litigation and other matters i. Tax-related litigation At 31 December 2021 the main tax-related proceedings concerning the Group and the Bank 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. 143 •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 unfavourably in first instance. Therefore, both plaintiffs appealed to the court of second instance. On December 2020, the appeal was decided unfavourably. Against the judgment, the bank filed a motion for clarification which has not been accepted. Currently it is  appealed to higher courts. There is a provision recognized for the estimated loss. •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 the amount 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 Pagamento 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 were submitted, and the appeal is pending decision in CARF. 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 848 million, and for lawsuits that qualify as contingent liabilities is EUR 3,690 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 IRS finalized its administrative process to close-out the issue, which resulted in no impact on net income. 144 •Banco Santander appealed before European Courts the Decisions 2011/5/CE of 28 October 2009 (First Decision), and 2011/282/UE of 12 January 2011 (Second Decision) 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 October 2021 the Court of Justice has definitively confirmed these Decisions. The dismissal of the appeal, that only affects these two decisions, has no effect on equity. At the date of approval of these interim financial statements certain other less significant tax-related proceedings are also in progress. ii. Non-tax-related proceedings At 31 December 2021 the main non-tax-related proceedings concerning the Group and the Bank were as follows: •Payment Protection Insurance (PPI): In recent years Santander UK plc has processed customer claims associated with the sale of payment protection insurance (PPI), derived from the Financial Conduct Authority guidelines.  As of 31 December 2021 there is no provision related to those claims as the deadline for presenting them has already expired. However, customers can still commence in-court litigation for the mis-sale of PPI  and a provision for the best estimate of any obligation to pay compensation in respect of current and future claims is recognized for this purpose. In addition, there is a legal dispute regarding allocation of liability for pre-2005 PPI policies underwritten by two entities (Axa France) that Axa Group acquired from Genworth Financial International Holdings, Inc. in September 2015. The dispute involves 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 the distributor of the policies in dispute and Santander Insurance Services UK Limited (the Santander Entities). In July 2017, the Santander Entities notified Axa France that they did not accept liability for losses on PPI policies relating to the referred period.  Santander UK plc entered in a Complaints Handling Agreement –that included a standstill agreement- agreeing to handle complaints on Axa France, whilst Axa France accepted paying 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 provided written notice to the Santander Entities to terminate the standstill agreement. On 5 March 2021, the Santander Entities were served with a Claim Form and Brief Details of Claim by Axa France, claiming that the Santander Entities are liable to reimburse Axa France for pre-2005 PPI mis-selling losses, currently estimated at GBP 636 million (EUR 739 million). On 22 March 2021, the Santander Entities acknowledged service of the claim and notified the court of their intention to defend the claim in full and issued an application for Axa Frances’s claim to be struck out/ summarily dismissed, which is being heard by the Commercial Court on 22 and 23 February 2022. Decision is not expected until second quarter 2022. In the event the claim is not dismissed, there are still ongoing factual issues to be resolved during the  trial, which may have legal consequences including in relation to liability. These issues create uncertainties which mean that it is difficult to reliably predict the outcome or the timing of the resolution of the matter. The provision includes our best estimate of the Santander Entities’ liability for this matter. •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 claimed the Bank to repay EUR 57 million, which the Bank received for the enforcement of the agreed guarantee, as a result of the aforementioned liquidation.  On 16 September 2021 the Commercial Court Number 10 of Barcelona has ordered Delforca to pay the Bank EUR 66 million plus EUR 11 million in interest and has dismissed the claims filed by Delforca. This decision has been appealed by Delforca, Mobiliaria Monesa and the bankruptcy administrator. The appeal which the Bank has already opposed to will be resolved by the Provincial Court of Barcelona. Separately, Mobiliaria Monesa, S.A. (parent of Delforca) filed in 2009 a civil procedure with the Courts of Santander against the Bank claiming damages that have not been specified to date. The procedure is suspended. 145 •Former employees of Banco do Estado de São Paulo S.A., Santander Banespa, Cia. de Arrendamiento Mercantil:  claim initiated 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 Tribunal Regional do Trabalho (Regional Labour Court) and the High Employment Court (TST) ordered Santander Brazil, 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 Santander Brazil. Santander Bank Brazil filed a rescissory action before the TST to nullify the decisions of the main proceedings and suspend the execution of the judgment, which was deemed inadmissible, therefore its execution was suspended.  The rescissory action was dismissed and a motion for clarification was filed, due to the absence of an explicit argument to deny the rescissory action filed by Santander Brazil. After the decision of the motion for clarification, Santander Brazil filed an extraordinary appeal in the rescissory action in February 2021, which was denied in an interlocutory decision in June 2021 by the TST. As Santander Brazil understands there is a conflict between the TST decision and the doctrine set by the STF, Santander Brazil has appealed this decision. This appeal is pending. In August 2021, a first instance court has ruled that the enforcement of the TST decision shall be carried out individually, at the jurisdiction pertaining to each person. AFABESP appealed this decision.  In December 2021, the Regional Labor Court denied the appeal filed by AFABESP.  This decision has  not been  appealed by AFABESP, and therefore it has become firm. Santander Brazil external advisers 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 31 December 2021. •'Planos Económicos': like the rest of the banking system in Brasil, Santander Brazil has been the target of customer complaints and collective civil suits stemming mainly from legislative changes and its application to bank deposits ('economic plans'). At the end of 2017, an agreement between regulatory entities and the Brazilian Federation of Banks (Febraban) with the purpose of closing the lawsuits was reached and was approved by the Supremo Tribunal Federal. 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 adhesions there may be 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 proceedings for two years from May 2018. On 29 May 2020, the STF approved the extension of the agreement for P5Y additional years starting from 3 June 2020. Condition for this extension was to include in the agreement actions related to the “Collor I Plan”. On 31 December 2021, the provision recorded for the economic plan proceedings amounts to EUR 277 million. •Floor clauses:  as a consequence of the acquisition of Banco Popular Español, S.A.U. the Group has been exposed to a material number of transactions with floor clauses. The so-called "floor 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-side 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 20 January, Banco Popular Español, S.A.U. made 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. At 31 December 2021, after having processed most of the customer requests, the potential residual loss associated with ongoing court proceedings is estimated at EUR 46 million, amount which is fully covered by provisions. 146 •Banco Popular´s acquisition:  considering the declaration setting out the resolution of Banco Popular Español, S.A.U., 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 application of the single resolution framework regulation, 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 Council, 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. On 2 December 2021, the CJEU Advocate General issued his opinion, considering that the Directive precludes former Banco Popular shareholders from bringing claims for compensation against Banco Santander. The judgement of the CJEU in this case is still pending and is likely to condition the outcome on the judicial proceedings that are currently ongoing. 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 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, which rejected it. In this proceedings, Banco Santander, S.A. could potentially be subsidiarily liable for the civil consequences. 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. At 31 December 2021, the provisions recorded are considered sufficient to cover the risks associated with the court claims that can be estimated to date. However, if additional amounts have to be paid for claims already raised with an undetermined economic interest or for new claims which cannot be reliably estimated because of their specific circumstances, this could have a significant adverse effect on the Santander Group's results and financial situation. •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, Santander Financial Services Plc and Cater Allen International Limited -, in relation to a particular type of tax dividend linked transactions known as cum-ex transactions. The Group is cooperating with the German authorities. According to the state of the investigations, the result and the effects for the Group, which may potentially include the imposition of material financial penalties, cannot be anticipated.  For this reason, the Bank has not recognized any provisions in relation to the potential imposition of financial penalties. •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 sought a compensation for a total amount of approximately EUR 112 million or, an alternative relief for other minor amounts. Banco Santander, S.A. answered to the complaint stating that the conditions to which the appointment was subject to were not met and that the contract required by law was not concluded. On 17 May 2021, the plaintiff reduced his claims for compensation to EUR 61.9 million. 147 On 9 December 2021, the Court has rendered its decision ordering the Bank to compensate the plaintiff in the amount of EUR 67.8 million. On 13 January 2022, the Court has corrected and supplemented its judgment, reducing the total amount to EUR 51.4 million and establishing that part of this amount (EUR 18.6 million) would have to be paid in shares of Banco Santander and subject to the application of the same terms provided in the applicable Santander executives’ remuneration program (on a deferred basis, and in accordance with the applicable plan in the offer). The Bank will file appeal against the judgment before the Provincial Court of Madrid.  The provisions recorded are considered to be sufficient to cover the risks deriving from this claim. •Universalpay Entidad de Pago, S.L. has filed a lawsuit against Banco Santander, S.A. for breach of the marketing alliance agreement (MAA) and claim payment (EUR 1,050 million). The claim is being processed in the Court of First Instance no. 81 of Madrid. The MAA was originally entered into by Banco Popular Español, S.A.U. and its purpose is the rendering of acquiring services (point of sale payment terminals) for businesses in the Spanish market. The lawsuit is mainly based on the potential breach of clause 6 of the MAA, which establishes certain obligations of exclusivity, non-competition and customer referral. The claim is at a very early stage, and there are factual issues pending resolution, which may have legal consequences and affect any potential liability. This uncertainty makes it impossible to reliably predict the resolution of the issue, the timing or the significance of the potential economic impact. The Bank has answered the complaint. The pretrial hearing could not take place on 16 December 2021 and has been rescheduled on 11 March 2022. •CHF Polish Mortgage Loans: On 3 October 2019, the Court of Justice of the European Union (CJEU) rendered its decision in relation to a judicial proceeding against an unrelated bank in Poland considering that certain contractual clauses in CHF-indexed loan agreements were abusive. 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 case of maintenance of the contract, the court may only integrate the contract with subsidiary provisions of national law and decide, in accordance with those provisions, on the applicable rate. On 2 September 2021, the Supreme Court was expected to take a position regarding the key issues in disputes concerning loans based on foreign currency, clarifying the discrepancies and unifying case law.  The resolution was not adopted and instead, the Supreme Court referred questions to the CJEU on constitutional issues of the Polish judiciary system. No new date for consideration of the issue has been set and no comprehensive decision by the Supreme Court on CHF of the issue is expected in the near future.  In the absence of a comprehensive position of the Supreme Court, it is difficult to expect a full unification of judicial decisions, and decisions of the Supreme Court and CJEU issued on particular issues may be important for shaping further case law on CHF matters. As of 31 December 2021, Santander Bank Polska S.A. and Santander Consumer Bank S.A. maintain a portfolio of mortgages denominated in or indexed to CHF for an approximate amount of 9,265 million zlotys (EUR 2,083 million). During the year, provisions recorded amounted to 1,453 million zlotys (EUR 319 million), leaving the provision fund as of 31 December 2021 at 2,056 million zlotys (EUR 447 million). This provision represents the best estimate at 31 December 2021 given the difficulty to predict the financial impact, as it is for national courts to decide the relevant issues and the process of analyzing and deciding on the KNF proposal described below has not yet been completed. Santander Bank Polska and Santander Consumer Bank Poland will continue to monitor and assess appropriateness of those provisions. In December 2020, the Chairman of the Polish Financial Supervision Authority (KNF) presented a proposal for voluntary settlements between banks and borrowers under which CHF loans would be retrospectively settled as PLN loans bearing an interest rate based on WIBOR plus margin.  This proposal is currently under analysis within Santander Bank Polska S.A. and Santander Consumer Bank S.A., depending on the results of this analysis, Santander Bank Polska and Santander Consumer Bank Poland 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. While the above referred events could lead to significant changes in the level of expected provisions, in the opinion of Santander Bank Polska S.A. and Santander Consumer Bank S.A., it is not possible to reliably estimate the value of their impact on their financial position at 31 December 2021. 148 •Banco Santander Mexico. Dispute regarding a testamentary trust constituted in 1994 by Mr. Roberto Garza Sada in Banca Serfin (currently Santander Mexico) in favor of his four sons in which he affected shares of Alfa, S.A.B. de C.V. (respectively, "Alfa" and the "Trust"). During 1999, Mr. Roberto Garza Sada instructed Santander México in its capacity as trustee to transfer 36,700,000 shares from the Trust's assets to his sons and daughters and himself. These instructions were ratified in 2004 by Mr. Roberto Garza Sada before a Notary Public. Mr. Roberto Garza Sada, passed away on 14 August 2010 and subsequently, in 2012, his daughters filed a complaint against Santander Mexico alleging it had been negligent in its trustee role. The lawsuit was dismissed at first instance in April 2017 and on appeal in 2018. In May 2018, the plaintiffs filed an appeal (recurso de amparo) before the First Collegiate Court of the Fourth Circuit based in Nuevo León, which ruled in favor of the plaintiffs on 7 May  2021, annulling the 2018 appeal judgment and condemning Santander Mexico to the petitions claimed, consisting of the recovery of the amount of 36,700,000 Alfa shares, together with dividends, interest and damages. On 7 June 2021, Santander México filed an appeal for constitutional review against the decision of the Collegiate Court before the Supreme Court of Justice of the Nation, considering that this court was not empowered to resolve substantive issues that had not been raised by the parties, lack of procedural standing, and the absence of a decision imposing the plaintiffs to pay costs. This appeal was rejected by the President of the Supreme Court of Justice of the Nation on 1 October 2021 on the grounds that the matter, although it refers to constitutional matters, is not of exceptional interest. On 6 October 2021, Santander México filed an appeal against this decision before the Supreme Court itself, which was rejected in limine by the President of the Court by order dated 11 October 2021, considering that against the dismissal of the appeal for constitutional review, there is no possible appeal pursuant to the Constitutional Reform of March 2021. Against this decision, on 8 December 2021, a new appeal was filed for this matter to be reviewed by the First Chamber of the Supreme Court of Justice of the Nation, considering that the failure to accept the appeal constitutes a retroactive application of the law, and that this violates the transitory fifth article of the reform of the “Ley de Amparo” published on 7 June 2021. In compliance with the aforementioned ruling of 7th May 2021, the Seventh Civil Chamber of the Superior Court of Justice of Nuevo León has issued a judgement imposing Santander Mexico to pay the benefits claimed by the plaintiffs. As a result of this judgement, Santander Mexico has filed a new appeal (recurso de amparo) and will request that it be resolved by the Supreme Court of Justice of the Nation. Santander México estimates that the actions taken should prevail and reverse the decision against it. However, given the procedural stage of the case, Santander México has classified this risk as possible. The impact of a potential unfavorable resolution for Santander México will be determined in a subsequent proceeding and will also depend on the additional actions that Santander México may take in its defense, so it is not possible to determine it at this time. •URO Property Holdings, SOCIMI SA: In December 2021, BNP Paribas Trust Corporation UK Limited (“BNP”) informed Uro Property Holdings SOCIMI, SA (“Uro”) – subsidiary from Banco Santander, S.A.-, that it is considering taking legal action against Uro. On 16 February 2022, BNP commenced legal proceedings against Uro in the Commercial Court in London. On 31 December 2021, Uro lost its status as a SOCIMI (Sociedad Anónima Cotizada de Inversión Inmobiliaria). The potential litigation concerns certain terms of a financing granted to Uro which was supported by a bond issue in 2015. BNP, acting as trustee on behalf of the bondholders, claims that based on those terms, and in relation to the loss of SOCIMI status, Uro would be obliged to pay an additional premium above the nominal value of the financing repayment. Uro denies being liable to pay that additional premium and intends to defend the claim. It is estimated that the maximum loss associated with this possible contingency, amounts to approximately EUR 250 million. There is no date for trial hearing yet. Banco Santander 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 additional to those referred to here. 149 With the information available to it, the Bank considers that, at 31 December 2021, 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. Disputes in which provisions have been registered but are not disclosed is justified on the basis that it would be prejudicial to the proper defense of the Bank. 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. 24. 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). #### b) Years open for review by the tax authorities In June and November 2021 acts with agreement, conformity and non-conformity relating to the corporate income tax financial years 2012 to 2015 were formalised. The adjustments signed in conformity and with agreement  had not 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 2011), 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 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 2011) and at different administrative instances (tax years 2012-2015). It should also be noted that, in those cases where it has been considered appropriate, the mechanisms available to avoid international double taxation have been used. Consequently, no provision has been recorded for this concept. At the date of approval of these accounts, the Corporate Income Tax and other taxes audit for periods 2017 to 2019 are ongoing, and subsequent years up to and including 2021, are subject to review. Likewise, relating the Consolidated Tax Group of which Banco Popular Español, S.A.U. was the parent, during 2019, a certificate of disconformity was drawn up for 2017 corporate income tax, with no impact on profit, and the final assessment was  appealed. In relation to this Consolidated Tax Group, the years 2016 and  2017 inclusive are subject to review. 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 and the Bank’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 Bank’s financial statements. #### c) Reconciliation The reconciliation between the income tax expense at the applicable tax rate (30%) and the income tax expense recorded (in EUR millions) is shown below: EUR million 2021 2020 Profit before taxes 3,864 (2,247) Corporate tax at the applicable rate of 30% 1,159 (674) Dividends and capital gains not subject (1,454) (1,885) Impairment of non-deductible shares (240) 1,776 Deferred tax review effect — 1,632 Remaining permanent differences and others 467 461 Expense/(Incomes) taxes recorded (68) 1,310 #### d) Tax recognized in equity Regardless of the income tax incurred in profit and loss accounts, Banco Santander has passed on the net worth the following amounts during 2021 and 2020: EUR million Amounts receivable/ (Amounts payable) 2021 2020 Fair value changes of debt instruments measured at fair value with changes in other comprehensive income 156 96 Equity instruments valued at fair value with changes in other comprehensive income (4) 87 Cash flow hedges (44) 62 Other valuation adjustments (note 25) 19 23 Total 127 268 150 #### e) Deferred taxes The balance under the heading 'Deferred tax assets' of the balance sheets includes the debtor balances against the Public Treasury for Advance Tax; in turn, the balance under the heading 'Deferred tax liabilities' includes the liabilities corresponding to the different deferred taxes of Banco Santander. In Spain Royal Decree-Law 14/2013 of 29 November, confirmed by Law 27/2014 of 27 November, established a regime to allow certain deferred tax assets to continue to count as prudential capital, within the ‘Global regulatory framework to strengthen banks and banking systems’ (called Agreements Basel III) and under the implemented regulations of those Agreements, i.e. Regulation (EU) No 575/2013 and Directive 2013/36/EU, both of 26 June 2013 (hereinafter CRD IV). Prudential legislation provides that deferred tax assets that depend on their use of future profits must be deducted from regulatory capital, although taking into account whether they are credits for tax losses and deductions or for temporary differences. It is for the latter category of deferred tax assets and within it those arising from insolvencies, awarded, commitments for pensions and pre-retirements, for which it is established that they do not depend on future profits, since in certain circumstances they can be converted into credits against the Public Treasury, and therefore not deducts from regulatory capital (hereinafter referred to as monetizable deferred tax assets). During 2015, the regulation on monetizable deferred tax assets was completed by the introduction of a capital supply involving the payment of an amount of 1.5% per annum, in order to maintain the right to monetization, and will be applied to a part of the deferred tax assets that meet the legal requirements to be considered monetizables generated before 2016. The following are the breakdown of tax assets and liabilities as of December 31, 2021 and 2020: EUR million 2021 2020 Tax assets: 9,622 9,282 Current 1,003 721 Deferred 8,619 8,561 Of which Relating to pensions 3,540\* 3,540\* Relating to allowances for loan losses 3,023\* 3,023\* Relating to deductions and negative tax bases 632 380 Tax liabilities: 1,697 1,555 Of which, deferred tax liabilities 1,521 1,510 \* Banco Popular Español, S.A.U. considered that part of its monetizable assets were converted into credit against the Tax Administration in 2017 Corporate 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. Likewise Consolidated Tax Group in Spain, due to losses incurred in 2020, converted EUR 642 million of monetizable tax assets into credit against the Tax Administration in its Corporate Income Tax return. This tax return is subject to review by the Tax Authorities. At the end of the fiscal year, deferred taxes, both assets and liabilities, are reviewed in order to verify whether adjustments are necessary to be made in accordance with the results of the analyses carried out. These analyses take into account all the positive and negative evidence of the recoverability of such assets, including (i) the results generated in previous years, (ii) the projections of results, (iii) the estimate of the reversal of the various temporary differences depending on their nature and (iv) the period and limits established in current legislation for the recovery of the various deferred tax assets, thus concluding on Banco Santander’s ability to recover its deferred tax assets. The results projections used in this analysis are based on the financial budgets approved by both the local bureaux of the respective units and by Banco Santander managers. Grupo Santander budget estimation process is common for all units, including the Bank. The Grupo Santander management prepares its financial budgets based on the following key assumptions. a.Microeconomic variables of the entities that make up the tax group at each location: consideration is taken of the existing balance sheet structure, the mix of products offered and the commercial strategy at any time defined by the local authorities in this regard based on the competition, regulatory and market environment. 151 b.Macroeconomic variables: The estimated growth is based on the evolution of the economic environment considering the expected developments in the Gross Domestic Product of each location and the forecasts on behaviour of interest rates, inflation and exchange rates. This data is provided by Grupo Santander's Studies Service, and based on external sources of information. In addition, Grupo Santander performs retrospective reviews (backtesting) on the variables projected in the past. The differential performance of these variables with respect to the actual market data is considered in the estimated projections for each financial year. Thus, in relation to Spain, the deviations identified by Management in recent years are due to non-recurring events that are not related to the business's operations, such as the impacts for the first application of new applicable regulations, the costs incurred for accelerating restructuring plans and the changing effect of the current macroeconomic environment. Finally, and given the degree of uncertainty of the assumptions regarding those variables, Grupo Santander conducts a sensitivity analysis of the most significant ones used in the analysis of the recoverability of deferred tax assets, considering reasonable changes in the key assumptions upon which the projections of results of each tax entity or group and the estimate of the reversal of the various temporary differences. In relation to Spain, the sensitivity analysis consisted of adjusting 50 basis points for growth (gross domestic product) and adjusting 50 basis points for inflation. Following this analysis, the maximum recovery period of deferred tax assets recorded at 31 December 2020 is maintained for 15 years. During 2020, given the uncertainties about the economic impacts derived from the covid-19 health crisis, the Group reassessed the ability to generate future tax profits in relation to the recoverability of deferred tax assets recorded in the main companies that make up the Group. In Spain, the changes in the key hypotheses on which the projections of the results of its tax group were based, derived from the aforementioned impact of covid-19, meant in the case of Banco Santander the recording of an impairment of EUR 1,632 million of deferred tax assets with a balancing entry under the heading 'Income tax' in the profit and loss account. In addition, the Spanish Tax Group, of which Banco Santander, S.A. is the dominant entity, has not recognized deferred tax assets in respect of tax losses, investment deductions and other incentives amounting to approximately EUR 9,700 million, of which EUR 300 million are subject, among other requirements, to time limits. #### f) Regulatory changes In 2018, for the purpose of regulating the tax effects of the first application of the Bank of Spain's Circular 4/2017, Royal Decree-Law 27/2018 of 28 December established a transitional regime, according to which charges and credits to reserve accounts accounted for in first application, which have tax effects, will be integrated into the Tax base for corporation tax equally in each of the first three tax periods starting from January 1, 2018. In application of the aforementioned Royal Decree-law, it was included in the tax base of Banco Santander, S.A. corresponding to 2020 a negative adjustment amounting to EUR 99 million, EUR 30 million in installment. On the other hand, in 2020 the General State Budget Law for 2021 was approved, which, among other tax measures, established the non-deductibility in the Corporation Tax of the management expenses of capital holdings whose dividends or capital gains are exempt. of taxes, setting the amount of these non-deductible expenses at 5% of the dividend or positive income obtained. In 2021, the General State Budget Law for 2022 was approved, which establishes a minimum tax rate of 15% (18% for financial entities) on the tax base in Corporation Tax. #### g ) Other information In compliance with the reporting obligation set out in the 2005 Contributing Standards Instrument issued by the Financial Conduct Authority of the United Kingdom, it is stated that shareholders of Banco Santander who are resident in the United Kingdom shall be entitled to apply for a tax credit paid abroad in respect of withholdings to be made by Banco Santander on dividends to be paid to those shareholders if the total dividend income exceeds the amount of exempt dividends of £2,000 for the 2021/2022 financial year. Banco Santander shareholders who reside in the United Kingdom and maintain their participation in Banco Santander through Santander Nominee Service will be directly provided with information on the amount withheld as well as any other information they may need to complete their tax returns in the UK. All other shareholders of Banco Santander who reside in the United Kingdom should contact their bank or securities agency. Banco Santander, is part of the Large Business Forum and has adhered to the Code of Good Tax Practices in Spain since 2010, actively participating in the cooperative compliance programmes being developed by the tax administration. 152 25. 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 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 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. The amounts of these items are recognized gross, presenting the corresponding tax effect is presented under a separate item. 153 a) Breakdown of Other accumulated comprehensive income - Items that will not be reclassified in results and Items that can be classified in results EUR million 2021 2020 Other accumulated comprehensive income (1,802) (1,561) Items that will not be reclassified in results (1,858) (1,882) Actuarial gains and losses on defined benefit pension plans (1,329) (1,351) Non-current assets held for sale — — Other recognized income and expense of investments in subsidiaries, joint ventures and associates — — Rest of valuation adjustments — — Changes in the fair value of equity instruments measured at fair value through other comprehensive income (468) (537) Ineffectiveness  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 through other comprehensive income (hedged item) 271 154 Changes in the fair value of equity instruments measured at fair value through other comprehensive income (hedging instrument) (271) (154) Changes in the fair value of financial liabilities at fair value through profit or loss attributable to changes in credit risk (61) 6 Items that can be classified in results 56 321 Hedges of net investments in foreign operations (effective portion) — — Exchange differences — — Cash flow hedges (effective portion) (87) (189) Changes in the fair value of debt instruments measured at fair value through changes in other comprehensive income 143 510 Hedging instruments (items not designated) — — Non-current assets held for sale — — Share in other income and expenses recognized in investments in joint ventures and associates — — b) Other accumulated 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 statement of income and expense. c) Other accumulated 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. Includes the net amount of unrealized fair value changes of equity instruments at fair value with changes in other comprehensive income. 154 The following is a breakdown of the composition of the balance as of 31 December 2021 and 2020 under ‘Other accumulated 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‘ (see note 8): EUR million 2021 2020 Capital gains by valuation Capital losses by valuation Net gains/ losses by valuation Fair value Capital gains by valuation Capital losses by valuation Net gains/ losses by valuation Fair value Equity instruments 178 (646) (468) 1,705 275 (812) (537) 1,942 d) Other accumulated 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 recognized in the income statement in the periods in which the hedged items affect it (see note 32). e) Other accumulated 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 unrealized changes in the fair value of assets classified as items than can be reclassified in results ‘Changes in the fair value of debt instruments measured at fair value with changes in other comprehensive income‘ (see note 7). Below is a breakdown of the balance composition as of December 31, 2021 and 2020 of ‘Other accumulated global income - Items that can be reclassified in results - Changes in the fair value of the instruments of debt valued at fair value with changes in other comprehensive income’ depending on the type of instrument: EUR million 2021 2020 Revaluation gains Revaluation losses Net revaluation gains/ (losses) Fair value Revaluation gains Revaluation losses Net revaluation gains/ (losses) Fair value Debt instruments 172 (29) 143 9,394 526 (16) 510 15,146 155 As of 31 December 2021, the handicaps recorded in the ‘Other cumulative comprehensive income - Elements that can be reclassified into profit or loss - Changes in the fair value of debt instruments measured at fair value through other comprehensive income’ are not significant. As of December 31, 2021, Banco Santander has not recorded in equity any impairment corresponding to debt securities. 26. Shareholders’ equity The changes in ‘Shareholders' equity’ are presented in the statement of changes in total equity. Significant information on certain items of ‘Shareholders' equity’ and the changes therein in 2021 are set forth below. 27. Issued capital #### a) Changes 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 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. Equally, Banco Santander's share capital at 31 December 2021 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. Includes 259,930,273 shares corresponding to the first share repurchase program for which it has been agreed (together with the shares that are finally to be acquired under the second share repurchase program) to submit their redemption to the general shareholders meeting subject to the pertinent regulatory authorizations (see notes 4 and 30). 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 2021, 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 2021, 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 (13.35%), Chase Nominees Limited (9.15%), The Bank of New York Mellon Corporation (5.21%), Citibank New York (3.74%) and EC Nominees Limited (3.34%). At 31 December 2021, neither Banco Santander's shareholder registry nor the CNMV's registry showed any shareholder residing in a non-cooperative jurisdiction 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 At 31 December 2021 the number of Banco Santander shares owned by third parties and managed by Group management companies (mainly portfolio, collective investment undertaking and pension fund managers) or jointly managed was 45 million shares, which represented 0.26% of Banco Santander’s share capital (39 million shares, representing 0.22% of the share capital in 2020). In addition, the number of Banco Santander’s shares owned by third parties and received as security was 231 million shares (equal to 1.33% of the Bank’s share capital). 28. 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 27.a). The decrease in 2020 was due to the reduction of EUR 361 million to cover the capital increase on 3 December (see note 27.a). The decreased produced in 2021 for an amount of EUR 4,034 million has been the consequence of applying the result obtained by Banco Santander during the financial year 2020, consisting of losses of EUR 3,557 million, as reflected in the consolidated statements of changes in total equity, and the charge of the dividend for the fiscal year 2020 for an amount of EUR 477 million (see note 4.a and consolidated statements of changes in total equity). 156 Also, in 2020 an amount of EUR 72 million was transferred from the Share premium account to the Legal reserve (see note 29.b). 29. 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 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 income statement. #### b) Breakdown The detail of ‘Shareholders' equity - reserves’ at 31 December 2021 and 2020 is as follows: EUR million 2021 2020 Restricted reserves 2,543 2,460 Legal reserve 1,734 1,734 Own shares 755 672 Revaluation reserve Royal Decree-Law 7/1996 43 43 Reserve for retired capital 11 11 Unrestricted reserves Voluntary reserves 6,123 6,128 Total 8,666 8,588 i. Legal reserve According to the Consolidated Text of the Corporate Enterprise Act, Spanish entities that obtain profits in the financial year must provide 10% of the net profit for the financial year to the legal reserve. These allocations must be made until the reserve reaches 20% of the share capital. The legal reserve may be used to increase the share capital in the share of its balance exceeding 10% of the share capital already increased. During the 2021 financial year, Banco Santander has not allocated any amount to Legal Reserve. In 2020, EUR 72 million of Share Premium were allocated to the Legal Reserve (see note 28). The amount of the Legal Reserve reached 20% of the share capital figure, and that Reserve was fully established on 31 December 2021. ii. Reserve for equity shares According to the Consolidated Text of the Corporate Enterprise 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 iv. Voluntary Reserve During the 2021 fiscal year there has been a decrease in voluntary reserves amounting to EUR 5 million; which correspond to an increase in merger reserves of EUR 957 million, a decrease of EUR 83 million due to the constitution of reserves for treasury shares, a decrease of EUR 431 million due to interest on the PPCC (see note 21), a decrease of EUR 421 million for losses on the sale of equity instruments valued at fair value with a charge to other accumulated comprehensive income and a decrease of EUR 27 million for transfer between equity items and other items. 157 30. Other equity instruments and own shares #### a) Equity instruments issued not capital and other equity instruments It includes the amount corresponding to compound financial instruments with a nature of net worth, the increase in staff remuneration, and other items not recorded in other items of own funds. On July 13, 2017, Banco Santander and Banco Popular Español, S.A.U. (hereinafter, Banco Popular) communicated that they had decided to launch a commercial action with the purpose of building loyalty among retail customers of their networks affected by the resolution of Banco Popular (the ‘Loyalty Action’). Under the Loyalty Action, customers who met certain conditions and have been affected by Banco Popular's decision could receive, without disbursement by their part, marketable securities issued by Banco Santander for a nominal amount equivalent to the investment in shares or in certain bonds subordinates of Banco Popular (with certain limits) of which they held at the date of Banco Popular's resolution. In order to avail itself of such action, it was necessary for the client to waive legal action against the Group. The Loyalty Action would be carried out by providing the customer with contingently amortizable perpetual obligations ('Loyalty Bonds’) of Banco Santander, S.A. Loyalty Bonds will accrue a cash coupon, discretionary, non-cumulative, payable for completed quarters. This issuance was made by Banco Santander, S.A. on 8 September 2017 for a nominal amount of EUR 981 million, fully subscribed by Banco Popular Español, S.A.U. As at 31 December 2021, the cost recorded under the heading 'Equity instruments' issued other than capital on Banco Santander balance sheet amounts to EUR 658 million (EUR 627 million as at 31 December 2020). Loyalty Bonds are perpetual securities; however, they may be fully amortized at the will of Banco Santander, S.A., with prior authorization from the European Central Bank, on any of the dates of payment of the coupon, seven years after its issuance. #### b) Own shares ‘Shareholders' equity - Own shares’ includes the amount of equity instruments held by Banco Santander. Transactions involving own ‘Equity instruments’, including their issuance and cancellation, are recognized directly in equity, and no profit or loss may be recognized on these transactions. The costs of any transaction involving own equity instruments are deducted directly from equity, net of any related tax effects. The Bank’s shares owned by the consolidated companies accounted for 1.60% of issued share capital at 31 December 2021 (December 31, 2020 0.164%) In 2021, the average price per share of the Bank was EUR 3.16 per share and the average transfer price EUR 3.09 per share. Of the shares acquired in the period, 259,930,273 shares (1.499% of the issued share capital) are from the First Share Repurchase Program at a weighted average price of EUR 3.24 (see note 4). As of year end of 2021, the purchase and sale of shares issued by Banco Santander have not generated any results (no results in 2020 as well). 158 31. Memorandum items Memorandum items relate 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 even though they may not impinge on its net assets. #### a) Guarantees and contingent commitments granted Guarantees include transactions for which an entity secures obligations of a third party arising from financial guarantees granted by the entity or other types of contracts. ‘Contingent liabilities’ include 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: EUR million 2021 2020 Loans commitment granted 111,410 96,959 Available in lines of credit 111,246 96,870 Deposits in the future 164 89 Financial guarantees granted 10,489 10,135 Financial guarantees 179 189 Credit derivatives sold 10,310 9,946 Other commitments granted 59,421 50,686 Irrevocable documentary credits 3,330 1,947 Other guarantees and guarantees granted 29,971 24,675 Other 26,120 24,064 Of which: Subscribed securities pending disbursement 1 1 Conventional asset acquisition contracts 6,265 4,593 Other contingent commitments 19,854 19,470 Total 181,320 157,780 The breakdown at December 31, 2021 of off-balance sheet exposures and allowance fund (see note 23) by impairment phase under Bank of Spain Circular 4/2017 are EUR 175,871 million and EUR 48 million in phase 1, EUR 4,403 million and EUR 60 million in phase 2 and EUR 1,046 million and EUR 82 million in phase 3, respectively. In addition the breakdown at December 31, 2020 of exposures and the allowance fund were EUR 155,706 million and EUR 69 million in phase 1, EUR 1,630 million and EUR 45 million in phase 2 and EUR 444 million and EUR 43 million in phase 3, respectively. A significant part of these amounts will mature without any payment obligation material for the Bank; therefore, the aggregate balance of these commitments cannot be considered as a real future need for financing or liquidity to be granted to third parties by Banco Santander. Income from guarantee instruments is recognized under ‘Fee and commission income’ in the income statements and is calculated by applying the rate established in the related contract to the nominal amount of the guarantee. i. Loan commitments granted Firm commitments to provide credit under pre- established conditions and terms, except for those that meet the definition of derivatives because they may be settled in cash or through the delivery or issuance of another financial instrument. They include those available in lines of credit and forward deposits. ii. Financial guarantees granted Include financial guarantee contracts such as financial guarantees, credit derivatives sold, derivative risks contracted on behalf of third parties and others. 