Annual Report • May 25, 2021
Annual Report
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2020 santander.pt
| Table of Indicators | 3 |
|---|---|
| Message from the Chairmen of the Board of | 4 |
| Directors and of the Executive Committee | |
| Corporate Culture, Awards, Distinctions and Other | |
| Relevant Facts in 2020 | 6 |
| Customers and the Bank's distribution network | 12 |
| Responsible Banking | 14 |
| Business Framework | 19 |
|---|---|
| Major Risks and Uncertainties for 2021 | 25 |
| Business Areas | 26 |
| Business Support Areas | 32 |
| Economic and Financial Information | 38 |
| Relevant Facts After the End of the Period, and | |
| Outlook for 2021 | 45 |
| Risk Management and Monitoring Model | 46 |
|---|---|
| Risk Management in 2020 | 49 |
| Proposal for the Appropriation of Net Income | 57 |
| Additional Information | 58 |
| Corporate Governance Report | 64 |
| Financial Statements, Notes to the Accounts, and | |
| Reports and Opinions | |
| Consolidated Financial Statements | 103 |
| Notes to the Consolidated Financial Statements | 109 |
|---|---|
| Reports and Opinions on the Consolidated Business | 246 |
Banco Santander Totta, S. A. Rua do Ouro, 88 – 1100-063 Lisbon Share Capital: €1,256,723,284 Registered at the Lisbon Commercial Registry under single registration and VAT number 507 096 851 LEI: 549300URJH9VSI58CS32
This report was approved by the Bank's Board
of Directors on April 20, 2021
| BALANCE SHEET AND RESULTS (million euro) | Dec-20 | Dec-19 | Var. |
|---|---|---|---|
| Total Net Assets | 54,403 | 52,305 | +4.0% |
| Loans and advances to customers (net) | 41,680 | 39,062 | +6.7% |
| Customers' Resources | 43,539 | 43,174 | +0.8% |
| Total shareholders' equity | 4,111 | 3,635 | +13.1% |
| Net Interest Income | 785.0 | 854.5 | -8.1% |
| Net Fees and Other Income | 386.0 | 395.3 | -2.3% |
| Net Income from Banking Activities | 1,274.8 | 1,325.8 | -3.8% |
| Net Operating Income | 703.4 | 731.1 | -3.8% |
| Income before taxes and non-controlling interests | 368.5 | 698.2 | -47.2% |
| Consolidated net income attributable to the shareholders of BST | 257.7 | 489.5 | -47.3% |
| RATIOS | Dec-20 | Dec-19 | Var. |
|---|---|---|---|
| ROE | 7.1% | 13.8% | -6.7 p.p. |
| ROA | 0.5% | 0.9% | -0.4 p.p. |
| Efficiency ratio | 44.8% | 44.9% | -0.1 p.p. |
| CET I ratio* (phasing-in) | 20.8% | 15.1% | +5.7 p.p. |
| Tier I* ratio | 20.8% | 15.1% | +5.7 p.p. |
| Capital* ratio | 23.1% | 17.3% | +5.8 p.p. |
| Non-Performing Exposure Ratio | 2.6% | 3.2% | -0.6 p.p. |
| Non-Performing Exposure coverage ratio | 66.8% | 53.1% | +13.7 p.p. |
| Cost of credit | 0.45% | (0.02%) | +0.47 p.p. |
| Loans-to-deposits ratio (transformation ratio) | 114.9% | 109.0% | +5.9 p.p. |
| RATING | Dec-20 | Dec-19 | |
|---|---|---|---|
| FitchRatings | BBB+ | BBB+ | |
| Moody´s | Baa3 | Baa3 | |
| Standard & Poor´s | BBB | BBB | |
| DBRS | A | A |
| Other Data | Dec-20 | Dec-19 | Var. |
|---|---|---|---|
| Employees** | 5,969 | 6,183 | -214 |
| Employees in Portugal | 5,937 | 6,145 | -208 |
| Branches | 477 | 542 | -65 |
| Total Branches and Corporate Centers in Portugal | 469 | 532 | -63 |
* Fully implemented with results net of payout
** Headcount criteria
The year 2020 was marked by the outbreak of the COVID-19 pandemic, which for Santander caused the death of the Chairman of its Board of Directors, Mr. António Vieira Monteiro, generating great sorrow and a painful sense of loss at the Bank. As a result of decades of management experience in Banking, Mr. Vieira Monteiro was a profound expert of the banking business and of the Portuguese business fabric, being known for his strict risk management, which was notable in the path of building Santander's solidity, leaving behind – thanks to his vision –, a legacy that will be always present in the way Santander supports the economy and society in Portugal.
With all the unexpected events that came with the pandemic, in 2020 we were all challenged at all levels, both in our professional activity and in our personal lives. The same also happened at Santander Portugal, which had to face the challenges posed by the pandemic,
particularly in its ability to keep supporting its clients' projects, but also to keep protecting its employees and suppliers.
During the year, the Bank increased its market share in the production of mortgage credit to 24%, and, from the very first moment, it was by the companies' side, either by providing agreed credit facilities with State guarantee, or through other financing schemes, with a 18% share of new production on an annual average.
The ongoing digital and commercial transformation was critical for the Bank's support to the economy, with significant growth in digital clients (+20%), including senior citizens, for whom the "Here and Now" programme was launched to encourage the use of digital channels, so that, in the security of their homes, they could carry out their day-to-day banking operations.
The Bank strengthened its position as the largest private bank acting in Portugal in terms of credit and assets, and, together with the significant reinforcement of provisions to face the future impacts of the pandemic, it achieved a net result of €258 million in the financial year. In 2020, the Bank allocated €7.7 million for community support projects, including for Santander Universities. Of these, €3 million were earmarked for measures aimed at
combating COVID-19, with special emphasis on research, acquisition of hospital supplies, support for the most vulnerable sectors of society, and Higher Education Institutions projects, achieving a total of 365 institutions supported either directly and indirectly, and over 54,000 people that were benefited.
Santander's support to the economy and society at large has been acknowledged, whether by the best bank ratings in Portugal, or by the various awards obtained, as the best bank by "Euromoney" and by "Global Finance", as the best Bank to work for in Portugal by "Great Place to Work," and, most importantly, as the best quality of service in the banking sector in Portugal.
And I am pleased to see, in these awards, the recognition of the tireless work of our employees, who were and are at the forefront, contributing to the progress of people and companies.
José Carlos Sítima
Dear Stakeholders,
The year 2020 was extremely challenging for everyone, largely because of the Covid-19 pandemic, which caused a public health emergency, with profound economic impacts globally and in Portugal, and which hit us in a particular way with the death of the Chairman of our Board of Directors, Mr. António Vieira Monteiro, to whom I would like to pay tribute once again.
In this context, Santander's mission to contribute to the progress of families and companies has gained even more relevance, especially considering its position as the largest private bank in Portugal.
Banks, and Santander in particular, were clearly part of the solution in this crisis, adopting concrete measures to support their employees, customers and society in general, aiming to mitigate the effects of the pandemic.
If regarding our employees we have put their safety first since the very first hour, namely by promoting teleworking whenever possible, and by providing all health security guarantees to those who remained in their jobs, as was the case with branches, regarding our clients we said, unequivocally, "Present!"
Firstly, with the implementation of credit moratoria for the families and companies most affected by the pandemic, with Santander supporting about 90,000 clients in the amount of more than €9 billion.
In terms of granting credit, which is so relevant at this stage to help overcome liquidity restrictions, we increased the total credit granted by €2.7 billion, of which one billion for companies, where we achieved an average production share of 18%, while maintaining our leadership position in agreed credit facilities, including those created specifically to support companies and businesses in the fight against the pandemic.
But we did more, namely by launching the "Here and Now" initiative for clients over 65, which aimed not to sell products or services, but just to show the availability of Santander's employees to talk to these clients and see if they needed any help to overcome the limitations imposed by the lockdown in the best possible way.
We have not stopped being by the side of those who need most support. In 2020, Santander invested about €7.7 million in community support projects, through sustainability initiatives, and through Santander Universities. With this investment, the Bank supported, both directly and indirectly, 365 associations, in projects related to education, protection of minors, health, disability, social inclusion and care for the elderly, achieving a direct impact on more than 54,000 people in the local community. It is also important to note that since the beginning of the Covid-19 crisis, we have tripled the amount of our social responsibility budget, in terms of donations to institutions
In this difficult context, we also maintained our focus on transforming the Bank, which involves simplifying and digitizing processes, and adapting the commercial offer in order to serve our clients in the way they want, when they want, and where they want.
It was this permanent focus on our clients, and on serving them as they wish to be served, in a Simple, Close and Fair way, that allowed us to be recognized by our clients as the Bank that rendered the best service in the last quarter of 2020. We are particularly proud of this recognition!
Naturally, the Bank's profit and loss account ended up not being immune to the situation
we all faced in 2020, however, it did not fail to demonstrate the resilience of our business model.
We ended the year with a net income of €258 million, 47% below the result of the previous year, reflecting the 4% drop in operating income, but above all due to the anticipated constitution of provisions to face the potential risks of the pandemic on credit quality. The cost of credit increased to 45 bp, despite the reduction in the NPL ratio to 2.6%.
We achieved an ROE of 7.1%, strengthening our capital with a CET1 ratio of 20.8%, comfortably covering the increasingly demanding regulatory requirements.
And we kept benefiting from external recognition, with the awards as the "Best Bank in Portugal" by the Euromoney and Global Finance magazines. We also got the confirmation that we are the best bank to work for in Portugal, through the "Great Place to Work", as well as a Responsible Family Company for the Más Familia Foundation, which awards recognize the resilience and mission spirit of Santander's employees.
To the Santander team, who have worked so hard in 2020 to achieve all of these results, in conditions that were often very difficult, I would like to deeply thank you, feeling sure that this result is above all yours.
The year 2021 will continue to be marked by the pandemic, and by the continuous transformation of the Bank, a transformation whose ultimate goal is to keep being the best Bank for our clients and employees, to remain profitable for our shareholders, and with the capacity to keep supporting society in general.
All stakeholders can count on our commitment and on the professionalism of our team, to remain faithful to our purpose of supporting families and companies in Portugal to prosper, in a Simple, Close and Fair manner, and faithful to our ambition of continuing to be the best and most solid bank in Portugal.
Pedro Castro e Almeida
Corporate Culture
| Our ණ purpose |
Our values Simple Personal Fair |
|
|---|---|---|
| To help people and businesses prosper. |
Our | Corporate behaviours 氺 心 ନ୍∕ 区 Keep Talk Show Truly straight promises respect listen risk pro |
| Our aim To be the best open |
how | $\curvearrowright$ ÅÀ WB Actively Bring Embrace Support collaborate passion people change |
| by acting responsibly and earning the lasting loyalty of our people, customers, shareholders and communities. |
financial services platform, | Leadership commitments Inspiring and Executing Being Open & Inclusive Transformation Encouraging the team Leading by Example to prosper |
Santander Portugal is a benchmark bank in the Portuguese financial sector. The Bank's mission is to help people and companies prosper, aiming to be the best digital, open financial-services platform, acting responsibly and conquering the permanent trust of our employees, clients, shareholders, and society.
Thus, the Bank offers its clients a customised, differentiated service, through innovative products and services, new digital solutions and flexible communication channels, along with modern, welcoming service spaces, such as the WorkCafé or our SmartRed branches, with enhanced digital features.
Digital transformation is an important part of our strategic development. The context experienced in 2020 and in the beginning of 2021 shows quite clearly the relevance of digital transformation for the daily lives of customers. Thus, Santander has invested and strengthened its digital services, through the development of new applications such as Santander Wallet or the development of contactless technology in its means of payment. In 2020, important partnerships were established with Apple, Garmin and FitBit, which made of Santander a pioneer in providing customers with fast, agile, secure solutions for their daily payments, seeking to position itself as the Digital Payments Bank.
In terms of Business support, it is worth highlighting the non-financial support program that made the Bank stand out, and that empowered companies and their training and knowledge managers in strategic areas for their development and that of their companies, as is the case of support for the internationalization of their business. Training courses are provided through partnerships with the main
Portuguese universities through online courses and face-to-face training.
With regard to supporting society, Santander is committed to the UN Sustainable Development Goals, and has established the 11 Responsible Banking goals in order to guarantee the sustainable development of its activity.
It is worth highlighting the Bank's commitment to Education, focusing on its relationship with the main Higher Education institutions in Portugal, and through the policy of scholarships awarded by Santander Universities, which reached about 4,000 beneficiaries.
In 2020, 800 Santander Future Scholarships were awarded, an initiative that promotes the pursuance of Higher Education studies by students with academic success and in need of financial support.
As part of its social responsibility policy, the Bank invests in community support projects, through sustainability initiatives and through Santander Universities. Through this investment, the Bank directly and indirectly supported 365 associations in projects related to education, protection of minors, health, disability, social inclusion and care for the elderly, with a direct impact on about 54,169 people in the local community.
Santander seeks to position itself as a close, reliable, relevant brand in the lives of the Portuguese people, stressing its commitment to the development of society, acting in a Simple, Close and Fair manner. This is our mission, the way we do things, the Santander Way.
Our purpose is to meet the needs of our clients, supporting companies in job creation, contributing to the financial empowerment of people (so that they receive the education and training they need), supporting the transition to a low carbon economy (through the financing of renewable energies), while duly considering the social and environmental risks and opportunities of financing operations.
Towards the end of 2020, Santander launched the institutional campaign "Ser Santander" [Being Santander], intended to be an
aggregating concept through a more human, closer, genuine way of feeling. Santander aims to assert itself an example of trust and hope by believing in ideas, investing in innovation, and leading change, so that everyone can believe in a better future.
Best Bank in Portugal Within the scope of the Awards for Excellence 2020, Santander Portugal was distinguished with the award "Best Bank in Portugal 2020" by Euromoney magazine. The awards distinguish those institutions that provided the best services to their customers, demonstrating leadership, innovation and dynamism in the markets in which they operate. Best Investment Bank in Portugal In the Corporate Banking area too, the Bank was distinguished, and Santander received the award "Best Investment Bank in Portugal 2020." The magazine pointed out that "the corporate and capital markets business" meant that, despite the competition of other international banks, "the best investment bank came to the fore." Best Bank in Portugal The North American Global Finance magazine elected Santander Portugal as the "Best Bank in Portugal 2020," within the scope of the "World's Best Banks 2020." Objective criteria were taken into account for selecting the winners, such as profitability, evolution of assets, geographic scope, development of new business, and product innovation. Most Reputed Banking Brand Within the scope of the Global RepScore Pulse study, published by the consultancy OnStrategy, Santander Portugal was ranked as the "Brand with the best banking reputation and the greatest relevance in Portugal 2021." The consultant highlights the brands that stood out the most in 2020, in a pandemic scenario, having assessed attributes such as notoriety, admiration, relevance, confidence, preference, and recommendation. Best Trade Finance Santander was distinguished by Euromoney magazine as the "Best Trade Finance Bank 2020" in Portugal, coming first in the "Market Leader" and "Best Service" categories. The magazine highlights the partnership that Santander has established with Portuguese companies, providing efficient, fast and secure services in foreign trade, as well as support provided to their internationalization in foreign markets. Best Private Banking Services Overall Santander Portugal's Private Banking was considered by the Euromoney magazine as the "Best Private Banking Services Overall 2021." It is the tenth consecutive time that this publication distinguishes the outstanding service offered by the Bank to this segment. Euromoney again recognized the Bank's work in the ESG area, for the technological investment that has been made and for its commitment as a Responsible Bank. Best Private Bank Santander's Private Banking was distinguished by the magazine Global Finance as the "Best Private Bank 2021" in Portugal, within the scope of "The World's Best Private Banks Awards for 2021." According to Global Finance, "the selected banks were the ones that best knew how to meet the specific needs of high-net worth clients, while at the same time they sought to improve, preserve and transmit their wealth. These were also the institutions that grew up to respond to those same needs."
| Best Retail Bank | Santander was distinguished as "Best Retail Bank in Portugal" by the British magazine World Finance, in the annual awards of this publication. The magazine highlighted the Bank's leadership, based on its global scale and local scope, its customer-centric strategy, and diversification. |
|---|---|
| Best Contact Centre for the Banking Sector |
Santander Portugal's Contact Centre was considered the "Best Contact Centre 2020" in the sector, within the scope of the Best Awards 2020, organized by the Portuguese Contact Centre Association. Santander won in the Banking category, having won the Gold Trophy, awarded to the Corporate Service Centre, and the Silver Trophy, awarded to SuperLinha. The Corporate Service Centre was also distinguished with a Bronze Trophy, in the category Contact Centres with less than 50 Agents. |
| Best Bank to Work For |
Santander Portugal was considered the "Best Bank to Work For in Portugal," for the fourth consecutive time, standing, simultaneously, in the Top 3 of the best large companies (with more than 1,000 employees) to work for in the country, by the Great Place to Work Institute. The ranking is based on the answers of the employees working for these companies, and on the analysis of the mentioned Institute to the policies and practices of the companies in terms of people management, in comparison with the other participants. |
| Family Responsible Company |
As an employer, Santander recently saw its certification for "Level of Excellence - grade A" renewed, as a "Family Responsible Company - efr", a certification awarded by the Más Familia Foundation and ACEGE. The assessment took into account a set of indicators such as job quality, working time and spatial flexibility, inclusion and reconciliation of family and work life, family support, personal and professional development, and equal opportunities. |
NetWorth Category : High Net Worth Clients (US\$ 5 million to US\$ 30 million); Mass Affluent Clients (US\$100k – US\$1m); Mega High Net Worth Clients (US\$250m+); Super Affluent Clients (US\$ 1 million to US\$ 5 million); Ultra High Net Worth Clients (>US\$30m - US\$250m). Services Category: Capital Markets and Advisory; ESG/Impact Investing; Family Office Services; International Clients; Investment Management; Next Generation; Philanthropic Advice; Research and Asset Allocation Advice; Serving Business Owners.
Technology Category: Technology – Data Management and Security in Private Banking and Wealth Management; Technology – Innovative or Emerging Technology Adoption
Best Real Estate Overall 2020 in Portugal, in the Banking category: Euromoney Real Estate Survey, Euromoney
"Excellence in Leadership in Western Europe" award for its response to the pandemic crisis caused by COVID-19, Euromoney
"Best Bank in the World in Diversity and Inclusion 2020, "Euromoney
"Best Bank in the World for SMEs 2020," Euromoney
"World's Best Workplaces 2020," for the second consecutive year Banco Santander is included in the world list of 25 companies considered as Great Places to Work
These awards are the responsibility of the entities that grant them
In 2020, the Bank tripled its Corporate Responsibility budget, providing more than €3 million to help fight COVID-19, in particular for research, purchase of hospital equipment, support for the most vulnerable sectors of society and projects of Higher Education Institutions. Various measures were also implemented to support employees, clients – through moratoria and credit facilities to companies – and suppliers.
To support customers over the age of 65, unfamiliar with adhering to and operating digital channels, Santander created the "Here and Now" initiative, to give them all the necessary support and prevent them from going to branches during the period of the pandemic.
Santander launched new digital technology-based contactless solutions, which allow customers to pay with smartwatches or bracelets, namely with Apple, Garmin and Fitbit devices. It also launched the digital card, which allows the immediate delivery of a digital bank card to clients when they open an account.
Santander was awarded the level of Excellence as a Responsible Family Company (efr), a certification granted by the Más Familia Foundation and ACEGE, now achieving the second highest score: A. The Bank has more than 75 measures to support the reconciliation of employees' personal and professional lives.
José Carlos Sítima appointed Chairman of the Board of Directors of Santander Portugal
Santander launched the Uni.Covid-19 Award to support projects by young university students and the rest of the academic community, which contributed to responding to the emergency situation related to COVID-19. Altogether, 14 initiatives from various parts of the country were awarded, among 336 applications received.
Santander is one of the founding partners of 42 Lisbon, a revolutionary educational project of international prestige in the programming field, entirely free of charge for students, and which has now arrived in Portugal.
As part of the initiative "Let's give it a talk", Santander offered 580 tablets to nursing homes and health homes (IPSS) across the country, so that its users could make video calls and thus have a Christmas closer to their family members and friends.
The digital and commercial transformation have allowed the growth of the digital customer base and the increase of transactionality through the various remote channels
| $Q^+$ Customers |
$\binom{2}{1}$ Use of channels |
$\bar{\bm{\epsilon}}$ New digital solutions |
|---|---|---|
| Digital Payments Bank | ||
| 930k $(+20%)$ Digital customers Var YOY |
$42\%$ (+7.1pp) 55% (4T'20) Digital sales Var YOY |
Apple Pay available, for quick, simple and secure payments. |
| + 155k digital customers | 5.7mn (+28%) $16.5$ mn (+4,5%) | a Contactless technology on all new cards issued. |
| Sustained growth throughout 2020 |
Transactions 3 Accesses 3 Var YOY |
Digital payment through smartwatches (Garmin) and bracelets (FitBit). |
| 54.9% Digital customers 1 |
950k (acum. 2020) Cards on electronic |
Instant digital card for customers who sign up for a debit card. |
| platforms 4 | Santander Wallet available on the H Santander app, with several features. |
1 - Over total clients
2 - Average digital sales in 2020, for products sold through physical and remote channels. 55% referring to the months of October, November
3 - Average transactions in digital monetary, voluntary channels in 2020. Average of total private accesses (Netbanco and Mobile) in 2020.
4 - Cards scanned on the electronic platforms Apple, Garmin, Fitbit, and online trade
| Continuous improvement of our | reinforcing the relationship with our | through constant improvement of the |
|---|---|---|
| customer service | customers | operating and technological model |
| Simplified commercial offer to | New distribution models that privilege | Shared processes and technological |
| customers through differentiating | the relationship, convenience and quick | excellence, taking advantage of the |
| products | access to the Bank | synergies of an international Group |
| World 1 2 3 Individuals and Companies (non-financial solution for companies) Daily Banking Santander Boutique for digital sales |
Omni channel strategy in customer relationships New branch concepts: WorkCafé, Smart Red, MoneyClub |
Simplification of internal processes Agile methodology Task automation: +70 digital workers, +40 automation solutions and +10,000 daily tasks |
*According to the corporate benchmark study that evaluates customers' Net Promoter Score (NPS) index
Banco Santander Totta, S. A. 13
| Higher Education | ||
|---|---|---|
| Social Well-being | ||
| Main areas of activity as part of the sustainability policy |
Financial Literacy | Environment |
| Entrepreneurship and job creation | ||
| Culture |
We are committed to reducing poverty and strengthening the well-being of the local economies in which we operate. Through microcredit, products and services, and community investment programs, we train and help millions of people every year.
We lead the support to Higher Education. Through Santander Universities - a pioneering and unique program in the world - we help Universities and students prosper, with a focus on education, entrepreneurship and employment. Santander Scholarships are one of the largest scholarship programs financed by the private sector.
We foster a diverse, inclusive work environment. We guarantee equal opportunities and promote gender equality at all levels as a strategic priority. We also support initiatives that promote diversity.
We are leaders in financing renewable energy projects. We also help our customers finance energy efficiency, low emissions, hybrid and electric vehicles projects, and other more sustainable mobility solutions.
Our team is prepared and committed, allowing us to respond and satisfy our clients' needs, help entrepreneurs create businesses and jobs, and strengthen local economies.
We develop products and services for the most vulnerable in society, giving them access to financial services, and teaching them the concepts and skills they need to manage their finances in the best possible way. We support diversity and inclusion in our business.
We fund the construction of sustainable infrastructures that guarantee basic services and promote inclusive economic growth. We also promote affordable housing opportunities.
We support the fight against climate change in two main ways: by reducing our environmental footprint and by helping our customers in their transition to a more sustainable economy.
We promote transparency, the fight against corruption, and the need for solid institutions for sustainable development. Our policies and codes of conduct regulate our activity and behaviours, and establish commitments to move towards a more responsible Bank.
To move forward with our responsible banking agenda, we take part in regional and international initiatives and working groups.
In the end of May, Santander signed the Manifesto "Harnessing the crisis to launch a new sustainable development paradigm" promoted by BCSD Portugal, through which the largest Portuguese companies commit themselves to promoting a more sustainable development model, a new path for a fairer and more balanced development model.
In the central buildings of Santander Portugal, 7 unique Christmas trees were installed. Each Christmas tree consisted of 540 smaller trees (stone pines, cork oaks, holm oaks, cedar, carob, birch, and ash trees). In 2021, 3,780 trees will be planted in Lisbon, Abrantes and Vila Nova de Gaia.
As far as Community support measures, in the current context of the COVID-19 pandemic, the following measures stand out:
In order to support the cash requirements of its suppliers, the Bank established immediate payment of all invoices, regardless of the payment period established.
It intends to establish its activity in the area of the Iberian borders, thus fulfilling an urgent mission: to implement, in this wide area of both countries, a regular, quality musical programme in the field of classical music, through an orchestra made up of musicians from both sides of the border. These musicians find valuable work experience at the OSF, avoiding the flight of talent to coastal and urban areas, while giving people access to this form of culture.
Santander and Higher Education Institutions in Portugal channelled about €2 million for initiatives that support university students and Portuguese families, in order to respond to the social, economic and public health needs arising from the COVID-19 crisis.
The Bank delivered the Santander UNI.COVID-19 Award in the global amount of €30k, intended to distinguish and support projects and ideas promoted by university students, and by the remaining academic community, that may contribute to responding to the emergency situation related to COVID-19.
The 2 nd edition of the Santander Global Scholarships was also launched. There are 315 social grants that allow undergraduate and master students with financial difficulties to carry on with their international mobility programs, despite the COVID-19 pandemic.
Banco Santander's corporate banking area has played an important role in sustainable financing in Portugal. Over the past 5 years, more than €510 million have been financed through various operations with a positive impact on the environment and society, be it in the production of energy through renewable sources, in waste treatment, in the circular economy, in health or in education. Namely, the construction of wind and solar parks, hospitals, equipment for the collection and treatment of waste or water have been financed, and the Bank was a prominent partner in financing the construction of a new university campus for the Nova University in Portugal, contributing towards a higher education of excellence in our country. All of these operations have been carried out by using different financing structures, adapted to the needs of each project. More recently, the Bank participated in innovative structures, such as the first issuance of Project Bonds for the Indaqua water concessions, such as Bookrunner in the first two Green Bonds issued in Portugal, by EDP, and in the first Green Mortgage Backed Security issued in Iberia for UCI, and this year with the participation in the first issuance of Green Hybrid Bonds launched by EDP.
In 2020, the world economy experienced a deep recession, with a GDP drop of 3.5%, as a result of the pandemic associated with the SARS-CoV-2 virus, which causes the disease COVID-19. In March 2020, as a result of the spread of the virus on a global scale, the World Health Organization (WHO) declared the situation as a pandemic.
Many countries adopted temporary, exceptional measures relating to the epidemiological situation, seeking to restrict contact between people to a minimum, leading to a widespread lockdown, with the closure of non-core activities, which had economic consequences of historic proportions.
Despite the fact that the lockdown was only implemented in March, the GDP contracted significantly in the 1st quarter, a situation that worsened in the second quarter as stricter confinement measures were adopted in April. In May the restrictions started to be gradually lifted, but the activity levels remained far below those recorded before the pandemic.
The summer period, in the northern hemisphere, brought about a reduction in contagions, a withdrawal of confinement measures, and a progressive recovery of economic activity, materialized in more solid growth in the third quarter.
In the fall, with the normal conviviality among people, together with the return to school and the seasonality of the virus, a new pandemic wave unfolded, leading to the imposition of new lockdown measures, which became more restrictive (although less than in the first wave) by the end of the year, when new, more contagious strains appeared, whose effects became more visible as early as 2021.
| 2019 | 2020 E | 2021 P | |
|---|---|---|---|
| World | 2.8 | -3.5 | 5.5 |
| Advanced Economies | 1.6 | -4.9 | 4.3 |
| USA | 2.2 | -3.4 | 5.1 |
| Euro Area | 1.3 | -7.2 | 4.2 |
| United Kingdom | 1.4 | -10.0 | 4.5 |
| Japan | 0.3 | -5.1 | 3.1 |
| Developing Countries | 3.6 | -2.4 | 6.3 |
| Africa | 3.2 | -2.6 | 3.2 |
| Asia | 5.4 | -1.1 | 8.3 |
| China | 6.0 | 2.3 | 8.1 |
| Central and Eastern Europe | 2.2 | -2.8 | 4.0 |
| Middle East | 1.4 | -3.2 | 3.0 |
| Latin America | 0.2 | -7.4 | 4.1 |
| Brazil | 1.4 | -4.5 | 3.6 |
Source: IMF (January 2021)
As a result of the dynamics in the second half of the year, the contraction of economic activity in 2020 was less pronounced than what was estimated in the initial phase of the pandemic, although with significant regional and sectoral differences.
The International Monetary Fund (IMF), in the January 2021 update of its "World Economic Outlook," revised its economic forecasts upwards, estimating a less deep recession in 2020 and a more sustained recovery in 2021. In 2020, the world economy contracted by about 3.5%, according to the IMF, and is expected to recover in 2021, with a growth rate of about 5.5%.
But there were clear regional differences. The contraction of economic activity in 2020 was more pronounced in developed economies, as a result of (i) the effects of the pandemic having started earlier, after the contagion from Wuhan, China, (ii) the imposition of a more generalized lockdown; and (iii) the second wave was felt much more strongly in the last third of the year.
However, even in large groups, regional and also national differences are quite significant, with the retraction in economic activity ranging between 7% in the Euro Area and 3% in the USA, reflecting the depth and duration of the lockdowns, as well as the integration of production chains, and also the weight of tourism in the economy.
In the emerging economies, the impacts were different, also, in the light of the spread of the pandemic.
In China, where the pandemic will have started, economic activity has evolved better than expected, as a result of the reported control of the pandemic at national level. The economy grew by about 2%, with a more sustained recovery in the second half of the year, the effects of which are likely to be felt most markedly in 2021.
The US recorded a 3.4% contraction in economic activity, more pronounced than that recorded during the Great Financial Crisis (2008). However, the less stringent lockdown, especially during the second wave, and the fiscal stimulus measures implemented, contributed to a smaller retraction in economic activity, when compared to other developed economies.
Employment, which saw a severe destruction at the beginning of the pandemic, has not yet fully recovered, which has boosted a prompt response from the US Federal Reserve, with the Fed Funds rate dropping to 0%, as well as the implementation of liquidity and credit granting programmes, and the acquisition of financial assets.
Europe was much more battered by the pandemic, amplified by the interconnections between the various economies.
In the Euro Area, economic growth contracted quite sharply, with GDP dropping by 7.2%, a dynamic particularly concentrated in the second quarter, when general lockdown was imposed. Despite a stronger recovery in the third quarter, the second wave at the end of the year delayed this dynamic, with clear differences across countries throughout the year. The contraction in GDP fluctuated between 5% in Germany and 11% in Spain.
All the factors that had marked the European context in 2019, such as the energy transition, protests against structural
reforms, or political issues, were put on hold, as the situation was dominated by the pandemic and the sanitary emergency.
In 2020, an agreement was finally reached between the EU and the United Kingdom, to formalize the future relationship between the two economies, just at the end of the transition period. The agreement includes the absence of tariffs on trade in goods, keeps the Good Friday agreements for Northern Ireland, but does not cover the possibility of providing financial services. The effects on sectors of activity more favourable to Brexit, such as fisheries (where there is a transitional period of access to British waters) or dairy products, are beginning to be felt now, with phytosanitary rules blocking British exports. The United Kingdom reported a 10% contraction in GDP, as a result of both the pandemic and Brexit.
| GDP | Inflation | |
|---|---|---|
| Euro Area | -6.8 | 0.3 |
| Germany | -5.0 | 0.4 |
| France | -8.3 | 0.5 |
| Spain | -11.0 | -0.3 |
| Italy | -8.8 | -0.1 |
Source: EC (February 2021)
To fight the effects of the pandemic and to contribute to a faster recovery, an agreement establishing the Recovery and Resilience Mechanism was approved in July, with a financial envelope of €750 billion, of which 390 billion are grants to States (below the initial proposal of €500 billion). Additionally, the Multiannual Financial Framework for the period 2021-27, which amounts to €1,074 billion, was also approved.
Under the Recovery and Resilience Mechanism, Portugal should receive a sum of €15 billion in non-repayable grants, and the possibility of accessing another €15 billion in loans. Together with the end of Portugal 2020, plus the new multiannual framework, Portugal should receive almost €58 billion in community funds to be used over the next decade.
The European Central Bank reinforced its orientation of pursuing a monetary policy to support economic recovery, based on the maintenance of negative interest rates, and asset acquisition and liquidity assignment programmes, in order to promote basic conditions conducive to economic recovery and growth.
Thus, new monetary policy mechanisms were created, the PELTROs – Pandemic Emergency Longer-term Refinancing Operations – which began in May 2020 and will continue until July/ September 2021, at a fixed refinancing rate, 25bp below the refi rate.
Additionally, the refinancing conditions of the TLTRO III were revised, with the refinancing rates being reduced by 100pb compared to the average refi rate for transactions carried out between June 2020 and June 2021. In June, the total amount of the PEPP – Pandemic Emergency Purchase Programme was
enlarged by €600 billion, to a total of €1,350 billion, which contributed to a stabilization of risk in the Euro Area.
In December, as a result of the second pandemic wave in Europe, the ECB again changed the conditions of TLTRO III and PEPP. The latter was increased by another €500 billion, to €1,850 billion, and is expected to continue until the end of March 2022. TLTRO III will have three new operations, between June and December 2021, while the bonuses were extended for 12 months more, until June 2022. Furthermore, the amount that banks can take, within the context of these operations, was increased to 55% of the reference amount (+ 5pp).
The ECB also extended, until June 2022, the measures adopted in April, relating to the collateral that can be used in refinancing operations, which includes the use of credit pools (which already occurred in Portugal).
In the emerging economies, the pandemic also produced significant economic effects, although less adverse than in the advanced economies, partly due to the confinement measures imposed, in contrast to more pronounced health effects during the first wave (which plagued the southern hemisphere during its winter).
Latin America was particularly affected (GDP dropped by about 7.4%), especially Mexico, with an 8.5% recession. Brazil was not immune, and its GDP dropped by 4.5%. The delicate balance between health and economy ended up tipping in favour of the latter.
3-Months Interest Rates
Source: Bloomberg
Economic policies have taken on an expansionist tendency. In developed economies, this implied that central banks, as mentioned above, reinforced their asset acquisition and liquidity-providing programs, contributing to a further decline in interest rates along the entire yield curve.
In general, short-term interest rates dropped despite the fact that, at the beginning of the pandemic, they did rise, as a result of a greater perception of risk, which was promptly cleared by the intervention of central banks. In the USA and in the UK, 3 month interest rates came close to zero, while in the Euro Area they converged to levels below the deposit rate.
As far as long-term interest rates, the annual evolution was characterized by a general decline, despite some intra-annual differences.
In core markets, such as the USA and Germany, the reaction to the pandemic and central bank measures materialized in a drop in yields. While in the peripheral markets, at first, when the pandemic started, interest rates rose, either because the health situation was very adverse, as in Italy and Spain for instance, or because the risk perception, especially in terms of economic and budgetary impacts, was more negative.
Thus, in general, credit spreads in the Euro Area increased in March and remained high until May. The ECB's intervention, with the PEPP, allowed for a progressive normalization of spreads, but only at the end of the year did they resume prepandemic levels, before assuming slightly lower levels.
In Portugal, the 10-year spread vis-à-vis Germany reached 150 bps, between March and April, subsequently declining, in a
phased manner, as above-mentioned, it fell below prepandemic levels by the end of the year. The same dynamic was observed in Spain, as well as in Italy, which at the peak reached over 250 bps spread vis-à-vis Germany.
In the foreign exchange market, the Euro was characterized by an appreciation trend against the main currencies. Against the dollar, the Euro ended the year at about US\$1.21, a 9% appreciation approximately.
Source: BCE
The stock markets reacted negatively to the pandemic, with a significant devaluation in March (about 30%), which was later reversed, as a result of the recovery in economic activity, on the one hand, and the expectations regarding vaccination, on the other, as the development of several vaccines against COVID-19 was being announced.
At the end of the year the North American market recovered absolute maximums, also benefiting from an electoral effect, after the election of Joe Biden to the presidency.
In Europe, the recovery did not prevent a devaluation of about 5%, with the markets being penalized by the greater relative weight of the banking sector, which was particularly affected. The dynamics in Portugal were very similar.
Volatility and uncertainty were transmitted to the commodities markets, with the contraction of economic activity resulting in a sharp drop in demand. Oil dropped sharply, with Brent touching lows of about \$ 20 / barrel to close the year at US\$51, still a year-on-year reduction of 24%. West Texas Intermediate (WTI), the reference crude in the US, reached a negative price, reflecting the weak demand (in a technical movement). Gold maintained its role as a safe-haven, with a 27% appreciation during the year, to US\$1,878 per ounce.
Fonte: Bloomberg
The Portuguese economy also suffered from the effects of the pandemic in 2020. GDP dropped by 7.6%, the largest recorded contraction at least since 1975, and mainly as a result of the decline in economic activity observed in the first two quarters of the year. To the effects of local contagions and the necessary lockdown, were added the effects of a simultaneous halt across Europe (not to mention the World), which was especially felt in the tourism sector.
| 2019 | 2020 | 2021 P | |
|---|---|---|---|
| GDP | 2.5 | -7.6 | 1.9 |
| Private Consumption | 2.6 | -5.9 | 2.6 |
| Public Consumption | 0.7 | 0.5 | 2.8 |
| Investment | 5.4 | -4.9 | -4.9 |
| Exports | 3.9 | -18.6 | 7.8 |
| Imports | 4.7 | -12.0 | 5.9 |
| Inflation (average) | 0.3 | 0.0 | 0.3 |
| Unemployment | 6.5 | 6.8 | 9.9 |
| Fiscal Balance (% GDP) | 0.1 | -5.6 | -7.8 |
| Public Debt (% GDP) | 117.2 | 133.7 | 136.9 |
| Current Account Balance (% GDP) | 1.2 | 0.1 | 0.7 |
Source: INE, Banco de Portugal, Ministério das Finanças, Santander Portugal Research
In March, the State of Emergency was imposed -following the worsening of the spread of COVID-19 – which was in force between March 18 and May 2, with a general confinement of the population and the closure of non-essential activities. In the first quarter, economic activity contracted by 4.0%, followed by a 13.9% contraction in the second quarter.
In this quarter, which was the most negative, the economic activity indicator fell sharply, having reached the minimum value of the historical series in April. In the same vein, the economic climate also recorded the lowest value ever. Turnover in services and in the manufacturing industry dropped by about 25% in May, the sharpest year-on-year decline ever. In the construction industry, the more intense YoY contractions were more progressively felt between April and May.
Contributions to GDP Growth
Private consumption was particularly affected, with a 5.9% drop in 2020. This sharp contraction was mostly concentrated in the acquisition of durable goods (car sales dropped by 35% in 2020, to the lowest volume since 2014), and in discretionary spending in non-food goods and services. If, on the one hand, this reflects an increase in savings for precautionary reasons (the savings rate increased to 10.8% in the third quarter), on the other hand it also reflects the impossibility of making certain types of expenditures, with the closure of restaurants and hotels, and other recreational activities.
Families were also strongly affected by the effects of the pandemic on the labour market. In 2020, unemployment increased by 0.3 pp to 6.8%, but greatly influenced by the lockdown, since in the second quarter the unemployment rate fell to 5.8%, with a shift from direct employment to inactivity, due to the impossibility of looking for a job.
Employment was also positively supported by the measures implemented by the Government, with emphasis on the simplified layoff regime, available to companies most affected by the pandemic and / or by mandatory closure. At its peak, it covered more than 115,000 companies and 950,000 workers, with Social Security supporting a third of workers' wages.
Unemployment Rate
Investment also recorded a sharp drop, especially in terms of productive investment, in machinery, equipment and transport material (the latter with a 27% contraction). The construction sector was one of the few that kept working at full speed, and still recorded growth compared to 2019. The housing market remains dynamic, with only a slowdown in prices, while demand has remained sustained.
The drop in tourism was reflected in the redirecting of dwellings that were available for local accommodation over to the rental market, with the downward pressure on prices.
Exports of goods and services dropped sharply, with a reduction of about 18.6%. This effect was more visible in services, with the tourism activity recording a reduction of more than 60%, as a result of the pandemic and the closure of the air corridors. In 2020, overnight stays from non-residents dropped by about 75%, cancelling the recovery of recent years. The reopening will depend on the progress of vaccination, especially in Europe.
Imports also dropped, reflecting the drop in domestic demand, both regarding consumption and investment. However, the reduction was less pronounced than that of exports, which also reflects the weight of tourism.
The current and capital accounts recorded a reduction in their surplus, largely due to lower services surplus.
Source: Banco de Portugal, INE
At the beginning of the pandemic, several measures to support the economy were defined, in addition to simplified layoff. The Government announced i) the temporary deferral of tax and contributory obligations, for companies; ii) the creation of credit facilities for companies, guaranteed by the State, up to a maximum limit of €13 billion; and iii) capital and / or interest moratoria on loans to individuals and companies affected by the pandemic. The moratoria have been extended, currently ending between September and December 2021.
The credit facilities and the moratoria contributed to a growth in the credit portfolio in 2020, thus reversing the trend of recent years. However, indebtedness levels remain below the 2012 highs. In September 2020, corporate indebtedness stood at 129% of GDP, and that of households at 69%.
Public debt has also reversed the trend of recent years, rising to 134% of GDP, reflecting the return of the budget balance to a deficit situation, at 5.6% of GDP.
This evolution reflects the functioning of automatic stabilizers and the discretionary measures to support the economy (such as simplified layoff and support for the resumption of economic activity, for example), as well as the load on the health system, resulting from the health emergency.
Information, from a cash point of view, shows the impacts of the pandemic. Revenues fell by 5.6%, while primary current expenditure increased by 6.4%.
Source: Ministério das Finanças
The Country's credit rating by S&P, Fitch, and Moody's is BBB (stable), BBB (stable) and Baa3 (positive), respectively. DBRS maintains a BBB–high (stable) rating. This situation is consistent with the previous year.
The 10-year yield, on February 15, 2021, was 0.15%, corresponding to a differential of 53 bps vis-à-vis Germany.
Source: Ministério das Finanças
The Treasury kept regularly accessing the markets, in a context of greater financing needs, as a result of the pandemic. Financing was mostly concentrated in Treasury Bonds, benefiting from the intervention of the ECB, with its programs for the acquisition of financial assets.
Retail products grew, but moderately, with a net increase of 200 million in savings certificates, and 500 million in treasury certificates, which shows the Treasury's ability to retain the certificates that matured throughout the year.
Households, in the context of increased savings in 2020, in addition to investments in State savings products, also reinforced their bank deposits, by €11.6 billion, to 161 billion.
Companies also reinforced their deposits by €7.8 billion. Credit also grew, by 7 billion, largely due to the State guaranteed credit facilities, created within the framework of measures to support the economy.
The Portuguese banking sector faces the effects of the pandemic with a more solid situation. As of September 2020, the NPLs ratio stood at 5.3%, and the CET1 capital ratio at 14.9%
Note: Text written with the information available up to February 15, 2021.
The main risks and uncertainties for Banco Santander Totta's activity are still closely associated with the evolution of the pandemic resulting from the COVID-19 disease caused by the SARS-COV-2 virus.
At the end of February 2021, Portugal is still in a State of Emergency, with the general duty of curfew and the closure of many activities, as measures for controlling the pandemic. Despite the vaccination process having already started, it is advancing quite slowly, and the virus is undergoing mutations, which in some cases may be more transmissible or show greater resistance to vaccination.
This means that the reopening process will be very gradual, and will depend on the evolution of the pandemic and on the pressure it places on the health system. Thus, the uncertainty levels are still quite high, with implications for the Bank's activity.
The general lockdown, in effect since January 15, will have implications for economic activity in general, due to the closure of nonessential activities. At the end of February, there is still no schedule for easing the lockdown, so the first quarter of the year should be characterized by a contraction of economic activity, and recovery may take place gradually. Thus, it is expected that families and companies will keep a cautious stance, materialized in moderate credit growth, on the one hand, and by an increase in deposits, due to greater savings.
On the other hand, the Recovery and Resilience Mechanism, the European plan to support the fight against the effects of the pandemic and recovery, should only begin to produce its first effects in the second half of this year.
Thus, economic growth in Portugal, in 2021, may prove to be more moderate than anticipated in December 2020, for example, which was evident in the projections of official entities then released, with the strongest recovery taking place in 2022 and in the following years.
As mentioned, the growth in credit volumes may turn out to be moderate in 2021, even because in 2020 there was a significant impact associated with the moratoria, as well as the credit facilities with State guarantee. In terms of deposits, they may keep growing, associated with the context of uncertainty and savings, for precautionary reasons.
An additional risk factor stems from the end of some support measures adopted in 2020, with emphasis on the moratoria (which will end in the second half of the year), as well as with the end of the grace period for credit facilities guaranteed by the State. With the economy just starting to take off, a more sustained recovery is expected, and thus special vigilance is required, particularly in terms of the sectors most affected by the pandemic, to take the necessary measures to prevent a worsening of credit risk.
The context of uncertainty will keep conditioning the intervention of central banks, which have shown to be available in the event of a deterioration of the economic conditions. However, there are risks that the recovery will be differentiated between countries, as was the impact of the third wave of the pandemic. Thus, in case of idiosyncratic shocks, the answer may have to be given by national governments, which are under different budgetary restrictions.
2020 was a year of adaptation and resilience; a very challenging year for everyone, especially for banks' commercial areas, which remained at the forefront of customer relations. This relationship has naturally changed due to the pandemic. Despite all the constraints, branches have always kept their doors open to the public, even during the lockdown periods. At the same time, new ways of working were developed – more digital, more remote.
The activity dedicated to Private and Small Businesses was mainly ensured by a network of more than 400 branches spread across the country. With the increased digitization of customers, remote service through Santander Próximo [Personal], a 100% digital branch with specialized managers, has gained greater relevance.
The Bank still keeps its purpose of supporting the development of families and companies, and the ambition of being the best Bank for employees, customers and society.
The strategy in the Individuals area was mainly to reinforce our leadership in mortgage loans, through the Open House platform, and to boost commercial activity in the areas of Protection (insurance), Savings and Payments.
Despite the pandemic context, the accumulated production of mortgage loans grew by 31% compared to 2019, a growth higher than that of the market, and thus the Bank increased its market share from 20% to 24%. The production of personal loans, in turn, amounted to €378 million (28% lower than in 2019), with emphasis on "CrediSimples", an online solution, which accounted for 40% of production.
In the Protection (insurance) area, Santander Portugal has been developing global solutions in all fields (health, life, car, home, among others), through Aegon Santander and through partnerships with other insurance companies. In a pandemic context, exceptional measures were taken to offer free online medical services to all Bank clients, through the Health SafeCare App, and to put an end to the exclusion of pandemics in health, life and salary protection insurances. Also, in this context, a commercial offer campaign was launched with
preferential conditions (offer of 3 monthly fees in the 1st annuity) during the second and third quarters.
There was also a strengthening of the partnership model to increase supply. Thus, the first product of JV Mapfre Santander (Multi-Risk Business Insurance) has been launched, and a partnership was established with Aon for a customised service for large companies.
Finally, the evolution in the digital transformation of protection insurance should be highlighted, with a greater offer to private customers through digital channels, namely through the launch of home protection insurances, and the Health SafeCare Viva Mais, through NetBanco Private.
In terms of Savings, in 2020 – due to the special characteristics of the year – the savings of households and companies grew significantly (by more than €3 billion). Despite the instability of the markets at the beginning of the pandemic, the diversification of off-balance sheet investments stands out, mainly in investment funds and retirement savings.
The Payments area was focused on positioning Santander as the digital payments Bank, namely by launching solutions that allow customers to pay for their purchases with any mobile device worldwide, in a simple, fast and secure way. The innovations started with the launch of Santander Wallet on the Santander App, which, in addition to sending and receiving money via a mobile phone number, makes it possible for clients to pay at the store via NFC technology (near field communication) or by capturing a QR Code.
Additionally, Santander customers were offered the possibility of digitizing their cards in their Apple, Garmin, Fitbit, and online trade payment wallets. These innovations are based on tokenization technology and help increase the security level of transactions. The number of Santander cards digitized on these electronic platforms has already reached more than 950,000.
With a view to improving customer experience, and for them not to have to wait for their plastic card to arrive home in order to start using it, the Bank made a digital card available immediately, thus allowing customers to view their card details and make payments by using the Santander App.
The Bank continued its strategy of developing immediate transfers, complementing the simple and flexible packagebased offer, namely through the connection to the Target Instant Payment Settlement (TIPS), which made it possible to make immediate wire transfers to TIPS-member banks in other SEPA countries.
There was also a concern and focus in terms of Point-of-Sale (POS) terminals, taking into account the challenges of the pandemic and the growth of online business. Therefore, the upgrading of Gateway Online to accept cards, payment of services and MBWay was promoted, and a simpler and quicker solution to be installed in merchants called "vTerminal" was also promoted, which, together with marketing through digital channels and a very competitive offer, resulted in an increased market share to 20%.
Lastly, within the scope of PSD2 and the opportunities generated by Open Banking, the Bank was focused on ensuring regulatory impositions and, in addition, allowed customers to use Santander channels as aggregators of information from other banks. In other words, it is now possible to view the account statement or initiate payment of accounts from other banks directly from the Santander channels.
The Daily Banking area is responsible for managing the offer of all services provided by the Bank to its clients, and whose fundamental priority is to provide a simple, secure and accessible payment experience through any channel, promoting the simplification of the account and card portfolio, in order to make its offer simpler and more competitive.
The development of digital channels was one of the main priorities in 2020, in which the opening of a digital account with a digital mobile key stands out, and, for University students, through video conferencing.
Still within the scope of digital transformation, the concept and area of Digilosophy was created, whose mission is to disseminate a strong digital culture in the daily lives of the Bank, People and Companies. All initiatives carried out in the context of digital transformation were critical to reaching more than 930,000 digital customers and a global digital penetration rate (over active customers) of 55%. This percentage reflects a growth rate of digital customers of about 20% compared to the previous year. The number of users of the Santander App reached 604,000 users (20% more than at the end of 2019).
It is also worth highlighting the positive evolution in the number of customers in World 123 Private (i.e., customers with an account, a card, and a protection insurance), which surpassed 300,000 customers. More than 80% of these customers have Santander as their first bank. In 2020, the Bank returned cashback benefits to 77% of these customers, for a total amount of €15 million.
In a context characterized by great uncertainties and strong constraints to the economy, with a strong impact on the activity of entrepreneurs and smaller businesses, the Bank, in addition to remaining loyal to its objective of strengthening its presence in the Business segment, has been in the frontline leading the way in the support to Portuguese companies. To this end, in addition to providing a wide range of innovative solutions, it joined the initiatives promoted by the Government (namely moratoria and credit facilities guaranteed by the State) from the first hour, to face the short-term financial difficulties of companies, as a result of the sharp slowdown in the economic activity caused by the COVID-19 pandemic.
At the same time, and in order to give greater autonomy to its customers in the use of certain banking products and services for the management of their day-to-day activities, either through the granting of online credit – CrediSimples Business – or by privileging the use of digital payments, the Bank has been strengthening and deepening its omnichannel approach, complementing the service provided by the physical network with a strong investment in digital channels, thus contributing to increase the degree of customer satisfaction and strengthen their loyalty to Banco Santander.
As a result of this positioning of proximity and customer support by the Bank, the credit portfolio of the Business segment recorded, in 2020, an increase of 18.4%.
In the Corporate and Institutional area, Santander Portugal keeps up with its strong commitment to the Portuguese business fabric, making a vast financial and non-financial offer available to its customers, as well as a commercial network composed of experienced professionals, always available to find the solutions that best suit our customers' needs. In addition, the availability of new products and services through digital channels by Santander, besides strengthening the digital customer base, has resulted in an increased number of more satisfied and, consequently, more loyal customers.
In terms of credit, and in response to the profound impact of the pandemic on the economy and on businesses, Santander Portugal, in conjunction with the State and the competent public entities, was at the forefront in supporting Companies and Institutions, optimizing processes and improving internal procedures, with a view to quickly making the agreed credit facilities available to its customers, thus helping release liquidity quickly and in a timely manner for companies to be able to meet their immediate commitments, especially towards their employees and suppliers.
In terms of the offer of credit products to companies, it is worth highlighting the wider range of solutions in the Santander Agro offer, with the launch of Santander Financing with Guarantee - FEI AGRI Facility, an investment financing solution guaranteed by the European Investment Fund (FEI) for the agriculture and agro-industrial sectors, as well as Agrofácil Tesouraria [AgroEasy Cash], a short-term financing solution.
With regard to Institutional Banking, Santander Portugal keeps its commitment to customers in this segment, both in terms of public entities – with a strong presence with the Autonomous Regions and Municipalities – as well as with regard to private entities, with a special focus in religious institutions and institutions of the social economy, which entities have played a key role in supporting families with less resources during the pandemic period. Here also, the Bank has played a very active role in publicizing and making available the COVID-19 support facility for the social sector agreed between the Social Security Financial Management Institute (IGFSS), SPGM, the Mutual Guarantee Societies (SGMs, namely Garval, Lisgarante and Norgarante), and Santander, with a global allocation of €165 million. In 2020, the volume of business in the Institutional Banking segment grew by 2.6%, with special emphasis on resources, with a 10.8% increase.
Santander's Private Banking activity was particularly affected by the pandemic, with an initial impact of significant devaluations and redemptions of risky assets. On the other hand, the firmness and dimension of the joint policies followed by the main central banks, gave the markets the feeling that the instruments required for recovery would be available. Thus, after sharp initial declines, the markets embarked on a sustained (although volatile) recovery path, which remained until the end of the year. Despite a difficult, atypical year, most business indicators showed a positive performance, namely the volume of assets managed, including under the funds and insurance headings, and growth in the number of clients.
All ongoing initiatives to improve commercial efficiency were maintained, freeing up more time for advising and monitoring Private Banking clients, thus improving the outstanding service that characterizes this business segment. In recognition for the excellent service in general and customer service in particular, Santander Private Banking Portugal was distinguished as the best Private Bank operating in Portugal for the 10th consecutive year, according to Euromoney magazine, and the same recognition by the Global Finance magazine for the 6th consecutive year.
2020 was a very atypical year as far as the investment component. Throughout the year, Santander Asset Management (SAM) sought to manage its mutual fund units (FIMs) actively, with the goal of maximising return for its participants. The year ended with €144 million in net FIMs under management, and €2,558 million in assets under management, representing a 17.5% market share, against 17.9% in the previous year. The Bank continued to foster a service attitude, with an intensive plan of initiatives aimed at improving customer experience.
Real-estate investment funds totalled €329 million in assets under management at the end of 2020.
In financial insurance, the focus remained on the active management of "Open Financial Insurance", which ended the year with €642 million assets under management, plus the high number of maturities that occurred during 2020 and which amounted to €321 million. Retirement solutions also recorded a very important focus on commercial activity, increasing by €96 million in fund format (FPR's), and by €47 million in secure format (PPR's) in 2020.
In the Corporate & Investment Banking area, in the face of an adverse scenario caused by the pandemic, we had to reinforce our proximity and commitment to customers. The loans portfolio recorded an increase of 8.7%, compared to the 2019 figure, while revenues showed a reduction of 0.8%, compared to the same period of the year, mainly due to the negative impact of the economic downturn.
The focus that Santander has placed on digital channels, of which we underline the digital exchange contracting platform (via NetBanco Corporate), helps to ensure an adequate response to user needs, in this context of social distance.
It is also worth highlighting the recognition by Euromoney with the award "Best Investment Bank Portugal 2020."
In the Global Debt Financing area, 2020 was marked by the following significant operations:
During the period under review, several significant financing transactions were also completed in a wide range of sectors, with emphasis on several financing and refinancing operations in the real-estate sector, including shopping centres and property development for student residences.
In the Corporate Finance area, we would underscore the completion of the following financial advisory operations:
Advising NOS on the sale of NOS Towering's portfolio of towers to Cellnex;
Advising EDP on the sale of 2 CCGTs and on the B2C customer business in Spain to Total;
As far as Treasury is concerned, despite the atypical and unpredictable context in which most of the year of 2020 took place, Santander kept providing constant and effective support in response to all the needs that companies faced, translating into a significant increase in activity.
The activity, both foreign exchange and interest rate, started the year with a year-on-year growth, but the state of emergency decree, in March, required an adjustment of the customer follow-up model in order to ensure the same quality and service excellence, but with greater proximity and swifter response times.
The first lockdown period, and the consequent drop in economic activity, resulted in a decrease in the formalization of new financing, as well as in foreign exchange operations, here amplified by the very sharp contraction in the tourism sector. The subsequent reopening of the main commercial activities (with greater difficulty in some sectors of activity, namely, in the hospitality and tourism sectors) allowed a normalization of Treasury operations with customers, with an increase in the number of foreign exchange operations and credit operations with interest rate risk coverage, with special relevance in the last quarter of 2020, with an increase in the number and volume of operations compared to the same quarter of the previous year.
In the foreign exchange area, 2020 meant a huge transformation in the offer of available contracting channels, with emphasis on the strong increase in the number of spot foreign exchange operations resulting from the increased activity originated in the exchange contracting platform provided through the NetBanco Corporate channel. This platform, complemented by a permanent team in the markets room, offered customers – even from their homes – permanent access to all means of contracting foreign exchange transactions, ensuring an adequate response to their needs.
As far as interest rate transactions, the context of greater uncertainty meant that a significant percentage of credit granted was formalized at a fixed rate.
The Corporate and Commercial Banking area ended the year with new maximums in terms of volume and contracted operations, both under the foreign exchange and interest rate operations headings.
In the Cash Equities area, despite all the instability resulting from the context of the pandemic, the elections in the United States, and the conclusion of the agreement between the United Kingdom and the European Union regarding Brexit, the volumes traded in the stock markets in 2020 recorded an expressive growth compared to the previous year. After a third quarter that seemed to signal a return to "normality," the fourth quarter of the year returned to record volumes, similar to those of the second quarter. Santander's business continued to show better performance than the market, evidenced by an increased market share. According to the data released by the Securities Markets Commission (CMVM), the volume of orders on shares received by financial institutions in Portugal grew by approximately 70.9% year on year, totalling about €18.612 million. In the same period, Santander grew by 124.9% to €1.313 million, representing a market share of 7.1% (5.4% in 2019).
In the online business (Internet Website), the market grew by 59% to €12.863 million, Santander having contributed with €1.148 million, a 135% increase over the same period in 2019, and a share of 8.9% (6.0% in the same period last year).1 .
With social and political stability, a particularly attractive climate, and the progressive development of infrastructure in the country, there are more and more foreigners interested in investing in Portugal or in living permanently or with their habitual residence in Portugal. On the other hand, the existence of communities of Portuguese emigrants living abroad is already an old phenomenon.
Attentive to these two segments, the Bank has a team whose main objective is the creation of strong commercial ties and close proximity to the communities of Portuguese and Portuguese descendants living abroad, as well as the promotion and attraction of foreign customers who choose Portugal to invest and / or to establish their residence.
