Banco Santander S A : Ana Botín's Speech

2020 ANNUAL GENERAL MEETING EXECUTIVE CHAIRMAN SPEECH

1. Welcome and introduction
2. Management of Covid-19 crisis / New normal
3. Earnings and profitability
4. Update on the regions (Europe, North America, and South America)
5. Credit quality
6. Solvency
7. Dividends
8. 2021 + outlook
9. Unlocking potential for organic growth going forward (One Santander, Global Native Digital Consumer Bank and SGP)
10. Closing

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1. Welcome and introduction

Shareholders,

Good morning everyone and thank you for attending this general meeting, in person and virtually.

As you may remember, last April our annual general meeting took place amid a sudden health crisis. At that time, no one could foresee the impact COVID would have on public health, the economy and broader society.

We all know someone - a friend, family member, work colleague - who has been taken by the virus. And the feeling of loss is, no doubt, the hardest part of everything we are experiencing. My thoughts are with those mourning their loved ones, especially the families of the 12 employees from Santander Group we've lost to this disease.

During these troubled times, we have seen society at its best: Communities banding together, people going out of their way to help the sick and vulnerable, scientists from around the world working together around the clock to find a vaccine, not to mention our doctors and nurses, toiling day in and day out to save people's lives.

I can't thank them enough for everything they're doing, especially here in Spain; as well as all those essential service workers including our colleagues in the financial sector, who have continued to work non-stop.

This crisis is forcing us to face yet another one - an economic crisis that is devastating millions. In this war against COVID, jobs and businesses must be protected.

It has re-shaped our lives. Most of our daily routines - from work to school to shopping - have gone online. The virus has fast-forwarded the digital revolution.

As we look ahead, governments and companies must come together to build back better, so that we emerge from this crisis stronger, supporting inclusive and sustainable growth around the world.

Banks have a critical role to play. We are part of the solution. We have a crucial duty and an essential role: to support our employees, our customers (families and companies that need us now more than ever), and to deliver sustainable returns to you, our shareholders.

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I'd like to start this morning by giving an overview of the current landscape and how Santander is navigating this challenging environment, briefly review our Q3 performance, and then share the firm's longer-term strategy to unlock additional growth.

The current situation puts two challenges before us.

First, until there is a vaccine, we must learn to live with the virus and manage health risks based on science and recommended best practices from authorities to keep our economies moving.

The second challenge is to further accelerate our transformation to offer our customers a best-in-class experience to retain and grow their trust and loyalty in the digital age.

Trust in us is key, even more so in times of crisis and uncertainty.

2. Management of the Covid-19 crisis / New normal

Let me start with how Santander is addressing the first challenge - to keep economies moving.

When this crisis began, we put together an ambitious plan to provide customers with liquidity, which was quickly eroding in the economic downturn.

Over these past few months, to support small and medium-sized enterprises, we've been lending, on average, upwards of 1 billion euros every day.

This means that we have been able to help many more companies and self-employed to get the financing they need to stay in business.

Today I want to reaffirm our commitment to all our stakeholders, especially those companies who have been forced to stop business as usual. We are committed to help them recover so they can continue to create wealth and jobs.

And let me here commend the European Union and the ECB on their swift and united response to provide liquidity and support a recovery plan. The scale and speed of this undertaking is a sign of not just its determination to build back better, but also the basic principle that, when we act as one, we are stronger.

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In particular, Spain must seize this unique opportunity to drive the transformation of its economy and improve its competitiveness. We must use this opportunity to make the leap that Spain needs.

Banks can play a key role in mobilising the resources needed to get the country up and running as soon as possible, channeling liquidity to projects which create jobs, and helping shape the digital, sustainable economy.

At Santander, we will continue to play our part.

For example, we have given our customers moratoriums on mortgage and loan payments, increased credit card limits and overdrafts, reduced commissions, and strengthened our remote channels.

Our business activity is now close to pre-crisis levels with 93% of the Group's branches open; our ATMs fully operational; and turnover at our merchant terminals up 60% from April.

We know there is always more we can do to support our customers - but I would like thank our teams for their commitment these past few months, which is deeply appreciated by all Santander's management, and has been recognised by our supervisors and others, such as Euromoney.

3. Earnings and profitability

It is against this background that today we posted our quarterly results.

Though the trading environment has been tough, we ended September with revenues at levels similar to a year ago, after having grown by 27% over the last 5 years (excluding FX).