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) Other information i. Assets advanced as collateral In addition to collateral assets, there are assets owned by Banco Santander which guarantee both transactions carried out by the Bank or by third parties and various contingent liabilities and liabilities over which the assignee has the right, by contract or custom, to re- transfer and pledge them. The carrying value of Banco Santander's financial assets delivered as collateral for such contingent and assimilated liabilities or liabilities is the following: EUR million 2021 2020 Financial assets held for trading 22,440 8,540 Of which — Public debt Public Sector Agencies 3,785 314 Fix rent instruments 9,284 3,113 Equity instruments 9,371 5,113 Non-trading financial assets mandatorily at fair value through profit or loss 154 329 Financial assets designated at fair value through profit or loss — 3,642 Financial assets at fair value through other comprehensive income 2,348 2,293 Financial assets at amortized cost 1,513 2,607 Total 26,455 17,411 159 32. Hedging derivatives Banco 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, Banco 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 Bank. Due to the replacement of the current rates by the alternative rates defined in the note 1 of this report, in the section Bank of Spain Circular 6/2021 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 6.85% of the total hedging derivatives: EUR million 2021 USD LIBOR Total hedging instruments affected 12,311 Fair value hedges 11,870 Interest rate risk 11,870 Cash flow hedges 441 Interest rate risk 441 Post-transition date agreement 8,909 Fair value hedges 8,909 Interest rate risk 8,909 Cash flow hedges — Interest rate risk — As for the hedged items directly affected by the uncertainties related to the IBOR reforms, their nominal amount is shown below, which represents 0.00% of the total notional amount hedged: EUR million 2021 USD LIBOR Total hedging instruments affected 441 Fair value hedges — Interest rate risk Cash flow hedges 441 Interest rate risk 441 Post-transition date agreement — Fair value hedges — Interest rate risk — Cash flow hedges — Interest rate risk — 160 The details of the coverage derivatives of Banco Santander, S.A. according to the type of coverage, the risk they cover and the product, can be found in the following table: EUR million 31 December 2021 Notional Value Carrying amount Changes in fair value used for calculating hedge ineffectiveness Balance sheet items Assets Liabilities Fair Value Hedges 55,470 1,379 (1,141) (618) Interest rate risk 36,099 1,143 (581) (610) Of which: Interest Rate Swap 35,745 1,136 (580) (608) Hedging derivatives Exchange rate risk 13,073 1 (416) 22 Of which: Fx forward 13,073 1 (416) 22 Hedging derivatives Interest rate and exchange risk 6,125 235 (142) (31) Of which: Interest Rate Swap 1,650 12 (9) (7) Hedging derivatives Currency Swap 4,475 223 (133) (24) Hedging derivatives Credit Risk 173 — (2) 1 Of which: CDS 173 — (2) 1 Hedging derivatives Cash flow Hedges 51,218 74 (328) 146 Interest rate risk 47,721 12 (111) 145 Of which: Interest Rate Swap 45,441 12 (33) (36) Hedging derivatives Exchange rate risk 85 — — — Of which: Fx forward 85 — — — Hedging derivatives Interest rate and exchange risk 3,412 62 (217) 1 Of which: Currency exchange 3,348 61 (215) 3 Hedging derivatives Net Investments hedges abroad 23,357 195 (607) — Exchange rate risk 23,357 195 (607) — Of which: Fx forward 23,357 195 (607) — Hedging derivatives Total 130,045 1,648 (2,076) (472) 161 EUR million 31 December 2020 Notional Value Carrying amount Changes in fair value used for calculating hedge ineffectiveness Balance sheet line items Assets Liabilities Fair value hedges 49,371 2,357 (988) 366 Interest rate risk 36,371 1,875 (723) 336 Interes Rate Swap 35,983 1,855 (711) 336 Hedging derivatives Call money Swap 7 — — — Hedging derivatives Swaption 51 11 (11) — Hedging derivatives Floor 330 9 (1) — Hedging derivatives Exchange rate risk 7,990 209 (34) (1) Fx forward 7,990 209 (34) (1) Hedging derivatives Interest rate and exchange rate risk 4,803 273 (228) 27 Interest Rate Swap 426 9 (1) 1 Hedging derivatives Currency Swap 4,377 264 (227) 26 Hedging derivatives Credit risk 207 — (3) 4 CDS 207 — (3) 4 Hedging derivatives Cash flow hedges 40,140 92 (405) (206) Interest rate risk 35,443 39 (271) (204) Interest rate swap 30,000 39 (12) 39 Hedging derivatives Futures 5,443 — (259) (243) Hedging derivatives Interest rate and exchange rate risk 4,697 53 (134) (2) Currency swap 4,697 53 (134) (2) Hedging derivatives Net investment hedges abroad 20,211 688 (387) — Exchange rate risk 20,211 688 (387) — Fx forward 20,211 688 (387) — Hedging derivatives Total 109,722 3,137 (1,780) 160 Banco Santander covers the risks of its balance sheet in a variety of ways. On the one hand, documented as fair value hedges, it covers the risk of both interest rate, exchange rate and credit of fixed-income portfolios (REPOs are included in this typology) and are therefore exposed to changes in fair value thereof due to changes in market conditions in based on the various risks covered, which has an impact on Banco Santander's income statement. To mitigate these risks, the Bank contracts hedging instruments (Derivatives), basically Interest rate Swaps, Cross Currency Swaps, Cap&Floors, Forex Forward and Credit Default Swaps. On the other hand, the risk of both interest and exchange of loans granted to corporate clients at a fixed rate is generally covered. These hedges are made using Interest Rate Swaps, Cross Currency Swaps and exchange rate derivatives (Forex Swaps and Forex Forward). In addition, the Bank manages the interest and exchange risk of debt issues in its various categories (mortgage, perpetual, subordinate and senior debt issuances) and in different currencies, denominated at fixed rate, and therefore subject to changes in fair value. These issues are covered by Interest Rate Swaps and Cross Currency Swaps or the combination of both through differentiated fair value hedging strategies for interest rate risk, and cash flows to cover exchange-rate risk. The methodology used by Banco Santander, to measure the effectiveness of fair value hedge is based on comparing the market values of hedged items, based on the objective risk of hedging, and hedging instruments in order to analyse that changes in that fair value of hedging the items covered by hedging are offset by the market value of hedging instruments, mitigating hedged risk and minimizing volatility in the income statement. Prospectively, the same analysis is performed, measuring theoretical market values in the face of parallel variations of market curves at a positive base point. 162 There is a structured loan macro-coverage covering the interest rate risk of fixed-rate loans (mortgage, personal or other collateral) granted to commercial or corporate legal entities and medium/long-term Wealth clients. This coverage is instrumented as a faire value macro coverage being the main coverage instruments, Interest Rate Swap and Cap&Floors. In the event of total or partial early cancellation or amortization, the client is obliged to pay/receive the cost/income of the cancellation of the interest rate risk coverage that Banco Santander manages. With regard to cash flow hedges, the objective is to be covered by the exposure of flows from changes in interest rate and exchange rates. For retrospective purposes, the 'Hypothetical Derivate' methodology is used to measure efficacy. Through this methodology, the hedged risk is modelled as a derivative — not real — instrument created exclusively for the purpose of measuring the effectiveness of the hedging, and which must meet that its main characteristics match the critical terms of the hedged item for the entire period for which the ratio of coverage. This hypothetical derivative does not incorporate characteristics that are unique to the hedging instrument. In addition, it should be mentioned that, for the purpose of the effectiveness calculation, any risk component not associated with the target risk covered and actually documented at the beginning of the risk is excluded. The market value of the hypothetical derivative replicating 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 inefficiencies is residual. Changes in the market values of the hedging instrument and the hedged item (represented by the hypothetical derivative) are prospectively measured for parallel movements of a positive base point in the market curves concerned. There is also another macro-hedging, this time of cash flows, which aims to actively manage the risk-free interest rate risk (excluding credit risk) of a portion of the variable rate assets of Banco Santander, through the contracting of interest rate derivatives for which the bank exchanges interest flows at variable rate with others at a fixed rate agreed upon at the time of contract of transactions. Items affected by Macrocoverage have been designated as those in which their cash flows are exposed to interest rate risk, in particular mortgages of Banco Santander´s network at variable rate referenced to Euribor 12 months or Euribor Mortgage, with annual rate renewal, classified as healthy risk and which do not present a contractual floor (or otherwise, the floor is not activated). The hedged position affects the Macrocoverage of Cash Flows at the present time is EUR 7.000 million. Regarding net foreign investments hedges, basically, they are allocated in Banco Santander and Santander Consumer Finance Group. The Group assumes, as a priority objective in risk management, to minimize – up to a determined limit set up by the responsible for the financial management of the Group- the impact on the calculation of the capital ratio of their permanent investments included within the consolidation perimeter of the Group, and whose shares are legally named in a different currency than the holding has. For this purpose, financial instruments (generally derivatives) on exchange rates are hired, that allow mitigating the impact on the capital ratio of changes in the forward exchange rate. The Group hedges the risk, mainly, for the following currencies: BRL, CLP, MXN, CAD, COP, GBP, CHF, 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 coverage, ineffectiveness scenarios are considered to be low probability, since the hedging instrument is designated considering the position determined and the spot rate at which it is located. Additionally, the profile information of maturities and the price/average rate for Banco Santander is shown: 163 Fair value hedges 633 4,584 13,475 25,468 11,310 55,470 Interest rate risk Interest rate instruments Nominal 14 1,822 3,038 21,507 10,031 36,412 Average fixed interest rate (%) GBP — — — 2.14 1.75 Average fixed interest rate (%) EUR 3.86 0.99 (0.03) 1.21 1.53 Average fixed interest rate (%) CHF — — — 0.83 0.40 Average fixed interest rate (%) JPY — — — 0.46 — Average fixed interest rate (%) RON — — — 4.21 3.20 Average fixed interest rate (%) USD 4.75 1.45 3.46 2.74 3.37 Exchange rate risk Exchange rate instruments Nominal 503 1,634 10,350 586 — 13,073 GBP / EUR average exchange rate — 0.88 0.86 0.88 — USD / EUR average exchange rate 1.19 1.17 1.18 — — COP / USD average exchange rate — — — — — PEN / USD average exchange rate — 4.00 — — — AUD / EUR average exchange rate — — — — — SAR / EUR average exchange rate — — — — — CNY / EUR average exchange rate 7.86 7.72 7.41 — — JPY / EUR average exchange rate 132.69 130.74 — — — Interest rate and exchange risk Instruments of exchange rate and interest Nominal 116 1,109 53 3,255 1,279 5,812 Average fixed interest rate (%) AUD/EUR — — — 4.00 4.66 Average fixed interest rate (%) EUR/USD — — — (0.14) — Average fixed interest rate (%) CZK/EUR — — — 0.86 — Average fixed interest rate (%) EUR/COP — — — — — Average fixed interest rate (%) RON/EUR — — — 4.85 — Average fixed interest rate (%) HKD/EUR — — — 2.58 — Average fixed interest rate (%) JPY/EUR — — — 0.73 1.14 Average fixed interest rate (%) NOK/EUR — — — — 3.61 Average fixed interest rate (%) CHF/EUR — — — 0.76 1.24 Average fixed interest rate (%) USD/CLP — — — 3.45 — Average fixed interest rate (%) USD/COP — 5.14 9.47 6.79 7.15 AUD/EUR average exchange rate — — — 1.50 1.53 NZD/EUR average exchange rate — — — — 1.67 CZK/EUR average exchange rate — — — 25.51 — EUR/GBP average exchange rate — 1.18 — — — EUR/COP average exchange rate — — — — — EUR/USD average exchange rate — — — 0.89 — HKD/EUR average exchange rate — — — 8.78 — JPY/EUR average exchange rate — — — 132.97 126.60 MXN/EUR average exchange rate — — 14.70 — — EUR million 31 December 2021 Up to one month One to three months Three months to one year One year to five years More than five years Total 164 NOK/EUR average exchange rate — — — — 9.61 RON/EUR average exchange rate — — — 4.82 4.93 CHF/EUR average exchange rate — — — 1.09 1.11 USD/CLP average exchange rate — — — — — USD/COP average exchange rate — — — — — USD/MXN average exchange rate — — — 0.05 — Credit risk Credit Risk Instruments Nominal — 19 34 120 — 173 Cash flow hedges 4,279 9 6,360 40,162 408 51,218 Interest rate and exchange rate risk Interest rate and exchange instruments Nominal — 9 1,169 1,848 408 3,434 Average fixed interest rate (%) AUD/EUR — — — 0.30 — Average fixed interest rate (%) EUR/PEN — — 3.44 — — Average fixed interest rate (%) EUR/AUD — 1.63 — — 1.56 EUR / PEN average exchange rate — — 0.21 — — EUR / USD average exchange rate — — — 0.88 — AUD / EUR average exchange rate — — — 1.60 1.56 RON / EUR average exchange rate — — — 4.89 — JPY / EUR average exchange rate — — — 120.57 — CHF / EUR average exchange rate — — — — 1.10 EUR / GBF average exchange rate — — 1.10 1.11 — NOK / EUR average exchange rate — — — — 10.24 CZK / EUR average exchange rate — — — 26.13 — EUR / AUD average exchange rate — 0.62 — — — Interest rate risk Interest Rate Swaps Nominal 4,279 — 5,191 38,314 — 47,784 Average fixed interest rate (%) EUR — — (0.47) (0.26) — Average fixed interest rate (%) USD — — 1.77 — — Average fixed interest rate (%) AUD — — — 1.65 — Bond Forward Instruments Nominal Net investment hedges abroad 560 1,397 11,280 10,120 — 23,357 Exchange rate risk Exchange rate instruments Nominal 560 1,397 11,280 10,120 — 23,357 BRL / EUR average exchange rate 6.66 6.76 6.84 — — CLP / EUR average exchange rate 943.35 929.69 949.61 — — COP / EUR average exchange rate — — 4,538,971 — — GBP / EUR average exchange rate 0.85 0.86 0.85 0.88 — MXN / EUR average exchange rate 25.54 25.33 25.19 — — PLN / EUR average exchange rate 4.59 4.58 4.63 — — Total 5,472 5,990 31,115 75,750 11,718 130,045 EUR million 31 December 2021 Up to one month One to three months Three months to one year One year to five years More than five years Total 165 Fair value hedges 2,906 4,848 5,999 20,242 15,377 49,372 Interest rate risk Interest rate instruments Nominal 2,073 409 2,165 17,430 14,294 36,371 Average fixed interest rate (%) GBP — — — 1.38 4.07 Average fixed interest rate (%) EUR 0.65 0.55 0.39 0.82 1.93 Average fixed interest rate (%) CHF — — — 0.80 0.40 Average fixed interest rate (%) JPY — — — 0.46 — Average fixed interest rate (%) RON — — — 3.61 — Average fixed interest rate (%) USD 0.70 0.57 2.03 3.00 3.56 Exchange rate risk Exchange rate instruments Nominal 833 4,149 3,008 — — 7,990 GBP / EUR average exchange rate — 0.90 0.92 — — USD / EUR average exchange rate 1.16 1.17 1.18 — — COP / USD average exchange rate 3,628.14 3,603.59 — — — PEN / USD average exchange rate — 3.61 — — — AUD / EUR average exchange rate — 1.61 — — — SAR / EUR average exchange rate 4.48 4.51 — — — CNY / EUR average exchange rate 8.11 8.10 8.00 — — JPY / EUR average exchange rate — 124.61 — — — Interest rate and exchange risk Instruments of exchange rate and interest Nominal — 282 818 2,621 1,083 4,804 Average fixed interest rate (%) AUD/EUR — — — 4.00 4.66 Average fixed interest rate (%) COP/USD — — 6.00 — — Average fixed interest rate (%) CZK/EUR — — — 0.86 — Average fixed interest rate (%) EUR/COP — — 4.38 — — Average fixed interest rate (%) RON/EUR — — — 4.85 — Average fixed interest rate (%) HKD/EUR — — — 2.58 — Average fixed interest rate (%) JPY/EUR — — 2.20 0.57 1.28 Average fixed interest rate (%) NOK/EUR — — — — 3.61 Average fixed interest rate (%) CHF/EUR — — — — 1.24 Average fixed interest rate (%) USD/CLP — — 0.93 — — Average fixed interest rate (%) USD/COP — — 8.03 6.66 7.23 AUD/EUR average exchange rate — — — 1.50 1.51 COP/USD average exchange rate — — 3,437.20 — — CZK/EUR average exchange rate — — — 25.54 — EUR/GBP average exchange rate — 1.11 — — — EUR/COP average exchange rate — — — — — EUR/USD average exchange rate — — — 0.89 — HKD/EUR average exchange rate — — — 8.78 — JPY/EUR average exchange rate — — 113.30 133.84 125.88 MXN/EUR average exchange rate — — — 14.70 — EUR million 31 December 2020 Up to one month One to three months Three months to one year One year to five years More than five years Total 166 NOK/EUR average exchange rate — — — — 9.61 RON/EUR average exchange rate — — — 4.73 — CHF/EUR average exchange rate — — — 1.09 1.11 USD/CLP average exchange rate — — — — — USD/COP average exchange rate — — — — — USD/MXN average exchange rate — — 0.05 — — Credit risk Credit Risk Instruments Nominal — 8 8 191 — 207 Cash flow hedges 3,164 5,000 24,247 7,521 208 40,140 Interest rate and exchange rate risk Interest rate and exchange instruments Nominal — — 1,247 3,242 208 4,697 EUR / GBP average exchange rate — — 1.08 1.10 — EUR / USD average exchange rate — — — 0.88 — AUD / EUR average exchange rate — — — 1.62 — RON / EUR average exchange rate — — — 4.81 — JPY / EUR average exchange rate — — — 120.57 — CHF / EUR average exchange rate — — — — 1.10 Interest rate risk Interest Rate Swaps Nominal 3,164 5,000 23,000 4,279 — 35,443 Average fixed interest rate (%) EUR — (0.26) (0.25) (0.24) — Bond Forward Instruments Nominal — — — — — — Net investment hedges abroad 2,229 4,554 11,570 1,858 — 20,211 Exchange rate risk Exchange rate instruments Nominal 2,229 4,554 11,570 1,858 — 20,211 BRL / EUR average exchange rate 5.27 5.31 6.33 — — CLP / EUR average exchange rate 869.63 861.55 864.34 932.22 — COP / EUR average exchange rate — — 4,471.31 — — GBP / EUR average exchange rate 0.91 0.92 0.91 — — MAD / EUR average exchange rate 23.12 25.46 26.79 — — MXN / EUR average exchange rate 4.43 4.42 4.52 — — Total 8,299 14,402 41,816 29,621 15,585 109,723 EUR million 31 December 2020 Up to one month One to three months Three months to one year One year to five years More than five years Total 167 Regarding the hedged items, in the following table we have the detail of the type of coverage, the risk that is covered and what products are being covered as of December 31, 2021 and 2020 (mainly they are loaned deposits, financial and corporate bonds and corporate repos): EUR million 31 December 2021 Amount in books of the item covered Cumulative amount of fair value adjustments on the covered line Change in the fair value of the item covered for inefficiency assessment Cash flow hedge reserve / foreign currency conversion Assets Liabilities Assets Liabilities Coverage continues Discontinuous coverage Fair value hedges 22,469 27,060 (232) 575 590 — — Interest rate risk 8,769 24,188 65 551 613 — — Exchange rate risk 11,972 — (282) — (48) — — Interest rate and exchange rate risk 1,549 2,872 (17) 24 27 — — Credit risk 179 — 2 — (2) — — Cash flow hedges — — — — 101 (109) (16) Interest rate risk — — — — 101 (101) (16) Interest rate and exchange rate risk — — — — — (8) — Net investment hedges abroad — — — — — — — Exchange rate risk — — — — — — — Total 22,469 27,060 (232) 575 691 (109) (16) EUR million 31 December 2020 Amount in books of the item covered Cumulative amount of fair value adjustments on the covered line Change in the fair value of the item covered for inefficiency assessment Cash flow hedge reserve / foreign currency conversion Assets Liabilities Assets Liabilities Coverage continues Discontinuous coverage Fair value hedges 23,964 20,775 321 1,440 (356) — — Interest rate risk 13,939 18,278 264 1,360 (328) — — Exchange rate risk 8,030 — 40 — 1 — — Interest rate and exchange rate risk 1,775 2,497 14 80 (27) — — Credit risk 220 — 3 — (2) — — Cash flow hedges — — — — 231 (274) 3 Interest rate risk — — — 231 (266) 3 Interest rate and exchange rate risk — — — — — (8) — Net investment hedges abroad 20,211 — — — — — — Exchange rate risk 20,211 — — — — — — Total 44,175 20,775 321 1,440 (125) (274) 3 168 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 of 31 December 2021 is EUR 115 million (December 31, 2020 is EUR 150 million). The following table contains information regarding the effectiveness of the hedging relationships designated by Banco Santander, as well as the impacts on profit or loss and other comprehensive income as of 31 December 2021 and 2020: EUR million 31 December 2021 Earnings / (losses) recognized in Other accumulated global income Coverage inefficiency recognized in the income statement Line of the income statement that includes ineffective coverage Reclassified amount of reserves to the income statement due to: Covered transaction that affects the income statement Line of the income statement that includes reclassified amounts Fair value hedges — (28) — Interest rate risk — 4 Gains or losses of financial assets/liabilities — N/A Exchange rate risk — (27) Gains or losses of financial assets/liabilities — N/A Interest and Exchange rate risk — (5) Gains or losses of financial assets/liabilities — N/A Credit risk — — N/A — N/A Cash flow hedges 146 — (7) Interest rate risk 145 — Gains or losses of financial assets/liabilities (32) Net interest income/ Gains or losses of financial assets/ liabilities Interest rate and exchange rate risk 1 — Gains or losses of financial assets/liabilities 25 Net interest income/ Gains or losses of financial assets/ liabilities Total 146 (28) (7) EUR million 31 December 2020 Earnings / (losses) recognized in Other accumulated global income Coverage inefficiency recognized in the income statement Line of the income statement that includes ineffective coverage Reclassified amount of reserves to the income statement due to: Covered transaction that affects the income statement Line of the income statement that includes reclassified amounts Fair value hedges — 10 — Interest rate risk — 4 Gains or losses of financial assets/liabilities — N/A Exchange rate risk — — N/A — N/A Interest and Exchange rate risk — 4 Gains or losses of financial assets/liabilities — N/A Credit risk — 2 Gains or losses of financial assets/liabilities — N/A Cash flow hedges (206) — 33 Interest rate risk (204) — Gains or losses of financial assets/liabilities (10) Net interest income/ Gains or losses of financial assets/ liabilities Interest rate and exchange rate risk (2) — Gains or losses of financial assets/liabilities 43 Net interest income/ Gains or losses of financial assets/ liabilities Total (206) 10 33 169 The following table shows a reconciliation of each component of equity and an analysis of other comprehensive income in relation to hedge accounting as of December 31, 2021 and 2020: EUR million 2021 2020 Balance at the end of the previous year (189) (45) Amount recognized in Other accumulated global income Cash flow hedges 146 (206) Interest rate risk and interest rate and exchange rate risk 146 (206) Changes in equity by discharge at P&L (6) 33 Remains of equity movements 152 (239) Taxes (44) 62 Balance at year end (87) (189) 33. Off-balance-sheet funds under management As of 31 December 2021, Banco Santander held off- balance-sheet funds under management, namely investment funds and assets under management, amounting to EUR 88,123 million (31 December 2020, EUR 81,964 million). Also, as of 31 December 2021, the funds marketed but not held under management amounted to EUR 25,172 million (31 December 2020, EUR 20,503 million). 34. Interest income Interest and similar income in the accompanying income statements 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 recognized gross, without deducting any tax withheld originally. The detail of the main items of interest and similar income earned in 2021 and 2020 is as follows: EUR million 2021 2020 Debt instruments 723 777 Central Banks 3 2 Public sector 190 210 Credit entities 316 342 Other financial companies 178 169 Non-financial companies 36 54 Loans and advances 4,811 5,095 Central Banks 25 41 Public sector 122 162 Credit entities 156 406 Other financial companies 580 467 Non-financial companies 2,634 2,607 Households 1,294 1,412 Other assets 77 85 Of which, insurance contracts linked to pensions (note 23.c) 12 6 Deposits 727 520 Central Banks 618 375 Public sector 12 2 Credit entities 64 105 Other financial companies 22 30 Non-financial companies 11 8 Households — — Hedging derivatives - Interest rate risk 38 34 Other financial liabilities 19 12 Debt securities issued 10 5 Total 6,405 6,528 Most of the interest and similar income was generated by Banco Santander's financial assets that are measured either at amortized cost or at fair value through Other comprehensive income. 170 35. Interest expense Interest expense and similar charges in the accompanying income statements 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 2021 and 2020 is as follows: EUR million 2021 2020 Derivatives - Trading 41 — Of which: interest income from derivatives in economic hedges 41 — Debt securities Issued 1,432 1,507 Debt securities 66 97 Central Banks — — Public sector 46 49 Credit entities 13 40 Other financial companies 6 8 Non-financial companies 1 — Loans and advances 479 361 Central Banks 239 101 Public sector 1 9 Credit entities 162 198 Other financial companies 72 48 Non-financial companies 5 5 Households — — Deposits 689 1,006 Central Banks 12 111 Public sector 156 145 Credit entities 220 351 Other financial companies 239 279 Non-financial companies 54 94 Households 8 26 Other financial liabilities 197 190 Hedging derivatives - Interest rate risk (154) (35) Pensions and other obligations of defined post-employment benefits (note 23) 35 34 Others — — Total 2,785 3,160 Most of the interest expense and similar charges was generated by Banco Santander's financial liabilities that are measured at amortized cost. 36. 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 equity instruments is as follows: EUR million 2021 2020 Financial assets held for trading 355 264 Non-trading financial assets mandatorily at fair value through profit or loss 7 — Financial assets at fair value through other comprehensive income 55 62 Investments in subsidiaries, jointly controlled entities and associates 5,072 5,316 Group entities 4,765 5,221 Associates 307 95 Total 5,489 5,642 171 Investments in subsidiaries, jointly controlled entities and associates The detail of the main items of interest expense and similar charges accrued in 2021 and 2020 is as follows: EUR million 2021 2020 Detail of the companies: SANTANDER CONSUMER FINANCE, S.A. 1,876 — SANTANDER UK GROUP HOLDINGS PLC 1,229 88 SANTANDER HOLDING INTERNATIONAL, S.A. 500 1,270 SANTANDER HOLDING USA,  Inc. 423 112 ZURICH SANTANDER INSURANCE AMÉRICA, S.L. 230 80 GRUPO FINANCIERO SANTANDER MÉXICO, S.A. de C.V. 153 — SANTANDER CONSUMER FINANCE, S.A. (AT1) 73 65 SANTANDER UK GROUP HOLDINGS PLC (AT1) 72 72 SANTANDER INVESTMENT, S.A. 70 30 CNP SANTANDER INSURANCE LIFE DESIGNATED ACTIVITY COMPANY 60 — TEATINOS SIGLO XXI INVERSIONES S.A. 49 733 SANTANDER CHILE HOLDING S.A. 41 16 BANCO SANTANDER MÉXICO, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO SANTANDER MÉXICO 33 — BANCO SANTANDER URUGUAY, S.A. 33 37 SANTANDER BANK POLSKA S.A. 33 — SAM INVESTMENT HOLDINGS, S.L. 32 72 SANTANDER TOTTA, SGPGS, S.A. 32 61 SANTANDER TOTTA, SGPGS, S.A. (AT1) 28 — SOCUR S.A. 18 17 SANTANDER GLOBAL TECHNOLOGY, S.L. 14 20 SANTANDER TOWARZYSTWO FUNDUSZY INWESTYCYJNYCH S.A. 13 20 BANCO SANTANDER (BRASIL) S.A. 1 59 STERREBEECK B.V. — 1,260 SANTUSA HOLDING, S.L. — 1,019 SANTANDER FACTORING Y CONFIRMING, S.A., E.F.C — 200 SANTANDER GLOBAL OPERATIONS, S.A. — 17 SAM UK INVESTMENT HOLDINGS LIMITED — 1 Other companies 59 67 Total 5,072 5,316 37. Commission income Fee and commission income comprise the amount of all fees and commissions accruing in favour of Banco Santander 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 in the accompanying income statements for 2021 and 2020 is as follows: EUR million 2021 2020 Collection and payment services: Current Accounts 374 300 Credit and debit cards 155 194 Transfers and other payment orders 91 84 Other commission income in connection with payment services 67 71 687 649 Marketing of non-banking financial products: Collective Investment 512 465 Insurance 281 232 Other 1 — 794 697 Securities services: Securities underwriting and placement 125 138 Transfer orders 18 12 Other 72 90 215 240 Clearing and settlement 74 78 Asset management 88 78 Custody 75 67 Structured finance 266 229 Loan granted commitments granted 283 217 Financial granted guarantees granted 223 222 Other: Foreign currency exchange 100 88 Other concepts 314 246 414 334 Total 3,119 2,811 172 38. Commission expense Fee and commission expense show the amount of all fees and commissions paid or payable by Banco Santander in the year, except those that form an integral part of the effective interest rate on financial instruments. The detail of fee and commission expense in the accompanying income statements for 2021 and 2020 is as follows: EUR million 2021 2020 Clearing and settlement 71 73 Loan commitments received — — Financial guarantees received 100 113 Custody — — Other \* 370 308 Total 541 494 \* Other Includes mainly commissions paid for financial and mediation services, as well as credit cards. 39. Gains or losses on financial assets and liabilities The following information is presented below regarding the gains or losses on financial assets or liabilities: #### a) Breakdown The detail, by classification of the related instrument, of Gains/losses on financial assets and liabilities in the accompanying income statements for 2021 and 2020 is as follows: EUR million 2021 2020 Gains or losses on financial assets and liabilities not measured at fair value through profit or loss, net 318 578 Financial assets at amortized cost 19 10 Other financial assets and liabilities 299 568 Of which, debt instruments 286 565 Of which, equity instruments — — Gains or losses on financial assets and liabilities held for trading, net\* 175 (29) Gains or losses on non-trading financial assets and liabilities mandatory at fair value through profit or loss (45) (290) Gains or losses on financial assets and liabilities measured at fair value through profit or loss, net\* 38 4 Gains or losses from hedge accounting, net (28) 10 Total 458 273 \* Includes the net income obtained from transactions with debt securities, capital instruments, derivatives and short positions included in this portfolio when the Banco Santander jointly manages its risk in those instruments. 173 #### 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 2021 2020 Loans and receivables 29,239 35,222 Central Banks 1,118 482 Credit institutions 10,425 9,891 Customers 17,696 24,849 Debt instruments\* 15,054 18,914 Equity instruments 15,527 10,063 Derivatives 42,023 53,362 Total 101,843 117,561 \* Include EUR 10,307  million related to Spanish and foreign government debt securities at 31 December 2021 (31 December 2020, EUR 13,842 million). The foregoing table shows the maximum credit risk exposure of these assets at 31 December 2021 and 2020, respectively, Banco Santander mitigates and reduces this exposure as follows. With respect to derivatives, Banco Santander 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. Loans and receivable' to credit institutions and loans and receivable to 'customers' included reverse repos amounting to EUR 28,219 million at 31 December 2021 (31 December 2020: EUR 31,070 million). In addition, assets amounting to EUR 1,134 million have a mortgage guarantee at 31 December 2021 (31 December 2020: EUR 1,408 million). At 31 December 2021 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. The detail of the amount of the liability balances is as follows: EUR million 2021 2020 Deposits 19,796 16,890 Central Banks 651 1,469 Credit Institutions 6,785 4,496 Customers 12,360 10,925 Short positions 9,244 10,338 Derivatives 40,672 50,676 Total 69,712 77,904 At 31 December 2021, 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. 40. Exchange differences, net This chapter basically includes the results obtained in the purchase and sale of currencies, the differences that arise when converting monetary items in foreign currency to functional currency and those from non- monetary assets in foreign currency at the time of disposal. The detail of ‘Exchange differences (net)’ in the accompanying income statements for 2021 and 2020 is as follows: EUR million 2021 2020 Exchange differences, net (205) 372 Banco Santander 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 analyzed together with those recognized under Gains/losses on financial assets and liabilities (see note 39). 41. Other operating income and other operating expenses The detail of ‘Other operating income’ in the accompanying income statements for 2021 and 2020 is as follows: EUR million 2021 2020 Exploitation of real estate investments and operating leases 256 241 Others 185 163 Total 441 404 The detail of ‘Other operating expenses’ in the accompanying income statements for 2021 and 2020 is as follows: EUR million 2021 2020 Contribution to Deposit Guarantee Fund (note 1.h) (225) (239) Contribution to Resolution Fund\* (note 1.h) (307) (262) Other operating expenses (362) (284) Total (894) (785) \*Includes the expense incurred by contribution to the National Resolution Fund and to the Single Resolution Fund. 174 42. Staff costs #### a) Breakdown The detail of ‘Staff costs’ in 2021 and 2020 is as follows: EUR million 2021 2020 Of which, in Spain Of which, foreign branches Total Of which, in Spain Of which, foreign branches Total Wages and salaries 1,728 323 2,051 1,639 241 1,880 Social security costs 343 33 376 381 27 408 Additions to provisions for defined benefit pension plans (note 23) 5 — 5 11 — 11 Contributions to defined contribution pension funds 67 10 77 72 8 80 Equity-instrument-based remuneration — — — — — — Other staff costs 169 29 198 191 16 207 Total 2,312 395 2,707 2,294 292 2,586 #### b) Headcount The average number of employees at the Bank, by professional category, is as follows: Average number of employees 2021 2020 Executive and Senior management 19 21 Other line personnel 23,343 26,527 Staff at branches abroad 1,150 955 Total 24,512 27,503 The number of employees, as of December 31, 2021 and December 31, 2020, is 23,311 and 27,337, respectively. The functional breakdown, by gender, at 31 December 2021 is as follows: Breakdown by gender Executives Other line personnel Men Women Men Women Breakdown by gender 76% 24% 50% 50% The labour relations between employees and the various Group companies and, therefore, the Bank are governed by the related collective agreements or similar regulations. The number of employees with disabilities greater than or equal to 33%, distributed by professional categories at December 31, 2021 and 2020, is as follows: 2021 2020 Senior management — — Other management 27 30 Other staff 280 287 Total 307 317 The average number of employees of Banco Santander with a disability greater than or equal to 33%, during the year 2021 was 288 (319 at the end of the year 2020). #### c) Share-based payments The main share-based payments granted by the Group in force at 31 December,  2021, 2020 and 2019 are described below. i. Banco Santander 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. 175 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) Deferred Multiyear Objectives Variable Remuneration Plan; (iii) Digital Transformation Award. The characteristics of the plans are set forth below: (i) Deferred and conditional variable remuneration plan (2015, 2016, 2017, 2018, 2019, 2020 and 2021) 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, tenth and eleventh 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, tenth and eleventh 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, tenth and eleventh cycles (2017 to 2021), 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 over3 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 years period. Seventh, eight, ninth, tenth and eleventh cycle (2017, 2018, 2019, 2020 and 2021): •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. Deferred variable remuneration systems Description and plan beneficiaries Conditions Calculation Base 176 (ii)Deferred Multiyear Objectives Variable Remuneration Plan (2016, 2017, 2018, 2019, 2020 and 2021) 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, 2020 and 2021 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 years  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 a 5 years period. •Other beneficiaries: 60% paid immediately and 40% deferred over a 3 years period. The second, third, fourth, fifth and sixth cycles (2017, 2018, 2019,2020 and 2021 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 years and five years 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, fourth fifth and sixth cycle (2017, 2018, 2019, 2020 and 2021) the metrics for the deferred portion subject to long-term objectives (last third or last three fifths, respectively, for the cases of three years and five years deferrals) are: •EPS growth in 2019, 2020, 2021, 2022 and 2023 (over 2016, 2017, 2018, 2019 and 2020, 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, fifth and sixth cycle) for the 2019-2021, 2020-2022 and 2010-2023  period. •Compliance with the fully-loaded common equity tier 1 (“CET1”) ratio target for financial years 2019, 2020, 2021,2022 and 2023, respectively. Deferred variable remuneration systems Description and plan beneficiaries Conditions Calculation Base 177 (iii) Digital Transformation Award (2019, 2020 and 2021) The 2019, 2020 and 2021 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. The milestones for 2021 are: (i)in relation to Pago Nxt Consumer payment platform: implementation of Superdigital platform in seven countries, acquisition of over 1.5 million active customer base and accelerating growth through B2B (business to business) and B2B2C (business to business to customer) partnerships, acquiring more than 50% of the new customers through these channels, which are more cost-effective; (ii)in relation to Digital Consumer Bank: launching online API for checkout lending in the European Union and completion of controllable items for Openbank launch in USA; (iii)in relation to One Santander strategy: implementation in Europe of One Common Mobile Experience and, specifically, implementation of Europe ONE app for individual customers in at least three of the four countries by December 2021; and be among the three-top rated entities in terms of Mobile NetPromoter Score (Mobile NPS) in at least two of the four countries by December 2021; (iv) In relation to cloud adoption: host 75% of migratable virtual machines on cloud technology (either public cloud or OHE) by December 2021. For these purposes, mainframes, physical servers and servers with non-x86 operating systems will be considered non-migratable. 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 years 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 years deferrals and employees not subject to deferrals, delivery shall be done on the third anniversary from their granting. 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. Vested share options can be exercised until maturity, with all options lapsing after ten years (for granting the 2019 incentive) and eight years (for granting the 2020 and 2021 incentive). The total achievement for 2021 Digital Incentive was 77.5% (85% en 2020 and 83% en 2019). Deferred variable remuneration systems Description and plan beneficiaries Conditions Calculation Base 178 ii. Fair value The fair value of the performance share plans was calculated as follows: –Deferred variable compensation plan linked to multi- year objectives 2019, 2020 and 2021: 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 2019, 2020 and 2021 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. 43. Other general administrative expenses #### a) Breakdown The detail of Other general administrative expenses in the accompanying income statements for 2021 and 2020 is as follows: EUR million 2021 2020 Technology and systems 705 666 Fixtures and supplies 207 258 Other administrative expenses 619 630 Technical reports 180 194 Advertising 88 101 Per diems and travel expenses 16 19 Surveillance and cash courier services 37 42 Communications 9 31 Taxes other than income tax 79 58 Insurance premiums 26 17 Total 1,966 2,016 #### 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 2021\* 2020\* Audit fees 103.7 99.4 Audit-related fees 6.0 6.0 Tax fees 0.7 0.8 All other fees 2.4 1.2 Total 112.8 107.4 \* Of those corresponding to Banco Santander, SA, EUR 30.5 million, EUR 2.3 million, EUR 0 million and EUR 0.5 million, respectively, as of December 31, 2021 (EUR 27.7 million, EUR 2.0 million, EUR 0 million and EUR 0.4 million, respectively, as of December 31, 2020); and Branches of Banco Santander, SA, EUR 2.5 million, EUR 0.1 million, EUR 0 million and EUR 0 million, respectively, as of December 31, 2021 (EUR 2.3 million of 'Audit fees' as of December 31, 2020). The 'Audit fees' heading includes mainly, audit fees for the Banco Santander, S.A. individual and consolidated financial statements, 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 limited review of the financial statements 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. 179 Lastly, the Group commissioned services from audit firms other than PwC amounting to EUR 263.8 million in 2021 (EUR 172.4 million in 2020). 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 2021 and 2020 is as follows: Number of branches Group 2021 2020 Spain 1,998 2,989 Group 7,881 8,247 Total 9,879 11,236 Number of branches Of which, Banco Santander 2021 2020 Spain 1,916 2,905 International 9 9 Total 1,925 2,914 44. Impairment or reversal of the impairment of investments in joint ventures and associates The detail of ‘Impairment losses on other assets (net)’ in the accompanying income statements for 2021 and 2020 is as follows: EUR million 2021 2020 Investments in subsidiaries, joint ventures or  associates (note 13) 800 (5,921) Total 800 (5,921) 45. Gains or losses on non- financial assets and investments, net The detail of ‘Gains/(losses) on disposal of assets not classified as non-current assets held for sale’ in the accompanying income statements for 2021 and 2020 is as follows: EUR million 2021 2020 On disposal of tangible assets 4 7 On disposal of investments in subsidiaries, jointly controlled entities and associates (4) 1,135 Of which (note 13. b. ii) Banco Santander Brasil (sale to company de Grupo Santander) — 1,127 Total — 1,142 46. 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’ in the accompanying income statements for 2021 and 2020 is as follows: EUR million 2021 2020 Impairment of non-current assets held for sale (note 12) (70) (68) Gain / (loss) on disposal\* 20 (9) Total (50) (77) \* Year 2020: includes the result of extraordinary sales of real estate portfolio. 180 47. Related parties The parties related to Banco Santander are deemed to include, in addition to its subsidiaries, associates and jointly controlled entities, Banco Santander'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 is a detail of the transactions performed by Banco Santander with its related parties at 31 December 2021 and 2020, distinguishing between group entities, joint venture entities and associated entities, members of Banco Santander's board of directors, Banco Santander'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 2021 Subsidiaries, associates and jointly controlled entities Members of the board of directors\* Executive vice presidents\* Other related parties\* Assets 150,489 — 14 20 Equity instruments 88,997 — — — Debt instruments 14,352 — — — Loans and advances 47,140 — 14 20 From which: impaired financial assets 270 — — — Liabilities 24,498 8 11 193 Deposits credit institution and clients 24,277 8 11 193 Marketable debt securities 221 — — — Income statement 6,551 — — 1 Interest and similar income 715 — — 1 Interest expense and similar charges (80) — — — Interest from equity instruments 5,072 — — — Gains / (Losses) on financial instruments and other 781 — — — Fee and commission income 86 — — — Fee and commission expense (23) — — — Other 471,034 1 1 62 Contingent liabilities 6,447 — — 3 Contingent commitments 5,371 1 1 13 Financial instruments - derivatives 459,216 — — 46 \* Includes transactions carried out with both Banco Santander and with other entities of Grupo Santander. 181 EUR million 2020 Subsidiaries, associates and jointly controlled entities Members of the board of directors\* Executive vice presidents\* Other related parties\* Assets 144,956 — 24 90 Equity instruments 85,329 — — — Debt instruments 10,803 — — — Loans and advances 48,824 — 24 90 From which: impaired financial assets 138 — — — Liabilities 19,740 4 16 158 Deposits credit institution and clients 19,123 4 16 158 Marketable debt securities 617 — — — Income statement 6,555 — — 3 Interest and similar income 671 — — 2 Interest expense and similar charges (62) — — — Interest from equity instruments 5,318 — — — Gains / (Losses) on financial instruments and other 7 — — — Fee and commission income 770 — — 1 Fee and commission expense (149) — — — Other 347,736 1 1 45 Contingent liabilities 5,521 — — 3 Contingent commitments 9,070 1 1 13 Financial instruments - derivatives 333,145 — — 29 \* Includes transactions carried out with both Banco Santander and with other entities of Grupo Santander. Additionally, the above-mentioned breakdown shows pension insurance contracts with Grupo Santander insurance companies amounting to EUR 232 million on December 31 of 2021 (EUR 249 million on December 31 of 2020). 