The Bank has a network of representative offices present in 6 countries (South Africa, Germany, France, the United Kingdom, Switzerland and Venezuela), close to and with a strong connection to the Portuguese communities. In the future, the intention is to innovate by providing all types of banking services remotely to all Portuguese communities and also to foreign customers, with bilingual tools available for any region.
Within the context of the pandemic that we are experiencing, there has been a major concern in supporting our customers living abroad, particularly those who have greater difficulty in the use of digital media. In 2020, the "Here and Now" campaign helped enlighten and support the emigrant
1 - Source: Portuguese Securities Markets Committee (CMVM), Monthly order reception indicators (December 2020)
community in the use of digital media, in particular in the elderly sub-segment.
In 2020, boosted by the pandemic context, Santander Portugal accelerated its digital transformation process, with the aim of being closer to its customers and simplifying processes through digital solutions. This strategy contributed to accelerating the growth trend of the number of digital customers.
At the end of 2020, the Bank had 930,000 digital customers, an increase of 20% compared to the previous year (150,000 more customers). This growth was particularly boosted by the use of Apps, which saw a 27% increase in the number of logins.
The growth in the number of users also made it possible to end the year with 56% sales on digital channels, an increase of 19 pp. compared to the previous year.
In a context in which customer mobility restrictions were recurrent, digital channels and the Contact Centre were critical complements to the relationships established by branches, which allows managers to have more time to focus on managing their relationships with customers, while at the same time, customers can count on a Bank available for most of their services.
The year was marked by a strong investment in the renovation of the NetBanco Private and Santander App channels, with a visible component for customers, which included the modernization of processes and design, and a structural
component, essential to ensure a good future evolution of those channels. These changes had the effect of improving both customers' real quality and perceived quality, as well as the effect of aligning them with the new rules for the use of the Santander brand as defined by the Group.
The visual and structural renovation also took place in the Bank's public website (www.santander.pt), which underwent a complete restructuring. It now has a modern image and an information structure better suited to customers' needs. As in the development of channel activities, the renewal of the public website was based on a great amount of work to assess our customers' needs and expectations, which included several customer interviews and focus groups, among other initiatives.
At the same time, the Bank kept investing in features aimed at making the Bank's products and services available through digital channels, improving customer access to such channels, and avoiding their need to personally visit branches, which was quite valued during the lockdown periods country went through due to the pandemic.
As a consequence of the pandemic, banks had to provide moratoria solutions to their clients in a short period of time. The Bank was able to respond effectively and efficiently, by making the inclusion in, and the consultation and cancellation of moratoria available through NetBanco. This functionality was critical to provide a good service to our customers, truly demonstrating the potential of digital channels as a complement to the relationships with customers as established by branches, allowing the latter to focus on higher added value tasks.
Communication with customers was reinforced through the live chat feature. This feature allows customers to request help or information by exchanging messages with a customer support person. A chatbot was also launched. That is, an interface that interacts with customers through natural language, and seeks to interpret and answer the most common questions, directing the customer to information about products and services on the public website. If the customer does not intend to interact with the chatbot, or the latter is not able to clarify the customer's doubts, there is always the option of transitioning to the live chat feature and speak to a customer support person.
The Santander App also has new features related to MBWay, namely the possibility of receiving money and accessing payments through a QR Code without the need of logging into the App. This last feature makes payments in stores or restaurants much easier, faster and more convenient, better meeting customer expectations.
Still on the subject of cards and payments, it is now possible to request a debit card through the Santander App, which immediately makes a digital card available to be used by the customer while he/she does not have the physical card with him/her. It is also possible to activate and deactivate the card's contactless payment option, allowing customers to choose the cards on which they want to have this feature active. The Bank
has also started to support payments with Apple Pay, Garmin Pay and Fitbit, both for Mastercard and Visa cards.
As far as contracting products, the insurance offer at NetBanco was increased, and auto credit is now also available through this channel, with a flow similar to that of personal credit (CrediSIMPLES).
In terms of services, the most relevant features added throughout the year were the possibility of making immediate transfers within the SEPA space, of aggregating accounts from other banks on the Santander App, an easy mechanism for customers to settle arrears payments to the Bank (credit instalments, etc.), and the possibility of a non-customer opening an account on the public website by using the "Digital Mobile Key". This last feature was essential for the University students' enrolment campaign, complemented with video conferencing when necessary.
The renewal of the Private App, combined with the new range of features, were reflected in a substantial improvement in Google and Apple stores ratings, with the Santander App ending the year with a rating of 4.5 on Android, and 4.4 on iOS.
The Santander Boutique was also launched in 2020, the first virtual store in Portugal, through which one can purchase products from reputable brands through immediate online credit.
Within the scope of business support measures, the request for accessing moratoria through Netbanco Corporate was made available through a simple, fully digital process. Throughout the year, the necessary adaptations were made to the legal changes that were coming up.
The contracting of POS terminals through Netbanco Corporate was also launched, which became the preferred way for contracting this service from the Bank.
The functionalities of consulting digital documents were made available to all corporate customers, even those who do not yet use digital channels, thus reducing costs and contributing to reducing the Bank's environmental footprint.
The recipients of immediate transfers to other countries within the SEPA space have been expanded through Netbanco and through the Corporate App, and the request for service payment references through Netbanco Corporate (Receive Now) has been made easier, making it easier to receive payments from customers.
There was a 20% increase in number of users of the Corporate App, and the Bank ranks in the top 2 of banking Apps for companies in App Stores.
The Corporate App now alerts users regarding failed scheduled transfers by push, introducing an easier way to collect feedback from users and offering receipts of the most common operations.
In 2020, the procedures for changing access contracts to corporate channels were also simplified, increasing the autonomy of branches and users, and thus reducing the dependence on the Contact Centre.
In 2020, the customer support services for companies and for Private individuals (SuperLinha) were awarded the 1st and 2nd prize for Best Banking Contact Center, by the Portuguese Contact Centres Association. The corporate service centre was also distinguished with a Bronze Trophy, in the Contact Centres category with less than 50 agents.
Over 100 thousand contacts were made to customers and about 3 million contacts were received (+ 11% YoY), of which 66% with human assistance, 17% with automatic assistance (IVR), and the remaining 17% via digital contacts (e-mail, chat and the Bank's social networks). In June, a virtual assistant was launched at Netbanco, which had more than 50 thousand sessions.
Several initiatives were also implemented focusing on improving Customer Experience, in terms of processes, training assistants and new services, with emphasis on the following initiatives: Support line for moratoria, new IVR menus, chat available in all pages of the Private Website, and also on the Corporate Website, with extended operating hours, plus new call back options in case of high traffic.
After one year of activity, the Customer Centre has established the concept that the Bank needs, not to walk towards the customer, but to put the customer at the very centre of its attention - to become customer centric).
In 2020, this "laboratory" was the critical piece to understand
what needs do customers have during pandemic times, what are the difficulties of adapting to this reality, and what are their expectations regarding the new normal (customer research).
With 40 projects carried out, in remote and face-to-face format, the voice of customers and employees echoed, setting the path the Bank has to follow.
Altogether, about 500 participants contributed to this reality, in naming products and services, building customized journeys, improving browsing experience in digital channels, creating new communication and contracting platforms, as well as improving tools to facilitate and streamline the day-to-day of the commercial network.
From the annual satisfaction survey of the private customer segment, which measures customer satisfaction with the Bank and benchmarks the Bank against its main competitors, it appears that Santander is the most recommended bank to friends and family by its customers.
To become the first in recommendation is a goal that was set for 2023, but that meanwhile was already reached in 2020.
The relationships that were established with customers at such a complex period, with relationship campaigns seeking to create closer contact and appropriate solutions for the moment, were a decisive factor in the recognition that was given to the Bank.
The Bank focuses on the NPS (Net Promotor Score) concept and criteria, and 2020 was the year of internal consecration of this metric.
The NPS model was defined through
the use of means to measure more and more experiences lived by customers, in more interactions, through various channels, with preference for the web environment.
At the end of 2019, a process for implementing a new "voice of the customer" programme was started, based on the Qualtrics customer experience tool, recognized as one of the most powerful and effective platforms available.
The NPS measured through this new platform allowed the validation of thousands of surveys, relating to the main experiences and relationships with customers, closing the year with an NPS of 51p.p., a very positive result both in terms of benchmark and also when compared to the whole industry.
In the meantime, the NPS was combined with the business units rating system – the "Star System" – (inspired by the hospitality industry, which assigns a rating to its business units from 2 to 5 stars), and thus the organic impact of the stars was combined with the impact on individual incentives with NPS. In annual terms, 86% of the Bank's branch network was rated 4 and 5 stars.
2020 was marked by the launch of "I'm the Bank" Programme. A horizontal programme for mobilizing and transforming the organization, with the objective of increasingly improving customer experience and satisfaction with
the Bank. Combining extensive analytical work with active, continuous listening to customers. Priority initiatives were identified and designed to integrate the programme, which are being developed around 4 main pillars of transformation: culture; management by NPS; metrics and governance.
Under the direct sponsorship of the Executive Committee, and coordinated by the Customer Experience area, the "I'm the Bank" Programme is aimed at each and every of the Bank's areas, which were, therefore, actively involved throughout the entire process. The implementation of this program has resulted in a positive evolution in customers' perception of their experience with the Bank.
In 2020, the Bank had a 15% reduction in complaints compared to the same period last year, revealing a substantial
improvement in service, and a clear perception by customers of the Bank's effort to adapt to the new reality.
The most important issue for banks was related to the moratoria and, at Banco Santander, it was no exception, where in a short period of time the technological
developments essential to comply with the new legislation were implemented.
The electronic complaints book, since it is digital and simple to use, in the context experienced, proved to be a critical tool for submission of complaints.
The matters with the highest number of complaints remain in line with those of previous years, namely current accounts (closure and commissions), credit, cards and, this year, in particular, moratoria. However, all of them were lesser in number than in the same period in the previous year.
However, in such an adverse year, it is worth highlighting the result of the three indicators of the Bank of Portugal, published in its half-yearly Behavioural Supervision report, with a reduction in the volume of complaints on each subject matter.
The main indicators of the year are as follows:
| COMPLAINTS | 2020 | 2019 |
|---|---|---|
| Complaints received | 4,036 | 4,655 |
| Var. vs the homologous period | -13% | +8% |
| Number of complaints/Customers * | 1.10 | 1.26 |
| Complaints through regulators | 70% | 64% |
* For every 10,000 customers
The Technology area - in line with the business and digital transformation areas - acted in several initiatives aimed at providing employees and customers with more digital, simpler, and more integrated solutions, continuing to promote the adoption of new technologies, modern architectures, and agile development approaches.
From an internal perspective, the implementation of the new personal credit solution for the end-to-end contracting process stands out, supported by new technologies with a strong focus on improving user experience, and on the evolution of Santander cockpit and intranet solutions, now oriented towards the simplification and efficiency of branch activities. As well as VOICE, which provides employees and managers with a 360 view of the relationship between customers and the Bank.
From an external perspective, and as already mentioned, the improvement and modernization of the digital channels has continued, namely of Netbanco and of the App, with more features. The institutional website was reformulated, with a more modern look & feel, and a language more oriented to the needs of customers. The Santander Boutique was implemented, offering a simple and immediate credit solution for a set of product offers in different categories.
Inevitably, 2020 was globally marked by the context of the pandemic and, in the financial sector, by the provision of public and private moratoria as an important support mechanism for families and companies. In this sense, and from a technological perspective, several initiatives were implemented, from being able to adhere to moratoria through digital channels, to
operationalizing through the information systems the various modalities, regime and needs of moratoria.
Additionally, and within a relevant regulatory framework, the Technology area has implemented initiatives to ensure compliance with the requirements of a legal or regulatory nature, as well as implementation of the recommendations arising from internal and external audits - critical pillars in the activities of Santander Portugal.
The Cybersecurity area - with the declaration of the state of pandemic and the adoption of telework for many employees had to manage new challenges that determined adaptations in the way of working for the entire organization, as well as in the management of cyber risks, in particular, of phishing attacks on customers.
Teleworking involved a complex adaptation in the Bank's infrastructure to allow the continuation of business activities in a remote, secure manner. Continuing the mission of promoting a culture of cybersecurity in the organization, internal communication was reinforced in order to provide for the adoption of best practices for conducting secure video conferencing and exchanging sensitive information between the Bank and its customers.
Phishing attacks on customers grew both in frequency and intensity with the extension of the state of confinement, leveraged by the needs of digitization not only of the Bank's business management model, but of the entire society in general. This fact required a reassessment of the cyber-risk management model in this area, and fraud prevention controls were reinforced in order to mitigate these threats.
In terms of Infrastructure, it was possible to provide the Bank with the necessary conditions for employees to perform their tasks through telework, providing O365 and Teams collaborative tools for the entire network of branches and central services. In the network of branches, the activities to implement the technological modernization of the communications network and the renewal of jobs also stood out, which provided improved accessibility and enhanced communication, reinforcing the image of the digital transformation of branches before their customers.
In the Operations area, the technological transformation process continued with the implementation of Business Process Management (BPM) tools as well as new robotization tools, which include the configuration of a single entry channel for operations, the standardization of procedures and working methodologies, and real-time control of all activities and of compliance with their Service Level Agreements (SLAs).
The pandemic and teleworking period was a test to BPM's capacity, having been initially applied to the moratoria processes, which allowed, in record time, to mobilize all resources and guarantee all the necessary controls to deal with the high volume of requests, and above all, to keep all operation activities running smoothly with the fulfilment of service levels and SLAs, for the best quality of service to customers. With this "pilot" in real time, the ability to activate teams for multitasking
and multiskilling models and the transformational rotation of the area was proven, operating the development of an agile culture and an operating model mastered by all employees. With more than 1,400 processes in production, covering all operation activities (including outsourcers), it is possible to measure and control the entire activity in real time.
The implementation of the new customer communication strategy was one of the pillars of the activities of the Operations area, which had a significant impact on cost reduction and was also highlighted as a reference initiative, namely the Paperfree for the entire Santander Group.
The training initiative dedicated to all employees working in Agile Efficient methodology, allowed, on the one hand, the continuation of teleworking projects, and, on the other hand, the continuous and close relationship with all commercial teams.
2020 was definitely marked by the COVID-19 pandemic, and the consequent effects on new ways of working in the acceleration, simplification, and digitalization of end-to-end processes.
Transforming the Bank into an open financial services platform was accelerated, and the job market and the Bank began to value certain skills in its employees such as greater adaptability, as well as skills reflecting the needs of a more digital, more creative future, under constant change.
2020 was also the year in which the Group organized itself in three geographic regions with global reach (Europe, South America and North America) supported by global businesses (SCIB and WM&I and Santander Global Platforms).
In response to the crisis, the Group launched "Santander All. Together. Now." A motto that brings together the Group's efforts around the world to be by the side of those who need it most in the context of the pandemic crisis. This movement mobilized resources and initiatives in society, in collaboration with governments and institutions. In Portugal this motto was used in all internal and external campaigns related to COVID-19.
The Bank adapted its way of working, with more than 4,000 employees working remotely from March to May, following and incorporating all the recommendations of the Government and health authorities under 3 main pillars: i) development and implementation of health and safety protocols; ii) prioritizing and monitoring employees' health; and iii) screening (through the development of the DeVolta App).
The Bank communicated with all employees, via informative emails, with appealing messages, illustrated with images from the Santander brand manual. 'Teleworking' and 'Back to the Bank' guides were also prepared with all useful guidelines and information for remote work and for employees return to their workplaces.
For their return to the Bank, the motto "Here we're safer" was developed, the main message in the protection kits made available to employees and on the signs posted on all Bank buildings.
As already mentioned in the chapter on "Corporate Culture", the 8 behaviours that should be applied by all employees in their day-to-day activities are: Show Respect, Truly Listen, Talk Straight, Keep Promises, Actively Collaborate, Bring Passion, Support People, Embrace Change. These behaviours will help Santander Portugal to become:
In order to improve the Bank's global performance, leadership was identified as a strategic axis of action, since this factor has an impact on employee engagement, on their degree of happiness in the workplace, and even on their well-being. Thus, leadership commitments that should be used by the Bank's leaders were created, guiding and aligning the path and expectations in order to be responsible by focusing on the following areas of activity:
and accelerating change. Innovating with an entrepreneurial mindset, without fear of failure, and learning from mistakes.
For some years now, Santander has had the corporate objective of being the best company to work for in the various geographies where it is present, and, for this reason, it has been consolidating the work done in previous years, notably by improving processes that simplify employee experience, streamlining and expanding the package of measures that the Bank puts at their disposal.
In 2020, for the fourth consecutive year, the Bank was distinguished with the Best Place to Work award from Great Place to Work, and achieved the "efr A" status (level of Excellence) as a Family Responsible Company, awarded by the Más Familia Association.
In the "Pulses" survey, carried out in October 2020, across the entire Santander Group, Portugal achieved an outstanding result in the Products and Services eNPS - whether employees recommend the Bank's products and services to family members and friends. It obtained 44 points (excellent) vs 38 within the Group as a whole. In the job choice eNPS - whether employees recommend the Bank as a good company to work for - it achieved a good result, 30 points (good) vs 41 in the Group as a whole. In these 2 eNPS Portugal achieved better results than the other European countries.
Undoubtedly, the more than 60 measures that are available to employees and that meet the objective of the Bank being the Best Company to Work for have contributed to these awards. In 2020, in addition to the measures that already exist within the context of a family responsible company, others were launched to respond to the needs brought by the pandemic, both to facilitate remote work and to prevent any loss of liquidity on the part of families.
Salaries - all employees, whether they were in telework, in quarantine, in isolation, or because they belong to risk groups, or were taking advantage of their holidays as a result of their children's academic and non-academic activities being suspended and of the closure of nursing
homes, payment of everyone's salary and food allowance was ensured at 100%.
at home -, the Gympass Wellness was offered, free of charge for 30 days, and Equinow online classes.
As part of the staff rejuvenation process, over the course of 2020/21, new trainees were recruited, whom, for a period of one year, developed skills in areas associated with the Bank's transformation process. In addition to the trainees recruited, summer internships and professional internships were implemented, through which the Bank intends to have an active and high-value offer for university students. In this way, it is possible to get to know university talent better, through its inclusion in the Bank's teams. In 2020, 87 students and recent graduates / masters served as interns at the Bank.
A close relationship was also developed with some Universities that can provide talent to support the digital transformation process. To this end, projects and challenges were carried out jointly involving students and Bank employees.
It is also important to highlight the Bank's active role with the Inclusive Community Forum (ICF), under which an inclusive recruitment process was established, which was taken up by the partner companies of this forum.
Another program to be highlighted in this area, which has the support of Santander, is the Salvador Employability Program for people with motor disabilities, whose aim is to promote the social and professional integration of people with motor disabilities, and improve their quality of life.
Every year the Santander Group – in all countries where it is present – holds the "Santander Week", where the main recipients are employees and under which numerous activities and events are held in order to increase one's pride of belonging. It is intended to strengthen relationships between teams, hierarchies and employees. In September 2020, this remote event was dedicated to the Bank's Culture – the "Santander Way." On each day of the week, focus was given to: 1) Values: Simple, Close and Fair; 2) Behaviours; 3) Risk Pro; 4) the 4 Leadership commitments; and 5) the Santander Way.
The two traditionally most important events of this week were held via Zoom with the presence of the CEO: the celebration of the Bank's 30th anniversary, and the Excellence Awards for employees whose children were awarded for having completed secondary education with a final average of 20, 19 and 18 marks (out of 20).
Santander has a corporate program aimed at positioning the Bank as the healthiest company in the world. This program is called BeHealthy, and aims to promote and create healthy lifestyle habits for its employees based on 4 pillars of development. The week of April 20 to 24, 2020 was dedicated to promoting this program, remotely, with the sale of organic vegetable baskets from Semear – a solidarity institution –, the online sale of urban vegetable products, and the sharing of links with classes and online exercises, as well as online meditation classes, among other initiatives.
The mission of JA – Junior Achievement, is to inspire future generations by promoting entrepreneurship amongst the young ones. Through volunteers who work with schools, they address topics such as financial literacy, the values of entrepreneurs who strengthen the business world, and bet on enhancing the entrepreneurial spirit of young people. The collaboration of Santander with JA Portugal started in 2006, and since then it has already impacted more than 11,500 students, involving a total of more than 8,100 volunteer hours.
In recent years, the Bank has promoted this training program among young students between 1st and 12th grades. A participation that reinforces voluntary spirit, solidarity, and brings employees closer to their local communities.
The Excellence Awards is the Bank's recognition of the children of employees who complete secondary education with a final average of 16 or more marks (out of 20).
The "Excellence" awards for employee children who completed secondary education with the highest averages, were materialized in a gift card corresponding to an amount of 3, 2 and 1 year of university tuition fees, whose reference value is the amount announced by the General Directorate of Higher Education for each academic year. For 2020, this amount was €697. The Bank's total investment was € 66,215.
The first seven positions were offered an amount corresponding to the cost of the tuition fees for a 3-year degree (€2,091), the second prizes (22 winners) were awarded the amount corresponding to 2 years of higher education tuition fees (€1,394), and the third prize (20 winners) was awarded the amount corresponding to 1 year of tuition fees (€697).
In 2020, a total of 6,091 employees participated in training initiatives, 83% of which through e-learning. A total of 261,596 hours of training were imparted, representing an investment of €1,380,000 in training, over the year. Corresponding to an average of 43 hours per capita distributed in three modalities: elearning, virtual classes, and in person classes.
| % employees (female) | 46% |
|---|---|
| % employees (male) | 54% |
| % directors and managers (female) / total | 33% |
| % employees with higher education | 57% |
| Average age (years) | 46 |
At the end of 2020, Banco Santander Totta recorded a consolidated net income attributable to the shareholders of BST of €257.7 million, compared to the €489.5 million obtained in the previous year, down by 47.3%, due to the influence of the pandemic crisis that led to a strong slowdown of economic activity, and to the preventive constitution of impairments.
Return on Equity (ROE) stood at 7.1%, and the efficiency ratio at 44.8%.
Loans and advances to customers (gross) amounted to €42.7 billion, growing by 6.8% compared to the amount achieved in the same period last year. Loans to individuals increased by 4.5% and loans to corporates rose by 6.7%. The Bank provided moratoria for credit to individuals and companies, complementing the State's moratorium, with the aim of allowing the reduction of the charges on these loans to customers.
The Non-Performing Exposure ratio stood at 2.6%, decreasing by 0.6 pp, compared to 3.2% recorded a year earlier, with provisions coverage of 66.8% (13.7 percentage points more than in the same period last year).
Customers' resources amounted to €43.5 billion, up by 0.8% compared to the same period of 2019, with a 1.1% increase of deposits and a 0.4% decrease of off-balance sheet resources.
The Common Equity Tier 1 ratio (fully implemented) amounted to 20.8%, increasing by 5.7 percentage points compared to the end of 2019.
The financing obtained from the European Central Bank, in the amount of €6.8 billion, was based entirely on long-term operations, through the targeted longer term refinancing operations (TLTRO III). The net exposure to the Eurosystem stood at €2.9 billion. Long-term financing also includes €2.0 billion of covered bonds (with the repayment of a mortgage bond amounting to €0.75 billion, without refinancing through the market), and €0.6 billion of securitizations.
Short-term funding achieved through repos amounted to €1.3 billion.
The LCR (Liquidity Coverage Ratio), calculated in accordance with the CRD IV rules, stood at 121.9%, thus meeting the regulatory requirement on the fully-implemented basis.
Banco Santander Totta has the best financial ratings in the sector. The Bank's current long-term debt rating notations compared to those of the Portuguese Republic are as follows: Fitch – BBB+ (Portugal – BBB); Moody's – Baa3 (Portugal – Baa3); Standard & Poor's – BBB (Portugal – BBB); and DBRS – A (Portugal – BBB high).
Dec-19 Dec-20
| CONSOLIDATED INCOME STATEMENTS (million euro) | Dec-20 | Dec-19 | Var. |
|---|---|---|---|
| Net interest income | 785.0 | 854.5 | -8.1% |
| Income from equity instruments | 1.7 | 1.8 | -3.1% |
| Results from associates | 5.6 | 2.5 | +120.6% |
| Net fees | 377.7 | 384.9 | -1.9% |
| Other operating results | 8.4 | 10.4 | -19.8% |
| Commercial revenue | 1,178.3 | 1,254.1 | -6.0% |
| Gain/losses on financial assets | 96.5 | 71.7 | +34.6% |
| Net income from banking activities | 1,274.8 | 1,325.8 | -3.8% |
| Operating costs | (571.5) | (594.7) | -3.9% |
| Staff expenses | (321.8) | (342.3) | -6.0% |
| Other administrative expenses | (197.6) | (203.2) | -2.7% |
| Depreciation | (52.0) | (49.3) | +5.6% |
| Net operating Income | 703.4 | 731.1 | -3.8% |
| Impairment, net provisions and other results | (334.9) | (32.9) | +919.3% |
| Income before taxes and non-controlling interests | 368.5 | 698.2 | -47.2% |
| Taxes | (110.7) | (208.8) | -47.0% |
| Income after taxes and before non-controlling interests | 257.7 | 489.5 | -47.3% |
| Non-controlling interests | 0.0 | (0.0) | -100.5% |
| Consolidated net income attributable to the shareholders of BST Note: The accounting policies used in the income statement for 2018 are consistent with those used |
257.7 | 489.5 | -47.3% |
To comply with FINREP 2.9, contributions to the Resolution Fund and Deposits Guarantee System were reclasssified from
"Other operating results" to "Net provisions and other results", and so as to be comparable, all values from 2019 were adjusted accordingly
At the end of 2020, the net interest income stood at €785 million, down by 8.1%, compared to the €854.5 million obtained in the same period of 2019, reflecting the decline in credit spreads, in a competitive environment, with negative interest rates, a decrease in the demand for credit by companies outside the scope of the State guaranteed credit facilities, and the management of the public debt portfolio.
Results from associates amounted to €5.6 million, an increase of 120.6%, compared to €2.5 million recorded in the same period last year.
Net fees reached €377.7 million, down by 1.9%, compared to the €384.9 million recorded in 2019, with a reduction in credit, means of payment, and insurance commissions. This evolution mirrored the effects of the pandemic on the reduction of activity and the impact of the temporary suspension of a number of fees within the scope of the measures to support businesses and households, complementing the moratorium and credit facilities provided with State guarantee, in particular the exemption of fees on national transfers through the Bank's digital channels, free of charge replacement of cards without contactless
technology by cards with this technology, and lower fees for POS terminals.
Other operating results totalled €8.4 million, 19.8% below the same period last year, with emphasis on lower income from property rents, due to the lower volume of the property portfolio, and the context of the health crisis, with the publication of legislation that offered a grace period for the payment of rents.
Commercial revenue totalled €1,178.3 million, 6.0% less than the €1,254.1 million in the same period last year.
Gain/losses on financial assets amounted to €96.5 million, up by 34.6%, including the income generated in the management of the public debt portfolio.
Net income from banking activities amounted to €1,274.8 million, down by 3.8% compared to the €1,325.8 million at the end of 2019, mainly translating the decrease of net interest income and net fees, and the growth in income from gains/losses on financial assets.
Net Fees and other
Operating costs totalled €571.5 million, a 3.9% decrease compared to the previous year's figure.
In the past year there has been a reduction of 214 employees and 65 service centres, with the progressive reduction of branches and the functional redefinition of others, along with increased automation of processes and functions of central services.
Staff expenses reached €321.8 million, decreasing by 6.0% year-on-year.
Other administrative expenses amounted to €197.6 million, down by 2.7%, compared to the same period last year.
Depreciation amounted to €52 million, up by 5.6% compared to the end of 2019, with the investment in the digital transformation.
In the operating costs structure, staff expenses account for 56% of the total, followed by other administrative expenses at 35%, and depreciation at 9%.
| OPERATING COSTS (million euro) | Dec-20 | Dec-19 | Var. |
|---|---|---|---|
| Staff expenses | (321.8) | (342.3) | -6.0% |
| Other administrative expenses | (197.6) | (203.2) | -2.7% |
| Depreciation | (52.0) | (49.3) | +5.6% |
| Operating costs | (571.5) | (594.7) | -3.9% |
| Efficiency ratio | 44.8% | 44.9% | -0.1 p.p. |
At the end of 2020, the efficiency ratio decreased by 0.1 percentage points, down from 44.9% to 44.8%, through the 3.8% reduction of net income from banking activities and the 3.9% reduction of operating costs.
The net operating income of €703.4 million decreased 3.8%, compared to the €731.1 million recorded in the same period last year.
Impairment, net provisions and other results amounted to €334.9 million, compared to the €32.9 million from last year.
In 2020, a preventive reinforcement of provisions for credit impairment was made, in order to face potential losses from the non-payment of loans with non-performing exposures, as a result of the pandemic situation, reflecting the incorporation of the forward looking component of the most adverse macroeconomic scenario.
There were also regulatory costs, with the Resolution Fund and with the Banking Sector Contribution in the amount of €70.1 million, higher than the €60.9 million of the previous year.
Income before taxes and non-controlling interests amounted to €368.5 million, 47.2% less than the €698.2 million at the end of the 2019.
Taxes totalled €110.7 million, down by 47% compared to the €208.8 million recorded a year earlier.
At the end of 2020, Banco Santander Totta returned a consolidated net income attributable to the shareholders of BST of €257.7 million, down by 47.3% compared to the sum of €489.5 million in the same period in 2019, reflecting the impact associated with the pandemic crisis
At the end of 2020, the business volume amounted to €86.2 billion, up by 3.7% compared to the amount of €83.2 billion in the same period in 2019, resulting from the 6.8% increase of loans and advances to customers, and of the 0.8% increase of customers' resources.
| BUSINESS VOLUME (million euro) | Dec-20 | Dec-19 | Var. |
|---|---|---|---|
| Business Volume | 86,220 | 83,152 | +3.7% |
| Loans and advances to customers (gross) | 42,681 | 39,978 | +6.8% |
| Customers' Resources | 43,539 | 43,174 | +0.8% |
The transformation ratio, measured as the ratio between loans and deposits, stood at 114.9% in 2020, 5.9 percentage points more than in the same period last year, the result of the growth of loans and advances exceeding that of deposits.
At the end of 2020, the portfolio of loans and advances to customers (gross) totalled €42.7 billion, up by 6.8% compared to the same period last year, reflecting the application of
moratoria to loans for households and businesses, and the production of credit facilities to support the economy within the context of the health crisis.
| LOANS (million euro) | Dec-20 | Dec-19 | Var. |
|---|---|---|---|
| Loans and advances to customers (gross) | 42,681 | 39,978 | +6.8% |
| of which | |||
| Loans to individuals | 22,767 | 21,789 | +4.5% |
| of which | |||
| Mortgage | 20,670 | 19,654 | +5.2% |
| Consumer | 1,680 | 1,707 | -1.5% |
| Loans to corporates | 16,371 | 15,345 | +6.7% |
Loans to individuals totalled €22.8 billion, corresponding to an increase of 4.5%, in year-on-year terms.
Mortgage loans rose by 5.2% to €20.7 billion. Consumer credit fell by 1.5% to €1.7 billion, in an adverse environment of restrictions on activity and mobility.
Corporate loans reached €16.4 billion, an increase of 6.7% over the same period last year, reflecting the support given to the Portuguese business fabric.
The Bank offered moratoria on loans to individuals and companies, complementing the State's moratoria, in order to allow the reduction of the charges on these loans for customers whose income decreased as a result of the adverse effects of the pandemic, as well as agreed credit facilities to support the economy, to free up liquidity for companies to be able to meet their commitments.
At the end of 2020, the Non-Performing Exposure (NPE) ratio, calculated in keeping with the EBA definition, stood at 2.6%, a decrease of 0.6pp over the same period last year. The cover of the Non-Performing Exposure by impairments stood at 66.8% (up by 13.7pp compared to the 53.1% recorded in December
2019). The cost of credit, measured by the net impairment of credit previously written off from assets as a percentage of the average balance of the loan portfolio stood at 0.45%, reflecting the preventive reinforcement of the impairment of the credit to anticipate the effects of the pandemic.
| CREDIT RISK RATIOS | Dec-20 | Dec-19 | Var. |
|---|---|---|---|
| Non-performing exposure Ratio | 2.6% | 3.2% | -0.6 p.p. |
| Non Performing Exposure coverage ratio | 66.8% | 53.1% | +13.7 p.p. |
| Cost of credit | 0.45% | (0.02%) | +0.47 p.p. |
Customer resources totalled €43.5 billion, up by 0.8% compared to the same period in 2019, supported by the evolution of deposits (+ 1.1%), which offset the decrease of off-balance sheet resources (- 0.4%).
| RESOURCES (million euro) |
Dec-20 | Dec-19 | Var. |
|---|---|---|---|
| Customers' resources | 43,539 | 43,174 | +0.8% |
| On-balance sheet resources | 36,270 | 35,873 | +1.1% |
| Deposits | 36,270 | 35,873 | +1.1% |
| Off-balance sheet resources | 7,269 | 7,301 | -0.4% |
| Investment funds marketed by the Bank | 3,252 | 3,066 | +6.1% |
| Insurance and other resources marketed by the Bank | 4,017 | 4,235 | -5.2% |
Deposits amounted to €36.3 billion, up by 1.1% y-o-y, constituting the main source of funding of the balance sheet and reflecting the activity of household consumption, which favoured higher saving rates, and the financial soundness of the Bank, which reinforces the trust of customers in a context of interest rates at historic lows. Customers' off-balance sheet resources stood at €7.3 billion, down by 0.4% over the figure determined in 2019.
Investment funds marketed by the Bank in the amount of €3.3 billion increased by 6.1% over the past year. In turn, insurance and other resources in the amount of € 4.0 billion, dropped by 5.2% year on year.
At the end of 2020, Banco Santander Totta had a high capitalization, with the Common Equity Tier 1 (CET 1) ratio, calculated in accordance with the CRD IV/ CRR IV standards, standing at 20.8% (fully implemented), with an increase of 5.7 percentage points compared to 15.1% a year earlier, thus complying with all the capital ratios required by the European Central Bank under the SREP - Supervisory Review and Evaluation Process).
This evolution reflected the ability for organic generation of capital and management of risk weighted assets. Taking into account the recommendation of the European Central Bank (ECB/2020/19) of March 27, 2020, the Board of Directors of Santander Portugal decided not to distribute dividends in 2020.
| CAPITAL (million euro) | Dec-20 | Dec-19 | Var. |
|---|---|---|---|
| Common Equity Tier 1 | 3,729 | 2,820 | 32.2% |
| Tier 1 Capital | 3,729 | 2,820 | +32.2% |
| Total Capital | 4,138 | 3,228 | +28.2% |
| Risk Weighted Assets (RWA) | 17,954 | 18,681 | -3.9% |
| CET 1 ratio | 20.8% | 15.1% | +5.7 p.p. |
| Tier 1 ratio | 20.8% | 15.1% | +5.7 p.p. |
| Total Capital Ratio | 23.1% | 17.3% | +5.8 p.p. |
There were no relevant events after the close of the period
As mentioned in the chapter "Major Risks and Uncertainties for 2021", the evolution of Santander's activity in Portugal remains associated with the development of the pandemic situation resulting from the COVID-19 disease.
In this adverse scenario, Santander Portugal maintains its strategic lines as already defined, including support for households and businesses, having also support for people as a priority, including employees, customers and general society, in order to mitigate the effects of the pandemic.
The effects of the pandemic on economic activity have to be analysed considering that, within the period of one year, there were two periods of strong restrictions on specific sectors and activities, which reinforced those effects, even taking into account the existence of support measures, which the Government has successively extended.
Thus, the pressure factors on the bank's business still remain, and, consequently, on profitability. The reduction in business necessarily translates into a reduction in revenues, while the uncertainty associated with the economic scenario requires a significant reinforcement of impairments in order to face the greater likelihood of occurrence of situations of default in families and companies.
At this point, the moratoria decrease the risk of default in the short term, but do not eliminate them, especially if the crisis has lasting effects on employment. Given that the moratoria, in the current legal context, will be extinguished throughout the year of 2021, and unemployment already shows an upward trend, the monitoring of credit quality will have to remain throughout the year, so that action can be taken in a timely manner to avoid the materialization of default risks.
Digital channels, whose use had already increased during the first wave of the pandemic, were more widely used, and the Bank reinforced its investment in the ongoing digital transformation, in order to better serve customers, by allowing access to banking services, permanently and at any time.
The Bank will continue to develop its strategy and deepen its transformation, based essentially: i) through scanning and optimization of processes, in particular through greater innovation in digital channels and strengthening the multi-channel distribution model in order to provide a more complete and accessible service to customers; ii) on the simplification of the number of products, while maintaining, however, a complete value proposition that meets the needs of customers; iii) on the increase of market shares and of customer loyalty, by strengthening, among other aspects, our position with SMEs; iv) on strict control over the predictable increase of the cost of credit; and v) by keeping a solid capital position, in line with the new regulatory requirements.
Santander Portugal will also keep focusing on being a Responsible Bank, boosting sustainable and inclusive growth of Society, reducing social and economic inequalities of the population, and supporting, at the same time, the development of the Communities where it is present, which results in the promotion of sustainable consumption through products such as the Santander Sustainable Fund and the financing of renewable energies and green technologies, thus supporting the transition to a low carbon economy.
Risk management and monitoring model
The Bank's risk management and control model is based on a set of common principles, an integrated risk culture across the Santander Group, a strong governance structure, and advanced risk management processes and tools.
The principles of risk management and control are mandatory and must be applied at all times. They take into account regulatory requirements and best market practices. These principles are as follows:
These principles, together with a series of interrelated tools and processes included in the Bank's strategy planning, such as risk appetite, risk profile assessment, scenario analysis and the structure of risk reports, plus budgetary processes, form a holistic control structure for the entire Bank.
The following key risks are established in the Corporate Risk Framework:
Market Risk: it is the risk incurred as a result of the effects that changes in market factors, interest rates, exchange rates, variable income and commodities, among others, may have on income or capital;
Liquidity Risk: it is the risk that the Bank might not have the necessary liquid financial resources to meet its obligations as they fall due, or that can only be obtained at a high cost;
In addition, the elements of climate-related risks – physical and transactional – are identified as factors that may exacerbate existing risks in the medium and long term.
The classification of risks is essential for their effective management and control. All identified risks must therefore be associated with the above mentioned risk categories, in order to organize their management, control and related information.
The Bank has a robust risk management structure that seeks to effectively control its risk profile, in accordance with the appetite defined by the Board of Directors.
This governance structure is based on the distribution of roles between the three lines of defence, a strong committee structure, and a close relationship with the corporation. All of this is supported by a risk culture implemented throughout the Bank - Risk Pro.
The Bank follows a three-pronged model (lines of defence) to ensure effective risk management and control.
| 1 | 2 | 3 |
|---|---|---|
| st line of defence | nd line of defence | rd line of defence |
| The lines of business and all other functions that give rise to risk are the first line of defence. The first line of defence identifies, measures, controls, follows and reports the risks that originate and apply the models, policies and procedures that regulate risk management, ensuring that the risks they generate are in accordance with the approved risk appetite and the corresponding Limits. Any unit that creates a given risk has a responsibility to manage that risk. |
The Risk, Compliance and Conduct areas are the second line of defence. Their role is to independently control and challenge the risk management activities carried out by the first line of defence. These areas ensure that risks are managed according to the risk appetite defined by the Board of Directors, and foster a solid risk culture throughout the organization. |
The Internal Audit function is a permanent function, independent of any other function, whose mission is to provide the Board of Directors and Senior Management with an independent assessment on the quality and effectiveness of internal controls, risk and risk management systems and governance, thus contributing to the protection of the organization's value, its solvency, and its reputation. |
The Risk, Compliance and Conduct and Internal Audit areas are adequately separated and independent, and have direct access to the Board of Directors and to its Committees.
The Board of Directors is responsible for risk management and control and, in particular, for the approval and periodic review of risk appetite and for framing risk, as well as for promoting a strong risk culture throughout the organization. To perform these functions, the Board depends on several Committees with specific risk-related responsibilities.
The Chief Risk Officer(CRO) is responsible for monitoring all risks, and for questioning and advising business lines on risk management. The CRO has direct access to the Board of Directors and to the Executive Committee.
Other bodies that together form the highest level of risk governance, with powers delegated by the Executive Committee, are the Executive Risk Committee and the Risk Control Committee, which are detailed below.
Executive Risk Committee (ERC)
This Committee is the highest body in risk decisionmaking. The Executive Risk Committee takes decisions on risk-taking at the highest level, ensuring that they are within the limits set by the Bank's risk appetite.
Chair: Chairman of the Executive Committee (CEO).
Risk Control Committee (RCC)
The Risk Control Committee is responsible for risk control, determining whether the risks arising from business lines are managed according to the risk appetite limits set by the Bank, taking into account a holistic view of all risks. This involves identifying and monitoring current and emerging risks, and assessing their impact on the Bank's risk profile.
Chair: Chief Risk Officer (CRO).
In addition, each risk factor has its own regular forums and / or committees to manage and control the relevant risks.
With the objective of effectively controlling and managing risk, the Bank has a series of key processes and tools, as described below:
At the Bank, the Risk Appetite (from the acronym RAS - Risk Appetite Statement), is defined as the amount and type of risks that it is considered prudent to accept in the execution of the business strategy so that the Bank can maintain its normal activity in the event of unexpected events. When establishing this appetite, various adverse scenarios that may have a negative impact on the levels of capital, liquidity, profitability and / or share prices are taken into account.
The Board of Directors establishes the risk appetite annually, and it is then transferred to management limits and policies by type of risk, portfolio and business segment, within the defined rules.
The risk appetite is consistent with the risk culture and business model. The main elements that define this business model and support risk appetite are the following:
The risk appetite in all entities belonging to the Santander Group, including Banco Santander Portugal, is governed by the following principles:
its translation into management policies and limits, as well as through the participation of all lines of defence in key appetite processes;
Risk appetite is expressed in qualitative terms and by limits, structured around 5 main axes:
Compliance with risk appetite limits is monitored regularly. The specialized control areas inform the Board of Directors and its Committees on a monthly basis regarding the risk profile.
Linking risk appetite limits to the limits used in managing business units and portfolios is a key element for ensuring the effectiveness of risk appetite as a management tool. Thus, the policies and limits used in management, for the various types and categories of risk, are directly related to the principles and limits defined for risk appetite.
Exercises are carried out to identify and assess the various types of risks to which the Bank is exposed, involving all lines of defence, establishing management standards that comply with regulatory requirements, reflecting the best market practices, and reinforcing the Bank's risk culture.
The results of Risk Identification and Assessment (RIA) exercises are included in the assessment of the Bank's risk profile, known as RPA. This exercise analyses the evolution of risks and identifies areas for improvement in each block:
Another fundamental instrument used by the Bank to ensure robust risk management and control is the analysis of the possible impacts arising from different scenarios related to the environment in which the Bank operates. These scenarios are expressed both in terms of macroeconomic variables, as well as through other variables that affect the Bank's risk profile.
In order to assess the Bank's resistance to stress scenarios, as well as to identify possible mitigation actions to be implemented, should the forecasted scenarios start to materialize. The objective is to reinforce income stability, as well as that of the capital and liquidity levels.
Risk Management in 2020
For Banco Santander Portugal quality in risk management is a fundamental axis of action, in keeping with the corporate policy of the Group to which it belongs. Prudence in risk management combined with the use of advanced management techniques was a decisive factor, in a particularly challenging year, such as in 2020, not only due to the emergence of the pandemic that affected the world, but also due to the continued demand from the financial markets.
The Group's strong risk culture is embedded across the entire activity and structure of the Bank, decisively influencing the way in which all processes are carried out, taking into account not only the environment, but also attitudes, behaviours, values and the principles that each of us demonstrates in the face of the different types of risks we face.
In 2020, the activity of the Credit Risk area was quite demanding, so it had to provide a quick and efficient response to support companies and families, notably:
Santander Portugal was the first bank to offer all customers the possibility of joining moratoria, either for capital and interest or just for capital;
Conclusions / Credit Policies to be adopted: as a result of the previous analysis, guidelines were defined for the Commercial and Risk areas in the future management of credit risk in this sector and with clients.
Customers (private individuals and small companies) whose credit decision is made mostly through decisionmaking models considered as "automatic", have been incorporated in the same factors that help mitigate and anticipate potential future problems arising from the pandemic and after the end of the moratoria.
The basic operating principles with regard to the analysis and granting of credit risk remained unchanged:
of the own-resources requirements, as well as their increasing inclusion in management.
Credit risk is originated by the possibility of specific losses arising from non-fulfilment of all or part of the financial obligations contracted with the Bank by its customers.
The organisation of the credit-risk function at Banco Santander Portugal is specialised in the light of the customer typology, throughout the entire risk-management process, between portfolioed customers (made-to-measure or personalised treatment), and standardised or masstreatment customers (not portfolioed).
Portfolioed customers are those that, fundamentally due to their level of risk, are assigned a risk analyst. This group includes Wholesale Banking Companies, Financial Institutions and some of the Retail Banking companies. The assessment of these customers' risk is performed by the analyst, supplemented with decision-support tools based on in-house risk-assessment models.
Standardised customers are those that do not have an assigned risk analyst specifically designated to monitor them. This group includes Private customers, Individual Entrepreneurs and non-portfolioed Retail Banking companies. Assessment of these risks is based on in-house valuation and automatic decision-making models, complemented by specialised risk-analyst teams in a subsidiary manner when the model is not sufficiently precise.
The Santander Bank uses its own in-house classification or ratings for the different customer segments to measure the credit quality of a customer or transaction, each rating or scoring corresponding to a likelihood of default.
The overall classification tools are applied to the countryrisk, financial institutions and Global Wholesale Banking segments, both in determining their rating and in monitoring the risks assumed. These tools assign a certain rating to each customer as a result of a quantitative or automatic module, based on data/balance sheet ratios or macroeconomic variables, complemented by the analysis performed by the risks analyst assigned to monitor the customer.
In the case of retail banking companies and institutions, the assignment of a rating is based on the modules referred to above, in this case quantitative or automatic (analysing the borrowing behaviour of a sample of customers and its correlation with a set of data and accounting ratios) and qualitative, entrusted to a risk analyst for conducting the analysis, who is obliged to perform a final review of the rating assigned.
The ratings assigned are reviewed periodically, incorporating new financial information that comes to be available, as well as, at qualitative level, the experience
arising from assessment of the existing loan relationship. This frequency increases in the case of customers for whom the internal risk alert and classification systems so require.
For the standardised-risk portfolios, both of Private individuals and of not-portfolioed businesses, scoring tools and decision-making models are implemented, which automatically assign an assessment/decision of the transactions presented. These decision tools are complemented with a behavioural scoring model, an instrument that allows greater predictability of the risks assumed and are used both for pre-sale and for sale.
Customer and/or transaction evaluation by rating or scoring constitutes an assessment of the creditworthiness, which is quantified by the probability of default (PD). In addition to the evaluation of the customer, the quantitative risk analysis considers other aspects such as the term of the transaction, the type of product and the existing collateral. What is thus taken into account is not just the likelihood that the customer may not fulfil its contractual obligations (PD) but that the exposure at default (EAD) may be estimated as well as the percentage of the EAD that may not be recovered (loss given default or LGD).
These are the factors (PD, LGD and EAD) that constitute the main credit-risk parameters, and, taken jointly, allow a calculation of the expected loss and the unexpected loss. The expected (or likely) loss is considered an additional activity cost (reflecting the risk premium), and this cost is appropriately reflected in the price of the operations; and the unexpected loss, which is the basis of the calculation of regulatory capital under the rules the Basel capital accord (BIS II). This unexpected loss is in respect of a very large, though rather unlikely loss that, given its nature, is not considered recurrent and must therefore be duly covered by own funds.
In small and medium enterprises, the balance-sheet information serves not only to assign the rating, but also to obtain explanatory factors of the likelihood of default. In retail portfolios, the PD is calculated by observing the entries into default, correlating them with the scoring assigned to the transactions. Excepted are portfolios in which, as a result of lesser in-house default experience, such as Financial Institutions, country risk, or Global Wholesale Banking, the calculation of these parameters is performed on the basis of alternative sources of information, such as market prices or studies by agencies of recognised experience and expertise with a portfolio of a sufficient number of entities (these are designated as lowdefault portfolio).
LGD calculation is based on the observation of the process of recovery of defaulting transactions, taking into account not only the revenues and costs associated with this process, but also the moment they are produced and the indirect costs arising from the recovery activity.
The EAD estimate is based on the comparison of the use of the compromised credit facilities at the time of default and in a normal situation, in order to identify the real consumption of the credit facilities at the time of default.
The estimated parameters are immediately assigned to transactions that are in a normal situation, and are differentiated for low default portfolios and for the others.
The risk-management process consists of identifying, measuring, analysing, controlling, negotiating and deciding on the risks incurred by the Bank's operations.
This process begins in the business areas, which propose a certain propensity to risk. These risks are analysed by special committees, which act under powers delegated by the Executive Committee on the Executive Risk Committee (ERC). The ERC establishes the risk policies and procedures and determines the limits and delegation of powers.
Establishing risk limits is conceived as a dynamic process that identifies the risk profiles that the Bank is willing to assume through the assessment of the business proposals and the opinion of the Risks area.
At the level of large corporate groups, a pre-classification model is used, a model based on an economic capital measurement and monitoring system.
At the level of the portfolioed risks, the most basic level is that of customer and when certain characteristics are involved – usually a level of relative importance – it is subjected to an individual limit, usually called preclassification, through a more simplified system and usually for those customers who meet certain requirements (good knowledge and rating, etc.).
At the level of standardised risks, the planning and limit setting process is undertaken by means of joint preparation, by the Risks and Business and Strategic Commercial Plans (SCP) areas, where the expected results of the deal in terms of risk and profitability are reflected, as are the limits to which the activity, the management of the associated risks, and the means of support required must be subjected.
Studying the risk involved is a prerequisite for authorising any credit operation at Banco Santander Portugal. This study consists of analysing the customer's ability to fulfil its contractual obligations towards the Bank, entailing the credit quality of the customer, its credit operations, its solvency and profitability. Additionally, a study and review are conducted of the valuation assigned when there is an alert or event that affects the customer/transaction.
The purpose of the transactions-decision process is their analysis and decision, taking into account the risk profile and the relevant elements of the transaction in the definition of a balance between risk and profitability.
In order to maintain adequate quality control over the loan portfolio, in addition to the actions carried out by Internal Audit, there is a specific monitoring function within the Risks area, comprising teams and their heads. This function is also specialised in the light of customer segmentation and is fundamentally based on a continuous process of observation, allowing advance detection of possible occurrences in the evolution of the risk, of the transaction, and of the customer, for the purpose of implementing measures, in advance, to mitigate them.
Recoveries management at Santander Portugal is a strategic, comprehensive and business activity. The specific objectives of the recoveries process are the following:
Recoveries activity is structured in keeping with the commercial segmentation of customers: Private Individuals, Businesses and Companies, with specific management models. The management of recoveries, so segmented, also respects the different management stages: preventive management, management of irregularities, and management of non-performing loans and bankruptcies, each of which has specific models, strategies and circuits. All this activity is shared with the business areas.
In May 2020, the Bank initiated the development of an End to End transformation project, called "Collections and Recoveries", which aims at the massive management of (non-portfolioed) clients, through the development of strategies, procedures and commercial offers in an omnichannel environment (differentiated communication channels according to the type of client), constituting an advanced approach, to help manage any impacts after the end of the moratoria in this segment of private clients and micro and small companies.
Counterparty risk, latent in contracts entered into in financial markets – organised or over-the counter (OTC) markets – consists of the possibility of default by the counterparties of the contracted terms, and subsequent occurrence of financial losses for the institution.
The types of transactions involved include the purchase and sale of securities, interbank money market transactions, contracting repos, loans of securities and derivative instruments.
Control of these risks is performed through an integrated system that allows approved limits to be recorded, and provides information as to their availability for the various products and maturities. The same system also allows transverse control of the concentration of risks by certain groups of customers/counterparties.
The risk in derivative positions, called Credit Risk Equivalent (CRE), is calculated as the sum of the Present Value of each contract (or current replacement cost) with the respective potential risk, a component that reflects an estimate of the maximum amount expected to maturity, depending on the volatilities of the underlying market factors and contracted flow structure.
During 2020 current exposure of the transactions on interest-rate indexes (Euribor) decreased sharply, reflecting the evolution of medium- and long-term market rates. With regard to exposure to Financial Groups, structural interestrate risk hedging transactions were maintained, having the LCH Clearnet as clearing house. BANIF's securitization operations were maintained. The amount of exposure of derivatives with the Financial Groups dropped significantly due to the increase of the risk coefficient of the long-term interest-rate operations.
This chapter focuses on risk management and control activities related to market risk, distinguishing trading activity, structural risks and liquidity risks. The main methodologies and metrics used by Santander Portugal for this purpose are also briefly described.
The scope of activities subject to market risk includes the operations where equity risk is assumed as a result of possible changes in market factors (interest rate, exchange rate, variable income and credit spread, among others), as well as the liquidity risk of the various products and markets in which the Group operates and the liquidity risk of the balance sheet.
It includes the risks of trading activity and structural risks, both affected by the movements of the markets.
The measurement and control of these risks are carried out by an independent management body.
The risks of trading activities arise from financial service activities for customers with non-complex instruments, focusing on hedging of exchange-rate and interest-rate risks. Transactions with customers are hedged with the market, so as to ensure a residual exposure to this type of risk.
The methodology applied in 2020 within the scope of Bank Santander Portugal for the negotiation activity is the Value at Risk (VaR). Used as the basis is the historic simulation methodology with a 99% confidence level and a one-day time horizon, statistical adjustments were applied that allow swift and effective inclusion of more recent events that condition the risk levels assumed.
Additionally, stress testing is used, which consists of defining the behavioural scenarios of differing financial variables and obtaining the respective impact on net income when applying them to the portfolios. These scenarios can replicate the behaviour of financial variables in the light of past events (such as crises) or, on the contrary, plausible scenarios can be determined that do not correspond to past events. In short, scenario analysis seeks to identify the potential risk under extreme market conditions and in the fringes of probability of occurrence not covered by the VaR.
Several sensitivity measures (BPV and Greeks), and equivalent volumes are also calculated
In parallel, there is daily monitoring of the positions and of the income statement, which includes credit valuation adjustment (CVA) and debit valuation adjustment (DVA).
The reliability of the VaR model is assessed periodically through a backtesting analysis. Backtesting is a comparative analysis between the calculations of the Value at Risk (VaR) and the daily "clean" results (clean P&L - result associated with the revaluation of the closing portfolios of the previous day at the closing prices of the next day), where the specific/sporadic deviations of the results found, compared to the estimated measurements, are analysed.
The backtesting analyses performed at the bank comply with the BIS recommendations as regards comparison of the internal systems used in the measurement and management of the financial risks. Additionally, hypotheses tests are carried out in backtesting: excess tests, normality tests, average excess measurements, among others.
Quantitative limits are used for the trading portfolios, which are classified into two groups established in the light of the following objectives:
The VaR remained at very low levels, standing at €8,000 euros on Dec. 31, 2020.
Control of the structural risk of the balance-sheet is directed at the interest-rate risk and the liquidity risk.
The interest-rate risk arises from mismatches between maturities, the repricing of assets and liabilities, and the impact that adverse movements in interest rates may have on the Bank's economic value or net interest income.
The liquidity risk is the risk that the Bank will not have the net financial resources required to meet its obligations when due or that it may incur in excessive costs to meet such obligations.
The interest rate risk in the consolidated balance sheet is measured through modelling the items in assets and liabilities sensitive to interest-rate variations in accordance with their indexing and re-appraisal structure. This model allows the measurement and control of the risk originating directly from the movement of the income curve, particularly its impact on net interest income and on the Bank's equity.
Additionally, other risk indicators are calculated, such as value at risk (VaR) and scenario analysis (stress test).
The liquidity risk is measured and controlled through the modelling of present and future flows of payments and receipts, as well as by conducting stress tests that seek to identify the potential risk under extreme market conditions. In parallel, ratios are estimated on the current items of the balance sheet that act as indicators of structural and shortterm liquidity requirements as well as intraday liquidity indicators in normal and stress situations.
The Liquidity Coverage Ratio (LCR) calculated in accordance with ECB rules stood at 122% on Dec. 31, 2020.
Control of the balance-sheet risks is ensured by applying a structure of quantitative limits that aim to keep exposures within the authorised levels. The limits focus on the following indicators:
Banco Santander Portugal defines operational risk as the risk of loss arising from shortcomings or errors in internal processes, human resources or internal systems, or derived from external circumstances.
Operational risk is inherent in all products, activities, processes and systems and is generated in the business and support areas. Thus, all employees are responsible for managing and controlling the operational risks generated within the scope of their activity.
The main objective in the matter of operational risk control and management is the identification, evaluation, measurement, control, mitigation and reporting of that risk, while the identification and mitigation of the sources of risk constitute a priority for the Bank regardless of whether they have given rise to actual losses or not.
For the purpose of calculation of own-funds requirements, and in the matter of hedging the operational risk, the Group opted for the Standard Method laid down in the BIS II rules.
The organisational model of Santander Portugal results from the Group's adaptation to the Basel II approach.
Supervision and control of operational risk is carried out through its governing bodies. In this regard, the Board of Directors and the Executive Committee periodically include in their management, the treatment of relevant aspects in the management and mitigation of Operational Risk.
The operational risk function is structured according to three lines of defence.
The first line of defence therefore consists of all the business units and support functions, and is responsible for the operational risk originated in their areas, the main function of which is the identification, evaluation, monitoring, mitigation and reporting of this risk.
The second line of defence comprises the area that controls Operational Risk, and it is responsible, on the one hand, for supervising effective control of the operational risk in its various aspects, and, on the other, for assessing whether it is managed as defined and has due regard for the tolerance levels established for the purpose.
The second line of defence is an independent function and complements the first-line management and control functions.
The third line of defence consists of Internal Audit, an independent body with control functions that periodically evaluates whether the policies, methodologies and procedures are properly implemented.
The various stages of the management and control model allow:
Make periodic operational risk presentations and reports, and disclose them to the various management and supervision bodies (internal and external).
The operational-risk control model implemented provides us with the following benefits:
As regards the identification, measurement and assessment of operational risk, several quantitative and qualitative instruments were defined, which together facilitate diagnoses in the field of operational risk and rating/ evaluation of the various areas regarding management of their own risk.
Quantitative analysis is mainly conducted through instruments that record and quantify the potential level of losses associated with operational-risk events, in particular:
The qualitative analysis allows an assessment of aspects related with the risk profile. The instruments used are mostly the following:
which provide useful information on risk exposure. These indicators and respective limits are reviewed periodically to warn about changes that might anticipate the materialisation of major risks;
Recommendations from internal and external audit and regulators that provide relevant information on risk, allowing identification of possible weaknesses and improvement measures.
The Bank also develops specific supervisory and control models in terms of technological and cyber risk management in order to ensure the adequate follow-up of the Bank's information systems and the reinforcement of cyber protection. Nevertheless, the principle is one of standardisation and, therefore, the models are perfectly aligned with the tools and with the operational-risk management instruments previously mentioned.