Underlying profits amounted to 1,750 million euros in the third quarter, and 3,658 million euros in the first nine months of the year.

Year on year, our net margin rose 3% excluding FX. And compared to the second quarter, third quarter revenues were 7% higher; and underlying profit grew 18%.

These are exceptional results considering the adverse context. And they highlight Santander's enduring strengths.

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First, our customer focus.

Our products and mix of traditional and digital distribution channels create a winning combination, proven to attract, gain, and retain customers' loyalty.

Second, our scale.

In Brazil and Mexico, we're seizing major opportunities to grow profitably and making great strides on new initiatives, such as Tuiio, Prospera and Getnet.

In Europe, our CIB, WM&I and consumer finance activities are expanding and will continue to do so, adding new capabilities through global products.

Third, our diversification of geographies and businesses.

Not every region has weathered this crisis the same way.

Although the crisis is global, geographical diversification remains an undoubted strength that gives us stability and resilience.

We are in markets with high growth potential such as Brazil and Mexico. We are also in mature markets and, among them, in countries where the impact of the crisis has so far been less acute.

Some key highlights from the quarter are as follows:

First, we grew customers to 22 million loyal customers and 41.4 digital customers. This represents a 14% year-on-year growth in digital customers.

This shows the importance of digitalisation, which is a core driver of growth.

Second, our commercial activity is returning to levels close to those pre-COVID. Overall lending was up +5% year-on-year in constant euros, with growth of 17% in South America and 6% in North America.

We saw customer funds rise 8% year on year. Deposits without repos grew by 9%; and mutual funds, by 1%.

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Third, our cost efficiencies were better than our guidance at Investor Day 2019, as costs have fallen 2.1% from a year ago across the Group, and 7.7% across the four retail European banks, all in constant terms.

Finally, our balance sheet strength continues to increase, with the non-performing loan ratio down 32 basis points to 3.15% in the last 12 months, and continued growth in our capital, compatible with business growth and investing for the future.

Building on this, and despite the high level of uncertainty, we are confident we will close 2020 with an underlying profit of around 5 billion euros.

4. Update on Europe / North America / South America

Let me briefly give more detail about our performance in our three regions.

First, Europe. Our operations in Europe, with 65 million customers, currently account for 39% of the Group's profits but as much as 73% of our loan book, which has grown 3% year on year.

Later on, I will discuss how we are building the best bank in Europe with a common business model that builds further on our size and digital capabilities.

While we witnessed some domestic consolidation in Europe, we are comfortable with our scale and our capacity to invest and are not contemplating participating in consolidation.

Meanwhile, in North America, we are confident we will continue to deliver on our goals.

In the US, our third quarter adjusted for excess capital RoTE was 7.1% with strong year-on- year growth in business volumes and double-digit underlying profit growth in the quarter driven by activity recovery.

In Mexico, credit increased by 7% year-on-year and the number of digital customers sharply rose by 24% to 4.7 million.

The ongoing collaboration between these two countries led to an increase of the US-Mexico corridor revenue of 29% in CIB and 30% in commercial banking.

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Turning to South America, it contributed 41% to the Group's earnings despite only making up 13% of total lending. Brazil recorded a +20% year-on-year lending growth, mostly in lower risk products.

The Americas, and especially Latin America, remain markets of high structural growth.

5. Credit quality

Let me now turn to credit quality.

Before COVID, as the Group had been anticipating a turn in the cycle, we took a number of measures, including reducing higher risk products.

Although the crisis has rocked the global economy, these measures coupled with the quality and diversification of our balance sheet, and action from our governments and other authorities have reduced our cost of risk guidance for year-end to 1.3% from 1.4-1.5% in April. Customers' behaviour has been better than the guidance we gave in April and July.

In terms of the moratoria, at the Group level, 66% of the moratoria have expired, giving us good visibility into customer behavior with 92% showing back-to-normal behaviors. Of the 34% non-expired, we expect a further 17% to expire by year end with similar credit quality.

62% of outstanding moratoria are mortgages and 67% are concentrated in Europe with a good risk profile.

Let me provide some more color on the largest portfolios in the Group.

In the United Kingdom, 93% of moratoria were for mortgages, our single biggest portfolio in the Group. 86% have already expired, with nearly 100% expected to expire by year end and reflecting good payment performance, in line with expectations.