182 48. Other disclosures #### a) Residual maturity periods The detail, by maturity, of the balances of certain items in the balance sheets as of 31 December 2021 and 2020 is as follows: EUR million 31 December 2021 On demand Within 1 month 1 to 3 months 3 to 12 months 1 to 5 years More than 5 years Total Assets: Cash, cash balances at central banks and other demand deposits 91,736 — — — — — 91,736 Financial assets at fair value with changes in other comprehensive income Representative values of debt — 653 600 278 2,278 5,585 9,394 Financial assets at amortised cost Representative values of debt — 236 360 451 6,225 9,936 17,208 Loans and advances Central banks — 25 — 1 — — 26 Credit institutions 212 15,859 2,048 6,949 7,056 2,960 35,084 Customer 5,701 37,915 17,853 32,304 70,133 122,829 286,735 97,649 54,688 20,861 39,983 85,692 141,310 440,183 Liabilities: Financial liabilities at amortised cost Deposits Central banks 64 1,215 850 144 62,376 — 64,649 Credit institutions 25,263 1,880 2,052 606 3,469 1,992 35,262 Customer 270,745 4,023 5,251 8,867 5,256 2,101 296,243 Debt securities issued — 5,323 9,028 8,580 33,145 48,018 104,094 Other financial liabilities 3,370 980 109 3,784 893 888 10,024 299,442 13,421 17,290 21,981 105,139 52,999 510,272 Difference (assets less liabilities) (201,793) 41,267 3,571 18,002 (19,447) 88,311 (70,089) 183 EUR million 2020 On demand Within 1 month 1 to 3 months 3 to 12 months 1 to 5 years More than 5 years Total Assets: Cash, cash balances at central banks and other demand deposits 67,561 — — — — — 67,561 Financial assets at fair value with changes in other comprehensive income Representative values of debt — 50 1,466 234 1,723 11,673 15,146 Financial assets at amortized cost Representative values of debt — 107 122 276 2,366 8,542 11,413 Loans and advances Central banks — 20 — 1 — — 21 Credit institutions 12,082 2,489 4,233 8,998 5,539 818 34,159 Customer 19,238 10,345 28,981 22,142 79,552 105,169 265,427 98,881 13,011 34,802 31,651 89,180 126,202 393,727 Liabilities: Financial liabilities at amortized cost Deposits Central banks 42 — 3,368 404 56,558 — 60,372 Credit institutions 25,495 4,863 2,055 2,434 4,930 948 40,725 Customer 247,219 6,740 5,677 9,513 5,611 980 275,740 Debt securities issued 1,401 2,380 4,791 5,865 32,120 41,345 87,902 Other financial liabilities 123 3,453 3,935 472 778 1,119 9,880 274,280 17,436 19,826 18,688 99,997 44,392 474,619 Difference (assets less liabilities) (175,399) (4,425) 14,976 12,963 (10,817) 81,810 (80,892) 184 #### b)  Equivalent euro value of assets and liabilities The detail of the main foreign currency balances in the balance sheets as of 31 December 2021 and 2020, based on the nature of the related items, is as follows: Countervalue in EUR million 2021 2020 Assets 183,507 162,058 Cash, cash balances at central banks and other deposits on demand 13,775 5,168 Financial assets held for trading 32,947 29,422 Non-trading financial assets mandatorily at fair value through profit or loss 1,279 768 Financial assets designated at fair value through profit or loss 293 11,107 Financial assets at fair value through other comprehensive income 4,785 5,419 Financial assets at amortized cost 90,011 70,802 Hedging derivatives 668 1,116 Changes in the fair value of hedged items in portfolio hedges of interest rate risk — — Investments 39,492 37,215 Tangible assets 16 21 Intangible assets 4 4 Tax assets 99 28 Other assets 138 988 Non-current assets held-for-sale — — Liabilities 114,567 100,734 Financial liabilities held for trading 23,869 26,178 Financial liabilities designated at fair value through profit or loss 5,888 6,143 Financial liabilities at amortized cost 83,923 67,101 Hedging derivatives 391 362 Changes in the fair value of hedged items in portfolio hedges of interest risk rate — — Provisions 120 88 Tax liabilities 21 — Refundable equity on demand — — Other liabilities 355 862 Liabilities associated with non-current assets held-for-sale — — #### c) Fair value of financial assets and liabilities not measured at fair value Financial assets are measured at fair value in the accompanying balance sheets, except for loans and receivables under a business model whose objective is to collect the flows of principal and interest , equity instruments whose market value cannot be estimated reliably and derivatives that have these instruments as their underlying and are settled by delivery thereof. Similarly, financial liabilities except for financial liabilities held for trading, those measured at fair value and derivatives having equity instruments whose market value cannot be estimated reliably as their underlying- are measured at amortized cost in the accompanying balance sheets. The following is a comparison between the value of Grupo Santander's financial instruments valued using other criteria rather than fair value and their corresponding fair value at year-end: Financial assets and liabilities measured at other than fair value The fair value of financial instruments measured at amortized cost as of 31 December 2021 was as follows: a.The fair value of debt securities is 4.98% higher than the carrying amount. b.The fair value of the loans and advances is 0.36% lower than the carrying amount. c.The fair value of deposits is 0.19% lower than the carrying amount. d.The fair value of marketable debt securities is 3.15% greater than the carrying amount. 185 Set forth below are the main valuation methods and inputs used in the estimates made at 31 December 2021 to determine the fair values of the financial assets and liabilities recognized at cost detailed above: •Loans and receivables: The fair value has been estimated using the present cost method, the estimation has considered factors such as the expected maturity of the portfolio, market interest rates, spreads of new concession of operations, or market spreads – If these were available. •Held to maturity portfolio: The fair value has been determined based on market prices for those instruments. •Financial liabilities at amortized cost: a.The fair value of deposits at Central Banks has been assimilated to their carrying amount because they are mainly short-term balances. b.Credit Institutions: Fair value has been obtained using the present value technique by applying interest rates and market spreads. c.Customer deposits: Fair value has been estimated using the present value technique. The estimation has considered factors such as the expected maturity of the operations and the current financing cost of Grupo Santander in similar operations. d.Marketable debt securities: Fair value has been determined based on market prices for these instruments, when available, or using the present value technique, by applying interest rates and market spreads. Additionally, the fair value of Cash, Cash Balances at central banks and other deposits on demand has been assimilated to its carrying amount, mainly because of short-term balances. 49. Risk management #### a)Risk principles and culture Banco and 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 who must understand the risks associated with their functions and not assume risks with an impact that exceeds the Group’s risk appetite or is unknown. 2.Involvement of senior managers, with consistent risk management and control through their conduct, actions and communications, as well as oversight of the risk culture and make sure Grupo Santander maintain the risk profile within the defined risk appetite. 3.Independent risk management and control functions, according to the three lines of defence model of Grupo Santander. 4.A forward-looking, comprehensive approach to risk management and control for all businesses and risk types. 5.Complete and timely information to identify, assess, manage and disclose risks to the appropriate level. Banco Santander’s holistic control structure stands on these principles and includes strategic tools and processes set out in the risk appetite statement, such as annual planning and budget planning, scenario analysis, the risk reporting structure and risk identification and assessment. 1. Risk factors Grupo and Banco Santander’s risks categorization ensures effective risk management, control and reporting. The risk framework distinguishes these 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. It includes the structural risk relates to market movements or balance sheets behaviour will change the value or profit generation of assets or liabilities in the banking book. •Liquidity risk occurs if liquid financial resources are insufficient or too costly to obtain in order to meet liabilities when they fall due. 186 •Capital risk is the risk that arises from the possibility of having an inadequate quantity or quality of capital to meet internal business objectives, regulatory requirements or market expectations in the area of structural risk. Grupo and Banco Santander also take into account, on an ongoing basis in its management of the risk function, operational, regulatory compliance, model, reputational and strategic risks. Besides, environmental and climate-related risk drivers are considered as factors that could impact the existing risks in the medium-to-long-term. These elements include, on the one hand, those derived from the physical effects of climate change, generated by one-off events as well as by chronic changes in the environment and, on the other hand, those derived from the process of transition to a development model with lower emissions, including legislative, technological or behaviour of economic agents changes. The analysis of climate change scenarios has continued to advance during 2021 in the Group to try to cover the different casuistry related to the risks of transition to a low-carbon economy and/or the effects derived from the physical risk of possible climatic events in certain geographies where the Group operates. Grupo Santander continues to make progress in the credit granting process following the EBA guidelines as well as in the development of a more restrictive financing policy, taking special account of the most sensitive sectors/activities, which includes ceasing to provide financial services to medium term to electricity generation customers with more than 10% of revenues dependent on coal and eliminate exposure to coal mining production in the world. Grupo Santander has scheduled a series of actions to continue integrating climatic and environmental factors in the credit admission process, through i) their incorporation in the assessment processes of local credit committees, ii) their inclusion in the assignment of corporate ratings in the wholesale market (with a future expansion to retail banking) and in the process of setting prices through the entities' own ratings and the specific pricing that already exists for specific products with discount rates based on the fulfillment of various conditions , and iii) the inclusion of energy certificates in the valuation of collaterals. Additionally, Grupo Santander has increased focus on the impact of climate risk in relation to market, structural and liquidity risk, which arise from the possibility that changes in climate may adversely affect the value of a financial instrument, a portfolio or the Group as a whole. This risk may have an impact both on financial instruments value or portfolios and on Santander's liquidity. Grupo Santander measures this risk through stress scenarios for both market and liquidity risk, which arises from the possibility that climate change may adversely affect the value of a financial instrument, a portfolio or the Group as a whole 2. Risk governance Grupo and Banco Santander 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. 2.1 Lines of defence Grupo and Banco Santander’s model of three lines of defence effectively manages and controls risks: First line: formed by businesses and functions that take or  originate exposure to risk, it recognizes, measures, controls, monitors and reports on risks according to internal risk management regulation. Risk origination must be consistent with the approved risk appetite and related limits. •Second line: formed by the Risk and Compliance and Conduct functions, it independently oversees and challenges the first line’s risk management. Its duties include ensuring that risks are managed according to the risk appetite defined by senior management and strengthening our risk culture throughout Grupo and Banco Santander. •Third line: the Internal Audit function, which is independent to ensure the board of directors and senior managers with high-quality and efficient internal controls, governance and risk management systems, helping to safeguard our value, solvency and reputation. The Risk, Compliance & Conduct and Internal Audit functions are separate and independent. Each has direct access to the board of directors and its committees. 2.2 Risk committee structure The board of directors is ultimately responsible for risk and compliance management and control. It revises and approves the bank's risk frameworks and appetite, while promoting a strong risk culture across the Group and the Bank. The board relies on its risk supervision, regulation and compliance committee for risk control and on the group’s executive committee for risk approval. The Group chief risk officer (Group CRO), who decides risk strategy and promotes proper risk culture, is in charge of overseeing all risks and challenging and advising business lines on risk management. The Group chief compliance officer (Group CCO), who decides compliance and conduct strategy, is in charge of controlling the risks within their purview and must provide the Group CRO with a complete overview on the situation of risks being monitored. 187 Both the Group CRO and the Group 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 compliance and conduct committees are executive committees and have been delegated powers by the board. Furthermore, risk functions have forums and regular meetings to manage and control the risks within their purview. Executive committees also delegate some duties to subordinate forums. Their responsibilities include: •Reporting to the Group CRO, the Group CCO, the risk control committee and the compliance and conduct committee on risk management according to risk appetite; •monitoring and ensuring proper management of each risk factor; and •overseeing measures to comply with supervisors and auditors' expectations. Besides, Grupo and Banco Santander, in order to establish an adequate control environment for the management of each risk factors, the Risk and Compliance and Conduct functions have effective internal regulation to create the right environment to manage and control all risks. Grupo and Banco Santander can also dictate new governance measures for special situations. During the Brexit crisis transition process, it set up separate steering committees and working groups with Santander UK. Also, to cope with the covid-19 crisis, it created special situation forums, in which close coordination with subsidiaries, local contingency plan activation and scenario analysis enhanced allocated resources and governance. 2.3 The Group's relationship with subsidiaries In all subsidiaries, the risk and compliance management and control model is consistent with the frameworks approved by Grupo Santander's board of directors, which they adhere to through their own boards and can only adapt according to local law and regulation. In its duty to carry out aggregate risk oversight, Grupo Santander validates and challenges subsidiaries’ internal regulation and transactions, which results in a common risk management model across the Group. In 2021, Grupo Santander continued to strengthen the regional subsidiary relations model, based on regions, to find synergies for common operations and platforms building on the global and regional scale; to streamline processes; and to tighten control mechanisms so Grupo Santander's business can grow, allocate capital more efficiently and offer the best service to customers. In this sense, each local CRO interact regularly with their regional head of risk, the Group CRO and the Group CCO in periodic regional or country control meetings. Local and global Risk and Compliance functions also hold follow-up meetings to address special matters. The Group CRO and the Group CCO and regional heads of risk are involved in appointing, setting of objectives, reviewing and compensating their local counterparts to ensure proper risk management. Grupo Santander enhances its relations with subsidiaries and its advanced risk management model through: •Close collaboration between countries in the same region to carry out common initiatives efficiently. •structural change, subsidiary benchmarks and a strategic vision for the function to implement advanced risk management infrastructures and practices. •the exchange of best practices to strengthen processes and drive innovation in order to achieve a quantitative impact. •identification of talent in risk and compliance teams, promoting international mobility through a global risk talent programme and tightening succession plans. 3. Management processes and tools Grupo and Banco Santander have these effective risk management processes and tools: 3.1 Risk appetite and structure of limits Risk appetite is the volume and type of risks Grupo and Banco Santander deem prudent for the business strategy, even in unforeseen circumstances. It considers adverse scenarios that could have a negative impact on capital, liquidity and profitability. The board sets the Group and Bank's risk appetite statement (RAS) every year. Grupo Santander subsidiaries' boards also set their own risk appetites annually. Each of those risk appetites translates into risk management limits and policies based on risk type, portfolio and segment. 3.1.1. Business model and risk appetite fundamentals Grupo and Banco Santander’s risk appetite is consistent with the risk culture and business model built on customer focus, scale and diversification. At the core of Grupo Santander's risk appetite are: •A medium-low and predictable target risk profile that is centred on retail and commercial banking, internationally diversified operations and strong market share; •Stable, recurrent earnings and shareholder remuneration, sustained by a sound base of capital, liquidity and sources of funding; 188 •Independent subsidiaries that manage their own capital and liquidity, with risk profiles that do not compromise Grupo Santander’s solvency; •An independent risk function with involvement by senior management to embed a strong risk culture and drive a sustainable return on capital; •A global and holistic vision through a meticulous control and monitoring of risks, businesses and markets •A focus on products Grupo and Banco Santander know well; •A conduct model that protects Grupo and Banco Santander`s customers; and •A remuneration policy that aligns employees and executives' interests with risk appetite and long- term results. 3.1.2. Corporate risk appetite principles The principles that inform Grupo and Banco Santander's risk appetite are: •The board and senior management's responsibility for risk appetite; •An enterprise-wide view of risk, back-testing and challenge of risk profile based on quantitative metrics and qualitative indicators; •A forward-looking view based on plausible assumptions and adverse/stress scenarios to reflect the desired risk profile in the short and medium term; •Strategic and business plans embedded in daily management by policies and limits; •Common standards that align each subsidiary's appetite with the Group's; and •Regular reviews, best practice and regulatory requirements, with mechanisms in place to keep the risk profile stable and mitigate non-compliance. 3.1.3. Structure of limits, monitoring and control 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  -but- plausible stress scenario. 2 Solvency Minimum capital position Grupo Santander can tolerate in a stress scenario. Maximum leverage Grupo Santander can tolerate in a stress scenario. 3 Liquidity Minimum structural liquidity position. Minimum liquidity horizon Grupo Santander can tolerate in peak stress scenario. Minimum liquidity coverage position. 4 Concentration Concentration in single names, industries 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: Financial crime compliance (FCC) Cyber and security risk Model risk Reputational risk 189 #### 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 and Banco Santander have 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 and Banco Santander 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. Credit risk identification is key to managing and controlling Grupo and Banco Santander's portfolios effectively. Grupo and Banco Santander classify external and internal risks in each business and adopt corrective and mitigating measures when needed through these processes: 1.1. Planning Grupo and Banco 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 Group. 1.2. Risk assessment and credit rating process 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 and Banco Santander's parameter estimation models follow econometric models built on the Group and the Bank's portfolios' historical defaults and losses. Grupo and Banco Santander uses them to calculate economic and regulatory capital as well as Bank of Spain circular 4/2017provisions for each portfolio. Grupo and Banco Santander regularly monitoring and evaluate models'  appropriateness, predictive capacity, performance, granularity, compliance with policies and other related factors. Grupo and Banco Santander reviews ratings with the latest available financial and economic information. Grupo and Banco 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 and Banco Santander have 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 and Banco Santander can be grouped into personal guarantees, guarantees in the form of credit derivatives or collateral. 190 1.4. Definition of limits, pre-classifications and pre- approvals Grupo and Banco Santander use 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 and Banco Santander's limits, pre-classifications and pre-approvals processes determine the risk we can assume with each customer. Limits are approved by the executive risk committee (or delegated committees) and should reflect a transaction’s expected risk-return Grupo and Banco Santander apply 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 the Group and the Bank 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, Grupo Santander uses 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.): Grupo and Banco Santander 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, Grupo Santander manages large volumes of credit transactions with automatic decision models to classify customers and transactions. 1.5. Scenario analysis Grupo and Banco 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 and Banco Santander's holistic monitoring of customers helps detect impacts on risk performance and credit quality early. Grupo and Banco Santander assign 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 and is based on customer segmentation: •For SCIB, monitoring is initially a function of business managers and risk analysts which provide an up-to- date view of customers’ credit quality to predict a potential customer's deterioration. •For commercial banking, institutions and SMEs assigned a credit analyst, Grupo and Banco Santander track 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 and Banco 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 and Banco Santander define control procedures to analyse portfolios and performance, as well as any deviations from planning or approved alert levels. 191 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, 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 and Banco Santander apply 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 and Banco Santander’s diverse customer base requires segmentation to manage recoveries appropriately. The highly technological and digital processes Grupo and Banco Santander follow help us attend to large groups of customers with similar profiles and products. Grupo and Banco Santander's personalized management, however, focus on customer profiles that require a special manager and approach. Grupo and Banco Santander split recovery management into four phases: arrears, credit impaired loans, write- offs and foreclosed assets. Grupo and Banco Santander may use mechanisms to rapidly reduce assets like sales of foreclosed assets or credit impaired loans pool sales. Grupo and Banco Santander constantly seek alternatives to legal action in order to collect debt. Grupo and Banco Santander include 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. 192 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 data Credit risk with customers \*\* (EUR million) Credit impaired loans (EUR million) NPL ratio (%) 2021 2020 2021 2020 2021 2020 Europe 636,123 606,997 19,822 20,272 3.12 3.34 Spain 221,100 221,341 12,758 13,796 5.77 6.23 UK\*\* 262,869 252,255 3,766 3,138 1.43 1.24 Portugal 41,941 40,693 1,442 1,584 3.44 3.89 Poland 33,497 31,578 1,210 1,496 3.61 4.74 North America 149,792 131,626 3,632 2,938 2.42 2.23 US 112,808 99,135 2,624 2,025 2.33 2.04 Mexico 36,984 32,476 1,009 913 2.73 2.81 South America 141,874 129,590 6,387 5,688 4.50 4.39 Brazil 85,702 74,712 4,182 3,429 4.88 4.59 Chile 41,479 42,826 1,838 2,051 4.43 4.79 Argentina 5,481 4,418 198 93 3.61 2.11 Digital Consumer Bank 117,049 116,381 2,490 2,525 2.13 2.17 Corporate Centre 6,277 4,862 903 344 14.38 7.08 Total Group 1,051,115 989,456 33,234 31,767 3.16 3.21 \*Management perimeter according to the reported segments \*\* Includes gross lending to customers, guarantees and documentary credits Key figures by geographic region are described below at 31 December 2021: •Europe:  the NPL ratio fell 22 bps to 3.12% from 2020 due to a significant reduction in credit impaired loans in Spain and Poland, offsetting the increase observed in the UK. •North America: the NPL ratio increased 19 bps to 2.42% from 2020, mainly due to increases at SC USA. NPL stock rose 24% year-on-year. •South America: the NPL ratio rose 11 bps to 4.50%. comparing to 2020, due to the increase observed in Argentina (+150 bps) and Brazil (+29 bps), offsetting the decrease in Chile (-36 bps). •Digital Consumer Bank: The NPL ratio decreased 4 bp to 2.13% comparing to 2020, despite the decrease in automobile financing. Information on the estimation of impairment losses Estimation of expected credit losses: The covid-19 health crisis, since its beginning in 2020, was unexpected, unpredictable and severe, but it is estimated to be of a temporary nature. Grupo and Banco Santander’s 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. 193 These conceptual phases do not occur sequentially but overlap in time. Additionally, the continuous interaction and coordination between the different local units of the Group proved 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. Estimation of expected loss In the context described above on the measures taken in relation to covid-19, many regulators and supervisors 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 general recommendation (including IASB, ESMA, EBA and ECB) was not to mechanistically apply the usual techniques for calculating expected losses under Bank of Spain Circular 4/2017, in order to avoid that this variability of economic conditions would translate into volatility in results, with its potential pro-cyclical effects on the economy. Thus, Group and Banco Santander analyses losses under IFRS 9 and Bank of Spain Circular 4/2017 on the basis of three types of elements: 1. Continuous monitoring of customers Monitoring the credit quality of customers could have been more complex in the current circumstances. 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 the Group and the Bank operate 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 it was reflected by the IASB, macroeconomic uncertainty makes the usual application of IFRS 9 expected loss calculation models difficult but did not exempt the incorporation of the prospective feature of the standard. To this end, the European Central Bank 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. During 2021, this uncertainty has been reduced as vaccination progressed, hospitalisation rates gradually declined, allowing, in some cases, for the reduction of restriction measures. In parallel, support measures expired while maintaining the good performance of the portfolios. This implies that once the economic scenarios have been stabilising and converging to their potential growth, these new economic scenarios have been gradually updated in the models by returning to the standard forward-looking calculation. 3. Additional elements Additional elements will be required when necessary because they have not been captured under the two previous elements. This has included, 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 and Banco Santander have evaluated the evolution of the credit quality of its customers, for the purposes of their classification in  Grupo and Banco Santander financial statements. In terms of classification, in 2021 Grupo and Banco Santander have maintained the criteria and thresholds for classification applied prior to the start of the pandemic, eliminating regulatory criteria of the effect of moratorium classification as they have expired, as well as the collective analyses associated with these groups of loans. Regarding moratorium measures, a rigorous identification and periodic monitoring of the credit quality of the clients and their payment behaviour have been carried out and, through a specific individual or collective evaluation, the timely detection of the Significant Increase in Credit Risk (SICR). As part of governance processes, Grupo Santander issued guideline documents to all subsidiaries to ensure consistent standards and governance in managing the new treatment and particular impacts on pandemic- related provisions. The guidelines included instructions on how to calculate the macroeconomic impact of the crisis using overlay and potential collective assessments 194 that considered impairment caused by covid-19. Those documents also include a monitoring guide to ensure the appropriateness of special insolvency fund adjustments for covid-19-related situations and anticipate any other necessary adjustment 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. Details of the exposure by stage can be found in notes 6, 7 and 10, as well as in this note of  these annual accounts. Grupo and Banco Santander estimate 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 and Bank of Spain Circular 4/2017, respectively. 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 2021 and 2020. In addition, depending on the transactions credit quality, the exposure is divided into three categories according to Standard & Poor's rating scale: Exposure and impairment losses by stage EUR million 2021 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 565,443 13,798 — 579,241 From BB- to CCC 237,525 56,170 — 293,695 Default — — 30,711 30,711 Total exposure \*\* 802,968 69,968 30,711 903,647 Impairment losses\*\*\* 4,149 5,103 12,873 22,125 Exposure and impairment losses by stage EUR million 2020 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 489,518 9,124 — 498,642 From BB- to CCC 276,516 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. \*\*Total exposure includes loan balances (drawn amounts) and off balance (letters of credit + guarantees) and excludes REPOs, FV portfolio, trading portfolio and undrawn commitments. \*\*\*Includes provisions for undrawn authorized lines (loan commitments) The remaining units that form the totality of the Group exposure, contributed EUR 102,631 million in stage 1; EUR 1,870 million in stage 2, and EUR 2,522 million  in stage 3 (in 2020 EUR 98,121 million in stage 1; EUR 3,613 million in stage 2, and EUR 1,322 millionn stage 3, and impairment losses of EUR 408 million in stage 1; EUR 322 million for stage 2, and EUR 841 million in stage 3 (in 2020, EUR 180 million, EUR 393 million and EUR 277 million). The remaining exposure, including all financial instruments not included before, amounts to EUR 349,228 million (EUR 478,093 million in 2020), and it includes all undrawn authorized lines (loan commitments). As of 31 December 2021, the Group had EUR 420 million net of provisions (EUR 497 million at 31 December 2020) of purchased credit-impaired assets, which relate mainly to the business combinations carried out by the Group. Regarding the evolution of credit risk provisions, Grupo and Banco Santander, 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 consistent macroeconomic scenarios, Grupo and Banco Santander also perform 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. 195 The transactions classification into the different Bank of Spain Circular 4/2017 stages is carried out in accordance with the regulation through the risk management policies, 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 criteria thresholds used by the Group and the Bank 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 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 incur 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). •Bank of Spain Circular 4/2017: the approach must take into consideration Bank of Spain Circular 4/2017 (aligned with 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 far 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 evolution and customer support programmes In the context of the general response of  the Group and the Bank 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: •The severity of the pandemic's effects was significantly different depending on the economic sector. Consequently, the Group and the Bank 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 and Banco Santander to deal with the impact expected on its portfolios once the support measures granted have expired. Since the start of the pandemic in 2020, at the end of December 2021, Grupo Santander granted a total of EUR 93,112 million in payment moratoria, equivalent to 9.68% of the loan portfolio. From the total moratoria, 99.8% had expired at 31 December 2021, from which 74.6% were classified in stage 1, 18.7% in stage 2 and 6.7% in stage 3. At December 2020, 79.1% of total moratoria has expired, from which 82.4% classified in stage 1, 14.5% in stage 2 and 3.1% in stage 3. At the end of December 2021, total lending under government liquidity programmes amounted to EUR 39,879 million. By geography, Spain represent 68% of total exposure granted to these types of programmes, with an average coverage of ICO guarantees of 77%. UK constitutes the 13% of total exposure with an average coverage of 98%. Quantification of additional provisions for covid-19 In relation to the measures in the insolvency funds, the Group and the Bank set up additional provisions during 196 2020 based on a collective analysis of vulnerable sectors, and segments affected by the crisis derived from the covid-19 pandemic, as well as an estimate of the additional impairment of the loan and advance portfolio caused by the economic effects of the pandemic, realistically reflecting the structural deterioration of the economy at the date of construction of the estimate. This estimate was made on the basis of the information available at that date, which was affected by the high degree of uncertainty at the time of the estimate, and was aligned with the projections generated by the ECB. This macroeconomic scenario included a balance between short- and long-term forecasts, without being a 'through the cycle' scenario. The convergence of these scenarios with pre-crisis paths was expected to occur in the first quarter of 2022 for most macroeconomic indicators (except for house prices, which were expected to converge in the first quarter of 2023). Grupo and Banco Santander have continuously and regularly monitored the following aspects during 2021 and 2020: (1) the evolution of the pandemic and the macroeconomic outlook, (2) forecasts from institutions and central banks, and (3) the evolution of portfolios in each of the countries where Grupo Santander is present. Based on that monitoring, the Group updates and evaluates the adequacy of the macroeconomic scenarios in accordance with the established governance, when reliable and supportable information is available. At the end of 2021, we updated the most recent scenarios to calculate of Bank of Spain Circular 4/2017 and IFRS 9, respectively, provisions by recalibrating and revising the forward-looking information and risk model parameters. Following that process, during 2021 the model update included the macroeconomic scenarios. Out of the EUR 3,105 million at the end of December 2020, EUR 1,235 million overlay remain in additional provisions, motivated by several countries' government relief measures, in particular income support measures in the US, payment holiday extensions for longer periods in Portugal, and from continued volatility in the UK. 3. Details of the management units of Banco Santander, S.A. Following is the risk information relating to the geography of Grupo España, as well as the Santander Corporate & Investment Banking (SCIB) portfolio, both in terms of exposure and 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. 3.1 Santander Spain Portfolio overview Santander España’s credit risk, excluding intra-group financing operations and foreign branches, amounts to EUR 221,100 million (21% of Grupo Santander’s total). It is appropriately diversified among products and customer segments. Amid economic and credit recovery, as macroeconomic figures improved after the end of the covid-19 lockdowns in 2020, consumer loans (especially mortgages) grew significantly, as the corporate and SME lending remained below 2020 numbers, as we maintained positions with customers in liquidity support programmes (i.e. ICO lines of credit) without having to seek new financing. Total credit risk decreased -0.1% from December 2020. The ICO loans in Corporate and SME lending amounted to a significant EUR 27,294 (around half of them were extended according to the current regulation). The credit portfolio’s NPL ratio was 5.77%, 46 bp lower than in December 2020.  This better overall portfolio performance was driven by customer support programmes; the regularization of several restructured positions; and portfolio sales. The additional provisions raised to mitigate the potential impacts from the exceptional circumstances of the covid-19 pandemic, increased the NPL coverage ratio to 52% (+5 bp vs. December 2020). On the other hand, the non-performing portfolio declined mainly from loans with the highest expected losses. The cost of credit reflects the rise in Covid-19 provisions, with slight improvement at the end of 2021 compared to December 2020. 197 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, 2021 and 2020 is shown below. In addition, the exposure is divided in three tranches of the Standard & Poor's rating scale, according to their current credit quality: Exposure and impairment losses per stage EUR million 2021 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 153,120 908 — 154,028 From BB- to CCC 33,233 14,740 — 47,973 Default — — 12,761 12,761 Total exposure \*\* 186,353 15,648 12,761 214,762 Impairment losses\*\*\* 422 580 5,005 6,007 Exposure and impairment losses per stage EUR million 2020 Credit quality \* Stage 1 Stage 2 Stage 3 Total From AAA to BB 146,992 1,517 — 148,509 From BB- to CCC 40,630 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. \*\* Total exposure includes loan balances (drawn amounts) and off-balance (letters of credit + guarantees) and excludes REPOs, FV portfolio, trading portdolio and undrawn commitments \*\*\* Includes provisions for undrawn authorized lines (loan commitments). The real estate unit in Spain (UAI) was consolidated within Santander Spain in 2019,  (this process was completed in 2020). Consequently, in 2021 and 2020 the perimeter is aligned. From the information detailed above, Banco Santander, S.A. reaches a total gross exposure of EUR 328,748 million in the heading of financial assets at amortized cost (see note 6 and 10) and EUR 111,410 million in loan commitments granted for off-balance sheet exposures (see note 31) Impairment losses amount to EUR 6,903 and EUR 190 million, respectively. (The amount of losses due to impairment of off-balance sheet exposures includes the coverage of financial guarantees and other commitments granted in addition to the aforementioned loan commitments). The Government support measures taken in Spain in 2020 as response to the covid-19 pandemic have gradually expired and at the end of December 2021 Santander Spain had granted, since the start of the pandemic in 2020, a total amount of EUR 9,819 million moratoriums, equivalent to 4.87% of the loan portfolio. Of the total moratoriums, 99.6% had expired at 31 December 2021, from which 75.6% was in stage 1, 14.9% in stage 2 and 9.5% in stage 3. At the end of 2020, of the total moratoria, 26.4% had expired, of which 77.2% were in stage 1, 15% in stage 2 and 7.8% 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 as of 2021, is presented below: 2022-2026 Variables Pessimistic scenario Base scenario Optimistic scenario Interest rate 0.6% (0.2)% (0.2)% Unemployment rate 18.3% 13.0% 11.2% Housing price change 1.6% 2.6% 3.2% GDP growth 1.1% 2.9% 3.7% 198 Each macroeconomic scenarios is associated with a given weight. As for its allocation, Santander Spain associates the Base scenario with the highest weight, while associating the lower weights to the most extreme scenarios: 2021 2020 Pessimistic scenario 30% 30% Base scenario 40% 40% Optimistic scenario 1 30% 30% 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 Mortgages Corporates Others GDP Growth -100 bp 11.9% 5.4% 4.9% 100 bp (4.9)% (2.9)% (2.7)% Housing price change -100 bp 4.1% 3.2% 3.3% 100 bp (2.5)% (1.7)% (1.4)% With regards to the stage 2 classification determination, the quantitative criteria applied in Santander Spain are based on identifying whether an increase in the PD for the expected lifetime of the transaction when compared to the one at its origination 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 experienced 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 credit 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 62,324 million in 2021 (EUR 59,605 million in 2020), 99.33% of which have a mortgage guarantee (99.35% in 2020). EUR million 2021 Santander Group Spain Of Which, Banco Santander, S.A. Gross amount Of which: impaired Gross amount Of which: Non- performing Home purchase loans to families 62,324 1,860 60,947 1,798 Without mortgage guarantee 419 115 418 115 With mortgage guarantee 61,905 1,745 60,529 1,683 199 EUR million 2020 Santander Group Spain Of Which, Banco Santander, S.A. Gross amount Of which: impaired Gross amount Of which: Non- performing Home purchase loans to families 59,605 1,850 58,079 1,784 Without mortgage guarantee 387 75 387 75 With mortgage guarantee 59,218 1,775 57,692 1,709 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% (27% in 2020). •The 89.41% of the portfolio has a LTV below 80% calculated as total risk/latest available house appraisal. 200 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): EUR million 2021 Loan to value ratio Less 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 Santander Group Gross amount 16,479 19,391 19,479 4,376 2,180 61,905 Of which, impaired 187 240 349 313 656 1,745 Of which, Banco Santander, S.A. Gross amount 16,151 19,019 19,236 4,186 1,937 60,529 Of which,  impaired 183 230 339 303 628 1,683 Businesses portfolio Credit risk with SME and corporates amounted to EUR 117,544 million, 3.1% lower than in December 2020, mainly due to the fall in the portfolio of SMEs. This is Santander Spain's main lending segment, accounting for 51% of the total. Most of the portfolio corresponds to customers with an assigned credit analyst to monitor their loans throughout the risk cycle. The portfolio is broadly diversified and not concentrated by sector of activity. 2021 was a year of stability in the portfolio figures after the significant growth in 2020 due to the liquidity support programmes (ICO), which after the initial grace period have begun to be amortised. The portfolio’s NPL ratio stood at 7.50% in December 2021. Even though total risk decreased, the NPL ratio increased by 8 bp compared to December 2020, due to lower portfolio volume, while the stock of credit impaired loans slightly reduced. 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 in charge of their management and risk areas that cover the entire life cycle of these operations. In recent years the Group and the Bank's strategy has been geared towards reducing these assets. The changes in gross property development loans to customers were as follows: EUR million 2021 2020 Balance at beginning of year 2,871 2,939 Foreclosed assets (1) (6) Reductions\* (230) (24) Written-off assets (15) (38) Balance at end of year 2,625 2,871 \*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 6.13% at December 2020 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 30.08% (32.95% in 2020). 201 EUR million 2021 Santander Group Of which,  Banco Santander, S.A. Gross amount Excess of gross exposure over maximum recoverable amount Specific allowance Gross amount Excess of gross exposure over maximum recoverable amount Specific allowance Financing for construction and property development (including land) (business in Spain) 2,625 380 53 2,641 380 -53 Of which impaired 133 22 40 133 22 (40) Memorandum items written-off assets 650 — — (650) Memorandum items: Data from the public balance sheet EUR million 2021 Carrying amount Santander Group Of which, Banco Santander, S.A. Total loans and advances to customers excluding the Public sector (business in Spain) (Book value) 239,328 238,861 Total consolidated assets (Total business) (Book value) 1,595,835 657,950 Impairment losses and credit risk allowances. Coverage for unimpaired assets (business in Spain) 1,472 1,279 At year-end, the distribution of this portfolio was as follows: EUR million 2021 Loans: Gross amount Santander Group Of which, Banco Santander, S.A. 1. Without mortgage guarantee 180 180 2. With mortgage guarantee 2,445 2,461 2.1 Completed buildings 1,412 1,428 2.1.1 Residential 876 892 2.1.2 Other 536 536 2.2 Buildings and other constructions under construction 969 968 2.2.1 Residential 907 906 2.2.2 Other 62 62 2.3 Land 64 65 2.3.1 Developed consolidated land 46 46 2.3.2 Other land 18 19 Total 2,625 2,641 202 Policies and strategies in place for the management of these risks The policies in force for the management of this portfolio are periodically reviewed and approved on a regular basis by Santander's senior management As has already been disclosed in this section, the Group and the Bank’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 and the Bank 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: •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 2021, the net balance of these assets amounted to EUR 3,591 million gross amount: of EUR 7,364 million; recognised allowance: of EUR 3,773 million, of which EUR 2,729 million related to impairment after the foreclosure date. 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). At 31 December, 2019, the net balance of these assets amounted to EUR 4,190 million (gross amount: EUR 8,226 million; recognised allowance: EUR 4,036 million, of which EUR  2,812 million related to impairment after the foreclosure date). 