Additionally, there is also a set of various tools that complete and ensure a solid control environment, in particular:
The Bank implemented an advanced operational-risk management programme, with the main objectives of involving all employees and management bodies in the control and mitigation of operational risk. The implementation and disclosure of the Bank's risk culture allow more efficient evaluation and monitoring of the operational risk and simplify decision-making by the business areas and Management.
As in previous years, the Bank continues to act to improve the efficiency of its operational-risk management tools, including a specific application that is used by the first lines of defence and the various control areas. It is an integrated tool that enables synergies to be generated among the different areas, and fosters the use of common risk assessment and control methodologies. This application also incorporates the database of events, the control system, the metrics / indicators, and the institution's action / risk mitigation plans.
Compliance risk is defined as the likelihood of occurrence of negative impacts for the institution, with projection on net income or share capital, arising from infringement of legal rules, specific determinations, contractual obligations, rules of conduct and relationships with customers, ethical principles and established practices concerning the business carried out, which give rise, in particular, to sanctions of a legal or regulatory nature, impairment of business opportunities, reduction of the potential for expansion or inability to demand
fulfilment of contractual obligations by third parties.
In turn, Reputational Risk is understood to be the likelihood of occurrence of negative financial impacts for the Institution, reflected in net income or share capital, resulting from an unfavourable perception of its public image, reasoned or not, by customers, suppliers, analysts, employees, investors, the media and any other entities with which the institution is related, or by public opinion in general.
The purpose of the Compliance and Reputational Risk policies is their management, as defined in the preceding paragraphs, determining the mechanisms and procedures that: i) allow minimisation of the likelihood of materialisation; ii) identification, reporting to the Board and overcoming situations that may have arisen; iii) ensure monitoring and control; and iv) show, if necessary, that these risks are among the Bank's main concerns, and that it has the organisation and means to prevent, detect, and, where appropriate, overcome them.
Without prejudice to all other aspects arising from what has been exposed, the Global Policy on Compliance Risk, as well as the Policy on Reputational Risk, cover, namely, the instruments identified in the list below, which are referred to by their particular impact in risk prevention and management.
Compliance Risk policies and instruments
social, political or cultural repercussions, establishing the guidelines to assess and decide on the involvement with these same sectors, in order to be able to identify and prevent the associated reputation risk);
Defence Policy (setting the criteria to be followed in financial activity related with this sector and providing an analysis procedure for all operations and customers covered in the sector).
Apart from the Compliance Risk and the Reputation Risk, the Bank also has a separate Sustainability and Responsible Banking area, in which other policies stand out, such as the General Sustainability Policy, the Human Rights Policy, the Corporate Culture Policy and the Social Purposes Contributions
In this connection mention should also be made to the social and environmental sectoral policies (energy, mines and mining sector, and soft commodities), which are monitored by the Risk area, and define the criteria to be followed in all financial activities related to these sectors.
The Net Income for the Year, in separate terms and regarding the year 2020, amounted to €275,209,923.92 (two hundred and seventy-five million, two hundred and nine thousand, nine hundred and twenty-three Euro and ninety-two cents) and the consolidated Net Income for the Year, in 2020, amounted to €257,749,132 (two hundred and fifty-seven million, seven hundred and forty-nine thousand, one hundred and thirty-two Euros).
Thus, the Board of Directors proposes to the General Meeting the following appropriation of profits:
Taking into account the recommendation of the European Central Bank of December 15, 2020, the Board of Directors proposes not to distribute dividends.
Lisbon, April 20, 2021
THE BOARD OF DIRECTORS
Bank Santander Portugal's compliance function in terms of antimoney laundering and combating the financing of terrorism (AML/CFT) is embodied in the AML/CFT area, integrated in the Compliance and Conduct area, which materializes the compliance function and that works independently and permanently.
The main objective of the AML/CFT area is to manage compliance risks related to money laundering, to the financing of terrorism and sanctions, ensuring that the activity is carried out in accordance with all applicable regulations, in order to prevent and minimize damage, namely due to possible sanctions, as well as reputational damages. For this purpose, in addition to a specialized, exclusively dedicated organic structure, there are internal regulations and specific procedures and controls in place, incorporating the internal control system in the area of AML/CFT, which is subject to an annual audit.
The AML/CFT area has functional autonomy and reports to the Chief Compliance Officer.
The Head of the PBCFT area acts as the "Head of Regulatory Compliance" in this matter, being responsible for:
The Chief Compliance Officer is responsible, in particular, for coordinating the AML/CFT area and for assessing the situations submitted to him by the Head of Regulatory Compliance.
In 2020, the following reports were made to Supervisors:
| Shareholder | Nº of shares | % |
|---|---|---|
| Santander Totta, SGPS, S.A. | 1,241,179,513 | 98.76% |
| Taxagest - SGPS, S.A. | 14,593,315 | 1.16% |
In keeping with the resolution passed by the Annual General Meeting held on May 26, 2020, Banco Santander Totta, SA, may directly or through a dependent company, acquire treasury shares as well as sell those purchased up to the limit and under the other conditions set by law.
Taking into account European Central Bank recommendation (ECB/2020/19) of March 27, 2020, the purchase of treasury shares is suspended until this recommendation has lapsed.
On December 31, 2019, Banco Santander Totta, S. A., held 417.583 treasury shares corresponding to 0.033% of its share capital. In 2020, Banco Santander Totta S. A. did not buy own shares. The movement presented had to do with the cancellation of a share purchase, in January 2020, at the instance of the customer.
| Number of shares | Average unit price (€) | Book value (€) | % of share capital | |
|---|---|---|---|---|
| 31/12/2019 | 417,583 | 5.23 | 2,181,972 | 0.033% |
| Purchases | 0 | - | - | - |
| Disposals | 1,058 | 4.04 | 4,273 | 0.000% |
| 31/12/2020 | 416,525 | 5.23 | 2,177,699 | 0.033% |
| Entity | Position at 31/Dec/2019 |
Transactions in 2020 | Position at 31/Dec/2020 |
||
|---|---|---|---|---|---|
| José Carlos Brito Sítima | Banco Santander, SA | 125,293 | 20.02.2020 - shares deposit (corporate allocation): 15,171 - 3,91€ | 146,571 | |
| 10.12.2020 - shares received as dividends: 6,107 | |||||
| Pedro Aires Coruche Castro e Almeida | Banco Santander, SA | 62,219 | 20.02.2020 - shares deposit (corporate allocation): 43,366 - 3,91€ | ||
| 10.12.2020 - shares received as dividends: 4,590 | 110,175 | ||||
| Amilcar da Silva Lourenço | 20.02.2020 - shares deposit (corporate allocation): 15,458 - 3,91€ | ||||
| Banco Santander, SA | 27,397 | 10.12.2020: sale: 5,000 - 2,61€ | 37,855 | ||
| Ana Isabel Abranches Pereira de Carvalho Morais | - | 0 | - | 0 | |
| Andreu Plaza Lopez | Banco Santander, SA | 199,357 | 13.02.2020 - shares deposit (corporate allocation): 41,706 - 3,90€ | 241,063 | |
| Daniel Abel Monteiro Palhares Traça | - | 0 | - | 0 | |
| Inês Oom Ferreira de Sousa | 20.02.2020 - shares deposit (corporate allocation): 21,847 - 3,91€ | 45,042 | |||
| Banco Santander, SA | 21,319 | 11.12.2020 - shares received as dividends: 1,876 | |||
| Isabel Cristina da Silva Guerreiro | 17,651 | 20.02.2020 - shares deposit (corporate allocation): 16,477 - 3,91€ | 35,611 | ||
| Banco Santander, SA | 11.12.2020 - shares received as dividends: 1,483 | ||||
| Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota | - | 0 | - | 0 | |
| Manuel António Amaral Franco Preto | 20.02.2020 - shares deposit (corporate allocation): 40,335 - 3,91€ | ||||
| Banco Santander, SA | 151,133 | 10.12.2020 - shares received as dividends: 8,324 | 199,792 | ||
| Manuel de Olazábal y Albuquerque | - | 0 | - | 0 | |
| Maria Manuela Machado Farelo Ataíde Marques | - | 0 | - | 0 | |
| Miguel Belo de Carvalho | 14.02.2020 - Sale: 20,000 - 3,93€ | ||||
| Banco Santander, SA | 40,826 | 20.02.2020 - shares deposit (corporate allocation): 23,283 - 3,91€ | 46,026 | ||
| 10.12.2020 - shares received as dividends: 1,917 | |||||
| Remedios Ruiz Maciá | Banco Santander, SA | 66,479 | 13.02.2020 - shares deposit (corporate allocation): 19,320 - 3,91€ | 85,799 |
| Within the consolidation perimeter | Outside the consolidation perimeter | |
|---|---|---|
| José Carlos Brito Sítima | Santander Totta SGPS (Chairman of the Board of Directors | Portal Universia Portugal – Prestação de Serviços |
| NE) | Informáticos, S.A. (Chairman General Meeting); Câmara | |
| Comércio Luso Espanhola (Deputy Chairman) | ||
| Pedro Aires Coruche Castro e Almeida | Santander Totta SGPS (Deputy-Chairman of the Board of | ACEGE (Strategy Council Memeber); Centro Paroquial São |
| Directors; Chairman of the ExCo CEO) | Francisco de Paula (NE Director); ISEG (Advisory Council | |
| Member); Fundação Alfredo de Sousa (Board of Trusttees | ||
| Member) | ||
| Amilcar da Silva Lourenço | - | - |
| Ana Isabel Abranches Pereira de Carvalho Morais | - | Instituto Superior de Economia e Gestão (Associate Dean); |
| EPAL, Empresa Portuguesa das Águas Livres (Chairwoman of | ||
| the Supervisory Board); Águas do Vale do Tejo, S.A. | ||
| (Chairwoman of the Supervisory Board) | ||
| Andreu Plaza Lopez | - | Santander Consumer Finance (NE Board Member); Banco |
| Santander, SA (Uruguay - NE Board Member) | ||
| Daniel Abel Monteiro Palhares Traça | - | Nova School of Business and Economics (Dean); Cascais Invest |
| - Agência para a Promoção e Desenvolvimento Económico de | ||
| Cascais (NE Board Member) | ||
| Inês Oom Ferreira de Sousa | - | Portal Universia Portugal – Prestação de Serviços |
| Informáticos, S.A. (Non-Executive Chairman); SIBS- FPS, SA (NE | ||
| Board Member); SIBS SGPS, SA (NE Board Member); Unicre - | ||
| Instituição Financeira de Crédito S.A. (NE Board Member); | ||
| Associação EPIS - Empresários pela Inclusão Social (Advisory | ||
| Council Member); Associação GRACE – Grupo de Reflexão e | ||
| Apoio à Cidadania Empresarial (Advisory Council Member) | ||
| Isabel Cristina da Silva Guerreiro | - | Santander Bank Polska, S.A. (Supervisory Board Member NE) |
| Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota | - | Fundação Calouste Gulbenkian (Chairwoman); Member of various non-profit entities |
| Manuel António Amaral Franco Preto | Santander Totta SGPS (Board Member; ExCo Member); | - |
| Taxagest (Chairman) | ||
| Manuel Maria de Olazábal Albuquerque | - | Fulham Consulting S.L. (NE Board Member) |
| Maria Manuela Machado Farelo Ataíde Marques | - | Católica Lisbon School of Business & Economics, Catholic |
| University of Portugal (Assistant Professor); Gerefinança - | ||
| Consultores de Gestão, Lda (Manager); European Money | ||
| Markets Institute (NE Board Member Supervisory and Risk | ||
| Board Member) | ||
| Miguel Belo de Carvalho | - | Fundação Económicas - Fundação Para o Desenvolvimento |
| das Ciências Económicas, Financeiras e Empresariais (Board | ||
| Member NE) | ||
| Remedios Ruiz Maciá | Banco Santander SA (Global Head EWRM) | UCI SA (NE Board Member); Tresmares Capital Corporate SL |
| (NE Board Member) |
A set of Alternative Performance Indicators (API) used in the Management Report is presented, prepared in accordance with guidelines issued by ESMA (European Securities and Markets Authority) on October 5, 2015 (ESMA/2015/1415pt).
For management analysis the Bank uses a set of indicators to measure profitability, efficiency and turnover dynamics. Most of these indicators are derived from the financial information disclosed in accordance with the accounting standards in force (IFRS information), but others are calculated using management information (MIS information), not directly relatable to the IFRS information. Similarly, some indicators might be calculated by correcting non-recurrent movements, aiming to translate the underlying dynamics of the Bank's business, profitability and efficiency.
The indicators are detailed hereunder with reference, as far as possible, to the IFRS information.
"Interest income" less "Interest expenses", as presented in the Statement of Profit or Loss.
"Dividend income", as presented in the Statement of Profit or Loss.
"Investments in subsidiaries, joint ventures and associates accounted for using other than equity method," as presented in the Statement of Profit or Loss.
"Fee and commission income" less "Fee and commission expenses", as presented in the Statement of Profit or Loss.
"Other operating income" less "Other operating expenses," as presented in the Statement of Profit or Loss.
Sum of "Net interest income", "Income from equity instruments", "Results from associates", "Net fees", and "Other operating results".
Sum of "Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net" plus "Gains or losses on financial assets and liabilities, held for trading, net" plus "Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss, net" plus "Exchange differences, net", plus "Gains or losses on derecognition of non-financial assets, net" as presented in the Statement of Profit or Loss.
Commercial revenue plus gain/losses on financial assets.
Sum of "Staff expenses" plus "Other administrative expenses" plus "Depreciation" as presented in the Statement of Profit or Loss.
"Net income from banking activities" minus "Operating costs".
Sum of "provisions or reversal of provisions" plus "impairment or reversal of impairment of financial assets not measured at fair value through profit or loss" plus "impairment or reversal of impairment of non-financial assets" plus "other profit or loss, net" plus "profit or loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations" plus "cash contributions to resolution funds and deposit guarantee schemes" as presented in the Income Statement.
"Profit or loss before tax from continuing operations", as presented in the Statement of Profit or Loss.
"Tax expense or income related to profit or loss from continuing operations", as presented in the Statement of Profit or Loss.
"Profit or loss for the year", as presented in the Statement of Profit or Loss .
"Profit or loss for the year - attributable to minority interest [non-controlling interests]", as presented in the Statement of Profit or Loss.
""Profit or loss for the year – attributable to owners of the parent", as presented in the Statement of Profit or Loss.
Ratio between "operating costs" and "net income from banking activities".
Calculated in accordance with Bank of Portugal Instruction 23/2011.
Sum of "loans and advances to customers (gross)" and "customers' resources".
Corresponds to the sum of the following balance sheet statement items: "Financial assets at fair value through other comprehensive income - Loans and advances" plus "Financial assets at amortised cost - debt securities" plus "Financial assets at amortised cost - Loans and advances" excluding "Loans and advances-customers - Other balances receivable", "Loans and advances - credit institutions", "Impairment of debt securities" and "Impairment of loans and advances", as set out in note 9 of the chapter "Notes to the Consolidated Financial Statements".
Loans and advances to customers (gross), net of impairments. Impairments correspond to the sum of "Impairment of debt securities" plus "Impairments of loans and advances - customers and other balances receivable", as set out in note 9 of the chapter "Notes to the Consolidated Financial Statements".
Defined in accordance with the Management Information System (MIS).
Non-performing exposure (NPE), defined in accordance with the document "Guidance to banks on non-productive loans" of the European Central Bank (March 2017), as a ratio of total exposure, including off-balance sheet items.
Ratio between "Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss" (from the Statement of Profit or Loss) and the average of " loans and advances to customers (gross)" (from the balance sheet statement).
Impairments of non-performing exposures in relation to total non-performing exposures (NPE).
Corresponds to the item "Deposits-Customers" , as set out in note 16 of the chapter "Notes to the Consolidated Financial Statements".
Sum of investment funds, insurance and other resources marketed by the Bank, which information is obtained through Santander Asset Management and/or the Management Information System (MIS).
Sum of "Deposits" and "off-balance sheet resources".
The LCR (liquidity coverage ratio), in accordance with article 412(1) of Regulation (EU) No. 575/2013, shall be equal to the ratio of the liquidity reserve of a credit institution and its net liquidity outflows during a 30-calendar day stress period.
Ratio between "Profit or loss for the year – attributable to owners of the parent" and "Total equity" at the beginning of the period, as presented in the balance sheet statement.
Ratio between net income and net assets.
Please be advised that the Bank prepared a Responsible Banking Report separate from the Management Report, which includes nonfinancial information, as provided for in article 66-B of the Commercial Companies Code, and it was published on the internet site of the Santander Totta Group by the legal deadline.
With this Corporate Governance Report for the year 2020, the Bank complies with the duty to provide annual information on the corporate governance structure and practices in accordance with Article 70.2 sub-paragraph b) of the Commercial Companies Code (CCC) and Article 245-A of the Securities Code.
In preparing this report, the various regulations and guidelines of the competent regulatory and supervisory entities were also taken into account.
In 2020, there was a change in the composition of the members of the Board of Directors and of the respective Risk Committee, Remuneration Committee, and Appointment Committee, due to the death, on March 18, 2020, of the Chairman of the Board of Directors, Hon. Mr. António José Sacadura Vieira Monteiro.
Once the authorization and registration process with the European Central Bank was completed, the Hon. Mr. José Carlos Sítima took office, on May 15, 2020, as the Chairman of the Board of Directors and ceased to be a member of the Risk Committee, of the Remuneration Committee and of the Appointment Committee.
As of the date of this Report, the Bank's Share Capital is € 1,256,723,284, corresponding to one billion, two hundred and fifty-six million, seven hundred and twenty-three thousand, two hundred and eighty-four common shares, with a par value of one euro.
The Bank's Share Capital is 99.848% held by Banco Santander Totta SGPS, S. A., which is directly controlled by Banco Santander, S. A., which holds a 99.85% stake.
Of the remaining Share Capital of the Bank, 1.161% belongs to the company Taxagest - Sociedade Gestora de Participações Sociais, S. A., a company also under the direct or indirect full control of the companies Santander Totta, SGPS, S. A. and Banco Santander, S. A.
Of the remaining capital, 0.0432% is spread over several shareholders, and 0.032% corresponds to own shares of Banco Santander Totta, S.A.
The shares representing the Share Capital are all of the same type and category, granting equal rights to the respective holders, including the right to vote and share in profits.
Consequently, there are no privileged shares of any kind. Likewise, there are no restrictions of any kind on the transfer of shares, which is totally free.
There is no established system of employee participation in the Company's share capital.
The Company is not aware of any shareholder agreement entered into between shareholders.
Under statutory terms, each share is awarded one vote
In order for shareholders to have the right to take part in the General Meeting they must prove to the Chairman of the Board of the General Meeting, up to 10 days before the scheduled date, the registration or deposit of shares in financial intermediaries by the fifteenth day prior to the date of the General Meeting.
No agreements are established by the Company whose entry into force is dependent on changes in the Bank's shareholder composition or which are altered or cease as a result thereof.
Within the scope of the normal performance of banking business, in its various components, there are, however, contracts that give the counterparty the right to resolve them in the event of a change in the Bank's share control, in line with what is the common in banking business.
On the other hand, there are no agreements that give the holders of the Board of Directors the right to compensation with the termination of the bond that connects them to the Institution as a result of their own initiative, due to removal or dismissal for justified reasons, or if it occurs following a takeover bid.
The indication of the number of shares and bonds held by members of the management and supervisory bodies is in the "Complementary Information" chapter of the Management Report.
The Company is organically structured in the manner provided for in Art. 278(1) sub-paragraph a) of the Commercial Companies Code.
No powers are conferred on the Board of Directors to decide increases of the Company's share capital.
The Audit Committee is composed exclusively of non-executive members.
The Board of Directors, pursuant to the provisions of Article 16 of the Articles of Association, has delegated the day-to-day management of the Bank to an Executive Committee.
And under the terms of Article 17 of the Articles of Association, it has also appointed three other specialized committees to permanently monitor specific matters: the Risk Committee, the Remuneration Committee, and the Appointment Committee.
To assist the Executive Committee, several Committees and subcommittees have been appointed which, in addition to one or two directors, also include the Bank's first-line reporting officers.
The mandates of the governing bodies have an ordinary term of three years.
| Chair: | José Manuel Galvão Teles |
|---|---|
| Deputy-Chair: | António Maria Pinto Leite |
| Secretary | Company Secretary |
| BOARD OF DIRECTORS | |
| Chair: | José Carlos Brito Sítima |
| Deputy-Chair: | Pedro Aires Coruche Castro e Almeida |
| Members: | Amílcar da Silva Lourenço |
| Ana Isabel Abranches Pereira de Carvalho Morais | |
| Andreu Plaza Lopez | |
| Daniel Abel Monteiro Palhares Traça | |
| Inês Oom Ferreira de Sousa | |
| Isabel Cristina da Silva Guerreiro | |
| Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota (1) | |
| Manuel António Amaral Franco Preto | |
| Manuel Maria de Olazábal Albuquerque | |
| Maria Manuela Machado Costa Farelo Ataíde Marques | |
| Miguel Belo de Carvalho | |
| Remedios Ruiz Macia | |
| AUDIT COMMITTEE | |
| Chair: | Ana Isabel Abranches Pereira de Carvalho Morais |
| Members: | Daniel Abel Monteiro Palhares Traça |
| Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota | |
| Manuel Maria de Olazábal Albuquerque | |
| Maria Manuela Machado Costa Farelo Ataíde Marques | |
(1) Lead Independent Director
| PricewaterhouseCoopers & Associados, SROC, LDA., | |
|---|---|
| represented by Aurélio Adriano Rangel Amado | |
| EXECUTIVE COMMITTEE | |
| Chair: | Pedro Aires Coruche Castro e Almeida |
| Deputy-Chair: | Manuel António Amaral Franco Preto |
| Members: | Amílcar da Silva Lourenço |
| Inês Oom Ferreira de Sousa | |
| Isabel Cristina da Silva Guerreiro | |
| Miguel Belo de Carvalho | |
| RISK COMMITTEE | |
| Chair: | Manuel Maria de Olazábal Albuquerque |
| Members: | Daniel Abel Monteiro Palhares Traça |
| Maria Manuela Machado Costa Farelo Ataíde Marques | |
| Remedios Ruiz Macia | |
| REMUNERATION COMMITTEE | |
| Chair: | Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota |
| Members: | Daniel Abel Monteiro Palhares Traça |
| Manuel Maria de Olazábal Albuquerque | |
| Maria Manuela Machado Costa Farelo Ataíde Marques | |
| Remedios Ruiz Macia | |
| APPOINTMENT COMMITTEE | |
| Chair: | Daniel Abel Monteiro Palhares Traça |
| Members: | Ana Isabel Abranches Pereira de Carvalho Morais |
| Andreu Plaza Lopez | |
| Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota | |
| Manuel Maria de Olazábal Albuquerque | |
| SALARIES COMMITTEE | |
| Chair: | Jaime Pérez Renovales |
| Member: | Roberto di Bernardini |
| COMPANY SECRETARY | |
| Full Secretary: | João Afonso Pereira Gomes da Silva |
| Alternate Secretaries: | Bruno Miguel dos Santos de Jesus |
| Cristina Isabel Cristovam Braz Vaz Serra | |
Pursuant to Article 12 of the Bank's Articles of Association, the Board of the General Meeting is made up of a Chairman, a Deputy-Chairman and a Secretary.
All its members were elected by the General Assembly held on December 13, 2018, for the 2019/2021 term, thus fulfilling the second year of the current term.
Under the statutory terms, each share corresponds to one vote, and any shareholder may participate in the General Meeting directly or through a representative. Reference is made here to point II.
Voting by correspondence or sending by e-mail the information details referred to in Article 288.4 of the CCC, is not permitted.
Resolutions are taken by majority vote of the shareholders present or represented at the General Meeting, whenever the law does not require a greater number.
The organizational structure of the Bank's Governance Model in 2020 was as follows:
The Board of Directors is responsible for managing and representing the Bank, and for carrying out all the acts deemed as necessary or convenient for pursuing the activities included in its corporate purpose.
The Board of Directors has delegated the daily management of the Bank and the implementation of its strategy to the Executive Committee and to the respective management team, therefore, its activity is mostly focused on general supervision and on matters that it cannot delegate either under the terms of the Law, the By-Laws of the Bank, and its Internal Regulations.
Pursuant to the provisions of Article 6.4 of the Board of Directors' own Regulation, the Board has kept the following matters for itself:
Pursuant to the Bank's Articles of Association, the Board of Directors is composed of a minimum of three and a maximum of 15 members, who may be re-elected one or more times.
The composition of the Bank's Board of Directors is balanced and ensures its effectiveness and the quality of decision-making.
The current Board of Directors of the Bank, whose term is 2019/2021, is composed of fourteen members, eight of which are nonexecutive members and six are executive members, all elected by the General Meeting held on December 13, 2018.
The Board of Directors has implemented a governance structure that allows it to effectively fulfil its responsibilities:
No powers are conferred on the Board of Directors to decide on increases of the Company's share capital. There are also no special rules regarding the appointment and replacement of Directors, as well as regarding changes in the By-Laws, the General Law being applied to these matters.
Without prejudice to the provisions of the Bank's Articles of Association and the Regulations of the Board of Directors, due to the Covid-19 coronavirus pandemic situation experienced in 2020, the agendas of the Board of Directors and, consequently, of its Committees, namely , of the Risk Committee, have been adapted accordingly.
On March 24, 2020, the Board of Directors held an extraordinary meeting to assess and discuss topics such as: the number of COVID-19 cases, business performance, special governance and planning situations, measures implemented for employees, measures implemented for technological support, measures implemented for customers and third parties, and the Business Continuity Plan.
The Gold and Silver Committees were activated to permanently monitor the management of the pandemic situation, and an item dedicated to "Update of COVID -19" was added to the agendas of the Board of Directors' meetings.
Thus, throughout 2020, the members of the Board of Directors were regularly informed about the evolution of the pandemic, actively participating in the decision-making process in order to mitigate its impact on the Bank, as well as on the global economy, and on employees, customers and the general public.
The Board of Directors meets at least six times a year, and whenever called by the respective Chairman, by two Directors or by the Audit Committee.
During 2020, it met twelve times. One of the meetings was an extraordinary meeting due to the death of the Chairman of the Board of Directors on March 18, 2020, and the spread of the so-called coronavirus – SARS COV 2 and COVID-19.
The Company Secretary serves as the secretary for the Board of Directors.
The composition, positions and capacities of the Members of the Board of Directors at the end of the year to which this Report refers are the following:
| Board of Directors | Body and Position | Capacity |
|---|---|---|
| José Carlos Brito Sítima | Board of Directors - Chairman | Non-Executive Not independent |
| Pedro Aires Coruche Castro e | Board of Directors - Vice-Chairman | Executive Not independent |
| Almeida | Executive Committee - Chairman | |
| Amilcar da Silva Lourenço | Board of Directors - Member | Executive Not independent |
| Executive Committee - Member | ||
| Ana Isabel Abranches | Board of Directors - Member | Non-Executive Independent |
| Pereira de Carvalho Morais | Audit Committee - Chairman | |
| Appointment Committee - Member | ||
| Andreu Plaza Lopez | Board of Directors - Member | Non-Executive Not independent |
| Appointment Committee - Member | ||
| Daniel Abel Monteiro | Board of Directors - Member | Non-Executive Independent |
| Palhares Traça | Audit Committee - Member | |
| Risk Committee - Member | ||
| Remuneration Committee - Member | ||
| Appointment Committee - Chairman | ||
| Inês Oom Ferreira de Sousa | Board of Directors - Member | Executive Not independent |
| Executive Committee - Member | ||
| Isabel Cristina da Silva | Board of Directors - Member | Non-Executive Not independent |
| Guerreiro | Executive Committee - Member | |
| Isabel Maria de Lucena | Board of Directors - Member | Non-Executive Independent |
| Vasconcelos Cruz de | Audit Committee - Member | |
| Almeida Mota Remuneration Committee - Chairman |
||
| Appointment Committee - Member | ||
| Manuel Maria de Olazábal | Board of Directors - Member | Non-Executive Independent |
| Albuquerque | Audit Committee - Member | |
| Risk Committee - Chairman | ||
| Remuneration Committee - Member | ||
| Appointment Committee - Member | ||
| Maria Manuela Machado | Board of Directors - Member | Non-Executive Independent |
| Farelo Ataíde Marques | Audit Committee - Member | |
| Risk Committee - Member | ||
| Remuneration Committee - Member | ||
| Manuel António Amaral | Board of Directors - Member | Executive Not independent |
| Franco Preto | Executive Committee - Vice-Chairman | |
| Miguel Belo de Carvalho | Board of Directors - Member | Executive Not independent |
| Executive Committee - Member | ||
| Remedios Ruiz Maciá | Board of Directors - Member | Non-Executive Not independent |
| Risk Committee - Member | ||
| Remuneration Committee - Member |
The Audit Committee is a key body of the Bank's government, responsible, among other aspects, for supervising the integrity of financial reporting and internal controls, for the effectiveness of the Internal Audit function, and for the relationships with the external auditor.
The Audit Committee is composed of non-executive members of the Board of Directors, with a minimum of three and a maximum of five members, one of whom is its Chairman.
All members of the Committee must qualify as independent and, altogether, have knowledge and experience in the areas of accounting, auditing or risk management, in addition to the fact that everyone must be able to spend sufficient time and effort to fulfil their
obligations.
The Audit Committee elected for the three-year period 2019/2021 is composed of 5 members, i.e., a Chair and four members.
As the Bank's supervisory body, it is awarded the powers provided for in Article 423-F of the CCC, in Article 18 of the Articles of Association, and in its own Regulation.
The Audit Committee is responsible for, among other aspects:
The Chairman of the Audit Committee shall report annually to the Board of Directors on the activities carried out by that body.
The Audit Committee meets regularly with the External Auditors, with the Chief Audit Officer (CAE), with the Chief Risk Officer (CRO), with the Chief Compliance Officer (CCO) and with the Controller (the person in charge of Accounting).
Without prejudice to administrative and hierarchical reporting to the Chairman of the Board of Directors, the CAE reports functionally to the Audit Committee.
In 2020, the pandemic situation resulting from Covid-19 impacted the Audit Committee's agenda in different ways, namely, in the monitoring of the COVID-19 2020 Audit Plan, which included revisions and adaptations of commitments that would help understand the impact of the pandemic in the financial statements.
In addition, in 2020, the Audit Committee kept its focus on the provisioning of credit risk through the submission of relevant quarterly results and analyses by the External Auditor.
The Committee has thoroughly analysed the moratoria portfolio, together with the estimated net provisions and the cost of credit in 2020 and 2021, in order to ensure its in-depth knowledge of the Bank's credit exposure, and the sufficiency and adequacy of the provisions set up.
| Audit Committee |
|---|
| Meetings 2020 |
| Approval of the Audit Committee's plan (Forward Looking Agenda) |
| Chief Audit Executive Valuation |
| Credit portfolio analysis - semiannual update |
| Appreciation of management report, financial statements and legal certification of accounts (452º CSC) |
| Presentation of the conclusions of the Annual Evaluation and Certification Process of the 2019 Internal Control Model of the BST subgroup. |
| Presentation of the Annual Report on Prevention of Money Laundering and Prevention of Terrorism |
| Presentation of the results of the closing of the 1st semester |
| Approval of distinct auditing services |
| Approval of the Internal Audit Budget |
| Activity balance in the Risks area |
| Conclusion of the 2019 Audit Plan and follow-up of the recommendations formulated |
| Credit operations (Article 109. Credit Institutions General Regime) |
| CAE's annual targets for 2020 |
| Opinion on Report, accounts and proposals presented by the Board of Directors (452º CSC) |
| External Audit Plan |
| Investment plan and general cybersecurity governance, metrics and general risk limits |
| Audit Committee's multiannual plan |
| External auditor evaluation and selection policy and distinct audit work |
| State of play of implementation of the GDPR at the Bank |
| Report "Participation of Irregularities" |
| Annual report on the activity from Audit Committee (423ºF 1 / g CSC) |
| Audit function report |
| Compliance function report |
| Risk function report |
| Report on the internal control system |
| Variable remuneration control functions |
| Regulatory reporting - state of play. |
| Semiannual reporting of the Compliance Function |
| Internal Audit activity follow-up |
| Status of External Audit and Regulatory Recommendations |
In 2020, the Audit Committee had the following composition:
Chair: Ana Isabel Abranches Pereira de Carvalho Morais
Members: Daniel Abel Monteiro Palhares Traça
Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota
Manuel Maria de Olazábal Albuquerque
Maria Manuela Machado Costa Farelo Ataíde Marques
The Audit Committee meets at least six times a year. In 2020 it met thirteen times.
Internal Government served as the secretary for this Committee, and provided it with logistical and technical support.
On January 2, 2019, pursuant to Article 16 of the Articles of Association, the Board of Directors appointed an Executive Committee composed of six members and entrusted on it the management of the Bank, while safeguarding the powers that the Law or the Articles of Association keep for the Board of Directors, plus those that the Board of Directors reserves for its competence (those contained in the Regulations of the Board of Directors), and those that are delegated to other committees (Risk, Remuneration and Appointment Committee).
The Executive Committee meets weekly or whenever called by its Chairman, by two other members, or by the Chairman of the Board of Directors.
From mid-March 2020, the Executive Committee was regularly informed on the evolution of the pandemic, and actively participated in the decision-making process with a view to mitigating its impact upon the Bank, as well as upon the global economy and upon the health conditions of employees, customers and the general public.
To that end, an update on COVID-19 became part of the agendas of this Committee.
As part of its internal organization, the Executive Committee assigned certain matters (Portfolios) to each of its members.
As of December 31, 2020, the distribution of Portfolios among the members of the Executive Committee was as follows:
| Areas | ||
|---|---|---|
| Pedro Castro e Almeida Chairman of the Executive Committee CEO |
Communication and Corporate Marketing; Chairmanship's Office; People Management; New Normal; General Secretariat; Compliance⁽¹⁾ and Risk Management⁽¹⁾. Add the area identified below in Agile Areas |
|
| Manuel Franco Preto Deputy Chairman CFO |
Accounting and Management Control; Strategy, Financial Planning and Economic Studies; Taxation; Financial and Capital Management; Purchasing and Costs; Real Estate; Organization. Add the areas identified below in Agile Areas . |
|
| Miguel Belo de Carvalho | North Commercial Area; South Commercial Area and Islands; Corporate & Investment Banking. Add the areas identified below in Agile Areas and Standard Areas with Agile blocks. |
|
| Inês Oom de Sousa | Payments; Savings and Investment; Responsible Banking; Marketing; Private Banking Public Relations; Colleges. Relationship with Grupo Santander Totta Seguros and Santander Asset Management. Add the areas identified below in Agile Areas and Standard Areas with Agile blocks. |
|
| Isabel Guerreiro | Technology and Operations. Add the areas identified below in Agile Areas |
|
| Amílcar Lourenço | Inspection; Responsible for money laundering prevention issues. Add the areas identified below in Agile Areas and Standard Areas with Agile blocks. |
|
| ⁽¹⁾ Risks and Compliance and Conduct report administratively and operationally to the Chairman of the Executive Committee and report functionally to the Risk Committee and Santander Group |
Business Tribes
The Executive Committee looks after the Bank's day-to-day management as assigned to it by the Board of Directors. Thus, the assignment of portfolios only implies the responsibility of monitoring each area indicated for the purposes of administrative, functional or hierarchical reporting, and does not imply delegating any concrete powers for performing any management acts, which are decided within the Bank's own committees or by the Executive Committee or Board of Directors.
By decision taken at a meeting of the Bank's Board of Directors on December 10, 2019, it was decided to assign the administrative and operational reporting of the head of Internal Audit (CAE) to the Chairman of the Board of Directors.
The Chairman of the Executive Committee conducts the respective meetings, has a casting vote, and in addition to the responsibility for the respective areas of responsibility, he/she must:
During the 2020 financial year, the Executive Committee met 46 times and the Company Secretary served as its secretary.
The Board of Directors also includes the Risk Committee, comprised of four members of the Board of Directors without executive functions, the Remuneration Committee and the Appointment Committee, each composed of five members of the Board of Directors without executive functions.
The committees were established by the Board of Directors in accordance with Articles 115-L, 115-B and 115-H of the General Regulation of Credit Institutions and Financial Companies, and each has its own Regulation, duly approved by the Board of Directors.
The Risk Committee is composed of non-executive members from the Board of Directors, with a minimum of three and a maximum of seven. The members of the Committee, including its Chairman, are appointed by the Board of Directors, the majority of whom must qualify as independent and must have relevant experience in matters related to risk management. Its Chairman will not take on the position of Chairman of the Board of Directors, or Chairman of any other committee. But all members will be able to integrate other Bank Committees, compatible with their position.
The Chief Risk Officer and the Chief Compliance Officer are present at all Risk Committee meetings, to which they report functionally, without prejudice to their administrative and operational reporting to the Chairman of the Executive Committee.
Among the Risk Committee's competences, the following stand out: advising the Board of Directors on the Bank's general, current and future risk appetite and risk strategy; supporting and advising the Board of Directors on the definition and assessment of risk policies that affect the Bank; supporting and advising the Board of Directors in matters of Regulation and Supervision, by monitoring the statements or reports issued by supervisory entities, by reviewing the capital planning exercises, by participating in the approval and changes to the Compliance policy, to the General Code of Conduct, to procedures related to the prevention of money laundering and the financing of terrorism and of other Models, Policies or Procedures, which must be approved by the Board of Directors.
The Committee, through its Chairman, shall submit periodic written reports on its activities to the Board of Directors.
Due to the pandemic situation experienced in 2020, the Risk Committee was deeply involved in monitoring the actions and risks arising from the COVID-19 situation. It received recurring information, among others, on Credit Risk monitoring containing credit exposures and provisions, evolution of arrears, NPLs, Cost of Credit.
As early as April 2020, it approved an Extraordinary Policy for the Admission and Classification of COVID19 Risks.
The main activities of the Risk Committee in 2020 were the following:
| Risk Committee |
|---|
| Meetings 2020 |
| Analysis of CIB and Large Companies portfolio: Opportunities and Outlook |
| Portfolio analysis of commercial banking companies: Potential COVID-19 impacts |
| Approval of the Risk Committee plan for 2021 (Forward looking agenda 2021) |
| CCO Annual Assessment |
| CRO Annual Assessment |
| Performance report on the Compliance area |
| Activity balance Risk Area |
| Risk Challenge to strategic plans (P - 23) |
| Collections & Recoveries: Management Model |
| Guide to good practices with vulnerable customers, consideration of special circumstances and prevention of over-indebtedness |
| Moratorium impact on scoring models: Analysis and measures implemented |
| Remuneration policy incentives taking into account risk, capital, liquidity and expectations regarding results (article 115 L / 3 d) of the RGICSF) |
| New internal control notice |
| Chief Compliance Officer Objectives |
| Chief Risk Officer Objectives |
| Risk Profile moratorium portfolio and COVID filed lines |
| Fulfillment Function Annual Activity Plan |
| Extraordinary Admission and Risk Classification Policy COVID-19 |
| State of play Strategic Risks initiatives 2020 |
| State of play Technological obsolescence |
| State of Play On Site Inspection SMEs |
| State of Play RGPD |
| Model risk Status |
| Operational Risk Status |
| Status of Collections and Recoveries |
| Risk Normative Status |
| Internal Control Function Annual Report |
| Annual Compliance Function Report |
| Annual Report of the Risk Management Function |
| Capital Self-Assessment and Liquidity Self-Assessment Reports (ICAAP and ILAAP) |
| Variable remuneration control functions |
| Executive Compliance Summary |
| Executive Summary of Risks |
| Supplier Risk: Evolution of the management and control model |
| Model Risk: appetite metrics, regulatory models on alert, recommendations, internal validation of capital models |
| Technological Risk / Cyber Security |
| Situation Pandemic Coronavirus19 |
| SREP 2019: Main aspects |
| Phishing Trends |
In 2020, the Risk Committee had the following composition:
Maria Manuela Machado Costa Farelo Ataíde Marques
Remedios Ruiz Macia
The Risk Committee meets at least four times a year. In 2020 it met eleven times.
Internal Government served as the secretary for this Committee, and provided it with logistical and technical support.
The Committee is composed of non-executive members of the Board of Directors, with a minimum of three and a maximum of seven. The members of the Committee, including its Chairman, are appointed by the Board of Directors, the majority of whom must qualify as independent and have professional experience and adequate knowledge for the performance of their duties, namely in remuneration, management and risk control policies, with regard to the mechanism for aligning the remuneration structure with the Bank's risk and capital profile. All its members are allowed to belong to other Bank Committees, compatible with their position.
The Remuneration Committee is generally responsible for assessing the remuneration policy and practices. Among its competences, the
following stand out: it is responsible for preparing decisions on remunerations that will be adopted by the competent bodies, namely with regard to the fixed and variable remunerations of the members of the management body and other identified employees; for providing support and advice on the design of the institution's remuneration policy, presenting proposals on its content; for ensuring the adequacy of the information provided to shareholders on remuneration policies and practices, namely in terms of a higher ratio; for directly supervising the remuneration of senior management positions.
The Committee, through its Chairman, will submit periodic reports or reports on its activities in writing to the Board of Directors.
The main activities of the Remuneration Committee in 2020 were the following:
| Remuneration Committee |
|---|
| Meetings 2020 |
| Monitoring of the remuneration structure of employees (senior officers) who exercise risk management and control functions, including their |
| independence vis-à-vis the controlled areas and verification of the total fixed and variable remuneration paid to these employees |
| Annual analysis of the implementation of the remuneration policy |
| Presentation of a set of possible scenarios to test how remuneration policies and practices react to external and internal events |
| Approval of annual declarations and proposals to be submitted to the General Meeting on remuneration |
| Annual assessment of the remuneration policies of branches and off-shores |
| Bonus Pool Evaluation (Final) |
| Assess the mechanisms and systems adopted to ensure that the remuneration system takes due account of all types of risks, as well as liquidity and |
| equity levels, and that the overall remuneration policy is consistent with, and promotes, a sound and effective risk management and is harmonized |
| with the institution's business strategy, objectives, culture and values and the long-term interest |
| Definition of the Identified Collective |
| Directors & Officers (D&O) Insurance Policy |
| Forward Looking Agenda 2021 |
| Remuneration policy for Bank officers |
| Review or opinion on fixed remuneration of board members / other governing bodies |
| Review or opinion on variable remuneration of the members of the board of directors / other governing bodies |
| Verification of the achievement of annual objectives and the impact of remuneration on the Bank's ratios |
| Verification of application of malus and clawback clauses, as well as compliance with performance objectives |
In 2020, the Remuneration Committee was composed as follows:
The Remuneration Committee meets at least four times a year and during the year 2020 it met nine times.
Internal Government served as the secretary for this Committee, and provided it with logistical and technical support.
The Committee is composed of non-executive members of the Board of Directors, with a minimum of three and a maximum of seven. The members of the Committee, including its Chairman, are appointed by the Board of Directors, the majority of whom must qualify as independent and have adequate knowledge to perform the duties of their position, namely in terms of the Bank's business and strategy, on selection and appointment processes, both internally and externally, as well as in the preparation of adequacy processes with the supervisor.
The Appointment Committee is generally responsible for periodically evaluating the members of the management and supervisory bodies, as well as their succession. Among its competences, the following stand out: identification and recommendation of candidates to carry out positions in the management and supervisory body and its Committees; setting a goal in terms of gender representation; periodically evaluate the structure, size, composition, and performance of the management bodies, at least annually; ensuring that the members of the Board of Directors comply with the duties established in the laws and regulations that directly apply to them; advising the Board of Directors regarding matters of internal governance, assisting in the process of adapting the entity's internal governance systems.
| Nomination Committee | ||
|---|---|---|
| Meetings 2020 | ||
| Monitoring of induction plans and individual training of the Board of Directors | ||
| Approve the Bank's succession policy | ||
| Individual and collective assessment of the governing bodies | ||
| Evaluate the structure, size and composition of the governing bodies (proposing and reviewing the existing internal criteria and procedures for this purpose, making recommendations for changes when necessary) |
||
| Knowledge of Skills and Diversity Matrix 2020 | ||
| Forward Looking Agenda 2021 | ||
| Review the gender representation objective, and the evolution of metrics referring to the evolution in the underrepresented gender staff | ||
| Review of the Bank's succession plans | ||
| In 2020, the Appointment Committee was composed as follows: | ||
| Chair: | Daniel Abel Monteiro Palhares Traça | |
| Members: | Ana Isabel Abranches Pereira de Carvalho Morais | |
| Andreu Plaza Lopez | ||
| Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota | ||
| Manuel Maria de Olazábal Albuquerque | ||
| The Appointment Committee meets at least four times a year and during the year 2020 it met seven times. | ||
| Internal Government served as the secretary for this Committee, and provided it with logistical and technical support. | ||
| Executive Committee Committees | ||
| Committees are internal structures for the delegation of powers by the Executive Committee, which also approves their name, structure, | ||
| composition and powers. | ||
| There are several interdisciplinary Committees that monitor and control the entire activity of the institution at executive level: | ||
| | Analysis and Resolution Committee: whose duties are the prevention of money laundering and terrorist financing, guaranteeing the effectiveness of the communications established by law. |
|
| Chair: Amílcar Lourenço Executive Director | ||
| | Assets and Liabilities Committee (ALCO Committee): its aim is to manage structural market and liquidity risk, establish contingency plans, promote hedging strategies, decide on strategic positions, in order to optimize the financial margin and return on equity. |
|
| Chairman: Pedro Castro e Almeida CEO | ||
| | Responsible Banking, Sustainability and Culture Committee: ensures the integration of sustainability into the Bank's business model, defining and monitoring the strategic plans for social responsibility, in conjunction with the Group's corporate plans. |
|
| Chairman: Pedro Castro e Almeida CEO | ||
| | Capital Committee: ensures the supervision, authorization and evaluation of all aspects related to the Bank's capital and solvency. | |
| Chairman: Pedro Castro e Almeida CEO | ||
| | Internal Control and Compliance Committee: its aim is to monitor and supervise Internal Control, Compliance and Risk Management policies, being responsible for compliance with the applicable laws and regulations, and with the rules, principles and objectives set |
|
| by the Board. | ||
| Chairman: Pedro Castro e Almeida CEO | ||
| | Risk Control Committee: It is responsible for supervising and controlling risks, ensuring that they are managed according to the degree of risk appetite approved by the Board of Directors, while permanently ensuring a comprehensive view of the risks identified in the General Risk Framework, contemplating to this end, the identification and monitoring of current and future risks and their impact on the risk profile of the Santander Totta Group. |
|
| Chairman: Alfredo Fernandez CRO | ||
| | Data and Information Committee: It is responsible for monitoring the most relevant issues in terms of governance, data quality and |
regulatory consistency.
Steering Committee: Its main objectives are the general monitoring of the Bank's activity.
Executive Risk Committee: It is the highest risk decision-making body, in accordance with the risk governance model approved by the Board of Directors, exercising the powers delegated on it by the Executive Committee.
People Management Committee: Its aim is to analyse and resolve on the changes and exceptions to the current HR management policies; to annually approve the measures and objectives presented within the scope of the Certification of Family Responsible Company (EFR); to integrate the attributions of the Corporate Policy for Gender Equality and the Volunteering Policy, namely by promoting their development in collaboration with the Sustainability Area, while ensuring and supervising the implementation of the actions provided for in the Human Resources Management Plan.
Special Situations Management Committee: It is responsible for directing, monitoring and controlling the management of events of any nature (financial or operational and / or reputational, in particular the Entity Continuity Plan) that may cause a serious deterioration in the Bank's liquidity and / or solvency levels, or compromise the development of its activity.
Models Committee: It is responsible for monitoring the model risk exposure and profile, with a view to ensuring that it fits within the approved risk appetite, while ensuring the alignment of the local areas involved in the development and monitoring of models, as well as their integration into management.
Pensions Committee: Its objective is to implement the corporate pension policy and control risk in a comprehensive manner.
Provisions Committee: Its aim is to ensure that the financial statements reflect the best estimate of provisions for each closure of accounts, conducting the supervision and coordination of the actors involved in their calculation.
Non-Financial Risks Committee: It is responsible for monitoring the exposure and profile of operational risk, with a view to ensuring that it complies with the approved risk appetite.
Information Technology and Cybersecurity Committee: It assesses and / or approves IT strategy proposals; monitors the strategic IT plan; monitors cybersecurity risk and evaluates initiatives to mitigate risks.
Chair: Isabel Guerreiro | Executive Director
The Bank is in the process of implementing Bank of Portugal Notice No. 3/2020, related to Internal Control.
Within the scope of such Notice, the Bank has a risk identification and management system in place, and is organized in order to enhance an appropriate control environment and a solid risk management system.
The implemented system allows the pursuit of the main objectives for this area, namely:
Compliance with the prudential rules in force;
The existence of complete, reliable and timely accounting and financial information, in particular with regard to its registration, conservation and availability;
Policies and procedures are specifically defined and implemented with respect to all risks referred to in the aforementioned Bank of Portugal Notice.
Such policies and procedures are available and are easily accessible to all employees through their disclosure in a dedicated area of the Bank's Intranet system.
Since 2006, the Bank, like the Group to which it belongs, has been complying with the requirements of the United States of America Sarbanes Oxley Law (the SOX Law), a rule that the Securities Exchange Commission (SEC) has made mandatory for entities listed on the New York Stock Exchange, and which is one of the most demanding in terms of requirements for an adequate and reliable Internal Control Model.
The Board of Directors is responsible for promoting a risk management system, an internal control environment, and a risk culture which, more than complying with legal requirements for conducting its business, are essential to ensure effective management.
Santander Totta is organized based on three lines of defence, the first of which consists of the business and support areas responsible for managing, approving, following-up on and properly reporting the risks generated. The second line consists of the internal control functions (Compliance and Risk Management), which, together with the governance model organisms dedicated to risk control and supervision, seek to ensure the monitoring and smooth functioning of the risk management system so that risk remains within the limits defined by the risk appetite. The third line consists of Internal Audit.
In accordance with this Governance Model, top management is the first guarantor of internal control, checking and monitoring its operation with metrics and controls, which they report to the Executive Committees. These Executive Committees have, as a rule, delegated powers from the EC or CER, and decisions are always collegial. The first heads of each business or control area also make periodic reports, usually on a monthly basis, to the EC.
In addition, but by departments of the second line of defence, several reports of aggregated information are monitored in various Control / Follow-up Committees. These Committees, in addition to being primarily responsible for the first line control areas, generally include the presence and intervention of one or more control functions (Compliance, Risk Management, and Internal Audit).
The internal audit activity is performed in the third line of defence, which, with an action plan and own processes, checks the robustness of the systems and controls implemented, making suggestions for improvement and monitoring their implementation.
It is also worth considering the contribution of the remarks and recommendations emanating from external entities such as the External Auditors, Regulators and Supervisors in their inspection activities, which, on the one hand, contribute to strengthening internal control, and, on the other hand, certify the quality thereof.
The Risk Management Function (RMF) is cross-cutting to the entire Santander Totta Group. The function is embodied in the so-called Risk Area, under the exclusive responsibility of the Chief Risk Officer (CRO).
The general mission of this function is the effective implementation of the risk management system, aiming to assess the relevance of the risks incurred and the degree of effectiveness of the measures adopted to control, mitigate and overcome them. EBA's Internal Government guidelines (EBA/GL/2017/11), in turn, reinforce and deepen in detail the main attributions of the Risk Management Function (RMF) and its responsible head within the scope of the internal control functions. In addition, Capital Requirements Regulation (CRR) No. 575/2013 (EU), Capital Requirements Directive 2013/36/EU (CRDIV), and Directive 2014/59/EU constitute the basis of the legal framework for the activity of credit institutions and financial companies, and has been transposed to the General Regime of Credit Institutions and Financial Companies (RGICSF). More specifically, Article 115-M of the RGICSF determines the role of the Risk Management Function in ensuring the identification, assessment and appropriate reporting of all material risks, in reporting the strategy and decisions regarding the management of material risks, and in the independence and exemption from conflicts of interest of the person responsible for the RMF.
The RMF was established and performs its duties with the highest level of independence, that is, without being directly responsible for any business function, or for first-line control or execution over the activities to be assessed.
This function was given the broadest powers in order to conduct its supervisory activity, which is based on the law and on the application of the following principles and duties:
In absolute agreement with these competencies, the Chief Risk Officer has direct and independent access to the Risk Committee and to the Board of Directors, being able to raise to these bodies any issues related to risk management and control.
In the performance of its risk management function, the Risk Area coordinates or participates in the following processes as the second line responsible for ensuring effective questioning and independent control of risk management in its various aspects:
Contingency and business continuity plans;
Dissemination of the risk management culture;
For the purpose of identifying and assessing material risks, the Risk Area coordinates the performance of periodic exercises (referred to above as RIA), which, in line with the methodology developed at Grupo Santander and with the applicable regulations, allow the determination of the risk profile based on a three-pronged assessment:
The activity carried out by the Risk Management Function is documented in a specific annual report, the "RMF Report," the last one dated from September 2020. This document is intended to support the risk management system of Banco Santander Totta, S. A. In this report it is worth emphasizing the FGR's conviction that:
The Bank has since long preferred the autonomisation, monitoring and control of risks that result in the contingency of incurring in sanctions of a legal or regulatory nature, as well as in financial or reputational losses, as a result of non-compliance with any regulatory provisions applicable to it, whether of a legal, regulatory or normative nature, and also due to the breach of Codes of Conduct or procedures that infringe ethical standards or required good practices.
The compliance function is embodied in the Compliance and Conduct Area, which includes, within its core, an area specifically dedicated to the prevention of money laundering and the financing of terrorism, with dedicated staff with their own duties, and with an area specifically responsible for promoting and ensuring compliance with regulations regarding the protection and processing of personal data, under the direction of the Data Protection Officer (DPO).
In this context, specific duties are assigned to the Compliance and Conduct Area for monitoring and controlling the execution of the programme and the policies that support it.
Within the framework of the General Code of Conduct and the Corruption Prevention Programme, a Complaints Channel has been made available, freely accessible to all employees, which, duly guaranteeing the confidentiality of communications and any subsequent procedures, gives them the possibility and urges them to report irregular situations of which they become aware.
It is also worth mentioning, in this context, the institutionalized articulation with the Customer Experience area - responsible for the follow-up and processing of customer complaints – in order to, on the one hand, monitor the evolution of any issues at this level, and, mainly, to scrutinize - starting from the type of complaints – any omissions or inappropriate practices that they may indicate, with a view to providing the appropriate adjustments or corrections.
Policies and procedures for the marketing of products are approved and instituted, as well as the process and bodies responsible for the respective approval and follow-up, which aim, on the one hand, is to ensure the prior verification of all the necessary requirements for such marketing of products to function without legal, reputation and compliance risks, and, on the other hand, to ensure the follow-up of incidents that may occur, assessing their meaning and, if applicable, introducing remediation measures that may be justified, which may include the suspension or termination of such marketing when circumstances so dictate or advise. In this context, the assessment and monitoring of the reputational risk inherent in the products or that may be generated during their lifetime by the occurrence of occasional issues that, in some way, affect them, or that project themselves relevantly in the relationship with the customers, is of particular importance.
Although counting on the executive support and direction of local units, the compliance policy is extended, in all its breadth, to subsidiaries and branches abroad. Some of these have local enforcement officials who perform the corresponding functions there. In other cases, in which the type and mode of exercise of the activity do not justify this option, the unit's operational manager himself ensures the procedure in accordance with the applicable laws and regulations, both the local ones and those that must be complied with through the impositions to which the Bank is subject in Portugal. Within the scope of its functions, the Compliance and Conduct Area controls the fulfilment of its purpose by those unto whom the responsibility is entrusted.
At another level, and with a view to ensuring its mission in a more efficient and effective manner, the Compliance and Conduct Area promoted the institutionalization of specific compliance committees especially dedicated to the areas considered most sensitive, namely those more directly related to financial markets; that operate periodically - as a rule, on a monthly basis -; that help assess the established practices, check their conformity with the applicable legal and regulatory standards, keep the areas informed about the innovations that have occurred and ensure their execution, control the fulfilment of information and other applicable obligations; identify any incidents; and, if applicable, consider and implement the appropriate measures to mitigate and prevent them. These Committees are directed and coordinated by the Compliance and Conduct Area, with the participation of those responsible for the areas involved.
On the other hand, both within and outside these Committees, the CCO keeps a regular relationship of articulation with the other control areas (Audit and General Risk Function), in order to enhance the approaching, follow-up and global control of risks, and it is a permanent member of the Bank's various governance committees whose objective is risk control, with emphasis on the Internal Control and Compliance Committee.
Without prejudice to constant and systematic contacts with the Bank's Executive Committee, especially with the Director specifically in charge of the portfolio, there are established mechanisms for regular interaction of the CCO with the Audit Committee and with the Risk Committee of the Board of Directors.
The activity carried out within the scope of the compliance function is the subject of an annual report. Accordingly, the CCO has submitted to the Board the annual report on the Compliance Function, dated September 2020 , highlighting that it is the CCO's conviction that:
Chief Compliance Officer: Pedro Boullosa Gonzalez.
The authority with which Internal Audit is empowered comes directly from the Board of Directors. As an independent unit, it reports periodically to the Board of Directors, and has direct access to the Board when necessary. It also reports to the Audit Committee and attends to the information requirements it receives from it in the performance of its duties.
The person responsible for the internal audit function is appointed by the Board, and is awarded all the necessary powers to carry out its duties in an independent manner, with free access to all relevant information.
The Audit staff is distributed among the Financial Risks, Credit Risks, Operational Risks and Technological Risks areas, with all employees having higher academic education degrees.
Internal Audit subscribes the definition of the Institute of Internal Auditors, being a permanent function - independent from any other function or unit -, whose mission is to provide the Board of Directors and Senior Management with independent assurance on the quality and effectiveness of internal control processes and systems, risk management (current or emerging) and governance, thus contributing to the protection of the organization's value, its solvency and reputation. For this, Internal Audit assesses:
Internal Audit is the third line of defence, independent of the others. In order to develop their mission and achieve the established objectives, Internal Audit teams have complete, free, unrestricted access to all information.
The Internal Audit field of action comprises:
The scope defined subjectively in the previous items includes, in any case, the activities, businesses and processes developed (either directly or through outsourcing), the existing organization, and, if applicable, the commercial networks.
Additionally, and also within the performance of the established mission, Internal Audit may carry out audits on other affiliates not included in the previous items, when the Group has reserved itself this right as a shareholder.
Internal Audit bases its action on the following principles:
The CAE is responsible for:
Assessing, with the appropriate regularity, the sufficiency of resources for the performance of its duties;
Periodically communicating with the Audit Committee, namely on the development of the approved Audit Plan;
Chief Audit Executive: Ignacio Garcia Marquez
Banco Santander Totta S. A. makes available at its Internet address https://www.santander.pt/institucional/investorrelations/santander-totta-sa/governo-sociedade the essential information on the Bank's activity and general corporate information, such as the Bank's Articles of Association, the members of the governing bodies, the organizational structure of the Bank's Governance Model, the Representative for market relations, as well as all main policies.