In the case of Spain, 84% of moratoria corresponds to mortgages, with payment performance still to be observed as 73% of expirations are concentrated between March and June 2021.

Brazil and Mexico have high expiration rates, 83% and 67% respectively, with low defaults in both countries. The below historical average interest rates, and low inflation as well, are substantially improving the affordability ratios of customers.

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The consumer finance business in both Europe and the United States are showing better than expected payment behavior which is particularly relevant given that in 2019 they accounted for more than one third of the Group's credit risk provisions.

Despite the uncertainty of the "second wave", today we have better visibility than we did back in April. Our internal models, based on expected portfolio losses as well as IMF and OECD current forecasts, indicate that our cost of risk will stabilize or even trend downwards next year.

6. Solvency

Our capital adequacy is up +14bps in this quarter and +33bps over last year, further strengthening our balance sheet. Our CET1 ratio stood at 11.98% in the third quarter.

We are accumulating capital at no cost to growth, long-term profitability or shareholder remuneration. We accrued 19bps in capital to pay out a cash dividend against 2020 results if the circumstances allow. I will talk in more depth about this later.

In a challenging environment, we still anticipate closing 2020 at the high end of our CET1 target of 11%-12%.

The closer we move toward the upper end of our target, the more flexibility we have to allocate capital and compensate our shareholders, including cash dividends or share buybacks.

7. Dividends

As you know, in early April the European Central Bank issued a strong recommendation urging financial institutions to refrain from distributing dividends against 2019 and 2020.

These exceptional measures were taken to preserve as much capital as possible in the situation of unprecedented economic uncertainty we were experiencing.

Consequently, Santander's Board agreed to cancel the payment of the final dividend for 2019 and the dividend policy for 2020, with a commitment to call today's extraordinary Shareholders' Meeting in order to approve the resumption of dividend payments.

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The strength of our balance sheet has always been a priority and the numbers show we have delivered:

• Our CET1 stands well above the regulatory levels and improving every quarter.
• We enjoy A-level ratings which, depending on the agency, is in line or even above the rating of our Spanish sovereign
• And our CDS spread is well below the past crisis levels and one of the lowest amongst peers, which shows the institutional investor and market confidence on our balance sheet strength and our capital.

All of this should put us in a position to pay dividends.

We realise how important dividends are to all our shareholders. Profit sharing is also the best example of financial discipline and its recurrence gives investors confidence.

Considering our strong capital position, as well as our balance sheet strength and the resilience of our underlying results, we would like to submit to this general meeting the following proposals:

First, a fully-paid capital increase to pay a dividend this year against 2019 earnings in new shares at €0.10 each, bringing total earnings per share for 2019 to €0.20.

The proposed scrip dividend must therefore be understood as an extraordinary step we've taken to fulfill our fiduciary obligation to our shareholders, especially our retail investors in light of current circumstances.

But I want to echo what we said in July. We are intent on implementing a 100% cash dividend policy for shareholder remuneration starting in 2020. Board members and top management believe in the cash dividend.

The second proposal is the cash payment in 2021 of €0.10 per share charged against the share premium reserve, contingent, among other requirements, on regulatory recommendations and approvals. This cash payment represents a current yield of around 6% at today's share price.

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8. 2021 + outlook

Let me now turn to the future.

Obviously the Group's outlook for 2021 depends on how the crisis evolves, which is still uncertain. Our initial forecasts are based on IMF and OECD current economic outlooks, which are that all countries will gradually recover.

As we have seen this year, Santander's geographic and business diversification will continue to power growth in the face of uncertainty and volatility.

Few banks in the world have both our capacity to invest in digitalisation, with a commitment to invest 20 billion euros over 4 years; and our in-market and global scale, which serves as a basis for further organic and profitable growth.

On top of this, we have a culture that combines prudence and agility, and a team that is able to execute and deliver results in the right way.

Thanks to this, we expect our cost of risk to remain stable or even trend downwards in 2021, before normalising in 2022, though I must admit the scenario is still very uncertain.

We also forecast reaching by 2021 an underlying return on tangible equity in line with our cost of equity.

9. Unlocking potential for organic growth going forward - One Santander, Openbank/SCF, SGP

The challenges of COVID need, as I said at the start, to be put in the context of other challenges

• such as low rates and strong competitive pressure - which existed before the crisis struck but have been brought into sharper relief.