203 The following table shows the detail of the assets foreclosed by the businesses in Spain at the end of 2021: EUR million 2021 Gross carrying amount Valuation adjustments Of which impairment losses on assets since time of foreclosure Carrying amount Property assets arising from financing provided to construction and property development companies 6,313 3,376 2,455 2,937 Of which: Completed buildings 1,900 799 627 1,101 Residential 470 181 143 289 Other 1,430 618 484 812 Buildings under construction 112 57 42 55 Residential 56 26 17 30 Other 56 31 25 25 Land 4,301 2,520 1,786 1,781 Developed land 1,506 805 496 701 Other land 2,795 1,715 1,290 1,080 Property assets from home purchase mortgage loans to households 838 310 211 528 Other foreclosed property assets 213 87 63 126 Total property assets 7,364 3,773 2,729 3,591 The same information in the previous table reference to Banco Santander, S.A. is presented below: EUR million 2021 Gross carrying amount Valuation adjustments Of which impairment losses on assets since time of foreclosure Carrying amount Property assets arising from financing provided to construction and property development companies 974 373 290 601 Of which: Completed buildings 917 356 275 561 Residential 186 64 49 122 Other 731 292 226 439 Buildings under construction — — — — Residential — — — — Other — — — — Land 57 17 15 40 Developed land 47 15 13 32 Other land 10 2 2 8 Property assets from home purchase mortgage loans to households 773 279 190 494 Other foreclosed property assets 171 68 51 103 Total property assets 1,918 720 531 1,198 204 In addition, the Group has shareholdings in entities holding foreclosed assets amounting to EUR 701 million (mainly Project Quasar Investment 2017, S.L. with EUR 655 million), and equity instruments foreclosed or received in payment of debts amounting to EUR 16 million. In recent years, the Group and the Bank have considered foreclosure to be a more efficient method for resolving cases of default than legal proceedings. The Group and the Bank initially recognise 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 and the Bank’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 at prices in accordance with the market situation and the offer of wholesale buyers. The gross movement in foreclosed properties were as follows (EUR billion): 2021 2020 Gross additions 0.4 0.5 Disposals (1.1) (0.9) Difference (0.7) (0.4) 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 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 and the Bank continuously monitor ,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 and Banco 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 5% of the outstanding credit risk with customers (lending to customers plus off-balance sheet risks) as of December 2021.The detail, by activity and geographical area of  the Group's risk concentration at 31 December  2021 is as follows: 205 EUR million 2021 Total Spain Other EU countries America Rest of the world Central banks and Credit institutions 327,984 93,520 59,499 81,647 93,318 Public sector 149,623 35,258 26,276 82,194 5,895 Of which: Central government 124,807 23,188 24,525 71,639 5,455 Other central government 24,816 12,070 1,751 10,555 440 Other financial institutions (financial business activity) 120,294 14,228 40,344 35,818 29,904 Non-financial companies and individual entrepeneurs (non- financial business activity) (broken down by purpose) 415,297 121,795 86,183 141,139 66,180 Of which: Construction and property development 21,523 3,607 3,392 7,309 7,215 Civil engineering construction 5,857 2,397 2,442 847 171 Large companies 248,955 58,030 49,343 94,496 47,086 SMEs and individual entrepreneurs 138,962 57,761 31,006 38,487 11,708 Households – other (broken down by purpose) 543,804 88,763 95,458 122,809 236,774 Of which: Residential 353,752 63,487 35,978 40,265 214,022 Consumer loans 169,897 18,078 56,879 75,837 19,103 Other purposes 20,155 7,198 2,601 6,707 3,649 Total 1,557,002 353,564 307,760 463,607 432,071 \*  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'. The same information in the previous table referring to Banco Santander, S.A. it is presented below: EUR million 2021\* Total Spain Other EU countries America Rest of the world Central banks and Credit institutions 207,265 110,832 37,237 28,840 30,356 Public sector 29,774 23,332 1,002 2,588 2,852 Of which: Central government 17,743 11,441 921 2,538 2,843 Other central government 12,031 11,891 81 50 9 Other financial institutions (financial business activity) 158,780 51,116 41,610 39,030 27,024 Non-financial companies and individual entrepreneurs (Non- financial business activity) (broken down by purpose) 207,999 116,044 29,472 25,519 36,964 Of which: Construction and property development 2,418 2,401 16 — 1 Civil engineering construction 3,683 2,094 909 510 170 Large companies 142,835 56,969 27,044 23,525 35,297 SMEs and individual entrepreneurs 59,063 54,580 1,503 1,484 1,496 Households – other (broken down by purpose) 77,853 76,439 352 362 700 Of which: Residential 61,963 60,830 293 227 613 Consumer loans 8,607 8,550 5 16 36 Other purposes 7,283 7,059 54 119 51 Total 681,671 377,763 109,673 96,339 97,896 \* 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. 206 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 the Group 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. Grupo Santander´s local sovereign exposure, in currencies other than the official currency of the country of issuance, is not significant ( EUR 10,013 million,  2.6% of total sovereign risk) according to our management criteria. Furthermore, exposure to non-local sovereign issuers involving cross-border risk is even less significant (EUR 7,011 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 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\*: 2021 2020 AAA 15% 18% AA 32% 25% A 26% 25% BBB 11% 14% Less than BBB 16% 18% \*Internal ratings are applied 207 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 2021: 2021 2020 Portfolio Country Financial assets designated at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets at amortized cost Non-trading financial assets mandatorily at fair value through profit or loss Total net direct exposure Total net direct exposure Spain 2,574 2,805 14,178 — 19,557 24,245 Portugal (20) 2,287 4,277 — 6,544 8,730 Italy (73) 634 323 — 884 4,015 Greece — — — — — — Ireland — — 9 — 9 — Rest Eurozone (233) 1,231 2,631 — 3,629 4,054 UK (538) 676 228 — 366 (97) Poland (15) 10,819 489 — 11,293 10,947 Rest of Europe — 77 1,291 — 1,368 1,070 US 1,050 13,803 7,616 — 22,469 15,548 Brazil 8,733 16,432 3,394 — 28,559 27,717 Mexico 2,150 10,253 1,106 — 13,509 21,029 Chile 56 1,134 4,881 — 6,071 6,955 Rest of America 94 651 680 — 1,425 958 Rest of the World 2 1,524 1,811 — 3,337 4,752 TOTAL 13,780 62,326 42,914 — 119,020 129,923 208 5. Forborne loan portfolio Grupo and Banco Santander's internal forbearance policy acts as a reference for Group's subsidiaries and the Bank's units. 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. A consolidated level, the total volume of forborne portfolio, at the end of December 2021, stood at EUR 36,042 million. After years of decreases due to the positive macroeconomic situation of the group's main geographies, the forborne stock remained practically flat in 2020. The portfolio increased by 24% in 2021, as a result of greater volume of forbearance carried out to attend to the needs of customers facing financial difficulties. In terms of credit quality, 43% of the loans  is classified as doubtful, with a coverage ratio of 41%. The following terms are used with the meanings specified below: •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 there of 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. 209 Current refinancing and restructuring balances Amounts in EUR million, except number of transactions that are in units 2021 Total Of which, non-performing/Doubtful Without real guarantee With real guarantee Without real guarantee With real guarantee Maximum amount of the actual collateral that can be considered Impairment of accumulated value or accumulated losses in fair value due to credit risk Maximum amount of the actual collateral that can be considered Impairment of accumulated value or accumulated losses in fair value due to credit risk Number of transactions Gross amount Number of transactions Gross amount Real estate guarantee Rest of real guarantees Number of transactions Gross amount Number of transactions Gross amount Real estate guarantee Rest of real guarantees Credit entities — — — — — — — — — — — — — — Public sector 32 18 15 7 2 — 4 7 1 14 5 2 — 4 Other financial institutions and: individual shareholder 1,002 93 720 200 102 79 30 421 51 528 67 54 7 27 Non-financial institutions and individual shareholder 248,375 11,548 47,865 8,915 5,517 1,206 4,367 116,009 4,377 32,263 5,261 3,308 424 3,891 Of which financing for constructions and property development 8,576 113 1,321 550 390 40 176 4,638 63 849 301 172 34 148 Other warehouses 3,650,507 4,491 451,930 10,771 6,063 3,615 3,860 1,839,629 1,879 162,177 3,898 2,641 434 2,382 Total 3,899,916 16,150 500,530 19,893 11,684 4,900 8,261 1,956,066 6,308 194,982 9,231 6,005 865 6,304 Financing classified as non-current assets and disposable groups of items that have been classified as held for sale — — — — — — — — — — — — — — 210 The same information in the previous table referring to Banco Santander, S.A. it is presented below: Amounts in EUR million, except number of transactions that are in units 2021 Total Of which, non-performing/Doubtful Without real guarantee With real guarantee Without real guarantee With real guarantee Maximum amount of the actual collateral that can be considered Impairment of accumulated value or accumulated losses in fair value due to credit risk Maximum amount of the actual collateral that can be considered Impairment of accumulated value or accumulated losses in fair value due to credit risk Number of transactions Gross amount Number of transactions Gross amount Real estate guarantee Rest of real guarantees Number of transactions Gross amount Number of transactions Gross amount Real estate guarantee Rest of real guarantees Credit entities — — — — — — — — — — — — — — Public sector 24 17 8 4 2 — 1 3 1 7 2 2 — 1 Other financial companies and sole proprietorships (financial business activity) 411 72 150 156 67 72 26 149 36 109 31 26 1 24 Non-financial corporations and sole proprietorships (non-financial business activity) 93,041 8,546 23,508 6,197 4,110 758 2,613 31,926 2,828 18,940 3,810 2,689 227 2,397 Of which, financing for construction and real estate development (including land) 42 3 340 192 159 22 38 39 2 223 110 77 22 34 Other warehouses 30,917 501 41,846 3,259 2,797 29 811 12,757 269 29,960 2,083 1,714 6 745 Total 124,393 9,136 65,512 9,616 6,976 859 3,451 44,835 3,134 49,016 5,926 4,431 234 3,167 Financing classified as non-current assets and disposable groups of items that have been classified as held for sale — — — — — — — — — — — — — — 211 In 2021, the amortised cost of financial assets at a consolidated level, 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 2,480 million without these modifications having a material impact on the income statement. Also, during 2021, 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 1,868 million. In 2021, the amortised cost of financial assets owned by the Bank 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 1,396 million, without these modifications having a material impact on the income statement. Also, during 2021, the total of financial assets owned by the Bank 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 711 million. The transactions presented in the foregoing tables were classified at 31 December 2021 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 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 passed 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 57% of the forborne loan transactions are classified as other than non- performing. Particularly noteworthy are the level of existing guarantees (46% of transactions are secured by collateral) and the coverage provided by specific allowances (representing 23% of the total forborne loan portfolio and 41% of the non-performing portfolio). #### c) Market risk, structural and liquidity risk 1. Activities subject to market risk and types of market risk 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 movements in interest rates that reduce the value of a financial instrument, a portfolio or the Group or the Bank. It can affect loans, deposits, debt securities, most assets and liabilities held for trading, and derivatives. •Inflation rate risk arises from movements in inflation that can reduce the value of a financial instrument, a portfolio or the Group or the Bank. It can affect loans, debt securities and derivatives (e.g. inflation swaps and futures) whose profitability is linked to inflation. •Exchange rate risk is the possibility of loss because the currency of a long or open position will depreciate against the base currency. It can affect debt in subsidiaries whose local currency is not the euro, as well as loans denominated in a foreign currency. ◦Equity risk is the possibility of loss from open positions in securities if their market price or expected future dividends fall. It affects shares, stock market indices,  convertible bonds and derivatives with shares as the underlying asset (put, call, equity swaps, etc.) •Credit spread risk is the possibility of loss from open positions in fixed-income securities or credit derivatives if their yield curve, or the recovery rate of their issuer or type change. A spread is the yield difference between financial instruments against a benchmark (e.g. the internal rate of return (IRR) of government bonds and interbank interest rates). •Commodity price risk is the possibility of loss from movements in commodity prices. Grupo and Banco Santander's commodity exposure is minor and stems mainly from commodity derivatives. 212 •Volatility risk is the possibility of loss caused by movements in interest rates, exchange rates, the stock market, credit spreads and other risk factors affecting portfolio value. It is inherent to all financial instruments whose value considers volatility (especially options contracts). Derivative contracts (such as options, futures, forwards and swaps) can mitigate market risks partially or fully. Additionally, other more complex hedging market risks are considered, such as correlation risk, market liquidity risk, prepayment or cancellation risk, and underwriting risk. Balance sheet liquidity risk (unlike market liquidity risk) is the possibility of loss caused by forced disposal of assets or cash flow imbalance if the bank meets its payment obligations late or at excessive cost. It can cause losses by forced asset sales or impacts on margins due to the mismatch between expected cash inflows and outflows. Pension and actuarial risks (explained at the end of this section) also depend on market variables. Grupo and Banco Santander aim to comply with the Basel Committee’s Fundamental Review of the Trading Book (FRTB) and the EBA’s Guidelines on the management of interest rate risk arising from non- trading book activities. The purpose of several projects Grupo Santander runs is to provide risk control managers and teams with the best market risk management tools under the right governance framework for the models Grupo Santander uses for metric reporting; and to comply with regulation on the risks mentioned above. 2. Trading market risk management Setting market risk limits in a dynamic process according to the risk appetite in the annual limits plan prepared by senior management and extended 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. 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: 213 EUR million Main market risk metric Balance sheet amount VaR Other Main risk factor for 'Other' balance Assets subject to market risk Cash, cash balances at central banks and other deposits on demand 210,689 210,689 Interest rate Financial assets held for trading 116,953 116,953 Non-trading financial assets mandatorily at fair value through profit or loss 5,536 4,042 1,494 Interest rate, spread Financial assets designated at fair value through profit or loss 15,957 5,489 10,468 Interest rate, spread Financial assets designated at fair value through other comprehensive income 108,038 2,453 105,585 Interest rate, spread Financial assets at amortized cost 1,037,898 1,037,898 Interest rate, spread Hedging derivatives 4,761 4,761 Interest rate, exchange rate Changes in the fair value of hedged items in portfolio hedges of interest risk 410 410 Interest rate Other assets 95,593 Total assets 1,595,835 Liabilities subject to market risk Financial liabilities held for trading 79,469 79,469 Financial liabilities designated at fair value through profit or loss 32,733 390 32,343 Interest rate, spread Financial liabilities at amortized cost 1,349,169 1,349,169 Interest rate, spread Hedging derivatives 5,463 5,463 Interest rate, exchange rate Changes in the fair value of hedged items in portfolio hedges of interest rate risk 248 248 Interest rate Other liabilities 31,700 Total liabilities 1,498,782 Equity 97,053 214 The following table displays the latest and average VaR values at 99% by risk factor over the last three years. It also shows the minimum and maximum VaR values in 2021 and 97.5% at the end of December 2021: VaR statistics and expected shortfall by risk factorA EUR million. VaR at 99% and ES at 97.5% with one day time horizon 2021 2020 VaR (99%) ES (97.5%) VaR Min Average Max Latest Latest Average Latest Total Trading 6.8 10.5 15.9 12.3 11.9 12.5 8.3 Diversification effect (6.3) (12.9) (26.6) (13.4) (15.0) (13.0) (11.8) Interest rate 6.0 9.6 15.3 9.1 9.4 9.2 5.4 Equities 2.2 3.5 7.7 5.1 5.1 4.4 3.1 Exchange rate 1.9 4.2 8.0 5.7 5.6 5.9 6.0 Credit spread 2.6 4.8 8.0 5.1 6.0 5.5 4.5 Commodities 0.4 1.3 3.5 0.7 0.8 0.5 1.1 Total Europe 6.1 9.3 16.1 9.9 9.7 10.5 8.0 Diversification effect (5.2) (9.3) (16.9) (12.6) (13.1) (10.7) (8.9) Interest rate 5.3 7.7 11.7 7.1 6.7 7.9 6.5 Equities 1.8 3.3 8.3 5.8 5.2 4.3 3.0 Exchange rate 1.6 2.8 5.0 4.5 4.9 3.5 2.9 Credit spread 2.6 4.8 8.0 5.1 6.0 5.5 4.5 Commodities — — — — — — — Total North America 1.6 2.5 7.4 2.7 2.8 6.6 2.9 Diversification effect 0.2 (0.7) (2.9) (0.6) (0.5) (2.2) (1.0) Interest rate 1.3 2.5 7.0 2.7 2.7 3.4 3.3 Equities — 0.1 1.5 — — 0.3 0.1 Exchange rate 0.1 0.6 1.8 0.6 0.6 5.1 0.5 Total South America 3.3 5.9 10.5 6.3 6.4 5.6 4.5 Diversification effect (1.2) (4.9) (16.0) (5.1) (3.8) (3.8) (5.4) Interest rate 3.0 5.5 12.2 5.8 6.3 5.2 4.1 Equities 0.4 1.2 3.2 1.1 1.0 1.0 0.5 Exchange rate 0.7 2.8 7.6 3.8 2.1 2.7 4.2 Commodities 0.4 1.3 3.5 0.7 0.8 0.5 1.1 A. In South and North America, VaR levels of credit spreads and commodities are not shown separately due to their low or null materiality. At the end of December, VaR had increased by EUR 4 million higher than at  the end of 2020; however, average VaR fell by EUR 2.0 million. Average VaR fell for most risk factors owing to low market volatility throughout the year. By region, average VaR decreased in Europe and especially in North America with lower exchange rate volatility. By risk factor, VaR has followed a generally stable trend in recent years. For many factors, temporary VaR increases generally owe more to short-term price volatility than to significant changes in positions. Backtesting Actual losses can differ from predicted losses because of the VaR’s limitations. Grupo Santander measures the accuracy of the VaR calculation model to make sure it is reliable. The most important tests Grupo Santander runs involve backtesting: •Backtesting of hypothetical P/L and of the entire trading book showed no exceptions to  99% VaR and VaE in 2021. •The exceptions observed in the past year are consistent with the assumptions of the VaR calculation model. 215 IBOR Reform Regulatory and supervisory context In 2013, IOSCO published the Principles for Financial Benchmarks (IOSCO Principles) that establish standards for the development of benchmarks. Subsequently, the FSB established the Official Sector Steering Group (OSSG) for the application of the IOSCO Principles to the IBOR (Interbank Offered Rates) indices. Since then, the central banks and regulators of various jurisdictions have organized working groups to recommend alternative indices to indices such as the EONIA (Euro Overnight Index Average) and the LIBORs (London Interbank Offered Rates). On 13 September 2018, the European Central Bank's working group recommended that the euro short-term interest rate (€STR) replace the EONIA. From 2 October 2019, the date on which the €STR was made available, the EONIA changed its methodology to be calculated as €STR plus a spread of 8.5 basis points. This change in the EONIA methodology was intended to facilitate the transition of the EONIA market to €STR before its definitive cessation on 3 January 2022. On 5 March 2021, the Financial Conduct Authority (FCA) announced the final dates for the cessation of LIBORs: •On 31 December 2021, the publication of USD LIBOR (1 week and 2 months term), CHF LIBOR (all terms), GBP LIBOR (overnight term, 1 week, 2 months and 12 months), JPY LIBOR (overnight term, 1 week, 2 months, and 12 months) and EUR LIBOR (all terms). •On 31 December 2021, the calculation methodology of some LIBORs was reformed to publish temporary synthetic LIBORs that became non-representative: GBP LIBOR (1-month, 3-month and 6-month terms) and JPY LIBOR (1-month term, 3 months and 6 months). •On 30 June 2023, the publication of the USD LIBOR will cease (overnight terms, 1 month, 3 months, 6 months and 12 months). In October 2020, the International Swaps and Derivatives Association (ISDA) launched the fallbacks Protocol and Supplement for IBORs (effective 25 January 2021), and provided market participants with of new derivatives fallbacks of LIBORs (among others IBOR, such as EURIBOR) for current derivative contracts and for new contracts. Additionally, on 19 August 2021, ISDA launched a new protocol that allowed entities to incorporate a fallback to the EONIA as the rate applicable to collateral in ISDA collateral agreements (known as CSAs). Banco Santander SA and various Santander Group entities have adhered to these protocols. On December 2020, the Council of the European Union endorsed the modification of the EU Benchmark Regulation (BMR), giving the European Commission the power to establish a legislative solution that proposes a replacement rate to indices the cessation of which could cause a significant disturbance to the functioning of financial markets in the EU. In this context, on 14 and 21 October 2021, the European Commission published the Implementing Regulations regarding the designation of a substitute reference index for CHF LIBOR and EONIA. Given the relevance of the IBOR indices, the volume of contracts and exposures is very high in the banking sector. Santander Group has a significant number of contracts linked to these interest rates. The most relevant are EURIBOR, EONIA, and LIBOR. These benchmarks are widely used, including derivative products, corporate loans, retail, discount products, deposits, repos, securities lending, collateral agreements, and floating rate notes, among others. LIBOR and EONIA Reform The main risks to which Santander is exposed arising from the transition of the EONIA and LIBORs are: (i) legal risks arising from potential changes in the documentation required for new or existing operations; (ii) financial and accounting risks derived from market risk models and from the valuation, coverage, cancellation and recognition of the financial instruments associated with the reference indices; (iii) business risk that revenues from LIBOR-linked products decline; (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 communications with customers 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. The global program ensures that all affected business units and subsidiaries have a consistent understanding of the risks associated with the transition and can take appropriate steps to mitigate them. This transition program incorporates the recommendations, guidelines and milestones defined by the regulators and working groups of the different jurisdictions. The structure of the program focuses on the following areas: Technology and Operations, Legal, Customer Relations, Risk Management and Models, Conduct and Communication, and Accounting and Finance. 216 During 2021, the IBOR Transition Program has focused on making all the contractual, commercial, operational and technological changes necessary to undertake the transition of the LIBOR and EONIA rates that have been discontinued in 2021. In 2022, the program will continue to attend to the next steps of the transition related to the management of the contract history and the milestone of the cessation of the LIBOR dollar of June 2023. In addition, Grupo and Banco Santander continue to participate, throughout 2022, in the initiatives developed by the public and private sectors related to the reform of the interest rate reference indices. Additionally, see information included in notes 1.b and 32. 3. Structural balance sheet risks 3.1. Main aggregates and variations Consistent with previous years, the market risk profile of Grupo and Banco Santander’s balance sheet remained moderate in 2021 in terms of asset, shareholders’ equity and NII volumes. To measure interest rate risk, Grupo Santander uses statistical models based on strategies to mitigate structural risk with interest-rate instruments (such as bonds and derivatives) to keep risk profile within risk appetite. The NII and EVE sensitivities below are based on scenarios of parallel interest rate movements from -100 to +100 basis points. Structural VaR With such a homogeneous metric as VaR, we can fully monitor market risk in the banking book We differentiate fixed income based on interest rates and credit spreads in ALCO portfolios, FX rates and shares. In general, the structural VaR of Grupo and Banco Santander total assets and equity is minor. Structural VaR EUR million. Structural VaR 99% with a temporary horizon of one day. 2021 2020 2019 Min Average Max Latest Average Latest Average Latest Structural VaR 895.8 993.7 1,090.7 1,011.9 911.1 903.2 511.4 729.2 Diversification effect (158.8) (327.3) (431.4) (240.2) (349.8) (263.4) (304.2) (402.0) VaR Interest Rate\* 224.2 400.7 540.5 287.8 465.1 345.5 345.6 629.7 VaR Exchange Rate 521.3 600.6 655.2 655.2 499.9 502.6 308.1 331.7 VaR Equities 309.1 319.7 326.4 309.1 295.9 318.5 161.9 169.8 \* Includes credit spread VaR on ALCO portfolios. 217 Structural interest rate risk –Europe In general, the NII and EVE of Grupo Santander's main balance sheets (i.e. Santander España and Santander UK) show positive sensitivity to rising interest rates. Across our footprint, exposure was moderate in relation to annual budget and capital levels in 2021. At the end of December 2021, under the scenarios previously described, the most significant NII sensitivity risk concentration in euros amounted to EUR 703 million; in pounds sterling, EUR 541 million; in Polish złoty EUR 65 million; and in the US dollar, EUR 54 million. The most significant EVE risk concentration amounted to EUR 3,684 million; in the yield curve of the euro; of the pound sterling, EUR 1,056 million ; of the US dollar, EUR 221 million; and of the Polish zloty EUR 56 million, all relating to the interest rate cut risks. –North America In general, the NII and EVE of Grupo Santander's North American balance sheets tend to show positive sensitivity to rising interest rates. Exposure was moderate in relation to annual budget and capital levels in 2021. At the end of December, the most significant risk to NII was mainly in the US and amounted to EUR 152 million. –South America The EVE and NII of our Grupo Santander's South American balance sheets are positioned for interest rate cuts. Exposure in all countries was moderate in relation to the annual budget and capital levels in 2020. In 2021, exposure was moderate in relation to annual budget and capital levels. At the end of December, the most significant risks to NII were mainly in Chile (EUR 86 million) and Brazil (EUR 83 million). The most significant risks to EVE were recorded in Brazil (EUR 271 million) and Chile (EUR 258 million). Structural foreign currency rate risk/results hedging Grupo Santander's structural FX risk stems mainly from the income and hedging of foreign currency transactions for permanent financial investments. In the dynamic management of this risk, Grupo Santander aims to limit the impact of FX rate movements on the core capital ratio. In 2021, the hedged of the different currencies that have an impact on our core capital ratio was close to 100%. In December 2021, the permanent exposures (with potential impact on shareholders’ equity) were, from largest to smallest, in US dollars, British pounds sterling, Brazilian reais, Mexican pesos, Chilean pesos and Polish złoty. Grupo Santander uses FX derivatives to hedge part of those permanent positions. The Finance division manages FX risk and hedging for the expected profits and dividends of subsidiaries whose base currency is not the euro. Structural equity risk Grupo Santander holds equity positions in its banking and trading books. They are either equity instruments or stock, depending on the share of ownership or control. By the end of December 2021, the equities and shareholdings in the banking book were diversified among Spain, China, Morocco, Poland and other countries. Most of them invest in the financial and insurance sectors. Grupo Santander has minor equity exposure to property and other sectors. Structural equity positions are exposed to market risk. VaR is calculated for these positions with a set of market prices and proxies. At the end of December 2021, VaR at a 99% confidence level over a one day horizon was EUR 325 million (EUR 319 million at the end of 2020). 3.2. Methodologies Structural interest rate risk As part of structural risk, interest rate risk in the banking book (IRRBB) is the main source of balance sheet risk. Grupo Santander measures the potential impact of interest rate movements on EVE and NII. Because changing rates may generate impacts, Grupo Santander must manage and control many subtypes of interest rate risk, such as repricing risk, curve risk, basis risk and option risk (e.g. behavioural or automatic). Interest rate risk in the balance sheet and market conditions and outlooks could necessitate certain financial measures to achieve Grupo Santander's desired risk profile (such as selling positions or setting interest rates on products we market). The metrics Grupo Santander uses to monitor IRRBB include NII and EVE sensitivity to interest rate movements. •Net interest income sensitivity Net interest income (NII) is the difference between interest income from assets and the interest cost of liabilities in the banking book over a typical one- to three-year horizon (one year being standard in Grupo Santander). Because NII sensitivity is the difference in income between a selected scenario and the base scenario, its values can be as many as considered scenarios. It enables us to see short-term risks and supplement economic value of equity (EVE) sensitivity. 218 •Economic value of equity sensitivity Economic value of equity (EVE) is the difference between the current value of all assets minus the current value of all liabilities in the banking book. It does not include shareholders’ equity and non-interest-bearing instruments. Because EVE sensitivity is the difference in EVE between a selected scenario and the base scenario, it can have as many values as considered scenarios. It enables us to see long-term risks and supplement NII sensitivity. Structural exchange-rate risk/hedging of results Every day, Grupo Santander measures FX positions, VaR and P/L. Structural equity risk Grupo Santander measures equity positions, VaR and P/ L. 4. Liquidity risk Structural liquidity management aims to fund the Group and the Bank’s recurring activity optimising maturities and costs, while avoiding taking on undesired liquidity risks. Group and Banco 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 and the Bank maintain 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 and Banco 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 and, therefore, the Bank 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. 219 Over the course of the year, all dimensions of the plan are monitored. Grupo Santander 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. i. Liquidity risk measurement Grupo Santander measures liquidity risk with tools and metrics that account for the appropriate risk factors a) Liquidity buffer The liquidity buffer is the total liquid assets a bank has to cope with cash outflows during periods of stress. The assets are free of encumbrances and can be used immediately to generate liquidity without losses or excessive discounts. The liquidity buffer is a tool for calculating most liquidity metrics. It is also a metric with defined limits for each subsidiary. b) Liquidity Coverage Ratio (LCR) The liquidity coverage ratio (LCR) is a regulatory metric. Its purpose is to promote the short-term resilience of a bank’s liquidity profile and make sure it has enough high-quality liquid assets to withstand a considerable idiosyncratic or market stress scenario over 30 calendar days. c) Wholesale liquidity metric The wholesale liquidity metric measures the number of days Grupo and Banco Santander would survive if it used liquid assets to cover lost liquidity from a wholesale deposit run-off (without possible renewal) over a set time horizon.Grupo and Banco Santander also uses it as an internal short-term liquidity metric to reduce risk from dependence on wholesale funding. d) Net Stable Funding Ratio (NSFR) The net stable funding ratio (NSFR) is a regulatory metric we use to measure long-term liquidity risk. It is the ratio of available stable funding to required stable funding. It requires banks to keep a robust balance sheet, with off- balance-sheet assets and operations financed by stable liabilities. e) Asset Encumbrance metrics Grupo and Banco Santander calculate two metrics to measure asset encumbrance risk. On the one hand, the asset encumbrance ratio gives the proportion of encumbered assets to total assets; on the other, the structural asset encumbrance ratio gives the proportion of encumbered assets by structural funding transaction (namely long-term collateralized issues and credit transactions with central banks). f) Other additional liquidity indicators In addition to traditional tools to measure short and long-term liquidity and funding risk, Grupo and Banco Santander have a set of additional liquidity indicators to complement those and to measure other non-covered liquidity risk factors. These include concentration metrics, such as the main and the five largest funding counterparties, or the distribution of funding by maturity. In addition, we calculate a number of metrics on the institution’s ability to generate liquidity through collateralized financing, such as overcollateralization, eligibility ratios assets without charges and deadlines for their placement. g) Liquidity scenario analysis As liquidity stress tests, four standard scenarios have been defined: i.An idiosyncratic scenario of events detrimental only to the Group; ii.a local market scenario of events highly detrimental to a base country’s financial system or real economy; iii.a global market scenario of events highly detrimental to the global financial system; and iv.combined scenario consisting of a combination of more severe idiosyncratic and market events (local and global) occurring simultaneously and interactively. Grupo and Banco Santander use these stress test outcomes as tools to determine risk appetite and support business decision-making. 220 h) Liquidity early warning indicators The system of early warning indicators (EWI) consists of quantitative and qualitative liquidity indicators that help predict stress situations and weaknesses in the funding and liquidity structure of Grupo Santander entities. External indicators relate to market-based financial variables; internal indicators relate to our own performance. i) Intraday liquidity metrics Grupo Santander follows Basel regulation and calculates several metrics and stress scenarios for intraday liquidity risk to maintain a high level of control. ii. Liquidity coverage ratio and net stable financing ratio As regards the liquidity coverage ratio (LCR), the regulatory requirement for this ratio, set at 100%, has been at its maximum level since 2018. Below is a breakdown of the composition of the Group's liquid assets under the criteria set out in the supervisory prudential reporting (Commission Implementing Regulation (EU) 2017/2114 of 9 November 2017) for the determination of high quality liquid assets for the calculation of the LCR ratio (HQLA): EUR million 2021 2020 Amount weighted applicable Amount weighted applicable High-quality liquid assets- HQLAs Cash and reserves available at central banks 206,507 149,893 Marketable assets Level 1 81,925 104,270 Marketable assets Level 2A 3,422 5,272 Marketable assets Level 2B 5,446 4,200 Total high-quality liquid assets 297,300 263,635 In relation to the net stable funding ratio (NSFR), its definition was approved by the Basel Committee in October 2014. The transposition of this requirement to the European regulation took place in June 2019 with the publication in the Official Gazette of the European Union of Regulation (EU) 2019/876 of the European Parliament and of the Council of May 20, 2019. The Regulation establishes that entities must have a net stable financing ratio, as defined in the Regulation, higher 100% from June 2021. For this reason, the figures for 2019 and 2020 for this ratio are calculated using the Basel methodology, while those for 2021 already include the requirement as transposed into European regulations. The liquidity coverage ratio, broken down by component, and the net stable funding ratio for the Group at year- end 2021 and and 2020 are presented below: EUR million 2021 2020 High-quality liquid assets-HQLAs (numerator) 297,300 263,635 Total net cash outflows (denominator) 181,953 157,368 Cash outflows 233,294 204,813 Cash inflows 51,341 47,445 LCR ratio (%) 163% 168% NSFR ratio (%) 126% 120% As regards the funding structure, given the predominantly commercial nature of the Group's balance sheet, the loan portfolio is mainly financed by customer deposits. Note 22 of the consolidated annual accounts and Note 20 of the individual accounts, under the name, Debt securities' shows the composition of these liabilities on the basis of their nature and classification, the movements and maturity profile of the debt securities issued by the Group, reflecting the strategy of diversification by products, markets, issuers and maturities followed by the Group in its approach to the wholesale markets. 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. 221 The residual maturities of the liabilities associated with the assets and guarantees received and committed are presented below, as of 31 of December of 2021 (EUR thousand million): Residual maturities of the liabilities Unmatured <=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 years Total Committed assets 39.5 32.7 8.2 29.6 106.8 37.1 80.1 20.7 10.4 365.1 Guarantees received committed 24.2 15.3 12.8 25.8 1.9 0.4 0.4 — — 80.8 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 assets Fair value of encumbered assets Fair value of non- encumbered assets Carrying amount of non- encumbered assets Loans and advances 262.8 984.4 Equity instruments 8.4 8.4 13.1 13.1 Debt securities 61.0 61.1 102.9 102.8 Other assets 32.9 130.3 Total assets 365.1 1,230.7 Encumbrance of collateral received EUR billion Fair value of encumbered collateral received or own debt securities issued Fair value of collateral received or own debt securities issued available for encumbrance Collateral received 80.8 31.5 Loans and advances 1.2 — Equity instruments 5.4 7.0 Debt securities 74.2 24.5 Other collateral received — — Own debt securities issued other than own covered bonds or ABSs — 0.6 Encumbered assets and collateral received and matching liabilities 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) 325.2 445.9 On-balance-sheet encumbered assets amounted to EUR 365,100 million, of which 72% are loans (mortgage loans, corporate loans, etc.). Guarantees received committed amounted to EUR 80,800 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 445,900 million of encumbered assets, which give rise to EUR 325,200 million matching liabilities. As of December 2021, total asset encumbrance in funding operations represented 26.1% of the Group’s extended balance sheet under EBA criteria (total assets plus guarantees received: EUR 1,708,000 million as of December 2021). This percentage has decreased from 26.6% that presented the Group as of December 2020, mainly as a result of the increase in the balance sheet. 222 #### 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 2022, 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 10.64% of tier 1 and a minimum total ratio of 13.01%. In 2021, the solvency target set was achieved. Santander’s CET1 ratio stood at 12.51%3 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 2021 2020 Subscribed capital 8,670 8,670 Share premium account 47,979 52,013 Reserves 56,606 62,777 Treasury shares (894) (69) Attributable profit 8,124 (8,771) Approved dividend\*\*\* (836) — Shareholders’ equity on public balance sheet 119,649 114,620 Valuation adjustments (32,719) (33,144) Non-controlling interests 10,123 9,846 Total Equity on public balance sheet 97,053 91,322 Goodwill and intangible assets (16,132) (15,711) Eligible preference shares and participating securities 10,050 9,102 Accrued dividend\*\*\* (895) (478) Other adjustments\* (7,624) (5,734) Tier 1\*\* 82,452 78,501 \*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. \*\*\*Assumes 20% of ordinary profit, see note 4.a for proposed distribution of results. The following table shows the capital coefficients and a detail of the eligible internal resources of the Group: 2021 2020 Capital coefficients Level 1 ordinary eligible capital (EUR million) 72,402 69,399 Level 1 additional eligible capital (EUR million) 10,050 9,102 Level 2 eligible capital (EUR million) 14,865 12,514 Risk-weighted assets (EUR million) 578,930 562,580 Level 1 ordinary capital coefficient (CET 1) 12.51% 12.34% Level 1 additional capital coefficient (AT1) 1.73% 1.61% Level 1 capital coefficient (TIER1) 14.24% 13.95% Level 2 capital coefficient (TIER 2) 2.57% 2.23% Total capital coefficient 16.81% 16.18% 223 3 Figures calculated by applying the transitional provisions of IFRS 9 . Eligible capital EUR million 2021 2020 Eligible capital Common Equity Tier I 72,402 69,399 Capital 8,670 8,670 (-) Treasure shares and own shares financed (966) (126) Share Premium 47,979 52,013 Reserves 58,157 64,766 Other retained earnings (34,784) (34,937) Minority interests 6,736 6,669 Profit net of dividends 6,394 (9,249) Deductions (19,784) (18,407) Goodwill and intangible assets (16,064) (15,711) Others (3,720) (2,696) Additional Tier I 10,050 9,102 Eligible instruments AT1 10,102 8,854 T1-excesses-subsidiaries (52) 248 Residual value of dividends — — Others — — Tier II 14,865 12,514 Eligible instruments T2 15,424 13,351 Gen. funds and surplus loans loss prov. IRB 75 — T2-excesses -  subsidiaries (634) (837) Others 0 0 Total eligible capital 97,317 91,015 Note: Banco Santander, S.A. and its affiliates had not taken part in any State aid programmes. Leverage ratio Basel III established the leverage ratio as a non-risk sensitive measure aimed at limiting excessive balance sheet growth relative to available capital. The Group performs the calculation in accordance with Regulation (EU) 2019/876 of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio. 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) further excluding the exposures referred to in Article 429a(1) of the regulation. •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 implemented this final definition of the leverage ratio in June 2021, however, the new calibration of the ratio (the additional surcharge for G-SIBs) will take effect from January 2023. EUR million 2021 2020 Leverage Level 1 Capital 82,452 78,501 Exposure 1,536,516 1,471,480 Leverage Ratio 5.37% 5.33% 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. 224 #### Appendix I 2 & 3 Triton Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Real estate 78 107 12 A & L CF (Guernsey) Limited (n) Guernsey 0.00% 100.00% 100.00% 100.00% Leasing 0 0 0 A & L CF June (2) Limited (e) United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 A & L CF June (3) Limited (e) United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 6 (2) 0 A & L CF March (5) Limited (d) United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 1 0 0 A & L CF September (4) Limited (f) United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 21 0 0 A3T Luxco 1 S.A. Luxembourg 0.00% 100.00% 100.00% 0.00% Holding company 4 (1) 4 A3T Luxco 2 S.A. Luxembourg 100.00% 0.00% 100.00% 0.00% Holding company (18) 18 0 Abbey Business Services (India) Private Limited (d) India 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Abbey Covered Bonds (Holdings) Limited United Kingdom — (b) — — Securitization 0 0 0 Abbey Covered Bonds (LM) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 0 0 0 Abbey Covered Bonds LLP United Kingdom — (b) — — Securitization 75 168 0 Abbey National Beta Investments Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Abbey National Business Office Equipment Leasing Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Abbey National International Limited Jersey 0.00% 100.00% 100.00% 100.00% Financial services 4 0 4 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 225 Abbey National Nominees Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Abbey National PLP (UK) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Abbey National Property Investments United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 296 (3) 165 Abbey National Treasury Services Investments Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Abbey National Treasury Services Overseas Holdings United Kingdom 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Abbey National UK Investments United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Abbey Stockbrokers (Nominees) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Abbey Stockbrokers Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securities company 0 0 0 Abent 3T, S.A.P.I de C.V. Mexico 0.00% 100.00% 100.00% 0.00% Electricity production 115 (18) 5 Ablasa Participaciones, S.L. Spain 100.00% 0.00% 100.00% 100.00% Holding company 210 23 894 Aduro S.A. Uruguay 0.00% 100.00% 100.00% 100.00% Payments and collection services 0 0 2 Aevis Europa, S.L. Spain 96.34% 0.00% 96.34% 96.34% Cards 1 0 1 AFB SAM Holdings, S.L. Spain 1.00% 99.00% 100.00% 100.00% Holding company 0 0 0 Afisa S.A. Chile 0.00% 100.00% 100.00% 100.00% Fund management company 4 0 4 Aljardi SGPS, Lda. Portugal 0.00% 100.00% 100.00% 100.00% Holding company 1,195 (3) 1,148 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 226 Allane Leasing GmbH Austria 0.00% 46.95% 100.00% 100.00% Renting (2) 0 0 Allane Location Longue Durée S.a.r.l. France 0.00% 46.95% 100.00% 100.00% Renting 10 3 0 Allane Mobility Consulting AG Switzerland 0.00% 46.95% 100.00% 100.00% Consulting services 1 0 0 Allane Mobility Consulting B.V. Netherlands 0.00% 46.95% 100.00% 100.00% Consulting services (2) 0 0 Allane Mobility Consulting GmbH Germany 0.00% 46.95% 100.00% 100.00% Consulting services 1 1 0 Allane Mobility Consulting Österreich GmbH Austria 0.00% 46.95% 100.00% 100.00% Consulting services 0 0 0 Allane Mobility Consulting S.a.r.l France 0.00% 46.95% 100.00% 100.00% Consulting services (1) 0 0 Allane Schweiz AG Switzerland 0.00% 46.95% 100.00% 100.00% Renting 13 0 0 Allane SE Germany 0.00% 46.95% 92.07% 92.07% Leasing 192 0 175 Allane Services GmbH & co. KG Germany 0.00% 46.95% 100.00% 100.00% Services 1 0 0 Allane Services Verwaltungs GmbH Germany 0.00% 46.95% 100.00% 100.00% Management of portfolios 0 0 0 Alliance & Leicester Cash Solutions Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Alliance & Leicester Commercial Bank Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Alliance & Leicester Investments (Derivatives) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Alliance & Leicester Investments (No.2) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 227 Alliance & Leicester Investments Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Alliance & Leicester Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Alliance & Leicester Personal Finance Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company (241) 0 0 Altamira Santander Real Estate, S.A. Spain 100.00% 0.00% 100.00% 100.00% Real estate (369) (161) 0 Alternative Leasing, FIL (Compartimento B) Spain 100.00% 0.00% 100.00% 99.99% Investment fund 75 3 75 Amazonia Trade Limited United Kingdom 100.00% 0.00% 100.00% 100.00% Holding company 0 0 0 AN (123) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Andaluza de Inversiones, S.A. Spain 0.00% 100.00% 100.00% 100.00% Holding company 37 0 27 ANITCO Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Apê11 Tecnologia e Negócios Imobiliários S.A. Brazil 0.00% 80.92% 90.00% 0.00% Real estate 6 0 9 Aquanima Brasil Ltda. Brazil 0.00% 100.00% 100.00% 100.00% E-commerce 2 1 0 Aquanima Chile S.A. Chile 0.00% 100.00% 100.00% 100.00% Services 2 1 0 Aquanima México S. de R.L. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% E-commerce 2 1 2 Aquanima S.A. Argentina 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Artarien S.A. (o) Uruguay 0.00% 100.00% 100.00% 0.00% Insurance auxiliary services 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 228 Asto Digital Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 39 (26) 0 Athena Corporation Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Financial services (9) 0 0 Atlantes Azor No. 2 Portugal — (b) — — Securitization 0 0 0 Atlantes Mortgage No. 2 Portugal — (b) — — Securitization 0 0 0 Atlantes Mortgage No. 3 Portugal — (b) — — Securitization 0 0 0 Atlantes Mortgage No. 4 Portugal — (b) — — Securitization 0 0 0 Atlantes Mortgage No. 5 Portugal — (b) — — Securitization 0 0 0 Atlantes Mortgage No. 7 Portugal — (b) — — Securitization 0 0 0 Atual - Fundo de Invest Multimercado Crédito Privado Investimento no Exterior Brazil 0.00% 89.91% 100.00% 100.00% Investment fund 325 18 308 Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. Brazil 0.00% 89.91% 100.00% 100.00% Financial services 410 15 383 Auto ABS Belgium Loans 2019, SA/NV Belgium — (b) — — Securitization 0 0 0 Auto ABS DFP Master Compartment France 2013 France — (b) — — Securitization 0 0 0 Auto ABS French Leases 2018 France — (b) — — Securitization 0 0 0 Auto ABS French Leases 2021 France — (b) — — Securitization 0 0 0 Auto ABS French Leases Master Compartiment 2016 France — (b) — — Securitization 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 229 Auto ABS French Loans Master France — (b) — — Securitization 0 0 0 Auto ABS French LT Leases Master France — (b) — — Securitization 0 0 0 Auto ABS Italian Balloon 2019-1 S.R.L. Italy — (b) — — Securitization 0 0 0 Auto ABS Italian Loans 2018-1 S.R.L. Italy — (b) — — Securitization 0 0 0 Auto ABS Italian Rainbow Loans 2020-1 S.R.L. Italy — (b) — — Securitization 0 0 0 Auto ABS Spanish Loans 2018-1, Fondo de Titulización Spain — (b) — — Securitization 0 0 0 Auto ABS Spanish Loans 2020-1, Fondo de Titulización Spain — (b) — — Securitization 0 0 0 Auto ABS UK Loans 2017 Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Auto ABS UK Loans 2017 Plc United Kingdom — (b) — — Securitization 0 0 0 Auto ABS UK Loans 2019 Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Auto ABS UK Loans 2019 Plc United Kingdom — (b) — — Securitization (3) 0 0 Auto ABS UK Loans Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Auto ABS UK Loans PLC United Kingdom — (b) — — Securitization (10) 2 0 Autodescuento, S.L. Spain 0.00% 93.89% 93.89% 93.89% Vehicles purchase by Internet 1 1 18 Autohaus24 GmbH Germany 0.00% 46.95% 100.00% 100.00% Renting (2) 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 230 Auttar HUT Processamento de Dados Ltda. Brazil 0.00% 89.91% 100.00% 100.00% IT services 4 1 5 Aviación Antares, A.I.E. Spain 99.99% 0.01% 100.00% 100.00% Renting 48 5 28 Aviación Británica, A.I.E. Spain 99.99% 0.01% 100.00% 100.00% Renting 22 4 6 Aviación Centaurus, A.I.E. Spain 99.99% 0.01% 100.00% 100.00% Renting 7 18 25 Aviación Comillas, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Renting 7 0 8 Aviación Intercontinental, A.I.E. Spain 99.97% 0.03% 100.00% 100.00% Renting 66 (24) 42 Aviación Laredo, S.L. Spain 99.00% 1.00% 100.00% 100.00% Air transport 3 0 3 Aviación Oyambre, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Renting 1 0 1 Aviación Santillana, S.L. Spain 99.00% 1.00% 100.00% 100.00% Renting 3 1 2 Aviación Suances, S.L. Spain 99.00% 1.00% 100.00% 100.00% Air transport 5 1 3 Aviación Tritón, A.I.E. Spain 99.99 0.01 100.00 100.00 Renting 22 7 19 Aymoré Crédito, Financiamento e Investimento S.A. Brazil 0.00% 89.91% 100.00% 100.00% Finance company 205 160 328 Azor Mortgages PLC (j) Ireland — (b) — — Securitization 0 0 0 Banca PSA Italia S.p.A. Italy 0.00% 50.00% 50.00% 50.00% Banking 320 72 153 Banco Bandepe S.A. Brazil 0.00% 89.91% 100.00% 100.00% Banking 832 24 770 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 231 Banco de Albacete, S.A. Spain 100.00% 0.00% 100.00% 100.00% Banking 14 0 9 Banco Hyundai Capital Brasil S.A. Brazil 0.00% 44.96% 50.00% 50.00% Banking 51 5 25 Banco Madesant - Sociedade Unipessoal, S.A. Portugal 0.00% 100.00% 100.00% 100.00% Banking 1,076 (3) 1,073 Banco PSA Finance Brasil S.A. Brazil 0.00% 44.96% 50.00% 50.00% Banking 37 4 18 Banco Santander - Chile Chile 0.00% 67.12% 67.18% 67.18% Banking 2,963 803 2,827 Banco Santander (Brasil) S.A. Brazil 0.04% 89.88% 90.50% 90.58% Banking 10,104 2,373 10,795 Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México como Fiduciaria del Fideicomiso 100740 Mexico 0.00% 96.24% 100.00% 100.00% Finance company 66 11 74 Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México como Fiduciaria del Fideicomiso 2002114 Mexico 0.00% 96.47% 100.00% 100.00% Holding company 8 0 7 Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México como Fiduciaria del Fideicomiso GFSSLPT Mexico 0.00% 96.64% 100.00% 100.00% Finance company 14 1 14 Banco Santander de Negocios Colombia S.A. Colombia 94.90% 5.10% 100.00% 100.00% Banking 134 6 141 Banco Santander International United States 0.00% 100.00% 100.00% 100.00% Banking 1,110 85 1,195 Banco Santander International SA Switzerland 0.00% 100.00% 100.00% 100.00% Banking 1,113 49 815 Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México Mexico 21.19% 75.04% 96.24% 91.80% Banking 6,376 778 7,425 Banco Santander Perú S.A. Peru 100.00% 0.00% 100.00% 100.00% Banking 194 37 122 Banco Santander Río S.A. Argentina 0.00% 99.31% 99.26% 99.26% Banking 1,532 92 550 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 232 Banco Santander S.A. Uruguay 97.75% 2.25% 100.00% 100.00% Banking 359 69 191 Banco Santander Totta, S.A. Portugal 0.00% 99.86% 99.96% 99.96% Banking 3,857 303 3,415 Bansa Santander S.A. Chile 0.00% 100.00% 100.00% 100.00% Real estate 21 1 22 BEN Benefícios e Serviços Instituição de Pagamento S.A. Brazil 0.00% 89.91% 100.00% 100.00% Payment services 11 (1) 9 Bilkreditt 6 Designated Activity Company (j) Ireland — (b) — — Securitization 0 0 0 Bilkreditt 7 Designated Activity Company Ireland — (b) — — Securitization 0 0 0 Bond Company Merger Sub LLC United States 0.00% 100.00% 100.00% 0.00% Inactive 0 0 0 Bond First Merger Sub Inc. United States 0.00% 100.00% 100.00% 0.00% Inactive 0 0 0 Bond Fourth Merger Sub LLC United States 0.00% 100.00% 100.00% 0.00% Inactive 0 0 0 Bond Second Merger Sub LLC United States 0.00% 100.00% 100.00% 0.00% Inactive 0 0 0 Bond Third Merger Sub LLC United States 0.00% 100.00% 100.00% 0.00% Inactive 0 0 0 BRS Investments S.A. Argentina 5.10% 94.90% 100.00% 100.00% Finance company 41 23 35 Cántabra de Inversiones, S.A. Spain 100.00% 0.00% 100.00% 100.00% Holding company (118) 262 187 Cántabro Catalana de Inversiones, S.A. Spain 100.00% 0.00% 100.00% 100.00% Holding company 275 3 267 Canyon Multifamily Impact Fund IV LLC (c) United States 0.00% 98.00% 98.00% 98.00% Real estate 26 0 27 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 233 Capital Street Delaware LP United States 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Capital Street Holdings, LLC United States 0.00% 100.00% 100.00% 100.00% Holding company 14 0 14 Capital Street REIT Holdings, LLC United States 0.00% 100.00% 100.00% 100.00% Holding company 1,212 1 1,213 Capital Street S.A. Luxembourg 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Carfax (Guernsey) Limited (j) (n) Guernsey 0.00% 100.00% 100.00% 100.00% Insurance brokerage 0 0 0 Casa de Bolsa Santander, S.A. de C.V., Grupo Financiero Santander México Mexico 0.00% 99.97% 99.97% 99.97% Securities company 55 2 58 Cater Allen Holdings Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Cater Allen International Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Cater Allen Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Banking 685 34 265 Cater Allen Lloyd's Holdings Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Cater Allen Syndicate Management Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 CCAP Auto Lease Ltd. United States 0.00% 80.22% 100.00% 100.00% Leasing 182 162 276 Centro de Capacitación Santander, A.C. Mexico 0.00% 96.24% 100.00% 100.00% Non-profit institute 1 0 1 Certidesa, S.L. Spain 0.00% 100.00% 100.00% 100.00% Aircraft rental (59) (5) 0 Chrysler Capital Auto Funding I LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 30 24 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 234 Chrysler Capital Auto Funding II LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 4 (4) 0 Chrysler Capital Auto Receivables LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 0 0 0 Chrysler Capital Master Auto Receivables Funding 2 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company (217) (27) 0 Chrysler Capital Master Auto Receivables Funding 4 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company (3) (4) 0 Chrysler Capital Master Auto Receivables Funding LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 61 48 0 Cobranza Amigable, S.A.P.I. de C.V. Mexico 0.00% 85.00% 100.00% 100.00% Collection services 4 0 3 Community Development and Affordable Housing Fund LLC (c) United States 0.00% 96.00% 96.00% 96.00% Asset management 0 0 0 Compagnie Generale de Credit Aux Particuliers - Credipar S.A. France 0.00% 50.00% 100.00% 100.00% Banking 363 161 428 Compagnie Pour la Location de Vehicules - CLV France 0.00% 50.00% 100.00% 100.00% Banking 20 2 26 Compartment German Auto Loans 2021-1 Luxembourg 0.00% (b) 0.00% 0.00% Securitization 0 0 0 Comunidad Laboral Trabajando Argentina S.A. (j) Argentina — 100.00 100.00 100.00 Services 0 0 0 Consulteam Consultores de Gestão, Unipessoal, Lda. Portugal 100.00% 0.00% 100.00% 100.00% Real estate 0 0 0 Consumer Lending Receivables LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 0 0 0 Crawfall S.A. (g) (j) Uruguay 100.00% 0.00% 100.00% 100.00% Services 0 0 0 Darep Designated Activity Company Ireland 100.00% 0.00% 100.00% 100.00% Reinsurances 8 0 7 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 235 Decarome, S.A.P.I. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% Finance company 50 5 51 Deva Capital Advisory Company, S.L. Spain 0.00% 100.00% 100.00% 100.00% Advisory services 1 1 2 Deva Capital Holding Company, S.L. Spain 100.00% 0.00% 100.00% 100.00% Holding company 226 (9) 228 Deva Capital Investment Company, S.L. Spain 0.00% 100.00% 100.00% 100.00% Holding company 111 4 111 Deva Capital Management Company, S.L. Spain 0.00% 100.00% 100.00% 100.00% Advisory services 17 (10) 7 Deva Capital Servicer Company, S.L. Unipersonal Spain 0.00% 100.00% 100.00% 100.00% Holding company 97 4 96 Digital Procurement Holdings N.V. Netherlands 0.00% 100.00% 100.00% 100.00% Holding company 5 0 1 Diners Club Spain, S.A. Unipersonal Spain 100.00% 0.00% 100.00% 75.00% Cards 10 (1) 9 Dirección Estratega, S.C. Mexico 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Drive Auto Receivables Trust 2017-3 United States 0.00% (b) 0.00% 0.00% Securitization 38 53 0 Drive Auto Receivables Trust 2018-1 United States — (b) — — Securitization 25 45 0 Drive Auto Receivables Trust 2018-2 United States — (b) — — Securitization (6) 77 0 Drive Auto Receivables Trust 2018-3 United States — (b) — — Securitization (31) 82 0 Drive Auto Receivables Trust 2018-4 United States — (b) — — Securitization (41) 82 0 Drive Auto Receivables Trust 2018-5 United States — (b) — — Securitization (37) 79 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 236 Drive Auto Receivables Trust 2019-1 United States — (b) — — Securitization (29) 83 0 Drive Auto Receivables Trust 2019-2 United States — (b) — — Securitization (51) 97 0 Drive Auto Receivables Trust 2019-3 United States — (b) — — Securitization (69) 136 0 Drive Auto Receivables Trust 2019-4 United States — (b) — — Securitization (92) 149 0 Drive Auto Receivables Trust 2020-1 United States — (b) — — Securitization (122) 156 0 Drive Auto Receivables Trust 2020-2 United States — (b) — — Securitization (135) 181 0 Drive Auto Receivables Trust 2021-1 United States — (b) — — Securitization 0 (115) 0 Drive Auto Receivables Trust 2021-2 United States — (b) — — Securitization 0 (310) 0 Drive Auto Receivables Trust 2021-3 United States — (b) — — Securitization 0 (275) 0 Ductor S.à r.l. (f) Luxembourg 1.00 — 1.00 — Holding company 26 1 20 EDT FTPYME Pastor 3 Fondo de Titulización de Activos Spain 0.00% (b) 0.00% 0.00% Securitization 0 0 0 Elcano Renovables, S.L Spain — 0.70 0.70 — Holding company 1 0 1 Electrolyser, S.A. de C.V. Mexico 0.00% 96.24% 100.00% 100.00% Services 0 0 0 Entidad de Desarrollo a la Pequeña y Micro Empresa Santander Consumo Perú S.A. Peru 100.00% 0.00% 100.00% 100.00% Finance company 27 6 33 Erestone S.A.S. France 0.00% 90.00% 90.00% 90.00% Inactive 1 0 1 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 237 Esfera Fidelidade S.A. Brazil 0.00% 89.91% 100.00% 100.00% Services 58 56 102 Evidence Previdência S.A. Brazil 0.00% 89.91% 100.00% 100.00% Insurance 132 (12) 95 Eyemobile Tecnologia S.A. Brazil 0.00% 53.95% 60.00% 0.00% IT services 2 0 1 F1rst Tecnologia e Inovação Ltda. Brazil 0.00% 89.91% 100.00% 100.00% IT services 2 2 4 Financeira El Corte Inglés, Portugal, S.F.C., S.A. Portugal 0.00% 51.00% 100.00% 100.00% Finance company 8 0 4 Financiera El Corte Inglés, E.F.C., S.A. Spain 0.00% 51.00% 51.00% 51.00% Finance company 260 59 140 Finsantusa, S.L. Unipersonal Spain 0.00% 100.00% 100.00% 100.00% Holding company 1,259 (2) 1,020 First National Motor Business Limited (j) United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 0 0 0 First National Motor Contracts Limited (j) United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 0 0 0 First National Motor Facilities Limited (j) United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 0 0 0 First National Motor Finance Limited (j) United Kingdom 0.00% 100.00% 100.00% 100.00% Advisory services 0 0 0 First National Motor Leasing Limited (j) United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 0 0 0 First National Motor plc United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 First National Tricity Finance Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 6 0 6 Fondation Holding Auto ABS Belgium Loans Belgium 0.00% (b) 0.00% 0.00% Securitization 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 238 Fondo de Titulización de Activos Santander Consumer Spain Auto 2014-1 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización PYMES Santander 13 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización PYMES Santander 14 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización PYMES Santander 15 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización Santander Consumer Spain Auto 2016-1 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización Santander Consumer Spain Auto 2016-2 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización Santander Financiación 1 Spain — (b) — — Securitization 0 0 0 Fondo de Titulización, RMBS Santander 7 Spain — (b) — — Securitization 0 0 0 Fondos Santander, S.A. Administradora de Fondos de Inversión (en liquidación) (j) Uruguay — 100.00 100.00 100.00 Fund management company 0 0 0 Fortensky Trading, Ltd. Ireland 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Fosse (Master Issuer) Holdings Limited United Kingdom 0.00% (b) 0.00% 0.00% Securitization 0 0 0 Fosse Funding (No.1) Limited United Kingdom — 1.00 1.00 1.00 Securitization (134) 136 0 Fosse Master Issuer PLC United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 5 (6) 0 Fosse PECOH Limited United Kingdom 0.00% (b) —% —% Inactive 0 0 0 Fosse Trustee (UK) Limited United Kingdom — 100.00 100.00 100.00 Securitization 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 239 FTPYME Banesto 2, Fondo de Titulización de Activos Spain 0.00% (b) 0.00% 0.00% Securitization 0 0 0 Fundo de Investimento em Direitos Creditórios Atacado- Não Padronizado Brazil — (b) — — Investment fund 130 (6) 0 Fundo de Investimentos em Direitos Creditórios Multisegmentos NPL Ipanema VI – Não padronizado Brazil — (b) — — Investment fund 194 23 0 Gamma, Sociedade Financeira de Titularização de Créditos, S.A. Portugal — 1.00 1.00 1.00 Securitization 7 0 8 GC FTPYME Pastor 4 Fondo de Titulización de Activos Spain 0.00% (b) 0.00% 0.00% Securitization 0 0 0 Gentium Payments Processing FZ-LLC United Arab Emirates — 100.00 100.00 — Financial services 4 (2) 2 Gesban México Servicios Administrativos Globales, S.A. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% Services 1 0 0 Gesban Santander Servicios Profesionales Contables Limitada Chile 0.00% 100.00% 100.00% 100.00% Accounting services 1 0 0 Gesban Servicios Administrativos Globales, S.L. Spain 99.99% 0.01% 100.00% 100.00% Services 5 0 1 Gesban UK Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Payments and collection services 1 0 0 Gestión de Instalaciones Fotovoltaicas, S.L. Unipersonal Spain 0.00% 100.00% 100.00% 100.00% Renewable energies 1 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 240 Gestión de Inversiones JILT, S.A. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Services 5 (2) 5 Gestora de Procesos S.A. en liquidación (j) Peru 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Getnet Adquirência e Serviços para Meios de Pagamento S.A. Brazil 0.04% 89.88% 89.91% 100.00% Payment services 340 75 297 Getnet Europe, Entidad de Pago, S.L. Spain 0.00% 100.00% 100.00% 100.00% Payment services 215 6 218 Getnet Sociedade de Credito Direto S.A. Brazil 0.00% 89.91% 100.00% 0.00% Finance company 12 1 12 Gira, Gestão Integrada de Recebíveis do Agronegócio S.A. Brazil 0.00% 71.93% 80.00% 0.00% Consulting services 1 (1) 2 Golden Bar (Securitisation) S.R.L. Italy — (b) — — Securitization 0 0 0 Golden Bar Stand Alone 2016-1 Italy — (b) — — Securitization 0 0 0 Golden Bar Stand Alone 2018-1 Italy — (b) — — Securitization 0 0 0 Golden Bar Stand Alone 2019-1 Italy — (b) — — Securitization 0 0 0 Golden Bar Stand Alone 2020-1 Italy — (b) — — Securitization 0 0 0 Golden Bar Stand Alone 2020-2 Italy — (b) — — Securitization 0 0 0 Golden Bar Stand Alone 2021-1 Italy — (b) — — Securitization 0 0 0 Grupo Empresarial Santander, S.L. Spain 99.62% 0.38% 100.00% 100.00% Holding company 3,348 637 2,406 Grupo Financiero Santander México, S.A. de C.V. Mexico 100.00% 0.00% 100.00% 100.00% Holding company 4,837 584 4,510 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 241 Guaranty Car, S.A. Unipersonal Spain 0.00% 100.00% 100.00% 100.00% Automotive 2 1 2 Hipototta No. 13 Portugal — (b) — — Securitization 0 0 0 Hipototta No. 4 FTC Portugal — (b) — — Securitization (51) (2) 0 Hipototta No. 4 plc Ireland — (b) — — Securitization (3) (1) 0 Hipototta No. 5 FTC Portugal — (b) — — Securitization (39) (2) 0 Hipototta No. 5 plc Ireland — (b) — — Securitization (11) (2) 0 Holbah II Limited Bahamas 0.00% 100.00% 100.00% 100.00% Holding company 404 0 557 Holbah Santander, S.L. Unipersonal Spain 0.00% 100.00% 100.00% 100.00% Holding company 213 349 785 Holmes Funding Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization (3) 11 0 Holmes Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Holmes Master Issuer plc United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization (11) (1) 0 Holmes Trustees Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 0 0 0 Hyundai Capital Bank Europe GmbH Germany 0.00% 51.00% 51.00% 51.00% Banking 701 (6) 391 Ibérica de Compras Corporativas, S.L. Spain 97.17% 2.83% 100.00% 100.00% E-commerce 7 1 6 Independence Community Bank Corp. United States 0.00% 100.00% 100.00% 100.00% Holding company 3,501 85 3,587 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 242 Insurance Funding Solutions Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Interfinance Holanda B.V. Netherlands 100.00% 0.00% 100.00% 100.00% Holding company 0 0 0 Inversiones Capital Global, S.A. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Holding company 105 (6) 111 Inversiones Marítimas del Mediterráneo, S.A. Spain 0.00% 100.00% 100.00% 100.00% Inactive 5 (1) 0 Isar Valley S.A. Luxembourg — (b) — — Securitization 0 0 0 Isla de los Buques, S.A. Spain 99.98% 0.02% 100.00% 100.00% Finance company 1 0 1 Klare Corredora de Seguros S.A. Chile 0.00% 33.63% 50.10% 50.10% Insurance brokerage 6 (3) 1 Landcompany 2020, S.L. Spain 17.66% 82.34% 100.00% 100.00% Real estate management 1,779 (78) 1,704 Langton Funding (No.1) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization (22) 22 0 Langton Mortgages Trustee (UK) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 0 0 0 Langton PECOH Limited United Kingdom — (b) — — Inactive 0 0 0 Langton Securities (2008-1) plc United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 1 (1) 0 Langton Securities (2010-1) PLC United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 2 (2) 0 Langton Securities (2010-2) PLC United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 0 0 0 Langton Securities Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 243 Laparanza, S.A. Spain 61.59% 0.00% 61.59% 61.59% Agricultural holding 28 0 16 Liderança Serviços Especializados em Cobranças Ltda. Brazil 0.00% 89.91% 100.00% 0.00% Collection services (1) 2 1 Liquetine, S.L Spain 0.00% 70.00% 100.00% 0.00% Renewable energies 0 0 1 Liquidity Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Factoring (1) 0 0 Luri 1, S.A., en liquidación (j) (m) Spain 46.00% 0.00% 46.00% 46.00% Real estate 0 0 0 Luri 6, S.A. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Real estate investment 1,366 (8) 1,373 MAC No. 1 Limited United Kingdom — (b) — — Mortgage credit company 0 0 0 Master Red Europa, S.L. Spain 96.34% 0.00% 96.34% 96.34% Cards 1 0 1 Mata Alta, S.L. Spain 0.00% 61.59% 100.00% 100.00% Real estate 0 0 0 Max Merger Sub, Inc. United States 0.00% 100.00% 100.00% 0.00% Inactive 0 0 0 Mercadotecnia, Ideas y Tecnología, S.A. de C.V. Mexico 0.00% 70.00% 70.00% 0.00% Payment methods 1 3 15 Merciver, S.L. Spain 99.90% 0.10% 100.00% 100.00% Financial advisory 1 0 1 Mercury Trade Finance Solutions S.A.S. Colombia 0.00% 50.10% 100.00% 0.00% IT services 0 0 0 Mercury Trade Finance Solutions, S.A. de C.V. Mexico 0.00% 50.10% 100.00% 100.00% IT services 0 0 0 Mercury Trade Finance Solutions, S.L. Spain 0.00% 50.10% 50.10% 50.10% IT services 10 1 24 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 244 Mercury Trade Finance Solutions, S.p.A. Chile 0.00% 50.10% 100.00% 100.00% IT services 1 0 0 Merlion Aviation One Designated Activity Company Ireland — (b) — — Renting 25 6 0 Mortgage Engine Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Financial services (7) (4) 0 Motor 2016-1 Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Motor 2016-1 PLC United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization 0 0 0 Motor 2017-1 Holdings Limited United Kingdom — (b) — — Securitization 0 0 0 Motor 2017-1 PLC United Kingdom 0.00% 100.00% 100.00% 100.00% Securitization (6) 6 0 Motor Securities 2018-1 Designated Activity Company Ireland — (b) — — Securitization (1) (1) 0 Mouro Capital I LP United Kingdom 0.00% 100.00% 100.00% 100.00% Investment fund 281 211 249 Multiplica SpA Chile 0.00% 100.00% 100.00% 100.00% Payment services 4 0 4 Naviera Mirambel, S.L. Spain 0.00% 100.00% 100.00% 100.00% Finance company 0 0 0 Naviera Trans Gas, A.I.E. Spain 99.99% 0.01% 100.00% 100.00% Renting 21 (3) 40 Naviera Trans Iron, S.L. Spain 100.00% 0.00% 100.00% 100.00% Leasing 24 0 21 Naviera Trans Ore, A.I.E. Spain 99.99% 0.01% 100.00% 100.00% Renting 25 3 17 Naviera Transcantábrica, S.L. Spain 100.00% 0.00% 100.00% 100.00% Leasing 5 0 4 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 245 Naviera Transchem, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Leasing 1 0 1 NeoAuto S.A.C. Peru 0.00% 55.00% 55.00% 55.00% Vehicles purchase by Internet 1 0 1 Newcomar, S.L., en liquidación (j) Spain 40.00% 40.00% 80.00% 80.00% Real estate 1 0 0 Novimovest – Fundo de Investimento Imobiliário Portugal 0.00% 78.63% 78.74% 78.74% Investment fund 254 4 203 NW Services CO. United States 0.00% 100.00% 100.00% 100.00% E-commerce 6 0 2 Open Bank Argentina S.A. Argentina 0.00% 99.66% 100.00% 100.00% Banking 35 (8) 33 Open Bank, S.A. Spain 100.00% 0.00% 100.00% 100.00% Banking 451 10 462 Open Digital Market, S.L. Spain 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Open Digital Services Argentina S.A.U. Argentina 0.00% 100.00% 100.00% 0.00% IT services 0 0 0 Open Digital Services, S.L. Spain 99.97% 0.03% 100.00% 100.00% Services 176 (108) 18 Open Mx Servicios Administrativos, S.A. de C.V. Mexico 0.00% 100.00% 100.00% 0.00% Financial services 0 0 0 Operadora de Carteras Gamma, S.A.P.I. de C.V. Mexico 100.00% 0.00% 100.00% 100.00% Holding company 8 1 6 Optimal Investment Services SA Switzerland 100.00% 0.00% 100.00% 100.00% Fund management company 33 9 29 Optimal Multiadvisors Ireland Plc / Optimal Strategic US Equity Ireland Euro Fund (e) (p) Ireland 0.00% 0.00% 0.00% 54.10% Fund management company 0 0 0 Optimal Multiadvisors Ireland Plc / Optimal Strategic US Equity Ireland US Dollar Fund (e) (p) Ireland 0.00% 0.00% 0.00% 51.93% Fund management company 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 246 PagoFX Europe S.A. Belgium 0.00% 100.00% 100.00% 100.00% Payment services 2 (1) 1 PagoFX UK Ltd United Kingdom 0.00% 100.00% 100.00% 100.00% Payment services 5 (3) 2 PagoNxt Ltd United Kingdom 100.00% 0.00% 100.00% 0.00% Holding company 0 0 0 PagoNxt Merchant SoluçõesTecnológicas Brasil Ltda. Brazil 0.00% 100.00% 100.00% 100.00% IT services 57 (20) 37 PagoNxt Merchant Solutions, S.L. Spain 0.00% 100.00% 100.00% 100.00% Holding company 913 (46) 938 PagoNxt One Trade UK Ltd United Kingdom 0.00% 100.00% 100.00% 0.00% Financial services 0 0 0 PagoNxt OneTrade España, E.D.E., S.L. Spain 0.00% 100.00% 100.00% 0.00% Financial services 0 0 0 PagoNxt Solutions, S.L. Spain 0.00% 100.00% 100.00% 100.00% Payment services 90 (61) 29 PagoNxt Trade Services, S.L. Spain 0.00% 100.00% 100.00% 100.00% Services 197 (58) 140 PagoNxt Trade, S.L. Spain 0.00% 100.00% 100.00% 100.00% IT services 244 (71) 172 PagoNxt, S.L. Spain 100.00% 0.00% 100.00% 100.00% Holding company 1,815 (153) 1,838 Parasant SA Switzerland 100.00% 0.00% 100.00% 100.00% Holding company 1,162 (2) 927 Paytec Logística e Armazém Ltda. Brazil 0.00% 89.91% 100.00% 0.00% Logistics services 0 0 0 Paytec Tecnologia em Pagamentos Ltda. Brazil 0.00% 89.91% 100.00% 0.00% Commerce 3 0 3 PBD Germany Auto 2018 UG (Haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 247 PBD Germany Auto Lease Master 2019 Luxembourg — (b) — — Securitization 0 0 0 PBD Germany Auto Lease Master S.A, Compartment 2021-1 Luxembourg — (b) — — Securitization 0 0 0 PBD Germany Auto Loan 2021 UG (Haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 PBE Companies, LLC United States 0.00% 100.00% 100.00% 100.00% Real estate 110 0 110 PECOH Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Pereda Gestión, S.A. Spain 99.99% 0.01% 100.00% 100.00% Holding company 45 35 4 Phoenix C1 Aviation Designated Activity Company Ireland — (b) — — Renting 13 4 0 Phoenix S.A. Uruguay 0.00% 100.00% 100.00% 0.00% Payment methods 0 0 3 PI Distribuidora de Títulos e Valores Mobiliários S.A. Brazil 0.00% 89.91% 100.00% 100.00% Securities company 79 (6) 66 Pingham International, S.A. (j) Uruguay — 100.00 100.00 100.00 Inactive 0 0 0 Pony S.A. Luxembourg — (b) — — Securitization 0 0 0 Portal Universia Argentina S.A. Argentina 0.00% 75.75% 75.75% 75.75% Internet 0 0 0 Portal Universia Portugal, Prestação de Serviços de Informática, S.A. Portugal 0.00% 100.00% 100.00% 100.00% Internet 0 0 0 Prime 16 – Fundo de Investimentos Imobiliário Brazil 0.00% 89.91% 100.00% 100.00% Investment fund 31 (2) 24 PSA Bank Deutschland GmbH Germany 0.00% 50.00% 50.00% 50.00% Banking 517 57 229 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 248 PSA Banque France France 0.00% 50.00% 50.00% 50.00% Banking 1,068 74 463 PSA Consumer Finance Polska Sp. z o.o. Poland 0.00% 40.22% 100.00% 100.00% Finance company 3 1 0 PSA Finance Belux S.A. Belgium 0.00% 50.00% 100.00% 50.00% Finance company 91 15 52 PSA Finance Polska Sp. z o.o. Poland 0.00% 40.22% 50.00% 50.00% Finance company 33 5 10 PSA Finance UK Limited United Kingdom 0.00% 50.00% 100.00% 50.00% Finance company 339 65 181 PSA Financial Services Nederland B.V. Netherlands 0.00% 50.00% 100.00% 50.00% Finance company 52 17 32 PSA Financial Services Spain, E.F.C., S.A. Spain 0.00% 50.00% 50.00% 50.00% Finance company 739 53 363 PSA Renting Italia S.p.A. Italy 0.00% 50.00% 100.00% 100.00% Renting 9 11 3 PSRT 2019-A United States — (b) — — Securitization 58 53 0 Punta Lima Wind Farm, LLC United States 0.00% 100.00% 100.00% 100.00% Renewable energies 44 (1) 43 Punta Lima, LLC United States 0.00% 100.00% 100.00% 100.00% Leasing 44 (1) 43 Retail Company 2021, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 0.00% Real estate 262 (3) 262 Retop S.A. (f) Uruguay 100.00% 0.00% 100.00% 100.00% Finance company 14 14 45 Return Capital S.A. Brazil 0.00% 89.91% 100.00% 100.00% Collection services (1) 4 3 Riobank International (Uruguay) SAIFE (p) Uruguay 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 249 Roc Aviation One Designated Activity Company Ireland — (b) — — Renting (2) (2) 0 Roc Shipping One Designated Activity Company Ireland — (b) — — Renting (4) 0 0 Rojo Entretenimento S.A. Brazil 0.00% 85.06% 94.60% 94.60% Services 21 0 17 SAM Asset Management, S.A. de C.V., Sociedad Operadora de Fondos de Inversión Mexico 0.00% 100.00% 100.00% 100.00% Fund management company 20 21 162 SAM Investment Holdings, S.L. Spain 92.37% 7.63% 100.00% 100.00% Management of funds 1,326 74 1,597 SANB Promotora de Vendas e Cobrança S.A. Brazil 0.00% 89.91% 100.00% 100.00% Finance company 3 (1) 2 Sancap Investimentos e Participações S.A. Brazil 0.00% 89.91% 100.00% 100.00% Holding company 139 39 142 Santander (CF Trustee Property Nominee) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Santander (CF Trustee) Limited (d) United Kingdom — (b) — — Inactive 0 0 0 Santander (UK) Group Pension Schemes Trustees Limited (d) United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Santander Ahorro Inmobiliario 1, S.A. Spain 98.53% 0.00% 98.53% 98.53% Real estate rental 1 0 1 Santander Ahorro Inmobiliario 2, S.A. Spain 99.91% 0.00% 99.91% 99.91% Real estate rental 1 0 1 Santander Asesorías Financieras Limitada Chile 0.00% 67.44% 100.00% 100.00% Securities company 53 2 37 Santander Asset Finance (December) Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 73 5 0 Santander Asset Finance plc United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 287 11 173 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 250 Santander Asset Management - S.G.O.I.C., S.A. Portugal 0.00% 100.00% 100.00% 100.00% Fund management company 7 5 12 Santander Asset Management Chile S.A. Chile 0.01% 99.94% 100.00% 100.00% Securities investment (5) 0 0 Santander Asset Management Luxembourg, S.A. Luxembourg 0.00% 100.00% 100.00% 100.00% Fund management company 4 4 0 Santander Asset Management S.A. Administradora General de Fondos Chile 0.00% 100.00% 100.00% 100.00% Fund management company 13 9 132 Santander Asset Management UK Holdings Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Holding company 195 5 186 Santander Asset Management UK Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Management of funds and portfolios 41 15 201 Santander Asset Management, LLC (j) Puerto Rico 0.00% 100.00% 100.00% 100.00% Management 0 (1) 0 Santander Asset Management, S.A., S.G.I.I.C. Spain 0.00% 100.00% 100.00% 100.00% Fund management company 248 61 393 Santander Back-Offices Globales Mayoristas, S.A. Spain 100.00% 0.00% 100.00% 100.00% Services 2 1 1 Santander Banca de Inversión Colombia, S.A.S. Colombia 100.00% 0.00% 100.00% 100.00% Advisory services 2 0 2 Santander Bank & Trust Ltd. Bahamas 0.00% 100.00% 100.00% 100.00% Banking 66 (1) 22 Santander Bank Polska S.A. Poland 67.41% 0.00% 67.41% 67.41% Banking 4,984 199 4,270 Santander Bank, National Association United States 0.00% 100.00% 100.00% 100.00% Banking 10,197 444 10,637 Santander Brasil Administradora de Consórcio Ltda. Brazil 0.00% 89.91% 100.00% 100.00% Services 107 53 144 Santander Brasil Gestão de Recursos Ltda. Brazil 0.08% 99.92% 100.00% 100.00% Securities investment 396 30 470 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 251 Santander Capital Desarrollo, SGEIC, S.A. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Management company of investment entities 5 0 3 Santander Capital Structuring, S.A. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% Investment companies 11 0 0 Santander Capitalização S.A. Brazil 0.00% 89.91% 100.00% 100.00% Insurance 9 58 60 Santander Cards Ireland Limited Ireland 0.00% 100.00% 100.00% 100.00% Cards (8) 0 0 Santander Cards Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Cards 100 0 100 Santander Cards UK Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 163 0 115 Santander Chile Holding S.A. Chile 22.11% 77.73% 99.84% 99.84% Holding company 1,490 310 1,208 Santander Consulting (Beijing) Co., Ltd. China 0.00% 100.00% 100.00% 100.00% Advisory services 9 0 4 Santander Consumer (UK) plc United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 853 296 310 Santander Consumer Auto Receivables Funding 2013-B2 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company (283) 200 0 Santander Consumer Auto Receivables Funding 2013-B3 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 101 70 0 Santander Consumer Auto Receivables Funding 2018-L1 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 182 75 0 Santander Consumer Auto Receivables Funding 2018-L3 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 63 49 0 Santander Consumer Auto Receivables Funding 2018-L5 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 53 99 0 Santander Consumer Auto Receivables Funding 2019-B1 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company (140) 190 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 252 Santander Consumer Auto Receivables Funding 2019-L2 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 58 87 0 Santander Consumer Auto Receivables Funding 2019-L3 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 32 36 0 Santander Consumer Auto Receivables Funding 2020-B1 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company (98) 82 0 Santander Consumer Auto Receivables Funding 2020-L1 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 71 39 0 Santander Consumer Auto Receivables Funding 2020-L2 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 7 11 0 Santander Consumer Auto Receivables Funding 2021-B1 LLC United States 0.00% 80.22% 100.00% 0.00% Inactive 0 0 0 Santander Consumer Auto Receivables Funding 2021-B2 LLC United States 0.00% 80.22% 100.00% 0.00% Inactive 0 0 0 Santander Consumer Auto Receivables Funding 2021-L1 LLC United States 0.00% 80.22% 100.00% 0.00% Inactive 0 0 0 Santander Consumer Auto Receivables Grantor Trust 2021-D United States 0.00% 80.22% 100.00% 0.00% Inactive 0 0 0 Santander Consumer Auto Receivables Trust 2021-D United States 0.00% 80.22% 100.00% 0.00% Inactive 0 0 0 Santander Consumer Bank AG Germany 0.00% 100.00% 100.00% 100.00% Banking 3,313 461 5,070 Santander Consumer Bank AS Norway 0.00% 100.00% 100.00% 100.00% Banking 2,540 202 2,313 Santander Consumer Bank GmbH Austria 0.00% 100.00% 100.00% 100.00% Banking 399 45 363 Santander Consumer Bank S.A. Poland 0.00% 80.44% 100.00% 100.00% Banking 743 35 484 Santander Consumer Bank S.p.A. Italy 0.00% 100.00% 100.00% 100.00% Banking 824 178 603 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 253 Santander Consumer Banque S.A. France 0.00% 100.00% 100.00% 100.00% Banking 544 40 492 Santander Consumer Credit Services Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company (39) 0 0 Santander Consumer Finance Global Services, S.L. Spain 0.00% 100.00% 100.00% 100.00% IT 6 2 5 Santander Consumer Finance Inc. Canada 96.42% 0.00% 96.42% 96.42% Holding company 63 0 94 Santander Consumer Finance Limitada Chile 49.00% 34.23% 100.00% 100.00% Finance company 63 20 41 Santander Consumer Finance Oy Finland 0.00% 100.00% 100.00% 100.00% Finance company 314 54 165 Santander Consumer Finance Schweiz AG Switzerland 0.00% 100.00% 100.00% 100.00% Leasing 50 7 60 Santander Consumer Finance, S.A. Spain 100.00% 0.00% 100.00% 100.00% Banking 8,807 601 10,022 Santander Consumer Financial Solutions Sp. z o.o. Poland 0.00% 80.44% 100.00% 100.00% Leasing 2 0 2 Santander Consumer Finanse Sp. z o.o. w likwidacji (j) Poland 0.00% 80.44% 100.00% 100.00% Services 16 0 12 Santander Consumer Holding Austria GmbH Austria 0.00% 100.00% 100.00% 100.00% Holding company 364 20 518 Santander Consumer Holding GmbH Germany 0.00% 100.00% 100.00% 100.00% Holding company 5,564 309 6,077 Santander Consumer Inc. Canada 0.00% 96.42% 100.00% 100.00% Finance company 66 16 46 Santander Consumer International Puerto Rico LLC Puerto Rico 0.00% 80.22% 100.00% 100.00% Services 9 0 7 Santander Consumer Leasing GmbH Germany 0.00% 100.00% 100.00% 100.00% Leasing 20 109 101 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 254 Santander Consumer Mobility Services, S.A. Spain 0.00% 100.00% 100.00% 100.00% Renting 12 0 12 Santander Consumer Multirent Sp. z o.o. Poland 0.00% 80.44% 100.00% 100.00% Leasing 27 4 5 Santander Consumer Operations Services GmbH Germany 0.00% 100.00% 100.00% 100.00% Services 11 1 18 Santander Consumer Receivables 10 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 764 286 0 Santander Consumer Receivables 11 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 420 196 0 Santander Consumer Receivables 3 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 315 60 0 Santander Consumer Receivables 7 LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 303 369 0 Santander Consumer Receivables Funding LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 1 3 0 Santander Consumer Renting, S.L. Spain 0.00% 100.00% 100.00% 100.00% Leasing 37 1 38 Santander Consumer S.A. Argentina 0.00% 99.31% 100.00% 100.00% Finance company 7 (2) 6 Santander Consumer S.A. Compañía de Financiamiento Colombia 79.02% 20.98% 100.00% 0.00% Finance company 6 (1) 6 Santander Consumer Services GmbH Austria 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Santander Consumer Services, S.A. Portugal 0.00% 100.00% 100.00% 100.00% Finance company 11 2 6 Santander Consumer Spain Auto 2019-1, Fondo de Titulización Spain — (b) — — Securitization 0 0 0 Santander Consumer Spain Auto 2020-1, Fondo de Titulización Spain — (b) — — Securitization 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 255 Santander Consumer Spain Auto 2021-1, Fondo de Titulización Spain — (b) — — Securitization 0 0 0 Santander Consumer Technology Services GmbH Germany 0.00% 100.00% 100.00% 100.00% IT services 21 3 22 Santander Consumer USA Holdings Inc. United States 0.00% 80.22% 80.22% 80.24% Holding company 4,688 2,871 6,705 Santander Consumer USA Inc. United States 0.00% 80.22% 100.00% 100.00% Finance company 5,257 (917) 3,481 Santander Consumo 4, F.T. Spain — (b) — — Securitization 0 0 0 Santander Consumo, S.A. de C.V., S.O.F.O.M., E.R., Grupo Financiero Santander México Mexico 0.00% 96.24% 100.00% 100.00% Cards 1,123 222 1,295 Santander Corredora de Seguros Limitada Chile 0.00% 67.20% 100.00% 100.00% Insurance brokerage 72 2 50 Santander Corredores de Bolsa Limitada Chile 0.00% 83.23% 100.00% 100.00% Securities company 47 2 40 Santander Corretora de Câmbio e Valores Mobiliários S.A. Brazil 0.00% 89.91% 100.00% 100.00% Securities company 114 13 115 Santander Corretora de Seguros, Investimentos e Serviços S.A. Brazil 0.00% 89.91% 100.00% 100.00% Holding company 567 166 656 Santander Customer Voice, S.A. Spain 99.50% 0.50% 100.00% 100.00% Services 2 0 1 Santander de Titulización, S.G.F.T., S.A. Spain 81.00% 19.00% 100.00% 100.00% Fund management company 5 3 2 Santander Digital Assets, S.L. Spain 100.00% 0.00% 100.00% 100.00% IT services 0 2 4 Santander Drive Auto Receivables LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 0 0 0 Santander Drive Auto Receivables Trust 2017-3 United States — (b) — — Securitization 52 29 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 256 Santander Drive Auto Receivables Trust 2018-1 United States — (b) — — Securitization 41 39 0 Santander Drive Auto Receivables Trust 2018-2 United States — (b) — — Securitization 18 37 0 Santander Drive Auto Receivables Trust 2018-3 United States — (b) — — Securitization 1 52 0 Santander Drive Auto Receivables Trust 2018-4 United States — (b) — — Securitization 4 46 0 Santander Drive Auto Receivables Trust 2018-5 United States — (b) — — Securitization (4) 50 0 Santander Drive Auto Receivables Trust 2019-1 United States — (b) — — Securitization (15) 58 0 Santander Drive Auto Receivables Trust 2019-2 United States — (b) — — Securitization (23) 80 0 Santander Drive Auto Receivables Trust 2019-3 United States — (b) — — Securitization (38) 86 0 Santander Drive Auto Receivables Trust 2020-1 United States — (b) — — Securitization (111) 134 0 Santander Drive Auto Receivables Trust 2020-2 United States — (b) — — Securitization (131) 175 0 Santander Drive Auto Receivables Trust 2020-3 United States — (b) — — Securitization (241) 271 0 Santander Drive Auto Receivables Trust 2020-4 United States — (b) — — Securitization (242) 233 0 Santander Drive Auto Receivables Trust 2021-1 United States — (b) — — Securitization 0 (43) 0 Santander Drive Auto Receivables Trust 2021-2 United States — (b) — — Securitization 0 (162) 0 Santander Drive Auto Receivables Trust 2021-3 United States — (b) — — Securitization 0 (263) 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 257 Santander Drive Auto Receivables Trust 2021-4 United States — (b) — — Securitization 0 (272) 0 Santander Drive Auto Receivables Trust 2022-1 United States — (b) — — Inactive 0 0 0 Santander Drive Auto Receivables Trust 2022-2 United States — (b) — — Inactive 0 0 0 Santander Drive Auto Receivables Trust 2022-3 United States — (b) — — Inactive 0 0 0 Santander Drive Auto Receivables Trust 2022-4 United States — (b) — — Inactive 0 0 0 Santander Equity Investments Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 41 (11) 35 Santander España Servicios Legales y de Cumplimiento, S.L. Spain 99.97% 0.03% 100.00% 100.00% Services 9 1 8 Santander Estates Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Real estate 3 (10) 0 Santander European Hospitality Opportunities Luxembourg 100.00% 0.00% 100.00% 0.00% Investment fund 1 0 1 Santander F24 S.A. Poland 0.00% 67.41% 100.00% 100.00% Finance company 0 0 0 Santander Facility Management España, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Real estate 417 (3) 392 Santander Factoring S.A. Chile 0.00% 99.84% 100.00% 100.00% Factoring 37 0 37 Santander Factoring Sp. z o.o. Poland 0.00% 67.41% 100.00% 100.00% Financial services 27 11 1 Santander Factoring y Confirming, S.A., E.F.C. Spain 100.00% 0.00% 100.00% 100.00% Factoring 208 70 126 Santander Finance 2012-1 LLC United States 0.00% 100.00% 100.00% 100.00% Financial services 3 0 3 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 258 Santander Financial Exchanges Limited United Kingdom 100.00% 0.00% 100.00% 100.00% Inactive 0 0 0 Santander Financial Services plc United Kingdom 0.00% 100.00% 100.00% 100.00% Banking 356 32 401 Santander Financial Services, Inc. Puerto Rico 0.00% 100.00% 100.00% 100.00% Finance company 22 (7) 14 Santander Financiamientos S.A. Peru 100.00% 0.00% 100.00% 0.00% Finance company 8 (1) 8 Santander Financing S.A.S. Colombia 100.00% 0.00% 100.00% 100.00% Financial advisory 1 (1) 1 Santander Finanse Sp. z o.o. Poland 0.00% 67.41% 100.00% 100.00% Financial services 60 7 19 Santander Fintech Holdings, S.L. Spain 100.00% 0.00% 100.00% 100.00% Holding company 79 (14) 61 Santander Fintech Limited United Kingdom 100.00% 0.00% 100.00% 100.00% Finance company 218 (7) 144 Santander Fundo de Investimento Santillana Multimercado Crédito Privado Investimento No Exterior (e) Brazil — (b) — — Investment fund 413 19 432 Santander Fundo de Investimento SBAC Referenciado di Crédito Privado (h) Brazil 0.00% 89.91% 100.00% 100.00% Investment fund 1,440 11 1,303 Santander Gestión de Recaudación y Cobranzas Ltda. Chile 0.00% 99.84% 100.00% 100.00% Financial services 6 0 5 Santander Global Cards & Digital Solutions Brasil S.A. Brazil 0.00% 100.00% 100.00% 100.00% IT consulting 0 0 0 Santander Global Consumer Finance Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Finance company 7 0 7 Santander Global Facilities, S.A. de C.V. Mexico 100.00% 0.00% 100.00% 100.00% Real estate management 125 3 127 Santander Global Facilities, S.L. Spain 100.00% 0.00% 100.00% 100.00% Real estate 73 2 70 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 259 Santander Global Services S.A. (j) Uruguay 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Santander Global Sport, S.A. Spain 100.00% 0.00% 100.00% 100.00% Sports activity 21 (2) 19 Santander Global Technology and Operations Brasil Ltda. Brazil 0.00% 100.00% 100.00% 100.00% IT services 3 0 1 Santander Global Technology and Operations Chile Limitada Chile 0.00% 100.00% 100.00% 100.00% IT services 22 2 20 Santander Global Technology and Operations, S.L. Spain 100.00% 0.00% 100.00% 100.00% IT services 434 19 370 Santander Green Investment, S.L. Spain 99.97% 0.03% 100.00% 0.00% Holding company 14 0 14 Santander Guarantee Company United Kingdom 0.00% 100.00% 100.00% 100.00% Leasing 5 0 3 Santander Hipotecario 1 Fondo de Titulización de Activos Spain — (b) — — Securitization 0 0 0 Santander Hipotecario 2 Fondo de Titulización de Activos Spain — (b) — — Securitization 0 0 0 Santander Hipotecario 3 Fondo de Titulización de Activos Spain — (b) — — Securitization 0 0 0 Santander Holding Imobiliária S.A. Brazil 0.00% 89.91% 100.00% 100.00% Real estate 71 1 65 Santander Holding Internacional, S.A. Spain 99.95% 0.05% 100.00% 100.00% Holding company 4,031 26 2,247 Santander Holdings USA, Inc. United States 100.00% 0.00% 100.00% 100.00% Holding company 17,120 2,633 12,579 Santander Inclusión Financiera, S.A. de C.V., S.O.F.O.M., E.R., Grupo Financiero Santander México Mexico 0.00% 96.24% 100.00% 100.00% Finance company 14 (7) 7 Santander Insurance Agency, U.S., LLC United States 0.00% 100.00% 100.00% 100.00% Insurance 1 0 1 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 260 Santander Insurance Services UK Limited United Kingdom 100.00% 0.00% 100.00% 100.00% Asset management 44 0 44 Santander Intermediación Correduría de Seguros, S.A. Spain 100.00% 0.00% 100.00% 100.00% Insurance brokerage 24 2 18 Santander International Products, Plc. (l) Ireland 99.99% 0.01% 100.00% 100.00% Finance company 1 0 0 Santander Inversiones S.A. Chile 0.00% 100.00% 100.00% 100.00% Holding company 968 201 1,032 Santander Investment Bank Limited Bahamas 0.00% 100.00% 100.00% 100.00% Banking 577 15 529 Santander Investment Chile Limitada Chile 0.00% 100.00% 100.00% 100.00% Finance company 473 6 321 Santander Investment Securities Inc. United States 0.00% 100.00% 100.00% 100.00% Securities company 456 32 488 Santander Investment, S.A. Spain 100.00% 0.00% 100.00% 100.00% Banking 1,408 77 245 Santander Investments GP 1 S.