Information on half-yearly and annual accounts is available at the following link: https://www.santander.pt/institucional/investorrelations/santander-totta-sa/relatorios-e-contas
The Bank has a broad internal regulation that establishes clear rules, is widely disseminated, and is permanently available to all employees on the Bank's Intranet portal.
The Bank has a Policy in place on Transactions with Related Parties, whose aim is to establish the rules and procedures to be observed by the Bank in transactions with related parties, including, but not limited to, credit operations, transactions with real estate and supply of goods and services, in order to ensure transparency in said transactions, as well as full compliance with applicable laws and regulations.
In preparing this Policy, regulator guidelines and various legal provisions establishing rules and requirements aimed at preventing risks arising from certain types of relationships between the subjects of the transactions were duly considered. In particular, but not limited to, the EBA Guidelines on Internal Government (EBA/GL/2017/11, of March 21, 2018, especially No. 103 and 114; Articles 85 ("Credit to members of the governing bodies"), 86 (Other operations"), and 109 ("Credit to qualified holders") of the General Regime of Credit Institutions and Financial Companies (RGICSF); Article 397 ("Business with society") of the Commercial Companies Code; and Notice No. 3/2020 of the Bank of Portugal, in particular Article 33.
The Group's policy for admitting, authorizing and monitoring financing operations of the directors and members of Banco Santander, S. A.'s senior management was also taken into account as a reference policy.
The Bank has duly implemented internal rules that operationalize this Policy on Transactions with Related Parties, and the people and entities that are part of the different types of Related Parties are duly identified and marked in the Bank's computer systems through a register of Related Parties.
The Policy on Transactions with Related Parties is available on the website: https://www.santander.pt/institucional/investorrelations/santander-totta-sa/governo-sociedade
The Remuneration Committee submitted the following statement on the remuneration policy of the members of the respective management and supervisory bodies for approval by the Bank's General Shareholders' Meeting.
The Remuneration Policy of the Members of the Management and Supervisory Bodies is available on the website: https://www.santander.pt/institucional/investor-relations/santander-totta-sa/governo-sociedade.
The following statement on the remuneration policy of the members of the Management and Supervisory Board of Banco Santander Totta, S. A. (the "Bank"), effective in 2020, is proposed to the General Meeting of shareholders for approval of the accounts for the financial year of 2019.
Grupo Santander approved a remuneration policy addressed to all its employees (the "Policy"), which establishes the fundamental principles relating to the payment of remunerations, both fixed or variable (the unofficial translation into Portuguese of the Policy in its version in force constitutes Annex 1 of the Declaration, which is an integral part of it for all purposes and intents).
The Policy was subject to slight changes in 2019, in order to reinforce and update the current policy.
In accordance with the Policy, the Santander Group adopts consistent remuneration practices that comply with the regulations applicable in the jurisdictions where it operates.
Remuneration is defined to promote a high performance culture, in which people are rewarded and recognized for their performance, competence, and for the impact they have on the success of the Group and / or its subsidiaries.
The remuneration practices of the Santander Group shall always be aligned with the interests of its shareholders, employees, customers and society, and, in particular, they shall promote good conduct. The Group also ensures that the remuneration policies are consistent with adequate and effective risk management, and will not assign incentives that may contribute to exceeding the level of tolerated risk or that may endanger or limit the Group's ability to keep a solid capital base.
This Declaration informs about the fulfilment, by the Policy, of the various requirements imposed by Portuguese law, proposing its formal approval to the Bank's shareholders.
The corporate bodies of the Bank are the General Meeting, the Board of Directors, and the Audit Committee:
c) Board of Directors / non-executive members. Non-executive members of the Board of Directors, who are not part of the Audit Committee, earn a fixed remuneration, paid in the following terms: annual amount, paid 12 times a year. In duly justified and legally admitted situations, the payment of an additional amount may be authorized by the competent bodies.
Non-executive directors who, however, carry out management or other functions at Banco Santander S. A. or at other entities of the Santander Group, may or may not earn a remuneration for carrying out that position at the Bank.
The members of the Executive Committee earn a fixed remuneration, paid 14 times a year, which is determined taking into account the criteria used in the Santander Group; the Bank's results; performance assessment and market references; and is not expected to represent, in 2020, a share of less than 33% of the total remunerations.
A variable remuneration may be added to the fixed remuneration, defined in accordance with the Policy, and defined on an individual basis by the Remuneration Committee, after due consideration by the Remuneration Committee, and in compliance with the procedures provided for in the Policy.
The variable remuneration of Executive Directors is determined based on a standard reference corresponding to the fulfilment of 100% of the established objectives, with a reference value being set every year for each member.
The final amount of the performance bonus and inherent variable remuneration will be determined at the beginning of the year following the performance of duties, on the basis of a reference value, and according to the actual fulfilment of the goals established in the framework of the pool available for that purpose, in the terms defined in the Policy as set out in Annex 1, namely in Section 5.4
The general goals for 2020 are those set out in Annex 2, which are part of the Declaration for all purposes and intents.
The maximum ratio between the amount of all components of the variable remuneration of the members of the Executive Committee and the total amount of the fixed remuneration cannot exceed 200%.
The remuneration's variable portion is subject to partial deferral of the respective payment, aiming at a balance between the short and the medium term.
a) Variable remuneration is due 50% in cash and 50% in shares, partly paid in 2021 and partly deferred over three or five years, subject to the following parameters:
b) The assigned shares do not benefit from any risk coverage contract, and are, until the end of their respective mandates, subject to a maintenance condition, until their value exceeds twice the amount of the total remuneration, without prejudice to the possibility of sale of shares required for paying taxes resulting from the benefit inherent to those same shares.
c) In addition, the Board of Directors of the Santander Group has approved a corporate share retention policy, applicable to Santander Group's Executive Directors and other Santander Group Directors (including, in Portugal, the Country Head), which will oblige the employees concerned to retain - after a given period has elapsed -ownership over a volume of Banco Santander shares defined in their own internal regulations, and currently determined as the equivalent of twice their net annual fixed remuneration.
d) The deferred part of the variable remuneration, relating to the third year, and also the fourth and fifth years, if applicable, is subject - in addition to the malus and claw-back conditions - to the fulfilment of the Group's long-term objectives for the period 2020- 2022, according to the general criteria applicable within the Santander Group, under which the value of the variable remuneration can only decrease (by reducing the payment in cash or in shares), as defined for the current year under the terms of Annex 3.
e) Payment of the variable remuneration will respect the deferral rules and the reduction (malus) or reversion (claw-back) mechanisms in force in the Policy, in order to comply with the legal and regulatory requirements, as well as observe the recommendations and guidelines issued by the competent supervisory bodies. The ability to reduce (malus), either totally or partially, the payment of deferred remuneration and whose payment is not yet an acquired right, as well as to retain in whole or in part variable remuneration whose payment constitutes an acquired right (claw-back), is limited to extremely significant, duly identified events, in which the persons concerned have had a direct participation in the identified events.
For the financial year of 2015, the fifth part of the deferred variable remuneration remains to be paid, in cases where it is applicable.
For the financial year of 2016, the last third of the deferred variable remuneration was paid, and the fourth and fifth part of the deferred variable remuneration has yet to be paid.
Of the variable remuneration for 2017, one third and the fourth and fifth part (when applicable) of the deferred variable remuneration are unpaid.
Of the variable remuneration for 2018, two thirds and the fourth and fifth part (when applicable) of the deferred variable remuneration are unpaid.
Of the variable remuneration for 2019, the non-deferred portion was paid in 2020. The remaining payment is deferred for three years or five years, as applicable.
The financial sector is currently undergoing major changes. With the move towards the development of digital solutions, Grupo Santander is taking steps to transform its culture, employees and business in line with this new paradigm.
The objective of the Digital Award is to attract and retain talent that contributes to advance, accelerate and deepen the aforementioned digital transformation, which, simultaneously, will lead to the creation of long-term share value through the fulfilment of essential digital steps. With this program, the Santander Group offers a remuneration element that is competitive with the remuneration systems offered by other market players competing in the area of digital talent.
The Award is subject to the fulfilment of certain objectives related to digital transformation, and, consequently, aims to foster the creation of long-term share value.
This Award will be implemented as 50% in Banco Santander shares and 50% in Banco Santander share options, based on the fair value of the share options when they are granted. It is aimed at certain members of the Identified Collective (excluding Banco Santander Directors, but may include Bank Directors), and at workers of the Santander Group who are not part of the Identified Collective, but whose activity is critical for the digital growth and transformation of the Santander Group. The respective Regulation is attached hereto as Annex 4, and it will be ensured that any amounts that may be attributed in this way to the Bank's Executive Directors will be considered as variable remuneration and included in all applicable information disclosure limits, procedures and duties.
The executive directors who at the merger date were Directors of Banco Totta & Açores, benefit from an old age or disability complementary retirement plan, whose terms and conditions were set in accordance with the regulations approved by the Bank's General Meeting on May 30, 2007, and amended at the General Meeting of December 13, 2018, in accordance with the provisions of Article 25.4 of the Bank's Articles of Association, and which adopts, globally, the provision contained in the regulation that was originally approved by the General Meeting of Banco Totta & Açores on October 30, 1989. The requirements of this plan are, namely, taking the position for given a minimum period, and the amount of the supplementary benefit varies according to the director's seniority.
The changes introduced at the General Meeting of December 13, 2018, specifically aimed at accepting the possibility of redemption of the amount of the supplementary pension in capital, granting the respective beneficiaries an option that will imply, whenever exercised, the neutralization for the Bank of the risk of changes in the global amount of the supplementary pension, definitively exonerating itself and upon delivery of the accounting amounts related to the fulfilment of this pension - of any additional responsibilities vis-à-vis the beneficiaries who exercise this option.
In addition, the situation of executive directors who exercise the right to the old-age or disability pension supplement and subsequently perform other non-executive functions at the Bank has been clarified.
The executive directors with an employment agreement with the Bank, and notwithstanding the suspension of the aforementioned agreement, are covered by a supplementary retirement plan established by the Santander Group for all management staff and whose terms were approved by the respective Boards of Directors. Such resolutions do not award voting rights to the Directors who would benefit from such plan.
Executive Directors also benefit from health insurance and from the benefits resulting from collective regulations applicable to workers, including being able to contract mortgage loans.
Executive Directors benefit from life insurance, whose covered capital is equivalent to twice the amount of the annual fixed remuneration of the holder in question.
No risk hedge mechanisms or the like may be used by the Executive Director or by the Bank in his/her favour. This rule is observed and must be confirmed annually by the same before the Group.
It is not expected that in 2019, any amounts will be paid to Executive Directors by other companies in a controlling or group relationship with the Bank.
The Policy was approved by the Santander Group, by adopting a set of national and international guidelines on the matter, and the Bank subsequently adopted the Policy on January 31, 2017, after making its presentation to the Bank's Remuneration Committee and to the Board of Directors, and was successively updated since that date.
The Policy, in the terms in which it was approved, will be complemented by a set of additional guidelines, of an essentially interpretative nature.
Since January 2019 the Bank's Remuneration Committee includes Isabel Mota (Chair), Daniel Traça, José Carlos Sítima, Manuel Olazábal, Manuela Ataíde Marques and Remedios Ruiz (Members), with the majority of its members legally qualifying as independent (Isabel Mota, Daniel Traça, Manuel Olazábal and Manuela Ataíde Marques).
In April 2020, and since the process of appointing José Carlos Sítima as Chairman of the Board of Directors is still pending, his participation as a member of the said Committee has been suspended.
For its part, the Remuneration Committee as provided for in the Commercial Companies Code, which determines the actual amounts of remuneration to be paid to all members of the corporate bodies, is composed of Jaime Pérez-Renovales and Roberto di Bernardini, both senior officers of the Santander or Group.
Mercer Portugal assisted the Bank (in 2017) as an external consultant, in the work of transposing the implementation of the Policy to the Bank.
It is not foreseeable that in 2020 any indemnities will be paid for early termination of functions of any member of the corporate bodies.
Option plans are not expected to be allocated in 2020, except for what is foreseen regarding the Digital Award
There are no non-cash benefits or other forms of remuneration other than those referred to in the Declaration.
The Bank's Policy is fully in line with the principles enshrined in the regulations applicable in Portugal, based on simplicity, transparency and adaptation to medium and long-term objectives.
Thus, the determination of the total remuneration, comprising a fixed and a variable portion, as well as the articulation of these two components, as explained in this Declaration and in the attached Policy, help us conclude for the adoption, in general, of the material rules contained in the Portuguese regulations.
The fact that the Bank is part of the Santander Group, which holds more than 99% of its capital, implies the necessary consistence of the respective corporate policies, which, in turn, and taking into account the global nature of the Group, respect international regulations in this field.
The applicable regulation also determines that the Bank's remuneration policy and its implementation is reviewed, at least annually, in order to ensure that it is actually applied; that remuneration payments are adequate; that the risk profile and the institution's long-term objectives are being adequately reflected; and that the policy is in accordance with the legislation and regulations in force, as well as with the applicable national and international principles and recommendations.
Such annual review should also include an assessment of the remuneration practices of subsidiaries abroad and of off-shore establishments, in particular on the respective effect on the institution's risk, capital and liquidity management.
The mentioned assessment was carried out, in compliance with the applicable regulations, by the Bank's Remuneration Committee, with the active involvement of the units responsible for exercising control functions, with no shortcomings being detected.
The members of the Remuneration Committee were elected at the General Meeting on December 13, 2018, with no objections from the Regulator for conducting their role as of January 2019.
The functions performed by the Committee correspond to those provided for in the respective internal regulations, and include the formulation of informed and independent judgments on the remuneration policy and practices, as well as on the incentives created for the purposes of risk, capital and liquidity management, while it is also responsible for the preparation of remuneration decisions.
Lisbon, April 16, 2020
The Board of Directors submitted to the approval of the Bank's General Shareholders Meeting the Internal Policy for Selecting and Assessing Adequacy, whose purpose is the establishment of procedures for the selection and assessment of suitability, professional qualification and experience, independence and availability (jointly known as "Adequacy"») of the members of the Management and Supervisory bodies, and of other holders of essential functions for the daily development of the Bank's activity, as defined in the applicable regulations.
Under the terms of the applicable regulation, the Policy shall contain the identification of those responsible for adequacy assessment, the assessment procedures adopted, the required adequacy requirements, the rules on prevention, communication and resolution of conflicts of interest, and the professional training means available.
The Internal Policy for Selecting and Assessing Adequacy is available on the website: https://www.santander.pt/institucional/investorrelations/santander-totta-sa/governo-sociedade
This information is provided to comply with the provisions of Article 3 of Law 28/2009, of June 19, and in Article 17 of Bank of Portugal Notice No. 10/2011, of December 29 (Official Gazette, 2nd Series, of January 9, 2012), in the section related to the disclosure of the annual amount of remuneration earned by the members of the management and supervisory bodies.
The fixed and variable remunerations of 2020, in aggregate terms, for all members of the Board of Directors and Audit Committee, were, respectively, €2.989k for the fixed and €1.695k for the variable components.
As of December 31, 2020, the cumulative, actual amount of credit granted to members of the Board of Directors under Article 85 of the General Regime for Credit Institutions and Financial Companies was €942k, with the following breakdown:
| thousand euro | |
|---|---|
| Name | Mortgages |
| Pedro Aires Coruche Castro e Almeida | 372 |
| Inês Oom Ferreira de Sousa | 327 |
| Miguel Belo de Carvalho | 54 |
| Amilcar Silva Lourenco | 69 |
| Daniel Abel Monteiro Palhares Traça | 119 |
| Total | 942 |
The individual remuneration paid and deferred for 2020 is shown in the tables below.
| Fixed remuneration | ||
|---|---|---|
| Name | Position | (thousand euros) |
| António José Sacadura Vieira Monteiro* | - | 128 |
| José Carlos Brito Sítima | Chair | 309 |
| Pedro Aires Coruche Castro e Almeida | Vice - Chair | 513 |
| Amílcar da Silva Lourenço | Member | 200 |
| Ana Isabel Abranches Pereira de Carvalho Morais | Member | 133 |
| Andreu Plaza Lopez | Member | 40 |
| Daniel Abel Monteiro Palhares Traça | Member | 133 |
| Inês Oom Ferreira de sousa | Member | 250 |
| Isabel Cristina da Silva Guerreiro | Member | 221 |
| Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota | Member | 133 |
| Manuel António Amaral Franco Preto | Member | 465 |
| Manuel Maria Olazabal Albuquerque | Member | 133 |
| Maria Manuela Machado Costa Farelo Ataíde Marques | Member | 133 |
| Miguel Belo de Carvalho | Member | 200 |
| Remedios Ruiz Macia | Member | - |
2,989
* António José Sacadura Vieira Monteiro passed away on March 18, 2020
| Bonuses-2020 (cash) | ||
|---|---|---|
| Name | Position | thousand euro |
| Pedro Aires Coruche Castro e Almeida | Vice-Chair | 150 |
| Amílcar da Silva Lourenço | Member | 35 |
| Inês Oom Ferreira de sousa | Member | 35 |
| Isabel Cristina da Silva Guerreiro | Member | 48 |
| Manuel António Amaral Franco Preto | Member | 94 |
| Miguel Belo de Carvalho | Member | 60 |
| 423 |
| Bonuses-2020 (retained by | |||
|---|---|---|---|
| Name | Position | one year) thousand euro | |
| Pedro Aires Coruche Castro e Almeida | Vice-Chair | 163 | |
| Amílcar da Silva Lourenço | Member | 38 | |
| Inês Oom Ferreira de sousa | Member | 38 | |
| Isabel Cristina da Silva Guerreiro | Member | 52 | |
| Manuel António Amaral Franco Preto | Member | 102 | |
| Miguel Belo de Carvalho | Member | 65 | |
| 458 |
This amount corresponds to 157,411 shares of Banco Santander, S. A., at a value per share of €2.91, since this is the market value (listed on the stock exchange) on the date of the respective allocation.
The cash portion of the deferred remuneration for 2020 is as follows:
| Bonuses 2020 - thousand euro | |||||||
|---|---|---|---|---|---|---|---|
| 2022 | 2023 | 2024 | 2025 | 2026 | |||
| Name | Position | Cash | Cash | Cash | Cash | Cash | |
| Pedro Aires Coruche Castro e Almeida | Vice-Presidente | 30 | 30 | 30 | 30 | 30 | |
| Amílcar da Silva Lourenço | Vogal | 8 | 8 | 8 | - | - | |
| Inês Oom Ferreira de Sousa | Vogal | 8 | 8 | 8 | - | - | |
| Isabel Cristina da Silva Guerreiro | Vogal | 11 | 11 | 11 | - | - | |
| Manuel António Amaral Franco Preto | Vogal | 21 | 21 | 21 | - | - | |
| Miguel Belo de Carvalho | Vogal | 13 | 13 | 13 | - | - | |
| 91 | 91 | 91 | 30 | 30 |
| Bonuses 2020 | |||||||
|---|---|---|---|---|---|---|---|
| 2022 | 2023 | 2024 | 2025 | 2026 | |||
| Name | Position | Shares | Shares | Shares | Shares | Shares | |
| Pedro Aires Coruche Castro e Almeida | Vice-Presidente | 11,174 | 11,174 | 11,174 | 11,174 | 11,170 | |
| Amílcar da Silva Lourenço | Vogal | 2,918 | 2,918 | 2,916 | - | - | |
| Inês Oom Ferreira de sousa | Vogal | 2,918 | 2,918 | 2,916 | - | - | |
| Isabel Cristina da Silva Guerreiro | Vogal | 3,973 | 3,973 | 3,972 | - | - | |
| Manuel António Amaral Franco Preto | Vogal | 7,782 | 7,782 | 7,780 | - | - | |
| Miguel Belo de Carvalho | Vogal | 4,977 | 4,977 | 4,977 | - | - | |
| 33,742 | 33,742 | 33,735 | 11,174 | 11,170 |
As of the present date, two thirds of the deferred variable remuneration for 2019 are deferred (with the exception of the Deputy-Chairman's variable remuneration, which is deferred in four fifths), while the 2021 portion of this remuneration has already been paid.
| Bonuses - 2019 paid in February 2021 | ||||
|---|---|---|---|---|
| Name | Position | Cash | Shares | |
| Pedro Aires Coruche Castro e Almeida | Vice - Chair | 37 | 30 | |
| Amílcar da Silva Lourenço | Member | 17 | 13 | |
| Inês Oom Ferreira de sousa | Member | 20 | 16 | |
| Isabel Cristina da Silva Guerreiro | Member | 20 | 16 | |
| Manuel António Amaral Franco Preto | Member | 39 | 31 | |
| Miguel Belo de Carvalho | Member | 22 | 17 | |
| 155 | 123 |
The shares amount corresponds to 42,210 shares of Banco Santander, S. A., at a value per share of €2.91, as this is the market value (listed on the stock exchange) on the date of the respective allocation.
| Board of Directors | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Bonuses - 2019 | ||||||||||
| 2022 | 2023 | 2024 | 2025 | |||||||
| Name | Position | Cash | Shares | Cash | Shares | Cash | Shares | Cash | Shares | |
| Pedro Aires Coruche Castro e Almeida | Vice - Chair | 10,191 | 37 | 4,766 | 17 | 4,766 | 17 | 4,766 | 17 | |
| Amílcar da Silva Lourenço | Member | 4,541 | 17 | 2,167 | 8 | - | - | - | - | |
| Inês Oom Ferreira de sousa | Member | 5,450 | 20 | 2,599 | 10 | - | - | - | - | |
| Isabel Cristina da Silva Guerreiro | Member | 5,450 | 20 | 2,599 | 10 | - | - | - | - | |
| Manuel António Amaral Franco Preto | Member | 10,674 | 39 | 5,091 | 19 | - | - | - | - | |
| Miguel Belo de Carvalho | Member | 5,904 | 22 | 2,816 | 10 | - | - | - | - | |
| 42,210 | 155 | 20,038 | 74 | 4,766 | 17 | 4,766 | 17 |
As of the present date, one third of the deferred variable remuneration for 2018 is deferred (with the exception of the former Chairman's variable remuneration, which is deferred in three fifths), while the 2021 portion of this remuneration has already been paid.
| Board of Directors | ||||||
|---|---|---|---|---|---|---|
| Bonuses - 2018 paid in February 2021 | ||||||
| Name | Position | Inflation adjust. | Cash | Shares | ||
| António José Sacadura Vieira Monteiro* | - | 0 | 63 | 42 | ||
| José Carlos Brito Sítima | Vice - Chair | 0 | 51 | 34 | ||
| Pedro Aires Coruche Castro e Almeida | Vice - Chair | 0 | 47 | 32 | ||
| Amílcar da Silva Lourenço | Member | 0 | 9 | 6 | ||
| Inês Oom Ferreira de sousa | Member | 0 | 27 | 18 | ||
| Isabel Cristina da Silva Guerreiro | Member | 0 | 9 | 6 | ||
| Manuel António Amaral Franco Preto | Member | 0 | 39 | 26 | ||
| Miguel Belo de Carvalho | Member | 0 | 16 | 11 | ||
| 1 | 260 | 176 | ||||
* António José Sacadura Vieira Monteiro passed away on March 18, 2020
The shares amount corresponds to 60,391 shares of Banco Santander, S. A., at a value per share of €2.91, as this is the market value (listed on the stock exchange) on the date of the respective allocation.
| 2022 | 2023 | 2024 | |||||
|---|---|---|---|---|---|---|---|
| Name | Position | Shares | Cash | Shares | Cash | Shares | Cash |
| António José Sacadura Vieira Monteiro* | - | 10,865 | 47 | 10,865 | 47 | 10,864 | 47 |
| José Carlos Brito Sítima | Vice - Chair | 9,998 | 43 | - | - | - | - |
| Pedro Aires Coruche Castro e Almeida | Vice - Chair | 9,401 | 40 | - | - | - | - |
| Amílcar da Silva Lourenço | Member | 2,051 | 9 | - | - | - | - |
| Inês Oom Ferreira de sousa | Member | 5,278 | 23 | - | - | - | - |
| Isabel Cristina da Silva Guerreiro | Member | 1,715 | 7 | - | - | - | - |
| Manuel António Amaral Franco Preto | Member | 7,736 | 33 | - | - | - | - |
| Miguel Belo de Carvalho | Member | 3,645 | 16 | - | - | - | - |
| 50,689 | 218 | 10,865 | 47 | 10,864 | 47 |
* António José Sacadura Vieira Monteiro passed away on March 18, 2020
On this date, one third of the variable remuneration for 2017 has been paid.
| Board of Directors | ||||||||
|---|---|---|---|---|---|---|---|---|
| Bonuses - 2017 paid in February 2021 | ||||||||
| Name | Position | Inflation adjust. | Cash | Shares | ||||
| António José Sacadura Vieira Monteiro* | - | 1 | 27 | 13 | ||||
| José Carlos Brito Sítima | Vice - Chair | 1 | 23 | 11 | ||||
| Pedro Aires Coruche Castro e Almeida | Vice - Chair | 1 | 22 | 11 | ||||
| Amílcar da Silva Lourenço | Member | 0 | 10 | 5 | ||||
| Inês Oom Ferreira de sousa | Member | 0 | 12 | 6 | ||||
| Isabel Cristina da Silva Guerreiro | Member | 0 | 4 | 2 | ||||
| Manuel António Amaral Franco Preto | Member | 0 | 14 | 7 | ||||
| Miguel Belo de Carvalho | Member | 0 | 17 | 8 | ||||
| 3 | 129 | 63 | ||||||
* António José Sacadura Vieira Monteiro passed away on March 18, 2020
| Bonuses - 2017 | |||||||
|---|---|---|---|---|---|---|---|
| 2022 | 2023 | ||||||
| Name | Position | Shares | Cash | Shares | Cash | ||
| António José Sacadura Vieira Monteiro* | - | 4,597 | 27 | 4,597 | 27 | ||
| José Carlos Brito Sítima | Vice - Presidente | - | - | - | - | ||
| Pedro Aires Coruche Castro e Almeida | Vice - Presidente | - | - | - | - | ||
| Amílcar da Silva Lourenço | Vogal | - | - | - | - | ||
| Inês Oom Ferreira de sousa | Vogal | - | - | - | - | ||
| Isabel Cristina da Silva Guerreiro | Vogal | - | - | - | - | ||
| Manuel António Amaral Franco Preto | Vogal | - | - | - | - | ||
| Miguel Belo de Carvalho | Vogal | - | - | - | - | ||
| 4,597 | 27 | 4,597 | 27 |
* António José Sacadura Vieira Monteiro passed away on March 18, 2020
The shares amount corresponds to 21,665 shares of Banco Santander, S. A., at a value per share of €2.91, as this is the market value (listed on the stock exchange) on the date of the respective allocation.
Two-fifths of the former Chairman's variable remuneration is still deferred.
| Bonuses - 2016 paid in February 2021 | |||||||
|---|---|---|---|---|---|---|---|
| Name | Position | Dividends | Cash | Shares | |||
| António José Sacadura Vieira Monteiro* | - | 6 | 46 | 27 | |||
| José Carlos Brito Sítima | Vice - Chair | - | - | - | |||
| Pedro Aires Coruche Castro e Almeida | Vice - Chair | - | - | - | |||
| Amílcar da Silva Lourenço | Member | - | - | - | |||
| Inês Oom Ferreira de sousa | Member | - | - | - | |||
| Isabel Cristina da Silva Guerreiro | Member | - | - | - | |||
| Manuel António Amaral Franco Preto | Member | - | - | - | |||
| Miguel Belo de Carvalho | Member | - | - | - | |||
| 6 | 46 | 27 | |||||
* António José Sacadura Vieira Monteiro passed away on March 18, 2020
| Bonuses - 2016 | |||
|---|---|---|---|
| 2022 | |||
| Name | Position | Shares | Cash |
| António José Sacadura Vieira Monteiro* | - | 9,061 | 46 |
| José Carlos Brito Sítima | Vice - Presidente | ||
| Pedro Aires Coruche Castro e Almeida | Vice - Presidente | - | - |
| Amílcar da Silva Lourenço | Vogal | - | - |
| Inês Oom Ferreira de sousa | Vogal | - | - |
| Isabel Cristina da Silva Guerreiro | Vogal | - | - |
| Manuel António Amaral Franco Preto | Vogal | - | - |
| Miguel Belo de Carvalho | Vogal | - | - |
| 9,061 | 46 |
* António José Sacadura Vieira Monteiro passed away on March 18, 2020
One fifth of the former Chairman's variable remuneration is still deferred.
| Bonuses - 2015 paid in February 2021 | ||||||
|---|---|---|---|---|---|---|
| Name | Position | Dividends | Cash | Shares | ||
| António José Sacadura Vieira Monteiro* | - | 9 | 45 | 34 | ||
| Pedro Aires Coruche Castro e Almeida | Vice - Chair | - | - | - | ||
| Amílcar da Silva Lourenço | Member | - | - | - | ||
| Inês Oom Ferreira de sousa | Member | - | - | - | ||
| Isabel Cristina da Silva Guerreiro | Member | - | - | - | ||
| Manuel António Amaral Franco Preto | Member | - | - | - | ||
| Miguel Belo de Carvalho | Member | - | - | - | ||
| 9 | 45 | 34 |
* António José Sacadura Vieira Monteiro passed away on March 18, 2020
With regard to post-retirement benefits, the members of the Board of Directors who have an employment tie with the Bank are included in the pension plan of the collective bargaining agreement for the banking sector subscribed by the Bank.
The Shareholders' General Meeting of the Bank on May 30, 2007, approved the "Regulation on the supplementary award of an oldage or disability pension" to the executive members of the former Totta Board of Directors who came to become executive members (executive committee) of the Bank's Board of Directors in line with what had previously been defined in the former Totta Regulation. Members of the Board of Directors whose length of service is at least fifteen consecutive or interpolated years will be entitled to a pension supplement amounting to 80% of their gross annual salary. For terms of office less than fifteen years, the amount of the retirement pension supplement will be determined by the Remuneration Committee. For these persons, it is currently determined that the retirement pension supplement shall be 65% of the annual gross salary, for terms of office equal to or greater than ten years, and 75% of the annual gross salary for terms of office equal to or greater than twelve years. This defined-benefit pension plan is a supplementary plan and is dependent on the General Social Security Regime.
As at December 31, 2020 and 2019, liabilities with this plan amounted to €14.201k and €14,124k, respectively, and were covered by a provision of the same amount carried under "Provisions – Pensions and other post-employment defined-benefit obligations" (Note 17).
With regard to termination of employment benefits, as provided for in the Companies Code, whenever, by decision of the Bank, the term of office of a member of the governing bodies ends early, the Bank shall compensate the member of the governing body with the future remuneration to which he or she is entitled up until the end of his or her term of office.
In 2019 there were no payments of indemnities for early termination of office of the members of the governing bodies.
The Remuneration policy for the Members of the Management and Supervisory Bodies of Banco Santander Totta for 2020, will be the subject of a resolution at the Annual General Meeting, in compliance with the applicable regulation.
The Managers' Remuneration Policy is available on the website: https://www.santander.pt/institucional/investor-relations/santandertotta-sa/governo-sociedade.
For the purposes of this Declaration, the workers who are part of any of the collectives specified below, and are not, simultaneously, members of the management body, are considered as Managers of the Bank and designated as the "Identified Collective" or as the "Managers":
The updated identification of the functions included in the Identified Collective is included as Annex 1 of the Declaration, which is an integral part of it for all legal purposes and intents.
The Policy is addressed to all Santander Group employees, and it establishes the fundamental principles relating to the payment of remunerations, either fixed or variable (the unofficial translation into Portuguese of the Policy in its version in force constitutes Annex 2 of the Declaration, which is an integral part of it for all purposes and intents).
The Policy is applicable to all branches of the Santander Group, including the Bank. The Board of Directors has formally adopted the Policy in its updated version in April 2020.
In accordance with the Policy, the Santander Group adopts consistent remuneration practices that comply with the regulations applicable in the jurisdictions where it operates.
Remuneration is defined to promote a high performance culture, in which people are rewarded and recognized for their performance, competence, and for the impact they have on the success of the Group and / or its subsidiaries.
Santander Group's remuneration practices shall always be aligned with the interests of its shareholders, employees, customers and society, and, in particular, they shall promote good conduct. The Santander Group ensures, through the Policy, that the remuneration policies foster and are consistent with solid, effective risk management and with keeping a solid capital base.
This Declaration provides information on the adequacy of the Policy to the different requirements placed by Portuguese law.
The variable remuneration is determined based on a standard reference corresponding to the fulfilment of 100% of the established goals, with a reference value being set every year for each member.
The final amount of the performance bonus and inherent variable remuneration will be determined at the beginning of the year following the performance of duties, on the basis of a reference value and according to the actual fulfilment of the established objectives.
The general objectives for the year 2020 are those set out in Annex 3, which are part of the Declaration for all purposes.
The maximum ratio between the value of all components of the variable remuneration and the total value of the fixed remuneration cannot exceed 200%.
Regarding Managers of Control Functions, the calculation of the variable remuneration follows the following criteria: (i) individual assessment of the employee taking exclusively into account the specific objectives related to the functions performed by him/her; (ii) overall performance of the Bank and of the economic group it belongs to.
The maximum ratio between the value of all components of the variable remuneration of the members of the Managers of the control functions and the total value of their fixed remuneration cannot exceed 100%.
The performance assessment of Managers - to be conducted annually - is carried out by the respective hierarchical superiors or directly by the Executive Directors with the respective portfolio when there is a direct reporting relationship. Whenever such Managers are subject to a double reporting obligation, the assessment is also made by the Group head responsible for the area in question.
Without prejudice to internal provisions regarding the setting of objectives and the annual assessment of Managers of Control Functions, their remuneration will be supervised by the Bank's Remuneration Committee.
The variable portion of the remuneration is subject to partial deferral of the respective payment, aiming at a balance between the short and the medium term.
For the year 2016, the last third of the deferred variable remuneration has been paid.
For the year 2017, one third of the deferred variable remuneration remains to be paid.
Of the variable remuneration for 2018, two thirds of the deferred variable remuneration remains to be paid.
Of the variable remuneration of 2019, the non-deferred portion was paid in 2020. The remaining payment is deferred for three years.
The allocation of benefits is made in order to ensure compatibility with the Bank's business strategy, objectives, values, and long-term interests.
Without prejudice to assignments of a casuistic and residual scope, resulting from measures taken in the past by primitive employers (Crédito Predial Português, Banco Totta & Açores, Banco Santander Portugal and Banco Santander de Negócios Portugal), all Managers enjoy the following benefits:
Some workers benefit from life insurance, as a result of a contractual connection with the extinct Banco Santander Portugal or Banco Santander Negócios Portugal.
Some workers benefit from a supplementary retirement plan, pursuant to the resolution of the Bank's Board of Directors of February 25, 2010.
There are no pension benefits attributed on a discretionary basis.
No risk hedge mechanisms or the like may be used by the Manager or by the Bank in his favour. This rule is observed and must be confirmed annually by the Manager before the Group.
The Policy was approved by the Santander Group, by adopting a set of national and international guidelines on the matter, and the Bank subsequently adopted the Policy on January 31, 2017, as well as is updates, after making its presentation to the Bank's Remuneration Committee and to the Board of Directors.
The Policy, in the terms in which it was approved, will be complemented by a set of additional guidelines, of an essentially interpretative nature.
Option plans are not expected to be allocated in 2020.
There are no non-pecuniary benefits or other forms of remuneration other than those referred to in the Declaration.
The Bank's Policy is in its entirety in line with the principles inherent in the regulations applicable in Portugal, based on simplicity, transparency and adaptation to medium and long-term objectives.
In this way, the determination of the total remuneration, composed of fixed and variable parts, as well as the articulation of these two components, as explained in this Declaration and in the attached Policy, allow to conclude by the adoption, in general, of the material rules contained in the regulations Portuguese.
The fact that the Bank is part of the Santander Group, which holds more than 99% of the capital, implies the necessary coherence of the respective corporate policies, which, in turn and taking into account the global nature of the Group, respect international regulations in this area.
The applicable regulation also determines that a review is carried out, at least annually, of the Bank's remuneration policy and its implementation, in order to ensure that it is effectively applied, that remuneration payments are adequate and that the profile risk and the institution's long-term objectives are being adequately reflected, and that the policy is in accordance with the legislation and regulations in force, as well as with the applicable national and international principles and recommendations.
This annual review should also include an assessment of the remuneration practices of subsidiaries abroad and off-shore establishments, in particular on the respective effect on the institution's risk, capital and liquidity management.
The referred assessment was carried out, in compliance with the applicable regulations, by the Bank's remuneration committee, with the units responsible for exercising control functions being actively involved, with no shortcomings being detected.
Lisbon, June 6, 2020
DEPUTY MANAGING DIRECTOR TECHNOLOGY AND OPERATIONS DEPUTY MANAGING DIRECTOR CORPORATE & INVESTMENT BANKING DEPUTY MANAGING DIRECTOR GENERAL SECRETARIAT DEPUTY MANAGING DIRECTOR COMMERCIAL OFFER AND MARKETING DEPUTY MANAGING DIRECTOR COMMERCIAL AREA - NORTH DEPUTY MANAGING DIRECTOR COMMERCIAL AREA - SOUTH DEPUTY MANAGING DIRECTOR OPERATIONS DEPUTY MANAGING DIRECTOR RECOVERIES AND DISINVESTMENT DEPUTY MANAGING DIRECTOR PEOPLE MANAGEMENT EXECUTIVE DIRECTOR FOREIGN CLIENTS AND RESIDENTS ABROAD EXECUTIVE DIRECTOR COMMERCIAL AND SEGMENT MANAGEMENT EXECUTIVE DIRECTOR BUSINESS AND INSTITUTIONAL BANKING EXECUTIVE DIRECTOR PRIVATE NETWORK AND SOUTHERN BUSINESS EXECUTIVE DIRECTOR PRIVATE BANKING EXECUTIVE DIRECTOR GENERAL SECRETARIAT EXECUTIVE DIRECTOR DISTRIBUTION MODELS EXECUTIVE DIRECTOR ANALYTICS AND DATA EXECUTIVE DIRECTOR PRIVATE NETWORK AND NORTHERN BUSINESS EXECUTIVE DIRECTOR STRATEGY AND FINANCIAL PLANNING EXECUTIVE DIRECTOR FINANCIAL AND CAPITAL MANAGEMENT EXECUTIVE DIRECTOR NORTHERN BUSINESS NETWORK EXECUTIVE DIRECTOR SOUTHERN BUSINESS NETWORK COMMERCIAL DIRECTOR COMMERCIAL AREA AZORES AND MADEIRA COMMERCIAL DIRECTOR AÇORES NETWORK DIRECTOR PROMOTION OF CONSTRUCTION INTERNATIONAL BUSINESS DIRECTOR SPECIAL PROJECTS DIRECTOR TECHNOLOGY DIRECTOR TAXATION DIRECTOR HEAD OF STRATEGY AND FINANCIAL PLANNING AREA EXECUTIVE DIR. INTERNAL AUDIT DEPUTY MANAGING DIRECTOR RISK RISK DIRECTOR EXECUTIVE DIRECTOR RISK HEAD OF RISK AREA DEPUTY MANAGING DIRECTOR ACCOUNTING AND MANAGEMENT CONTROL EXECUTIVE DIRECTOR ACCOUNTING AND MANAGEMENT CONTROL EXECUTIVE DIRECTOR COMPLIANCE AND CONDUCT
This information is provided in compliance with the provisions of Article 17 of Bank of Portugal Notice No. 10/2011, of December 29 (Official Gazette, 2nd Series, of January 9, 2012), in the section related to disclosure, in aggregate terms, of the annual amount of remuneration earned by workers who, not being members of the management or supervisory bodies of Banco Santander Totta, S. A., carry out their professional activity within the scope of the control functions provided for in Bank of Portugal Notice No. 5/2008, of July 1st, or hold a position with responsibilities in terms of risk-taking on behalf of the Bank or its clients, with a material impact on the Bank's risk profile (hereinafter, the "Managers").
| Amount of the fixed remuneration: | |
|---|---|
| Control functions | €768m |
| Other functions | €4,568m |
| Amount of variable remuneration: | |
| Control functions | €249m |
| Other functions | €2,255m |
| Number of beneficiaries: | |
| Control functions | 4 |
| Other functions | 37 |
The 2020 performance award retained for one year in the amount of €579 corresponds to 198,929 shares of Banco Santander, S. A., at a value per share of €2.91, as this is the market value (listed on the stock exchange) on the date of the respective allocation.
On the present date, the following amounts are still deferred:
| Bonuses - 2020 | |||||||
|---|---|---|---|---|---|---|---|
| 2022 | 2023 | 2024 | |||||
| Shares | Cash | Shares | Cash | Shares | Cash | ||
| Control functions | 5,398 | 14 | 5,398 | 14 | 5,396 | 14 | |
| Other functions | 40,327 | 108 | 40,327 | 108 | 40,322 | 108 |
As of the present date, two thirds of the deferred variable remuneration for 2020 are deferred, and one third of that remuneration has been paid.
| Bonuses - 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Paid in 2021 | 2022 | 2023 | ||||||
| Inflation adjust. | Shares | Cash | Shares | Cash | Shares | Cash | ||
| Control functions | - | 20 | 25 | 9 067 | 28 | 9 065 | 28 | |
| Other functions | - | 189 | 238 | 65 998 | 242 | 55 775 | 242 |
The shares amount delivered corresponds to 71,577 shares of Banco Santander, S. A., at a value per share of 2.91 euros, as this is the market value (listed on the stock exchange) on the date of the respective allocation.
As of the present date, one third of the deferred variable remuneration for 2019 is deferred, and one third of that remuneration has been paid.
| Bonuses - 2018 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Paid in 2021 | 2022 | |||||||
| Interests | Shares | Cash | Shares | Cash | ||||
| Control functions | 0 | 17 | 25 | 6,652 | 29 | |||
| Other functions | 1 | 147 | 216 | 51,761 | 222 |
The value of the shares delivered corresponds to 56,207 shares of Banco Santander, S. A., at a value of €32.91 per share, as this is the market value (quoted on the stock exchange) on the date of the respective allocation.
The variable remuneration paid for 2017 was as follows:
| Bonuses - 2017 | ||||||
|---|---|---|---|---|---|---|
| Paid in 2021 | ||||||
| Dividends | Shares | Cash | ||||
| Control functions | 0 | 11 | 23 | |||
| Other functions | 2 | 99 | 203 |
The shares amount delivered corresponds to 37,897 shares of Banco Santander, S. A., at a value per share of €2.91, as this is the market value (listed on the stock exchange) on the date of the respective allocation.
Managers enjoy the benefits of a supplementary health insurance to the Medical-Social Assistance Service (SAMS) provided for in the collective regulation of the banking sector, and of a personal accident insurance, as defined in the collective regulation of the banking sector.
Some Managers benefit from life insurance, as a result of a contractual link with the extinct Banco Santander Portugal or Banco Santander, S. A.
Some Managers benefit from a supplementary retirement plan, pursuant to the resolution of the Bank's Board of Directors of February 25, 2010.
The Remuneration policy in force for Banco Santander Totta's Managers and Managers was approved by the Board of Directors at the meeting of June 23, 2020.
Article 245(1)(c) of the Securities Code determines that each of the persons in charge of the company issue a declaration, the content of which is defined therein.
The members of the Board of Directors of Banco Santander Totta, S. A., identified by name herein, each signed the declaration transcribed hereunder:
"I hereby declare under the terms and for the purposes provided for in Article 245(1)sub-paragraph c) of the Securities Code that, as far as I am aware of, the Management Report, the Annual Accounts, the Legal Certification of Accounts and other Santander Totta, S. A.'s accounting documents, all relating to the year 2020, were prepared in accordance with the applicable accounting standards, conveying a true and appropriate image of the assets and liabilities, the financial situation and results of that company and of the companies included within its consolidation perimeter, and that the Management Report faithfully depicts the evolution of the business, performance and position of that company and of the companies included within its consolidation perimeter, containing a description of the main risks and uncertainties they face."
| José Carlos Brito Sítima | Pedro Aires Coruche Castro e Almeida |
|---|---|
| Chair | Deputy-Chair |
| Amílcar da Silva Lourenço | Ana Isabel Abranches Pereira de Carvalho Morais |
| Member | Member |
| Andreu Plaza Lopez | Daniel Abel Monteiro Palhares Traça |
| Member | Member |
| Inês Oom Ferreira de Sousa | Isabel Cristina da Silva Guerreiro |
| Member | Member |
| Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota | Manuel António Amaral Franco Preto |
| Member | Member |
| Manuel Maria de Olazabal y Albuquerque | Maria Manuela Machado Costa Farelo Ataíde Marques |
| Member | Member |
| Miguel Belo de Carvalho | Remedios Ruiz Macia |
| Member | Member |
Member
Article 245(1)(c) of the Securities Code determines that each of the persons in charge of the company issue a declaration, the content of which is defined therein.
The members of the Audit Committee of Banco Santander Totta, S. A., identified by name herein, have each signed the declaration transcribed hereunder:
"I hereby declare under the terms and for the purposes provided for in Article 245(1)sub-paragraph c) of the Securities Code that, as far as I am aware of, the Management Report, the Annual Accounts, the Legal Certification of Accounts and other Santander Totta, S. A.'s accounting documents, all relating to the year 2020, were prepared in accordance with the applicable accounting standards, conveying a true and appropriate image of the assets and liabilities, the financial situation and results of that company and of the companies included within its consolidation perimeter, and that the Management Report faithfully depicts the evolution of the business, performance and position of that company and of the companies included within its consolidation perimeter, containing a description of the main risks and uncertainties they face."
Chair: Ana Isabel Abranches Pereira de Carvalho Morais
Members: Daniel Abel Monteiro Palhares Traça Isabel Maria Lucena Vasconcelos Cruz de Almeida Mota Manuel Maria de Olazabal y Albuquerque Maria Manuela Machado Farelo Ataíde Marques
| Notes | 31-12-2020 | 31-12-2019 | |
|---|---|---|---|
| ASSETS | |||
| Cash, cash balances at central banks and other demand deposits | 5 | 4,535,815 | 3,492,664 |
| Financial assets held for trading | 6 | 916,039 | 1,085,927 |
| Non-trading financial assets mandatorily at fair value through profit or loss | 7 | 132,905 | 144,998 |
| Equity instruments | 132,905 | 144,998 | |
| Debt securities | - | - | |
| Financial assets at fair value through other comprehensive income | 8 | 7,704,190 | 5,862,349 |
| Equity instruments | 72,634 | 73,901 | |
| Debt securities | 4,491,485 | 5,788,448 | |
| Loans and advances | 3,140,071 | - | |
| Financial assets at amortised cost | 9 | 39,820,582 | 40,067,666 |
| Debt securities | 3,965,219 | 3,784,761 | |
| Loans and advances | 35,855,363 | 36,282,905 | |
| Derivatives – Hedge accounting | 10 | 23,719 | 56,246 |
| Investments in subsidiaries, joint ventures and associates | 11 | 62,582 | 59,240 |
| Tangible assets | 12 | 584,451 | 629,106 |
| Investment property | 250,531 | 252,513 | |
| Property, Plant and Equipment | 333,920 | 376,593 | |
| Intangible assets | 12 | 36,573 | 30,734 |
| Tax assets | 13 | 370,942 | 583,982 |
| Other assets | 14 | 164,151 | 248,371 |
| Non-current assets and disposal groups classified as held for sale | 15 | 51,460 | 44,043 |
| TOTAL ASSETS | 54,403,409 | 52,305,326 | |
| LIABILITIES | |||
| Financial liabilities held for trading | 6 | 941,528 | 1,114,703 |
| Financial liabilities measured at amortised cost | 16 | 47,723,787 | 46,053,754 |
| Deposits | 44,610,781 | 42,106,792 | |
| Debt securities issued | 2,907,350 | 3,728,941 | |
| Other financial liabilities | 205,656 | 218,021 | |
| Derivatives – Hedge accounting | 10 | 522,283 | 393,831 |
| Provisions | 17 | 231,324 | 223,029 |
| Commitments and guarantees given | 57,466 | 53,249 | |
| Other provisions | 173,858 | 169,780 | |
| Tax liabilities | 13 | 374,991 | 377,262 |
| Share capital repayable on demand | 18 | 64,692 | 64,620 |
| Other liabilities | 19 | 433,448 | 443,311 |
| TOTAL LIABILITIES | 50,292,053 | 48,670,510 | |
| EQUITY | |||
| Capital | 20 | 1,256,723 | 1,256,723 |
| Share premium | 20 | 193,390 | 193,390 |
| Equity instruments issued other than capital | 20 | 135,000 | 135,000 |
| Accumulated other comprehensive income | 20 | (7,360) | (224,423) |
| Items that will not be reclassified to profit or loss | (658,910) | (651,978) | |
| Items that may be reclassified to profit or loss | 651,550 | 427,555 | |
| Retained earnings | 20 | 951,973 | 513,134 |
| Other reserves | 20 | 1,367,315 | 1,314,979 |
| Treasury shares | 20 | (44,061) | (44,065) |
| Profit or loss attributable to owners of the parent | 21 | 257,749 | 489,451 |
| Minority interests [Non-controlling interests] | 22 | 627 | 627 |
| TOTAL EQUITY | 4,111,356 | 3,634,816 | |
| TOTAL LIABILITIES AND EQUITY | 54,403,409 | 52,305,326 | |
The accompanying notes form an integral part of the consolidated balance sheet for the year ended December 31, 2020
| Notes | 31-12-2020 | 31-12-2019 | |
|---|---|---|---|
| Interest income | 24 | 1,113,306 | 1,211,774 |
| Interest expenses | 24 | (328,356) | (357,303) |
| NET INTEREST INCOME | 784,950 | 854,471 | |
| Dividend income | 25 | 1,734 | 1,789 |
| Investments in subsidiaries, joint ventures and associates accounted for using other than equity method | 26 | 5,617 | 2,546 |
| Fee and commission income | 27 | 484,475 | 490,228 |
| Fee and commission expenses | 27 | (106,815) | (105,367) |
| Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 28 | 90,879 | 59,406 |
| Gains or losses on financial assets and liabilities held for trading, net | 28 | (9,299) | (935) |
| Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss, net | 28 | 3,577 | 1,255 |
| Exchange differences, net | 28 | 11,192 | 11,253 |
| Gains or losses on derecognition of non-financial assets, net | 29 | 132 | 718 |
| Other operating income | 30 | 20,057 | 24,373 |
| Other operating expenses | 30 | (11,699) | (13,952) |
| TOTAL OPERATING INCOME, NET | 1,274,800 | 1,325,785 | |
| Administrative expenses | 31 | (519,433) | (545,440) |
| Staff expenses | (321,795) | (342,253) | |
| Other administrative expenses | (197,638) | (203,187) | |
| Cash contributions to resolution funds and deposit guarantee schemes | 32 | (35,624) | (32,647) |
| Depreciation | 12 | (52,016) | (49,268) |
| Provisions or reversal of provisions | 17 | (65,849) | (996) |
| Commitments and guarantees given | (4,217) | (89) | |
| Other provisions | (61,632) | (907) | |
| Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss | 17 | (187,683) | 6,963 |
| Financial assets at fair value through other comprehensive income | 75 | (86) | |
| Financial assets at amortised cost | (187,758) | 7,049 | |
| Impairment or reversal of impairment on non-financial assets | 17 | (16,208) | (6,620) |
| Other profit or loss, net | 1.3 l) | (34,495) | (28,259) |
| Profit or loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | 33 | 4,990 | 28,706 |
| PROFIT OR LOSS BEFORE TAX FROM CONTINUING OPERATIONS | 368,482 | 698,224 | |
| Tax expense or income related to profit or loss from continuing operations | 13 | (110,733) | (208,762) |
| PROFIT OR LOSS FOR THE YEAR | 257,749 | 489,462 | |
| Attributable to minority interest [non-controlling interests] | 22 | - | 11 |
| Attributable to owners of the parent | 257,749 | 489,451 | |
The accompanying notes form an integral part of the consolidated statement of profit and loss for the year ended December 31, 2020
| 2020 | 2019 | ||||
|---|---|---|---|---|---|
| Attributable to the | Attributable to non- | Attributable to the | Attributable to non | ||
| shareholders of BST | controlling interests | shareholders of BST | controlling interests | ||
| Profit or loss for the year | 257,749 | - | 489,451 | - | |
| Other comprehensive income | 218,758 | - | 10,899 | - | |
| Items that will not be reclassified to profit or loss | |||||
| Actuarial gains or losses on defined benefit pension plans | |||||
| . Gross amount | (5,514) | - | (150,913) | - | |
| . Tax effect | (19) | - | 22,591 | - | |
| Fair value changes of equity instruments measured at fair value through other comprehensive income | |||||
| . Gross amount | (238) | - | 138 | - | |
| . Tax effect | - | - | - | - | |
| Items that may be reclassified to profit or loss | |||||
| Cash flow hedges | |||||
| . Fair value | 8,387 | - | (84,954) | - | |
| . Tax effect | (2,600) | - | 26,337 | - | |
| Debt instruments at fair value through other comprehensive income | |||||
| Valuation gains or (-) losses taken to equity | |||||
| . Fair value | (178,470) | - | 284,615 | - | |
| . Tax effect | 55,221 | - | (88,336) | - | |
| Change in business model | |||||
| . Initial impact | |||||
| . Gross amount | 373,172 | - | - | - | |
| . Tax effect | (115,683) | - | - | - | |
| . Fair value changes | |||||
| . Gross amount | 121,266 | - | - | - | |
| . Tax effect | (37,593) | - | - | - | |
| Share of other recognised income and expense of Investments in subsidaries, joint ventures and associates | |||||
| . Gross amount | 1,113 | - | 1,907 | - | |
| . Tax effect | (284) | - | (486) | - | |
| Total comprehensive income for the year | 476,507 | - | 500,350 | - |
The accompanying notes form an integral part of the consolidated statements of other comprehensive income for the years ended December 31, 2020
(Amounts expressed in thousands of Euros)
| Share | Equity instruments | Accumulated other comprehensive income | Profit or loss attributable | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Capital | premiun | issued other than capital |
Fair value |
Taxes | Retained earnings |
Other reserves |
Treasury shares |
to owners of the parent |
Minority interests |
Total | |
| Balances as at December 31, 2018 | 1,256,723 | 193,390 | 135,000 | (288,315) | 52,993 | 511,242 | 1,264,418 | (44,022) | 469,951 | 919 | 3,552,299 |
| Appropriation of net income | |||||||||||
| . Transfer to reserves | - | - | - | - | - | 1,892 | 468,059 | - | (469,951) | - | - |
| . Distribution of dividends | - | - | - | - | - | - | (422,873) | - | - | - | (422,873) |
| Acquisition of own shares | - | - | - | - | - | - | - | (43) | - | - | (43) |
| Long term incentives - shares | - | - | - | - | - | - | (332) | - | - | - | (332) |
| Sale of equity instruments at fair value | |||||||||||
| through other comprehensive income | - | - | - | - | - | 5,799 | - | - | - | 5,799 | |
| Other | - | - | - | - | - | (92) | - | - | (292) | (384) | |
| Consolidated comprehensive income in 2019 | - | - | - | 50,793 | (39,894) | - | - | - | 489,451 | 500,350 | |
| Balances as at December 31, 2019 | 1,256,723 | 193,390 | 135,000 | (237,522) | 13,099 | 513,134 | 1,314,979 | (44,065) | 489,451 | 627 | 3,634,816 |
| Appropriation of net income | |||||||||||
| . Transfer to reserves | - | - | - | - | - | 438,839 | 50,612 | - | (489,451) | - | - |
| . Distribution of dividends | - | - | - | - | - | - | - | - | |||
| Acquisition of own shares | - | - | - | - | - | - | - | 4 | - | - | 4 |
| Long term incentives - shares | - | - | - | - | - | - | - | - | |||
| Sale of equity instruments at fair value | |||||||||||
| through other comprehensive income | - | - | - | (2,275) | 580 | - | 1,699 | - | - | - | 4 |
| Other | - | - | - | - | - | - | 25 | - | - | - | 25 |
| Consolidated comprehensive income in 2020 | - | - | - | 319,716 | (100,958) | - | - | - | 257,749 | - | 476,507 |
| Balances as at December 31, 2020 | 1,256,723 | 193,390 | 135,000 | 79,919 | (87,279) | 951,973 | 1,367,315 | (44,061) | 257,749 | 627 | 4,111,356 |
The accompanying notes form an integral part of the consolidated statements of changes in shareholders' equity for the years ended December 31, 2020
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
| Notes | 31-12-2020 | 31-12-2019 | |
|---|---|---|---|
| CASH FLOW FROM OPERATING ACTIVITIES: | |||
| Interest and commissions received | 1,520,490 | 1,588,051 | |
| Payment of interest and commissions | (381,592) | (436,225) | |
| Payment to staff and suppliers | (534,340) | (602,802) | |
| Pension Fund contributions | 35 | (19,400) | (176,573) |
| Foreign exchange and other operating results | (16,074) | (10,973) | |
| Recovery of uncollectable loans | 7,317 | 8,507 | |
| Operating results before changes in operating assets and liabilities | 576,401 | 369,985 | |
| (Increase) / decrease in operating assets | |||
| Loans and advances to credit institutions | 751,463 | (97,151) | |
| Financial assets held for trading | 169,888 | 130,119 | |
| Credit granted and other balances receivable at amortized cost | (2,997,582) | 494,173 | |
| Assets and liabilities at fair value through profit or loss | 24,731 | 58,874 | |
| Non-current assets held for sale | (48,149) | 13,443 | |
| Investment properties | 1,981 | 45,113 | |
| Other assets | 52,104 | 58,262 | |
| (2,045,564) | 702,833 | ||
| Increase / (decrease) in operating liabilities | |||
| Resources from financial institutions | 2,083,719 | (344,176) | |
| Resources from customers and other debts | 407,697 | 1,941,025 | |
| Financial liabilities hedl for trading | (173,175) | (127,772) | |
| Other liabilities | (9,344) | (30,171) | |
| 2,308,897 | 1,438,906 | ||
| Net cash flow from operating activities before income taxes | 839,734 | 2,511,724 | |
| Income tax paid | (192,813) | (38,012) | |
| Net cash flow from operating activities | 646,921 | 2,473,712 | |
| CASH FLOW FROM INVESTING ACTIVITIES: | |||
| Dividends received | 1,734 | 1,789 | |
| Purchase of financial assets at fair value through other comprehensive income | (153,454) | (1,060,782) | |
| Sale of financial assets at fair value through other comprehensive income | 1,396,626 | 826,814 | |
| Other financial assets mandatory at fair value through profit or loss | 12,093 | 31,880 | |
| Income from financial assets at fair value through other comprehensive income | 83,566 | 127,852 | |
| Purchase of tangible and intangible assets | (50,920) | (98,888) | |
| Sale of tangible assets | 7,341 | (6,559) | |
| Net cash flow from investing activities | 1,296,986 | (177,894) | |
| CASH FLOW FROM INVESTING ACTIVITIES: | |||
| Issuance of securities and subordinated debt | 320,000 | - | |
| Redemption of securities and subordinated debt | (1,149,845) | (876,350) | |
| Interest paid on bonds issued and other | (26,601) | (48,974) | |
| Dividends paid | 20 | - | (422,873) |
| Net cash flow from financing activities | (856,446) | (1,348,197) | |
| Net Increase / (Decrease) (a) in cash and cash equivalents | 1,087,461 | 947,621 | |
| Cash and cash equivalents at the beginning of the period | 3,448,354 | 2,500,733 | |
| Cash and cash equivalents at the end of the period | 4,535,815 | 3,448,354 | |
The accompanying notes form an integral part of the consolidated statements of cash flows for the years ended December 31, 2020
Banco Santander Totta, S. A. (hereinafter also "Bank" or "Group") was established in 1864 and was formerly known as Companhia Geral de Crédito Predial Português, S. A. (CPP), and it has its registered office in Portugal at Rua do Ouro, 88, Lisbon. The Bank was nationalised in 1975 and transformed into a state-owned public limited company in 1990. On December 1975, 1992, the Bank's capital was reprivatized by means of a public share offering at a special session of the Lisbon Stock Exchange.