And that brings me to the second challenge I mentioned: COVID has accelerated the digital revolution, so we, too, must accelerate our own transformation to continue winning over customers and creating value.

Our roadmap is clear for the coming years - and it builds on the strong foundations we have laid.

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Our purpose remains constant, to help people and businesses prosper. The basis of our strategy and culture remains the same, which is to win and maintain the loyalty of our customers. We aspire to do so in a Simple, Personal and Fair way, with a common culture. That is the Santander Way, our way.

We now want to go further and become the best open financial services platform on the market. To do so, we will make three structural changes that will make us more profitable and drive sustainable long-term growth.

These are complementary initiatives that we will undertake together, working as a team and united by a common culture, with the aim of converging in the future.

The first changewe are making is to speed up the creation of an operational and business model common to all of Santander. This is what we call "One Santander".

Although the idea of creating "One Santander" affects all our markets, we are going to focus initially on Europe.

We will simplify the products and services to improve the customer experience; we will also boost innovation, taking advantage of our digital capabilities to redesign our distribution model, and automate our processes on a common platform.

Our second structuralchange to foster growth is to build a global native digital consumer lending business. We will do so on the shoulders of Santander Consumer Finance (SCF) and our Openbank digital platform.

SCF and Openbank are two businesses with excellent potential for growth. SCF, Europe's consumer finance leader, serves over 20 million customers in 15 markets.

Openbank is outperforming - and outgrowing - European digital banks in deposits, with a full- fledged retail product suite marketed on an innovative, scalable and efficient banking platform, a software built by us.

Back in April 2019, we committed to 1 billion euros net savings in the mid-term(3-4 years) in Europe (including SCF/ Openbank). But, by the end of 2020, we will have already delivered against that target.

We are now committing to an additional 1 Billion Euros net savings reduction in the next 2 years on the same perimeter.

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The third changewill help us disrupt the payment industry to compete with global digital platforms. Payments is central to our loyalty strategy, and we will continue to invest to remain one of the main and best global payment providers.

Therefore, we will combine our most disruptive payments businesses into a single, autonomous company. With the scale, the right talent, processes and governance, it will form a powerful ecosystem of payment solutions that we will offer first to Santander's banks and, then, to new customers and third parties.

This new company will focus on accelerating growth in three business areas:

• First, merchant solutions, which builds on the Getnet platform, our Brazilian merchant business. It has more than 1.1 million users, 349 million in revenues year-to-date, and has been launched in Mexico, Argentina and Chile
• Next, trade solutions for our 200,000 SMEs who trade internationally and want services once only accessible to corporates. We will base our platform on Ebury, which operates in 17 countries and in 140 currencies, and grew revenues at 67% last fiscal year.
• Third, consumer digital products and services. Here, we will build on the success story of Superdigital, our solution for the unbanked in Latin America, which is already available in 5 markets.

This represents a global market opportunity of 500 billion euros in revenues, of which 50 billion are in merchant services and 350 billion in trade solutions. Pursuing this opportunity will allow us to keep profit pools inside Santander and reach new customers.

This strategy is possible thanks to the support of a committed Board with the right skills. Ramón Martín Chávez, who we are proposing to this Board today, will bring great proven digital and financial expertise, that will help us achieve this transformation. Martín will take over from Esther Giménez-Salinas, whom I would like to thank for her outstanding work and commitment over the years, and to whom I wish all the best on behalf of the Board.

10. Closing

Shareholders,

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Our leadership position in Europe and the Americas, our business model and our diversification combine to make a strong platform that will enable us to continue generating the value we have always delivered for our shareholders.

I am confident about Santander's future because I am confident both in our strategy, and our superb team, of whom I feel deeply proud, and whom I know will continue to deliver results.

Their work and commitment during this crisis have proven a key point which we all need to remember: banks are essential for the economy and society. At Santander, we have always known we have a responsibility to support society- and I have no doubt that we will continue to fulfill it.

We are determined to help businesses, and communities across the world, to build back better

• and use this as an opportunity to address global challenges such as inequality and climate change.

This is the right thing to do - the responsible thing to do, and the path to generate value for our shareholders.

And to do this, we must work together. No one can put an end to this crisis alone.

Businesses, civil society and governments need each other. It must be a common effort.

Santander has been through crises before; we've changed and come out stronger.

And we will do so again in this crisis, by working together and continuing to help people and businesses prosper, for you, our shareholders.

Thank you very much for your trust.

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