à.r.l. Luxembourg 0.00% 100.00% 100.00% 100.00% Management of funds 1 0 1 Santander Inwestycje Sp. z o.o. Poland 0.00% 67.41% 100.00% 100.00% Securities company 17 1 7 Santander ISA Managers Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Management of funds and portfolios 37 8 6 Santander Lease, S.A., E.F.C. Spain 100.00% 0.00% 100.00% 100.00% Leasing 61 11 51 Santander Leasing Poland Securitization 01 Designated Activity Company Ireland — (b) — — Securitization 0 0 0 Santander Leasing S.A. Poland 0.00% 67.41% 100.00% 100.00% Leasing 133 9 28 Santander Leasing S.A. Arrendamento Mercantil Brazil 0.00% 89.91% 100.00% 100.00% Leasing 1,709 59 1,590 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 261 Santander Leasing, LLC United States 0.00% 100.00% 100.00% 100.00% Leasing 0 1 2 Santander Lending Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Mortgage credit company 243 10 247 Santander Mediación Operador de Banca-Seguros Vinculado, S.A. Spain 100.00% 0.00% 100.00% 100.00% Insurance intermediary 49 1 3 Santander Merchant Platform Operations, S.A. de C.V. Mexico 0.00% 98.16% 100.00% 100.00% Financial services 1 1 2 Santander Merchant Platform Services, S.A. de C.V. Mexico 0.00% 98.16% 100.00% 100.00% Financial services 1 0 1 Santander Merchant Platform Solutions México, S.A. de C.V. Mexico 0.00% 98.16% 100.00% 100.00% Holding company 119 28 134 Santander Merchant Platform Solutions S.A. Argentina 0.00% 99.66% 100.00% 100.00% Payment methods 15 (6) 10 Santander Merchant Platform Solutions Uruguay S.A. Uruguay 0.00% 100.00% 100.00% 100.00% Payment methods 5 0 5 Santander Merchant S.A. Argentina 5.10% 94.90% 100.00% 100.00% Finance company 1 0 2 Santander Mortgage Holdings Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Financial services (1) (23) 0 Santander Paraty Qif PLC Ireland 0.00% 89.91% 100.00% 100.00% Investment companies 261 0 235 Santander Pensiones, S.A., E.G.F.P. Spain 0.00% 100.00% 100.00% 100.00% Pension fund management company 83 16 184 Santander Pensões - Sociedade Gestora de Fundos de Pensões, S.A. Portugal 100.00% 0.00% 100.00% 100.00% Pension fund management company 3 0 3 Santander Prime Auto Issuance Notes 2018-A Designated Activity Company Ireland — (b) — — Securitization (15) 10 0 Santander Prime Auto Issuance Notes 2018-B Designated Activity Company Ireland — (b) — — Securitization (17) (12) 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 262 Santander Prime Auto Issuance Notes 2018-C Designated Activity Company Ireland — (b) — — Securitization (6) (1) 0 Santander Prime Auto Issuance Notes 2018-D Designated Activity Company Ireland — (b) — — Securitization (24) (2) 0 Santander Prime Auto Issuance Notes 2018-E Designated Activity Company Ireland — (b) — — Securitization (10) (4) 0 Santander Private Banking Gestión, S.A., S.G.I.I.C. Spain 100.00% 0.00% 100.00% 100.00% Fund management company 52 12 35 Santander Private Banking s.p.a. in Liquidazione (j) Italy 100.00% 0.00% 100.00% 100.00% Finance company 13 1 7 Santander Private Banking UK Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Holding company 304 0 414 Santander Private Real Estate Advisory & Management, S.A. Spain 99.99% 0.01% 100.00% 100.00% Real estate 4 0 4 Santander Private Real Estate Advisory, S.A. Spain 100.00% 0.00% 100.00% 100.00% Real estate 14 1 15 Santander Real Estate, S.A. Spain 100.00% 0.00% 100.00% 100.00% Inactive 1 0 1 Santander Retail Auto Lease Funding LLC United States 0.00% 80.22% 100.00% 100.00% Finance company 0 0 0 Santander Retail Auto Lease Trust 2019- A United States — (b) — — Securitization 67 89 0 Santander Retail Auto Lease Trust 2019- B United States — (b) — — Securitization 42 71 0 Santander Retail Auto Lease Trust 2019- C United States — (b) — — Securitization 45 59 0 Santander Retail Auto Lease Trust 2020- A United States — (b) — — Securitization 48 33 0 Santander Retail Auto Lease Trust 2020- B United States — (b) — — Securitization 26 40 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 263 Santander Retail Auto Lease Trust 2021- A United States — (b) — — Securitization 0 63 0 Santander Retail Auto Lease Trust 2021- B United States — (b) — — Securitization 0 63 0 Santander Retail Auto Lease Trust 2021- C United States — (b) — — Securitization 0 88 0 Santander Retail Auto Lease Trust 2022- A United States — (b) — — Inactive 0 0 0 Santander Retail Auto Lease Trust 2022- B United States — (b) — — Inactive 0 0 0 Santander Retail Auto Lease Trust 2022- C United States — (b) — — Inactive 0 0 0 Santander Revolving Auto Loan Trust 2019-A United States — (b) — — Securitization (112) 111 0 Santander Revolving Auto Loan Trust 2021-A United States — (b) — — Inactive 0 0 0 Santander Río Asset Management Gerente de Fondos Comunes de Inversión S.A. Argentina 0.00% 100.00% 100.00% 100.00% Fund management company 6 7 3 Santander Río Trust S.A. Argentina 0.00% 99.97% 100.00% 100.00% Services 0 0 0 Santander Río Valores S.A. Argentina 5.10% 94.25% 100.00% 100.00% Securities company 3 1 4 Santander RMBS 6, Fondo de Titulización Spain — (b) — — Securitization 0 0 0 Santander S.A. Sociedad Securitizadora Chile 0.00% 67.24% 100.00% 100.00% Fund management company 0 0 0 Santander Secretariat Services Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Santander Securities LLC United States 0.00% 100.00% 100.00% 100.00% Securities company 39 4 43 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 264 Santander Seguros y Reaseguros, Compañía Aseguradora, S.A. Spain 100.00% 0.00% 100.00% 100.00% Insurance 1,434 191 1,188 Santander Servicios Corporativos, S.A. de C.V. Mexico 0.00% 96.24% 100.00% 100.00% Services 11 0 11 Santander Servicios Especializados, S.A. de C.V. Mexico 0.00% 96.24% 100.00% 100.00% Services 3 0 3 Santander Technology USA, LLC United States 0.00% 100.00% 100.00% 100.00% IT services 80 (12) 69 Santander Tecnología Argentina S.A. Argentina 0.00% 99.35% 100.00% 100.00% IT services 3 2 4 Santander Tecnología México, S.A. de C.V. Mexico 0.00% 96.24% 100.00% 100.00% IT services 45 1 45 Santander Tecnología y Operaciones España, S.L. Spain 100.00% 0.00% 100.00% 100.00% IT services 46 (4) 37 Santander Totta Seguros, Companhia de Seguros de Vida, S.A. Portugal 0.00% 99.91% 100.00% 100.00% Insurance 117 25 47 Santander Totta, SGPS, S.A. Portugal 99.91% 0.00% 99.91% 99.91% Holding company 3,550 54 5,351 Santander Towarzystwo Funduszy Inwestycyjnych S.A. Poland 50.00% 33.70% 100.00% 100.00% Fund management company 4 25 15 Santander Trade Services Limited Hong Kong 0.00% 100.00% 100.00% 100.00% Inactive 19 3 16 Santander UK Group Holdings plc United Kingdom 77.67% 22.33% 100.00% 100.00% Finance company 14,302 1,783 16,444 Santander UK Investments United Kingdom 100.00% 0.00% 100.00% 100.00% Finance company 53 (2) 48 Santander UK Operations Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Services 27 2 18 Santander UK plc United Kingdom 0.00% 100.00% 100.00% 100.00% Banking 16,029 937 15,741 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 265 Santander UK Technology Limited United Kingdom 0.00% 100.00% 100.00% 100.00% IT services 39 4 7 Santander Wealth Management International SA Switzerland 0.00% 100.00% 100.00% 100.00% Asset management 0 0 0 Santusa Holding, S.L. Spain 69.76% 30.24% 100.00% 100.00% Holding company 8,423 637 6,524 SC Austria Finance 2020-1 Designated Activity Company Ireland — (b) — — Securitization 0 0 0 SC Germany Auto 2014-2 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany Auto 2016-2 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany Auto 2018-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization (1) 0 0 SC Germany Auto 2019-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany Consumer 2014-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany Consumer 2018-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany Mobility 2019-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany S.A. Luxembourg — (b) — — Securitization 0 0 0 SC Germany S.A., Compartment Consumer 2020-1 Luxembourg — (b) — — Securitization 0 0 0 SC Germany S.A., Compartment Consumer 2021-1 Luxembourg — (b) — — Securitization 0 0 0 SC Germany S.A., Compartment Mobility 2020-1 Luxembourg — (b) — — Securitization 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 266 SC Germany Vehicles 2013-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Germany Vehicles 2015-1 UG (haftungsbeschränkt) Germany — (b) — — Securitization 0 0 0 SC Poland Consumer 15-1 Sp. z.o.o. (j) Poland — (b) — — Securitization 0 0 0 SC Poland Consumer 16-1 Sp. z o.o. Poland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto I Limited (j) Ireland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto II Limited (j) Ireland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto IX Limited Ireland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto KIMI VI Limited (j) Ireland — (b) — — Securitization 0 0 0 Subsidiaries of Banco Santander, S.A. 1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 267 SCF Ajoneuvohallinto VII Limited Ireland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto VIII Limited Ireland — (b) — — Securitization 0 0 0 SCF Ajoneuvohallinto X Limited Ireland — (b) — — Securitization 0 0 0 SCF Eastside Locks GP Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Real estate management 0 0 0 SCF Rahoituspalvelut I Designated Activity Company (j) Ireland — (b) — — Securitization 0 0 0 SCF Rahoituspalvelut II Designated Activity Company (j) Ireland — (b) — — Securitization 0 0 0 SCF Rahoituspalvelut IX DAC Ireland — (b) — — Securitization 1 0 0 SCF Rahoituspalvelut KIMI VI Designated Activity Company (j) Ireland — (b) — — Securitization 0 0 0 SCF Rahoituspalvelut VII Designated Activity Company Ireland — (b) — — Securitization 0 0 0 SCF Rahoituspalvelut VIII Designated Activity Company Ireland — (b) — — Securitization 0 0 0 SCF Rahoituspalvelut X DAC Ireland — (b) — — Securitization 0 0 0 SCM Poland Auto 2019-1 DAC Ireland — (b) — — Securitization 0 0 0 SDMX Superdigital, S.A. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% Payment platform 0 0 2 Secucor Finance 2013-I Designated Activity Company (i) (j) Ireland — (b) — — Securitization 0 0 0 Subsidiaries of Banco Santander, S.A.1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 268 Secucor Finance 2021-1, DAC Ireland — (b) — — Securitization 0 0 0 Services and Promotions Delaware Corp. United States 0.00% 100.00% 100.00% 100.00% Holding company 58 2 60 Services and Promotions Miami LLC United States 0.00% 100.00% 100.00% 100.00% Real estate 51 3 53 Servicio de Alarmas Controladas por Ordenador, S.A. Spain 99.99% 0.01% 100.00% 100.00% Security 2 0 1 Servicios de Cobranza, Recuperación y Seguimiento, S.A. de C.V. Mexico 0.00% 85.00% 85.00% 85.00% Finance company 34 1 32 Sheppards Moneybrokers Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Shiloh III Wind Project, LLC United States 0.00% 100.00% 100.00% 100.00% Renewable energies 324 1 325 Silk Finance No. 5 Portugal — (b) — — Securitization 1 9 0 SMPS Merchant Platform Solutions México, S.A de C.V Mexico 0.00% 98.16% 100.00% 100.00% Payments and collection services 112 27 141 Sociedad Integral de Valoraciones Automatizadas, S.A. Spain 100.00% 0.00% 100.00% 100.00% Appraisals 1 1 1 Sociedad Operadora de Tarjetas de Pago Santander Getnet Chile S.A. Chile 0.00% 67.12% 100.00% 100.00% Payments and collection services 20 -8 8 Socur S.A. (f) Uruguay 100.00% 0.00% 100.00% 100.00% Finance company 43 23 59 Solarlaser Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Solution 4Fleet Consultoria Empresarial S.A. Brazil 0.00% 71.93% 80.00% 0.00% Vehicle rental 3 0 2 Subsidiaries of Banco Santander, S.A.1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 269 Sovereign Community Development Company United States 0.00% 100.00% 100.00% 100.00% Holding company 38 1 39 Sovereign Delaware Investment Corporation United States 0.00% 100.00% 100.00% 100.00% Holding company 134 1 135 Sovereign Lease Holdings, LLC United States 0.00% 100.00% 100.00% 100.00% Financial services 221 1 221 Sovereign REIT Holdings, Inc. United States 0.00% 100.00% 100.00% 100.00% Holding company 7501 74 7575 Sovereign Spirit Limited (n) Bermudas 0.00% 100.00% 100.00% 100.00% Leasing 0 0 0 SSA Swiss Advisors AG Switzerland 0.00% 100.00% 100.00% 0.00% Asset management 0 0 3 Sterrebeeck B.V. Netherlands 100.00% 0.00% 100.00% 100.00% Holding company 4058 713 10331 Suleyado 2003, S.L. Unipersonal Spain 0.00% 100.00% 100.00% 100.00% Securities investment 25 0 24 Summer Empreendimentos Ltda. Brazil 0.00% 89.91% 100.00% 100.00% Real estate management 3 0 3 Super Pagamentos e Administração de Meios Eletrônicos S.A. Brazil 0.00% 100.00% 100.00% 100.00% Payment services 30 -7 79 Superdigital Argentina S.A.U. Argentina 0.00% 100.00% 100.00% 100.00% IT services 1 -1 1 Superdigital Colombia S.A.S. Colombia 0.00% 100.00% 100.00% 99.97% IT services 0 0 0 Superdigital Holding Company, S.L. Spain 0.00% 100.00% 100.00% 100.00% Holding company 103 3 106 Superdigital Perú S.A.C. Peru 0.00% 100.00% 100.00% 100.00% Financial services 1 0 0 Subsidiaries of Banco Santander, S.A.1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 270 Suzuki Servicios Financieros, S.L. Spain 0.00% 51.00% 51.00% 51.00% Intermediation 9 3 0 Svensk Autofinans WH 1 Designated Activity Company Ireland — (b) — — Securitization 0 0 0 Swesant SA Switzerland 0.00% 100.00% 100.00% 100.00% Holding company 19 42 0 SX Negócios Ltda. Brazil 0.00% 89.91% 100.00% 100.00% Telemarketing 10 2 11 Tabasco Energía España, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Holding company 6 0 0 Taxagest Sociedade Gestora de Participações Sociais, S.A. Portugal 0.00% 99.87% 100.00% 100.00% Holding company 56 0 0 Teatinos Siglo XXI Inversiones S.A. Chile 50.00% 50.00% 100.00% 100.00% Holding company 1497 277 2064 Tekutina Private Limited India 0.00% 100.00% 100.00% 0.00% Financial services 1 0 1 The Alliance & Leicester Corporation Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Real estate 14 0 14 The Best Specialty Coffee, S.L. Unipersonal Spain 100.00% 0.00% 100.00% 100.00% Restaurant services 3 0 2 Time Retail Finance Limited (j) United Kingdom 0.00% 100.00% 100.00% 100.00% Services 0 0 0 TIMFin S.p.A. Italy 0.00% 51.00% 51.00% 51.00% Finance company 53 -8 28 Tonopah Solar I, LLC United States 0.00% 100.00% 100.00% 100.00% Holding company 5 0 5 Tornquist Asesores de Seguros S.A. (j) Argentina 0.00% 99.99% 99.99% 99.99% Inactive 0 0 0 Subsidiaries of Banco Santander, S.A.1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 271 Toro Corretora de Títulos e Valores Mobiliários Ltda. Brazil 0.00% 53.95% 60.00% 0.00% Securities investment 11 -2 5 Toro Investimentos S.A. Brazil 0.00% 53.95% 100.00% 0.00% Consulting services 5 -1 2 Totta (Ireland), PLC (h) Ireland 0.00% 99.86% 100.00% 100.00% Finance company 451 9 450 Totta Urbe - Empresa de Administração e Construções, S.A. Portugal 0.00% 99.86% 100.00% 100.00% Real estate 102 -5 100 Trabajando.com Mexico, S.A. de C.V. en liquidación (j) Mexico 0.00% 100.00% 100.00% 100.00% Services 0 0 0 Trade Maps 3 Hong Kong Limited Hong-Kong — (b) — — Securitization 0 0 0 Trade Maps 3 Ireland Limited (j) Ireland — (b) — — Securitization 0 0 0 Trans Rotor Limited (j) United Kingdom 100.00% 0.00% 100.00% 100.00% Renting 0 0 0 Transolver Finance EFC, S.A. Spain 0.00% 51.00% 51.00% 51.00% Leasing 67 4 17 Tresmares Growth Fund Santander, SCR, S.A. Spain 100.00% 0.00% 100.00% 100.00% Holding company 32 0 32 Tresmares Santander Direct Lending, SICC, S.A. Spain 99.60% 0.00% 99.60% 99.60% Management of funds 414 6 413 Tuttle and Son Limited United Kingdom 0.00% 100.00% 100.00% 100.00% Inactive 0 0 0 Universia Brasil S.A. Brazil 0.00% 100.00% 100.00% 100.00% Internet 0 0 0 Universia Chile S.A. Chile 0.00% 86.84% 86.84% 86.84% Internet 0 0 0 Subsidiaries of Banco Santander, S.A.1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 272 Universia Colombia S.A.S. Colombia 0.00% 100.00% 100.00% 100.00% Internet 0 0 0 Universia España Red de Universidades, S.A. Spain 0.00% 89.45% 89.45% 89.45% Internet 2 0 2 Universia Holding, S.L. Spain 100.00% 0.00% 100.00% 100.00% Holding company 19 -3 17 Universia México, S.A. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% Internet 0 0 0 Universia Perú, S.A. Peru 0.00% 99.76% 99.76% 100.00% Internet 0 0 0 Universia Uruguay, S.A. Uruguay 0.00% 100.00% 100.00% 100.00% Internet 0 0 0 Uro Property Holdings, SOCIMI, S.A. (c) Spain 99.99% 0.00% 99.99% 99.99% Real estate investment 163 9 179 Verbena FCVS - Fundo de Investimentos em Direitos Creditórios Brazil — (b) — — Investment fund -3 3 0 Wallcesa, S.A. Spain 100.00% 0.00% 100.00% 100.00% Financial services -936 9 0 Wave Holdco, S.L. Spain 0.00% 100.00% 100.00% 100.00% Holding company 0 0 0 Waypoint Insurance Group, Inc. United States 0.00% 100.00% 100.00% 100.00% Holding company 9 0 9 WIM Servicios Corporativos, S.A. de C.V. Mexico 0.00% 100.00% 100.00% 100.00% Advisory services 0 0 0 WTW Shipping Designated Activity Company Ireland 100.00% 0.00% 100.00% 100.00% Leasing 15 1 9 Yera Servicer Company 2021, S.L. Unipersonal Spain 0.00% 100.00% 100.00% 0.00% Real estate management 19 -1 18 Subsidiaries of Banco Santander, S.A.1 % of ownership held by Banco Santander Percentage of voting power (k) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Capital + reserves Net results Carrying amount 273 a.Amount according to the provisional books of each company at the date of publication of these annexes generally referring to 31 December 2021 without taking into account, where applicable, interim dividends paid during the year. In the carrying amount (cost net of provision), the Group's percentage ownership has been applied to the figure for each holding company, disregarding goodwill impairments made in the consolidation process. The figures for foreign companies are converted into euros at the year-end exchange rate. b.Companies over which effective control is maintained. c.Data as at 31 December 2020, latest available accounts. d.Data as at 31 March 2021, latest accounts available. e.Data as at 30 June 2021, last accounts available. f.Data as at 30 September 2021, last accounts available. g.Data as at 31 July 2021, last accounts available. h.Data as at 30 November 2021, last accounts available. i.Data as at 31 January 2021, latest available accounts. j.Company in liquidation as at 31 December 2021. k.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 companies controlled by the parent company or by 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 the companies indirectly dependent on it, is that corresponding to the dependent company that directly participates in the share capital of the latter. l.Company resident for tax purposes in Spain. m.See note 2.b.i. n.Company resident for tax purposes in the United Kingdom. o.Data as at 28 February 2021, last accounts available. p.Companies in liquidation. Pending registration. (1) Companies issuing preference shares are listed in Annex III, together with other relevant information. 274 #### Appendix II Abra 1 Limited (k) Caymand Island — (h) — — Leasing Joint venture 0 0 0 Achmea Tussenholding, B.V. (b) Netherlands 8.89% 0.00% 8.89% 8.89% Holding company - 356 356 20 Administrador Financiero de Transantiago S.A. Chile 0.00% 13.42% 20.00% 20.00% Payment and collection services Associated 56 18 2 Aegon Santander Portugal Não Vida - Companhia de Seguros, S.A. Portugal 0.00% 48.95% 49.00% 49.00% Insurance Joint venture 56 14 9 Aegon Santander Portugal Vida - Companhia de Seguros Vida, S.A. Portugal 0.00% 48.95% 49.00% 49.00% Insurance Joint venture 129 23 18 Aeroplan - Sociedade Construtora de Aeroportos, Lda. (e) Portugal 0.00% 19.97% 20.00% 20.00% Inactive - 0 0 0 Aguas de Fuensanta, S.A. (e) (k) Spain 36.78% 0.00% 36.78% 36.78% Food - 0 0 0 Alcuter 2, S.L. (k) Spain 37.23% 0.00% 37.23% 37.23% Technical services - 0 0 0 Alma UK Holdings Ltd United Kingdom 30.00% 0.00% 30.00% 0.00% Holding company Joint venture 4 4 -1 Altamira Asset Management, S.A. (consolidado) Spain 0.00% 15.00% 15.00% 15.00% Real estate - 236 3 -2 Apolo Fundo de Investimento em Direitos Creditórios Brazil 0.00% 29.97% 33.33% 33.33% Investment fund Joint venture 454 421 33 Arena Communications Network, S.L. (consolidado) (b) Spain 20.00% 0.00% 20.00% 20.00% Advertising Associated 296 99 -6 Attijariwafa Bank Société Anonyme (consolidado) (b) Morocco 0.00% 5.10% 5.10% 5.11% Banking - 54,011 4,809 352 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results 275 Autopistas del Sol S.A. (b) Argentina 0.00% 14.17% 14.17% 14.17% Motorway concession - 169 82 0 Banco RCI Brasil S.A. Brazil 0.00% 35.87% 39.89% 39.89% Banking Joint venture 1,699 217 25 Banco S3 Caceis México, S.A., Institución de Banca Múltiple Mexico 0.00% 50.00% 50.00% 50.00% Banking Joint venture 157 67 4 Bank of Beijing Consumer Finance Company China 0.00% 20.00% 20.00% 20.00% Finance company Associated 1,369 120 8 Bank of Shanghai Co., Ltd. (consolidado) (b) China 6.54% 0.00% 6.54% 6.54% Banking - 342,252 23,563 2,903 CACEIS (consolidado) France 0.00% 30.50% 30.50% 30.50% Custody services Associated 122,132 3,979 187 Câmara Interbancária de Pagamentos - CIP Brazil 0.00% 16.07% 17.87% 17.65% Payment and collection services - 342 235 69 Cantabria Capital, SGEIC, S.A. Spain 50.00% 0.00% 50.00% 50.00% Venture capital Associated 0 0 0 Car10 Tecnologia e Informação S.A. Brazil 0.00% 41.96% 46.67% — Internet Joint venture 8 2 (1) CCPT - ComprarCasa, Rede Serviços Imobiliários, S.A. Portugal 0.00% 49.98% 49.98% 49.98% Real estate services Joint venture 0 0 0 Centro de Compensación Automatizado S.A. Chile 0.00% 22.37% 33.33% 33.33% Payment and collection services Associated 14 9 3 Centro para el Desarrollo, Investigación y Aplicación de Nuevas Tecnologías, S.A. (b) Spain 0.00% 49.00% 49.00% 49.00% Technology Associated 3 2 0 CNP Santander Insurance Europe Designated Activity Company Ireland 49.00% 0.00% 49.00% 49.00% Insurance brokerage Associated 1,004 191 42 CNP Santander Insurance Life Designated Activity Company Ireland 49.00% 0.00% 49.00% 49.00% Insurance brokerage Associated 1,294 151 43 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results 276 CNP Santander Insurance Services Ireland Limited Ireland 49.00% 0.00% 49.00% 49.00% Services Associated 31 4 1 Comder Contraparte Central S.A Chile 0.00% 8.37% 12.47% 12.47% Financial services Associated 34 11 1 Companhia Promotora UCI Brazil 0.00% 25.00% 25.00% 25.00% Financial services Joint venture 1 -1 0 Compañia Española de Financiación de Desarrollo, Cofides, S.A., SME (b) Spain 20.18% 0.00% 20.18% 20.18% Finance company - 153 140 10 Compañía Española de Seguros de Crédito a la Exportación, S.A., Compañía de Seguros y Reaseguros (consolidado) (b) Spain 23.33% 0.55% 23.88% 23.88% Credit insurance - 942 385 34 Compañía Española de Viviendas en Alquiler, S.A. Spain 24.07% 0.00% 24.07% 24.07% Real estate Associated 528 333 14 Compañía para los Desarrollos Inmobiliarios de la Ciudad de Hispalis, S.L., en liquidación (l) (e) Spain 21.98% 0.00% 21.98% 21.98% Real estate development - 38 6 0 Connecting Visions Ecosystems, S.L. Spain 19.90% 0.00% 19.90% 19.90% Consulting services Joint venture 2 2 -1 Corkfoc Cortiças, S.A. (c) Portugal 0.00% 27.55% 27.58% 27.58% Cork industry - 3 20 0 Corridor Texas Holdings LLC (consolidado) (b) United States 0.00% 33.40% 33.40% 36.30% Holding company - 190 163 -5 Desarrollo Eólico las Majas VI, S.L. Spain 45.00% 0.00% 45.00% 0.00% Renewable energies Joint venture 28 6 0 Ebury Partners Limited (consolidado) (d) (m) United Kingdom 0.00% 44.06% 51.28% 50.41% Payment services Associated 781 55 -69 Energias Renovables de Ormonde 25, S.L. Spain 0.00% 55.00% 55.00% 0.00% Renewable energies Joint venture 0 0 0 Energias Renovables de Ormonde 26, S.L. Spain 0.00% 55.00% 55.00% 0.00% Renewable energies Joint venture 0 0 0 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results 277 Energias Renovables de Ormonde 27, S.L. Spain 0.00% 55.00% 55.00% 0.00% Renewable energies Joint venture 0 0 0 Energias Renovables de Ormonde 30, S.L. Spain 0.00% 55.00% 55.00% 0.00% Renewable energies Joint venture 1 0 0 Energias Renovables de Titania, S.L. Spain 0.00% 55.00% 55.00% 0.00% Renewable energies Joint venture 0 0 0 Energias Renovables Gladiateur 45, S.L. Spain 0.00% 55.00% 55.00% 0.00% Renewable energies Joint venture 0 0 0 Energias Renovables Prometeo, S.L. Spain 0.00% 55.00% 55.00% 0.00% Renewable energies Joint venture 0 0 0 Euro Automatic Cash Entidad de Pago, S.L. Spain 50.00% 0.00% 50.00% 50.00% Payment services Associated 57 46 -12 European Hospitality Opportunities S.à r.l. (o) Luxembourg 0.00% 49.00% 49.00% 0.00% Holding company Joint venture 0 0 0 Evolve SPV S.r.l. Italy — (h) — — Securitizations Joint venture 105 0 7 FAFER- Empreendimentos Urbanísticos e de Construção, S.A. (b) (e) Portugal 0.00% 36.57% 36.62% 36.62% Real estate - 0 1 0 Federal Reserve Bank of Boston (b) United States 0.00% 20.09% 20.09% 25.73% Banking - 194,429 1,573 -1 Fondo de Titulización de Activos UCI 11 Spain — (h) — — Securitizations Joint venture 133 0 0 Fondo de Titulización de Activos UCI 14 Spain — (h) — — Securitizations Joint venture 346 0 0 Fondo de Titulización de Activos UCI 15 Spain — (h) — — Securitizations Joint venture 426 0 0 Fondo de Titulización de Activos UCI 16 Spain — (h) — — Securitizations Joint venture 597 0 0 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results 278 Fondo de Titulización de Activos UCI 17 Spain — (h) — — Securitizations Joint venture 517 0 0 Fondo de Titulización Hipotecaria UCI 12 Spain — (h) — — Securitizations Joint venture 189 0 0 Fondo de Titulización, RMBS Prado III Spain — (h) — — Securitizations Joint venture 0 0 0 Fondo de Titulización, RMBS Prado IV Spain — (h) — — Securitizations Joint venture 288 0 0 Fondo de Titulización, RMBS Prado IX Spain — (h) — — Securitizations Joint venture 499 0 0 Fondo de Titulización, RMBS Prado V Spain — (h) — — Securitizations Joint venture 309 0 0 Fondo de Titulización, RMBS Prado VI Spain — (h) — — Securitizations Joint venture 340 0 0 Fondo de Titulización, RMBS Prado VII Spain — (h) — — Securitizations Joint venture 481 0 0 Fondo de Titulización, RMBS Prado VIII Spain — (h) — — Securitizations Joint venture 467 0 0 Fortune Auto Finance Co., Ltd China 0.00% 50.00% 50.00% 50.00% Finance company Joint venture 3,181 384 61 Fremman limited United Kingdom 33.00% 0.00% 4.99% 4.99% Finance company Associated 2 0 -3 Gestora de Inteligência de Crédito S.A. Brazil 0.00% 17.98% 20.00% 20.00% Collection Joint venture 186 21 -10 Gire S.A. Argentina 0.00% 57.93% 58.33% 58.33% Payment and collection services Associated 158 25 13 HCUK Auto Funding 2017-2 Ltd United Kingdom — (h) — — Securitizations Joint venture 833 0 0 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results 279 Healthy Neighborhoods Equity Fund I LP (b) United States 0.00% 22.37% 22.37% 22.37% Real estate - 14 14 -2 Hyundai Capital UK Limited United Kingdom 0.00% 50.01% 50.01% 50.01% Finance company Joint venture 4,338 323 79 Hyundai Corretora de Seguros Ltda. Brazil 0.00% 44.96% 50.00% 50.00% Insurance brokerage Joint venture 1 0 0 Imperial Holding S.C.A. (e) (i) Luxembourg 0.00% 36.36% 36.36% 36.36% Securities investment - 0 -112 0 Imperial Management S.à r.l. (b) (e) Luxembourg 0.00% 40.20% 40.20% 40.20% Holding company - 0 0 0 Indice Iberoamericano de Investigación y Conocimiento, A.I.E. Spain 0.00% 51.00% 51.00% 51.00% Information system Joint venture 1 -6 -1 Inmoalemania Gestión de Activos Inmobiliarios, S.A. Spain 0.00% 20.00% 20.00% 20.00% Holding company - 0 0 0 Innohub S.A.P.I. de C.V. Mexico 0.00% 20.00% 20.00% 20.00% IT services Associated 1 3 -2 Inverlur Aguilas I, S.L. Spain 0.00% 50.00% 50.00% 50.00% Real estate Joint venture 0 0 0 Inverlur Aguilas II, S.L. Spain 0.00% 50.00% 50.00% 50.00% Real estate Joint venture 1 1 0 Inversiones Ibersuizas, S.A. (b) Spain 25.42% 0.00% 25.42% 25.42% Venture capital - 31 19 10 Inversiones ZS América Dos Ltda. Chile 0.00% 49.00% 49.00% 49.00% Real estate and securities investment Associated 269 269 34 Inversiones ZS América SpA Chile 0.00% 49.00% 49.00% 49.00% Real estate and securities investment Associated 395 396 35 J.C. Flowers I L.P. (b) United States 0.00% 11.10% 0.00% 0.00% Holding company - 2 2 -1 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results 280 JCF AIV P L.P. (b) Canada 0.00% 7.67% 4.99% 4.99% Holding company - 5 5 0 LB Oprent, S.A. Spain 40.00% 0.00% 40.00% 38.33% Industrial machinery rent Associated 4 1 1 Loop Gestão de Pátios S.A. Brazil 0.00% 32.10% 35.70% 35.70% Business services Joint venture 7 2 -1 Mapfre Santander Portugal - Companhia de Seguros, S.A. Portugal 0.00% 49.94% 49.99% 49.99% Insurance Associated 13 8 -3 Massachusetts Business Development Corp. (consolidado) (b) United States 0.00% 21.61% 21.61% 21.61% Finance company - 55 11 1 MB Capital Fund IV, LLC (b) United States 0.00% 21.51% 21.51% 21.51% Finance company - 18 17 1 Merlin Properties, SOCIMI, S.A. (consolidado) (b) Spain 19.07% 5.70% 24.77% 24.81% Real estate investment Associated 13,478 6,640 56 Metrovacesa, S.A. (consolidado) (b) Spain 31.94% 17.50% 49.44% 49.45% Real estate development Associated 2,927 2,343 -164 New PEL S.à r.l. (c) (e) Luxembourg 0.00% 7.67% 0.00% 0.00% Holding company - 0 0 0 NIB Special Investors IV-A LP (n) Canada 0.00% 0.00% 0.00% 4.99% Holding company - 0 0 0 NIB Special Investors IV-B LP (n) Canada 0.00% 0.00% 0.00% 4.99% Holding company - 0 0 0 Niuco 15, S.L. (k) Spain 37.23% 0.00% 37.23% 37.23% Technical services - 0 0 0 Ocyener 2008, S.L. Spain 0.00% 45.00% 45.00% 0.00% Holding company Associated 2 1 1 Operadora de Activos Beta, S.A. de C.V. Mexico 49.99% 0.00% 49.99% 49.99% Finance company Associated 0 0 0 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results 281 Pag10 Fomento Mercantil Eireli Brazil 0.00% 41.96% 46.67% — Factoring Joint venture 0 0 0 Payever GmbH Germany 0.00% 10.00% 10.00% 10.00% Software Associated 3 2 0 Play Digital S.A. Argentina 0.00% 15.59% 15.70% 0.00% Payment platform Associated 11 23 -12 POLFUND - Fundusz Poręczeń Kredytowych S.A. Poland 0.00% 33.70% 50.00% 50.00% Management Associated 28 20 0 Portland SPV S.r.l. Italy 0.00% (h) 0.00% 0.00% Securitizations Joint venture 234 0 0 Procapital - Investimentos Imobiliários, S.A. (c) (e) Portugal 0.00% 39.96% 40.00% 40.00% Real estate - 2 13 0 Project Quasar Investments 2017, S.L. (consolidado) (b) Spain 49.00% 0.00% 49.00% 49.00% Holding company - 6,984 2,638 -1,852 Promontoria Manzana, S.A. (consolidado) (b) Spain 20.00% 0.00% 20.00% 20.00% Holding company Associated 1,068 319 -38 PSA Corretora de Seguros e Serviços Ltda. Brazil 0.00% 44.96% 50.00% 50.00% Insurance Joint venture 0 0 0 PSA Insurance Europe Limited Malta 0.00% 50.00% 50.00% 50.00% Insurance Joint venture 254 59 26 PSA Life Insurance Europe Limited Malta 0.00% 50.00% 50.00% 50.00% Insurance Joint venture 110 13 20 Redbanc S.A. Chile 0.00% 22.44% 33.43% 33.43% Services Associated 29 9 1 Redsys Servicios de Procesamiento, S.L. (consolidado) Spain 24.90% 0.06% 24.96% 20.06% Cards Associated 108 71 4 Relevante e Astuto, S.A. Portugal 0.00% 70.00% 70.00% 0.00% Real estate management Joint venture 5 0 0 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results 282 Retama Real Estate, S.A. Spain 0.00% 50.00% 50.00% 50.00% Services Joint venture 30 -45 -1 Rías Redbanc S.A. Uruguay 0.00% 25.00% 25.00% 25.00% Services - 3 1 0 RMBS Green Belem I Portugal — (h) — — Securitizations Joint venture 309 0 0 S3 Caceis Brasil Distribuidora de Títulos e Valores Mobiliários S.A. Brazil 0.00% 50.00% 50.00% 50.00% Securities investment Joint venture 207 143 18 S3 Caceis Brasil Participações S.A. Brazil 0.00% 50.00% 50.00% 50.00% Holding company Joint venture 163 145 18 Sancus Green Investments II, S.C.R., S.A. (o) Spain 0.00% 43.29% 43.29% 0.00% Venture capital - 0 0 0 Santander Alternatives SICAV RAIF (c) Luxembourg 0.00% 48.03% 48.03% 100.00% Investment company - 13 12 0 Santander Assurance Solutions, S.A. Spain 0.00% 66.67% 66.67% 73.99% Insurance intermediary Joint venture 10 4 1 Santander Auto S.A. Brazil 0.00% 44.96% 50.00% 50.00% Insurance Associated 25 5 2 Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. Poland 0.00% 33.03% 49.00% 49.00% Insurance Associated 299 20 21 Santander Aviva Towarzystwo Ubezpieczeń S.A. Poland 0.00% 33.03% 49.00% 49.00% Insurance Associated 94 39 12 Santander Caceis Colombia S.A. Sociedad Fiduciaria Colombia 0.00% 50.00% 50.00% 50.00% Finance company Joint venture 7 7 -1 Santander Caceis Latam Holding 1, S.L. Spain 0.00% 50.00% 50.00% 50.00% Holding company Joint venture 722 716 5 Santander Caceis Latam Holding 2, S.L. Spain 0.00% 50.00% 50.00% 50.00% Holding company Joint venture 2 2 0 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results 283 Santander Generales Seguros y Reaseguros, S.A. Spain 0.00% 49.00% 49.00% 49.00% Insurance Joint venture 732 206 39 Santander Mapfre Seguros y Reaseguros, S.A. Spain 0.00% 49.99% 49.99% 49.99% Insurance Associated 90 57 -13 Santander Vida Seguros y Reaseguros, S.A. Spain 0.00% 49.00% 49.00% 49.00% Insurance Joint venture 1,036 367 36 Sedesa Seguros de Depósitos S.A. (b) Argentina 0.00% 13.47% 13.56% 0.00% Fund management - 2 2 0 Sepacon 31, S.L. (k) Spain 37.23% 0.00% 37.23% 37.23% Technical services - 0 0 0 Servicios de Infraestructura de Mercado OTC S.A Chile 0.00% 8.37% 12.48% 12.48% Services Associated 37 13 0 SIBS-SGPS, S.A. (b) Portugal 0.00% 16.52% 16.55% 16.55% Portfolio management - 365 59 41 Siguler Guff SBIC Fund LP (b) United States 0.00% 20.00% 20.00% 20.00% Investment fund - 8 1 0 Sistema de Tarjetas y Medios de Pago, S.A. (b) Spain 20.61% 0.00% 20.61% 18.11% Payment methods Associated 673 4 0 Sistemas Técnicos de Encofrados, S.A. (consolidado) (b) Spain 27.15% 0.00% 27.15% 27.15% Building materials - 89 14 0 Sociedad Conjunta para la Emisión y Gestión de Medios de Pago, E.F.C., S.A. Spain 45.70% 0.00% 45.70% 45.70% Payment services Joint venture 107 36 1 Sociedad de Garantía Recíproca de Santander, S.G.R. (b) Spain 25.35% 0.25% 25.60% 25.73% Financial services - 17 11 0 Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, S.A. (b) Spain 22.21% 0.00% 22.21% 22.21% Financial services - 27,586 230 -1,073 Sociedad Interbancaria de Depósitos de Valores S.A. Chile 0.00% 19.66% 29.29% 29.29% Securities deposit Associated 7 6 1 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results 284 Solar Maritime Designated Activity Company (b) Ireland — (h) — — Leasing Joint venture 113 -7 0 Stephens Ranch Wind Energy Holdco LLC (consolidado) (b) United States 0.00% 17.10% 17.10% 19.20% Renewable energies - 218 208 -7 Tbforte Segurança e Transporte de Valores Ltda. Brazil 0.00% 17.06% 18.98% 19.81% Security Associated 101 62 2 Tbnet Comércio, Locação e Administração Ltda. Brazil 0.00% 17.06% 18.98% 19.81% Telecommunic ations Associated 69 66 2 Tecban Serviços Integrados Ltda. Brazil 0.00% 17.06% 18.98% 0.00% IT services Associated 0 0 0 Tecnologia Bancária S.A. Brazil 0.00% 17.06% 19.81% 19.81% ATM Associated 428 115 26 Tikgi Aviation One Designated Activity Company Ireland — (h) — — Renting - 224 -2 1 Tonopah Solar Energy Holdings I, LLC (consolidado) (b) United States 0.00% 26.80% 26.80% 26.80% Holding company Joint venture 0 0 0 Trabajando.com Chile S.A. Chile 0.00% 33.33% 33.33% 33.33% Services Associated 2 -1 1 Transbank S.A. Chile 0.00% 16.78% 25.00% 25.00% Cards Associated 1,366 101 -13 Tresmares Growth Fund II, SCR, S.A. Spain 40.00% 0.00% 40.00% 40.00% Holding company - 49 45 -2 Tresmares Growth Fund III, SCR, S.A. Spain 40.00% 0.00% 40.00% 40.00% Holding company - 38 34 -2 U.C.I., S.A. Spain 50.00% 0.00% 50.00% 50.00% Holding company Joint venture 448 127 -6 UCI Hellas Credit and Loan Receivables Servicing Company S.A. Greece 0.00% 50.00% 50.00% 50.00% Financial services Joint venture 1 1 0 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results 285 UCI Holding Brasil Ltda. Brazil 0.00% 50.00% 50.00% 50.00% Holding company Joint venture 1 0 0 UCI Mediação de Seguros Unipessoal, Lda. Portugal 0.00% 50.00% 50.00% 50.00% Insurance brokerage Joint venture 0 0 0 UCI Servicios para Profesionales Inmobiliarios, S.A. Spain 0.00% 50.00% 50.00% 50.00% Real estate services Joint venture 1 0 0 Unicre-Instituição Financeira de Crédito, S.A. Portugal 0.00% 21.83% 21.86% 21.86% Finance company Associated 409 99 20 Unión de Créditos Inmobiliarios, S.A., EFC Spain 0.00% 50.00% 50.00% 50.00% Mortgage credit company Joint venture 11,294 459 7 VCFS Germany GmbH Germany 0.00% 50.00% 50.00% 50.00% Marketing Joint venture 1 0 0 Venda de Veículos Fundo de Investimento em Direitos Creditórios Brazil — (h) — — Securitizations Joint venture 107 103 4 Volvo Car Financial Services UK Limited United Kingdom 0.00% 50.01% 50.01% 50.00% Leasing Joint venture 927 81 -4 Webmotors S.A. Brazil 0.00% 62.94% 70.00% 70.00% Services Joint venture 54 32 10 Zurich Santander Brasil Seguros e Previdência S.A. Brazil 0.00% 48.79% 48.79% 48.79% Insurance Associated 11,892 365 106 Zurich Santander Brasil Seguros S.A. Brazil 0.00% 48.79% 48.79% 48.79% Insurance Associated 156 -2 29 Zurich Santander Holding (Spain), S.L. Spain 0.00% 49.00% 49.00% 49.00% Holding company Associated 1,182 936 246 Zurich Santander Holding Dos (Spain), S.L. Spain 0.00% 49.00% 49.00% 49.00% Holding company Associated 587 384 204 Zurich Santander Insurance América, S.L. Spain 49.00% 0.00% 49.00% 49.00% Holding company Associated 1,996 1,490 475 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results 286 Zurich Santander Seguros Argentina S.A. (j) Argentina 0.00% 49.00% 49.00% 49.00% Insurance Associated 60 18 18 Zurich Santander Seguros de Vida Chile S.A. Chile 0.00% 49.00% 49.00% 49.00% Insurance Associated 213 23 30 Zurich Santander Seguros Generales Chile S.A. Chile 0.00% 49.00% 49.00% 49.00% Insurance Associated 249 45 13 Zurich Santander Seguros México, S.A. Mexico 0.00% 49.00% 49.00% 49.00% Insurance Associated 887 34 88 Zurich Santander Seguros Uruguay S.A. Uruguay 0.00% 49.00% 49.00% 49.00% Insurance Associated 32 14 7 Societies of which Grupo Santander owns more than 5% (g) , entities associated with Grupo Santander and jointly controlled entities % of ownership held by Banco Santander Percentage of voting power (f) EUR million (a) Company Location Direct Indirect Year 2021 Year 2020 Activity Type of company Asset Capital + reserves Net results a.Amount according to the provisional books at the date of publication of these annexes of each company generally referring to 31 December 2021, unless otherwise indicated because the annual accounts have not yet been prepared. Data for foreign companies are converted into euros at the year-end exchange rate. b.Data as at 31 December 2020, latest available accounts. c.Data as at 31 December 2019, latest available accounts. d.The Group is entitled to receive 51.28% of the dividends distributed by the company. e.Company in liquidation as at 31 December 2021. f.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 companies controlled by the parent company or by 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 the companies indirectly dependent on it, is that corresponding to the dependent company that directly participates in the share capital of the latter. g.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 financial statements must give (in accordance with articles 48 of the Commercial Code and 260 of the Spanish Companies Act). h.Companies over which joint control is maintained. i.Data as at 31 October 2020, latest available accounts. j.Data as at 30 June 2021, latest available accounts. k.Company with no financial information available. l.Data as at 30 November 2018, latest available accounts. m.Data as at 30 April 2021, latest available accounts. n.Company in liquidation. Pending registration. o.Company recently incorporated, no accounts available. 287 #### Appendix III Issuing subsidiaries of shares and preference shares % of ownership held by Banco Santander EUR million (a) Company Location Direct Indirect Activity Capital Reserves Cost of preferred Net results Emisora Santander España, S.A. Unipersonal Spain 100.00% 0.00% Finance company 2 — — — Santander UK (Structured Solutions) Limited United Kingdom 0.00% 100.00% Finance company — — — — Sovereign Real Estate Investment Trust United States 0.00% 100.00% Finance company 4,931 (3,219) 43 74 a.Amount according to the books of each interim company as at 31 December 2021, converted into euro (in the case of foreign companies) at the year-end exchange rate. 288 #### Appendix IV #### Notifications of acquisitions and disposals of investments in2021 Details of the notifications of acquisitions and disposals of participations for 2021 in accordance with Article 125 of the Securities Market Law may be found below: On 10 May 2021, Banco Santander, S.A. notified to the CNMV of the increase of its stake in REPSOL above the 3% threshold up to 3.584%, dated as of 4 May 4 2021. On 25 June 2021, Banco Santander, S.A. notified to the CNMV of the decrease of its stake in REPSOL, S.A. below the 3% threshold up to 2.718%, dated as of 21 June 2021. On 26 November 2021, Banco Santander, S.A. notified to the CNMV of the increase of its stake in REPSOL above the 3% threshold up to 3.829%, dated as of 22 November 2021. 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. 289 #### Appendix V Deduction for reinvestment of extraordinary income corresponding to the companies of the Fiscal Consolidation Group, whose dominant was Banco Popular Español, S.A.U. Based on the provisions of the Transitional Provision 24th of Law 27/2014 on income eligible for the reinvestment of extraordinary profits provided for in article 42 of the previous Consolidated Text of the Corporation Income Tax Law, which states that such income shall be regulated by the provisions of the aforementioned article 42, and in particular compliance with paragraph 10 of that provision, which provides for the obligation to detail the amount of the income received from the deduction provided for in that Article, as well as the year in which the reinvestment took place, all of this as long as the period for maintaining the investment has not yet been met provided for in paragraph 8 of the aforementioned provision, the following information is collected concerning capital gains generated up to the financial year 2014, with a reinvestment period from the year 2014 to 2017. The detailed information refers to both Banco Popular and other companies in its Fiscal Consolidated Group up to 2017, inclusive, which obtained income eligible for the reinvestment deduction and/or have made investments in assets referred to in Article 42 (3). Amount of income received to the 12% deduction in 2017: EUR 21,333,543.67. Reinvestments made in 2017: EUR 47,546,533.73. 290 #### Appendix VI List of Transactions subject to the Special Regime for Mergers, Divisions, Assets Contributions and Exchange of Securities in which the company has acted as an Acquiring Entity or Partner In compliance with the reporting obligations established in Article 86 of Law 27/2014, of 27 November, on Corporate Tax (LIS), the following information is provided on the transactions subject to the tax regime of mergers, divisions, contributions of assets and exchange of securities, provided for in Chapter VII of Title VII of the LIS, in which BANCO SANTANDER, S.A. has intervened during 2021: I.  According to Article 86 (1) of the LIS, it is reported that the company BANCO SANTANDER, S.A. has intervened as an acquirer in the following transactions: –Merger by absorption of POPULAR SPAIN HOLDING DE INVERSIONES S.L.U., SANTANDER INVESTMENT I S.A.U. and ADMINISTRACIÓN DE BANCOS LATINOAMERICANOS SANTANDER S.L., by BANCO SANTANDER, S.A. which owned all the shares of the absorbed entities, directly or indirectly. This transaction constitutes a merger as regulated in Article 76.1.c) of the LIS. The information required by Article 86.1 of the LIS is included in these notes to the consolidated financial statements. II. According to Article 86 (2) of the LIS, it is reported that BANCO SANTANDER, S.A. has intervened as a partner in the following operations: –Merger by absorption of SANTANDER GLOBAL OPERATIONS, S.A., SOCIEDAD UNIPERSONAL by SANTANDER GLOBAL TECHNOLOGY AND OPERATIONS, S.L., SOCIEDAD UNIPERSONAL (formerly SANTANDER GLOBAL TECHNOLOGY, S.L., SOCIEDAD UNIPERSONAL). This transaction constitutes a merger as regulated in article 76.1.a) of the LIS. BANCO SANTANDER, S.A. had a full shareholding in the capital of both the absorbed company and the absorbing company. The book value of the securities delivered from SANTANDER GLOBAL OPERATIONS, S.A., SOCIEDAD UNIPERSONAL was EUR 23,619,104.29. The value at which BANCO SANTANDER, S.A. has accounted for the securities received in the entity SANTANDER GLOBAL TECHNOLOGY AND OPERATIONS, S.L., SOCIEDAD UNIPERSONAL is EUR 23,619,104.29. –Segregation of the autonomous economic unit that integrates the business of management of empty bank branches, with project of closure or leased to third parties not linked to the banking activity of BANCO SANTANDER, S.A. in favor of a newly created company called RETAILCOMPANY 2021, S.L.U. This operation constitutes a spin-off of those regulated in article 76.2.1ºb) of the LIS. The net value of the assets and liabilities corresponding to the branch of activity contributed amounts to EUR 262,030,688.77. The value at which BANCO SANTANDER, S.A. has recorded the securities received from RETAILCOMPANY 2021, S.L.U. is EUR 262,030,688.77. –Exchange of securities regulated in articles 76.5 and 80 of the LIS by which PAGONxt, S.L. acquires most of the voting rights (51%) in the entity GETNET EUROPE, ENTIDAD DE PAGO, S.L. (formerly called SANTANDER ESPAÑA MERCHANT SERVICES ENTIDAD DE PAGO S.L.) through the attribution to its partner BANCO SANTANDER, S.A., of securities representing the acquiring entity. The book value at which BANCO SANTANDER, S.A. had accounted for the securities delivered from GETNET EUROPE, ENTIDAD DE PAGO, S.L. was EUR 94,452,410.36. The value at which BANCO SANTANDER, S.A. has accounted for the securities received from PAGONxt, S.L. is EUR 110,111,550.00. –Exchange of securities regulated in articles 76.5 and 80 of the LIS by which PAGONxt, S.L. acquires a greater shareholding (it already held the majority) of the voting rights in the entity PAGONxt MERCHANT SOLUTIONS S.L. This transaction is executed as a contribution to reserves made by the partners, consisting of a non-monetary contribution by BANCO SANTANDER, S.A. of the shares of PAGONxt MERCHANT SOLUTIONS S.L. (representing a 39.4% share of the share capital of this company and of its voting rights). The book value at which BANCO SANTANDER, S.A. had recorded the securities delivered from PAGONxt MERCHANT SOLUTIONS S.L. was EUR 295,504,952.66, while their tax value amounted to EUR 594,734,704.60, the difference corresponding to a mark-to-market adjustment made in BANCO SANTANDER, S.A. as a result of the spin-off operations that gave rise to the acquisition of the holdings (article 17.4 of the LIS). The value at which BANCO SANTANDER, S.A. has recorded the securities received from PAGONxt, S.L. is EUR 295,504,952.66. 291 –Non-monetary contribution regulated in article 87 of the LIS by which PAGONxt, S.L. acquires a participation (49%) in the entity GETNET EUROPE, ENTIDAD DE PAGO, S.L. (formerly called SANTANDER ESPAÑA MERCHANT SERVICES ENTIDAD DE PAGO S.L.) through the attribution to its partner BANCO SANTANDER, S.A., of securities representing the acquiring entity. The book value at which BANCO SANTANDER, S.A. had accounted for the securities delivered from GETNET EUROPE, ENTIDAD DE PAGO, S.L. was EUR 90,748,394.22. The value at which BANCO SANTANDER, S.A. has accounted for the securities received from PAGONxt, S.L. is EUR 104,924,000. –Non-monetary contribution of assets by BANCO SANTANDER, S.A. and ALTAMIRA SANTANDER REAL ESTATE, S.A. to LANDCOMPANY 2020, S.L. This transaction constitutes a non-monetary contribution as regulated in article 87 of the LIS and did not benefit from the regime provided for in article 77.1 of said regulation. The net value of the assets contributed amounts to EUR 20,998,930.00. The value at which BANCO SANTANDER, S.A. has accounted for the securities received from LANDCOMPANY 2020, S.L. is EUR 20,998,930.00. III. In compliance with Article 86.3 of the LIS, it is noted that the particulars required by Article 86 (1) and (2) relating to transactions subject to the tax regime for mergers, divisions, contributions of assets and exchange of securities provided for in Chapter VII of Title VII of the LIS, in which BANCO SANTANDER , S.A. has intervened as an acquirer or as a partner during previous years, they are listed in the first annual report approved after each of the aforementioned operations. 