As from December 2000, the Bank joined the Santander Group, following the acquisition of Banco Totta & Açores, S. A. (totta) by the Group. The main balances and transactions maintained with companies of the Santander Group during 2020 and 2019 are detailed in Note 37. The Bank is included in the Banco Santander, S. A. (ultimate parent) consolidation.
On December 16, 2004, the Totta demerger/merger operation was registered, under which its financial holdings in Foggia, SGPS, S. A. and in Totta Seguros – Companhia de Seguros de Vida, S. A., were spun off, the remainder of its business, together with Banco Santander Portugal, S. A. (BSP), having been incorporated by merger into CPP, which changed its name to the present one.
On May 3, 2010, the Bank carried out the merger by incorporation of Banco Santander de Negócios Portugal, S. A. (BSN). The transaction was recorded for accounting purposes with reference to January 1, 2010.
On April 1, 2011, the Bank carried out the merger by incorporation of Totta Crédito Especializado – Instituição Financeira de Crédito, S. A. (Totta IFIC).
On December 20, 2015, following the resolution measure applied by the Bank of Portugal to Banif – Banco Internacional do Funchal, S. A. (Banif), the Bank acquired the banking business and a set of assets, liabilities, offbalance-sheet items and assets under management of this entity.
Following the decision of the Single Resolution Board with regard to the application of a resolution measure to Banco Popular Español, S. A., taken on June 7, 2017, through the instrument for the sale of the whole of the business, with the transfer of the whole of the shares representing the share capital of Banco Popular Español, S. A., to Banco Santander, S. A., the latter came to hold indirectly the whole of the share capital and voting rights of Banco Popular Portugal, S. A. (BAPOP). In this regard, on December 27, 2017, the Bank purchased the entire capital and voting rights of BAPOP, carrying out on that date the merger by incorporation.
The Bank is engaged in obtaining third-party financial resources, in the form of deposits and otherwise, which it invests, together with its own funds, in every sector of the economy, mainly in the form of extending credit or in securities, while also providing other banking services in the country and abroad.
The Bank has a nationwide network of 434 branches (497 branches as at December 31, 2019). It also has several branches and representation offices abroad, and holdings in subsidiaries and associated companies.
The Bank's financial statements for the year ended on December 31, 2020, were approved at the Board of Directors meeting on April 20, 2021. These financial statements are also subject to approval by the Shareholders' General Meeting, but the Board of Directors is convinced that they will be approved with no significant changes.
The Group's consolidated financial statements have been prepared on a going concern basis, based on the books and accounting records maintained in accordance with the principles enshrined in the International Financial Reporting Standards (IAS/IFRS), as endorsed by the European Union, in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of July 19 and effective January 1, 2020, transposed into Portuguese law by Decree-Law 35/2005, of February 17 and by Bank of Portugal Notice No. 5/2005 of December 30. As regards Group companies that use different accounting standards, adjustments are made for conversion to the IAS/IFRS.
The accounting policies used by the Bank in preparing the consolidated financial statements as at December 31, 2020, are consistent with those used in preparing the consolidated financial statements with reference to December 31, 2019.
During the financial year 2020, the Bank renamed its financial statements to comply with the guidelines of the Regulation (EU 2017/1443 of June 29 2017).
The consolidated financial statements are presented in thousands of euros, rounded to the nearest thousand.
In preparing the financial statements, the Bank follows the historic cost convention, modified when applicable, by measuring the fair value of: - Financial assets held for trading; - Financial assets not mandatorily held for trading must be accounted for at fair value through profit or loss; - Financial assets accounted for at fair value through other comprehensive income; - Derivatives.
The preparation of financial statements in conformity with the IFRS requires the use of certain critical accounting estimates, implying also judgement by the Board as to the application of the Group's accounting policies. The areas of the financial statements involving a greater degree of judgement or complexity, or the areas in which the assumptions and estimates are significant in the preparation of this set of financial statements are detailed in Note 2.
The Bank's financial statements have been prepared on a going concern basis, as the Board of Directors considers that the Bank has the necessary resources to continue operating. The assessment made by the Board of Directors is based on a wide range of information related to current and future conditions, including projections of future profitability, cash flows, capital requirements and sources of financing. The projections made are based on different scenarios, and also include the impact on the Bank's activity of the uncertainty caused by the Covid - 19 pandemic.
Within the scope of the application of the IFRS as approved by the European Union, the Bank adopted the following standards, amendments and interpretations with reference to January 1, 2020:
IFRS 3 (Amendment), Definition of business. This amendment is a revision to the definition of business for the purpose of accounting for business combinations. The new definition requires that an acquisition include an input and a substantial process that jointly manage outputs. The outputs are now defined as goods and services that are provided to customers, which generate income from financial investments and other income, excluding returns in the form of reductions of costs and other economic benefits for shareholders. Concentration teste are now allowed to determine whether a transaction relates to the acquisition of an asset or a business.
IFRS 9, IAS 39 and IFRS 7 (Amendment), Reform of the reference interest rates phase 1. These amendments are part of the first phase of the IBOR reform of the IASB and allow exemptions related to the reform of the benchmark for the reference interest rates. The exemptions relate to hedge accounting in terms of: i) risk components; ii) "highly likely" requirement; iii) prospective valuation; iv) retrospective effectiveness test (for those adopting IAS 39); and v) recycling the cash-flow hedge reserve, and its objective is that the reform in of the reference interest rates will not determine the termination of hedge accounting. However, any hedge ineffectiveness determined must continue to be recognized in the income statement.
Within the scope of the "Reform of the reference interest rates - phase 1" and in order to manage and control the revision of reference interest rates (which include, among others, EONIA, LIBOR and EURIBOR: The EONIA will be discontinued in January 2022, LIBOR should be discontinued in December 2021, and EURIBOR remains a valid index), the Santander Group created a working group, which includes the Bank, to ensure a smooth transition in all entities and assess possible impacts.
In the wake of the standards and interpretations referred to above no material impacts were identified.
Additionally, by the date of approval of these financial statements, the following standards and improvements were issued and have not yet been adopted by the Bank by virtue of their application not yet being mandatory or they have not yet been endorsed by the European Union:
the change in lease payments results in a revised remuneration of the lease that is equal to, or less than, the remuneration immediately before the change; ii) any reduction of the lease payments only affects payments due on or up to June 30, 2021; and iii) there are no significant changes to other terms and conditions of the lease. Lessees who choose to apply this exemption, account for the change in rental payments, as lease variable rents in the period(s) in which the event or condition that triggers the payment reduction occurs. This amendment is applied retrospectively with the impacts reflected as an adjustment to retained earnings (or other component of equity, as appropriate) at the beginning of the annual reporting period in which the lessee applies the amendment for the first time.
IFRS 3 (amendment) 'References to the conceptual framework' (to be applied in periods beginning on or after June 1, 2022). This amendment is still subject to endorsement by the European Union. This amendment updates the references to the Conceptual Framework in the wording of IFRS 3, no changes having been introduced to the accounting requirements for concentrations of business activities. The amendment also clarifies the accounting treatment to be adopted in respect of liabilities and contingent liabilities under IAS 37 and IFRIC 21, incurred separately versus those included in a business combination. This amendment is applied retrospectively.
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (amendments), 'Reform of the reference interest rates phase 2'. (to be applied in periods beginning on or after January 1, 2021). This amendment is still subject to endorsement by the European Union. These amendments address issues that arise during the reform of a reference interest rate, including the replacement of a reference interest rate with another alternative, allowing for the adoption of exemptions such as: i) changes in the hedging designation and documentation; ii) amounts accumulated in the cash flow hedge reserve; iii) retrospective assessment of the effectiveness of a hedging relationship under IAS 39; iv) changes in hedging ratios for groups of items; v) presumption that an alternative reference rate, designated as a risk component not specified by contract, is separately identifiable and qualifies as a hedged risk; and vi) updating the effective interest rate, without recognizing gain or loss, for financial instruments measured at amortized cost with changes in contractual cash flows as a result of the IBOR reform, including leases that are indexed to an IBOR.
In the wake of the standards and interpretations referred to above no material impacts were identified.
The consolidated financial statements now presented reflect the assets, liabilities, income, expenses, other comprehensive income and cash flows of the Group and of the entities directly or indirectly controlled by it (Note 4), including special-purpose entities.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it has the power to direct the relevant activities of the entity, and when it is exposed to, or is entitled to, the variability in returns arising from its involvement with that entity and can take over them through the power it has over relevant activities of that entity. The financial statements of subsidiary companies are consolidated using the global integration method from the moment the Group takes control over its
activities until the moment when control ceases. Transactions and balances between the companies subject to consolidation have been eliminated. In addition, when applicable, consolidation adjustments are made in order to ensure consistency in the application of accounting principles. The amount corresponding to the participation of third parties in the subsidiary companies that were consolidated using the global integration method is presented in the item "Minority interests without control" (Note 22). Additionally, as a result of the application of IFRS 10 - "Consolidated Financial Statements", the Group includes in its consolidation perimeter entities with special purposes, namely vehicles and funds created in the scope of securitization operations, when exercising effective financial and operating control over them and when it is exposed to the majority of risks and benefits associated with the respective activity.
The accumulated losses of a subsidiary are allocated to the non-controlling interests in the proportion held, which might imply recognition of non-controlling interests of a negative amount.
In a step-acquisition transaction resulting in the acquisition of control, any non-controlling interest previously held is revalued at fair value with a contra entry in profit or loss at the time of calculation of the goodwill. At the time of a partial sale, resulting in loss of control over a subsidiary, any remaining non-controlling interest held is revalued at fair value on the date of sale and the gain or loss resulting from such revaluation is recorded with a contra entry in profit or loss.
On the other hand, the Group manages assets held by investment funds, whose units are held by third parties. The financial statements of investment funds are not included in the Group's consolidation perimeter, except when the latter holds control of these investment funds, namely when it has more than 50% of its investment units, in which case those funds are consolidated by the global integration method. In accordance with IAS 32 and IFRS 10, the amount corresponding to the participation of third parties in investment funds that have been consolidated by the global integration method is presented as a liability in the item "Share capital redeemable at sight". Non-controlling interests in the results of the Novimovest Fund are recognized as a deduction from the item "Other operating income / expenses", taking into account the nature of the main income earned by that fund.
Financial investments in associated companies are carried using the equity method as from the moment the Group comes to have significant control until such time as it ceases. Associated companies are entities in which the Group has significant influence but does not control them. Significant influence is understood to exist when one has a (direct or indirect) financial holding of more than 20% but less than 50% (with voting rights proportionate to the holding) or the power to take part in decisions on the financial and operational policies of an entity, but without control or joint control over it.
Under the equity method, the consolidated financial statements include the portion attributable to the Group's total equity and of the profits and losses recognised by the associated companies. Dividends allocated by associated companies reduce the amount of the investment made by the Group. The Group performs impairment tests for its investments in associated companies whenever there are signs of impairment. Impairment losses recorded in prior periods may be reversible, up to the limit of the accumulated losses.
Goodwill corresponds to the positive difference between the acquisition cost of the business and the actual equivalent percentage in the fair value of the assets, liabilities and contingent liabilities of the subsidiaries and associates acquired, as well as any equity instruments issued by the Group. With a minimum annual frequency, the Group performs goodwill impairment tests in accordance with the requirements of IAS 36 – Impairment of assets. For this purpose, goodwill is allocated to cash-flow
generating units, never greater that the group of assets comprising each of the Group's operational segments, determination of the respective recoverable amount being based on estimates of future cash flows updated on the basis of discount rates considered appropriate by the Group, based on appropriate, accepted methods. Impairment losses related to goodwill are recorded in profit or loss for the year and cannot be reversed. The goodwill of associated companies is included in the carrying amount of the holding, and is subject to impairment tests.
On the date of the first adoption of the IFRS, the Group decided not to apply IFRS 3 – Business combinations retrospectively. Thus, the goodwill resulting from acquisitions that occurred until January 1, 2004, is deducted from equity in keeping with the previous accounting policy. On the other hand, the negative consolidation differences previously recorded have been added to equity, as permitted by IFRS 1.
Acquisitions of subsidiaries and associated companies arising after January 1, 2004, were recorded using the purchase method. The Group recognised the fair value of the assets acquired and liabilities assumed or valued them in accordance with the International Financial Reporting Standards applicable to certain assets and liabilities in which the former is not the measurement principle laid down in IFRS 3 – Business combinations. The acquisition cost was equal to the amount determined on the date of purchase of the assets acquired and liabilities incurred or assumed and of the contingencies, under the terms of IFRS 3. In this way, the Group applied IAS 19 to the assets acquired and liabilities assumed related with employee benefits and IAS 12 to the assets acquired and liabilities assumed in connection with income taxes.
Additionally, whenever it is determined that the fair value of the assets acquired and liabilities incurred or assumed – and after its confirmation under the terms of IFRS 3 – is greater than the acquisition cost (gain on the purchase at a discount), the difference is recognised in the income statement. Under the terms of IFRS 3, the Group has a maximum period of one year, from the date of acquisition, to obtain missing information and possibly correct retrospectively the value of the assets acquired and liabilities assumed and, consequently, the result determined at the time of the purchase.
With application of the amendments to IFRS 3 and IAS 27, the Group defined as its accounting policy valuation at fair value through profit or loss in cases where there is change of control by acquisition of subsidiaries in different stages. In these cases, the holding acquired prior to the moment of change of control is revalued at fair value through profit or loss. Goodwill is determined on that date as the difference between the total acquisition cost and the proportion of the fair value of the assets and liabilities of the subsidiary. Similarly, on application of the amendments to the standards referred to above, the Group revalued in profit or loss the holdings in which it had lost control.
The accounting policies of subsidiaries and associates are altered, where necessary, to ensure that they are applied consistently by all Group companies.
The more significant accounting policies used in the preparation of the attached financial statements were as follows:
The Bank uses the accrual-accounting principle for most items of the financial statements. Thus, expenses and income are recorded as and when generated, regardless of the time of payment or receipt.
The Bank's accounts are prepared in the currency of the economic environment in which it operates ("functional currency"), and are expressed in euros.
Transactions in currencies other than the functional currency and the corresponding income and expenses are recorded at the exchange rate ruling on the date on which they occur. On each reporting date, assets and liabilities expressed in a currency other than the functional currency are translated at the closing exchange rate (Bank of Portugal fixing).
As of December 31, 2020, the exchange rates of the main currencies other than the functional currency were:
USD – 1.22710 GBP – 0.89903
c) Financial instruments
The classification of financial assets follows three main criteria:
In this connection, the categories of financial assets laid down for debt financial instruments are:
The Bank assessed its business models on the basis of a broad set of indicators of which emphasis is given to its business plan and current risk-management policies. For the "Hold to Collect"
business model, in order to assess the frequency and materiality of the sales, quantitative thresholds were defined based on past experience. The sales projected for the financial assets classified in this business model do not exceed the thresholds defined by the Group.
The other financial instruments, specifically equity instruments and derivatives, are by definition classified at fair value through profit or loss. For equity instruments, there is the irrevocable option of designating that all fair-value variations are recognised under other comprehensive income, in which case, only the dividends are recognised in profit or loss, because gains and losses are not reclassified to profit or loss even when they are derecognised/sold.
According to the requirements of IFRS 9, reclassification between financial instrument portfolios can only take place if the Bank decides to change the business model to management of a portfolio of financial assets. According to the mentioned standard, these changes must be infrequent and must comply with the following requirements, namely:
In March 2020, due to the events mentioned in Note 8, the Bank's Management took the decision to discontinue the activity of granting loans that require stable financing and in large amounts and terms, within this activity is direct financing to the Portuguese state. This decision was (i) duly documented internally, (ii) disseminated throughout the Bank's structure, and (iii) duly communicated to all stakeholders. Management understands that credits impacted by changes in the business model have a significant impact on the Bank's balance sheet, as can be seen in Note 8.
In view of the above, and once all the impact requirements defined in IFRS 9 have been met, the Bank proceeded to reclassify the respective contracts, and they are now measured at fair value through other comprehensive income, when previously they were measured at amortized cost. The difference between the fair value and the respective balance sheet value on the reclassification date, was recognized in other comprehensive income, as shown:
| Measurement | ||||
|---|---|---|---|---|
| At fair value through | ||||
| At amortized | other comprehensive | |||
| cost | income | |||
| Credit granted | 2,300,000 | 2,300,000 | ||
| Interest receivable | 49,478 | 49,478 | ||
| Fair value | - | 373,172 | ||
| Value adjustments of hedged assets | 258,180 | 258,180 |
Gains and losses obtained on the sale of credits on a definitive basis are recorded in the income statement item "Impairment of financial assets at amortized cost". These gains or losses correspond to the difference between the selling price that was set and the carrying amount of those assets, net of impairment losses.
The Bank does not derecognise the credits sold in the securitisation operations when:
Credits sold and not derecognised are carried under "Financial assets at amortized cost" and are subject to accounting criteria identical to other credit operations. Interest and commissions associated with the securitised credit portfolio are accrued in keeping with the respective term of the credit operations.
Maintenance of the risk and/or benefit is represented by bonds of a higher risk issued by the securitisation vehicle. The amount carried under assets and liabilities represents the proportion of the risk/benefit held by the Bank (ongoing involvement).
The bonds issued by securitisation vehicles and held by Group entities are eliminated in the consolidation process.
Assets are derecognised when (i) the Bank's contractual right to receive their cash slows expires, (ii) the Bank has substantially transferred all the risks and benefits inherent in holding them; or (iii) notwithstanding retaining a part, but not substantially the whole, of the risks and benefits inherent in holding them, the Bank shall have transferred control over the assets.
Liabilities for guarantees provided and irrevocable commitments are recorded in off-balance sheet items for the value-at-risk, and interest flows, commissions or other income are recorded in profit or loss over the life of these transactions.
Performance guarantees are initially recognised at fair value, which is normally evidenced by the amount of the fees received over the duration of the contract. At the time of contractual termination, the Bank has the right to reverse the guarantee, the amounts being recognised under Financial assets at amortized cost after the transfer of the compensation of losses to the beneficiary of the guarantee.
Income from fees and commissions obtained in the execution of a significant act, such as commissions on loan syndications, are recognised in profit or loss when the significant act has been finalised.
Income from fees and commissions obtained as the services are provided are recognised in profit or loss for the period to which it refers.
Income from fees and commissions that form an integral part of the remuneration of financial instruments are recorded in profit or loss using the effective interest rate method.
Recognition of expenses with fees and commissions is carried out using the same criteria adopted for income.
Financial assets at fair value through other comprehensive income include equity and debt instruments that are recorded at the time of their initial recognition at fair value, plus transaction expenses, and they are subsequently measured at fair value. Gains and losses related to subsequent variation of the fair value are reflected under a specific equity heading named 'Other Accumulated Comprehensive Income' until their sale, when they are reclassified to profit or loss for the period, with the exception of equity instruments that remain in share capital.
The interest is calculated in accordance with the effective interest-rate method and carried in profit or loss under Interest income.
Income from floating-rate securities is recognised in the income statement under 'Dividend Income' on the date when they are allocated. In accordance with this criterion, interim dividends are recorded as income in the period in which its distribution is decided.
Held for trading financial assets include floating income securities traded on active markets acquired for the purpose of their sale in the short term. Trading derivatives with net amount receivable (positive fair value), as well as the options bought are included under Financial assets held for trading. Trading derivatives with net amount payable (negative fair value), as well as the options sold are included under Financial liabilities held for trading.
Financial assets and liabilities held for trading and financial assets and liabilities not held for trading must be carried at fair value through profit or loss are initially recognised at fair value, the expenses associated with the transactions being recognised in profit or loss at the initial moment. Gains and losses arising from subsequent valuation at fair value are recognised in the income statement , under the headings "Gains or losses on financial assets and liabilities held for trading, net value" and "Gains or losses on financial assets not held for trading mandatorily carried at fair value through profit or loss, net value", respectively.
The fair value of financial assets held for trading and traded on active markets is their most representative bid-price, within the bid-ask interval, or their closing price on the reporting date. If a market price is not available, the fair value of the instrument is estimated on the basis of valuation techniques, including pricing models or discounted cash flow techniques. When discounted cash flow techniques are used, the future financial flows are estimated in keeping with management's expectations, and the discount rate used corresponds to the market rate for financial instruments of similar characteristics. In the price valuation models, the data used correspond to information on market prices.
The fair value of derivative financial instruments that are not traded on the stock market, including the credit-risk component assigned to the parties involved in the transaction (Credit Value Adjustments and Debit Value Adjustments), is estimated based on the amount that would be received or paid to settle the contract on the date in question, considering current market conditions, as well as the credit rating of the parties involved.
Financial liabilities are initially valued at their fair value, which normally corresponds to the consideration received, net of transaction costs and are subsequently recorded at amortized cost, in accordance with the effective interest rate method, with the exception of the requirement to recognize the changes in the fair value of financial liabilities resulting from changes in the entity's own credit risk, to be recognized in equity, rather than in results as previously required, unless this accounting treatment generates "accounting mismatch". Subsequent reclassifications of these variations to profit or loss are not allowed, not even at the time of the repurchase of these liabilities.
Financial liabilities correspond mainly to the resources of central banks and of other credit institutions, customers' deposits and bond issues.
Securities sold with repurchase agreement are kept in the portfolio where they were originally recorded. Funds received are recorded on the settlement date, in a specific account under liabilities, with accrual of the respective interest payable.
The Bank repurchases bonds issued in the secondary market. Purchases and sales of own bonds are included in the proportionality under the respective items debt issued (principal, interest and commissions), and the difference between the amount settled and the write-off, or the increase of liabilities, are recognised immediately in profit or loss.
The new IFRS 9 hedge accounting model aims not only to simplify the process of creating and maintaining hedging relationships, but also to align the accounting of these relationships with the risk-management activities of each institution, extending the eligibility of a greater number of hedged and hedging instruments, but also types of risk.
The new standard still does not provide rules for the accounting of hedges called macro-hedging, and these are still to be defined by the IASB. Because of this limitation of the IFRS 9, and with regard to hedge accounting, institutions may choose to maintain the accounting principles of IAS
39 (only for hedge accounting) until the completion of the macro-hedging project by the IASB. In this framework, the Bank decided to continue applying the hedge accounting defined within the scope of IAS 39.
The Bank uses derivative financial instruments in particular to hedge the interest-rate risk arising from financing and investment activities. Derivatives that qualify for hedge accounting are carried at their fair value and gains or losses are recognised in keeping with the Bank's hedge-accounting model.
Under the terms of the standard, application of hedge accounting is only possible when all the following requirements are met:
Hedge accounting is only applied when all those requirements are met. Likewise, if at any time the hedge effectiveness ceases to be in the range between 80% and 125%, hedge accounting is discontinued.
Gains or losses on the revaluation of a hedging derivative financial instrument are recognized in profit or loss. Should the hedge be effective, the gains or losses resulting from the change in fair value of the hedged item relative to the risk being hedged are also recognised in profit or loss.
If a hedging instrument matures or is terminated early, the gain or loss recognised in the valuation of the hedged risk as value adjustments of the hedged items is amortised over its remaining term. If the hedged asset or liability is sold or settled, all amounts recognised in the valuation of the hedged risk are recognised in profit or loss for the period and the derivative financial instrument is transferred to the trading portfolio. If the hedge is no longer effective, the gains or losses recognised as value adjustments of the hedged items are amortised through profit or loss during their remaining term.
In the case of exchange-rate hedges of monetary items, hedge accounting is not applied, and the gain or loss on the derivative is recognised in the income statement, as are foreign-exchange variations of the monetary items.
Cash-flow hedges are understood to be the hedge of an exposure relating to the variability of future cash flows, which may be assigned to a specific risk associated with a recognised asset or liability, or to a highly probable future transaction, and may affect profit or loss.
In this sense, the Bank contracted financial derivatives to hedge the future interest flows of part of its mortgage loan portfolio remunerated at a floating rate. It also contracted financial derivatives instruments to hedge future flows from the sale of part of its portfolio at fair value through other comprehensive income.
Application of cash-flow hedge accounting is subject to the general requirements referred to above for hedge accounting and entails the following records:
Additionally, the gain or loss on the hedging instrument recognised in equity corresponds to the lesser of the following amounts:
In this sense, and if applicable, the part not recognised in equity of the gain or loss on the hedging instrument is reflected in profit or loss.
Cash-flow hedge accounting must be discontinued if the hedging instrument expires or is terminated early, if the hedge ceases to be effective or if it is decided to terminate the designation of the hedging relationship. In these cases, the cumulative gain or loss resulting from the hedging instrument must continue to be separately recognised in equity, and is reflected in profit or loss in the same period of time as the recognition in profit or loss of the gains or losses of the hedged item. Should the Bank hedge an operation that is not expected to be realised, the amount of derivative still recognised in Equity is immediately transferred to profit or loss, the derivative being transferred to the Bank's trading portfolio.
IFRS 9 determines that the concept of impairment based on expected losses is to be applied to all financial assets except for financial assets at fair value through profit or loss and equity instruments measured at fair value through other comprehensive income.
The Bank applies the IFRS 9 concept to financial assets at amortised cost, debt instruments and loans and advances measured at fair value through other comprehensive income, off-balance sheet exposures, finance leasing, other receivables, financial guarantees and loan commitments not carried at fair value.
With the exception of purchased or originated credit-impaired financial assets (referred to as POCI) (which are described separately below), impairment losses must be estimated through a provision for losses of an amount equal to:
• expected loss for credit risk at 12 months, that is, total estimated loss resulting from default events of the financial instrument events that are possible within 12 months of the reporting date (called Stage 1);
• or expected loss for credit risk to maturity, that is, the total estimated loss resulting from all possible default events throughout the life of the financial instrument (referred to as Stage 2 and Stage 3). A provision for expected loss per credit risk to maturity is required for a financial instrument if the credit risk of that financial instrument has increased significantly since the initial recognition or if the financial instrument is impaired.
The expected loss for credit risk is an estimate weighted by the probability of the present value of the loan losses. This estimate results from the present value of the difference between the cash flows due to the Bank under the contract and the cash flows that the Bank expects to receive arising from the weighting of multiple future economic scenarios, discounted at the effective interest rate of the financial instruments.
The Bank measures the expected loss individually or on a collective basis for portfolios of financial instruments that share similar risk characteristics. The adequacy of the provision for losses is based on the present value of expected cash flows of the asset using the original effective interest rate of the asset, regardless of being measured individually or collectively.
A financial asset is impaired when one or more events that have a negative impact on the estimated future cash flows of the financial asset have occurred. Financial assets with a reduction of the recoverable amount of loans are referred to as Stage 3 assets. The Bank has adopted the internal definition of non-performing loans as the criterion for the identification of Stage 3 loans. The internal definition of non-performing loans is governed by objective and subjective criteria, and is used for the management of the Bank's credit risk and for the calculation of the regulatory capital using advanced credit-risk methods.
Financial assets classified as POCI are treated differently, in that they are in an impaired situation. In the revaluation of assets, the expected loss to maturity is applied. For these assets, the Bank classifies them on Stage 3 at the net amount of the expected loss. The associated interest is calculated by applying the effective interest rate to the net amount.
The Group monitors all financial assets in order to assess whether there has been a significant increase of the credit risk since their initial recognition. If there has been a significant increase of the credit risk, the Bank estimates the loan-loss provision to maturity (LTPD (life time probability of default)) and not over 12 months.
The Bank uses scoring and rating systems for internal credit-risk management. These notations allow an assessment of the risk level of the transactions or of the customer at all times and they are considered in the credit-risk approval and monitoring decisions. The models are based on series of data that are considered predictors of the risk of default, which apply judgements, that is, the credit-risk notations are defined using qualitative and quantitative factors that are indicative of the risk of default. The notations consider current characteristics and past events, and their significance for the level of risk is studied.
The Bank uses different criteria to determine if the credit risk has increased significantly per asset portfolio, in particular:
The main concepts used to measure the expected credit-risk loss are:
These concepts are calculated through statistical models developed internally and are adjusted to reflect prospective information.
PD is an estimate of the likelihood of default over a given time horizon. The models that have been developed estimate this probability over sufficiently broad horizons for application in the residual maturity of the financial assets. The calculation is based on statistical classification models (rating and scoring) that detail the level of risk of the individual counterparties. The classification models (rating and scoring) are used in management and are based on internal data comprising both quantitative and qualitative factors. The estimate is based on current conditions, adjusted to take into account the estimates of future conditions that will affect the PD.
LGD is an estimate of the total loss, should the asset enter into default. It is based on the difference between the contractual cash flows due and those that the Bank expects to receive, taking into account the cash flows of existing guarantees. The LGD models for secured assets consider the valuation of the guarantees, taking into account selling expenses, the time to execute the guarantees, collateralisation level, etc. The LGD models for unsecured assets consider recovery time, recovery rates, and recovery expenses. The calculation is based on cash flows discounted at the original effective interest rate of the loan. The estimate is based on current conditions, adjusted to take into account the estimates of future conditions that will affect the LGD.
EAD is an estimate of exposure on a date of future default, taking into account the expected changes in the exposure after the reporting date. The Bank's modelling approach for EAD reflects the expected changes in the outstanding balance over the loan's lifetime exposure allowed by the current contractual terms, such as amortisation profiles, total or partial early repayment, and changes in the use of unused commitments before entry into default.
The Bank assesses the expected credit-risk loss for the purpose of impairment losses, considering the risk of default during the maximum contractual period during which the entity is exposed to the credit risk. However, for financial instruments such as credit cards, credit lines and overdraft facilities that include a loan and an unused commitment component, the Bank's contractual ability to demand repayment and to cancel the unused commitment does not limit the Bank's exposure to loan losses to the contractual period of notice. For such financial instruments, the Bank measures the Expected Credit Risk Loss for the period historically observed as the average life of these instruments.
When the expected credit-risk loss is measured collectively, the financial instruments are grouped on the basis of common risk characteristics, such as instrument type, customer type, credit risk degree as measured by the ratings or scoring system, type of collateral, date of initial recognition, relationship between loan and value of the guarantee (LTV).
The groupings are reviewed regularly to ensure that each group comprises homogeneous exposures.
The process of quantification of the impairment loss through an individual analysis is applied to customers with individually significant Stage 3 exposure (assets impaired and in default) (exposure greater than €0.5 million).
The process involves calculation of an estimated loss, taking into account anticipated future cash flows under several different scenarios, each using specific factors and circumstances of the customers, in particular, execution of guarantees in situations in which customers do not generate sufficient cash flows for payment of the debt, or projection and discount of the cash flows of the deal for the remaining customers. The net present value of cash flows is calculated considering the original effective interest rate of the contracts.
This evaluation process is updated at least every quarter, but more frequently if there are changes of circumstances that may affect the cash-flow scenarios.
The Bank's Office of Economic Studies models economic-forecast scenarios for the Bank's various planning exercises, in particular, budget, strategic planning and ICAAP. In this connection, different macro-economic scenarios are generated, including two pessimistic scenarios, one base scenario and two optimistic scenarios.
For the purpose of impairment losses, a pessimistic scenario is used, the base scenario and an optimistic scenario. The Bank applies probabilities to the forecast scenarios identified. The base scenario is the most likely outcome and consists of information used by the Bank for strategic planning and budgeting. The estimates are updated at least once a year and are subject to annual monitoring exercises.
IFRS 16 defines a set of new requirements for the application of this standard, namely regarding the classification and measurement of lease operations from the lessee's perspective. As a lessee, the Group registers an asset with a right of use that is recognized in the item Tangible assets and intangible assets (Note 12) and a lease liability that is recognized in the item Financial liabilities recorded at amortized cost - other liabilities financial - commitments with future rents (Note 17), on the date of entry into force of the respective operation:
i. The lease liability is measured at the present value of future rents to be incurred during the term of the contract, using a discount rate differentiated by maturity. Fixed payments, variables that depend on a rate or index, values relating to the exercise of the call option, are considered when estimating the liability, when the group is reasonably certain that it will exercise its right.
The lease liability is remeasured whenever a contractual change occurs, and the moment the lease liability is revalued, the effects of the revaluation are recognized against the right to use (asset). If there is a change in the term of the contract or a change in the assessment of the exercise of the option, a new discount rate must be estimated, and the liability is consequently remeasured.
ii. The right of use is initially measured at cost by the value of the lease liability, adjusted for subsequent contractual changes, being depreciated using the straight-line method until the end of the contract, and subject to impairment tests.
Tangible assets used by the Bank to carry on its business are carried at acquisition cost (including directly attributable expenses), less accumulated depreciation and impairment losses, as and when applicable.
Depreciation of tangible assets is accrued systematically, in monthly instalments, over the period of the estimated useful life of the assets, which corresponds to the period during which the assets are expected to be available for use, as detailed hereunder:
| Premises | 50 |
|---|---|
| Equipment | 4 to 10 |
Non-recoverable expenses incurred with construction works on buildings that are not owned by the Bank (leased) are depreciated over a period of time compatible with their expected useful life or of the lease, if less, which on average corresponds to a period of ten years. Maintenance and repair expenses are recognized under "Other administrative expenses."
Whenever there is an indication that the tangible fixed asset may be impaired, an estimate of its recoverable value is made. To this end, the branches are considered cash-flow generating units, and impairment losses are recorded in situations where the recoverable amount of property where the branch is located, through its use in the operations or through its sale, is less than its net carrying amount. Impairment losses are recognised in the income statement, and they are reversed in subsequent reporting periods when the reasons for their initial recognition cease. To this end, the new depreciable amount shall not exceed its carrying amount had impairment losses not been assigned to the asset, considering the depreciation that it would have undergone.
The criteria followed in the valuation of the properties normally consider the market comparison method, and the amount detailed in the valuation corresponds to the market value of the property in its current state.
The Bank's own-service properties that were in the process of being sold are accounted for under "Other assets". These assets were transferred at their net carrying amount in accordance with IAS 16 (acquisition cost, net of accumulated depreciation and impairment losses), and are tested for impairment at the time of the reclassification and of periodic valuations to determine possible impairment losses.
Gains and losses on the sale of these assets are recognized under "Profit or loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations."
The Bank records under this heading expenses incurred at the stage of development of projects relating to information technologies implemented and at the implementation stage, as well as those relating to software purchased, in every case where their expected impact has to be reflected in years subsequent to that in which they are made.
Amortisation of intangible assets is accrued, in twelfths, over their estimated period of useful life, which is three years on average.
Internally developed software is recognized under intangible assets when, among other requirements, it can be seen that they are usable and capable of being sold and, additionally, they are identifiable and it is possible to demonstrate their ability to generate future economic benefits.
Investment properties comprise buildings and land held by Novimovest - Fundo de Investimento Imobiliário Aberto (Novimovest) to earn income or for capital appreciation or both, and not for use in the provision of goods or services or for management purposes.
Investment properties are carried at fair value, determined by periodic valuations performed by specialised independent entities. Variations of the fair value of investment properties are recognised directly in the income statement for the period.
Costs incurred with investment properties in use, namely maintenance, repairs, insurance and property taxes (municipal property tax) are recognized in the income statement for the period to which they refer. Ameliorations that are expected to generate additional future economic benefits are capitalised.
The Bank essentially recognizes under "Non-current assets and disposal groups classified as held for sale", real estate, equipment and other assets received by way of payment in kind or auction for the payment of overdue loan transactions when they are available for immediate sale in their present condition and there is a likelihood of their sale within a one-year period. If they do not meet these criteria, those assets are carried under "Other assets" (Note 14).
Their initial recognition is at the lower of their fair value, less expected selling costs and the carrying amount of the loans granted constituting the object of the recovery. The remaining assets are tested for impairment on the date of reclassification to non-current assets held for sale. Subsequently, these assets are measured at the lesser of the initial recognition amount and fair value less costs to sell, and they are not depreciated. Unrealized losses on these assets, thus determined, are recorded in profit or loss.
If, on a subsequent date, the facts that led to the recording of impairment losses no longer exist due to an increase of the fair value less sales expense, the impairment losses will be reverted up to the limit of the amount that the assets would have had they not been reclassified to non-current assets held for sale.
When it is a matter of discontinued operational units, in accordance with the provisions of IFRS 5 – "Non-current assets held for sale and discontinued operations," the Bank does not recognise potential gains on these assets.
i) Provisions
A provision is set aside where there is a present (legal or constructive) obligation resulting from past events in respect of which there will be a probable outflow of funds that can be determined reliably. The amount of the provision corresponds to the best estimate of the amount to be disbursed to settle the liability on the reporting date, in accordance with the information provided by the Bank's legal and tax consultants.
In this way, "Provisions" includes provisions set aside to cover, inter alia, the post-employment benefits specific to certain members of the Bank's Board of Directors, restructuring plans approved by the Executive Committee, ongoing legal proceedings and other specific risks arising from its business.
The Bank endorsed the Collective Bargaining Agreement (CBA) for the banking industry, and therefore its employees or their families are entitled to retirement, disability and survivors' pensions.
For employees admitted to the Bank up until December 31, 2008, the existing pension plan was a defined-benefit plan, in that it established the criteria for the determination of the value of the pension that an employee would receive during retirement in the light of the length of service provided and the respective remuneration on retirement, the pensions being updated annually on the basis of the remuneration provided for in the CBA for personnel in service. For these employees, the Bank is liable for the full amount of the pensions provided for in the CBA. To cover the liabilities under this defined-benefit plan, the Bank has a Pension Fund.
As from January 1, 2009, employees taken on by the Bank came to be included in Social Security, and are covered by a supplementary defined-contribution pension plan and by the rights acquired under Clause 93 of the CBA. The plan is funded through contributions by employees (1.5%) and by the Bank (1.5%), calculated on the basis of the actual monthly remuneration. For this purpose, each employee can opt for an open pension fund at his or her choice.
Employees of the former Totta have always been enrolled in Social Security, and therefore the Bank's liability with regard to the defined-benefit plan in respect of those employees has consisted of payment of supplements.
In October 2010 an agreement was concluded between the Ministry of Labour and Social Solidarity, the Portuguese Banks Association and the Financial Sector Federation (FEBASE), for the inclusion of banking sector employees in the General Social Security Regime. As a result of that agreement, Decree-Law 1-A/2011, of January 3, was published in 2011, which determined that banking sector workers who were in active service on the date of its entry into force (January 4, 2011) would be covered by the General Social Security Regime, as regards old-age pension and in the event of maternity, paternity and adoption. In view of the supplementary nature laid down in the rules of the Collective Bargaining Agreement of the Banking Sector, the Bank continues to cover the difference between the amount of the benefits paid under the General Social Security Regime for the events included and for those laid down under the terms of that Agreement.
Liabilities for past services recognized as at December 31, 2010, were not altered with the publication of the aforesaid Decree-Law, since the reduction of the amount of the pensions payable by the Bank related with workers in active service was applicable to the future services of the employees, beginning on January 1, 2011. Thus, the cost of the current service fell as from that date, but the Bank came to bear the Single Social Charge (TSU) of 23.6%. On the other hand, the Bank is still liable for the payment of invalidity and survivors' pensions and of sickness benefits.
Following the approval by the Government of Decree-Law 127/2011, of December 31, a Tripartite Agreement has been established between the Government, the Portuguese Banks Association and the Bank Employees Union on the transfer to the sphere of social security of the liabilities for pensions payable to retirees and pensioners as of December 31, 2011.
This Decree-Law established that the liabilities to be transferred correspond to pensions payable as of December 31, 2011, at constant values (update rate of 0%) in the component provided for in the CBA. The liabilities in respect of the updates of the pensions, supplementary benefits, contributions to the SAMS on retirement and surviving relative pensions, death allowances and deferred survival pensions are still the responsibility of the institutions.
Additionally, employees of the Bank's former London Branch (now representation office) are covered by a defined-benefit pension plan, for which the Bank has a separate pension fund.
On the other hand, in February 2010, a supplementary defined-contribution pension plan was approved for a number of directors of the Bank, insurance having been taken out for the purpose.
On December 20, 2015, following the resolution measure applied by the Bank of Portugal to Banif, the Bank took over the pension liabilities of a number of Banif workers.
On August 8, 2016 the Ministry of Labour published a new CBA in the Work and Employment Bulletin (BTE). The most significant changes were the following:
On December 27, 2017, within the scope of the purchase and merger of BAPOP, the Bank assumed the pension liabilities of all this entity's workers.
The Bank's liabilities for retirement pensions are calculated by external experts (Mercer (Portugal), Limitada) on the basis of the Projected Unit Credit method. The discount rate used in actuarial studies is determined based on the market rates of the bonds of companies of high quality in terms of credit risk, denominated in the currency in which the benefits will be paid (euros) and with maturity similar to the end date of the obligations of the plan. The post-employment benefits of employees also include medical care (SAMS), as well as the death benefit and the bonus on retirement.
According to IAS 19 - "Employee Benefits" remunerations are recorded directly in equity (other comprehensive income), and under the heading "Staff Costs" of the income statement, the following components being recognized:
The net interest with the pension plan is calculated by the Bank by multiplying the net asset/liability involved in retirement pensions (liabilities less the fair value of the Fund's assets) by the discount rate used in determining the retirement-pension liabilities. Thus, net interest represents the interest cost associated with the retirement-pension liabilities net of the theoretical return on the Fund's assets, both measured on the basis of discount rate used in the calculation of the liabilities.
Remeasurement gains and losses, namely: (i) actuarial gains and losses resulting from differences between actuarial assumptions used and the amounts actually incurred (gains and losses of experience), as well as changes of actuarial assumptions, and (ii) gains and losses arising from the difference between the theoretical returns on the Fund's assets and the amounts obtained, are recognized in the income statement with a contra-entry in "Other comprehensive income."
Pension liabilities, less the fair value of the assets of the Pension Fund, are carried under "Other assets" or "Other liabilities," depending on the existence of surplus or insufficient funding. Recognition of a surplus of fair value of the plan's assets over its discounted liabilities depends on the existence of a reduction of future contributions, or on the reimbursement of contributions made.
Bank of Portugal Notice No. 4/2005 determines the obligation of full funding by the Pension Fund of the liabilities for pensions payable and a minimum level of funding of 95% of the past-service liabilities of personnel in service.
k) Corporation Tax
The Bank is subject to the tax system established in the Corporation Tax Code (IRC). Current taxes are calculated based on the Bank's taxable income and that of the Group companies, determined in accordance with the tax rules approved or substantively approved on the financial reporting date.
Following the promulgation of Law No. 2/2014, of January 16 (CIT Reform) and the wording given by the State Budget Law for 2020 (Law No. 2/2020, of March 31), the taxation of corporate profits for the years 2020 and 2019, is as follows:
Therefore, the aforementioned changes implied that the tax rate used by the Group in calculating and recording deferred taxes was 31%.
With the publication of the Supplementary Budget for 2020 (Law No. 27-A / 2020 of July 24), tax losses recorded in the tax periods of 2020 and 2021 may be used in the subsequent twelve tax periods. Additionally, the counting of the period for reporting tax losses is suspended for two tax periods.
Thus, tax losses generated between 2014 and 2016, inclusive, can be used in the fourteen subsequent tax periods, while those generated between 2017 and 2019, inclusive, can be used in the seven subsequent tax periods.
The deduction of losses to be made in each year cannot exceed 70% of the respective taxable profit (80%, in the case of tax losses generated in 2020 and 2021), the remainder being able to be used until the end of the reporting period.
Law 98/2019 of September 4 approved a new regime in the matter of the impairments of credit institutions and other financial institutions, also establishing the regime applicable to impairment losses recorded in previous taxation periods not yet accepted for tax purposes.
Since this new system is of optional nature during a five-year adjustment period commencing on or after January 1, 2019, the expected accession to the new tax regime, applicable in the matter of impairments of credit institutions and other financial institutions, is dependent on a communication addressed to the Director General of the Tax and Customs Authority by the end of the tenth month of the current tax period (see Article 4.1 of this law). In this sense, the Bank adhered to the definitive regime established in Articles 2 and 3 of this law, in 2019.
The Santander Group decided to apply as from 2017 the Special Taxation of Groups of Companies Regime (RETGS). Under this regime, the Group's taxable profit/tax loss corresponds to the sum of the taxable profit/tax loss that comes to be determined by the parent company through the algebraic sum of tax results determined in the periodic separate statements of each company. The companies covered by this scheme are: Santander Totta, SGPS - the controlling company; and Taxagest, Banco, Santander Totta Seguros, TottaUrbe and Gamma - controlled companies. The gain obtained by application of the RETGS is allocated to the entities in question in a manner proportional to the taxable income of each company.
Deferred tax assets and liabilities correspond to the amount of the tax recoverable and payable in future periods resulting from temporary differences between the carrying amount of an asset or liability and its taxation base. Tax credits are also recorded as deferred tax assets.
Deferred tax liabilities are recognized on all taxable temporary differences, except those related to: i) the initial recognition of goodwill; or ii) the initial recognition of assets and liabilities, which do not result from a concentration of business activities, and which at the date of the transaction do not affect the accounting or tax results.
The Bank does not recognize deferred tax assets or liabilities for the deductible or taxable temporary differences associated with investments in subsidiaries and associates, as it is not likely that the difference will revert in the foreseeable future.
Deferred tax assets are recognized when they are expected to be recoverable and up to the amount that it is likely that there are future taxable profits that will accommodate the deductible temporary differences.
Deferred tax assets and liabilities have been calculated on the basis of the tax rates approved or substantially approved on the reporting date, which constitute the best estimate of the rate to be in force for the period when it is expected that the asset will be realised or the liability incurred.
Current taxes and deferred taxes are reflected in profit or loss, with the exception of taxes relating to transactions directly recorded in equity, in particular, potential gains and losses on Financial assets at fair value through other comprehensive income in cash-flow hedging derivatives, as well as those associated with actuarial deviations relating to pension liabilities, which are also recorded in equity.
The Board of Directors periodically reviews the position assumed in the preparation of the tax statements in relation to situations in which the application of the tax regime is subject to interpretation, and assesses whether it is likely that the Tax Administration will accept the adopted tax treatment. The Bank measures the assets / liabilities arising from uncertain income tax positions, considering the most likely value or the expected value, whichever is more appropriate in each circumstance.
l) Banking sector contribution, and Solidarity Tax on the banking sector
The Bank is covered by the banking sector contribution scheme defined in Law No. 55-A/2010 of December 31.
With the publication of Law 27-A/2020, of July 27, the Bank is now covered by the Solidarity Tax on the banking sector. This contribution aims to strengthen the financing mechanisms of the social security system.
Treasury shares are recoded as a debit in the capital accounts for the purchase price and are not subject to revaluation, the portion of the dividend to be distributed in respect of these shares being retained under equity. Gains and losses realised on the sale of treasury shares, as well as the respective taxes, are recorded directly in equity, and do not affect the year's profit or loss.
An instrument is classified as an equity instrument when there is no contractual obligation for its settlement to be made through the delivery of cash or another financial asset, regardless of its legal form, showing a residual interest in the assets of an entity after deducting all its liabilities.
Costs directly attributable to the issuance of equity instruments are recorded against equity as a deduction from the amount of the issuance. Amounts paid and received for purchases and sales of equity instruments are recorded under equity, net of transaction costs. Allocations made on account of equity instruments are deducted from equity as dividends when declared.
Basic earnings per share are calculated by dividing the net income attributable to the Bank's shareholders by the weighted average number of outstanding common shares, excluding the average number of common shares acquired by the Bank and held as own shares.
For the calculation of diluted earnings per share, the weighted average number of outstanding common shares is adjusted to reflect the effect of all potential diluting common shares.
The Bank uses the accrual-accounting principle in relation to income from the provision of insurance brokerage services - commissions. Thus, income is recorded as and when generated, regardless of the time of payment or receipt. The amounts receivable are subjected to impairment loss analyses.
The Bank does not collect insurance premiums on behalf of insurers, nor does it handle funds relating to insurance contracts. There is therefore no other asset, liability, income or expense to report in respect of insurance brokerage business carried on by the Bank, other than those already disclosed.
For purposes of the preparation of the cash-flow statement, the Bank considers as "Cash and cash equivalents" the total of "Cash and deposits at central banks" and "Cash and cash equivalents at other credit institutions," in that the items carried under this heading have a maturity period not exceeding 3 months, and their risk of variation of value is immaterial.
Estimates and judgements impacting on the Bank's financial statements are continually assessed, representing on each reporting date the Board of Directors' best estimate, taking into account historical performance, accumulated experience and expectations as to future events that, in the circumstances at issue, are believed to be reasonable.
The intrinsic nature of the estimates may mean that the actual reflection of the situations that have been estimated may, for financial reporting purposes, differ from the estimated amounts.
Retirement and survivor pensions are estimated based on actuarial evaluations carried out by external experts certified by the Insurance and Pension Fund Supervisory Authority (ASF). These estimates incorporate a set of financial and demographic assumptions, including the discount rate, mortality and invalidity tables, pension and salary growth, among others. The discount rate used to determine the liabilities was calculated by reference to the market rates of low-risk corporate bonds of a term similar to that of the settlement of the liabilities. Estimated salary and pension growths take into account the country's current situation and the consequent prospect of smaller increases in the future, or even maintenance of current values. The mortality table used was based on the recommendation of the actuary.
The assumptions adopted correspond to the best estimate of the Bank's Board of Directors as to the future behaviour of the above variables.
Valuation models or techniques are used in the valuation of financial instruments not traded on active markets. Accordingly, the valuations obtained correspond to the best estimate of the fair value of those instruments on the reporting date.
The fair value of the instrument is estimated using valuation techniques that include price valuation models or discounted cash flow techniques. When discounted cash flow techniques are used, the future cash flows are estimated in accordance with management's expectations, and the discount rate used corresponds to the market rate for financial instruments of similar characteristics.
To ensure an appropriate segregation of duties, the value of those financial instruments is determined by a body independent of the trading function.
Impairment losses on loans are calculated as indicated in Note 1.3 (c). In this way, the determination of impairments through individual analysis corresponds to the judgement of the Board of Directors regarding the economic and financial situation of its customers, and to its estimate of the value of the guarantees associated with the respective loans, with the consequent impact on expected future cash flows. The determination of impairments through collective analysis is performed on the basis of parameters for comparable types of operations, such as instrument type, customer type, credit-risk degree as measured by the ratings or scoring system, type of collateral, date of initial recognition, relationship between loan and collateral value (LTV), and inclusion of prospective information.
Properties, equipment and other goods received as payment in kind or acquired in payment of past-due credit operations are carried at the amount agreed by negotiation or judicial means, after deduction of the lesser of the costs the Bank expects to incur with their sale, or their quick-sale value, if lower. Properties
are subject to periodic appraisal conducted by independent evaluators, which incorporate various assumptions, particularly as to the evolution of the property market and, where applicable, expectations as to the development of real-estate projects. The assumptions used in the appraisal of these properties have an impact on their valuation and hence on the determination of the impairments.
Recognition of deferred tax assets assumes the existence of profits and future taxable matter. Additionally, current and deferred taxes were determined on the basis of the interpretation of current tax legislation. Thus, changes to tax laws or to their interpretation by the relevant authorities may have an impact on the amount of current and deferred taxes. For the purpose of analysis of the recoverability of deferred tax assets (tax losses), the Bank projects taxable profits on the basis of assumptions. Thus, the recoverability of deferred tax assets depends on the implementation of the strategy of the Bank's Board of Directors.
A provision is recognized where there is a present (legal or constructive) obligation resulting from past events in respect of which there will be a probable outflow of funds that can be determined reliably. The outcome of the legal proceedings in progress, as well as the respective amount of the provision corresponding to the best estimate of the amount to be spent to settle the liability on the balance/sheet date, is assessed in accordance with the opinion of the Bank's lawyers/legal advisers and decisions of the courts to date, which, however, might not come about. Regarding the restructuring plans, the charges arising from the constructive obligation of reorganizing were considered, with the definition of the actions to be developed supported in a detailed formal plan with minimum elements of approach and quantification and identification of the impacted factors.
Under the terms of IFRS 8, disclosures by operating segment are presented below in accordance with information as analysed by the Bank's management (Executive Committee) bodies:
Essentially includes the Bank's business on the financial markets and with large enterprises, involving provision of financial advisory services, Corporate and Project Finance in particular, as well as brokering, custody and settlement of securities services.
Essentially refers to operations of granting loans and attracting resources related to private customers and businesses with a turnover of less than €10 million, channelled through the branch network, and services provided by complementary channels.
This area comprises businesses with turnover between €10 million and €125 million. This business is underpinned by the branch network, corporate centres and specialised services, and includes several products, namely loans, project finance, trade, exports and real estate.
This area includes the entire business carried on at the Bank that supports the main activities but is not directly related to the customers' business areas, including liquidity management, balance-sheet hedging, and the Bank's structural funding.
The breakdown of the income statement by operating segment as at December 31, 2020 and 2019, is as follows:
| December 31, 2020 | |||||||
|---|---|---|---|---|---|---|---|
| Corporate | |||||||
| Investment | Retail | Commercial | Corporate | Total | |||
| Banking | Banking | Banking | Activities | Consolidated | |||
| Net interest income | 74,074 | 469,195 | 85,280 | 156,401 | 784,950 | ||
| Dividend income | - | - | - | 1,734 | 1,734 | ||
| Share of the profit or (-) loss of investments in subsidaries, | |||||||
| joint ventures and associates | - | - | - | 5,617 | 5,617 | ||
| Fee and commission income | 45,927 | 340,836 | 23,389 | (32,493) | 377,660 | ||
| Gains/Losses on financial operations | 9,757 | 5,569 | 499 | 80,656 | 96,481 | ||
| Other operating income | - | 2,564 | - | 5,794 | 8,358 | ||
| Total operating income, net | 129,758 | 818,164 | 109,168 | 217,710 | 1,274,800 | ||
| Administrative expenses | (23,387) | (454,310) | (37,845) | (3,891) | (519,433) | ||
| Cash contributions to | |||||||
| resolution funds and deposit guarantee systems | - | - | - | (35,624) | (35,624) | ||
| Depreciation | (3,265) | (46,891) | (1,860) | - | (52,016) | ||
| Profit before impairment and provisions | 103,106 | 316,963 | 69,463 | 178,195 | 667,727 | ||
| Impairment and provisions, net of reversals | (2,024) | (4,373) | 5,760 | (269,104) | (269,740) | ||
| Profit or loss from non-current assets held for sale | - | - | - | 4,990 | 4,990 | ||
| Other results | - | - | - | (34,495) | (34,495) | ||
| Profit or loss before tax from continuing operations | 101,082 | 312,591 | 75,223 | (120,415) | 368,482 | ||
| Taxes | (31,336) | (96,938) | (23,319) | 40,860 | (110,733) | ||
| Non-controlling interests | - | - | - | - | - | ||
| Profit or loss for the year | 69,747 | 215,653 | 51,904 | (79,555) | 257,749 |
| December 31, 2019 | ||||||
|---|---|---|---|---|---|---|
| Corporate Investment |
Retail | Commercial | Corporate | Total | ||
| Banking | Banking | Banking | Activities | Consolidated | ||
| Net interest income | 78,535 | 517,472 | 94,740 | 163,724 | 854,471 | |
| Dividend income | - | - | - | 1,789 | 1,789 | |
| Share of the profit or (-) loss of investments in subsidaries, | ||||||
| joint ventures and associates | - | - | - | 2,546 | 2,546 | |
| Fee and commission income | 48,673 | 334,871 | 25,010 | (23,693) | 384,861 | |
| Gains/Losses on financial operations | 21,926 | 6,545 | 1,842 | 41,384 | 71,697 | |
| Other operating income | - | 2,292 | - | 8,129 | 10,421 | |
| Total operating income, net | 149,134 | 861,180 | 121,592 | 193,879 | 1,325,785 | |
| Administrative expenses | (25,933) | (467,216) | (49,127) | (3,164) | (545,440) | |
| Cash contributions to | ||||||
| resolution funds and deposit guarantee systems | - | - | - | (32,647) | (32,647) | |
| Depreciation | (2,727) | (45,206) | (1,335) | - | (49,268) | |
| Profit before impairment and provisions | 120,474 | 348,758 | 71,130 | 158,068 | 698,430 | |
| Impairment and provisions, net of reversals | 5,688 | 19,278 | (10,596) | (15,023) | (653) | |
| Profit or loss from non-current assets held for sale | - | - | - | 28,706 | 28,706 | |
| Other results | - | - | - | (28,259) | (28,259) | |
| Profit or loss before tax from continuing operations Profit or loss before tax from continuing operations |
126,162 | 368,036 | 60,534 | 143,493 | 698,224 | |
| Taxes | (39,110) | (114,087) | (18,765) | (36,800) | (208,762) | |
| Non-controlling interests | - | - | - | (11) | (11) | |
| Profit or loss for the year | 87,052 | 253,949 | 41,769 | 106,682 | 489,451 |
As at December 31, 2020 and 2019, the breakdown of the assets and liabilities allocated to each business segment, in accordance with information used by the Bank's Management for decision-making, is as follows:
| 31-12-2020 | |||||
|---|---|---|---|---|---|
| Corporate | |||||
| Investment | Retail | Commercial | Corporate | Total | |
| Banking | Banking | Banking | Activities | Consolidated | |
| Assets | |||||
| Financial assets at fair value through other comprehensive | |||||
| income | - | - | - | 3,140,071 | 3,140,071 |
| Financial assets measured at amortized cost | |||||
| Mortgage loans | - | 20,669,687 | - | - | 20,669,687 |
| Credit for consumption | - | 1,680,477 | - | - | 1,680,477 |
| Other loans | 3,742,161 | 6,326,349 | 6,121,296 | - | 16,189,805 |
| Other balances receivable | - | 52,845 | - | 1,227,768 | 1,280,613 |
| Total allocated assets | 3,742,161 | 28,729,358 | 6,121,296 | 4,367,839 | 42,960,654 |
| Total non-allocated assets | (42,019,126) | ||||
| Total Assets | 54,403,409 | ||||
| Liabilities | |||||
| Financial liabilities measured at amortised cost | |||||
| Deposits - customers | 1,331,680 | 29,070,914 | 5,529,016 | 338,382 | 36,269,992 |
| Debt securities issued | - | - | - | 2,907,350 | 2,907,350 |
| Total allocated resources | 1,331,680 | 29,070,914 | 5,529,016 | 3,245,732 | 39,177,342 |
| Total non-allocated Liabilities | 11,114,711 | ||||
| Total Liabilities | 50,292,053 | ||||
| Guarantees and sureties given | 180,289 | 520,765 | 911,701 | - | 1,612,755 |
| 31-12-2019 | |||||
|---|---|---|---|---|---|
| Corporate | |||||
| Investment | Commercial | Corporate | Total | ||
| Banking | Retail Banking | Banking | Activities | Consolidated | |
| Assets | |||||
| Credit granted and other balances receivable at amortized cost | |||||
| Mortgage loans | - | 19,653,605 | - | - | 19,653,605 |
| Consumer loans | - | 1,706,797 | - | - | 1,706,797 |
| Other loans | 3,664,919 | 5,768,275 | 8,268,508 | - | 17,701,702 |
| Other balances receivable | - | 60,591 | - | 944,971 | 1,005,562 |
| Total allocated assets | 3,664,919 | 27,189,268 | 8,268,508 | 944,971 | 40,067,666 |
| Total non-allocated assets | 12,237,660 | ||||
| Total Assets | 52,305,326 | ||||
| Liabilities | |||||
| Resources in the balance sheet | |||||
| Resources of customers and other debts | 2,435,766 | 27,074,231 | 5,737,845 | 625,430 | 35,873,272 |
| Debt securities | - | - | - | 3,728,941 | 3,728,941 |
| Total allocated resources | 2,435,766 | 27,074,231 | 5,737,845 | 4,354,371 | 39,602,213 |
| Total non-allocated Liabilities | 9,068,297 | ||||
| Total Liabilities | 48,670,510 | ||||
| Guarantees and sureties given | 285,882 | 576,451 | 714,469 | - | 1,576,802 |
As at December 31, 2020 and 2019, the Bank did not have relevant business in any geography other than that of the domestic business.