292 #### Appendix VII #### Information to include in compliance with Article #### 12.3 of the TRLIS Regarding the information requested in Article 12.3 of the Consolidated Text which passes on the Corporate Income Tax Law as amended by Law 4/2008 of December 23, 2008, regarding tax periods whisch began on January 1, 2008, until its repeal by Law 16/2013 of October 29, 2013, Banco Santander has no deductions pending to integrate as of year-end 2021. 293 #### Appendix VIII Information regarding the merger by absorption of Popular Spain Holding de Inversiones, S.L.U., Santander Investment I, S.A.U. and Administración de Bancos Latinoamericanos Santander, S.L., pursuant to Article 86.1 of the Corporate Income Tax Law 27/2014. a.  A  year in which the transferring entity acquired the transferred assets that are liable to amortization. There are no assets in Santander Global Property, S.L.U. and BPE Financiaciones, S.A.U. entities that are subject to amortization. There are no assets at Popular Spain Holding de Inversiones, S.L.U., Santander Investment I, S.A.U. and Administración de Bancos Latinoamericanos Santander, S.L. that are subject to depreciation. b. Last balance sheet closed by transmitting entities. The latest balance sheets of transmitting entities are contained in note 1.i. c. A list of assets acquired which have been incorporated into the accounting books for a value other than the value listed in the transferring entity prior to the completion of the transaction, expressing both values as well as the value corrections made in the accounting books of the two entities. The following is a detail of the asset captions in the balance sheet of the transferring entity that have been recorded at a different carrying amount in the acquiring entity: EUR thousand Heading Book value Santander Investment I, S.A.U. Merge Value Adjustment Book value Banco Santander Investments in subsidiaries, joint ventures and associates 1,857 227 2,084 EUR thousand Heading Book value Administración de Bancos Latinoamericanos Santander, S.L. Merge Value Adjustment Book value Banco Santander Investments in subsidiaries, joint ventures and associates 576 176 752 d. List of tax profits enjoyed by the transferring entity, for which the acquiring entity must assume compliance with certain requirements. There are no tax benefits in the transferring entity over which Banco Santander, S.A. must assume compliance with certain requirements. 294 #### Appendix IX #### Agent network - Collaborating agents, Agents empowered at 31 of December 2021. NEOBAN SL BERCAMLU S.L. SALVADOR CEA PEREZ FRANCISCO JAVIER MARTINEZ FERNANDEZ ANTONIO GUILLEN RAMIREZ MARIA DE LOS ANGELES ESCUDERO ORTEGA ALBERTO SANTIAGO LLORENTE MARTINEZ JOSE ANTONIO ESCUDERO ORTEGA JOAQUIN GALVEZ RODRIGUEZ CRISTOPHER DIAZ MUÑOZ IVAN PEREZ VARGAS SIMO CONSULTORIA SL ALICIA MATILDE LOPEZ FRANCO RAFAEL JESUS VILLARREAL ARIZA SARA GIL LECHADO FANDILA GARCIA ZAMORA CARBALLO & CARO 2019, S.L. ERNESTO MARTINEZ FERNANDEZ ISAMAR ORDOÑEZ MUÑOZ BRIGIDA MARIA ROMERO SALADO FRANCISCA MARIA LOPEZ PEREZ GONZALO MARTINEZ-CAÑAVATE GOMEZ-MILLAN MAYKA GONZALEZ HEREDIA LIDIA MONTILLA GONZALEZ JOSEFA SIMON YEBENES MANUEL BARRIGA DORADO FERNANDO GONZALEZ SANCHEZ CORDOBESA DE INVERSIONES PUNTAS LEÓN S.L. AAFF RUTE S.L. FINANTOR 2017, S.L. ROLARG SERVICIOS FINANCIEROS, S.L. BURMA AGENTES FINANCIEROS S.L. MONICA CARRANZA S.L.U. TINTO SANTA ROSA S.L. SERSAF S.L. BOPECON INVERSIONES S.L. CHARUMA S.L. CETINVE, S.L. TREZAVILLA SLU SANPIBO SL NUBARPOL S.L. SERVICIOS FINANCIEROS SANLO, S.L. GRANDERSAN SLU VINUESA & MOCHON 2014, S.L.L. ISAMER FINANCIEROS S.L. ABU ROAD, S.L. RODRIGUEZ CALS FINANCIERA S.L. GESTIÓN FINANCIERA MALACITANA 2007 S.L. RC 2007 FINANCIEROS SL ESTEPONA FINANCIEROS, S.L. MIGUEL ANGEL CASASOLA CASASOLA AGUEDA MARTIN RAMIREZ FRANCISCO JOSE LOPEZ SILVENTE SOLEDAD LAMBERTO GARCIA GESTIONES MORENO E HIJOS S.L. ANTONIO MARIN VALIENTE ANTONIO ALFONSO HERRERA RAMIREZ ANTONIO  CEREZUELA RUIZ FRANCISCO JOSE GARCIA MORA MULTIALGAIDA, S.L. MARIA LUISA PEREZ GUILLEN CRISTINA NADALES PEREZ NATALIA FERNANDEZ SANCHEZ SERVICIOS FINANCIEROS PEDRO ABAD, S.L. JOSE MARIN PEREZ 295 JUAN CARLOS GOMEZ GARCIA ANGEL LOPEZ RODRIGUEZ JOSE MANUEL GUEVARA GONZALEZ SERVICIOS FINANCIEROS DEL CONDADO S.L.U. ASESORIA GESTION GLOBAL S.L. ANA MARIA DIAZ SANTANA NURIA MONTERO GONZALEZ MARIA ISABEL GARCIA GONZALEZ FRANCISCO JAVIER ORTIZ CASTILLO MARIA ANTONIA POZA GARCIA NURIA  FERNANDEZ REYES MARIA DEL PILAR PLAZA MUÑOZ MARIA JOSE CHARNECO HERRERO ANTONIO ESCUDERO VILLAREJO CARMEN PINTO DIAZ LOURDES ROMERO LOPEZ REQUERTILLO, S.L. JUAN LEON NAVARRETE SERVICIOS INTEGRALES DOÑANA S.L. MARIA DOLORES MORIANA RODRIGUEZ RICARDO PIÑERO GARCIA FRANCISCO CASTILLO CONTRERAS MARIA VICTORIA POVEDA DIOS MARIA JESUS MARTIN RODRIGUEZ JOSE CABRERA COSANO JOMICACE, S.L. MANUEL DOMINGUEZ BEATO SEBASTIAN PAVON CAMPOY JUAN PEDRO BENITEZ GARCIA MARIA BELEN GONZALEZ RAMIREZ MARIA CONCEPCION TELLEZ RUIZ GRUPO ALMARES 2015 S.L. SERGIO MUÑOZ  RAMIREZ ROCIO BELTRAN  ZAFRA FERNANDO POLO MATEOS PLAZA SERVICIOS FINANCIEROS SL CARLOS GAVIN LORIENTE JOSE ANTONIO GARCIA CHINCHETRU MARIA PILAR UROZ PASCUAL HECTOR EDO ALEGRE ALCARRAZ PERALTA, S.L. ANA BELEN PAMPLONA CALAHORRA JAVIER GURIDI EZQUERRO MARIA ELENA TREMPS ALDEA LIDYA FERNANDEZ AMURRIO MAXIMO PLUMED LUCAS NAVARRETE GESTION 2018 SL JOAN FELIU PUIGVERT MARIA DEL CARMEN NIEVES MARTINEZ MARIA DEL PILAR RAMIREZ DIEZ MARIA HERNANDEZ ALONSO LANZA MENDOZA GESTION FINANCIERA, S.L. LOURDES GIMENO TIRADO GEMMA ARRUFAT RAFALES JOSE GABRIEL PASTOR MANZANO DIEGO CARCAS SANCHEZ ELSA TORRES MOLINA IRENE ABIZANDA VAL MARIA JOSE AUSEJO MARTINEZ MARIA AURORA TORRES GARCIA LAURA MARTINEZ ZUBIRI ALVARO MOLINER ABADIA SERGIO URDANIZ GARBAYO IGNACIO SAGÜETA URTASUN ANA ISABEL MONTULL CACHO OSCAR MANUEL MATA VIDAL MIRIAM GARCIA ALFARO SARA MORALES ECHEVERRIA MANUEL GARCIA MONTOLIO 296 BELEN PALACIO TORRES MARIA EUGENIA GONZALEZ SANCHEZ MARIA DANIELA URUÑUELA NAJERA JOSE JAVIER MAZUELA CREGO VICTOR JIMENEZ VERANO Oliver Labarta S.L. ANA MARIA RUBIO PALACIOS ROSA MARIA POBLADOR ASENSIO LAURA ALTABA ASENJO FINANZAS ALLOZA S.L JOSE DANIEL GARCES VIRGOS ADRIAN MILIAN GONZALEZ INTERMEDIACION NASARRE S.L. JESUS QUINTANA MAULEON PASCUAL HIGINIO DOMINGO PEÑA CLARA URGEL CASEDAS LAURA COMENGE HIGUERAS MARIA MERCEDES SALAS BAENA MARIA ESTHER FERRANDEZ PARDOS PRISCILA CRISTOBAL MALO SERGIO BUIL GARCIA ALEJANDRO IBAÑEZ LERA JOSE JAVIER SALAVERRI MARTINEZ BEATRIZ SERRANO SAN PEDRO RAUL RIVAS VAL SAIORA ELISABET GARCIA URZAINQUI OLAIA SAN MIGUEL MICHELENA SHEILA DEL BARRIO SAENZ ANGELA FIGAROLA TARDIU JUAN ROSSELLO AMENGUAL MARMA MALLORCA, S.L. MARIA JOSE DE LA DUEÑA FUSTER ERNESTO DOMINGUEZ SLU MARIA ANTONIA BARCELO AMENGUAL ANGEL MOLLEDA VELEZ MIGUEL SUAREZ RODRIGUEZ LIDIA RIVAS JODAR MARIA DE LOS ANGELES RODRIGO GUTIERREZ MARIA FERNANDEZ DE LA UZ PEDRO CONDE DIEZ PATRICIA RODRIGUEZ ALONSO RAQUEL RIVERA PALACIO JAVIER COBO GARCIA CARLA SANJULIAN MENDEZ BUSINESS AND PERSONAL SERVICE S.A. LAP ASTURIAS S.L. GONZALEZ Y NAVES, S.L. ALVARO DIAZ ASTARLOA RAMON ARENAS NUÑEZ ALMUDENA GONZALEZ GALLEGO VICTOR GONZALEZ CABO NOELIA MARTIN BOLIVAR FRANCISCO JOSE VIEJO GONZALEZ JAVIER TERAN CAMUS DAVID GONZALEZ SANZ OLGA LLORENTE DA COSTA HELLEN JANETH MENDEZ MURCIA OSCAR MANUEL ALFAGEME MARTIN HECTOR DIAZ DIEZ MARIA VISITACION BECARES MARTINEZ LUIS MIGUEL VEGA JANILLO EMILIO MARTIN LANCHAS MARIA SASTRE GONZALEZ 0880 SANTANDER SANTIBAÑEZ, S.L. PABLO HERRERO ALONSO MARIA MANUELA SANCHEZ CASTAÑO DAVID LOPEZ-GAVALO GAGO ALBERTO RIAÑO MOROCHO ARCADIO SAEZ SANZ 297 RAUL DE PABLO DEL OLMO FRANCISCO ALBARRÁN PELAYO RAQUEL BARBA ARRANZ JAIME RIVERO CALVO 1321 SANTANDER LA ALBERCA S.L. MARIA VICTORIA IGLESIAS MATEOS RAQUEL GAVELA SANCHEZ JUAN MANUEL CASTRO FANEGO ÓRDAS CASADO S.L. MARTA ISABEL MARTINEZ ESCOBAR FERNANDO ENRIQUE RODRIGUEZ PEREZ MARIA TERESA SALGADO RODRIGUEZ MARIA VICTORIA DURAN ALVEZ MADRIGAL FINANCIERO SL BEATRIZ GALLEGO MARTIN JESUS CANTON GONZALEZ VANESA VEGA BLANCO CRISTINA GONZALEZ MARTIN MARIA SALOME DE LA ROSA DIEZ SONSOLES RIVERO HERNANDEZ FERNANDO AREVALO GOMEZ JORGE ALONSO ARRIBAS MARIA TERESA FRUTOS BERNAL ASUNCION MATEOS PASCUAL MARIA ELENA BRAVO SAN INOCENTE 2927 GESTION SANTANDER SL 40165 AGENTE COLABORADOR PRADENA, S.L. ALBA SANCHEZ MATEOS MARIA INES VALCUENDE GARMON AGUSTINA AGUDO FRANCIA IGNACIO MARIA ANTOLIN FERNANDEZ JULIANA BERLANA DEL POZO MARIA VICTORIA SAN ROMAN FERNANDEZ NOELIA SANZ VILLARREAL JORGE APARICIO GONZALEZ ANGELA MAGDALENO GONZALEZ ALBERTO MORAN PEREZ EDUARDO GONZALEZ MARTIN ALBARRAN FIGAL S.L. GONZALO PEREZ JOSE MARIA ELISA ROSON FERRERO MARTA HERNANDEZ PEREZ ANA MARIA SIERRA HERNANDEZ JONATAN PEREZ DE DIOS A.C. SANTOVENIA DE PISUERGA SL. PABLO ALVAREZ CORTIÑAS BEATRIZ GARRIDO SANTANDER S.L. 24198 SANTANDER LA VIRGEN DEL CAMINO, S.L. JOSE MARIA CABERO MATA GESBANCYL, S.L. JOSE  BERZAL MIGUEL 4079 SANTANDER-SACRAMENIA S.L. PEDRO CUESTA BAUTISTA 6155 SANTANDER LEDESMA, S.L. SUSANA CASADO FERRERO CLARA HERNANDEZ NOVOA MARCIAL SANTOS SANCHEZ 6395 Poyales del Hoyo Agente Colaborador S.L. JOANA LOPEZ  ROZAS ANA MARIA SAN MILLAN COBO IGNACIO ARROYO RODRIGUEZ SANTOS BOL GARCIA NURIA COBELO DE ANDRES MARIA DEL CARMEN CAMUS SAN EMETERIO MIGUEL ANGEL PRIETO CORDERO A.C. LAGUNA DE NEGRILLOS S.L. MERINO LOBATO S.L. MARIA MERCEDES GUZON LIEBANA JACINTO MANUEL PALOMERO PALOMERO 298 MARIA DEL SOCORRO BENAVIDES SANCHEZ GESTION SANTANDER CARBAJOSA, S.L. MIKEL ANDRES SANCHEZ CASTILLO BENEDICTO GUTIERREZ BERNAL MARIA AUXILIADORA PEREZ SERRADA ANNA LOURDES MATEOS SANCHEZ ARACELI GONZALEZ MEJIAS JUAN ANTONIO ARRIBAS CRISTOBAL ANA MARIA MARTIN LOBO MARCOS ASENJO HERNANDO AREVALO Y MONGE, S.L. EDUARDO LERONES AGUADO MIRIAM CARRO HERNANDO JUAN ANTONIO SALGADO HERNANDEZ ALICIA FADRIQUE PICO MARTA MARIA GARCINUÑO CASELLES GESTION INTEGRAL SANTANDER, S.L. ENRIQUE Y SINDE ASOCIADOS SL MARIA TERESA RODRIGUEZ FUENTES LORENA HERNANDEZ ATIENZA CARLOS GARCIA RODRIGUEZ ANGEL ARMENTEROS CUESTA JESUS BERZAL MIGUEL JOSE GARDUÑO CALVO MARIA ANTONIA ROVIROSA PIÑOL MIGUEL JOSE MALAVE FERNANDEZ GERENCIA & DESARROLLO DE SUCURSALES S.L. OLGA MARIA SANCHO ARASA SERGIO LORENZO RODRIGUEZ MARIA DOLORES MORERA SOLA ANTONI MONSO BONET MANUELA BUERA GILABERT MATEU & SANTANDER, S.L. MARIA AFRICA CARDIEL COLL MONTSERRAT  SABATE  BORRELL ERIC NADAL GRIFOL ALEXANDRE COLL QUINTANA ISABEL OLMO VIBORAS PABLO GODAYOL RUIZ DAVID RIDER JIMENEZ MARIA PILAR  ALMARAZ FERNANDEZ AGUSTI MONTANE DELCOR MARIA ROSA BERTRAN CASALS AMALIA GEMMA AGUILAR CASAS OSCAR BLANCO CID ESTEVE UTSET BADIELLA EDUARD RAMON NADEU ABENOZA VIRGINIA LEDESMA ARCOS JIA AGENTS SL MARIA DOLORES ROCA BLANCH DAMIÁ RIERA ALBAREDA DIPTOS, S.L. PILAR UREÑA QUEROL GESTION INVERGARA S.L. MARTI FORTUNY PLANAS FINANZAS SAN ANDRÉS S.L. ALBALATE SERVICIOS FINANCIEROS Y DE GESTION EVA CASAHUGA FUSET SISMOINT, S.L. EMA VILATORRADA 2007, S.L. MATARÓ ASESORES LEGALES Y TRIBUTARIOS, S.L. BANEST BLANES, S.L. Glinkgo Biloba Properties S.L. SERVEIS FINANCERS DE BANYOLES, S.L. PUNT FINANCER GESTIO I ASSESSORAMENT, S.L. DAVID OLMO FORTE ANA MARIA JIMENEZ AGUAYO CRISTINA HUERTOS CABEZA INVERSIONES TERRA FERMA, S.L. 299 FINANCERES ARO, S.L. FRANQUICIES FINANCERES LLEIDA S.L. GRUP BBR GESTIO PRIVADA, S.L. ALEIX SUBIRA SOLER PAU FONT RODES MONTSERRAT OLIVA MANDAÑA INMACULADA SAHUN JOVE INVERSIONS RIBAGORÇA S.L. TANIA GELPI ESCANDIL JORDI BRULL MARGALEF BBR BATEA GROUP S.L. AAFF OLESA 2019,S.L. SUSANA MARIA JOVANI BELTRAN INGRID QUILES SANCHEZ ELISABET PUGA JODAR ELOY HARO ROMERO MYRIAM ALPAÑEZ PINO FELIPE PARRA CARRERA JAUME VEGAS BAUTISTA MANUEL MOLINA ESTEBAN ROSA MARIA  PADROS  ANGUITA DANIEL TORRES MUIXI DANIEL LIENAS GRANDE OSCAR PLANES NOVAU ANTONIO DE PADUA BELLAUBI MIRO MARC MAYORAL SERRET JOSE MARIA FONT VILASECA ANNA SANS GARDEÑES SONIA ROIGE VIDAL ANTONIO FORNOS ISERN PALMIRA RODRIGUEZ PEREZ ANTONIO  VICO  ARCE ABEL ISERN ROIG GUADALUPE FORNE TENA JOAQUIN SERRA BERTRAN MARIA BELEN GARCIA  BLANCO JORDI ALUJA OSSO OFICINA 6788, S.L. ENRIC PUJOL ROVIRA CRISTINA PURROY CASTELLO OSCAR MUSTE ROIG MARIA LUISA VALIENTE LORENZO ROBERTO MARTIN RIVERO SAUL ANTONIO TOVAR ASENSIO PATRICIA FRIERO BRAGADO MONICA  LIBERAL  CAMISÓN ANABEL SANCHEZ MARTIN CECILIO ALVARADO GARCIA ANA MARIA LOPEZ OVEJERO MARIA CARMEN CIUDAD MORENO JOSE IGNACIO BORDALLO MEDINA PATRICIA GUIJO LOZANO OSCAR RODRIGUEZ ROMERO MERCEDES GARCIA DURAN MARIA PILAR FERNANDEZ CARRASCO LOURDES IGLESIAS ALONSO RAFAEL SALGUERO VARGAS ALBERTO VAZQUEZ OLMEDA MARIA ROSA AMPARO BLAZQUEZ FRAILE JUAN MIGUEL ALFARO GONZALEZ FELIX ALFONSO TORRADO DIAZ VICTOR MANUEL DIAZ MARRON VICTOR TOME LLANOS ALICIA ESTEBAN GARRIDO ANGELICA MONTERO ASENSIO VIRGINIA CASTAÑO GONZALEZ ALEJANDRO GOMEZ CORRALES MARIA ANGELICA RODRIGUEZ OLIVEROS CARLOS MIGUEL GIJON MELENDEZ 300 SERVICIOS FINANCIEROS CERES SL MARIA MERCEDES GARCIA SANTANA JUAN MANUEL MARTIN DURAN REYES MARTIN MORENO ANA MARIA GARCIA  DOMINGUEZ FELIX CARPINTERO DELEITO MARIA DEL CARMEN LEDESMA COUTO JULIAN HERNANDEZ RANZ JOSE CARLOS VENERO TANCO MIGUEL  RODRIGUEZ GARCIA ARCADIO PAREDES ROMERO PEDRO MANUEL BALSERA GARCIA JOSE CARLOS GARCIA SANCHEZ ELENA LAJA MONTES ELENA DIAZ FERNANDEZ ANA MARIA MORALES NUÑEZ ANGEL LUIS GIL PEÑA NOEMI VIVAS SANCHEZ ALMUDENA GARCIA SANCHEZ PATRICIA ACOSTA SERRADILLA JUAN HERNANDEZ DE TORRES MARTA ESPINAR SANCHEZ MARIA SAZO SALGUERO LAURA MARTIN PALOMO OLMO JULIAN PUERTO FERNANDEZ SERVICIOS FINANCIEROS AHIGAL, S.L. CARLOS RUIZ BURDALO VIRGINIA VELASCO MAJADA LAURA FERNANDEZ TORIBIO AMBROSIO TORNAVACAS VINAGRE BELEN GONZALEZ BERMEJO DAMIAN CEBALLOS SORIA MARIA TRINIDAD BRIEVA DOMINGUEZ MARIA MARTIN  SANCHEZ CRISTINA SANCHEZ MARTIN VALENZUELA MARTIN ASESORES S.L. ANSELMO HERNANDEZ RANZ JOSE GAMERO MUÑIZ ASEVAL ASESORES S.L JOAQUIN SANCHEZ GRANDE TOVAR VERONICA GOMEZ MONTERO MARIA JOSE SALGADO ALVAREZ OSCAR SOTELO SALINAS MONICA ALVAREZ ALVAREZ CESAR RODRIGUEZ SOTELO JUAN MIGUEL GOMEZ LOPEZ MARIA LUZ IMIA RIVERA JOSE LUIS EXPOSITO PITA PAULA EIRIZ OTERO CONCEPCION ISOLINA SOMOZA CALVIÑO PATRICIA SOUTO LOPEZ OSCAR PARDAL ANIDO JOSE LUIS COUCEIRO DORELLE SERBAN AGUIÑO S.L. JOSE ALFONSO FUENTE PARGA NATALIA DIOS OUTEDA ARACELI GONZALEZ GONZALEZ ALEX BEMBIBRE ALVAREZ MARIA DEL CARMEN CARBALLO GOMEZ MARTA MARIA COPA PEREZ HECTOR PIÑEIRO MARTIN JOSE RAMON DOMONTE RODRIGUEZ SONIA LANDROVE MARTINEZ MARIA PRAXEDES FRANCISCO FERNANDEZ CARLOTA  RODRIGUEZ VARELA MARIA CARMEN GONZALEZ BARRAL ANXO VAZQUEZ BLANCO JOSE MANUEL AMEAL MAS MARIA LUISA VALIÑO IGLESIAS 301 MARTA GARRIDO FERNANDEZ GAGO Y SOUTO FINANCIAL SERVICES S.L. JAVIER PONTANILLA MARTINEZ AGENCIA FINANCIERA ULLOA S.L. SERCOM ASFICO AGENTES FINANCIEROS, S.L. MEDA FINANCIERA, S.L. INTERMEDIACION FINANCIERA RIAS BAIXAS, SLL MARIA MARTINA GONZALEZ ANDRADE ÓSCAR NÚÑEZ PUGA PILAR VILA AYERBE DAVID GONZALEZ BECEIRO JOSE MANUEL FURELOS FERREIRA ANGELINA CUESTA BERAMENDI TANIA ARAUJO SOTO BORJA MENDEZ VAZQUEZ BARBARA FARIÑA REBOREDO SERVICIOS FINANCIEROS FORCAREI, S.L. DANIEL VIEIROS  CAMPOS LUCIA MARTIN GRANDE ROBERTO QUIROGA LOPEZ ANGEL LUIS GONZALEZ CASTRO ASESORES FINANCIEROS VIANA SL MARIA ROCIO LOPEZ TABOADA MARIA CRISTINA SANCHEZ UZAL OFILAR 2020 S.L. CELIA MONICA MARTINEZ OTERO MARIA ELISA CAMBEIRO CAAMAÑO MONICA GARCIA CAAMAÑO JOSE LUIS FARIÑAS PEREZ MANUEL MARIA GARCIA FERNANDEZ MANUEL ARTURO DOVALE VAZQUEZ IVAN GONZALEZ MARTINEZ ADRIAN TELLA VILLAMARIN MARTA FEIJOO ARIAS LUCIA ALVAREZ GONZALEZ QUIRINO MASCITTI JOSE BENITO SAMPEDRO FEIJOO ESTHER LOPEZ GONZALEZ JOSE LUIS PRIETO PARADA JUAN SOTELO LORENZO CANDIDO JUNCAL RUA CELAVEDRA S.L NIEVES NUÑEZ PUGA BLANCA FERNANDEZ MURAS MIRIAM SAMPAYO IGLESIAS RICARDO CORREA FOLGAR GHG COPERNICO, S.L.L. SERVIBAN OURENSE, S.L. ANA BELEN DUARTE FIGUEIRAS SERVICIOS FINANCIEROS SOUTELO SL PABLO SEIJO NOVOA ANDREA SAYANS RIVEIRO FABIAN MANTEIGA VARELA JOSE MANUEL SOBREDO SIGUEIRO JOSE MANUEL VAZQUEZ BERTOA ANABEL PALLAS FUENTES NATALIA LOPEZ LOPEZ JAVIER NOVIO MIDON MARIA JIMENEZ GONZALEZ RAFAEL ROMERO RODRIGUEZ ANTONIO SANCHEZ ARGÜELLES EQUITY CONSULTING FINANCIERO, S.L. ELVIRA DE CASTRO FERNANDEZ LUIS ALFONSO MARTINEZ JIMENEZ FRANCISCO JAVIER ARTEAGA LOPEZ JOSE ANTONIO LOPEZ LOPEZ MARIA ANGELICA CORTES CORTES FRANCISCO FLORES ROMERO ARREAZA SERVICIOS FINANCIEROS, S.L. 302 JUAN JOSE TAMUREJO CARDOSO CARLOS ARCAS CHECA ANA MARIA RODRIGUEZ MORENO MARIA ANGELES GONZÁLEZ IBÁÑEZ RUBEN LOPEZ CARMONA ROSA ARCE LANDETE TERESA ROLDAN QUINQUER FELIPE CHILLARON CASTILLO MONICA CANO CANO BEATRIZ BLANES RUIZ ASIS DE FEREZ S.L. VILLASEQUILLA AP SL CARLOS MORENO LOPEZ SOLORZANO YEBEGEST S.L. ARANCHA LOPEZ SANTOS ANA MARIA RODRIGUEZ VARGAS CRISTOBAL NAVARRO DE VEGA BNT 2008 AGENTES FINANCIEROS SL ASESORAMIENTOS FINANCIEROS TEM 2012, S.L.L. EVA LEON BELINCHON TANIA BOGALO ROMERO IVAN QUINTANA ROJAS PEDRO CARO CANO JOSE LUIS HERNANDEZ-SONSECA MIRANDA LETICIA MARÍA MARTINEZ ABAD JOSE CARLOS LOZANO CANO LUIS JAVIER NAVARRO SIMON MARIA TRINIDAD SORIANO RAMIREZ JUAN MONTERO RODENAS SANDRA ORTEGA QUILON MARIA PAZ CULEBRAS RAMOS LUCIA PEREZ CUELLAR DAVID MOYA LUCAS AROA GOMEZ LOZANO MARTA TRIGUERO RUIZ DIEGO GALLEGO VALVERDE ANGELA ZURITA MARTINEZ MARIA DEL PILAR MUÑOZ GONZALEZ MARTA LUJAN FERNANDEZ MARIA EUGENIA DE LA CRUZ DE LA ROSA SARA PULIDO PANADERO JESUS ALVARADO CAMARA MIGUEL MORENO ALONSO MARIA LUISA SANGUINO GUTIERREZ MIGUEL GARCIA TAPIA JESUS MATEO HIDALGO MARTIN JOSE LUIS BLAZQUEZ FERNANDEZ VICENTE CANO CAMARA LUCIA CARO  ESPARCIA JUAN FRANCISCO GARCIA JUNCOS JESSICA MARIA SEGADOR RISCO BRAULIO ALMENA AMARO MIGUEL ANGEL RUIZ LOPEZ MARIA JOSE PACHECO GALLEGO EMPRESA GESTORA JUAN JOSE MUÑOZ S.L. ESTHER PEIRO ORTEGA ANA CRISTINA MUÑOZ ALVAREZ ANTONIO MOTOS RECUENCO PATRICIA MONTERO DURAN MARIA TERESA OLMEDA PICAZO JAVIER MONGE LOPEZ JUAN CARLOS LAZARO BERDEJO BARRIOS DE LA CRUZ, S.L. AGUADO Y ORTEGA ASESORES S L JAIME VALDES BRAVO LORENZO CANDELAS MIRANDA GARCIA CARO ROSA ISABEL BENEITEZ SALINERO ALFONSO RODRIGUEZ MADROÑAL MARIA CARMEN SANCHEZ PEÑA 303 SANDRA COFRADES SANCHEZ FERNANDO GARCIA BARATAS MARIA DEL CARMEN PALMERO MORENO CID RAQUEL MAQUEDA MUÑOZ SONIA MELGUIZO BEJAR CARMEN CARLA PEREZ CUESTA SAGRARIO MAQUEDA RUIZ JOSE MARIA FERNANDEZ RAMIREZ MARCOS GARCIA-DIES PASTRANA MIGUEL ANGEL ORTIZ DE MIGUEL ALEJANDRA SANCHEZ JUAN DAVID RUIZ MARCHESE ALBERTO ANDION ACEDOS LUIS CARLOS SEPULVEDA SANCHEZ RAUL VEGA ROMERO MARIA LETICIA GUTIERREZ SANZ CARLOS ALBERTO PALACIOS MARTIN AYZA FINANZAS S.L. ANTONIO BERNAL MERINO DANIEL NAVAS ALONSO LASTRAS AGENTE FINANCIERO SLP FINANZAS NUEVA ERA S.L. ZONA 4 SERVICIOS FINANCIEROS S.R.L. BUZABRIN, S.L. DE-TWO Y MAS INVESTMENT SERVICES S.L. COFARESA SERVICIOS FINANCIEROS COMPLEMENTARIOS, S.A.U. G.S.G. GRUPO CORPORATIVO DE SERVICIOS S.L. BANFORTUNIA S.L. SOLUCIONES DE PATRIMONIO E INVERSIÓN, S.L. TABULA AGO,S.L. OFISFIN S.L. ALMA 812 S.L MARIA FERNANDEZ RUFO MARIA DE LAS NIEVES CALDERON IZQUIERDO PAOLA GARCIA NUÑEZ ANGELA MARTIN PUENTES FINANCIAL ADVANTAGES SL. EDUARDO GOMES HORCAJUELO MARIA PILAR PEREZ NAVARRO ROBERTO BLANCO GARCIA JESSICA LIMA BLANCO ANPADU INVERSIONES, S.L. MARIA-TERESA JIMENEZ  PACIOS BEATRIZ TORREÑO NIETO ALFONSOCRIADO SL DIEGO CAÑAMERO NAVARRO RUBEN BERNALDO DE QUIROS DE DOMPABLO PATRICIA CONDE GARCIA BLANCO LUCIA DIAZ PRUDENCIO JOSE MANUEL TORRES MIGUEL PALOMA MILAGROS BLANCO GONZALEZ MAIALEN SAEZ SEGUROLA MIGUEL LLANO ABAITUA AGURTZANE ITZIAR AGUIRRE COLECHA AINARA GONZALEZ ANGULO IÑIGO MARTINEZ GARCIA BRUNO MARTIN GARCIA OSCAR CAÑIBANO ALVAREZ OSCAR CAUDELI BOLO MANSANET RIPOLL SL ENRIQUE CHACON FERNANDEZ RUBEN MARTI CALATAYUD VICENTE MANUEL MARTI SEGARRA JOSE IGNACIO CANTO PEREZ RAFAEL BELLMUNT BELLMUNT CONCEPCION MORATA HOMBRIA FERNANDO DONET ALBEROLA MARIA JOSE CABALLERO GRAU YOLANDA CASTILLO VILA 304 MARIA TERESA BROCH RUBERT SILVANA JAIME GARCES LIDIA CARRASCO MARIN MIRIAM PEREZ SORIA MARIA MERCEDES RIERA RIERA SONIA BELLMUNT SAURA JOAN ANDREU GABARRI LLOP JUANA MARTINEZ MARTINEZ ALBERO PAYA FINANCIEROS, S.L. DRIMTY S.L. VERIS SERVICIOS FINANCIEROS S.L. TRAMYGEST FINANCIERA S.L. SAVINGS ELX 2014, S.L. ERNESTO DAIMAN MARQUES ASENSIO ASEMAR FINANCIERA, S.L. GESTIONES FINANCIERAS FERRER Y GARCIA 2015, S.L. AGENTES XIRIVELLA, S.L. AGENCIA FINANCIERA ANNA FRANCO, S.L. HOTRARESCON SL VIMAGARMA A.F. SL CAROLINA GARCIA BELMONTE JOSE SANTAMARIA CABRERA VANESA GONZALEZ VILA SUSANA DONAT DE LA CRUZ JOSE JOAQUIN APARISI GRAU ISABEL CARMEN DOMINGUEZ ZANON CARLES ROYO DELPOZO MIGUEL ANGEL FERNANDEZ MENDEZ MIREYA GARCIA MARTINEZ ALEJANDRO SANCHEZ BERMUDEZ ANA MARIA LOPEZ MARTINEZ DIEGO MARTINEZ OTON MARIA DELS DESAMPARATS ROSELLO MORELL MIGUEL ANGEL VIDAL JOVER VEGUILLAS Y VEGUILLAS SL JOSE ALFONSO TARI ESCLAPEZ MAGDALENA JOVER SELLER PAULA GRACIA CABRERA COLONQUES GESFINPRO, S.L BEATRIZ PEREZ GARCIA MIGUEL ALCALDE PITARCH ANTONIO LUIS CASTELLO APARISI MARTA FAUS BLANES JUAN ANTONIO ALCAIDE NAVARRO MIGUEL GARCIA ABAD VICENTE MOSCARDO TORRES JUAN JOSE MONTEAGUDO MARTINEZ SEMAGERA, S.L.L. ALESA CAPITAL, S.L. AYALA MARTINEZ MELERO, SLL INMACULADA FERRUS AZNAR ALEJANDRO SANTAELLA FERRER JOSE JUAN FERRANDEZ SANCHEZ BEATRIZ SALA GARCIA ARANTXA CARDENAL FERNANDEZ MARTA HERREROS LOPEZ MARÍA CRUZ GARCÍA-ESTELLER TORRES SILVIA GARCIA SENDRA FRANCISCO  MUÑOZ PUERTO ANGEL EDUARDO  RODRIGUEZ REY HOPE FINANCE SL JESUS MARTINEZ CAÑAVATE GOMEZ MILLAN MARIA ISABEL RAMIREZ RODRIGUEZ ALBERTO LOPEZ CARDENAS JUAN CARLOS MALDONADO HODAR JULUM FINANZAS, S.L.U. FRANCISCO JIMENEZ PERALVAREZ AM SERVICIOS FINANCIEROS SL MARIA PAZ IBARRA RECHE 305 JUCAR ASESORES, S.L. ALVARO FABREGAS SANTAMARIA ASESORAMIENTO Y COACHING FINANCIERO S.L. EFEROR ASOCIADOS S.L. JOSE PABLO CASTELLANO GARCIA- DONAS FINANSANDO S.L FRANCISCA MARQUEZ CONTRERAS NUÑEZ MONTES FINANCIEROS S.L. JOLUANCA 2006 S.L. 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SERVICIOS BANCARIOS BERJA SL ONUBA FINANCIEROS SL DANIEL MARTI RODRIGUEZ SANPUEBLA SL GABRIEL MENENDEZ NOTARIO MILAGROSA ESTUDILLO CEPILLO MARIA DEL MAR CARRETERO FERNANDEZ JORGE BARRERA PEREZ JUAN MANUEL MAYORGA BELLOSO MARIA DEL CARMEN ZAMBRANO MONGE FATIMA DEL PINO ARIZA JUAN DAVID PEREZ VALENZUELA MARIA ASUNCION PALOMARES RUIZ JUAN MANUEL PEREZ PRADO FINANCIACIONES LAS CABEZAS SL MARIA ESCRIBANO PAVON MARIA MORATALLA RUIZ MIGUEL ANGEL MARTIN ISERTE MARIA EUGENIA BOZAL HUGUET JAVIER DOMINGO PASCUAL JIMENEZ LUIS FERNANDO ANDRES VILLALBA JULIA MARIA SEGURA VICENTE ROSA ANA FATAS LAPLANA MARIA TERESA MARTIN MUNIESA MARIA DOLORES FOLLA-CISNEROS GARCIA JOSE JIMENEZ OVEJAS MARIA GEMA GARCIA BUIL VERONICA PUEY MUÑOZ JOSE GABRIEL BALLESTERO FERNANDEZ USTARIZ ZUBIRI ASOCIADOS SL FEDERICO SOROLLA LLAQUET VERONICA REMIRO BASANTA RAUL LANGA GOMEZ OIHANE AICUA RODRIGUEZ JAVIER ROYO HERRANZ FLORENTINO LARA NOTIVOLI OSCAR ADAN CABEZON CRISTINA ZABALA USTARIZ ANDONI ABRIL GOICOECHEA FERNANDEZ DEL VALLE NOE 046869184C S L N E GUILLERMO FOS ALZAMORA JORDI JUAN RIBAS ALBERTO BARTOLOME DE BLAS GUASP GUILLEM GENOVARD CALDENTEY CECILIA MARIA ROSSELLO FLORIT DAMIAN DAVID PONCELL OLIVER ELISENDA ARIMANY BALLART 306 ADELA GALLEGO BERMUDEZ JUAN CARBONELL SOCIAS S.L. JUAN MANUEL ALARCON GARCIA LUIS DA COSTA FERNANDEZ MALULA SERVICIOS FINANCIEROS SL TEROR VP INVERSION SL OMAR PEREZ GARCIA LUIS FERRERAS GRANADO LETICIA INES MARTIN SANGUINO ANA ISABEL GARCIA RODRIGUEZ FRANCISCO JAVIER SANTIAGO ALEMAN PEDRO JAVIER SANCHEZ RODRIGUEZ JOSE MANUEL PERERA QUINTANA FRANCISCO JAVIER CABRERA LLAMAS EDUARDO HERNANDEZ HERNANDEZ PEDRO ROMAN SANMARTI RUBEN TORIJANO BUENO JOSE ANDRES HERNANDEZ FALCON GORKA PEREZ DIAGO JON DIEZ DE DIEGO SARA SANCHEZ GONZALEZ ENRIQUE MARCOS ORTEGA AGUSTIN RUIZ SAIZ ALEJANDRO FERNANDEZ GARCIA ALEJANDRO MARTIN KARLSSON CARLOS  MESA DIEZ JESUS ARDUENGO CUADRADO LUCAS RIVAS PORTILLO EMMANUEL GRANDA TARRAZO POSADA GESTION FINANCIERA SLU DAVID GARCIA-ARCICOLLAR RODRIGUEZ SERFISAN SERVICIOS FINANCIEROS S.L. 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JUAN BAUTISTA HIDALGO IÑIGO JUAN ANTONIO YUBERO MORENO JOSE ENRIQUE ARBONAS MAS MARIA SOLE RIBERA ROGER BELLET SANJUAN JORDI RIBALTA ARIAS CARLOS DE PABLO LOPEZ VICENT MORE CAMPS MARTA CORTES MARISTANY 307 ROSA MARIA HOMEDES PERIS JORGE TORTA BELBIS GROUP CLOP INVERSIO SL JUAN JOSE GISBERT FERRERES ALEJANDRO LLERA FERNANDEZ JORDI ROSA ARIZA MARC OLIVA VIDAL ANNA  BATALLA  FARRE AINOA LORAS COLL ELISA SANS VIDAL BERTA RIERA FERRAN IVAN GUIU FARRE MARIA TERESA BORRELL MICOLA DANIEL MASSA I RAMIREZ SAUSOLUCIONS SL NESTOR GALIMANY SANROMA ISIDRE CALBO PELLICER POL  MIR  MARTINEZ ENRIQUE SANCHEZ CASADEVALL ENRIC CORTADA GUTIERREZ ALEXANDRE UTSET BADIELLA ALFONSO ROMERO IDIGORA MARC TARRES MALE FINANCIAL VALUE INVESTMENT, SL LORENZO BARREIRA VIA AA FF NV FINANCERA 2018 SL EDUARD MAS POMES JOSE MARIA BALTASAR TOMAS INVERSORA TUCKERTON SLU ESTHER NOGUES FERNANDEZ LUIS LOPEZ SIRER LARA & RAUL ASOCIADOS S.L. SOLEDAD GALAN FREJO JUAN JOSE SANCHEZ ACEDO CARMEN MARIA MARTINEZ BOHORQUEZ BARBARA FERNANDES DIAS MARIA EVA NUÑEZ GONZALEZ RAQUEL BARRERO GORDILLO JUAN MARIA DOMINGUEZ GARCIA SATURNINO QUIÑONES GARCIA ISMAEL PALACIOS AGUDO ELENA PUERTO GALVEZ JOSE MARIA MANZANO CIDONCHA ROBERTO CABALLERO MARTIN ALEJANDRO PIÑOL PEREZ LAURA MACIA GONZALEZ INTERMEDIACION FINANCIERA DEL NOROESTE SL SUSANA FARIÑA FERNANDEZ JOSE MANUEL CAPON FERNANDEZ SILVA&RUA ASOCIADOS SLU ANGELA MUÑIZ ARROJO SOLFIN CONSULTORIA DE MERCADOS SL SONIA LOPEZ AZNAR ALEJANDRO GIADANES TORREIRA MARIA CARMEN CEREIJO VARGAS JOSE MARTINEZ PARDO MIGUEL ANGEL  FUENTE  REGO CARLOS GONZALEZ FERNANDEZ DAVID VALIN ANTON ADRIÁN MONTERO VARELA BRAIS MIDON LOPEZ GREGORIO LEAL MORALEDA PEDRO JESUS ROLDAN PRIETO CRISTINA GOMEZ GUTIERREZ MARIA DE RUS MONTERO ORTEGA JOSE LUIS BECERRA QUIROS SERGIO GONZALEZ RUISECO DIEGO FERNANDEZ MARCOTE CECILIO PARRO CORTES 308 JUAN ANGEL ALCAZAR VERGARA GEMMA GUTIERREZ BAJO ALFONSO ILLAN GARCIA ROJAS MARIA LOPEZ MARTINEZ JAVIER GUTIERREZ ARAGON MIGUEL ANGEL GARCIA RODRIGUEZ ARACELI CARAVANTES CASTILLO CARMELO PACHECO MARIN BEATRIZ ARROYO AVILA NURIA DEL AMO LETON INMACULADA TORRES BERMUDEZ DIANA DIAZ ANGELINA CRISTINA TORIJA PRIETO SONIA ARNAO VILLANUEVA FRANCISCO DAVID SAIZ CANO ALEJANDRO MATESANZ FLORENCIO FRANCISCO JAVIER MARTIN ROMERO BEATRIZ LOPEZ MONTEJO LUIS ALBERTO MASEDO DEL CASTILLO ALEJANDRO GARCIA GUERRERO TAGOAN JUAREZ SL MARIA DEL PILAR MARTIN SANCHEZ ALVARO FERNANDEZ ROCAMORA JUAN CARLOS FUSTER DE CACERES FERNANDO DOMINGUEZ RUIZ MARTA ZAMBRANO PEREZ MARIA TERESA PEREZ PEREZ DE LAS VACAS ANDREA PRATS SEGURA CRISTINA HIDALGO GARCIA JESUS MAILLO NIETO FRANCISCO JAVIER RIVAS VALENZUELA MARIA TERESA GUTIERREZ GALERON MARIA ALMUDENA MORENO NAVARRO IEA SERVICIOS FINANCIEROS S.L.U. IMANOL IPARRAGUIRRE JAUREGUI MKS GESTION FINANCIERA S.L. UNAI LEKUBE ARAMBERRI ALFREDO ROLDAN FERNANDEZ MARIA MANUELA GONZALEZ CUESTA JUAN JOSE ARAGONESES MARTINEZ JESUS RAMON HERNANDEZ GARCIA NEREA SOBRADILLO TRUEBA JOSE MANUEL MUÑOZ EZQUERRO CRISTINA NAVARRO MACHIN ELENA EGAÑA ALZAGA EDER SERVICIOS FINANCIEROS SL FRANCISCO JAVIER MORALES MURCIA ANTONIO IGLESIAS SANCHEZ ENRIQUE SATURNINO MORENO BASKY INVERSIONES FINANCIERAS SL FORUM 20 S.L. ALEXANDRA FRANCH CANALDA CASTEL GANDOLFO S.L MILAGROS FLORES LEAL FINANZAS E INVERSIONES ALBAL S.L. ROSA CARRERES LUCAS ELOISA ESPUIG IBORRA ALICANTE VALLEY SERVICIOS FINACIEROS S.L. TRAKZIONA INVEST SL ENRIQUE MARTINEZ MORENO JOSE ANTONIO SANCHEZ NAVARRO PIC LLOCH MONTGO SOCIEDAD LIMITADA RUBEN TRAVER SALES ANDRES RIVERO JIMENEZ JUAN ANTONIO CANTERO SANCHEZ JOSE MANUEL AYALA ARNALDOS JAVIER GONZALVEZ BOTELLA SONIA ZAPLANA VERGARA MOR FINANCE SL 309 INMACULADA LATORRE CANA ALBERTO SAEZ CLEMENTE MISTERA BUSINESS SOLUTIONS S.L. SAMAI FINANZAS S.L.U. LUIS ALBERTO SALA GARCIA VANESSA SORO GINER ROSA MARIA BLAY PASCUAL SANDRA CHOVER GOMEZ NURIA MANUEL CERVERA JOSE FERMIN MOMPO VIDAL MARGARITA LUZ BOLINCHES IBAÑEZ C M FINANCIAL SERVICES S.L. EUGENIA DURAN HERNANDEZ ISIDRO VIVANCOS ROS ROCIO NAVARRETE MARTÍNEZ JOSE LUIS MATA RIBELLES MIGUEL ANGEL RIOS MUT RAMON DANIEL MUNUERA SANZ MARIA MERCEDES SABATER JIMENEZ SANMAFRAILES SL GRATIANA TORRES ROSA SERGIO VIVANCOS ALVARO IVÁN LÓPEZ DURÁ IVAN GODINEZ GUERRERO MUNICH FINANZ S.L CARMEN RODRIGUEZ-BUSTELO GONZALEZ BEATRIZ GARCIA ESTELLER TORRES ISABEL CARBONELL SERNA 310 #### Directors’ report #### Banco Santander, S.A. 1. Introduction Banco Santander, S.A. ('the Bank' or 'Banco Santander') is a Spanish bank, incorporated as a sociedad anónima in Spain and is the parent company of Grupo Santander or Santander. Banco Santander, S.A. operates under the commercial name Santander. Banco Santander operates through a branch network distributed in Spain and abroad. On 7 June 2017, Banco Santander acquired the entire share capital of Banco Popular Español, S.A.U. (‘Banco Popular’) 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, Banco Santander 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. The directors’ report has been prepared based on the accounting and Management records of Banco Santander, S.A. The financial information included in this directors’ report has been prepared in conformity with the Bank of Spain Circular 4/2017 of 27 November on Public and Reserved Financial Information Regulations and Financial Statements Forms, and subsequent modifications. 2. Situation of Banco Santander Santander is one of the largest banks in the eurozone. As of December 2021, we had EUR 1,595,835 million of assets and EUR 1,153,656 million of total funds. Our market capitalization reached EUR 50,990 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, supporting economic growth in an inclusive and sustainable way. We engage in all types of typical banking activities, operations and services. Our track record, business model and strategic execution 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). Therefore, in 2021, a year in which the global economy and society were still affected by the covid-19 pandemic, we continued to play an active role in the the economic recovery and continued to support our 153 million customers and society. With regard to our 197,070 employees, our priority remains safeguarding their health and safety in line with local government recommendations and based on three pillars:  (i) development and implementation of health and safety protocols; (ii) remote working where necessary; and (iii) track and tracing (diagnostic tests, health apps and even vaccination centres in our corporate buildings for employees and the general public). We are living in an increasingly digital world, and the covid-19 pandemic has contributed largely to this transformation. As such, more than ever, our aim is to continue to offer our customers digital products and services that meet their needs, and support them in their digital learning. We interact with our customers through a wide variety of channels. We have a network of 9,879 branches. In recent years, significant effort and investment has been put in to ensuring our branches meet our customers' needs. Our offices include universal offices and specialist centres for certain customer segments, such as businesses and universities. We are also promoting new collaborative spaces with excellent digital capabilities (Work Café, SmartBank and Ágil branches). Additionally, our contact centres, which provide model service quality, continue to serve our customers. 311 Through this process, in addition to improving our branches, we are continuously investing in our digital capabilities and technological infrastructure to optimize our product and service offerings, reducing our cost to serve while being among the top banks in customer satisfaction in almost all of our main markets. As a result, the number of digital and loyal customers as well as digital activity continued to increase. We have more than 25 million loyal customers (+11% year-on- year), with growth in both individuals and companies. Digital customers rose 12% in the year, exceeding 47 million. Similarly, digital sales accounted for 54% of total sales (44% in 2020 and 36% in 2019). The world is also increasingly aware of the different environmental, social and corporate governance factors (most commonly known as ESG). In this regard, we are focused on delivering profitable growth responsibly and creating value for our 3.9 million shareholders. Our strategic priorities and their execution are essential to improving the profitability of our core businesses by offering simple, fair and innovative products. Grupo Santander has a balanced diversification in three geographical between mature and emerging markets, and operates mainly in 10 core units, where it has significant market shares. 3. Financial performance 3.1 Economic outlook: In 2021, Santander developed its activity in an environment marked by (i) the implementation of fiscal and monetary policies in response to the adverse effects of the covid-19 pandemic (ii) the ongoing recovery from this pandemic, uneven across countries and sectors, (iii) new variants of covid-19 and significant outbreaks (iv) the overall upturn in inflation in the second half of the year, which, in the case of mature markets, reached a three-decade high. Inflationary pressures have intensified as a results of a number of factors, including the revitalization of demand for consumer goods, labour shortages, tensions in the supply chains of microchips and other key items, transportation problems and the increase in the price of energy, certain raw materials and food. Under these circumstances, the expansionary fiscal and monetary policies implemented in response to the covid-19 pandemic began to reverse, especially in the last quarter of 2021, particularly in countries with the greatest pressure on prices. Economic performance in the Eurozone and Spain was as follows: •Eurozone (GDP: 5.2% estimated in 2021). GDP growth driven by the lifting of lockdown measures and expansionary monetary and fiscal policies. The ECB kept interest rates stable despite the 5% rise in inflation in December, on the expectation that this rebound is transitory. However, in December the ECB announced a reduction in its asset purchases starting on spring 2022. •Spain (GDP: 5.0% in 2021). Economic recovery continued in 2021, likely to reach pre-pandemic GDP levels in 2022. Improvement in the labour market accelerated, with employment exceeding pre- pandemic levels. Inflation reached 6.7% in December, largely due to energy prices. •To complete the information with the performance indicators of the rest of geographies where the Group is present, see the Consolidated Directors’ Report. 312 3.2 Balance sheet and results: Banco Santander, S.A. is the Parent Bank of a financial group that operates in different countries through different businesses therefore its financial statements not only reflect its commercial activity in Spain, but also the activity derived from being the head of the Group. This last aspect makes it difficult to analyse its evolution without distinguishing the results obtained from the commercial activity from those more directly related to its holding nature. Strong pick up of activity in individuals in 2021, especially in residential mortgages, where we reached record highs in new lending, and in consumer credit, which recovered to pre-pandemic levels in Q2. As a result, we gained market share in both products. In corporates, signs of recovery started to show in H2'21, with growth in working capital management (+15% year-on-year). However, there was an overall slowdown in the demand for loans due to the extensions of grace periods in ICO funding and expectations regarding the European Next Generation EU funds. In transactional products, we continued to grow in PoS with significant market share gains and customer base expansion, which was reflected in a 44% increase in turnover compared to the previous year. Card turnover rose 17% year-on-year, both credit and debit. Regarding the balance sheet, as of 31 December 2021, the total assets of Banco Santander stood at EUR 657,950 million, with an increase of 4.54% over the previous year. Loans and advances to customers at the end of the year stood at EUR 308,367 million, with an increase of 4.24% over the previous year driven by the growth of mortgages and consumer loans. Customer deposits, at the end of the year, stood at EUR 308,603 million with an increase of 7.65% over the previous year. Demand deposits increased by 9.02%, offsetting the fall in time deposits (-0.04%), with growth in both corporates and households. Net interest income in 2021 stood at EUR 3,620 million, 7.48% higher than the previous year due to the higher income derived from the TLTRO and the greater volume of credit, which offset the lower interest rates. Income from equity instruments amounted to EUR 5,489 million in 2021. This line includes dividends received from the Group subsidiaries. Net fee income increased by 11.26% compared to 2020 to 2,578 million euros, highlighting the strong growth in commissions from investment funds, insurance and those from wholesale banking. Gains/losses on financial transactions (including exchange differences) reflected gains of EUR 253 million as compared to 645 million in the previous year. General administrative expenses (personnel and other administrative expenses) were EUR 4,673 million, increasing 1.54% as compared to the previous year. Impairment losses on financial assets (net) in 2021 accounted for EUR 2,287 million, 0.6% of financial assets at fair value with changes in other comprehensive income plus financial assets at amortized cost. On the other hand, the reversal of impairment of investments in subsidiaries, joint ventures or associates in 2021 amounted to EUR 800 million and losses of non-current assets held for sale amounted to EUR 50 million. Distribution proposal of the Bank’s profit ECB Recommendation of 15 December 2020, which asked banks not to pay out dividends charged against 2021 results (ECB Recommendation III), was in force for over half of 2021. On 23 July 2021, the ECB believed the reasons underpinning ECB Recommendation III to limit dividend payouts were no longer valid and, thus, repealed it effectively on 30 September 2021. On 28 September 2021, the board announced its 2021 shareholder remuneration policy to pay out an interim distribution from approximately 40% of the Group's underlying profit (half through a cash dividend and half through a shares buyback). •Interim remuneration.  Accordingly, it authorized the payment of an interim dividend of 4.85 euro cents per share (i.e. 20% of the Group's underlying profit for H1'21), in cash and charged against 2021 profits; it was paid on 2 November 2021. The board also voted to launch the First Buyback Programme worth 841 million euros (20% of the Group's underlying profit for H1'21) once the ECB approved it on 28 September 2021. •Final remuneration. On 24 February 2022, within the 2021 shareholder remuneration policy, the board of directors voted to: •submit a resolution at the 2022 AGM to approve a final cash dividend in the gross amount of 5.15 euro cents per share, worth approximately 865 million euros (approximately 20% of the Group’s underlying profit for H2 2021). If approved at the AGM, the dividend would be payable from 2 May 2022. The estimate of 865 million euros is based on the assumption that, once the Second Buyback Programme has taken place, the number of outstanding shares entitled to receiving dividends will be 16,804,353,202. Therefore, the total dividend may be higher if fewer shares than anticipated are acquired in the Second Buyback Programme; otherwise, it will be lower. 313 •implement a Second Buyback Programme worth 865 million euros (approximately 20% of the Group’s underlying profit for H2 2021), once the necessary regulatory authorization has been obtained. If shareholders approve the dividend payout resolution and the ECB authorizes the Second Buyback Programme, it will result in a payout of approximately 40% of the Group’s underlying attributable profit for 2021. If the buyback reaches the maximum within the programme period, remuneration will be split equally between cash dividends and shares buybacks. This final remuneration will enable Santander to meet the target set in the shareholder remuneration policy disclosed to the market on 28 September 2021. See more information in section 9.2 Dividend policy. 4. Trend information 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 note 49 of the  financial statements. The economic outlook for 2022 is subject to considerable uncertainty due to the spread of new covid-19 variants in Europe and the US in the final stretch of 2021 - and the risk of it spreading to other areas - and doubts as to the more or less temporary nature of the 2021 inflation hike. The impact of the Omicron variant and any future variants or outbreaks and their effect on activity is difficult to gauge. It will depend to a large extent on the pressure they generate on hospital capacity, which is not easy to foresee given, on the one hand, the varying capacity for contagion and virulence of each variant of the covid-19. Inflation will have an adverse impact on consumption and on financial conditions. In our baseline scenario, we assume that covid-19 control measures will have a moderate effect on activity, that inflation will ease and return to the target from spring onwards and that, with some exceptions, the withdrawal of monetary stimuli will be very gradual. In this environment, among the most relevant economies for the bank, the European economies and the United States are expected to maintain strong growth, while in Latin America the evolution may be more uneven. The macroeconomic forecast for 2022 by country/region is as follows: #### Euro area Growth recorded in 2021 is expected to continue in 2022, although the start of the year could be somewhat hesitant, supported by financial conditions that will continue to be openly expansionary, fiscal conditions that will not yet be restrictive, a greater weight of European Next Generation EU funds, an improvement in the pandemic and a gradual decline in inflation. The elections to be held in several countries in the area and the reforms and credibility of the countries' fiscal consolidation plans will be relevant, in a year in which the reestablishment of the Stability and Growth Pact may be announced and the monetary and prudential measures used to face the pandemic will be gradually withdrawn. 314 #### Spain In Europe, the deployment of European funds (especially relevant for the country), the potential improvement of international tourism, the time left for household consumption to recover and the expected reactivation of residential construction suggest remarkable growth that could drive GPD close to pre-pandemic levels. The success of ongoing structural reforms, partly related to European funds, will be fundamental in the short and medium term. The priority for Europe is the integration of all European businesses within a common operating model that allows us to continue capturing cost efficiencies and improving service quality. To this end, the main action lines in 2022 are: → To continue to expand our digital capabilities in the region, accelerating customer-to-digital conversion to improve service quality and thus customer satisfaction, while reducing the cost base. → Deliver on our EUR 1 billion cost savings commitment. → Leverage our global businesses (SCIB and WM&I) and the connection with PagoNxt to accelerate efficient allocation of capital to the most profitable segments and thereby improve the overall profitability of the business. → Excel in risk management, maintaining and reinforcing our balance sheet strength. The cornerstone of our strategy in Spain is customer service: •Grow the customer base through excellence service quality and seamless interaction with both customers and non-customers through digital channels. •Increase customer loyalty by improving customer experience when acquiring products through simple, digital processes. •Achieve operational excellence and improve NPS. •Develop low capital-intensive revenue streams (funds and insurance) . •Continue to review the cost structure, as the new model will be more efficient. See more information in the Consolidated Directors’ Report. 5. Non-financial information This Statement of Non-Financial Disclosures of Banco Santander, S.A., which is part of the Separate Directors' Report, contains the non-financial disclosures set out in the Consolidated Directors' Report of Grupo Santander together with other material useful comparative information for Banco Santander, S.A. that is appropriate for an understanding of the trends, results, status and impact of the activities of Banco Santander, S.A., including information on matters of the environment, society, human rights, the fight against corruption and bribery, and personnel. When drawing up the non-financial information contained in this Separate Statement Of Non-Financial Disclosures, Banco Santander performed a materiality analysis, in line with the international reporting framework developed by the Global Reporting Initiative (GRI), which enabled it to identify the most important aspects about which to inform its stakeholders in accordance with the GRI standards. #### General information The purpose of Santander Group is to help people and businesses prosper. To achieve this, it has a distinctive business model that seeks to satisfy the needs of all kinds of customer: private individuals with varying income levels; companies of any size and sector; private corporations and public institutions. Long-term personal relationships with its customers are the basis of the business. Through innovation, Banco Santander is transforming its commercial model to capture a greater number of loyal and digital customers, thereby driving a more profitable and sustainable business. Banco Santander considers the proper integration of environmental, social and governance (ESG) criteria in its financial activity to be critical. To achieve this, and in compliance with the international best practices regarding sustainability and responsible banking, Banco Santander has a sound corporate governance structure, with the board of directors as the maximum decision-making body of the Banco Santander, with the exclusive power to approve Grupo and Banco Santander general policies and strategies, including those regarding sustainability. It also has a general sustainability policy that defines our general sustainability principles and our voluntary commitments with the aim of generating long-term value for our stakeholders, and with a new environmental and social risk management policy that governs the Groups's financial activity in sectors such as energy, mining/metals and soft commodities (e.g. palm oil, soya and timber). It also has a defence sector policy outlining the criteria for the group's operations with companies that perform defence-related activities. 315 Likewise, the Bank has a sensitive sector policy that sets down guidelines for assessment and decision making about Banco Santander's participation in certain sectors, whose potential impact could lead to reputational risks. These policies are reviewed annually. Banco Santander's responsible banking strategy is also underpinned by other internal regulations such as the general code of conduct, the corporate culture policy (which includes principles of diversity and inclusion governing the Group), the human rights policy, the consumer protection policy, the cybersecurity policy, or the Third-party certification policy (which includes the principles on the responsible behaviour of suppliers). Moreover, Banco Santander redesigned and strengthened its corporate governance, both to ensure it is compliant and to help address the challenges that were identified. The responsible banking, sustainability and culture committee (RBSCC) has been created which will help the board of directors to comply with its responsibilities regarding the definition and supervision of the responsible banking, sustainability and culture strategy. The committee is supported by the Responsible banking forum, which meets at least six times a year. It executes the responsible banking agenda across the Group, drives decision-making on responsible banking issues and, ensures the execution of any mandates from the RBSCC, other Board committees and the board of directors. It also ensures alignment on key issues, including the review and escalation of reports to the RBSCC. The corporate Responsible Banking unit coordinates and drives the responsible banking agenda. Supporting this unit, Santander has a Senior Advisor on Responsible Business Practices, who reports directly to the executive chairman. In addition, in 2019 metrics and medium and long-term public commitments have been established to drive Santander´s and embed Responsible Banking agenda into the heart of Group Santander's business strategy (these public commitments are carved out throughout the report). The identification of non-financial risks associated with its activity is a priority for Banco Santander. Banco Santander has procedures in place for their identification, analysis and assessment in transactions subject to Group policies and to external commitments such as the criteria of the Equator Principles, an initiative the Bank joined in 2009. In this sense, Banco Santander recognises the right of communities to a clean and healthy environment and undertakes to minimise the environmental impact of its operations, which means: •Assuming, in line with the bank's commitment to the Equator Principles, the obligation to analyse, identify and correct, during the analysis of the risks of financing activities and consistently with the guidelines approved by the International Finance Corporation, the negative social and environmental impacts, including those affecting local communities. •During due diligence prior to signing agreements for financing or of any other kind and complying with the Equator Principles and social and environmental risk management policies, Santander undertakes, as part of its analysis, to assess the human rights policies and practices of its counterparties. •Establish specific policies governing the requirements for offering financing to those sectors, activities or potential customers that present a special risk in respect of social, environmental or human rights issues. Banco Santander is part of the main initiatives at international level regarding sustainability (United Nations World Agreement, Banking Environment Initiative, World Business Council for sustainable Development, UNEP FI, Equator Principles, Responsible Banking Principles, CEO Partnership for Financial Inclusion, etc.). In addition, we are one of the founding signatories of the United Nations Principles of Responsible Banking. The aim is to contribute to the fight against climate change and the achievement of the United Nations' Sustainable Development Goals. In 2021 we joined the we joined the Glasgow Financial Alliance for Net Zero, Net Zero Asset Management and were co-founders to the Net Zero Banking Alliance. Within GFANZ, we co-led the Net Zero Public Policy and their call to action launched in October. In Spain, we are member of Foretica, of the Green Growth Spanish Group as well as Fundación SERES. In addition, Banco Santander  forms part of the main stock market indices that analyse and evaluate companies' actions on sustainability. 316 We are member of Dow Jones Sustainability Index for the 21st year in a row, with top marks in financial inclusion, environmental reporting, operational eco- efficiency and social reporting. Santander was also included in the S&P Sustainability Yearbook, receiving a silver class award. MSCI increased our rating from BBB (2020) to AA (2021), CDP rating category up from B to A-, putting us among leading financial institutions. Sustainalytics also recognized our progress, raising our score from 27.1 to 23.9 We are members of the FTSE4GOOD Index, and improved from 4.3 in 2020 to 4.5 out of 5 in 2021. We increased our score in the Bloomberg Gender- Equality Index (BGEI) from 85 to 90 and were the highest-ranked bank and second highest company. #### Information about environmental issues At Santander, we want to play our part in supporting our customers and the global economy to be zero by 2050. We are offering our customers decarbonization solutions to help them fulfil their climate goals. We are aligning our portfolios with the Paris Agreement Goals and keeping our operations carbon-neutral. Integrating climate within our risk management is key to tracking our plan’s robustness. We have a four-pronged climate strategy and public commitments to: 1) align our portfolio with the Paris Agreement Goals and set sectorportfolio alignment targets in line with the NZBA and with the NZAMi: to ensure projected carbon emissions will contribute to limiting warming to a 1.5ºC rise above pre-industrial levels. 2) help customers transition to a low-carbon economy, with the commitment to raise EUR 120bn in green finance between 2019 and 2025 and EUR 220bn by 2030; offer our customers guidance, advice and specific business solutions; and enable them to invest in a wide- ranging ESG proposition according to their sustainability preferences. Some environmental products and services delivered by Banco Santander in Spain are: • Funding renewable energy projects: In 2021 Banco Santander helped to finance new renewable energy projects in Spain with an installed capacity of 3.212 MW. • Management of credit lines in relation to energy efficiency in collaboration with multilateral institutions such as the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD). Financing of low-emission vehicles, Banco Santander offers Ecological Car loans for the purchase of hybrid or electric cars with reduced interest rates. 3) reduce our impact on the environment by remaining carbon neutral and sourcing all our electricity from renewable energy by 2025. In 2021, Banco Santander S.A.. has continued reducing its CO2 emissions by 56.7% compared to 2020. Additionally, 100% of the electricity used by Banco Santander S.A. comes from green energy sources. Banco Santander continues to hold the ISO 14001 environmental certificate for the Santander Group City in Boadilla, the bank's headquarters. It has also obtained the LEED GOLD certificate for the new headquarters of Santander España (Luca de Tena), the Abelias building and the DPC in Santander. 4) embed climate in risk management; understand and manage the sources of climate change risks in our portfolios. Banco Santander considers social and environmental aspects to be crucial in risk analysis and decision making within its financing operations in accordance with its general and sector policies in respect of sustainability, as mentioned above. In this regard, the bank has established procedures for the analysis and assessment of these risks in operations subject to Banco Santander policies and to external commitments such as the Equator Principles. Santander Asset Management is operating in 10 countries and aims to have net zero greenhouse gas emissions from the assets we manage by 2050, and it was the first asset manager in Spain and Latam (ex Brazil) to join the initiative. This is consistent with Santander’s push for leadership in sustainability and the Group commitment to be net zero in CO2 emissions by 2050. We continued to make progress in meeting the public commitments set out in 2019. •Financing or facilitating the mobilisation of EUR 120 billion up to 2025 and EUR 220 billion up to 2030. Since 2019 we have already mobilised €61 billion. •Since 2020 we are carbon neutral in our own operations. •That 100% of the electricity we use comes from renewable sources by 2025. At the end of 2021, 77% of the energy consumed in the Group (10 main geographies) came from renewable sources. In Spain it is 100%. •Eliminate the use of unnecessary single-use plastic in all our offices and buildings.  By the end of 2021 we have completely eliminated unnecessary single- use plastic. 317 #### Information about labour questions and employees Banco Santander aims to be one of the best banks to work for, able to attract and retain the best global talent, enabling it to accelerate the transformation and helping people and society prosper. Human resources strategy is based on having the best team of professionals: a diverse and committed team with a common culture (based on corporate behaviour and a way of making things simple, personal and fair) ready to give customers a distinctive and quality service. a) Employment At 31 December 2021, Banco Santander, SA, in Spain, had a headcount of 21,848 employees, 1.8% less than in 2020, with an average age of 45, of whom 50% were women and 50% men. Some 99.9% of labour contracts are permanent full- time. In 2021, we began to reduce our workforce on organizational, production-based and economic grounds. Following informal discussions with workers’ legal representatives to explain our reasons, we entered into formal negotiations that ended with an agreement with most trade unions. All of the measures agreed with the European Works Council to align workforce restructuring with socially responsible practices were in the restructuring agreement.  The alternative measures we proposed included geographic and in-company relocations to lower the number of potential lay-offs. On top of considering employees in vulnerable situations to protect their jobs. In total there were 3,541 dismissals. The gender pay gap at Banco Santander S.A. in Spain  is 13.1% (in median) and the difference in compensation for identical positions is 5.1%. The difference in comparison with the Group (1%) is due mainly to the legacy of the mergers carried out in recent years and to changes in functions or the fact that some positions are not equivalent. Employees with a disability account for 1.4% of the total (+0.2 vs 2020). b) Work organisation At Santander  we believe our diverse organization must adapt to the  needs and characteristics of its teams. We redesigned our global flexiworking framework to address where, when and how much we work: •'Where': Possibility of home/remote working. •'When': Intensive day, flexible start/end and break times and alternative shifts. •'How much': Part-time working, special leave, flexible holidays, job sharing and other measures. Because we enabled managers to take charge of deciding where their people can work, each area and business has implemented new ways of working based on the characteristics of the team and its needs. The corporate FlexiWorking policy, applicable to Santander S.A. and the entire Group, encompasses a wide range of measures so that employees can benefit according to their personal needs and professional situation. These measures refer mainly to: In addition, the Banco Santander has measures aimed at facilitating the work-life balance of its employees through the different agreements signed with the relevant unions´ representatives. Santander has committed to promoting a rational management of working time and its flexible application, as well as the use of technologies that allow a better organisation of the work of our professionals, specifically addressing the employees´ right to digital disconnection. c) Health and safety The health of its employees is a priority for the bank. In 2021, we appointed a global head of health and well- being to help draw up a strategy and implement it across our footprint. We drafted our Global health and well-being policy, which will be available to the public in 2022. We also began work on global guides that will set standards on mental and emotional health, digital balance and other priority areas to be implemented by subsidiaries The BeHealthy initiative aims to make Banco Santander one of the healthiest companies in the world and to offer employees health and wellbeing benefits. As part of our Covid-19 response, we continued to enforce these prevention measures to make sure our employees stayed healthy. Banco Santander has a plan for the prevention of workplace risks that is available to all employees on the corporate intranet. Banco Santander also promotes a healthy work/life balance through flexible work policies and services to satisfy employees' personal and family needs. The general code of conduct highlights our ethical principles, including the importance of encouraging a working environment that is compatible with employees' personal and family life. Also, as part of the "Our way of working" initiative, the bank has assessed its new work spaces and equipment, both from an ergonomic and safety perspective. d) Labour relations Banco Santander has made a formal commitment to foster workforce labour relations in its code of conduct. 318 The code of conduct stablishes the obligation to respect the internationally recognised rights of unionisation, association and collective bargaining, and the activities carried out by the unions that represent employees, in accordance with the functions and areas of responsibility legally attributed to them. In addition, the human rights policy describes Banco Santander's principles and commitments with respect to relations with the Bank's employees. These commitments are fostered through social dialogue and include: •Preventing discrimination and practices that are harmful to people's dignity. •Rejecting forced and child labour. •Respecting freedom of association and collective bargaining. •Protecting employees' health. •Offering decent work Also, in meetings of the European Works Committee, various declarations have been signed together with legal representatives of employees in the main European countries in which the Group Santander operates (Spain, Portugal, Germany, the UK, Italy, Poland and Nordics). •2008: equal treatment in Santander Group companies. •2009: basic labour principles and rights that should govern the framework of labour relations in Santander within the scope of the European Union. •2011: framework of labour relations for the provision of financial services. •2016: joint declaration on the restructuring of workforces in the European area. In addition, the collective labour agreement for the banking sector, negotiated and signed by the bank, contains various declarations about promoting labour dialogue. The dialogue with employees' representatives is maintained through numerous bilateral meetings and specific committees, including: •The Health and Safety Committee •The Employment Committee •The Training Committee •The Pension Plan Oversight Committee •The Equal Opportunities Committee •The Committee for the Solidarity and Social Assistance Fund •Bilateral meetings with Santander Group companies, such as Openbank and Santander Consumer These specific meetings with the unions are held to inform them about significant Banco Santander projects and to obtain their feedback, in the understanding that their support is necessary and is directly related to the satisfactory implementation of these projects. In Spain, practically 100% of the workforce is covered by a collective labour agreement. In 2021, we began to reduce our workforce on organizational, production-based and economic grounds. Following informal discussions with workers’ legal representatives to explain our reasons, we entered into formal negotiations that ended with an agreement with most trade unions. All of the measures agreed with the European Works Council to align workforce restructuring with socially responsible practices were in the restructuring agreement.  The alternative measures we proposed included geographic and in-company relocations to lower the number of potential lay-offs. On top of considering employees in vulnerable situations to protect their jobs e) Training We value continuous learning so our employees can adapt to an ever-changing environment and help accelerate our transformation. Our global learning and development policy sets the standards for designing, reviewing, launching, overseeing and enhancing training and development programmes to: •support our business and cultural transformation in accordance with Santander’s governance standards; and, •foster innovation, knowledge sharing and transfer, and the skills employees need to perform their duties successfully as part of global talent management. The three pillars of our employee upskilling and reskilling are strategic workforce planning (SWP), our current skill model and a single skills catalogue to meet strategic business needs. We put training modules on our digital ecosystem, Dojo, which turns them into study plans and “roadmaps” for learning. Dojo facilitates informal, interactive and structured ways of learning, combining many formats, settings and tools so every employee can choose what, when, how and how much to learn. Furthermore, each subsidiary’s Learning and Development team pinpoints specific learning needs relating to its geography and designs training courses consistent with Dojo’s standards. f) Accessibility Improving access to our products and services is a key aspect of Banco Santander's commitment to be a bank that is Simple, Personal and Fair. 319 The corporate works manual includes minimum accessibility criteria based on Design for All (DfA) principles. These criteria, which refer to office architecture, furniture, lighting, signage and the functional allocation of spaces, are applied by default in new offices and in those upgrades in which this is technically possible. Banco Santander also wants to provide maximum accessibility for all the users of its various websites. In this respect, both in the development and maintenance of its websites, the bank applies the accessibility guidelines established by the Web Accessibility Initiative (WAI) working group of the World Wide Web Consortium (W3C), at level AA. g) Equality Banco Santander believes that diversity enriches human capital, resulting in an inclusive and diverse work environment that achieves better solutions and offers added value. The board of directors of Banco Santander is a clear example of diversity in all its aspects. It has diversity of gender (40% of board members are women) and nationality (Spanish, British, American and Mexican) and a broad industry representation (finance, retail, technology, infrastructure and academia). In managing employee talent, Santander considers all existing sources of diversity, including gender, race, age, national origin, disability, culture, education, and professional and life experience. In 2017, Banco Santander approved principles for promoting diversity that act as a benchmark for all the initiatives that are developed in this area. These principles, which are included in the corporate culture policy, envisage all the aforementioned sources of diversity, and they are applicable to all stages of talent management in the bank (recruitment, training, professional development, compensation, etc.). 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. In 2019, the bank has established various commitments with the objective of achieving equality between men and women. •To have between 40% - 60% women members on our Group Board by 2021. We have closed 2021 with 40% women on the board. •To have 30% women in senior leadership positions by 2025. We have closed 2021 with 26,3% women on senior leadership positions. Banco Santander is one of the leading companies in the Bloomberg Gender-Equality Index 2021, We are the first bank, and the second highest rated company. #### Information about Human Rights In line with its corporate culture, Banco Santander undertakes to respect and promote human rights in its sphere of operations, and to prevent or minimise any violation directly caused by its activity. Banco Santander has a specific policy that includes commitment to human rights, in accordance with the strictest international standards, especially the UN's Guiding Principles on Business and Human Rights of 2011. This policy, driven by the Board of Directors, is applicable to Grupo and Banco Santander and is available at www.santander.com Banco Santander's policy on human rights is in line with Banco Santander's General Code of Conduct and its other policies in respect of sustainability. #### Information about the fight against corruption Banco Santander is staunchly committed to fighting any kind of corruption in the public and private sectors alike. In order to comply with this pledge, Banco Santander has drawn up this Anti-Corruption Policy which lays down all the anti-corruption elements which the Grupo Santander must comply with. Banco Santander considers it a strategic objective to have a system for the prevention of money-laundering and terrorist financing that is advanced and effective, permanently adapted to the latest international regulations and able to deal with new techniques employed by criminal organisations. 320 It also has a corporate framework that lays down principles for acting in this respect and sets minimum standards applicable to local units. The latter are responsible for directing and co-ordinating procedures for the prevention of money-laundering and terrorist financing, and for investigating and issuing alerts about suspicious transactions and responding to requests for information from the supervisors. As a signatory of the ten principles of the UN's Global Compact, Banco Santander undertakes to work against corruption in all its forms, including extortion and bribery. In addition, Banco Santander has whistle-blowers' channels for employees, which form part of the general code of conduct, and for suppliers, designed for reporting inappropriate behaviour by bank employees in matters regarding corruption and bribery that are contrary to internal regulations, to the compliance function. In 2021, the main concerns were related to corporate values (SPF) and behaviours and to labour regulations, followed by internal fraud, workplace harassment, marketing of products and services, privacy and data protection. In 2021, 79 equal opportunity and non-discrimination complaints were received in the Group, 6 of which resulted in disciplinary action, including 2 dismissals. #### Information about society a) The bank's commitments to sustainable development Banco Santander contributes to economic and social development through initiatives and programmes that promote education, entrepreneurship, employability and social wellbeing. Banco Santander has, as one of its priority lines of action to contribute to sustainable development, the financial empowerment of people. We help people to access financing, to create or develop micro-enterprises, and we provide them with the necessary skills to manage their finances through financial education. Our goal is to include and financially empower 10 million people by 2025. Three main focuses of action: •We help unbanked, underbanked and vulnerable people to access and use basic financial services. •We offer specific products and services to low- income people, people with financial problems, and vulnerable groups. •We promote financial education programs Through Santander Universities, a unique initiative in the world, we focus our efforts on supporting education, entrepreneurship and employment. Banco Santander developed the largest scholarship programme ever launched by a private entity. Grupo Santander has over 1,400 agreements with universities and academic institutions in 31 countries. Banco Santander SA has agreements with 100 academic institutions. During 2021 Banco Santander invested a total of EUR 106 million to support higher education. Of which 69 million was disbursed by Santander Spain and the Corporate Centre, and which supported more than 43,000 students and university professors. The bank also supports the communities where it operates through numerous local programmes, encouraging the participation of bank employees as a way of promoting solidarity, motivation and pride in belonging, maintaining proximity and ties with their surroundings. In total, in 2021, Banco Santander invested more than EUR 46 million, EUR 13 million in social programs in Spain, helping more than 500,000 people. Also, through the Banco Santander Foundation, the bank carries out important work in cultural patronage and the protection and recovery of natural spaces. b) Outsourcing and suppliers Banco Santander has a supplier management model and policy that establishes a common methodology for all units about the selection, certification and assessment of suppliers. In addition to price, quality of service and other traditional criteria, it includes ESG factors, such as diversity and inclusion, human rights and sustainability. These include: •Whether the supplier has obtained official certifications related to quality, environmental management, labour relations, the prevention of workplace risks, corporate social responsibility and similar. •Whether they have subscribed to the Global Compact or have their own principles in respect of ethical, social and environmental questions and report about these on a regular basis. •Or whether they have frameworks, policies, procedures, records of indicators and/or initiatives related to environmental and social matters. The third-party certification policy include the responsible behaviour principles for suppliers.  These principles lay down the minimum conditions that Banco Santander expects of its suppliers around ethics (ethics and conduct), labour matters (human rights, health and safety, and diversity and inclusion) and the environment. 321 Similarly, Banco Santander has a whistle-blowers' channel for suppliers through which suppliers who provide services to the Bank or any of its subsidiaries in Spain can report inappropriate conduct by Group Santander employees which does not conform to the framework of the contractual relationship between the supplier and the general principles of conduct of the Banco Santander. c) Consumers For Banco Santander a key characteristic of a responsible bank is that it manages and oversees the marketing and commercialization of products and services and consumer protection appropriately. By placing our customers at the heart of what we do, we aim to win and keep their loyalty. To achieve that, we use a range of interactive channels to listen to and understand them better. Our product, service and consumer protection framework sets out the principles that promote a strong SPF relationship with customers and establishes the basics for managing and mitigating conduct risk in design, sales, post-sales and services. Our Product Governance & Consumer Protection function, 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 the customers by validating products and services and preventing the launch of inappropriate ones. In addition, the corporate consumer protection policy establishes the criteria for the identification, organisation and implementation of consumer protection principles and the mechanism for the overseeing and supervising compliance. In 2021, we worked on an instruction manual about our vulnerable customer and special case management model, and set a roadmap for its roll-out among subsidiaries, therefore ensuring a consistent, group-wide approach to identifying and managing vulnerable customers in such high-impact procedures as collections and fraud management. We offered monthly training courses and we ran an awareness campaign at the Corporate Centre and shared the manual across our footprint. Appropriate management of complaints is another important aspect of a responsible banking strategy. Banco Santander has a procedure for complaint management and root cause analysis whose objective is to issue standards to all the units for proper complaint management, ensuring compliance with the local and industry-wide regulations applicable in each case, and offering the best possible service to customers. In 2021 Banco Santander received a total of 120,953 complaints, 19.3% lower than in 2020.. Banco Santander also constantly monitors its customers' opinions and their experiences. This information reveals how the range of services offered can be improved and helps to measure customer loyalty. To measure customer loyalty and satisfaction, Banco Santander uses the Net Promoter Score (NPS). In 2021 we have performed well, maintaining our 2nd position in Spain, and being top 3 in 8 of the main markets in which we operate at a group level.. d) Tax information Banco Santander pays its fair share in taxes in every jurisdiction where we operate. Our tax strategy, which has been approved by the Board, sets out the principles by which the entire Group Santander operates. It is published on our website. Banco Santander contributes economically and socially to the countries in which it operates by paying all taxes borne directly by the Grupo Santander (taxes paid by the Group4) and collecting or withholding taxes from third parties generated through business activity, cooperating as required with the local tax authorities (taxes from third parties5). The total taxes collected and paid by Banco Santander in Spain in 2021 amounted to EUR 3,048 million, of which 1,707 million were the bank's own taxes and EUR 1,341 million were third-party taxes. 322 4 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. 5 Including net payments for salary withholdings and employees' social security contributions, recoverable VAT, tax deducted at source on capital, non-resident taxes and others. 6. Research, development and innovation #### 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 (2021 EU Industrial R&D Investment Scoreboard, based on 2020 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 1,325 million. #### 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. In order to ensure the alignment of the technology strategy in all Group units, the SARB (Santander Architecture Review Board) holds monthly meetings that bring together the Chief Technology Officers (CTOs) of the different units and businesses to actively participate in key architecture decisions. The SARB oversees everything, the analysis of potential assets, the migration to cloud or the review of datalake reference architectures. The use of a single technology stack and reference architectures are key to achieving Santander Common Architecture. Based on simplification, the recycling of components and the principle of Composable Architecture, the SARB also guarantees  the use of technologies that matches the business of the future. 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 5,000 Santander Global Tech professionals in Spain, the UK, Portugal, Poland, 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. #### 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. 323 Santander has currently migrated more than 75% of its technology infrastructure to the cloud and expects to complete the roll-out by 2023. Our Cloud strategy enables us to improve processes, swiftly innovate and improve service quality. 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. This process is also expected to reduce the energy consumption of the Bank's technology infrastructure by 70%, which contributes to Santander's responsible banking goals. #### 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. New cyber services and capabilities created during the Cybersecurity Transformation 3-year Plan have been completed in 2020 and moved to business as usual (BAU) operation in line with the Group’s Cybersecurity Framework. This has allowed us to set the organisational foundations and governance for cyber security globally, establish global cyber services within the group, strengthen defences in line with existing best practices and latest technology tools, and help drive a security aware culture for employees and clients. During the transformation, Santander established a Global Cybersecurity Centre in Madrid which provides services to protect all Group entities, systems and customers by taking a proactive approach to identifying, monitoring and responding to cyber threats 24/7. At the same time, as cyber threats and attack techniques continue to develop, continuous evolution of cyber defences is essential. In 2021, the following key strategic cyber security pillars and initiatives were established to help Santander evolve its cyber defences in line with emerging threats and technologies: •Level the “battlefield”: The current threat landscape is increasingly challenging with new vulnerabilities, techniques and procedures reported on a daily basis. It is crucial to take actions that make attacks more difficult through deterrence, deception and automation techniques. •Defend the (hyper-connected) Bank of the Future: The banking ecosystem (platforms, cloud and supply chain) is increasingly hyper-connected and interdependent. Cybersecurity teams have been working on implementing new defence paradigms such as “Zero Trust” and other innovative solutions. •Generate Value & Trust: Helping customers stay safe online is key to continue building trust and helping everyone prosper in the digital world. Additionally, promoting public-private partnerships and collaborating to tackle cyber crime is key to protect customers and society as a whole. See more information in the Consolidated Directors’ Report. 7. Customer service and customer defence Customer Service Annual Report In accordance with article 17 of order ECO / 734/2004 of March 11 of the Ministry of Economy on the departments and services of Customer Service and the Customer Ombudsman of Financial Institutions, the directors’ report summarizes the Annual Report to be presented by the holder of the Service on the Board of Directors in March 2021. Customer service and customer defence service In compliance with Law 44/2002 on Measures for the Reform of the Financial System of the 734/2004 Order of the Ministry of Economy on Departments and Services of Customer Service and the Customer Ombudsman of Financial Institutions and in accordance with Article 37 Of the Regulations of the Customer Claims and Attention and Defence Service in Grupo Santander, below is a summary of the activity developed by the said Service during 2021, in relation to the management of complaints and claims. This complaint and customer service department has managed during 2021 the claims of 18 companies of Grupo Santander in Spain, three less than in 2020 after the liquidation of Santander Brasil at the end of 2020, the adhesion of Caceis Bank to its own customer service and the sale of the Popular Vida 2020 business to Santander Generales Seguros y Reaseguros, S.A., a company not adhered to this service. Also, note the name change from Santander Spain Merchant Services to Getnet Europe. Global evolution of complaints and claims received by Banco Santander in 2021 In 2021, 131,029 claims were accepted in the complaint and customer service department. Of these, 2,071 came through the Customer Ombudsman, 2,814 through the Bank of Spain, 216 through the National Securities Market Commission (CNMV) and 125 through the General Directorate of Insurance and Pension Funds (DGSFP). 324 Analysis of claims by affected products Complaints and claims The following is the classification of complaints received in 2021 according to the type of product: Number of complaints 2021 2020 Assets 47,442 47,806 Liabilities 31,314 33,948 Services 18,063 18,967 Insurances 2,178 1,901 Funds and Plans 1,407 1,922 Payment methods 23,503 24,024 Securities / Capital Markets / Treasury 5,326 25,384 Others 1,736 1,916 131,029 155,868 Resolution of claims and complaints As of 31 December 2021, 95% of the complaints and claims received had been resolved. The average resolution time in 2020 was 34 calendar days. 67% of the complaints and claims resolved have required a processing time of more than 15 calendar days. In 23% of cases, the resolutions have been favourable to customers. Entities The following are the companies adhering to the Regulation of the Customer Service of Complaints, Care and Defence of Grupo Santander and their corresponding number of complaints and claims received. 325 Entities Admitted to processing Non-admitted to processing BANCO SANTANDER, S.A. 114,353 5,922 SANTANDER CONSUMER FINANCE, S.A. 10,076 417 OPEN BANK, S.A. 2,784 25 SANTANDER SEGUROS Y REASEGUROS CÍA. ASEGURADORA,SA 2,115 116 SANTANDER PENSIONES, S.A., E.G.F.P. 767 41 SANTANDER ASSET MANAGEMENT, S.A., S.G.I.I.C. 393 36 GETNET EUROPE, EP, SL 337 13 ALTAMIRA SANTANDER REAL ESTATE, S.A. 137 25 SANTANDER FACTORING Y CONFIRMING, S.A., E.F.C. 31 — EURO AUTOMATIC CASH 24 — SANTANDER LEASE, S.A., E.F.C. 12 — TRANSOLVER FINANCE, E.F.C., S.A. — — SANTANDER REAL ESTATE, S.A. — — SANTANDER INTERMEDIACIÓN CORREIDURÍA DE SEGUROS, S.A. — — LURI 6, S.A.U. — — CACEIS BANK SPAIN, S.A. — — SANTANDER INVESTMENT, S.A. — — SANTANDER BRASIL E.F.C., S.A. — — SANTANDER PRIVATE BANKING GESTIÓN, S.A., S.G.I.I.C — — SANTANDER CAPITAL DESARROLLO, S.G.E.I.C., S.A.U. — — Total 131,029 6,595 The network of branches and the different channels of relationship solve, in the first instance, the requests, disconformities or incidents that the clients communicate to Banco Santander, trying to avoid that they become complaints to other instances. 8. Risk management, solvency and capital See notes 49 and 1.e) on risk and capital to the Bank Annual Accounts. See more information in the Consolidated Directors’ Report. 326 9. Other relevant information 9.1 Treasury shares: See note 30 to the Bank Annual Accounts. 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. 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. On 28 September 2021, the board resolved to execute a treasury shares buyback programme (First Buyback Programme) worth up to 841 million euros (20% of the Group’s underlying profit for H1 2021) according to the Treasury shares policy and 2021 Shareholder remuneration policy. It had based its decision on authorization by the ECB, and by shareholders at the April 2020 AGM. In the First Buyback Programme (from 6 October to 25 November 2021), we acquired 259,930,273 treasury shares —1.499% of Banco Santander’s share capital— at a weighted average price per share of 3.2355 euros. The purpose of the First Buyback Programme was to reduce Banco Santander’s share capital by cancelling the repurchased shares, which the board put to a vote at the 2022 AGM. Under the same AGM approval, on 24 February 2022 the board of directors resolved to execute another shares repurchase programme at a maximum of 865 million euros (approximately 20% of the Group’s underlying profit for H2 2021) as part of shareholder remuneration charged against 2021 results (Second Buyback Programme). The purpose of the Second Buyback Programme is to reduce Banco Santander’s share capital by cancelling purchased shares (up to the agreed maximum), for which the board submitted a resolution for a vote at the 2022 AGM. The Bank’s shares owned by the consolidated companies accounted for 1.60% of issued share capital at 31 December 2021. 327 9.2 Dividend policy: As required in Banco Santander’s by-laws, each year the shareholder remuneration policy is submitted for approval by the AGM. Distribution charged against 2021 results ECB Recommendation of 15 December 2020, which asked banks not to pay out dividends charged against 2021 results (ECB Recommendation III), was in force for over half of 2021. On 23 July 2021, the ECB believed the reasons underpinning ECB Recommendation III to limit dividend payouts were no longer valid and, thus, repealed it effectively on 30 September 2021. On 28 September 2021, the board announced its 2021 shareholder remuneration policy to pay out an interim distribution from approximately 40% of the Group's underlying profit (half through a cash dividend and half through a shares buyback). •Interim remuneration.  Accordingly, it authorized the payment of an interim dividend of 4.85 euro cents per share (i.e. 20% of the Group's underlying profit for H1'21), in cash and charged against 2021 profits; it was paid on 2 November 2021. The board also voted to launch the First Buyback Programme worth 841 million euros (20% of the Group's underlying profit for H1'21) once the ECB approved it on 28 September 2021. •Final remuneration. On 24 February 2022, within the 2021 shareholder remuneration policy, the board of directors voted to: •submit a resolution at the 2022 AGM to approve a final cash dividend in the gross amount of 5.15 euro cents per share, worth approximately 865 million euros (approximately 20% of the Group’s underlying profit for H2 2021). If approved at the AGM, the dividend would be payable from 2 May 2022. The estimate of 865 million euros is based on the assumption that, once the Second Buyback Programme has taken place, the number of outstanding shares entitled to receiving dividends will be 16,804,353,202. Therefore, the total dividend may be higher if fewer shares than anticipated are acquired in the Second Buyback Programme; otherwise, it will be lower. •implement a Second Buyback Programme worth 865 million euros (approximately 20% of the Group’s underlying profit for H2 2021), once the necessary regulatory authorization has been obtained. If shareholders approve the dividend payout resolution and the ECB authorizes the Second Buyback Programme, it will result in a payout of approximately 40% of the Group’s underlying attributable profit for 2021. If the buyback reaches the maximum within the programme period, remuneration will be split equally between cash dividends and shares buybacks. This final remuneration will enable Santander to meet the target set in the shareholder remuneration policy disclosed to the market on 28 September 2021. 9.3 Stock market information: 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'. The global economy came back strong. Vaccination programmes enabled a return to economic activity and mobility amid excess liquidity and expansionary fiscal policies. Despite uncertainties due to the surge of new covid-19 variants, positive trends drove a rise in commodity prices and inflationary pressures, which rebounded to the highest levels in a decade in the US and the eurozone. Central banks in developed economies began a widespread withdrawal of monetary stimulus. The Bank of England raised interest rates to 0.25% on the back of a strong jobs market and high inflation. The US Federal Reserve announced its intention to start raising rates no later than mid-2022. The ECB is limiting the withdrawal of stimulus to liquidity by scaling back its  purchase programmes. Major global equity indices ended 2021 with significant aggregate gains. The banking industry registered better performance owing to the lifting of restrictions on dividend payments, favourable results of US bank stress tests, and better outlooks for most European banks. The IBEX 35 in Spain increased 7.9%; the DJ Stoxx 50 in Europe by 22.8%; DJ Banks by 34.0%; and the MSCI World Banks by 22.7%. By 31 December 2021, Santander’s market capitalization of EUR 50,990 million was the second largest in the eurozone and 24th largest in the world among the financial institutions. 13,484 million shares traded in the year for an effective value of EUR 41,195 million and a liquidity ratio of 78%. The Santander share closed 2021 at 2.941 euros. At 31 December 2021 the total number of Santander shareholders was 3,936,922. 328 9.4 Average period of payment to suppliers: The average period of payment to suppliers during 2021 is 10 days, term which is below the maximum established in applicable regulations. 10. Events after the reporting period No significant events occurred from 1 January 2022 to the date on which these financial statements were authorized for issue, other than those described in these annual accounts. 11. Annual corporate governance report and Annual report on directors’ remuneration According to articles 540 and 541 of the Spanish Companies Act, Banco Santander, S.A. has prepared the annual corporate governance report and the annual report on directors’ remuneration for the year ended 31 December 2021 (that are part of the directors’ report of that financial year) with the contents determined by Order ECC/461/2013, of 20 March, and by Circular 3/2021, of 28 September, of the National Securities Market Commission (CNMV), that modifies Circular 5/2013, of 12 June, that defines the annual corporate governance report model for listed companies, and Circular 4/2013, of 12 June, that defines the annual report on directors’ remuneration model for listed companies. The annual corporate governance report includes a section that refers to the compliance of the corporate governance recommendations in Spain. The annual corporate governance report and the annual report on directors’ remuneration are included, as a separate section, in the individual directors’ report in accordance with the provisions of article 538 of the Corporate Enterprise Act. The aforementioned reports are sent individually, as other relevant information, to the CNMV, and are included in the consolidated directors’ report as a separate section. They are available on the Bank's corporate website (www.santander.com) and on the CNMV website (www.cnmv.es). 329 Pursuant to Article 253, section 1 of the revised Spanish Companies Act (Ley de Sociedades de Capital), the board of directors of Banco Santander, S.A. draws up the individual financial statements (comprising the balance sheet, the income statement, the statement of recognized income and expense, the statement of changes in total equity, the statement of cash flows and the notes to the individual financial statements) and the individual directors’ report for the 2021 fiscal year in eXtensible HyperText Markup Language (XHTML) format, which conforms to the single electronic reporting format required under Directive 2004/109/EC and Delegated Regulation (EU) 2019/815. The directors of Banco Santander, S.A., listed below with an indication of their respective positions, declare that, to the best of their knowledge, the company's individual financial statements for the 2021 financial year were drawn up in accordance with the applicable accounting principles and give a true and fair view of the assets, liabilities, financial position and profit or loss of the company, and that the directors’ report includes a fair review of the development, performance and position of the company, together with a description of the principal risks and uncertainties that it faces. Boadilla del Monte (Madrid), 24 February 2022 ANA PATRICIA BOTÍN-SANZ DE SAUTUOLA Y O’SHEA Chair BRUCE CARNEGIE-BROWN                                              JOSÉ ANTONIO ÁLVAREZ ÁLVAREZ Vice Chair                                                                          Vice Chair and Chief Executive Officer 330 MEMBERS: HOMAIRA AKBARI LUIS ISASI FERNÁNDEZ DE BOBADILLA FRANCISCO JAVIER BOTÍN-SANZ DE SAUTUOLA Y O’SHEA HENRIQUE MANUEL DRUMMOND BORGES CIRNE DE CASTRO SOL DAURELLA COMADRÁN SERGIO AGAPITO LIRES RIAL GINA DÍEZ BARROSO R. MARTÍN CHÁVEZ MÁRQUEZ RAMIRO MATO GARCÍA-ANSORENA BELÉN ROMANA GARCÍA ÁLVARO ANTONIO CARDOSO DE SOUZA PAMELA ANN WALKDEN 331