The accounting policies used in preparing the financial information by segments were consistent with those described in Note 1.3 of these Notes.
(Expressed in thousands of euros, except where otherwise stated)
As at December 31, 2020 and 2019, the subsidiaries and associated companies, and their most significant financial data taken from the respective financial statements, excluding adjustments on the conversion to IAS/IFRS can be summarised as follows:
| Direct (%) | Effective (%) | Total assets | Shareholders' | Net income | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| participation | participation | (net) | equity | of the year | ||||||
| Company | 31-12-2020 31-12-2019 31-12-2020 31-12-2019 31-12-2020 | 31-12-2019 31-12-2020 31-12-2019 31-12-2020 31-12-2019 | ||||||||
| BANCO SANTANDER TOTTA, S.A. | Headquarters Headquarters Headquarters Headquarters | 57,448,833 | 55,639,804 | 3,990,610 | 3,497,526 | 275,210 | 499,715 | |||
| TOTTA (IRELAND), PLC (2) |
100.00 | 100.00 | 100.00 | 100.00 | 536,675 | 579,674 | 461,336 | 458,974 | 1,455 | 1,457 |
| TOTTAURBE - EMP.ADMIN. E CONSTRUÇÕES, S.A. (1) |
100.00 | 100.00 | 100.00 | 100.00 | 134,313 | 148,280 | 127,726 | 131,505 | 583 | 6,083 |
| TAXAGEST,SGPS,SA | 99.00 | 99.00 | 99.00 | 99.00 | 55,746 | 55,751 | 55,744 | 55,747 | (3) | 8 |
| NOVIMOVEST - Fundo de Investimento Imobiliário Aberto | 78.74 | 78.74 | 78.71 | 78.74 | 311,513 | 312,552 | 304,335 | 303,994 | 341 | 5,750 |
| GAMMA, Sociedade Financeira de Titularização de Créditos, S.A. | 100.00 | 100.00 | 100.00 | 100.00 | 7,249 | 7,166 | 6,810 | 6,747 | 63 | 228 |
| HIPOTOTTA NO. 4 PLC | - | - | - | - | 562,050 | 622,446 | (3,564) | (4,697) | 1,088 | (958) |
| HIPOTOTTA NO. 5 PLC | - | - | - | - | 572,173 | 616,581 | (10,508) | (11,309) | 923 | (4,005) |
| HIPOTOTTA NO. 4 FTC | - | - | - | - | 500,515 | 561,424 | 499,365 | 560,487 | 168 | (740) |
| HIPOTOTTA NO. 5 FTC | - | - | - | - | 504,601 | 550,361 | 503,853 | 549,042 | 398 | (1,171) |
| Operações de Securitização geridas pela GAMMA, STC | - | - | - | - | 2,804,742 | 3,157,980 | - | - | - | - |
| UNICRE - INSTITUIÇÃO FINANCEIRA DE CRÉDITO, S.A. |
21.86 | 21.86 | 21.86 | 21.86 | 368,375 | 374,480 | 110,136 | 96,688 | 23,919 | 16,194 |
| LUSIMOVEST - FUNDO DE INVESTIMENTO IMOBILIÁRIO | 25.76 | 25.76 | 25.76 | 25.76 | 107,131 | 106,281 | 101,807 | 100,597 | 1,210 | 292 |
As at December 31, 2020 and 2019, the business, the location of the registered office, and the consolidation method used for the companies included in the consolidation were as follows:
| Company | Activity | Headquarters | Method |
|---|---|---|---|
| BANCO SANTANDER TOTTA, S.A. | Banking | Portugal | Headquarters |
| TOTTA (IRELAND), PLC (2) | Investment management | Ireland | Full |
| TOTTA URBE - Emp.Admin. e Construções, S.A. (1) | Property management | Portugal | Full |
| TAXAGEST, SGPS, S.A. | Holding company | Portugal | Full |
| UNICRE - INSTITUIÇÃO FINANCEIRA DE CRÉDITO, S.A. | Issuance and management of credit cards | Portugal | Equity |
| HIPOTOTTA nº 4 PLC | Investment management | Ireland | Full |
| HIPOTOTTA nº 5 PLC | Investment management | Ireland | Full |
| HIPOTOTTA nº 4 FTC | Securitized loans fund | Portugal | Full |
| HIPOTOTTA nº 5 FTC | Securitized loans fund | Portugal | Full |
| Operações de Securitização geridas pela GAMMA, STC | Securitized loans fund | Portugal | Full |
| NOVIMOVEST - Fundo de Investimento Imobiliário Aberto | Real Estate Fund | Portugal | Full |
| GAMMA, Sociedade Financeira de Titularização de Créditos, S.A. | Securitized loans | Portugal | Full |
| LUSIMOVEST - FUNDO DE INVESTIMENTO IMOBILIÁRIO | Real Estate Fund | Portugal | Equity |
| Company | Activity | Headquarters | Consolidation Method |
||
|---|---|---|---|---|---|
| BANCO SANTANDER TOTTA, S.A. | Banking | Portugal | Headquarters | ||
| TOTTA (IRELAND), PLC (2) TOTTA URBE - Emp.Admin. e Construções, S.A. (1) |
Investment management | Ireland | Full Full |
||
| TAXAGEST, SGPS, S.A. | Property management Holding company |
Portugal Portugal |
Full | ||
| UNICRE - INSTITUIÇÃO FINANCEIRA DE CRÉDITO, S.A. HIPOTOTTA nº 4 PLC |
Issuance and management of credit cards Investment management |
Portugal Ireland |
Equity Full |
||
| HIPOTOTTA nº 5 PLC | Investment management | Ireland | Full | ||
| HIPOTOTTA nº 4 FTC HIPOTOTTA nº 5 FTC |
Securitized loans fund Securitized loans fund |
Portugal Portugal |
Full Full |
||
| Operações de Securitização geridas pela GAMMA, STC | Securitized loans fund | Portugal | Full | ||
| NOVIMOVEST - Fundo de Investimento Imobiliário Aberto GAMMA, Sociedade Financeira de Titularização de Créditos, S.A. |
Real Estate Fund Securitized loans |
Portugal Portugal |
Full Full |
||
| LUSIMOVEST - FUNDO DE INVESTIMENTO IMOBILIÁRIO | Real Estate Fund | Portugal | Equity | ||
| (1) | The equity of this subsidiary included supplementary capital contributions amounting to €99,760k. | ||||
| (2) | Due to this subsidiary having closed its economic year on November 30, the amounts reflected in the | ||||
| "Income for the period" columns correspond to the Net income determined between December 1, | |||||
| 2020, and December 31, 2020 (December 1, 2019 and December 31, 2019). | |||||
| During 2019, the Group sold the holding in Benim-Sociedade Imobiliária, S. A., and wound up Atlantes | |||||
| Mortgage No. 1 FTC, Banif International Bank, LTD and Primestar Servicing, S. A. Supplementary capital | |||||
| installments were also granted to Totta Urbe for €99,759k. | |||||
| pieces. | In accordance with IFRS 10, which superseded IAS 27 and SIC 12, the Group includes in its consolidated financial statements the special purpose entities (SPEs) created within the scope of the securitisation operations when it controls them, that is, when it has the majority of the risks and benefits associated with their business, in particular the bonds that they issued with a higher degree of subordination – equity |
||||
| As at December 31, 2020 and 2019, the Novimovest Fund balance sheet was as follows: | |||||
| 31-12-2020 | 31-12-2019 | ||||
| Real estate portfolio | 250,531 | 252,513 | |||
| Accounts receivable | 8,070 | 6,672 | |||
| Cash and banks Accruals and deferrals |
52,874 38 |
53,312 55 |
|||
| 311,513 | 312,552 | ||||
| Fund capital | 304,335 | 303,994 | |||
| Adjustments and provisions | 3,867 | 3,802 | |||
| Accounts payable | 1,461 | 2,973 | |||
| Accruals and deferrals | 1,850 | 1,783 | |||
| 311,513 | 312,552 | ||||
| As at December 31, 2020 and 2019, the consolidated net income includes a profit of €268k and €4.528k, | |||||
| respectively, attributable to the Novimovest Fund. |
The composition of this heading is as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Cash | 336,121 | 354,664 |
| Demand deposits in central banks | ||
| European Central Bank | 3,932,058 | 2,798,891 |
| Other demand deposits at credit institutions | ||
| Demand deposits | 267,636 | 339,109 |
| 4,535,815 | 3,492,664 |
According to the regulations in force, credit institutions established in the participating Member States are subject to setting aside minimum reserves in accounts held with the participating National Central Banks. The basis of incidence includes all deposits at central banks and at financial and monetary institutions located outside the Euro Zone, and all customer deposits with maturities less than two years. A coefficient of 1% is applied to this base and an amount of €100,000 is deducted. Compliance with the mandatory minimum deposits, for a given observation period, is carried out taking into consideration the average of balances of deposits at the Bank of Portugal during that period. The minimum required reserves are remunerated at the RFI rate (on these dates this rate is zero).
On September 12, 2019, the ECB Council decided to introduce a two-tier system for the remuneration of excess reserves, exempting part of the surplus liquidity of the institutions, that is, the part of the reserves that exceeds the mandatory reserves, of the negative remuneration at the interest rate applicable to the permanent deposit facility. The ECB Council decided, inter alia, to exempt a multiple of the mandatory reserves of the institutions, and decided to set at six the initial multiplier 'm' of the mandatory reserves of the institutions that is used to calculate the portion exempt from the excess reserves of the institutions in relation to all eligible institutions, and at zero per cent the initial interest rate applicable to the exempt excess reserves. The said multiplier 'm' and the interest rate applicable to the exempt free reserves can be adjusted over time by the ECB Council.
The items of financial assets and liabilities held for trading have the following composition:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Financial assets held for trading | ||
| Derivatives with positive fair value | 916,039 | 1,085,927 |
| Financial liabilities held for trading | ||
| Derivatives with negative fair value | 941,528 | (1,114,703) |
| 31-12-2020 | 31-12-2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| Notional value | Assets | Liabilities | Net | Notional value | Assets | Liabilities | Net | |
| Forwards | ||||||||
| Purchases | 401,114 | 348,012 | ||||||
| Sales | 401,024 | 6,820 | 6,736 | 84 | 347,891 | 3,363 | 3,215 | 148 |
| Swaps | ||||||||
| Currency swaps | ||||||||
| Purchases | 1,084,783 | 512 | 1,769,065 | |||||
| Sales | 1,086,821 | 3,335 | (2,823) | 1,776,582 | 93 | 8,255 | (8,162) | |
| Interest rate swaps | 26,590,746 | 840,596 | 863,588 | (22,992) | 25,701,557 | 1,004,267 | 1,025,517 | (21,250) |
| Equity swaps | 705,726 | 26,014 | 25,869 | 145 | 731,745 | 21,612 | 21,342 | 270 |
| Options | ||||||||
| Currency swaps | ||||||||
| Purchases | 7,961 | 72,416 | ||||||
| Sales | 7,961 | 309 | 311 | (2) | 72,416 | 540 | 540 | - |
| Equity swaps | ||||||||
| Purchases | 46,765 | 2 | 146,926 | 2 | ||||
| Sales | 46,765 | 2,115 | 2,113 | 146,926 | 2,873 | 2,871 | ||
| Caps & Floors | 961,240 | 39,673 | 39,576 | 97 | 1,073,415 | 53,179 | 52,963 | 216 |
| 31,340,906 | 916,039 | 941,528 | (25,489) | 32,186,951 | 1,085,927 | 1,114,703 | (28,776) |
As at December 31, 2020, the assets and liabilities headings relating to "Derivative financial instruments" are reduced by the amounts of approximately €5.300k and €5.053k of "Credit Value Adjustments" and "Debit Value Adjustments", respectively (€7.120k and €7.141k as at December 31, 2019, respectively), in accordance with the method described in Note 38.
As at December 31, 2020 and 2019, almost all the trading derivative financial instruments were hedged back-to-back with Banco Santander, S. A.
| Fair value | |||||
|---|---|---|---|---|---|
| Description | 31-12-2020 | 31-12-2019 | |||
| Equity Instruments | |||||
| Issued by residents | 132,905 | 144,372 | |||
| Issued by non-residents | - | 626 | |||
| 132,905 | 144,998 |
The composition of this heading is as follows:
| 31-12-2020 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Fair Value Reserve | |||||||||
| Acquisition | Interest | Hedge | Book | ||||||
| cost | receivable | adjustment | Positive | Negative | Total | Other | Impairment | Value | |
| (Note 20) | (Note 17) | ||||||||
| Debt instruments | |||||||||
| Issued by residents | |||||||||
| Public residentes | 3,527,984 | 62,248 | 58,098 | 463,036 | (45) | 462,991 | 36,676 | - | 4,147,997 |
| Other residents | 1,603 | - | - | - | (78) | (78) | - | (14) | 1,511 |
| Issued by non-residents | |||||||||
| Foreign public issuers | 309,246 | 1,416 | - | 31,315 | - | 31,315 | - | - | 341,977 |
| 3,838,833 | 63,664 | 58,098 | 494,351 | (123) | 494,228 | 36,676 | (14) | 4,491,485 | |
| Equity instruments | 72,154 | - | - | 480 | - | 480 | - | - | 72,634 |
| 3,910,987 | 63,664 | 58,098 | 494,831 | (123) | 494,708 | 36,676 | (14) | 4,564,119 | |
| Loans and advances | 2,300,000 | 31,153 | 314,480 | 494,438 | - | 494,438 | - | - | 3,140,071 |
| 6,210,987 | 94,817 | 372,578 | 989,269 | (123) | 989,146 | 36,676 | (14) | 7,704,190 |
| 31-12-2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Fair Value Reserve | |||||||||
| Acquisition | Interest | Hedge | Book | ||||||
| cost | receivable | adjustment | Positive | Negative | Total | Other | Impairment | Value | |
| (Note 20) | (Note 17) | ||||||||
| Debt instruments | |||||||||
| Issued by residents | |||||||||
| Public residentes | 4,680,416 | 75,853 | 48,352 | 648,093 | (56) | 648,037 | (2,860) | - | 5,449,798 |
| Other residents | 2,327 | - | - | - | - | - | - | (89) | 2,238 |
| Issued by non-residents | |||||||||
| Foreign public issuers | 310,338 | 1,412 | - | 24,662 | - | 24,662 | - | - | 336,412 |
| 4,993,081 | 77,265 | 48,352 | 672,755 | (56) | 672,699 | (2,860) | (89) | 5,788,448 | |
| Equity instruments | 73,183 | - | - | 718 | - | 718 | - | - | 73,901 |
| 5,066,264 | 77,265 | 48,352 | 673,473 | (56) | 673,417 | (2,860) | (89) | 5,862,349 |
In order to place greater emphasis on the development of its core business (retail banking - mortgages and SMEs), during the first quarter of 2020, the Bank changed its business plan having revised its financing strategy and allocation of its resources, which will imply the discontinuation of activities (through sale or maturity) that require stable financing and in large amounts and terms. In view of the Bank's strategic change, and taking into account its new business model ("hold to collect and sale"), this type of credit, which was previously measured at amortized cost, is now measured at fair value through other comprehensive income, the respective impacts of which can be seen in Note 1.3 c).
| 31-12-2020 | 31-12-2019 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Description | Acquisition cost |
Interest receivable |
Gain/losses and other |
Book value | Acquisition cost |
Interest receivable |
Gain/losses and other |
Book value | |
| National public issuers | |||||||||
| Maturing up to three years | 22,217 | 185 | 929 | 23,331 | - | - | - | - | |
| Maturing between three and five years | 593,309 | 3,379 | 44,735 | 641,423 | 23,008 | 184 | 914 | 24,106 | |
| Maturing between five and ten years | 2,911,971 | 58,680 | 512,146 | 3,482,797 | 4,600,348 | 73,967 | 682,619 | 5,356,934 | |
| Maturing in more than 10 years | 487 | 4 | (45) | 446 | 57,060 | 1,702 | 9,996 | 68,758 | |
| Foreign public issuers | |||||||||
| Maturing up to three years | 1,503 | 4 | 1 7 | 1,524 | - | - | - | - | |
| Maturing between three and five years | - | - | - | - | 1,505 | 4 | 2 2 | 1,531 | |
| Maturing between five and ten years | 307,743 | 1,412 | 31,298 | 340,453 | 308,833 | 1,408 | 24,640 | 334,881 | |
| 3,837,230 | 63,664 | 589,080 | 4,489,974 | 4,990,754 | 77,265 | 718,191 | 5,786,210 |
As at December 31, 2020 and 2019, the Group's portfolio contained Portuguese Treasury Bonds in the amounts of €535,499k and €445,207k respectively, used as collateral in funding operations (Note 16)
The Debt securities sub-heading has the following composition:
| 31-12-2020 | 31-12-2019 |
|---|---|
| 3,925,660 | 3,765,428 |
| 15,704 | 15,453 |
| 36,021 | 11,532 |
| (1,021) | (3,595) |
| 3,976,364 | 3,788,818 |
| (11,145) | (4,057) |
| 3,965,219 | 3,784,761 |
The Loans and advances sub-heading has the following composition:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Loans and advances - customers | ||
| To corporate clients | ||
| Discount and other credit securities | 412,444 | 195,390 |
| Loans | 8,085,223 | 9,555,392 |
| Current account loans | 826,486 | 1,033,064 |
| Overdrafts | 89,114 | 121,144 |
| Factoring | 1,675,690 | 1,541,033 |
| Finance leasing | 1,086,732 | 1,124,395 |
| Other credits | 47,989 | 52,241 |
| To individuals | ||
| Mortgage loans | 20,603,727 | 19,541,151 |
| Consumer credit and others | 2,236,858 | 2,291,403 |
| 35,064,263 | 35,455,213 | |
| Overdue loans and interest | 451,255 | 504,040 |
| Interest receivable | 56,694 | 72,618 |
| Values adjustments of hedged assets | 21,143 | 207,607 |
| Deferred expenses | 108,086 | 94,969 |
| Commissions associated with amortized cost (net) | (136,721) | (145,667) |
| 500,457 | 733,567 | |
| 35,564,720 | 36,188,780 | |
| Other balances receivable | ||
| Margin accounts | 865,734 | - |
| Checks payable | 52,845 | 60,591 |
| Sundry debtors and other cash equivalents | 345,540 | 223,470 |
| 1,264,119 | 284,061 | |
| Loans and advances - credit instituitions | ||
| Deposits | 13,173 | 17,610 |
| Loans | 7,127 | 5 5 |
| Other applications | - | 709,836 |
| Interest receivable | 3 | 1 4 |
| Commissions associated at amortized cost | (7) | - |
| 20,296 | 727,515 | |
| Loans and advances | 36,849,135 | 37,200,356 |
| Impairment of loans and advances - customers and other balances receivable (Note 17) | (993,646) | (917,422) |
| Impairment of loans and advances - credit instituitions (Note 17) | (126) | (29) |
| Impairment of loans and advances | (993,772) | (917,451) |
| 35,855,363 | 36,282,905 |
As at December 31, 2019, the heading "Loans and advances - Credit institutions - Other investments" included margin accounts of €507,569k. In 2020, the margin accounts were reclassified to Other balances receivable, in the amount of €865,734k.
In the periods ended on December 31, 2020 and 2019, portfolios of loans granted to individuals and companies were sold, with a carrying amount of €114.639k and €167.241k, respectively. As a result of these transactions, in 2020 and 2019 gains were recorded in the net amount of €2.620k, and of €4.028k, respectively (Note 17).
As at December 31, 2020 and 2019, the heading "Domestic loans – To individuals - Residential" included loans assigned to the autonomous property of the mortgage loans issued by the Bank in the amounts of €10.278.006k and €9.345.054k, respectively (Note 16).
The movement under impairments losses during 2020 and 2019 is presented in Note 17.
As at December 31, 2020 and 2019, the breakdown of overdue loans and interest by period of default was as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Up to three months | 13,471 | 23,106 |
| Between three and six months | 9,835 | 24,530 |
| Between six months and one year | 32,064 | 88,965 |
| Between one year and three years | 194,677 | 207,774 |
| More than three years | 201,208 | 159,665 |
| 451,255 | 504,040 |
As at December 31, 2020 and 2019, the division by stage of the financial assets' portfolio by the amortized cost, has the following breakdown:
| 31-12-2020 | 31-12-2019 | ||||||
|---|---|---|---|---|---|---|---|
| Gross | Gross | ||||||
| value | Impairment | Coverage | value | Impairment | Coverage | ||
| Stage 1 | 35,182,147 | (92,478) | 0.26% | 37,343,803 | (64,526) | 0.17% | |
| Stage 2 | 4,252,383 | (163,132) | 3.84% | 2,022,691 | (72,855) | 3.60% | |
| Stage 3 | 1,390,969 | (749,307) | 53.87% | 1,622,680 | (784,127) | 48.32% | |
| 40,825,499 | (1,004,917) | 40,989,174 | (921,508) |
The evolution that occurred in the exposure and in the impairment for financial assets at amortized cost in the financial years of 2020 and 2019 was as follows:
| Loans and advances at amortized cost | Impairment | |||||||
|---|---|---|---|---|---|---|---|---|
| Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
| Balance as at 01-01-2019 | 37,415,370 | 1,962,237 | 2,035,403 | 41,413,010 | 78,774 | 96,651 | 933,243 | 1,108,668 |
| Transfers | ||||||||
| Stage 1 to 2 | (925,665) | 925,665 | - | - | (4,544) | 27,068 | - | 22,524 |
| Stage 1 to 3 | (81,163) | - | 81,163 | - | (13,261) | - | 43,723 | 30,462 |
| Stage 2 to 3 | - | (107,057) | 107,057 | - | - | (7,736) | 30,262 | 22,526 |
| Stage 2 to 1 | 772,355 | (772,355) | - | - | 3,291 | (37,561) | - | (34,270) |
| Stage 3 to 2 | - | 100,926 | (100,926) | - | - | 6,467 | (33,142) | (26,675) |
| Stage 3 to 1 | 87,493 | - | (87,493) | - | 471 | - | (9,420) | (8,949) |
| Write offs and sales | - | - | (233,531) | (233,531) | - | - | (173,210) | (173,210) |
| Origination net of amortization | 75,413 | (86,725) | (178,993) | (190,305) | (205) | (12,034) | (7,329) | (19,568) |
| Balance as at 31-12-2019 | 37,343,803 | 2,022,691 | 1,622,680 | 40,989,174 | 64,526 | 72,855 | 784,127 | 921,508 |
| Transfers | ||||||||
| Stage 1 to 2 | (755,816) | 755,816 | - | - | (2,576) | 16,815 | - | 14,239 |
| Stage 1 to 3 | (42,407) | - | 42,407 | - | (319) | - | 9,694 | 9,375 |
| Stage 2 to 3 | - | (55,117) | 55,117 | - | - | (3,716) | 21,766 | 18,050 |
| Stage 2 to 1 | 466,874 | (466,874) | - | - | 1,432 | (20,191) | - | (18,759) |
| Stage 3 to 2 | - | 49,114 | (49,114) | - | - | 3,963 | (18,141) | (14,178) |
| Stage 3 to 1 | 4,731 | - | (4,731) | - | 51 | - | (1,777) | (1,726) |
| Business model changes | (2,331,153) | - | - | (2,331,153) | - | - | - | - |
| Idiosyncratic overlay (Note 42) | (2,433,000) | 2,433,000 | - | - | - | 57,000 | - | 57,000 |
| Macro overlay (Note 42) | - | - | - | - | 39,400 | 46,700 | 47,300 | 133,400 |
| Write offs and sales | - | - | (133,327) | (133,327) | - | - | (91,621) | (91,621) |
| Origination net of amortization | 2,929,115 | (486,247) | (142,063) | 2,300,805 | (10,036) | (10,294) | (2,041) | (22,371) |
| Balance as at 31-12-2020 | 35,182,147 | 4,252,383 | 1,390,969 | 40,825,499 | 92,478 | 163,132 | 749,307 | 1,004,917 |
| 31-12-2020 | ||||||
|---|---|---|---|---|---|---|
| Book Value | Notional amounts | |||||
| Up to 3 | Between 3 | Over 1 | ||||
| Type of financial instrument | Assets | Liabilities | months | and 1 year | year | Total |
| Hedging derivatives | ||||||
| Fair value hedge | ||||||
| Interest rate swaps | ||||||
| Liabilities and loans | 250 | 85,727 | 441 | 329,362 | 2,752,466 | 3,082,269 |
| Financial assets at fair value | ||||||
| through other comprehensive income | - | 374,018 | - | - | 3,380,000 | 3,380,000 |
| Equity swaps | 563 | - | 10,512 | 20,503 | 15,750 | 46,765 |
| Cash flow hedge | ||||||
| Interest rate swaps | ||||||
| Cash flows | 22,906 | - | - | 3,000,000 | - | 3,000,000 |
| Forwards sale | - | 62,538 | 2,049,092 | - | - | 2,049,092 |
| 23,719 | 522,283 | 2,060,045 | 3,349,865 | 6,148,216 | 11,558,126 |
| 31-12-2019 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Book Value | ||||||||||
| Up to 3 | Between 3 | Over 1 | ||||||||
| Assets | Liabilities | months | and 1 year | year | Total | |||||
| Hedging derivatives | ||||||||||
| Fair value hedge | ||||||||||
| Interest rate swaps | ||||||||||
| Liabilities and loans | 2,187 | 244,164 | 4,004 | 111,244 | 4,340,124 | 4,455,372 | ||||
| Financial assets at fair value | ||||||||||
| through other comprehensive income | - | 49,904 | - | - | 2,080,000 | 2,080,000 | ||||
| Equity swaps | 135 | 765 | 10,781 | 25,326 | 42,339 | 78,446 | ||||
| Cash flow hedge | ||||||||||
| Interest rate swaps | ||||||||||
| Cash flows | 52,795 | - | - | 6,000,000 | 3,000,000 | 9,000,000 | ||||
| Forwards sale | 1,129 | 98,998 | 1,061,803 | 1,404,835 | 326,558 | 2,793,196 | ||||
| 56,246 | 393,831 | 1,076,588 | 7,541,405 | 9,789,021 | 18,407,014 |
The Bank carries out derivatives transactions within the scope of its business, managing its positions based on expectations of the evolution of the markets, satisfying the needs of its customers, or hedging positions of a structural nature. The interest-rate risk implicit in the securitisation and mortgage loans issues are also managed by the Bank through contracting derivative financial instruments.
The Bank trades derivatives, namely in the form of exchange-rate or interest-rate contracts or a combination of both. These transactions are carried out in over-the-counter (OTC) markets).
Over-the-counter derivatives trading is usually based on a standard bilateral contract, which encompasses the set of operations on derivatives existing between the parties. In the case of inter-professionals relations, a Master Agreement of the International Swaps and Derivatives Association (ISDA). In the case of relations with customers, a contract of the Bank.
In this type of contract, offsetting liabilities is provided for in the event of default (the coverage of this offset is provided for in the contract and is governed by Portuguese law and, for contracts with foreign counterparts or executed under foreign law, in the relevant jurisdictions).
The derivatives' contract may also include a collateralisation agreement of the credit risk generated by the transactions governed by it. It should be noted that the derivatives contract between two parties usually covers all OTC derivative transactions carried out between these two parties, be they used to hedging or not.
In accordance with the standard, parts of operations commonly known as "embedded derivatives" are also separated and carried as derivatives, in a manner such as to recognize the fair value of these operations in profit or loss.
All derivatives (embedded or autonomous) are carried at fair value.
Derivatives are also recorded in off-balance-sheet accounts at their theoretical value (notional value). The notional value is the reference value for the calculation of flows of payments and receipts originated by the operation.
The fair value corresponds to the estimated value that the derivatives would have if they were traded on the market on the reference date. The evolution of the fair value of derivatives is recognized in the relevant balance sheet accounts and has immediate impact on profit or loss.
The composition of this heading is as follows:
| 31-12-2020 | 31-12-2019 | ||||
|---|---|---|---|---|---|
| Effective participation (%) |
Book value | Effective participation (%) |
Book value | ||
| Lusimovest - Fundo de Investimento Imobiliário | 25.76 | 26,235 | 25.76 | 25,923 | |
| Unicre - Instituição Financeira de Crédito, S.A. | 21.86 | 36,347 | 21.86 | 33,317 | |
| 62,582 | 59,240 |
As at December 31, 2019 and 2018, the financial investments held in Unicre included goodwill. The impairment test conducted on the goodwill at Unicre revealed no impairment losses in this financial investment.
As of this day, there are no liabilities to be met before the associated companies, nor are there any contingent liabilities to be recognized by the Company arising from the holdings therein.
The breakdown of this heading is as follows:
During 2013, following the subscription of several units, the Bank came to consolidate, using the full consolidation method, the Novimovest Real Estate Fund, whose main asset is rental properties.
As at December 31, 2020 and 2019, the properties held by the Novimovest Real Estate Fund had the following characteristics:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Land | ||
| Urbanized | 13,485 | 13,972 |
| Non-urbanized | 1,141 | 1,128 |
| Finished constructions | ||
| Rented | 172,173 | 190,611 |
| Not rented | 39,824 | 29,060 |
| Other construction projects | 23,908 | 17,742 |
| 250,531 | 252,513 |
On the other hand, during the 2020 and 2019 exercises, the properties held by the Novimovest Real Estate Fund generated, among other, the following annual incomes and expenses:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Rents (Note 30) | 9,991 | 13,437 |
| Taxes | (485) | (137) |
| Condominium | (938) | (1, 108) |
| Maintenance and repair | (841) | (1,077) |
| Insurance | (132) | (156) |
| 7.595 | 10,959 |
The movement under "Investment Properties" in 2020 and 2019 was as follows:
| 2020 | ||||||
|---|---|---|---|---|---|---|
| Balances at | Fair value | Balances at | ||||
| 31-12-2019 | Increases | valuation | Sales | 31-12-2020 | ||
| Properties held by Novimovest Fund | 252.513 | 6.854 | (2.564) | (6,272) | 250,531 |
| 2019 | ||||||
|---|---|---|---|---|---|---|
| Balances at | Fair value | Balances at | ||||
| 31-12-2018 | Increases | valuation | Sales | 31-12-2019 | ||
| Properties held by Novimovest Fund | 297,625 | 2.929 | (2.916) | (45.125) | 252,513 |
The effect of the valuation at fair value of the properties held by the Novimovest Real Estate Fund is recorded in the income statement under "Other Operating Gains / Losses - Investment Properties" (Note 30).
Investment properties held by the Group are appraised bi-annually, or more frequently if an event occurs in the meantime giving rise to doubts as to the value of the latest appraisal conducted by specialised, independent entities in accordance with the method described in Note 15.
As at December 31, 2020 and 2019, the form of determination of the fair value of the investment properties in accordance with the levels set out in IFRS 13 is as follows:
| Level 3 | ||
|---|---|---|
| 31-12-2020 | 31-12-2019 | |
| Investment properties | 250,531 | 252,513 |
In accordance with the requirements established by IFRS 13, a summary of its main characteristics, the valuation techniques adopted and the inputs is presented below for the investment properties with the highest value in the Group's portfolio on December 31, 2020 and 2019. Relevant information used to determine its fair value:
| Value on | |||||
|---|---|---|---|---|---|
| Description of the property | Use | 31-12-2020 31-12-2019 | Valuation technique | Relevant inputs | |
| Stª Cruz do Bispo - Lotes 1, 2 e 3 | |||||
| Retail park Matosinhos | Leased out | 47,905 | 34,586 Comparative market method / Residual value method | Lease value per m2 Capitalization rate |
|
| Galerias Saldanha Residence | |||||
| Centro Comercial em Lisboa | Leased out | 26,439 | 26,975 Income method / Comparative market method | Lease value per m2 Capitalization rate |
|
| Armazém em Perafita | |||||
| Armazém em Matosinhos | Leased out | 15,820 | 15,820 Income method / Comparative market method | Lease value per m2 | |
| Capitalization rate | |||||
| Av. Antero de Quental, 9 Escritórios e loja em Ponta Delgada |
Leased out | 11,464 | 11,431 Income method / Comparative market method | Lease value per m2 | |
| Capitalization rate | |||||
| Estrada da Outurela, 119, Carnaxide Escritórios em Oeiras |
Leased out | ||||
| 11,072 | 11,636 Income method / Comparative market method Income method / Cost method |
Lease value per m2 Capitalization rate |
|||
| Campos de Golf Vila Sol - G1 e G2 | Leased out | 13,537 | 12,067 Income method / Cost method | Lease value per m2 | |
| Campos de Golf em Loulé | Income method / Cost method | Capitalization rate | |||
| Construction in course | Land value and cost of | ||||
| Terrenos em Valongo | 10,426 | 10,500 Comparative market method / Cost method Residual value method |
and marketing per m2 | ||
| 136,663 | 123,015 | ||||
In the event of an increase in the value of rent per m2 or an increase in the occupancy rate or a decrease in the capitalization rate, the fair value of investment properties will be increased. On the other hand, if there is an increase in construction or marketing costs, an increase in the capitalization rate, a decrease in the value of rent per square meter or a decrease in the occupancy rate, the fair value of investment properties will be reduced.
The movement under these headings during 2020 and 2019 can be presented as follows.
| 2020 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Transfers | |||||||||||||||
| From/to non-current | Transfers | ||||||||||||||
| 31-12-2019 | Write-offs and sales | assets held for sale | other | 31-12-2020 | |||||||||||
| Gross | Accumulated | Gross | Accumulated Gross | Accumulated | Gross | Gross | Accumulated | Net | |||||||
| amount | depreciation Impairment Acquisitions | amount | depreciation amount | depreciation amount | Impairment Depreciation | amount depreciation Impairment | amount | ||||||||
| (Note 17) | (Note 14) | (Note 17) | (Note 17) | ||||||||||||
| Tangible assets | |||||||||||||||
| Property | |||||||||||||||
| Property for own use | 413,714 | (137,398) | (6,146) | 4,110 | (15) | - | (14,983) | 4,340 | - | (17,477) | (8,521) 402,826 | (141,579) | (23,623) | 237,624 | |
| Leasehold expenditure | 28,211 | (22,336) | - | 404 | (1,845) | 1,860 | - | - | - | - | (1,395) | 26,770 | (21,871) | - | 4,899 |
| Other property | 167 | (79) | - | - | - | - | - | - | - | - | (1) | 167 | (80) | - | 8 7 |
| Rights of use (IFRS 16 - Note 16) | 41,288 | (6,190) | - | 2,037 | (6,170) | - | - | - | - | - | (6,145) | 37,155 | (12,335) | - | 24,820 |
| 483,380 | (166,003) | (6,146) | 6,551 | (8,030) | 1,860 | (14,983) | 4,340 | - | (17,477) | (16,062) 466,918 | (175,865) | (23,623) | 267,430 | ||
| Equipment | 159,795 | (96,547) | - | 16,774 | (5,987) | 4,652 | (194) | 8 1 | - | - | (14,193) 170,388 | (106,007) | - | 64,381 | |
| Other tangible assets | 2,184 | (70) | - | - | - | - | - | - | - | - | (5) | 2,184 | (75) | - | 2,109 |
| 161,979 | (96,617) | - | 16,774 | (5,987) | 4,652 | (194) | 8 1 | - | - | (14,198) 172,572 | (106,082) | - | 66,490 | ||
| 645,359 | (262,620) | (6,146) | 23,325 (14,017) | 6,512 | (15,177) | 4,421 | - | (17,477) | (30,260) 639,490 | (281,947) | (23,623) | 333,920 | |||
| Intangible assets | |||||||||||||||
| Software | 84,819 | (55,479) | - | 24,044 | - | - | - | - | 3,092 | - | (21,756) 111,955 | (77,235) | - | 34,720 | |
| Other intangible assets | 4,620 | (4,386) | - | 3,551 | - | - | - | - | (3,092) | - | - | 5,079 | (4,386) | - | 693 |
| Positive consolidation differences | 1,160 | - | - | - | - | - | - | - | - | - | - | 1,160 | - | - | 1,160 |
| 90,599 | (59,865) | - | 27,595 | - | - | - | - | - | - | (21,756) 118,194 | (81,621) | - | 36,573 |
(Expressed in thousands of euros, except where otherwise stated)
| 2019 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Transfers from/to | Transfers | |||||||||||||||
| 31-12-2018 | Write-offs and sales | other assets | other | 31-12-2019 | ||||||||||||
| Gross | Accumulated | Gross | Accumulated Gross Accumulated | Gross | Accumulated | Gross | Accumulated | Net | ||||||||
| Value | depreciation Impairment IFRS 16 | Acquisitions | Value | depreciation Value | depreciation | Value | depreciation | Depreciation | Value | depreciation Impairment | amount | |||||
| (Note 17) | (Note 14) | (Note 17) | ||||||||||||||
| Tangible assets | ||||||||||||||||
| Property | ||||||||||||||||
| Property for own use | 432,145 | (141,813) | (6,146) | - | 11,430 | (21,454) | 10,508 | (8,583) | 3,078 | 176 | - | (9,171) | 413,714 | (137,398) | (6,146) | 270,170 |
| Leasehold expenditure | 28,310 | (21,143) | - | - | 532 | (308) | 252 | (141) | 133 | (182) | - | (1,578) | 28,211 | (22,336) | - | 5,875 |
| Other property | 167 | (78) | - | - | - | - | - | - - |
- | - | (1) | 167 | (79) | - | 88 | |
| Rights of use (IFRS 16 - Note 16) | - | - | - 37,997 | 5,182 | (1,891) | - | - - |
- | - | (6,190) | 41,288 | (6,190) | - | 35,098 | ||
| 460,622 | (163,034) | (6,146) 37,997 | 17,144 | (23,653) | 10,760 | (8,724) | 3,211 | (6) | - | (16,940) | 483,380 | (166,003) | (6,146) | 311,231 | ||
| Equipment | 141,835 | (88,616) | - | 23,913 | (5,765) | 4,840 | (113) | 49 | (75) | 49 | (12,869) | 159,795 | (96,547) | - | 63,248 | |
| Other tangible assets | 2,110 | (38) | 48 | - | - | - - |
26 | (26) | (6) | 2,184 | (70) | 2,114 | ||||
| 143,945 | (88,654) | - | - | 23,961 | (5,765) | 4,840 | (113) | 49 | (49) | 23 | (12,875) | 161,979 | (96,617) | - | 65,362 | |
| 604,567 | (251,688) | (6,146) 37,997 | 41,105 | (29,418) | 15,600 | (8,837) | 3,260 | (55) | 23 | (29,815) | 645,359 | (262,620) | (6,146) | 376,593 | ||
| Intangible assets | ||||||||||||||||
| Software | 62,830 | (36,497) | - | - | 17,962 | - | - | - - |
4,027 | (22) | (18,960) | 84,819 | (55,479) | - | 29,340 | |
| Other intangible assets | 4,878 | (3,893) | - | - | 3,715 | - | - | - - |
(3,973) | - | (493) | 4,620 | (4,386) | - | 234 | |
| Positive consolidation differences | 1,160 | - | - | - | - | - | - | - - |
- | - | - | 1,160 | - | - | 1,160 | |
| 68,868 | (40,390) | - | - | 21,677 | - | - | - - |
54 | (22) | (19,453) | 90,599 | (59,865) | - | 30,734 |
The breakdown of these headings is as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Current tax assets | 47,924 | 27,869 |
| Deferred tax assets | 323,018 | 556,113 |
| 370,942 | 583,982 | |
| Current tax liabilities | 1,677 | 87,171 |
| Deferred tax liabilities | 373,314 | 290,091 |
| 374,991 | 377,262 | |
| Deferred taxes | (50,296) | 266,022 |
Taxes in the income statement have the following composition:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Current taxes | (52,770) | (133,655) |
| Deferred taxes | (57,963) | (75,107) |
| (110,733) | (208,762) |
The movement under deferred tax assets and liabilities in the periods ended December 31, 2020 and 2019, is as follows:
| Other | |||||
|---|---|---|---|---|---|
| Balances at | Comprehensive | Income | Balances at | ||
| 31-12-2019 | Income | statement | Other | 31-12-2020 | |
| Provisions/Impairment temporarily not accepted for tax purposes | |||||
| Deferred tax assets | 188,261 | - | (28,697) | - | 159,564 |
| Deferred tax liabilities | (5,222) | - | - | (5,222) | |
| Revaluation of tangible assets | |||||
| Deferred tax assets | 1,568 | - | (138) | - | 1,430 |
| Deferred tax liabilities | (2,123) | - | 143 | - | (1,980) |
| Reportable tax losses | 185,508 | - | (15,000) | (157,699) | 12,809 |
| Pensions: | |||||
| Actuarial deviations | 38,158 | - | (16,514) | - | 21,644 |
| Early retirement pensions | 39,803 | - | 947 | - | 40,750 |
| Transfer of pension liabilities to the | |||||
| Social Security | 3,878 | - | (323) | - | 3,555 |
| Financial assets at fair value through other comprehensive income | (226,051) | (98,055) | (2,814) | - | (326,920) |
| Hedging derivatives - cash flows | 16,436 | (2,600) | - | - | 13,836 |
| Financial assets at fair value through profit or loss | 37,517 | - | 8,270 | - | 45,787 |
| Securitization operations: | (24,120) | - | 143 | - | (23,977) |
| Integration costs | 10,530 | - | (3,972) | - | 6,558 |
| Other | 1,879 | - | (8) | (1) | 1,870 |
| 266,022 | (100,655) | (57,963) | (157,700) | (50,296) |
In order to use the deferred taxes carried over from BANIF, on May 29, 2018, the Bank submitted a replacement Model 22 (Corporate Income Tax) statement, regarding the 2015 financial year. The presentation of that tax statement was motivated by the calculation of the result of BANIF's 2015 financial year and the approval, by the Minister of Finance, of the request for the transfer of BANIF's deferred taxes to the Bank (see Order No. 138/2018/MF, of March 9, 2018). However, by Order of the Deputy Director of the Major Taxpayers Unit dated November 26, 2019 ("Order of the Tax Authority"), the Bank was only recognized the right to use BANIF's deferred taxes for the years 2009 to 2014. As it disagreed with the Order of the Tax Authority, on January 13, 2020 the Bank filed a hierarchical appeal to the Minister of Finance. On June 30, 2020, the Sub-Director-General of the Tax Management - Income Taxes area decided to dismiss the hierarchical appeal submitted. Since the Order of the Tax Authority and the Order of the Deputy Director-General only recognized the Bank's right to take advantage of BANIF's deferred taxes in the total amount of €92,301k, the Bank may demand - under the agreement with the Portuguese authorities involved in Banif's termination proceedings - a compensation of €157,699k, either in cash or treasury bills. In order to comply with this decision, the Bank transferred the amount in question, from this heading to the heading "Other balances receivable" (Note 9).
| Other | |||||
|---|---|---|---|---|---|
| Balances at | Comprehensive | Income | Balances at | ||
| 31-12-2018 | Income | statement | Other | 31-12-2019 | |
| Provisions/Impairment temporarily not accepted for tax purposes | |||||
| Deferred tax assets | 229,023 | - | (40,762) | - | 188,261 |
| Deferred tax liabilities | (5,243) - |
- | 21 | - | (5,222) |
| Revaluation of tangible assets | |||||
| Deferred tax assets | 2,140 | - | (572) | - | 1,568 |
| Deferred tax liabilities | (2,983) - |
- | 860 | - | (2,123) |
| Reportable tax losses | 219,136 - |
- | (33,628) | - | 185,508 |
| Pensions: | |||||
| Actuarial deviations | 55,112 | - | (16,954) | - | 38,158 |
| Early retirement pensions | 37,465 | - | 2,338 | - | 39,803 |
| Transfer of pension liabilities to the | |||||
| Social Security | 4,201 | - | (323) | - | 3,878 |
| Financial assets at fair value through other comprehensive income | (141,477) - |
(88,822) | 4,248 | - | (226,051) |
| Hedging derivatives - cash flows | (9,901) 0 |
26,337 | - | - | 16,436 |
| Financial assets at fair value through profit or loss | 21,240 | - | 16,277 | - | 37,517 |
| Securitization operations | (24,701) | - | 581 | - | (24,120) |
| Integration costs | 17,735 | - | (7,205) | - | 10,530 |
| Other | 1,081 | - | 12 | 786 | 1,879 |
| a | 402,828 | (62,485) | (75,107) | 786 | 266,022 |
Dividends distributed to the Bank by subsidiaries and associated companies located in Portugal or in a European Union Member State are not taxed within the sphere of the latter as a result of the application of the arrangements provided for in Article 51 of the Corporate Tax Code that provides for the elimination of double taxation of distributed profits.
The tax authorities are entitled to review the Bank's tax situation during a period of four years (five years for Social Security), except in cases where there are tax losses carried forward and any other tax deduction or credit, situations in which the expiry is that of the exercise of that right.
The Bank was subject to a tax inspection up to and including 2017. As a result of the inspection, it was subject to an additional Corporate Tax assessment and to various corrections to the tax loss used in that year. In the matter of Stamp Duty, the Bank was also subject to an additional assessment. The corrections made to taxable income covered various matters and most are merely temporary corrections.
As for the additional assessments received, the Bank paid off the amounts assessed. Nevertheless, the majority of the additional assessments were subject to administrative claim and/or judicial review.
The Bank records under "Provisions" under Liabilities the amount that it considers appropriate to satisfy the additional assessments to which it was subjected, as well as for contingencies relating to financial years not yet reviewed by the Tax Authority (Note 17).
The Group decided to apply as from 2017 the Special Taxation of Groups of Companies Regime (RETGS). This new regime is reflected in the algebraic sum of the tax results determined in the separate periodic returns of each company. The companies covered by this scheme are: Santander Totta, SGPS - the controlling company; and Taxagest, Banco, Santander Totta Seguros, TottaUrbe and Gamma - controlled companies.
The composition of this heading is as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Gold, other precious metals, coins and medals | 3,145 | 3,145 |
| Promises and other assets received | ||
| as settlement in lieu of payment | 233,480 | 255,543 |
| Income receivable and deferred income | 20,946 | 24,095 |
| Deferred costs | 1,486 | 1,350 |
| Other assets pending regularization | 8,379 | 52,430 |
| 267,436 | 336,563 | |
| Impairment losses for assets received in lieu of payment (Note 17) | (103,285) | (88,192) |
| 164,151 | 248,371 |
The "Income Receivable and Revenue with Deferred Income" heading mainly includes fees receivable from insurers for the marketing of their insurance (Note 34).
The "Loan operations pending settlement" includes loan/borrowing operations pending settlement as detailed below:
| 31-12-2020 | 31-12-2019 | |||
|---|---|---|---|---|
| Other | Other | Other | Other | |
| assets | liabilities | liabilities | ||
| (Note 19) | (Note 19) | |||
| Cheques, values in transit and other transactions to be settled | 1,885 | (5,842) | 34,280 | (25,858) |
| Transfers within SEPA | 3 0 | (110,761) | 130 | (126,562) |
| Balances to be settled in ATM's | 1,991 | - | 2,504 | (6) |
| Other | 4,473 | (77,663) | 15,516 | (32,277) |
| 8,379 | (194,266) | 52,430 | (184,703) |
The movement under "Pledges, auctions and other assets received as payment in kind" during 2020 and 2019 was as follows:
| 31-12-2019 | 31-12-2020 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross | Net | Transfers from/to ANCDV | Tranfers/ | Other | Impairment (Note 17) | Gross | Net | |||||||||
| amount Impairment amount Increases Sales | Capital | Impairment tangible assets Capital | Impairment Increases | Reversals | Utilisation | amount | Impairment | amount | ||||||||
| (Note 17) | (Note 15) | (Note 12) | (Note 17) | |||||||||||||
| Assets received as settlement of defaulting | ||||||||||||||||
| Real estate | 64,026 (28,141) | 35,885 | - | - | (12,670) | (1,348) | - | - | - | - | - | - | 51,356 | (29,489) | 21,867 | |
| Lieu of payment | 1,976 | (86) | 1,890 | 193 | - | (313) | - | - | - | - | (8) | 30 | - | 1,856 | (64) | 1,792 |
| Auctions | 16,474 | (5,203) | 11,271 | 6,322 | - | (7,013) | - | - | - | - | (1,181) | 68 | - | 15,783 | (6,316) | 9,467 |
| Other | 33,454 (26,911) | 6,543 | 4,453 | (5,156) | (205) | - | - | - | - | (1,123) - |
1,013 | 1,079 | 32,546 - |
(25,942) - |
6,604 | |
| Own real estate properties for sale | 42,407 (27,467) | 14,940 | 145 | (6,237) | - | - | 10,756 | - | (4,061) | (1,842) | 688 | 2,702 | 47,071 | (29,980) | 17,091 | |
| Other property for sale | 97,206 | (384) | 96,822 | - | (19,404) | - | - | - | 7,065 A) | - (11,961) | 395 | 456 | 84,867 | (11,494) | 73,373 | |
| 255,543 (88,192) 167,351 11,113 (30,797) | (20,201) | (1,348) | 10,756 | 7,065 | (4,061) (16,115) | 2,194 | 4,237 233,479 | (103,285) 130,194 |
A) Under the promissory sale agreement concluded in November 2018 with Cerberus Capital Management (Tagus Project), in March 2020, the last ales deed was signed although it was not possible to record143 properties that were returned to the portfolio of TottaUrbe as other assets, with an acquisition value of 7,065 thousand euros.
As of December 31, 2020, the typology of properties in the portfolio of assets received by means of payment in kind - real estate, is as follows:
| Gross | Net | |||
|---|---|---|---|---|
| Type | Nº of premises | amount | Impairment | value |
| Premises | ||||
| Urban land | 1 6 | 2,014 | (877) | 1,137 |
| Rustic land | 2 1 | 1,220 | (862) | 358 |
| Constructed buildings | ||||
| . Residential | 339 | 30,922 | (18,072) | 12,850 |
| . Commercials | 128 | 17,200 | (9,679) | 7,521 |
| 504 | 51,356 | (29,490) | 21,866 | |
| Other properties for sale | ||||
| Urban land | 757 | 39,220 | (2,661) | 36,559 |
| Rustic land | 103 | 23,684 | (7,065) | 16,619 |
| Constructed buildings | ||||
| . Residential | 121 | 5,075 | (16) | 5,059 |
| . Commercials | 165 | 16,888 | (1,752) | 15,136 |
| 1,146 | 84,867 | (11,494) | 73,373 | |
| 1,650 | 136,223 | (40,984) | 95,239 | |
| 31-12-2018 | 31-12-2019 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross | Net | Transfers from/to | Tranfers/ | Impairment (Note 17) | Gross | Net | |||||||
| amount Impairment amount Increases | Sales | ANCDV | tangible assets | Increases | Reversals Utilisation | amount | Impairment | amount | |||||
| (Note 17) | (Note 15) | (Note 12) | (Note 17) | (Note 19) | |||||||||
| Assets received as settlement of defaulting | |||||||||||||
| Real estate | 109,320 | (52,155) | 57,165 | - | - | (45,294) | - | - | 24,014 | - | 64,026 | (28,141) | 35,885 |
| Lieu of payment | 11,435 | (43) | 11,392 | 4 0 | - | (9,499) | - | (45) | 2 | - | 1,976 | (86) | 1,890 |
| Auctions | 22,574 | (5,952) | 16,622 13,279 | - | (19,379) | - | (76) | 825 | - | 16,474 | (5,203) | 11,271 | |
| Other | 39,966 | (27,560) | 12,406 | 3,542 | (5,107) | (4,947) | - | (623) | 1,272 | - | 33,454 | (26,911) | 6,543 |
| Own real estate properties for sale | 44,773 | (23,624) | 21,149 | 188 | (8,131) | - | 5,577 | (7,328) | 678 | 2,807 | 42,407 | (27,467) | 14,940 |
| Other property for sale | 128,591 | - 128,591 | - | (31,385) | - | - | (470) | 8 6 | - | 97,206 | (384) | 96,822 | |
| 356,659 (109,334) 247,325 17,049 (44,623) | (79,119) | 5,577 | (8,542) | 26,877 | 2,807 255,543 | (88,192) | 167,351 |
The determination of impairment losses is performed according to the methodology described in Note 15.
As at December 31, 2020 and 2019, the method for determining the fair value of assets received by donation in payment in accordance with the levels defined in IFRS 13 is level 3.
The movement under this heading in the period ended in 2020 and 2019 was as follows:
| 31-12-2019 | Impairment (Note 17) | U | 31-12-2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross | Accumulated | Transfers from / to | t | Other tranf. | Accumulated | ||||||||
| amount | impairment | Increases | Sales | other assets | Impairment | Increases | Reversals | Utilisation i |
Impairment | Gross amount | impairment | Net value | |
| (Note 17) | (Note 17) | ||||||||||||
| Real estate | 74,822 | (31,223) | 35,322 a) | (38,000) | 20,201 | 1,348 | (9,894) | 7,750 | 12,514 | (21,787) | 92,345 | (41,292) | 51,053 |
| Equipment | 2,047 | (1,603) | 697 | (738) | - | - | (269) | 126 | 147 | - | 2,006 | (1,599) | 407 |
| 76,869 | (32,826) | 36,019 | (38,738) | 20,201 | 1,348 | (10,163) | 7,876 | 12,661 | (21,787) | 94,351 | (42,891) | 51,460 |
a) Under the promissory sale agreement concluded in November 2018 with Cerberus Capital Management (Tagus Project), in March 2020, the last sales deed was signed, although it was not possible to record 269 properties that returned to the Bank's portfolio as non-current assets held for sale, with an acquisition value of €32,446k and €21,788k worth of provisions.
As of December 31, 2020, the typology of properties in the portfolio of assets received by means of payment in kind - real estate, is as follows:
| Gross | Net | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Type | Nº of premises | amount | Impairment | value | |||||||
| Urban land | 197 | 17,374 | (6,711) | 10,663 | |||||||
| Rustic land | 8 9 | 20,584 | (11,867) | 8,717 | |||||||
| Constructed buildings | |||||||||||
| . Residential | 202 | 34,981 | (11,379) | 23,602 | |||||||
| . Commercials | 147 | 19,406 | (11,334) | 8,072 | |||||||
| 635 | 92,345 | (41,291) | 51,054 | ||||||||
| 31-12-2018 | Impairment (Note 19) | 31-12-2019 | |||||||||
| Gross | Accumulated | Transfers from / | Utilisation | Gross | Accumulated | ||||||
| amount | impairment | Increases | Sales | to other assets | Increases | Reversals | and other | amount | impairment | Net value | |
| (Note 17) | (Note 14) | (Nota 17) | |||||||||
| Real estate | 46,277 | (16,599) | 994 | (51,568) | 79,119 | (38,432) | 13,724 | 10,084 | 74,822 | (31,223) | 43,599 |
| Equipment | 1,913 | (1,569) | 1,269 | (1,135) | - | (953) | 706 | 213 | 2,047 | (1,603) | 444 |
| 48,190 | (18,168) | 2,263 | (52,703) | 79,119 | (39,385) | 14,430 | 10,297 | 76,869 | (32,826) | 44,043 |
These assets are carried at the amount agreed by negotiation or judicial means, after deduction of the lesser of the expenses the Bank expects to incur with their sale, or their quick-sale value. On the other hand, assets recovered following the termination of finance lease contracts are carried under Assets for the amount of principal outstanding on the date of termination of the contract.
Real estate is subject to periodic appraisals performed by independent appraisers. Whenever the amount arising from these appraisals (net of selling expenses) is lower than the amount at which the properties are carried, impairment losses are recorded. If, on a subsequent date, the facts that led the Bank to record impairment losses no longer exist, the Bank will reverse the impairment losses, up to the limit of the amount that the assets would have, had they not been reclassified to non-current assets held for sale.
The appraisal of these properties are carried out in accordance with one of the following methods, applied according to the specific situation of the asset:
The market comparison criterion is based on real-estate transaction figures for similar properties comparable to the property constituting the object of the study obtained through market research conducted in the area where the property is located.
This method is intended to estimate the value of the property based on the capitalisation of its net rent, updated to the present moment, using the discounted cash flows method.
The appraisals performed on the properties referred to above are performed by independent, specialised entities accredited by the Securities Markets Commission (CMVM).
As at December 31, 2020 and 2019, the method for determining the fair value of non-current assets held for sale in accordance with the levels defined in IFRS 13 is level 3.
The Deposits sub-heading has the following composition:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Deposits - Central Banks | ||
| Resources from Bank of Portugal - Deposits | 6,781,961 | 3,033,002 |
| Resources from other Central Banks - Deposits | 9,859 | 4,522 |
| 6,791,820 | 3,037,524 | |
| Deposits - Credit institutions | ||
| Resources from domestic credit institutions | ||
| Deposits | 150,867 | 162,910 |
| Other resources | 1,831 | 1,833 |
| Interest payable | - | 16 |
| Revenue with deferred income | 138 | 50 |
| 152,836 | 164,809 | |
| Resources from foreign credit institutions | ||
| Short-term resources | 52,970 | 152,216 |
| Deposits | 77,462 | 316,070 |
| Sale operations with repurchase agreement | 1,255,805 | 1,654,668 |
| Other resources | 9,740 | 907,738 |
| Interest payable | 156 | 495 |
| 1,396,133 | 3,031,187 | |
| 1,548,969 | 3,195,996 | |
| Deposits - Customers | ||
| Term deposits | 14,533,260 | 16,986,546 |
| Demand deposits | 20,977,020 | 17,787,089 |
| Structured deposits | 38,643 | 217,162 |
| Saving deposits | 686,479 | 800,057 |
| Others | 27,421 | 69,629 |
| Interest payable | 6,932 | 12,420 |
| Value adjustments for hedging operations | 237 | 369 |
| 36,269,992 | 35,873,272 | |
| Deposits | 44,610,781 | 42,106,792 |
As at December 31, 2020 and 2019, "Amounts Owed to Credit Institutions Abroad – Repo operations," is broken down by type of asset underlying the repo operations:
| 31-12-2020 | ||||
|---|---|---|---|---|
| Deferred | ||||
| Underlying | Capital | Interest | costs | Total |
| Government Bonds - Portugal | 535,640 | (120) | (22) | 535,498 |
| Non-subordinated debt | 669,696 | (145) | (116) | 669,435 |
| Bonds inssued by non-residents | 50,872 | - | - | 50,872 |
| 1,256,208 | (265) | (138) | 1,255,805 | |
| 31-12-2019 | ||||
| Deferred | ||||
| Underlying | Capital | Interest | costs | Total |
| Government Bonds - Portugal | 445,207 | (1,342) | (6) | 443,859 |
| Non-subordinated debt | 797,112 | (137) | (44) | 796,931 |
| Bonds inssued by non-residents | 413,878 | - | - | 413,878 |
| 1,656,197 | (1,479) | (50) | 1,654,668 |
| 31-12-2020 | 31-12-2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| Issued | Reacquired | Balance | Issued | Reacquired | Balance | |||
| Mortgage bonds | ||||||||
| Opening balance | 8,050,000 | (5,300,000) | 2,750,000 | 7,700,000 | (4,200,000) | 3,500,000 | ||
| Issued | 1,500,000 | - | 1,500,000 | 1,100,000 | - | 1,100,000 | ||
| Reacquired | - | (1,500,000) | (1,500,000) | - | (1,100,000) | (1,100,000) | ||
| Redeemed | (750,000) | - | (750,000) | (750,000) | - | (750,000) | ||
| Final balance | 8,800,000 | (6,800,000) | 2,000,000 | 8,050,000 | (5,300,000) | 2,750,000 | ||
| Interest payable | - | - | 9,314 | - | - | 10,526 | ||
| Cost-related commissions | - | - | (23,161) | - | - | (25,372) | ||
| 8,800,000 | (6,800,000) | 1,986,153 | 8,050,000 | (5,300,000) | 2,735,154 | |||
| Bonds issued in the scope of securitization operations | ||||||||
| Opening balance | 4,269,015 | (3,525,534) | 743,481 | 4,898,562 | (4,010,288) | 888,274 | ||
| Redeemed | (462,098) | 333,299 | (128,799) | (629,547) | 484,754 | (144,793) | ||
| Final balance | 3,806,917 | (3,192,235) | 614,682 | 4,269,015 | (3,525,534) | 743,481 | ||
| Interest payable | - | - | 676 | - | - | (100) | ||
| Cost-related commissions | - | - | (48,659) | - | - | (55,040) | ||
| 3,806,917 | (3,192,235) | 566,699 | 4,269,015 | (3,525,534) | 688,341 | |||
| Structured bonds | ||||||||
| Issued | 8,227 | - | 8,227 | 8,227 | - | 8,227 | ||
| Interest payable | - | - | 9 7 | 3 | - | 3 | ||
| Value adjustments for hedging operations | - | - | 250 | 152 | - | 152 | ||
| Subordinated liabilities | 8,227 | - | 8,574 | 8,382 | - | 8,382 | ||
| Subordinated liabilities | ||||||||
| Opening balance | 522,099 | (225,362) | 296,737 | 522,099 | (225,362) | 296,737 | ||
| Issued | 320,000 | - | 320,000 | - | - | - | ||
| Redeemed | (287,308) | 16,262 | (271,046) | - | - | - | ||
| Final balance | 554,791 | (209,100) | 345,691 | 522,099 | (225,362) | 296,737 | ||
| Interest payable | - | - | 233 | - | - | 327 | ||
| 554,791 | (209,100) | 345,924 | 522,099 | (225,362) | 297,064 | |||
| 13,169,935 (10,201,335) | 2,907,350 | 12,849,496 | (9,050,896) | 3,728,941 |
Under the law, holders of the covered bonds have a special creditor privilege over the autonomous assets and liabilities, which constitutes a guarantee of the debt to which the bondholders will have access in the event of the issuer's insolvency.
The conditions of the covered bonds, of the bonds issued within the scope of securitisation operations, and cash bonds are described in Annex I, and those of the subordinated liabilities in Annex II.
Between May 2008 and December 2020, the Bank undertook twenty-six covered-bond issuances under the €12.5 billions Programme. As at December 31, 2020 and 2019, the covered bonds had an autonomous set of assets consisting of:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Loans and advances (Note 9) | 10,278,006 | 9,345,054 |
| Credit interests | 6,682 | 7,038 |
| Derivatives | (184,234) | (187,820) |
| 10,100,454 | 9,164,272 |
The Other financial liabilities sub-heading has the following composition:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Cheques and orders payable | 62,261 | 63,307 |
| Creditors and other resources | ||
| Creditors for other futures transactions | 8,494 | 5,418 |
| Contributions to other health systems | 1,788 | 1,870 |
| Public sector | 31,222 | 32,071 |
| Creditors by factoring contract | 47,418 | 44,257 |
| Creditors for supplies of goods | 2,266 | 5,090 |
| Others | 26,975 | 30,652 |
| Commitments to future income (IFRS16 application) | 25,232 | 35,356 |
| 205,656 | 218,021 |
Commitments with future rents corresponds to the adoption of IFRS 16, and their movement during the 2020 and 2019 period was as follows:
| Liability to rent | Right to use | |
|---|---|---|
| (Note 12) | ||
| Balances as at January 1, 2019 | 37,997 | 37,997 |
| Depreciation 2019 | (6,603) | (6,190) |
| Outs | (1,220) | (1,891) |
| Ins | 3,238 | 3,238 |
| Rent extentions and modification | 1,944 | 1,944 |
| Balances as at December, 2019 | 35,356 | 35,098 |
| Depreciation 2020 | (6,557) | (6,145) |
| Outs | (5,604) | (6,170) |
| Ins | 1,617 | 1,617 |
| Rent extentions and modification | 420 | 420 |
| Balances as at December, 2020 | 25,232 | 24,820 |
As of December 31, 2020, the contractual cash flows are as follows:
| Contractual cash flows | |
|---|---|
| . Up to 1 year | 3,801 |
| . Up to 2 years | 3,584 |
| . Up to 3 years | 3,372 |
| . Up to 4 years | 2,810 |
| . Up to 5 years | 2,621 |
| . Over 5 year | 9,044 |
| 25,232 |
The movement under Provisions during the 2020 and 2019 period was as follows:
| 2020 | ||||||
|---|---|---|---|---|---|---|
| 31-12-2019 | Increases | Reversals | Utilization | Tranfers/Others | 31-12-2020 | |
| Impairment for guarantees and commitments | ||||||
| given (Note 23) | 53,249 | 6,289 | (2,072) | - | - | 57,466 |
| Other provisions | 169,780 | 69,150 | (7,518) | (38,772) | (18,782) | 173,858 |
| 223,029 | 75,439 | (9,590) | (38,772) | (18,782) | 231,324 | |
| 2019 | ||||||
| 31-12-2018 | Increases | Reversals | Utilization | Tranfers/Others | 31-12-2019 | |
| Impairment for guarantees and commitments | ||||||
| given (Note 23) | 53,160 | 89 | - | - | - | 53,249 |
| Other provisions | 233,286 | 21,979 | (21,072) | (55,114) | (9,299) | 169,780 |
| 286,446 | 22,068 | (21,072) | (55,114) | (9,299) | 223,029 |
As at December 31, 2020 and 2019, the breakdown of Other Provisions was as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Pensions and other post-employment defined benefit obligations | 14,201 | 15,838 |
| Restructuring | 69,308 | 62,277 |
| Legal issues and and pending tax disputes | 10,642 | 10,589 |
| Other provisions | 79,707 | 81,076 |
| 173,858 | 169,780 |
The movement under Impairments during the 2020 and 2019 period was as follows:
| 2020 | |||||||
|---|---|---|---|---|---|---|---|
| Reversals of | Recoveries | ||||||
| impairment | Utilization | of past | Gain/loss from | ||||
| 31-12-2019 | Increases | losses | and others | 31-12-2020 | due loans | loan sales | |
| Impairment or reversal of impairment on financial assets not measured at | I | ||||||
| fair value through profit or loss: | m | ||||||
| Impairment in debt securities (Note 9) | 4,057 | 7,088 | - | - | 11,145 | - | - |
| Impairment in loan and advances (Note 9) | 917,451 | 492,170 | (301,563) | (114,286) | 993,772 | (7,317) | (2,620) |
| Impairment in financial assets at fair value | |||||||
| through other comprehensive income (Note 8) | 89 | 56 | (131) | - | 14 | - | - |
| 921,597 | 499,314 | (301,694) | (114,286) | 1,004,931 | (7,317) | (2,620) | |
| Impairment or reversal of impairment on non-financial assets | |||||||
| Tangible assets (Note 12) | 6,146 | - | - | 17,477 | 23,623 | - | - |
| Other assets (Note 14) | 88,192 | 16,115 | (2,194) | 1,172 | 103,285 | - | - |
| Non-current assets held for sale (Note 15) | 32,826 | 10,163 | (7,876) | 7,778 | 42,891 | - | - |
| 127,164 | 26,278 | (10,070) | 26,427 | 169,799 | - | - | |
| 2019 | |||||||
|---|---|---|---|---|---|---|---|
| Reversals of | Recoveries | ||||||
| impairment | Utilization | of past | Gain/loss from | ||||
| 31-12-2018 | Increases | losses | and others | 31-12-2019 | due loans | loan sales | |
| Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss: |
|||||||
| Impairment for applications with credit institutions (Note 9) | 3,872 | 185 | - | - | 4,057 | - | - |
| Impairment in loan and advances and other balances receivable (Note 9) | 1,104,796 | 244,639 | (244,172) | (187,812) | 917,451 | (3,673) | (4,028) |
| Impairment in financial assets at fair value | |||||||
| through other comprehensive income (Note 8) | 3 | 86 | - | - | 89 | - | - |
| Impairment in joint investments and associated companies | 1,918 | - | - | (1,918) | - | - | - |
| 1,110,589 | 244,910 - | (244,172) | (189,730) | 921,597 | (3,673) | (4,028) | |
| Impairment or reversal of impairment on non-financial assets | |||||||
| Tangible assets (Note 12) | 6,146 | - | - | - | 6,146 | - | - |
| Other assets (Note 14) | 109,334 | 8,542 | (26,877) | (2,807) | 88,192 | - | - |
| Non-current assets held for sale (Note 15) | 18,168 | 39,385 | (14,430) | (10,297) | 32,826 - |
- - |
- |
| 133,648 | 47,927 | (41,307) | (13,104) | 127,164 | - | - |
As at December 31, 2020 and 2019, this heading represented the units of the Novimovest Fund not held by the Group.
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Personnel expenses | ||
| Vacation and vacation subsidies | 41,294 | 39,325 |
| Other variable remuneration | 20,226 | 29,470 |
| End career prize | 1,377 | - |
| Other personnel expenses | 3,918 | 698 |
| Other charges | 94,018 | 143,947 |
| Liabilities with pensions and other benefits (Note 35) | ||
| Santander liabilities | 1,123,784 | 1,131,980 |
| Santander pension fund book value | (1,143,046) | (1,160,573) |
| London branch liabilities | 56,628 | 51,848 |
| London branch pension fund book value | (48,718) | (44,654) |
| Former Banif liabilities | 160,544 | 161,803 |
| Former Banif pension fund book value | (93,369) | (101,126) |
| Former BAPOP liabilities | 181,921 | 181,503 |
| Former BAPOP pension fund book value | (186,718) | (185,459) |
| Deferred income | 9,687 | 2,433 |
| Liability operations to be settled | 17,636 | 7,413 |
| Other (Note 14) | 194,266 | 184,703 |
| 433,448 | 443,311 |
As at December 31, 2020 and 2019, the Bank's share capital was represented by 1,256,723,284 shares, each of a par value of €1, fully subscribed and paid up by the following shareholders:
| 31-12-2020 | 31-12-2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| Number of shares |
% of participation |
Amount | Number of shares |
% of participation |
Amount | |||
| Santander Totta, SGPS, S.A. | 1,241,179,513 | 98.76% | 1,241,180 | 1,241,179,513 | 98.76% | 1,241,180 | ||
| Treasury shares | 15,009,840 | 1.19% | 15,009 | 15,010,898 | 1.19% | 15,011 | ||
| Other | 533,931 | 0.04% | 534 | 532,873 | 0.05% | 532 | ||
| 1,256,723,284 | 100.00% | 1,256,723 | 1,256,723,284 | 100.00% | 1,256,723 |
During 2019, the Bank purchased 10,453 treasury shares for the amount of €43k.
Under the terms of Order-in-Council No. 408/99, of June 4, published in Official Gazette of Portugal – 1 st series B, No. 129, the share issuance premiums, in the amount of €193,390k, cannot be used for the allocation of dividends or for the acquisition of treasury shares.
The "Equity instruments issued other than share capital" refer to the ancillary capital contributions granted by shareholder Santander Totta, SGPS, S. A., which neither bear interest nor have a defined reimbursement period. Those contributions can be reimbursed only by resolution of the Board of Directors, upon prior authorisation of the Bank of Portugal.
In 2019 the Bank distributed dividends in the amount of €422,873k (net amount of dividends allocated to treasury shares), equivalent to a unit dividend of approximately €0.336 per share.
As at December, 2020 and 2019, the breakdown of reserves for accumulated comprehensive income was as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Other accumulated comprehensive income | ||
| Other comprehensive income - Gross amount | ||
| Financial assets at fair value through other comprehensive income (Note 8) | 989,146 | 673,417 |
| Revaluation reserves of companies in equity method | 2,413 | 3,575 |
| Cash-flow hedging instruments | (44,631) | (53,018) |
| Remeasurements (Note 35) | ||
| Pension Fund of BST | (795,764) | (799,225) |
| Pension Fund of the Lond branch of BST | (16,573) | (13,447) |
| Pension fund of Former Banif | (43,248) | (36,753) |
| Pension fund of Former BAPOP | (7,464) | (8,037) |
| Remeasurement of companies under the equity method | (3,960) | (4,034) |
| 79,919 | (237,522) | |
| Other comprehensive income - Tax impact | ||
| For temporary differences | ||
| Reserves resulting from the fair value valuation of: | ||
| Financial assets at fair value trough other comprehensive income | (305,705) | (207,650) |
| Revaluation reserves of companies under the equity method | (615) | (911) |
| Cash-flow hedging instruments | 13,836 | 16,436 |
| Tax impact of remeasurements | 204,286 | 204,286 |
| Tax impact due to remeasurements of companies in equity method | 919 | 938 |
| (87,279) | 13,099 | |
| (7,360) | (224,423) |
Deferred taxes were calculated based on legislation currently in force and correspond to the best estimate of the impact of the realisation of the potential gains and losses included in the revaluation reserves.
Revaluation reserves cannot be used for the allocation of dividends or to increase share capital. The headings "Retained earnings" and "other reserves" have the following composition:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Retained earnings | 951,973 | 513,134 |
| Other reserves | ||
| Legal reserve | 511,836 | 461,864 |
| Reserves of consolidated companies | 161,092 | 164,605 |
| Reserves of companies consolidated under the equity method | 8,045 | 8,822 |
| Merger reserve | ||
| By incorporation of Totta and BSP | 541,334 | 541,334 |
| By incorporation of BSN | 35,405 | 35,405 |
| By incorporation of Totta IFIC | 90,520 | 90,520 |
| By incorporation of BAPOP | (8,411) | (8,411) |
| Other reserves | 27,494 | 20,840 |
| 1,367,315 | 1,314,979 |
In accordance with the provisions of Decree-Law 298/92, of December 31, amended by Decree-Law 201/2002, of September 26, the Bank sets aside a legal reserve until it equals the share capital or the sum of the free reserves formed and of the retained earnings, if greater. To this end, a fraction of not less than 10% of the net income for the period of the separate business is annually transferred to this reserve, until the said amount is achieved. This reserve may be used only to cover accumulated losses or to increase the share capital.
In accordance with legislation in force, the merger reserve is considered equivalent to the legal reserve, and may only be used to cover accumulated losses or increase the share capital.
This heading includes the revaluation reserves, in 1998, under Decree-Law 31/98 of February 11, and the Bank revalued its tangible fixed assets, increasing their value, net of accumulated depreciation, by approximately €23,245k, which was recorded in revaluation reserves. The net amount resulting from the revaluation carried out can only be used for share capital increases or to cover losses, as and when they are used (amortized) or the assets to which they relate are sold.
In the years 2020 and 2019, the determination of consolidated profit can be summarized as follows:
| 31-12-2020 | 31-12-2019 | |||
|---|---|---|---|---|
| Contribution | Contribution | |||
| Net Income | to the | Net Income | to the | |
| for the | consolidated | for the | consolidated | |
| year | net income | year | net income | |
| Net income of BST (individual basis) | 275,210 | 275,210 | 499,715 | 499,715 |
| Net income of other Group companies: | ||||
| Totta (Ireland), Plc. | 9,214 | 9,214 | 10,086 | 10,086 |
| Novimovest - Fundo de Investimento Imobiliário Aberto | 341 | 268 | 5,750 | 4,528 |
| Unicre, Instituição Financeira de Crédito, S.A. | 23,919 | 5,229 | 16,194 | 3,540 |
| Gamma, Sociedade Financeira de Titularização de Créditos, S.A. | 63 | 63 | 228 | 228 |
| Totta Urbe, Empresa de Administração e Construções, S.A. | 583 | 583 | 6,083 | 6,083 |
| Lusimovest Fundo de Investimento Imobiliário | 1,210 | 312 | 292 | 75 |
| Taxagest, S.A. | (3) | (3) | 8 | 8 |
| 35,327 | 15,666 | 38,641 | 24,548 | |
| Elimination of intragroup dividends received: | ||||
| Totta (Ireland), Plc. | (6,853) | (12,490) | ||
| Unicre, Instituição Financeira de Crédito, S.A. | (3,192) | (5,202) | ||
| (10,045) | (17,692) | |||
| Adjustments related to securitization operations | (18,635) | (16,588) | ||
| Other | (4,447) | (532) | ||
| Consolidated net income attributable to the shareholders of BST | 257,749 | 489,451 |
Basic earnings per share are calculated by dividing the consolidated net income attributable to the Bank's shareholders by the weighted average number of common shares in circulation during the year.
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Consolidated net income attributable to the shareholders of BST | 257,749 | 489,451 |
| Weighted average number of ordinary shares issued | 1,256,723,284 | 1,256,723,284 |
| Weighted average number of own shares | 15,009,857 | 15,000,817 |
| Weighted average number of ordinary shares outstanding | 1,241,713,427 | 1,241,722,467 |
| Basic earnings per share attributable to the shareholders of BST (Euros) | 0.21 | 0.39 |
Basic earnings per share are the same as diluted earnings per share since there are no contingently issuable common shares, including options, warrants or equivalent financial instruments as of the reporting date.
The value of third-party holdings in Group companies is broken down by entity as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Taxagest, S.A. | 557 | 557 |
| Other | 70 | 70 |
| 627 | 627 |
The breakdown of off-balance-sheet liabilities is as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Guarantees given and other contingent liabilities | ||
| Guarantees and sureties | 648,253 | 563,159 |
| Commitments for credit granted | ||
| Revocable | Revogáveis 6,140,567 | 5,166,328 |
| Irrevocable | 949,459 | 1,000,630 |
| 7,090,026 | 6,166,958 | |
| Other commitments granted | ||
| Non-financial guarantees and sureties | 964,502 | 1,013,643 |
| Other irrevocable commitments | 363,131 | 374,410 |
| Deposit Guarantee Fund | 68,969 | 68,969 |
| Investor Indemnity System | 7,507 | 6,817 |
| Other commitments granted | 200,215 | 215 |
| 1,604,324 | 1,464,054 | |
| 9,342,603 | 8,194,171 | |
| Assets pledged as guarantee | ||
| Bank of Portugal | 148,206 | 165,818 |
| Deposit Guarantee Fund | 87,998 | 85,447 |
| Investor Indemnity System | 8,516 | 9,114 |
| Assets pledged as guarantee in monetary policy operations | 15,995,107 | 11,621,096 |
| 16,239,827 | 11,881,475 | |
| Liabilities for services provided | ||
| Deposit and custodial services | 40,923,924 | 36,555,568 |
| Amounts received for collection | 444,411 | 161,128 |
| Other values | 113,603 | 76,780 |
| 41,481,938 | 36,793,476 |
Assets pledged as collateral for monetary policy operations correspond to the collateral pool that the Bank has with the European Central Bank, to ensure operational liquidity.
Guarantees and other commitments granted have the following exposure per stage:
| 31-12-2020 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Exposure | Impairment (Note 17) | |||||||
| Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
| (Nota 16) | ||||||||
| Commitments for credit granted | 6,485,022 | 596,264 | 8,740 | 7,090,026 | 4,618 | 658 | 13 | 5,289 |
| Financial guarantees | 570,269 | 36,870 | 41,114 | 648,253 | 541 | 434 | 25,587 | 26,562 |
| Other commitments granted | 1,400,980 | 52,668 | 150,676 | 1,604,324 | 361 | 149 | 25,105 | 25,615 |
| 8,456,271 | 685,802 | 200,530 | 9,342,603 | 5,520 | 1,241 | 50,705 | 57,466 | |
| 31-12-2019 | ||||||||
| Exposure | Impairment (Note 17) | |||||||
| Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
| (Nota 16) | ||||||||
| Commitments for credit granted | 5,391,943 | 768,621 | 6,394 | 6,166,958 | 3,040 | 1,403 | 9 | 4,452 |
| Financial guarantees | 394,581 | 127,140 | 41,438 | 563,159 | 482 | 329 | 21,562 | 22,373 |
Other commitments granted 1,186,718 114,059 163,277 1,464,054 1,262 183 24,979 26,424
6,973,242 1,009,820 211,109 8,194,171 4,784 1,915 46,550 53,249
Pursuant to Decree-Law 298/92 of December 31, the Deposit Guarantee Fund was established in November 1994 in order to secure the deposits made at credit institutions, in accordance with the limits established in the General Credit Institutions Regime. The initial contribution to the Fund, established by an Order-in-Council of the Ministry of Finance, was made through the delivery of cash and deposit securities, and has been amortised over 60 months as from January 1995. Except for what is referred to in the following paragraph, the regular annual contributions to the Fund are recognised as an expense for the period to which they relate.
Until 2011, as permitted by the Bank of Portugal, the Bank paid 90% of the annual contribution to the Deposit Guarantee Fund, having also entered into an irrevocable commitment to the Deposit Guarantee Fund to pay up the 10 % of the annual contribution, if and when so requested. The unpaid amount accumulated as at December 31, 2020, and 2019, for which this commitment was entered into totalled €68,969k. The assets pledged to the Bank of Portugal are reflected under off-balance-sheet headings at their market value. In 2020 and 2019, the Bank paid 100% of the annual contribution in the amounts of €48k and €50k, respectively (Note 32).
Liabilities to the Investor Compensation System are not recognised as expenses. These liabilities are covered through the acceptance of an irrevocable commitment to make their payment, if it comes to be required, a part of which (50%) is secured by pledge of Portuguese Treasury securities. As at December 31, 2020 and 2019, these liabilities amounted to €7,507k and €6,817k, respectively.
| 2020 | 2019 | |
|---|---|---|
| Interest income | ||
| Interest on cash and deposits at central banks and credit institutions | 133 | 707 |
| Interest on non-trading financial assets mandatorily at fair | ||
| value through profit or loss | 288 | 288 |
| Interest on financial assets at fair value through other comprehensive income | 148,044 | 121,342 |
| Interest on financial assets at amortized cost | ||
| Loans and advances - Credit instituitions | 1,440 | 9,463 |
| Debt securities | 59,458 | 66,711 |
| Loans and advances - customers | 602,497 | 702,553 |
| Interest on resources at Central Banks and other Credit institutions | 24,984 | 14,510 |
| Interests on hedging derivatives | 274,477 | 293,584 |
| Others | 1,985 | 2,616 |
| 1,113,306 | 1,211,774 | |
| Interest expenses | ||
| Interest on financial liabilities measured at amortized cost | ||
| Deposits - Credit instituitions | (5,522) | (5,983) |
| Deposits- customers | (19,824) | (47,130) |
| Debt securities issued | (34,574) | (42,015) |
| Interest on other financial liabilities | (5,972) | (2,413) |
| Interest on assets from central banks and credit institutions | (8,299) | (6,249) |
| Interest on individual's assets | (925) | (585) |
| Interests on hedging derivatives | (244,512) | (242,647) |
| Interest on lease liabilities | (565) | (649) |
| Others | (8,163) | (9,632) |
| (328,356) | (357,303) | |
| 784,950 | 854,471 |
This item refers to dividends received and is broken down as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| SIBS – Sociedade Interbancária de Serviços, S.A. | 1,733 | 1,634 |
| Others | 1 | 155 |
| 1,734 | 1,789 |
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Unicre - Instituição Financeira de Crédito, S.A. | 5,305 | 2,471 |
| Lusimovest - Fundo de Inv. Imobiliario | 312 | 75 |
| 5,617 | 2,546 |
| 2020 | 2019 | |
|---|---|---|
| Fee and commission income | ||
| On guarantees given | 17,189 | 18,076 |
| On commitments to third parties | 4,849 | 967 |
| By services provided | ||
| Deposit and custodial services | 6,067 | 6,223 |
| Collection and administration of values | 15,137 | 11,965 |
| Real estate and mutual fund management | 24,159 | 27,879 |
| Transfers | 1,542 | 1,829 |
| Card management | 119,034 | 122,287 |
| Credit operations | 48,612 | 53,341 |
| Other services rendered | 11,785 | 14,718 |
| On operations carried out on behalf of third parties | ||
| On securities | 15,471 | 14,451 |
| Other | 82 | 195 |
| Other commission received | ||
| Insurance companies (Note 34) | 100,783 | 101,680 |
| Demand deposits | 93,870 | 83,598 |
| Checks | 5,565 | 9,082 |
| Other | 20,330 | 23,937 |
| 484,475 | 490,228 | |
| Fee and commission expenses | ||
| On guarantees received | (4,313) | (5,031) |
| On banking services rendered by third parties | ||
| Collection and administration of values | (4,860) | (4,595) |
| Cards management | (64,132) | (66,894) |
| Credit operations | (2,739) | (7,402) |
| Other services rendered | (2,615) | (3,963) |
| On operations carried out by third parties | ||
| Securities | (3,390) | (2,348) |
| Others | (7,016) | (6,181) |
| Other commissions paid | (17,750) | (8,953) |
| (106,815) | (105,367) |
The breakdown of these headings is as follows:
| 2020 | 2019 | |
|---|---|---|
| Gains or losses on derecognition of financial assets and liabilities not measured at fair | ||
| value through profit or loss, net | 90,879 | 59,406 |
| Financial assets at fair value through other comprehensive income | ||
| Debt instruments | 89,757 | 59,301 |
| Others | - | 255 |
| Others | 1,122 | (150) |
| Gains or losses on financial assets and liabilities held for trading, net | (9,299) | (935) |
| Derivative instruments | (9,299) | (935) |
| Gains or losses on non-trading financial assets mandatorily at fair value through profit or | ||
| loss, net | 3,577 | 1,255 |
| Equity instruments | 3,013 | - |
| Debt securities | 564 | 1,255 |
| Gains or losses from hedge accounting, net | - | - |
| Hedging derivatives | (202,144) | (217,714) |
| Hedged element | 202,144 | 217,714 |
| Exchange differences, net | 11,192 | 11,253 |
| 2020 | 2019 | |
|---|---|---|
| Gains on investment properties | 383 | 1,114 |
| Losses on investment properties | (251) | (396) |
| 132 | 718 |
The composition of this heading is as follows:
| 2020 | 2019 | |
|---|---|---|
| Other operating income | ||
| Income from services rendered | 2,303 | 2,292 |
| Rents earned | 10,296 | 14,118 |
| Change in fair value of investment properties | 3,997 | 3,461 |
| Others | 3461 | 4,502 |
| 20,057 | 24,373 | |
| Other operating expenses | ||
| Change in fair value of investment properties | (6,561) | (6,376) |
| Expenses with customers | (3,339) | (4,118) |
| Others | (1,799) | (3,458) |
| (11,699) | (13,952) |
During 2020 and 2019, "Rents Earned" included the amounts of €9,991k and €13,437k, respectively, in respect of the rents earned by the Novimovest Real Estate Fund (Note 12).
In the item "Customer charges", expenses with internal and external fraud are recorded.
The composition of this heading is as follows:
| 2020 | 2019 | |
|---|---|---|
| Remuneration | ||
| Management and supervisory boards | 4,684 | 5,953 |
| Employees | 222,244 | 225,255 |
| Other variable remuneration | 14,600 | 33,076 |
| 241,528 | 264,284 | |
| Mandatorily social charges | ||
| Charges on remuneration | 61,165 | 60,719 |
| Pension Funds (Note 35) | 8,178 | 6,698 |
| Other mandatorily social charges | 1,119 | 987 |
| 70,462 | 68,404 | |
| Other staff expenses | ||
| Complementary pension plan (Note 35) | 537 | 559 |
| Staff transfers | 1,247 | 1,356 |
| Others | 8,021 | 7,650 |
| 9,805 | 9,565 | |
| 321,795 | 342,253 |
| 2020 | 2019 | |
|---|---|---|
| External services | ||
| Specialized services | 73,659 | 67,624 |
| Maintenance of software and hardware | 58,623 | 56,235 |
| Other lease operations (short-term and low-value leases) | 4,287 | 6,150 |
| Communications | 7,716 | 12,475 |
| Advertising and publishing | 12,419 | 13,496 |
| Travel, lodging and representation expenses | 2,875 | 5,313 |
| Maintenance and repairs | 4,755 | 5,394 |
| Transportation | 4,599 | 5,132 |
| Insurance | 2,396 | 1,364 |
| Other services | 5,681 | 6,227 |
| External supplies | 9,947 | 12,055 |
| Subscriptions and donations | 6,600 | 7,080 |
| Other taxes | 4,081 | 4,642 |
| 197,638 | 203,187 |
The fees billed or to be billed by the audit firm and respective firms in the same network in 2020 and 2019, excluding the Value Added Tax, were as follows:
| 2020 | 2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| Company | Group | Total | Company | Group | Total | |||
| Audit and statutory audit | 1,350 | 69 | 1,419 | 1,284 | 79 | 1,363 | ||
| Other services and reliability guarantee | 998 | - | 998 | 796 | - | 796 | ||
| Tax consulting services | - | - | - | - | - | - | ||
| Other services | 190 | - | 190 | 187 | - | 187 | ||
| 2,538 | 69 | 2,607 | 2,267 | 79 | 2,346 |
Corresponds to the amounts contracted for the year, irrespective of their billing date.
"Other reliability assurance services" include fees for the following services:
ii) Review of the internal control system, as required by Bank of Portugal Notice No. 5/2008;
iii) Limited review of the quarterly financial information (1st and 3rd quarters of 2019) prepared for the purpose of consolidation of Banco Santander, S. A.;
"Other services" includes fees related to the following services:
The composition of this heading is as follows:
| 2020 | 2019 | |
|---|---|---|
| Contributions to the Resolution Fund | ||
| National Resolution Fund | (12,875) | (12,261) |
| Single Resolution Fund | (22,701) | (20,336) |
| Contributions to the Deposit Guarantee Fund | (48) | (50) |
| (35,624) | (32,647) | |
Decree-Law 24/2013 of February 19, established the regime governing bank contributions to the new Resolution Fund, created for the purpose of prevention, mitigation and containment of the systemic risk. According to Bank of Portugal Notice No. 1/2013 and Instructions Nos. 6/2013 and 7/2013, payment is laid down of an initial contribution and periodic contributions to the Resolution Fund.
Within the scope of the single Resolution mechanism, the annual contributions will be transferred to the Single Resolution Fund, in accordance with article 3(3) of the agreement on the transfer and pooling of the contributions to the Single Resolution Fund, signed in Brussels on May 21, 2014. The Bank of Portugal, as the liquidation authority, determines the amount of the contribution of each institution depending on the risk profile of each entity. In December 2015 the Bank paid an additional contribution to the Resolution Fund in the amount of €13,318k, in accordance with a letter received from the Bank of Portugal in November 2015. In 2020 and 2019 and as provided for in the Bank of Portugal's letter, the Single Resolution Council (CUR) allowed banking institutions, in these years, to opt for the use of irrevocable payment commitment, in the proportion of 15% of the amount of the annual contribution. The annual contribution amounted to €26,707k and €23,924k, respectively.
The composition of this heading is as follows:
| 2020 | 2019 | ||||||
|---|---|---|---|---|---|---|---|
| Gain | Loss | Net | Gain | Loss | Net | ||
| Assets received in lieu of payment | 6,840 | (6,807) | 3 3 | 5,381 | (932) | 4,449 | |
| Other non-financial assets | 17,030 | (12,073) | 4,957 | 54,697 | (30,440) | 24,257 | |
| 23,870 | (18,880) | 4,990 | 60,078 | (31,372) | 28,706 |
Income from the provision of insurance brokerage services relates primarily to commissions billed for the marketing of life and non-life insurance, as follows:
| 2020 | 2019 | ||||
|---|---|---|---|---|---|
| Life | Non-Life | Life | Non-Life | ||
| Products | Products | Total | Products | Products | Total |
| (Note 27) | (Note 27) | ||||
| 39,772 | - | 39,772 | 46,522 | - | 46,522 |
| 36,811 | - | 36,811 | 34,020 | - | 34,020 |
| - | 22,783 | 22,783 | - | 19,724 | 19,724 |
| - | 1,417 | 1,417 | - | 1,414 | 1,414 |
76,583 24,200 100,783 80,542 21,138 101,680
As at December 31, 2020 and 2019, the heading "Other Assets – Income Receivable and Revenue with Deferred Income" (Note 14) includes commissions receivable from insurers as detailed hereunder:
| 2020 | 2019 | |
|---|---|---|
| Santander Totta Seguros - Companhia de Seguros de Vida, S.A. | 9,706 | 10,653 |
| Aegon Santander Portugal Vida - Companhia de Seguros de Vida, S.A. | 3,063 | 3,407 |
| Aegon Santander Portugal Não Vida - Companhia de Seguros, S.A. | 2,025 | 1,766 |
| Others | 12 | 11 |
| 14,806 | 15,837 |
These amounts refer essentially to the commissions determined and not yet paid in respect of premiums of insurance marketed during the last quarters of 2020 and 2019.
To determine the liabilities for past services of the Bank (Santander and BAPOP Plan) in respect of employees in service and those already retired, actuarial studies were conducted by Mercer (Portugal), Limitada. The current value of the past-service liabilities, as well as the related costs of current services, were calculated based on the Projected Unit Credit method.
The Bank's liabilities for retirement pensions, health care and death benefits as at December 31, 2020 and 2019, as well as the respective coverage, are detailed as follows:
| Santander | BAPOP | |||
|---|---|---|---|---|
| 31-12-2020 | 31-12-2019 | 31-12-2020 | 31-12-2019 | |
| Estimate of responsibilities for past services: | ||||
| - Pensions | ||||
| .Current employees | 303,442 | 314,702 | 64,619 | 63,195 |
| .Pensioners | 52,496 | 46,489 | 7,806 | 7,970 |
| .Retired staff and early retired staff | 583,248 | 584,284 | 95,972 | 97,164 |
| 939,186 | 945,475 | 168,397 | 168,329 | |
| - Healthcare systems (SAMS) | 169,721 | 171,834 | 12,782 | 12,456 |
| - Death subsidy | 6,399 | 6,349 | 742 | 718 |
| - Retirement bonus | 8,478 | 8,322 | - | - |
| 1,123,784 | 1,131,980 | 181,921 | 181,503 | |
| Coverage of responsibilities: | ||||
| - Net assets of the Fund | 1,143,046 | 1,160,573 | 186,718 | 185,459 |
| Excess / insufficient funding (Note 19) | 19,262 | 28,593 | 4,797 | 3,956 |
| Actuarial and financial deviations generated in the period/year | ||||
| - Change in assumptions | - | 150,685 | - | 26,378 |
| - Experience adjustments: | ||||
| .Other actuarial (gains) / losses | 4,984 | 12,609 | (80) | (11,924) |
| .Financial (gains) / losses | (8,445) | (50,241) | (493) | (7,170) |
| (3,461) | (37,632) | (573) | (19,094) | |
| (3,461) | 113,053 | (573) | 7,284 |
As at December 31, 2020 and 2019, the main assumptions used by the Bank to determine its liabilities for retirement pensions were as follows:
| Mortality Table | |
|---|---|
| Female | TV 88/90 (-1 ) |
| Male | TV 88/90 |
| Rate of return on pension fund assets | 1.10% |
| Technical actuarial rate (discount rate) | 1.10% |
| Wage growth rate | 0.75% |
| Pension growth rate | 0.50% |
| Inflation rate | 0.45% |
Decree-Law 167-E/2013, of December 31, changed the normal age of access to retirement under the general Social Security regime to 66 years (in 2019 the normal retirement age is 66 years and 5 months), though the sustainability factor was no longer applicable to beneficiaries who retire at that age.
The discount rate used to determine the liabilities was calculated by reference to the market rates of lowrisk corporate bonds of a term similar to that of the settlement of the liabilities.
The movement under liabilities for past services in the years of 2020 and 2019 can be detailed as follows:
| Santander | BAPOP | |||
|---|---|---|---|---|
| 31-12-2020 | 31-12-2019 | 31-12-2020 | 31-12-2019 | |
| Responsibilities at beginning of year | 1,131,980 | 972,776 | 181,503 | 163,111 |
| Cost of current services | 5,580 | 3,712 | 1,348 | 891 |
| Cost of interests | 12,023 | 19,609 | 1,634 | 3,382 |
| (Actuarial Gains / Losses) | 4,984 | 163,294 | (80) | 14,454 |
| Early retirements | 21,682 | 23,891 | 785 | 2,673 |
| Amounts paid | (54,946) | (53,794) | (3,889) | (3,665) |
| Employee Contributions | 2,481 | 2,492 | 620 | 657 |
| Responsabilities at end of period | 1,123,784 | 1,131,980 | 181,921 | 181,503 |
The expenses for the year relating to pensions includes the cost of current services and interest expenses, deducted from the expected return of the Pension Fund assets. In the periods ended on 2020 and 2019, the expenses with pensions have the following composition (Note 31):
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Cost of current services | 6,928 | 4,603 |
| Cost of interests | 13,657 | 22,991 |
| Income from assets calculated using the discount rate | (13,657) | (22,991) |
| Defined benefit plan | 6,928 | 4,603 |
| Defined contribution plan | 1,131 | 1,487 |
| London branch plan | 119 | 608 |
| 8,178 | 6,698 |
As from January 1, 2009, the employees taken on by the Bank came to be included in Social Security, and are covered by a supplementary defined-contribution pension plan and by the rights acquired under Clause 93 of the CBA. The plan is funded through contributions by employees (1.5%) and by the Bank (1.5%), calculated on the basis of the actual monthly remuneration. For this purpose, each employee can opt for an open pension fund at his or her choice into which the Bank transfers its contribution.
In 2021, the Bank expects to make a contribution of €11,129k to the defined benefit plan of Santander and BAPOP.
Estimated salary and pension growths take into account the country's current situation, and the consequent prospect of smaller increases in the future, or even maintenance of current values.
The average duration of pension liabilities of the employees of Santander, of BAPOP and of Banif, is 15 years, including those in active service and pensioners.
The movement under actuarial deviations during 2020 and 2019 was as follows:
| Santander | BAPOP | ||||
|---|---|---|---|---|---|
| 31-12-2020 | 31-12-2019 | 31-12-2020 | 31-12-2019 | ||
| Responsibilities at beginning of year (Note 20) | 799,225 | 686,172 | 8,037 | 753 | |
| Actuarial (Gains) / Losses | 4,984 | 163,294 | (80) | 14,454 | |
| Financial (Gains) / Losses | (8,445) | (50,241) | (493) | (7,170) | |
| Responsabilities at end of period (Note 20) | 795,764 | 799,225 | 7,464 | 8,037 |
The Santander Pension Fund is managed by Santander Pensões - Sociedade Gestora de Fundos de Pensões, S. A., and the BAPOP Pension Fund is managed by Santander Totta Seguros – Companhia de Seguros de Vida, S. A. As at December 31, 2020 and 2019, the number of participants of the Funds was the following:
| Santander | BAPOP | ||||
|---|---|---|---|---|---|
| 31-12-2020 | 31-12-2019 | 31-12-2020 | 31-12-2019 | ||
| Current employees | |||||
| Defined benefit plan | 3,885 | 4,055 | 722 | 737 | |
| Defined contribution plan | 460 | 389 | 119 | 125 | |
| Pensioners | 1,282 | 1,242 | 3 4 | 3 2 | |
| Retired staff and early retired staff | 5,773 | 5,731 | 157 | 147 | |
| 11,400 | 11,417 | 1,032 | 1,041 |
| Assets | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Defined contribution | Defined benefit plan | Retired staff and | Pensioners | ||||||
| plan | early retired staff | ||||||||
| Santander | Bapop | Santander | Bapop | Santander | Bapop Santander Bapop | ||||
| Total number as at December 31, 2018 | 340 | 142 | 4,242 | 788 | 5,689 | 133 | 1,175 | 3 1 | |
| Leavers: | |||||||||
| . Current employees | (18) | (16) | (45) | (40) | - | - | (2) | (1) | |
| . Due to mortality | (1) | - | (2) | - | (128) | (1) | (33) | - | |
| Transfers | - | (1) | (142) | (11) | 142 | 1 1 | - | - | |
| Joiners | 6 8 | 2 | - | 2 8 | 4 | 102 | 2 | ||
| Total number as at December 31, 2019 | 389 | 125 | 4,055 | 737 | 5,731 | 147 | 1,242 | 3 2 | |
| Leavers: | |||||||||
| . Current employees | (9) | (6) | (30) | (10) | - | - | (4) | - | |
| . Due to mortality | - | - | (4) | (1) | (118) | - | (42) | - | |
| Transfers | - | - | (137) | (4) | 137 | 5 | - | (1) | |
| Joiners | 8 0 | - | 1 | - | 2 3 | 5 | 8 6 | 3 | |
| Total number as at december 31, 2020 | 460 | 119 | 3,885 | 722 | 5,773 | 157 | 1,282 | 3 4 | |
The movement occurred in the Bank's Pension Fund during 2020 and 2019 was as follows.
| Santander | BAPOP | |||
|---|---|---|---|---|
| 31-12-2020 | 31-12-2019 | 31-12-2020 | 31-12-2019 | |
| Fund Value at the beginning of the year | 1,160,573 | 979,892 | 185,459 | 163,475 |
| Bank contribution (monetary) | 14,470 | 162,133 | 2,401 | 14,440 |
| Employee contribution | 2,481 | 2,492 | 620 | 657 |
| Net income of the fund: | ||||
| Income from assets using discount rate | 12,023 | 19,609 | 1,634 | 3,382 |
| Income of the fund above the discount rate | 8,445 | 50,241 | 493 | 7,170 |
| Amounts paid | (54,946) | (53,794) | (3,889) | (3,665) |
| Fund Value at the end of the year | 1,143,046 | 1,160,573 | 186,718 | 185,459 |
The yields of the Pension Fund amounted to Santander 1.92%, and BAPOP 2.06% in 2020, and Santander 7.25% and BAPOP 7.66% in 2019.
The investments and allocation policy of the Pension Fund determines that the asset portfolio be structured in compliance with security, profitability and liquidity criteria, through a diverse set of investments, namely shares, bonds, other debt securities, holdings in collective-investment institutions, bank deposits, other monetary assets, and land and buildings included in the land registry.
On the other hand, that policy is guided by risk-diversification and profitability criteria, and the Managing Company may opt for a more or less conservative policy by increasing or decreasing the exposure to equities or bonds, according to its expectations as to the evolution of the markets, and in accordance with the defined investment limits.
The investment policy in force provides for the following limits:
| Asset Class | Expected buckets |
|---|---|
| Bonds | 40% a 95% |
| Real estate | 0% a 25% |
| Equities | 0% a 20% |
| Liquidity | 0% a 15% |
| Alternatives | 0% a 10% |
| Commodities | 0% a 5% |
As at December 31, 2020 and 2019, the composition of the Pension Fund was the following:
| Santander | BAPOP | |||
|---|---|---|---|---|
| 31-12-2020 | 31-12-2019 | 31-12-2020 | 31-12-2019 | |
| Debt instruments: | ||||
| . Rating A | 88,135 | 69,147 | 19,894 | 17,620 |
| . Rating BBB | 370,511 | 522,599 | 67,661 | 83,538 |
| . Rating BB | 13,764 | 3,999 | 3,476 | 808 |
| . Without rating to the issuance and issuer | 67,857 | 62,640 | 10,937 | 7,965 |
| Real estate funds | 125,008 | 123,925 | 913 | 1,246 |
| Mutual funds | 352,167 | 245,157 | 72,747 | 62,478 |
| Deposits | 53,779 | 67,828 | 7,382 | 9,592 |
| Real estate funds | ||||
| . Commercial spaces | 19,515 | 19,238 | - | - |
| . Land | 1,149 | 1,142 | - | - |
| Equity instruments: | ||||
| . Portuguese shares – listed | 136 | 187 | - | - |
| . Foreign shares – listed | 29,893 | 36,955 | - | 157 |
| Derivative financial instruments | ||||
| . Options listed | 632 | (149) | 110 | 36 |
| Others | 20,500 | 7,905 | 3,598 | 2,019 |
| 1,143,046 | 1,160,573 | 186,718 | 185,459 |
The method for calculating the fair value of the assets and liabilities mentioned above (with the exception of deposits and others), adopted by the Managing Companies, as recommended in IFRS 13 (Note 38), was as follows:
| 31-12-2020 | 31-12-2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
| Debt instruments | 563,806 | - | 78,794 | 642,600 | 697,711 | - | 70,605 | 768,316 |
| Investment Funds | 424,914 | - | 125,921 | 550,835 | 279,349 | - | 153,457 | 432,806 |
| Equity instruments | 30,029 | - | - | 30,029 | 37,299 | - | - | 37,299 |
| Derivative financial instruments | 742 | - | 742 | (113) | - | - | (113) | |
| Real estate | - | - | 20,664 | 20,664 | - | - | 20,380 | 20,380 |
| 1,019,491 | - | 225,379 | 1,244,870 | 1,014,246 | - | 244,442 | 1,258,688 |
As at December 31, 2020 and 2019, the Pension Fund's portfolio included the following assets related with companies of the Santander Group in Portugal:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| a) | ||
| Rented real estate properties | 13,028 | 13,192 |
| Securities (including units in funds managed) | 221,208 | 184,964 |
| 234,236 | 198,156 | |
a) The amount shown corresponds only to the Santander Pension Fund.
In 2010 insurance was taken out at Santander Totta Seguros – Companhia de Seguros de Vida, S. A., to meet the liabilities of a new supplementary defined-contribution pension plan attributed to the Bank's senior management. The initial contribution to the new plan amounted to €4,430k. In the years ended in December 31, 2020 and 2019 the premium paid by the Bank amounted to €537k and €559k, respectively (Note 31).
This plan covers the contingencies of retirement, death and permanent absolute disability for customary work or invalidity.
For all these contingencies, the benefits to be received by the beneficiaries will equal the accumulated balance in the supplementary plan on the date on which the benefits are realised. In the case of the beneficiary's death this amount will be further increased by €6,000.
As at December 31, 2020 and 2019, the main assumptions used in the calculation of retirement pension liabilities related with the pension plan covering the employees of the former Bank's London Branch were as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| 100% S3NMA_Light/ | 92% of S3NMA/ | |
| Mortality table | 100% S3NFA_Light | 98% of S3NFA |
| Technical actuarial rate (discount rate) | 1.2% | 1.9% |
| Wage growth rate | 2.7% | 2.2% |
| Pension growth rate | 2.1% | 1.8% |
| Inflation rate | 2.7% | 2.2% |
As at December 31, 2020 and 2019, the liabilities for the defined-benefit pension plan and their coverage were as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Estimated liabilities for past service | 56,628 | 51,848 |
| Coverage of responsibilities | 48,718 | 44,654 |
| Excess / (insufficient funding) (Note 19) | (7,910) | (7,194) |
The movement under liabilities for past services in the years of 2020 and 2019 can be detailed as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Liabilities at the beginning of the year | 51,848 | 44,509 |
| Cost of current services | 1 7 | 432 |
| Interest cost | 921 | 1,252 |
| Actuarial (gains)/ losses | 5,036 | 7,384 |
| Amounts paid | (1,194) | (1,729) |
| Liabilities at the end of the period | 56,628 | 51,848 |
The movement under the Fund during 2020 and 2019 was as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Book value at the beginning of the year | 44,654 | 38,891 |
| Net income of the fund: | ||
| . Income from assets using discount rate | 819 | 1,076 |
| . Income of the fund above/(bellow) the discount rate | 1,910 | 6,046 |
| Contribution of the Branch | 2,529 | 370 |
| Amounts paid | (1,194) | (1,729) |
| Book value at the end of the year | 48,718 | 44,654 |
The movement under actuarial deviations during 2020 and 2019 was as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Deviations at the beginning of the year (Note 20) | 13,447 | 12,109 |
| Actuarial (gains)/ losses | 5,036 | 7,384 |
| Financial (gains)/ losses | (1,910) | (6,046) |
| Deviations at the end of the year (Note 20) | 16,573 | 13,447 |
As at December 31, 2020 and 2019, the portfolio of the Pension Fund of the London Branch included the following assets:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Debt instruments | 25,299 | 27,486 |
| Equity instruments | 20,771 | 17,446 |
| Others | 2,648 | (278) |
| Fund value | 48,718 | 44,654 |
Liabilities for defined-benefit pension plans expose the Bank to the following risks:
− Interest-rate risk a decrease of the interest rate of bonds will increase the pension liabilities.
− Longevity risk the updated amount of liabilities is calculated on the basis of the best estimate at the time of the expected mortality of the participants, before and after the retirement date. An increase in life expectancy for plan participants will increase pension liabilities.
On December 31, 2020 and 2019, a sensitivity analysis performed on a variation of the main financial assumptions referred to those dates led to the following impacts on the current value of the Bank's and BAPOP's past-service liabilities:
| 2020 | 2019 | |||
|---|---|---|---|---|
| (Reduction)/ Addition | (Reduction)/ Addition | |||
| % | value | % | value | |
| Change of discount rate | ||||
| . Increase of 0,5% | (7.0%) | (91,485) | (7.1%) | (93,876) |
| . Reduction of 0,5% | 7.9% | 103,384 | 8.0% | 106,327 |
| Change in the wage growth rate | ||||
| . Increase of 0,5% | 5.3% | 60,240 | 5.5% | 71,731 |
| . Reduction of 0,5% | (5.3%) | (69,728) | (4.6%) | (60,419) |
| Change in the pension growth rate | ||||
| . Increase of 0,5% | 8.2% | 106,602 | 8.4% | 110,311 |
| . Reduction of 0,5% | (7.4%) | (96,595) | (7.6%) | (99,788) |
| Change in the mortality table | ||||
| . More two years | (6.7%) | (88,061) | (6.7%) | (88,072) |
| . Less two years | 6.9% | 89,421 | 6.8% | 89,438 |
The sensitivity analyses presented above may not be representative of the changes that may occur in the future in the defined-benefit plan as a result of being considered in isolation and some of them are correlated.
As a result of the liquidation measure applied to Banif on December 20, 2015, a number of employees were transferred to the Bank, as were the corresponding liabilities for past services. Also transferred were the liabilities for retired employees, employees who retired early, pensioners and former participants with vested rights. On January 27, 2016, authorisation was requested to the Insurance and Pension Funds
Supervisory Authority for the transfer to the Bank of Banif's position as associate of the Banif Pension Fund, with regard to the defined-benefit pension plan, subpopulations A and B, and in defined-contribution pension plans II and III. By letter dated June 7, 2016, the Bank of Portugal stated that the parties should revise some of the terms of the Contract for the Termination of the Share of the Pension Fund. The process is undergoing final assessment by the Insurance and Pension Funds Supervisory Authority.
Banif employees were covered by different types of pension plans:
Banif had two defined-contribution pension plans:
The breakdown of the estimated liabilities for past services as at December 31, 2020 and 2019, using the Bank's assumptions, is as follows for the defined-benefit pension plan (considering both the Banif and the former BBCA sub-populations):
| Liabilities | |||||
|---|---|---|---|---|---|
| Healthcare | |||||
| systems | Death | Prize in | |||
| Pensions | (SAMS) | Subsidy | retirement | Total | |
| Current Employees | 20,612 | 8,597 | 124 | 1,140 | 30,473 |
| Early retired staff | 14,398 | 3,264 | 204 | - | 17,866 |
| Former participants with vested rigths | 3,530 | 2,462 | - | - | 5,992 |
| Total liabilities for past services | 137,059 | 21,739 | 606 | 1,140 | 160,544 |
| Book value of the pension fund | 93,369 | ||||
| Insufficient fund | (67,175) | ||||
| 31-12-2019 | |||||
|---|---|---|---|---|---|
| Healthcare | |||||
| systems | Death | Prize in | |||
| Pensions | (SAMS) | Subsidy | retirement | Total | |
| 22,837 | 8,436 | 133 | 1,086 | 32,492 | |
| 111,439 | 11,189 | 475 | - | 123,103 | |
| 3,714 | 2,494 | - | - | 6,208 | |
| 137,990 | 22,119 | 608 | 1,086 | 161,803 | |
| 101,126 | |||||
| (60,677) | |||||
| Liabilities |
The breakdown of the portfolio of the Banif Pension Fund associated with the defined-benefit pension plan by asset type is as follows:
| 31-12-2020 | 31-12-2019 | ||||
|---|---|---|---|---|---|
| Relative | Relative | ||||
| Type of Asset | Total | weight | Total | weight | |
| Debt Instruments | 40,269 | 41.97% | 47,884 | 46.14% | |
| Securities investment funds | 3,294 | 3.43% | 4,381 | 4.22% | |
| Real estate fund | 387 | 0.40% | 1,160 | 1.12% | |
| Real estate properties | 13,734 | 14.31% | 13,722 | 13.22% | |
| Equity instruments | 32,607 | 33.98% | 31,733 | 30.58% | |
| Other | 5,663 | 5.90% | 4,894 | 4.72% | |
| 95,954 | 103,774 | ||||
| Assets to be transfered | (2,585) | (2,648) | |||
| 93,369 | 101,126 |
The value of the assets to be transferred corresponds to the amount of the assets of the Pension Fund's portfolio to be allocated to the coverage of the liabilities relating to Banif employees who were not transferred to the Bank.
Between July 2003 and January 2018, the Bank securitised part of its mortgage-loan portfolio through thirteen operations, the initial amount of which was €25,450,000k. In the older transactions the loans were sold for their par (book) value to loan securitisation funds denominated Fundos Hipototta FTC. A substantial part of the securitisations was repurchased by the Bank under the said agreements, while the Hipototta No. 4 and Hipototta No. 5 were maintained. In January 2018 the Bank carried out a new securitisation in the amount of €2,266,000k, in which mortgage loans were assigned. The loans were assigned to Gamma – Sociedade de Titularização de Créditos (Gamma STC), which financed the transaction through the issue of Hipototta 13 bonds, classes A, B and C, with different levels of subordination and rating and, consequently, remuneration. These bonds were fully acquired by the Bank.
The Hipototta Funds (No. 4 and No. 5) are managed by Navegator – Sociedade Gestora de Fundos de Titularização de Créditos, S. A. The Bank continues to manage the loan contracts, delivering to the Hipototta Funds (No. 4 and No. 5) all amounts received thereunder. The Santander Group has no direct or indirect holding in Navegator.
As a form of funding, Hipototta Funds (No. 4 and No. 5) issued securitisation units of an amount identical to the loan portfolios acquired, which were fully subscribed by Hipototta Funds (No. 4 and No. 5) PLC, having its registered office in Ireland.
On the other hand, Hipototta Funds (No. 4 and No. 5) FTC delivered all amounts received from the Bank and from the Directorate General of the Treasury to Hipototta Funds (No. 4 and No. 5) PLC, separating the instalments into principal and interest.
As a form of funding, Hipototta Funds (No. 4 and No. 5) PLC issued bonds with different levels of subordination and rating and, consequently, of remuneration.
As at December 31, 2020, bonds issued that are still alive have the following characteristics:
| Amount Rating |
Remuneration | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Issued | Early redemption | ||||||||
| Debt | Initial | Current | Fitch | Redemption date | date | Up to early redemption date | After early redemption date | ||
| Class A | 2,616,040 | 436,257 | A | September, 2048 | December, 2014 | Euribor 3 months + 0.12% | Euribor 3 months + 0.24% | ||
| Class B | 44,240 | 15,871 | A | September, 2048 | December, 2014 | Euribor 3 months + 0.19% | Euribor 3 months + 0.40% | ||
| Class C | 139,720 | 50,125 | BB- | September, 2048 | December, 2014 | Euribor 3 months + 0.29% | Euribor 3 months + 0.58% | ||
| 2,800,000 | 502,253 | ||||||||
| Class D | 14,000 | 7,000 | NR | September, 2048 | December, 2014 | Residual income of the securitized portfolio | |||
| 2,814,000 | 509,253 |
Hipototta nº 4 PLC
Hipototta nº 5 PLC
| Amount | Rating | Remuneration | ||||||
|---|---|---|---|---|---|---|---|---|
| Issued Debt |
Initial | Current | S&P Moody´s | Redemption date | Early redemption date |
Up to early redemption date | After early redemption date | |
| Class A1 | 200,000 | - | February, 2060 | February, 2014 | Euribor 3 months + 0,05% | Euribor 3 meses + 0,10% | ||
| Class A2 | 1,693,000 | 399,269 | A | Aa3 | February, 2060 | February, 2014 | Euribor 3 months + 0,13% | Euribor 3 meses + 0,26% |
| Class B | 26,000 | 26,000 | A | Aa3 | February, 2060 | February, 2014 | Euribor 3 months + 0,17% | Euribor 3 meses + 0,34% |
| Class C | 24,000 | 24,000 | A | A1 | February, 2060 | February, 2014 | Euribor 3 months + 0,24% | Euribor 3 meses + 0,48% |
| Class D | 26,000 | 26,000 | A | Baa2 | February, 2060 | February, 2014 | Euribor 3 months + 0,50% | Euribor 3 meses + 1,00% |
| Class E | 31,000 | 31,000 BBB | Ba2 | February, 2060 | February, 2014 | Euribor 3 months + 1,75% | Euribor 3 meses + 3,50% | |
| 2,000,000 | 506,269 | |||||||
| Class F | 10,000 | 6,000 CCC- | C a | February, 2060 | February, 2014 | Residual income of the securitized portfolio | ||
| 2,010,000 | 512,269 |
The bonds issued by Hipototta No. 4 PLC earn interest quarterly on March, June, September and December 30 each year. The bonds issued by Hipototta No. 5 PLC earn interest quarterly on February 28, and on May, August and November 30 each year.
The Bank has the option to redeem the bonds in advance on the dates indicated above. For all the Hipototta, the Bank has call option to repurchase the loan portfolios at par when these are equal to or less than 10% of the initial amount of the operations.
Additionally, up to 5 days before the interest-payment dates in each quarter, the Hipototta are entitled to make partial repayments of bonds issued of classes A, B and C, as well as of classes D and E in the case of Hipototta No. 5 PLC, in order to adjust the amount of the liabilities to that of the assets (loan portfolio).
The Hipototta No. 4 class D bonds, and the Hipototta No. 5 class F bonds constitute the last liability to be settled.
The remuneration of the bonds of these classes corresponds to the difference between the yield of the securitised loan portfolios and the sum of all costs of the operations, namely:
On the date on which the securitisations were contracted, subordinated loans were concluded between the Bank and Hipototta, which correspond to credit facilities/lines in case of a need for liquidity on the part of Hipototta. Swap Agreements were also concluded between the Santander Group and securitisation vehicles, and between the Bank and the Santander Group intended to hedge the interest-rate risk.
In the wake of the liquidation measure applied to Banif, the Bank acquired a number of securitisation operations issued by the said entity, and the corresponding securitised loans and bonds issued were transferred.
An operation carried out in November 2004, in which mortgage loans originated at the former BBCA (Banco Banif e Comercial dos Açores, S. A.) were assigned. The assigned loans were acquired by Sagres – Sociedade de Titularização de Créditos (Sagres STC), which issued the Azor Notes bonds, fully subscribed by Azor Mortgages PLC, having its registered office Ireland. To finance itself, Azor Mortgage PLC issued bonds with different levels of subordination and rating and, consequently, of remuneration. In December 2006, the Azor Notes and respective rights to receive the credits and payment obligations to Azor Mortgages PLC were transferred from Sagres to Gamma STC.
| Azor Mortgage nº 1 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Amount | Rating | Remuneration | ||||||
| Issued Debt |
Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | ||
| Class A | 253,000 | - | AA | A1 | September, 2047 | Euribor 3 months + 0.3% | ||
| Class B | 19,000 | 12,377 | AA | Aa3 | September, 2047 | Euribor 3 months + 0.76% | ||
| Class C | 9,000 | 9,000 | A | Aa3 | September, 2047 | Euribor 3 months + 1.75% | ||
| 281,000 | 21,377 | |||||||
| Class D | 10,000 | 10,000 | NR | NR | September, 2047 | Residual income of the securitized portfolio | ||
| 291,000 | 31,377 |
An operation concluded in March 2008, in which mortgage loans were assigned. The loans were assigned to Gamma STC, which financed the operation through the issuance of Atlantes Mortgage No. 2, classes A, B and C bonds, with different levels of subordination and rating, and consequently, remuneration.
| Atlantes Mortgage nº 2 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Amount | Rating | Remuneration | |||||||||
| Issued Debt |
Initial | Current | S&P | Fitch | Redemption date | Up to early redemption date | |||||
| Class A | 349,100 | 99,053 AA(sf) | AA | September, 2060 | Euribor 3 months + 0.33% | ||||||
| Class B | 18,400 | 12,332 AA(sf) | A+ | September, 2060 | Euribor 3 months + 0.95% | ||||||
| Class C | 7,500 | 5,027 BBB(sf) | BBB+ | September, 2060 | Euribor 3 months + 1.65% | ||||||
| 375,000 | 116,412 | ||||||||||
| Class D | 16,125 | 10,295 | NR | NR | September, 2060 | Residual income of the securitized portfolio | |||||
| 391,125 | 126,707 | ||||||||||
An operation carried out in July 2008, when the mortgage loans originated at the former BBCA were assigned to Gamma STC. To finance itself, Gamma STC issued Azor Mortgages No. 2 Class A, B and C bonds with different levels of subordination and rating and, consequently, of remuneration.
| Azor Mortgage nº 2 | ||||||
|---|---|---|---|---|---|---|
| Amount | Rating | Remuneration | ||||
| Issued Debt |
Initial | Current | S&P | Fitch | Redemption date | Up to early redemption date |
| Classe A | 253,500 | 74,685 AA (sf) | A (sf) | December, 2065 | Euribor 3 months + 0.3% | |
| Classe B | 46,500 | 43,080 | NR | NR | December, 2065 | Euribor 3 months + 0.8% |
| 300,000 | 117,765 | |||||
| Classe C | 6,750 | 6,750 | NR | NR | December, 2065 | Residual income of the securitized portfolio |
| 306,750 | 124,515 |
An operation concluded in October 2008, in which mortgage loans were assigned. The loans were assigned to Gamma STC, which financed the operation through the issuance of Atlantes Mortgage No. 3, classes A, B and C bonds, with different levels of subordination and rating, and consequently, remuneration.
| Atlantes Mortgage nº 3 | ||||||
|---|---|---|---|---|---|---|
| Amount Rating |
Remuneration | |||||
| Issued Debt |
Initial | Current | S&P | Fitch | Redemption date | Up to early redemption date |
| Class A | 558,600 | 172,742 | AA | AA (sf) | August, 2061 | Euribor 3 months + 0.2% |
| Class B | 41,400 | 24,773 | NR | NR | August, 2061 | Euribor 3 months + 0.5% |
| 600,000 | 197,515 | |||||
| Class C | 57,668 | 43,923 | NR | NR | August, 2061 | Residual income of the securitized portfolio |
| 657,668 | 241,438 |
An operation concluded in February 2009, in which mortgage loans were assigned. The loans were assigned to Gamma STC, which financed the operation through the issuance of Atlantes Mortgage No. 4, classes A, B and C bonds, with different levels of subordination and rating, and consequently, remuneration.
| Atlantes Mortgage nº 4 | |||
|---|---|---|---|
| -- | ------------------------ | -- | -- |
| Amount | Rating | Remuneration | |||||
|---|---|---|---|---|---|---|---|
| Issued Debt |
Initial | Current | S&P | Fitch | Redemption date | Up to early redemption date | |
| Class A | 514,250 | 193,401 | A+ | A+ | December, 2064 | Euribor 3 months + 0.15% | |
| Classe B | 35,750 | 21,298 | NR | NR | December, 2064 | Euribor 3 months + 0.3% | |
| 550,000 | 214,699 | ||||||
| Classe C | 74,250 | 58,974 | NR | NR | December, 2064 | Residual income of the securitized portfolio | |
| 624,250 | 273,673 | ||||||
An operation concluded in December 2009, in which mortgage loans were assigned. The loans were assigned to Gamma STC, which financed the operation through the issuance of Atlantes Mortgage No. 5, classes A, B and C bonds, with different levels of subordination and rating, and consequently, remuneration.
| Atlantes Mortgage nº 5 | ||||||
|---|---|---|---|---|---|---|
| Amount Rating |
Remuneration | |||||
| Issued Debt |
Initial | Current | S&P | Fitch | Redemption date | Up to early redemption date |
| Classe A | 455,000 | 156,332 | AAA | AA- | November, 2068 | Euribor 3 months + 0.15% |
| Classe B | 45,000 | 28,863 | NR | NR | November, 2068 | Euribor 3 months + 0.3% |
| 500,000 | 185,195 | |||||
| Classe C | 66,250 | 49,926 | NR | NR | November, 2068 | Residual income of the securitized portfolio |
| 566,250 | 235,121 | |||||
An operation concluded in November 2010, in which a portfolio of residential mortgage loans was assigned. The loans were assigned to Gamma STC, which financed the operation through the issuance of Atlantes Mortgage No. 7, classes A, B and C bonds, with different levels of subordination and rating, and consequently, remuneration.
| Atlantes Mortgage nº 7 | |||||||
|---|---|---|---|---|---|---|---|
| Amount Rating |
Remuneration | ||||||
| Issued Debt |
Initial | Current | S&P | Fitch | Redemption date | Up to early redemption date | |
| Class A | 357,300 | 122,749 | A+ | AA- | August, 2066 | Euribor 3 months + 0.15% | |
| Class B | 39,700 | 22,810 | NR | NR | August, 2066 | Euribor 3 months + 0.3% | |
| 397,000 | 145,559 | ||||||
| Class C | 63,550 | 47,535 | NR | NR | August, 2066 | Residual income of the securitized portfolio | |
| 460,550 | 193,094 |
In January 2018 the Bank carried out a new securitisation in the amount of €2,266,000k, in which mortgage loans were assigned. The loans were assigned to Gamma STC, which financed the transaction through the issuance of Hipototta 13, classes A, B and C bonds, with different levels of subordination and rating, and consequently, remuneration. The whole of these bonds were acquired by the Bank.
| Hipototta 13 | ||||||
|---|---|---|---|---|---|---|
| Amount | Rating | Remuneration | ||||
| Issued | ||||||
| Debt | Initial | Current | S&P | Fitch | Redemption date | Up to early redemption date |
| Classe A | 1,716,000 | 1,028,903 | NR | A+(sf) | october, 2072 | Euribor 3 m + 0.6% |
| Classe B | 484,000 | 484,000 | NR | NR | october, 2072 | Euribor 3 m + 1% |
| 2,200,000 | 1,512,903 | |||||
| Classe C | 132,000 | 46,566 | NR | NR | october, 2072 | Residual income of the securitized portfolio |
| 2,332,000 | 1,559,469 | |||||
| VFN | 0.001 | 0.001 | NR | NR | october, 2072 | No remuneration |
During 2019 the Atlantes Mortgage No. 1 operation was wound up.
The Bank's related entities with which it maintained balances or transactions in 2020 are as follows:
| Name of the related entity | Head office |
|---|---|
| Entities that directly or indirectly control the Group | |
| Santander Totta, SGPS | Portugal |
| Banco Santander, S.A. | Spain |
| Entities significantly influenced by the Group Primestar Servicing |
|
| Unicre-Instituição Financeira de Crédito | Portugal |
| Lusimovest - Fundo de Inv. Imobiliario | Portugal |
| Companies that directly or indirectly are under common control by the Bank | |
| Abbey National Treasury Services plc | United Kingdom |
| Aegon Santander Portugal Não Vida - Companhia de Seguros, S.A. | Portugal |
| Aegon Santander Portugal Vida - Companhia de Seguros Vida, S.A. | Portugal |
| Banco Santander (México), S.A. | Mexico |
| Banco Santander (Suisse), S.A. | Switzerland |
| Banco Santander Brasil, S.A. | Brazil |
| Banco Santander Consumer Portugal S.A. | Portugal |
| Bank Zachodni WBK SA | Poland |
| Caceis | France |
| Consulteam - Consultores de Gestão, Lda | Portugal |
| Financeira El Corte Inglés, Portugal, S.F.C., S.A. | Portugal |
| PSA Gestao Comercio&Aluguer Veiculos,SA | Spain |
| Gesban Servicios Administrativos Globais | Spain |
| Ibérica de Compras Corporativas | Spain |
| Inbond Inversiones 2014, S.L. | Spain |
| Open Bank Santander Consumer S.A. | Spain |
| Mapfre Santander Portugal - Companhia de Seguros S.A. | Portugal |
| Portal Universia Portugal, Prestaçao de Serviços de Informática, S.A. | Portugal |
| Retama Real Estate, S.L. | Portugal |
| Santander Asset Management SGFIM, S.A. | Portugal |
| Santander Back-Office Globales Mayorista | Portugal |
| Santander Bank & Trust Ltd. | Bahamas |
| Santander Bank,National Association | United States |
| Santander Consumer Bank AG | Germany |
| Santander Consumer Finance S.A. | Spain |
| Santander Consumer, EFC, S.A. | Spain |
| Santander Global Thechnology, S.L. | Spain |
| Santander Investment Securities,Inc | United States |
| Santander Investment, S.A. | |
| Spain | |
| Santander Pensões - Sociedade Gestora de Fundos de Pensões, S.A. | Portugal |
| Santander Securities Services, S.A. | Spain |
| Santander Totta Seguros, Companhia de Seguros de Vida, S.A. | Portugal |
| Santander UK plc | United Kingdom |
| UCI Mediação de Seguros, Unipessoal Lda. | Portugal |
| Union de Créditos Inmobiliários,SA | Spain |
| Name of the related entity | Head office |
|---|---|
| Entities that directly or indirectly control the Group | |
| Santander Totta, SGPS | Portugal |
| Santusa Holding, S.L. | Spain |
| Banco Santander, S.A. | Spain |
| Entities significantly influenced by the Group | |
| Benim - Sociedade Imobiliária, SA | Portugal |
| Unicre-Instituição Financeira de Crédito | Portugal |
| Lusimovest - Fundo de Inv. Imobiliario | Portugal |
| Companies that directly or indirectly are under common control by the Bank | |
| Abbey National Treasury Services plc | United Kingdom |
| Aegon Santander Portugal Não Vida - Companhia de Seguros, S.A. | Portugal |
| Aegon Santander Portugal Vida - Companhia de Seguros Vida, S.A. | Portugal |
| Banco Santander (México), S.A. | Mexico |
| Banco Santander (Suisse), S.A. | Switzerland |
| Banco Santander Brasil, S.A. | Brazil |
| Banco Santander Consumer Portugal S.A. | Portugal |
| Bank Zachodni WBK SA | Poland |
| Consulteam - Consultores de Gestão, Lda | Portugal |
| Financeira El Corte Inglés, Portugal, S.F.C., S.A. | Portugal |
| Santander Global Operation, S.A. | Spain |
| Gesban Servicios Administrativos Globais | Spain |
| Ibérica de Compras Corporativas | Spain |
| Inbond Inversiones 2014, S.L. | Spain |
| Open Bank Santander Consumer S.A. | Spain |
| Popular Gestao de Ativos | Portugal |
| Popular Seguros - Companhia de Seguros S.A. | Portugal |
| Portal Universia Portugal, Prestaçao de Serviços de Informática, S.A. | Portugal |
| Santander Consumer Services, S.A. | Portugal |
| Retama Real Estate, S.L. | Spain |
| Santander Asset Management SGFIM, S.A. | Portugal |
| Santander Asset Management, S.A. SGIIC. | Spain |
| Santander Back-Office Globales Mayorista | Spain |
| Santander Bank & Trust Ltd. | Bahamas |
| Santander Bank,National Association | United States |
| Santander Consumer Bank AG | Germany |
| Santander Consumer Finance S.A. | Spain |
| Santander Consumer, EFC, S.A. | Spain |
| Santander Global Thechnology, S.L. | Spain |
| Santander Investment Securities,Inc | United States |
| Santander Investment, S.A. | Spain |
| Santander Pensões - Sociedade Gestora de Fundos de Pensões, S.A. | Portugal |
| Santander Securities Services, S.A. | Spain |
| Santander Totta Seguros, Companhia de Seguros de Vida, S.A. | Portugal |
| Santander UK plc | United Kingdom |
| Santander Global Facilities,SL | United States |
| UCI Mediação de Seguros, Unipessoal Lda. | Portugal |
| Union de Créditos Inmobiliários,SA | Spain |
| 31-12-2020 | |||
|---|---|---|---|
| Entities that | Entities that are | Entities under | |
| directly or indirectly | significantly influenced | direct or indirect | |
| control the Group | by the Group | common control by the Group | |
| Assets: | |||
| Balances due from other credit instituitons | 22,417 | - | 98,764 |
| Financial assets held for trading | 311,568 | - | 15,029 |
| Financial liabilities measured at amortised cost | |||
| Loans and advances | 791,508 | 45,793 | 2,899 |
| Hedging derivatives | 813 | - | - |
| Investments in subsidiaries, joint ventures and associates | - | 62,582 | - |
| Tax assets | 33,287 | - | - |
| Other assets | 436 | 3,193 | 9,938 |
| Liabilities: | |||
| Financial liabilities held for trading Financial liabilities measured at amortised cost |
896,236 | - | 23,057 |
| Deposits - Credit Instituitions | 6,489 | - | 2,371 |
| Deposits - Customers Debt securities issued |
49,479 | 21,825 | 328,408 |
| 373,935 | - | 12,869 | |
| Derivatives – Hedge accounting Tax liabilities |
97,877 450 |
- | - |
| Other liabilities | - | - - |
- 9,310 |
| Expenses: | |||
| Interest expenses | 213,028 | - | 2,335 |
| Fee and commission expense | 3,077 | - | 1,410 |
| Results of financial assets and liabilities measured at fair value through profit or loss | 767,415 | - | 187,401 |
| Other administrative expenses | 7,872 | - | 44,063 |
| Impairment of investments in subsidiaries, joint ventures and associates | |||
| Other operating expenses | |||
| Income: | |||
| Interest income | 192,088 | 263 | 65 |
| Fee and commission income | 340 | 444 | 42,085 |
| Results of financial assets and liabilities measured at fair value through profit or loss | 680,132 | - | 191,515 |
| Gains on financial assets available-for-sale | |||
| Exchange differences, net | 8,768 | - | - |
| Proportion of profit or loss from investments in subsidiaries, joint ventures and associates accounted for using other than equity method |
|||
| - | 5,617 | - 97 |
|
| Other operating income | - | - | |
| Off balance sheet items: | |||
| Guarantees provided and other contingent liabilities | 54,890 | 22 | 190,060 |
| Guarantees received | 1 | - | 162 |
| Commitments to third parties | 114,170 | 1,971 | 106,877 |
| Currency operations and derivatives | 27,822,340 | - | 465,183 |
| Responsibilities for services rendered | 1,634,922 | - | 10,061,165 |
(Expressed in thousands of euros, except where otherwise stated)
| 31-12-2019 | |||
|---|---|---|---|
| Entities that | Entities that are | Entities under | |
| directly or indirectly | significantly influenced | direct or indirect | |
| control the Group | by the Group | common control by the Group | |
| Assets: | |||
| Balances due from other credit instituitons | 54,959 | - | 1,115 |
| Financial assets held for trading | 250,471 | - | 12,497 |
| Financial liabilities measured at amortised cost | |||
| Loans and advances | 584,160 | 55,713 | 98,886 |
| Hedging derivatives | 2,322 | - | - |
| Investments in subsidiaries, joint ventures and associates | - | 59,240 | - |
| Tax assets | 3 | - | 18,199 |
| Other assets | 87 | - | - |
| Liabilities: | |||
| Financial liabilities held for trading | 1,064,339 | - | 20,280 |
| Financial liabilities measured at amortised cost | |||
| Deposits - Credit Instituitions | 717,174 | - | 4,422 |
| Deposits - Customers | 100,788 | 17,811 | 654,923 |
| Debt securities issued | 381,609 | - | 12,677 |
| Derivatives – Hedge accounting | 55,620 | - | - |
| Tax liabilities | 85,981 | - | - |
| Other liabilities | 7,422 | - | 10,828 |
| Income: | |||
| Interest expenses | 284,759 | - | 10,650 |
| Fee and commission expense | 3,570 | - | 3,625 |
| Results of financial assets and liabilities measured at fair value through profit or loss | 783,908 | - | 166,055 |
| Exchange differences, net | 2,649 | - | - |
| Other administrative expenses | 7,157 | - | 34,607 |
| Impairment of investments in subsidiaries, joint ventures and associates | |||
| Other operating expenses | |||
| Income: | |||
| Interest income | 262,746 | 390 | 234 |
| Fee and commission income | 358 | 286 | 123,162 |
| Results of financial assets and liabilities measured at fair value through profit or loss | 710,439 | - | 157,072 |
| Gains on financial assets available-for-sale | |||
| Exchange differences, net | - | - | 15 |
| Proportion of profit or loss from investments in subsidiaries, joint ventures and associates accounted for using other than equity method |
|||
| - | 2,546 | - 339 |
|
| Other operating income | - | - | |
| Off balance sheet items: | |||
| Guarantees provided and other contingent liabilities | 48,037 | 22 | 189,198 |
| Guarantees received | 1 | - | 162 |
| Commitments to third parties | 114,170 | 514 | 103,172 |
| Currency operations and derivatives | 26,522,471 | - | 482,186 |
| Responsibilities for services rendered | 3,596,890 | - | 5,822,454 |
Transactions with related entities arise from normal business and are carried out under market conditions.
As of December 31, 2020 and 2019, advances or credits granted to members of the governing bodies, considered key personnel of the Bank's management, amounted to €945k and €735k, respectively. Deposits from members of the governing bodies were provided at market conditions. As of December 31, 2020 and 2019, fixed and variable remunerations totalled €4,684k and €5,953k, respectively.
With regard to post-retirement benefits, the members of the Board of Directors who have an employment tie with the Bank are included in the pension plan of the Collective Bargaining Agreement (CBA) for the banking sector subscribed by the Bank. The general conditions of this plan are described in Note 1.3(j).
The Shareholders' General Meeting of the Bank on May 30, 2007, approved the "Regulation on the supplementary award of an old-age or disability pension" to the executive members of the former Totta Board of Directors who came to become executive members (executive committee) of the Bank's Board of Directors in line with what had previously been defined in the former Totta Regulation. Members of the Board of Directors whose length of service is at least fifteen consecutive or interpolated years will be entitled to a pension supplement amounting to 80% of their gross annual salary. For terms of office less than fifteen years, the amount of the retirement pension supplement will be determined by the Remuneration Committee. For these persons, it is currently determined that the retirement pension supplement shall be 65% of the annual gross salary, for terms of office equal to or greater than ten years, and 75% of the annual gross salary for terms of office equal to or greater than twelve years. This definedbenefit pension plan is a supplementary plan and is dependent on the General Social Security Regime.
As at December 31, 2020 and 2019, liabilities with this plan amounted to €14,201k and €14,124k, respectively, and were covered by a provision of the same amount carried under "Provisions and other postemployment defined-benefit obligations" (Note 17).
With regard to termination of employment benefits, as provided for in the Companies Code, whenever, by decision of the Bank, the term of office of a member of the governing bodies ends early, the Bank shall compensate the member of the governing body with the future remuneration to which he or she is entitled up until the end of his or her term of office.
The following table summarizes, for each group of financial assets and liabilities, their fair values with reference to December 31, 2020 and 2019:
| 31-12-2020 | ||||
|---|---|---|---|---|
| Measured at | Measured at | Book | Measured at | |
| fair value | amortized cost | Value | fair value | |
| Assets | ||||
| Cash, cash balances at central banks and other demand deposits | - | 4,535,815 | 4,535,815 | 4,626,255 |
| Financial assets held for trading | 916,039 | - | 916,039 | 916,039 |
| Non-trading financial assets mandatorily | ||||
| at fair value through profit or loss | 132,905 | - | 132,905 | 132,905 |
| Financial assets at fair value | ||||
| through other comprehensive income | 7,704,190 | - | 7,704,190 | 7,704,190 |
| Financial assets at amortised cost | 3,147,625 | 36,672,957 | 39,820,582 | 39,968,932 |
| Derivatives – Hedge accounting | 23,719 | - | 23,719 | 23,719 |
| 11,924,478 | 41,208,772 | 53,133,250 | 53,372,040 | |
| Liabilities | ||||
| Financial liabilities held for trading | 941,528 | - | 941,528 | 941,528 |
| Financial liabilities measured at amortised cost | ||||
| Deposits | 41,789 | 44,568,992 | 44,610,781 | 44,535,723 |
| Debt securities issued | 8,574 | 2,898,776 | 2,907,350 | 3,048,179 |
| Other financial liabilities | - | 205,656 | 205,656 | 205,656 |
| Derivatives – Hedge accounting | 522,283 | - | 522,283 | 522,283 |
| 1,514,174 | 47,673,424 | 49,187,598 | 49,253,369 |
| 31-12-2019 | ||||
|---|---|---|---|---|
| Measured at | Measured at | Net | Measured at | |
| fair value | amortized cost | Value | fair value | |
| Assets | ||||
| Cash, cash balances at central banks and other demand deposits | - | 3,492,664 | 3,492,664 | 3,508,096 |
| Financial assets held for trading | 1,085,927 | - | 1,085,927 | 1,085,927 |
| Non-trading financial assets mandatorily | ||||
| at fair value through profit or loss | 144,998 | - | 144,998 | 144,998 |
| Financial assets at fair value | ||||
| through other comprehensive income | 5,862,349 | - | 5,862,349 | 5,862,349 |
| Financial assets at amortised cost | 4,652,197 | 35,415,469 | 40,067,666 | 40,582,915 |
| Derivatives – Hedge accounting | 56,246 | - | 56,246 | 56,246 |
| 11,801,717 | 38,908,133 | 50,709,850 | 51,240,531 | |
| Liabilities | ||||
| Financial liabilities held for trading | 1,114,703 | - | 1,114,703 | 1,114,703 |
| Financial liabilities at amortised cost | ||||
| Deposits | 104,695 | 42,002,097 | 42,106,792 | 42,118,237 |
| Debt securities issued | 8,382 | 3,720,559 | 3,728,941 | 3,809,592 |
| Other financial liabilities | - | 218,021 | 218,021 | 218,021 |
| Derivatives – Hedge accounting | 393,831 | - | 393,831 | 393,831 |
| 1,621,611 | 45,940,677 | 47,562,288 | 47,654,384 |
For the headings "Loans at amortized cost," "Customer deposits" and "Debt securities issued," the financial assets and liabilities for which hedge accounting was applied were considered to be measured at fair value, though they were only subject to value correction in relation to the risk hedged.
The following table summarizes, by valuation levels for each group of financial assets and liabilities, their fair values with reference to December 31, 2020 and 2019:
| Level 1 Level 2 Level 3 Total Assets Cash, cash balances at central banks and other demand deposits 4,626,255 4,626,255 - - Financial assets held for trading 888,867 27,172 916,039 - Non-trading financial assets mandatorily at fair value through profit or loss 778 132,127 132,905 - Financial assets at fair value through other comprehensive income 2,334,516 5,365,269 4,405 7,704,190 Financial assets at amortised cost 3,742,791 36,226,141 39,968,932 - Derivatives – Hedge accounting 23,719 23,719 - - 2,335,294 14,646,901 36,389,845 53,372,040 Liabilities Financial liabilities held for trading 911,551 29,977 941,528 - Financial liabilities at amortised cost Deposits 8,303,306 36,232,417 44,535,723 - Debt securities issued 2,089,334 958,845 3,048,179 - Other financial liabilities 205,656 205,656 - - Derivatives – Hedge accounting 522,283 522,283 - - 11,826,474 37,426,895 49,253,369 - 31-12-2019 Level 1 Level 2 Level 3 Total Assets Cash, cash balances at central banks and other demand deposits 3,508,096 3,508,096 - - Financial assets held for trading 1,085,927 1,085,927 - - Non-trading financial assets mandatorily at fair value through profit or loss 754 144,244 144,998 - Financial assets at fair value |
|---|
| through other comprehensive income 3,627,955 2,228,001 6,393 5,862,349 |
| Financial assets at amortised cost 6,987,538 33,595,377 40,582,915 - |
| Derivatives – Hedge accounting 56,246 56,246 - - |
| 3,628,709 13,865,808 33,746,014 51,240,531 |
| Liabilities |
| Financial liabilities held for trading 1,114,703 1,114,703 |
| - - Financial liabilities at amortised cost |
| Deposits 6,340,043 35,778,194 42,118,237 |
| - Debt securities issued 2,630,495 1,179,097 3,809,592 - |
| Other financial liabilities 218,021 218,021 - - |
Derivatives – Hedge accounting - 393,831 - 393,831
10,479,072 37,175,312 47,654,384
The valuation at fair value of the Bank's financial assets and liabilities comprises three levels under IFRS 7 and IFRS 13:
| Derivative instrument | Main valuation techniques | |||
|---|---|---|---|---|
| Forwards | Present value model | |||
| Interest rate swaps | Present value model | |||
| Currency swaps | Present value model | |||
| Equity swaps | Present value model | |||
| Exchange rate options | Black-Scholes model, Monte Carlo model | |||
| Contracts on prices (options) | Black-Scholes model, Heston model | |||
| Interest rate options | Black-Scholes model, Heath-Jarrow-Morton model | |||
| Options-other | Black-Scholes model, Monte Carlo model, Heath-Jarrow-Morton model | |||
| Caps/Floors | Black-Scholes model, Monte Carlo model, Heath-Jarrow-Morton model |
For derivative financial instruments, the main valuation techniques are presented below:
The Bank calculates the "Credit Value Adjustment" (CVA) and the "Debit Value Adjustment" (DVA) for hedged financial instruments from financial assets held for trading and hedging derivatives from the perspective of aggregate exposure by counterparty. It simulates the evolution of the joint exposure of all derivatives, with a given counterparty, through stochastic processes. This evolution is grouped into time frames that represent the expected positive and negative future exposures (Positive and Negative Expected Future Exposures). To these exposures is applied an expected loss factor and discount factor for the respective term. The CVA and DVA calculated for each counterparty then result from the sum of expected losses in each term.
Additionally, for the purposes of calculating Credit Value Adjustments and Debit Value Adjustments to derivative financial instruments, the following inputs were used:
To calculate the fair value of financial instruments recorded at amortized cost, the valuation methods used where the valuation techniques, namely through updating future cash flows.
The main assumptions used in determining fair value, by type of financial instrument, were as follows:
In the period ended December 31, 2020 and 2019, the movement in financial instruments classified in Level 3 was as follows:
| Non-trading financial assets | Financial assets at fair value | |||
|---|---|---|---|---|
| Financial assets | mandatorily at fair value through | through other comprehensive | ||
| held for trading | profit or loss | income | Total | |
| December 31, 2018 | 3,379 | 166,375 | 10,562 | 180,316 |
| Acquisitions | - | 127 | 4,309 | 4,436 |
| Alienations | (3,379) | - | (10,852) | (14,231) |
| Reimbursement | - | (17,636) | (774) | (18,410) |
| Reclassifications | - | - | 3,100 | 3,100 |
| Changes in fair value | - | (4,622) | 137 | (4,485) |
| Impairment recognized in the year | - | - | (89) | (89) |
| December 31, 2019 Sales |
- | 144,244 | 6,393 | 150,637 |
| Acquisitions | - | 528 | 3,689 | 4,217 |
| Alienations | - | (3,160) | (4,713) | (7,873) |
| Reimbursement | - | (7,252) | (724) | (7,976) |
| Changes in fair value | 23 | (2,233) | (315) | (2,526) |
| Impairment recognized in the year | - | - | 75 | 75 |
| December 31, 2020 | 23 | 132,127 | 4,405 | 136,555 |
The interest rate curves for the most representative terms and currencies used in the valuation of financial instruments were as follows:
| 31-12-2020 | 31-12-2019 | |||
|---|---|---|---|---|
| EUR | USD | EUR | USD | |
| Overnight | -0.53% | 0.27% | -0.34% | 2.09% |
| 1 month | -0.53% | 0.27% | -0.34% | 2.09% |
| 3 months | -0.52% | 0.24% | -0.33% | 1.91% |
| 6 months | -0.52% | 0.20% | -0.33% | 1.82% |
| 9 months | -0.52% | 0.19% | -0.32% | 1.78% |
| 1 year | -0.52% | 0.19% | -0.32% | 1.75% |
| 3 years | -0.51% | 0.24% | -0.24% | 1.67% |
| 5 years | -0.46% | 0.44% | -0.11% | 1.71% |
| 7 years | -0.39% | 0.66% | 0.02% | 1.78% |
| 10 years | -0.26% | 0.94% | 0.21% | 1.88% |
As at December 31, 2020 and 2019, the detail of hedging derivatives and financial instruments designated as hedged items was as follows:
| 31-12-2020 | |||||||
|---|---|---|---|---|---|---|---|
| Hedged item | Hedging instrument | ||||||
| Nominal | Value net | Fair value | Book | Nominal | Fair | ||
| value | of impairment | adjustments | value | Value | Value | ||
| Fair value hedge: | |||||||
| Financial assets at amortised cost | 3,079,393 | 3,090,461 | 57,164 | 3,147,625 | 3,079,393 | (85,641) | |
| Financial assets at fair value | |||||||
| through other comprehensive income | 3,380,000 | 3,423,945 | 372,578 | 3,796,523 | 3,380,000 | (374,018) | |
| Financial liabilities measured at amortised cost | |||||||
| Deposits- Customers | (41,353) | (41,552) | (237) | (41,789) | 41,414 | 405 | |
| Debt securities issued | (8,227) | (8,324) | (250) | (8,574) | 8,227 | 322 | |
| Cash flow hedge | |||||||
| Financial assets at fair value | |||||||
| through other comprehensive income | 1,819,500 | 1,819,500 | - | 1,819,500 | 2,049,092 | (62,538) | |
| Financial assets at amortised cost | 3,000,000 | 3,000,000 | - | 3,000,000 | 3,000,000 | 22,906 | |
| 11,229,313 | 11,284,030 | 429,255 | 11,713,285 | 11,558,126 | (498,564) |
| 31-12-2019 | |||||||
|---|---|---|---|---|---|---|---|
| Hedged item | Hedging instrument | ||||||
| Nominal | Value net | Fair value | Book | Nominal | Fair | ||
| value | of impairment | adjustments | value | Value | Value | ||
| Fair value hedge: | |||||||
| Financial assets at amortised cost | 4,423,905 | 4,433,058 | 219,139 | 4,652,197 | 4,423,419 | (243,098) | |
| Financial assets at fair value | |||||||
| through other comprehensive income | 2,080,000 | 2,129,252 | 48,352 | 2,177,604 | 2,080,000 | (49,905) | |
| Financial liabilities measured at amortised cost | |||||||
| Deposits- Customers | (103,979) | (104,325) | (369) | (104,694) | 102,172 | 368 | |
| Debt securities issued | (8,227) | (8,230) | (152) | (8,382) | 8,227 | 124 | |
| Cash flow hedge | |||||||
| Financial assets at fair value through other comprehensive income | 2,466,500 | 2,466,500 | - | 2,466,500 | 2,793,196 | (97,869) | |
| Financial assets at amortised cost | 9,000,000 | 9,000,000 | - | 9,000,000 | 9,000,000 | 52,795 | |
| 17,858,199 | 17,916,255 | 266,970 | 18,183,225 | 18,407,014 | (337,585) |
The expected periods for the occurrence of cash flows that will affect the results for the period present the following detail:
| 31-12-2020 | |||||||
|---|---|---|---|---|---|---|---|
| Up to 3 | From 3 months | From 6 months | From 1 | Over | |||
| months | to 6 months | to 1 year | to 3 years | 3 years | Total | ||
| Interest rate swaps | 4,027 | 4,157 | 14,722 | - | - | 22,906 |
| 31-12-2019 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Up to 3 | From 3 months | From 6 months | From 1 | Over | ||||
| months | to 6 months | to 1 year | to 3 years | 3 years | Total | |||
| Interest rate swaps | 5,957 | 13,049 | 17,604 | 16,185 | - | 52,795 |
The gains and losses recognised in the 2020 and 2019 income statements with fair-value hedge transactions had the following detail:
| 31-12-2020 | 31-12-2019 | |||||
|---|---|---|---|---|---|---|
| Hedged | Hedging | Hedged | Hedging | |||
| item | instrument | Net | item | instrument | Net | |
| Financial assets at amortised cost | (161,976) | 161,976 | - | 171,977 | (171,977) | - |
| Financial assets at fair value | ||||||
| through other comprehensive income | 364,084 | (364,084) | - | 43,859 | (43,859) | - |
| Financial liabilities measured at amortised cost | ||||||
| Deposits- Customers | 133 | (133) | - | 2,030 | (2,030) | - |
| Debt securities issued | (97) | 97 | - | (152) | 152 | - |
| 202,144 | (202,144) | - | 217,714 | (217,714) | - |
Credit risk management at the Bank covers the identification, measurement, integration and evaluation of the various credit exposures, and an analysis of their profitability adjusted to the respective risk, both from an overall viewpoint and within every area of activity.
Credit-risk management is carried out by an independent body, the Risks Area, which is responsible, in particular, for managing the special customer monitoring system, for the segmentation of the credit risk in the light of the characteristics of the customers and of the products, and for the scoring (applicable to mortgage-loan and consumer-credit operations, credit and business cards) and rating systems used at the Bank.
The counterparty risk consists of the latent credit risk in financial markets transactions corresponding to the possibility of default by the counterparties of the terms contracted and subsequent occurrence of financial losses for the Bank. The types of transactions covered include the purchase and sale of securities, contracting repos, securities lending and derivative instruments. Given the high complexity and volume of transactions, as well as the requirements of adequate control of the consolidated risks in certain customer segments, the control perimeter is defined in accordance with the segments at issue.
Control of these risks is performed on a daily basis in accordance with an integrated system that allows registration of the approved limits and real-time updating of positions, and provides information on the availability of limits and aggregate exposure, also in real time, for the various products and maturities. The system also allows transverse control (at different levels) of the concentration of risks by groups of customers/counterparties.
The risk in derivative positions (called Credit Risk Equivalent) is calculated as the sum of the present value of each contract (or current replacement cost) with the respective Potential Risk, a component that reflects an estimate of the maximum value expected to maturity, depending on the volatilities of the underlying market factors and the flow structure contracted. The credit risk in derivatives positions is captured through determination of the CVA/DVA.
For specific customer segments (namely global corporate clients) emphasis is given to the implementation of economic-capital limits, incorporating in the quantitative control the variables associated with the creditworthiness of each counterparty.
Risk analyses for customers or economic groups where the Bank has an exposure of more than €500,000 are performed by risk analysts who monitor those customers, and are supported by rating models developed by the Bank and approved by the regulatory entities. Preparation of these models is mandatory. The assignment of various internal rating levels, ranging from 1.0 to 9.3, is underlain by the degree of risk inherent to the customer and a default probability at one year that the Bank monitors and calibrates on a constant and regular basis.
In concrete terms, the rating is determined by the analysis of the following factors to which are assigned a rating from 1.0 (minimum) to 9.3 (maximum), in accordance with the following weighting:
| Department | Weighting |
|---|---|
| . Demand/Market; | 20% |
| . Partners/Management; | 15% |
| . Access to credit; | 10% |
| . Profitability; | 15% |
| . Flow generation; | 25% |
| .Solvency. | 15% |
The rating is calculated by the analysts, based on information provided by the customer, general information about the sector and external databases. The final rating is introduced in each of the valuation areas in the Bank's information technology system.
In this way, the Bank's internal rating system can be described as follows:
Rating 1.0 – 3.9: Customer of high-default probability; Rating 4.0 – 6.0: Customer of moderate-default probability; Rating 6.1 – 9.3: Customer of low-default probability
| 31-12-2020 | 31-12-2019 | |||
|---|---|---|---|---|
| Book | Maximum | Book | Maximum | |
| value | exposure | value | exposure | |
| Cash, cash balances at central banks and other demand deposits | 4,535,815 | 4,535,815 | 3,492,664 | 3,492,664 |
| Financial assets held for trading | 916,039 | 916,039 | 1,085,927 | 1,085,927 |
| Non-trading financial assets mandatorily | ||||
| at fair value through profit or loss | 132,905 | 132,905 | 144,998 | 144,998 |
| Financial assets at fair value | ||||
| through other comprehensive income | 7,704,190 | 7,704,190 | 5,862,349 | 5,862,349 |
| Financial assets at amortised cost | 39,820,582 | 46,910,608 | 40,067,666 | 46,234,624 |
| Derivatives – Hedge accounting | 23,719 | 23,719 | 56,246 | 56,246 |
| 53,133,251 | 60,223,277 | 50,709,849 | 56,876,807 | |
| Guarantees provided (Note 23) | ||||
| Financial guarantees and sureties | 648,253 | 648,253 | 563,159 | 563,159 |
| Non financial guarantees and sureties | 964,502 | 964,502 | 1,013,643 | 1,013,643 |
| Documentary credits | 363,131 | 363,131 | 374,410 | 374,410 |
| 1,975,886 | 1,975,886 | 1,951,212 | 1,951,212 |
The maximum exposure in "Financial assets at amortized cost" as of December 31, 2020 and 2019 is as follows:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Balance sheet value | 39,820,582 | 40,067,666 |
| Other committments (Note 23) | ||
| Revocable | 6,140,567 | 5,166,328 |
| Irrevocable | 949,459 | 1,000,630 |
| Maximum exposure | 46,910,608 | 46,234,624 |
In accordance with the requirements set out in Bank of Portugal Instruction No. 4/2018, the Bank began to publish Non Performing Exposures and Forborne Exposures.
Thus, as at December 31, 2020 and 2019, the breakdown of performing and non-performing exposures was as follows:
| 31-12-2020 | 31-12-2019 | ||||||
|---|---|---|---|---|---|---|---|
| Book | Book | ||||||
| value | Impairment | Coverage | value | Impairment | Coverage | ||
| Performing exposures | 39,434,530 | (255,610) | 0.6% | 39,366,494 | (137,381) | 0.3% | |
| Non-performing exposures | |||||||
| . Households | 408,592 | (210,498) | 51.5% | 477,921 | (195,016) | 40.8% | |
| . Corporates | 982,377 | (538,809) | 54.8% | 1,144,759 | (589,111) | 51.5% | |
| 1,390,969 | (749,307) | 1,622,680 | (784,127) | ||||
| 40,825,499 | (1,004,917) | 40,989,174 | (921,508) |
As at December 31, 2020 and 2019, the degree of coverage of non-performing exposures net of impairment by real guarantees was as follows:
| 31-12-2020 | 31-12-2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| Book | Book | |||||||
| value | Collateral | Coverage | value | Collateral | Coverage | |||
| Non-performing exposures | ||||||||
| . Households | 198,094 | 180,684 | 91.2% | 282,905 | 243,917 | 86.2% | ||
| . Corporates | 443,568 | 314,480 | 70.9% | 555,648 | 363,235 | 65.4% | ||
| 641,662 | 495,164 | 838,553 | 607,152 |
In accordance with Bank of Portugal Instruction No. 04/2018, institutions must identify and mark, in their information systems, loan contracts of a customer in financial difficulties, whenever there are changes to the terms and conditions of such contracts (including extension of the repayment term, introduction of grace periods, capitalisation of interest, reduction of interest rates, pardon of interest or principal) or the institution contracts new credit facilities for the (total or partial) settlement of the service of the existing debt.
| 31-12-2020 | 31-12-2019 | ||||||
|---|---|---|---|---|---|---|---|
| Book | Book | ||||||
| value | Impairment | Coverage | value | Impairment | Coverage | ||
| Performing exposures | 446,717 | (19,038) | 4.3% | 568,508 | (25,098) | 4.4% | |
| Non-performing exposures | |||||||
| . Households | 255,007 | (101,886) | 40.0% | 304,344 | (123,671) | 40.6% | |
| . Corporates | 738,656 | (378,467) | 51.2% | 830,634 | (439,479) | 52.9% | |
| 993,663 | (480,353) | 1,134,978 | (563,150) | ||||
| 1,440,380 | (499,391) | 1,703,486 | (588,248) |
An encumbered asset is considered to be an asset explicitly or implicitly constituted as collateral or subject to an agreement to guarantee, collateralise or improve credit quality in any transaction that cannot be freely withdrawn.
In accordance with the requirements set out in Bank of Portugal Instruction No. 28/2014, the Bank now provides information on the encumbered assets.
As at December 31, 2020 and 2019, the breakdown of encumbered and unencumbered assets is as follows:
| 2020 | ||||
|---|---|---|---|---|
| Carrying amount of the encumbered assets encumbered assets |
Fair value of | Carrying amount of the unencumbered assets |
Fair value of unencumbered assets |
|
| Assets | ||||
| Demand deposits at central banks and other | ||||
| demand deposits at other credit institutions | - | - | 4,199,694 | - |
| Equity instruments | - | - | 205,539 | 231,640 |
| Debt securities | 2,695,331 | 2,662,814 | 5,761,373 | 5,950,394 |
| Loans and advances | 11,550,890 | - | 27,444,544 | - |
| Other assets Other assets |
- | - | 2,546,038 | - |
| 14,246,221 | 2,662,814 | 40,157,188 | 6,182,034 |
| 2019 | ||||
|---|---|---|---|---|
| Carrying amount of the encumbered assets encumbered assets |
Fair value of | Carrying amount of the unencumbered assets |
Fair value of unencumbered assets |
|
| Assets | ||||
| Demand deposits at central banks and other | ||||
| demand deposits at other credit institutions | - | - | 3,492,664 | - |
| Equity instruments | - | - | 218,899 | 218,899 |
| Debt securities | 2,313,060 | 2,313,060 | 7,240,817 | 7,240,817 |
| Loans and advances | 9,916,619 | - | 26,366,286 | - |
| Other assets | - | - | 2,756,981 | - |
| 12,229,679 | 2,313,060 | 40,075,647 | 7,459,716 |
As at December 31, 2019 and 2018, liabilities associated with encumbered assets and collaterals received are as follows:
| 2020 | |||||
|---|---|---|---|---|---|
| Associated liabilities, contingent liabilities and borrowed securities |
Assets, received collateral and own debt securites issued excluding own covered bonds or ABS |
||||
| Carrying amount of financial liabilities | 8,037,903 | 10,230,399 | |||
| Other | 212,476 | 287,687 | |||
| 8,250,379 | 10,518,086 | ||||
| 2019 | |||||
| Associated liabilities, contingent liabilities and borrowed securities |
Assets, received collateral and own debt securites issued excluding own covered bonds or ABS |
||||
| Carrying amount of financial liabilities | 5,630,717 | 7,240,455 | |||
| Other | 603,000 | 693,445 | |||
| 6,233,717 | 7,933,900 |
As at December 31, 2020 and 2019, the main headings of assets had the following breakdown by external rating (internal rating for credit granted), in keeping with the rating assigned by Standard & Poor's:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Cash, cash balances at central banks and other demand deposits | ||
| Cash, cash balances at central banks | ||
| Rating S&P | ||
| AAA+ /AAA /AAA- | 3,932,058 | 2,798,891 |
| Not subject | 336,121 | 354,664 |
| 4,268,179 | 3,153,555 | |
| Other demand deposits | ||
| Rating S&P | ||
| AA+ /AA /AA- | 21,199 | 89,717 |
| A+ /A /A- | 83,442 | 159,092 |
| BBB+ / BBB / BBB- | 11,598 | 49,642 |
| BB+ / BB / BB- | 1,039 | 3,611 |
| No external rating | 150,358 | 37,047 |
| 267,636 | 339,109 | |
| 4,535,815 | 3,492,664 | |
| Financial assets at fair value through other comprehensive income | ||
| Rating S&P | ||
| A+ /A /A- | 341,977 | 336,412 |
| BBB+ / BBB / BBB- | 7,288,068 | 5,449,799 |
| No external rating | 1,525 | 2,326 |
| 7,631,570 | 5,788,537 | |
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| Financial assets at amortised cost | ||
| Debt securities | ||
| Rating S&P | ||
| BB+ / BBB / BBB- | 658,175 | 425,318 |
| No external rating | 3,318,189 | 3,363,500 |
| 3,976,364 | 3,788,818 | |
| Loans and advances - Credit institutions | ||
| Rating S&P | ||
| AA+ /AA /AA- | - | 42,897 |
| A+ /A /A- | - | 652,523 |
| B+ / B / B- | 190 | - |
| BB+ / BB / BB- | 343 | - |
| BBB+ / BBB / BBB- | 3,031 | 32,042 |
| No external rating | 16,732 | 5 3 |
| 20,296 | 727,515 | |
| Credit granted and other balances receivable at amortized cost | ||
| Internal Rating | ||
| Low credit risk | 27,697,277 | 27,233,727 |
| Medium credit risk | 6,021,564 | 5,965,966 |
| High credit risk | 1,782,456 | 2,202,813 |
| No rating | 1,327,542 | 1,070,335 |
| 36,828,839 | 36,472,841 | |
| 40,825,499 | 40,989,174 | |
For cases in which the Standard & Poor's rating was not available, the ratings issued by Moody's or Fitch were presented.
The balance sheet liquidity-management policy is decided by the 1st level body of the organisational structure responsible for Asset and Liability Management (ALM), the Asset-Liability Committee (ALCO), chaired by the chair of the Executive Committee, which includes the directors responsible for the Financial, Treasury, Commercial, Marketing and International areas. Committee meetings are held monthly, and at these meetings the balance-sheet risks are analysed and strategic options decided.
For the ALM area the following balance-sheet management limits are defined:
The Bank's funding policy considers the evolution of the balance-sheet aggregates, the structural situation of the maturities of assets and liabilities, the net interbank debt level in the light of the available lines, maturity dispersal and minimization of the costs associated with the funding activity..
It should be noted that the Bank does not perform any liquidity-risk analysis for trading financial instruments.).
As at December 31, 2020 and 2019, the breakdown of the projected (not discounted) cash flows of the financial instruments, in keeping with their contractual maturities, was as follows:
| 31-12-2020 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Up to 3 | From 3 months From 1 to | From 3 to | Over | ||||||
| On demand | months | to 1 year | 3 years | 5 years | 5 years | Undetermined Derivatives | Total | ||
| Assets | |||||||||
| Cash, cash balances at central banks and other demand deposits | 603,758 | - | - | - | 3,932,057 | - | - | - | 4,535,815 |
| Financial assets held for trading | - | - | - | - | - | - | - | 916,039 | 916,039 |
| Non-trading financial assets mandatorily | |||||||||
| at fair value through profit or loss | - | - | - | - | - | - | 132,905 | - | 132,905 |
| Financial assets at fair value | |||||||||
| through other comprehensive income | 1,299,742 | 620,270 | 74,873 | 270,190 | 300,190 | 4,801,198 | 72,634 | - | 7,439,097 |
| Financial assets at amortised cost | 607,876 | 1,971,950 | 5,528,160 10,125,880 | 7,274,485 | 18,773,061 | - | - | 44,281,412 | |
| Derivatives – Hedge accounting | - | - | - | - | - | - | - | 23,719 | 23,719 |
| Investments in subsidaries, joint ventures and associates | - | - | - | - | - | - | 62,582 | 62,582 | |
| 2,511,376 | 2,592,220 | 5,603,033 10,396,070 11,506,732 | 23,574,259 | 268,121 | 939,758 | 57,391,569 | |||
| Liabilities | |||||||||
| Financial liabilities held for trading | - | - | - | - | - | - | - | 941,528 | 941,528 |
| Financial liabilities measured at amortised cost | |||||||||
| Deposits - central banks | 9,859 | - | - | 6,593,892 | - | - | - | - | 6,603,751 |
| Deposits - credit institutions | 621,415 | 857,756 | 64,727 | 3,706 | - | - | - | - | 1,547,604 |
| Deposits - customers | 21,245,887 | 5,969,677 | 6,185,668 | 1,208,346 | 1,601,815 | 69,108 | - | - | 36,280,501 |
| Debt securities issued | - | 36,134 | 130,414 | 301,880 | 1,188,943 | 1,498,149 | - | - | 3,155,520 |
| Derivatives – Hedge accounting | - | - | - | - | - | - | - | 522,283 | 522,283 |
| 21,877,161 | 6,863,567 | 6,380,809 | 8,107,824 | 2,790,758 | 1,567,257 | - | 1,463,811 | 49,051,187 |
| 31-12-2018 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Up to 3 | From 3 months From 1 to | From 3 to | Over | ||||||
| On demand | months | to 1 year | 3 years | 5 years | 5 years | Undetermined Derivatives | Total | ||
| Assets | |||||||||
| Cash, cash balances at central banks and other demand deposits | 693,773 | - | - | - | 2,798,891 | - | - | - | 3,492,664 |
| Financial assets held for trading | - | - | - | - | - | - | - | 1,085,927 | 1,085,927 |
| Non-trading financial assets mandatorily | |||||||||
| at fair value through profit or loss | - | - | - | - | - | - | 144,998 | - | 144,998 |
| Financial assets at fair value | |||||||||
| through other comprehensive income | 427,295 | 614,073 | 1,298,752 | 444,759 | 141,742 | 2,531,428 | 73,183 | - | 5,531,232 |
| Financial assets at amortised cost | 667,025 | 2,257,901 | 4,607,703 | 9,413,255 | 5,786,556 | 22,726,332 | - | - | 45,458,772 |
| Derivatives – Hedge accounting | - | - | - | - | - | - | - | 56,246 | 56,246 |
| Investments in subsidaries, joint ventures and associates | - | - | - | - | - | - | 59,240 | - | 59,240 |
| 1,788,093 | 2,871,974 | 5,906,455 | 9,858,014 | 8,727,189 | 25,257,760 | 277,421 1,142,173 | 55,829,079 | ||
| Liabilities | |||||||||
| Financial liabilities held for trading | - | - | - | - | - | - | - | 1,114,703 | 1,114,703 |
| Financial liabilities measured at amortised cost | |||||||||
| Deposits - central banks | 4,522 | - | 2,406,429 | 618,686 | - | - | - | - | 3,029,637 |
| Deposits - credit institutions | 1,110,449 | 818,069 | 116,443 | 552,801 | 299,892 | 300,000 | - | - | 3,197,654 |
| Deposits - customers | 18,024,379 | 6,815,393 | 7,190,489 | 2,493,161 | 1,428,846 | 56,111 | - | - | 36,008,379 |
| Debt securities issued | - | 28,846 | 872,483 | 286,477 | 1,318,338 | 2,150,509 | - | - | 4,656,653 |
| Derivatives – Hedge accounting | - | - | - | - | - | - | - | 393,831 | 393,831 |
| 19,139,350 | 7,662,308 | 10,585,844 | 3,951,125 | 3,047,076 | 2,506,620 | - | 1,508,534 | 48,400,857 |
Determination of the projected cash flows from financial instruments was based on principles and assumptions used by the Bank in management and control of liquidity arising from its business, namely:
Market risk generally consists of the potential variation of the value of a financial instrument due to unexpected changes of market variables, such as interest rates, exchange rates, credit spreads, and prices of equity instruments, precious metals and commodities.
The standard method applied for the Bank's trading activity is Value at Risk (VaR). The Historic Simulation standard is used as the basis with a confidence level of 99% and a time horizon of one day, statistical adjustments being applied in order to include the more recent events that condition the risk levels assumed.
The calculated VaR is a daily estimate of the maximum potential loss under normal market conditions (individually by portfolios/business areas, and for the whole of the positions), within the assumptions defined in the construction of the model.
At the same time other measures are implemented that allow additional monitoring of the market risk. For unusual market conditions, scenarios are analysed (Stress Testing), which consists of defining extreme scenarios for the behaviour of different financial variables and obtaining their potential impact on profit or loss. In short, the scenario analysis seeks to identify the potential risk under extreme market conditions, and in the fringes of likely occurrence not covered by the VaR.
In parallel, there is daily monitoring of the positions, and an exhaustive control is performed of the changes that occur in the portfolios, in order to detect the possible impacts that may exist for their correction. The daily preparation of the profit and loss account is intended to identify the impact of variations in financial variables or of the alteration of the composition of the portfolios.
The Bank also uses sensitivity measures and equivalent positions. In the case of the interest rate, use is made of the Basis Point Value (BPV) – estimated impact on profit or loss for parallel movements in the interest-rate curves. For the control of derivatives activities, due to their atypical nature, specific daily sensitivity measures are carried out, including calculation and analysis of sensitivities to movements of the underlying price (delta and gamma), volatility (Vega), and time (theta).
Quantitative limits are used for the trading portfolios, which are classified into two groups, in the light of the following objectives:
With regard to the structural interest-rate risk, it is measured through modelling the asset and liability positions sensitive to interest-rate variations in accordance with their indexing and re-appraisal structure. This model allows the measurement and control of the risks originating directly from the movement of the income curve, particularly their impact on net interest income and on the Bank's equity. Additionally, other risk indicators are calculated, such as Value at Risk (VaR) and scenario analysis (Stress Test).
The liquidity risk is measured and controlled through the modelling of present and future flows of payments and receipts, as well as by conducting stress tests that seek to identify the potential risk under extreme market conditions. In parallel, ratios are estimated on the current items of the balance sheet that act as indicators of structural and short-term liquidity requirements.
As at December 31, 2020 and 2019 the breakdown of financial instruments by exposure to interest-rate risk was as follows:
| 31-12-2020 | |||||
|---|---|---|---|---|---|
| Exposure to | Not subject | ||||
| Fixed rate | Floating rate | to interest rate risk | Derivatives | Total | |
| Assets | |||||
| Cash, cash balances at central banks and other demand deposits | - | 3,932,058 | 603,757 | - | 4,535,815 |
| Financial assets held for trading | - | - | - | 916,039 | 916,039 |
| Non-trading financial assets mandatorily | |||||
| at fair value through profit or loss | - | - | 132,905 | - | 132,905 |
| Financial assets at fair value | |||||
| through other comprehensive income | 6,137,230 | 1,603 | 1,565,357 | - | 7,704,190 |
| Financial assets at amortised cost | 6,942,978 | 32,932,979 | (55,375) | - | 39,820,582 |
| Derivatives – Hedge accounting | - | - | - | 23,719 | 23,719 |
| 13,080,208 | 36,866,640 | 2,246,644 | 939,758 | 53,133,250 | |
| Liabilities | |||||
| Financial liabilities held for trading | - | - | - | 941,528 | 941,528 |
| Financial liabilities measured at amortised cost | |||||
| Deposits - central banks | 6,809,859 | - | (18,039) | - | 6,791,820 |
| Deposits - credit institutions | 118,496 | 1,430,179 | 294 | - | 1,548,969 |
| Deposits - customers | 15,257,392 | 21,005,431 | 7,169 | - | 36,269,992 |
| Debt securities issued | 2,335,826 | 632,774 | (61,250) | - | 2,907,350 |
| Other financial liabilities | - | - | 205,656 | - | 205,656 |
| Derivatives – Hedge accounting | - | - | - | 522,283 | 522,283 |
| 24,521,573 | 23,068,384 | 133,830 | 1,463,811 | 49,187,598 |
| 31-12-2019 | ||||||
|---|---|---|---|---|---|---|
| Exposure to | Not subject | |||||
| Fixed rate | Floating rate | to interest rate risk | Derivatives | Total | ||
| Assets | ||||||
| Cash, cash balances at central banks and other demand deposits | - | 2,798,891 | 693,773 | - | 3,492,664 | |
| Financial assets held for trading | - | - | - | 1,085,927 | 1,085,927 | |
| Non-trading financial assets mandatorily | ||||||
| at fair value through profit or loss | - | - | 144,998 | - | 144,998 | |
| Financial assets at fair value | ||||||
| through other comprehensive income | 4,993,081 | - | 869,268 | - | 5,862,349 | |
| Financial assets at amortised cost | 8,319,687 | 31,628,398 | 119,581 | - | 40,067,666 | |
| Derivatives – Hedge accounting | - | - | - | 56,246 | 56,246 | |
| 13,312,768 | 34,427,289 | 1,827,620 | 1,142,173 | 50,709,850 | ||
| Liabilities | ||||||
| Financial liabilities held for trading | - | - | - | 1,114,703 | 1,114,703 | |
| Financial liabilities measured at amortised cost | ||||||
| Deposits - central banks | 3,079,382 | - | (41,858) | - | 3,037,524 | |
| Deposits - credit institutions | 227,251 | 2,968,234 | 511 | - | 3,195,996 | |
| Deposits - customers | 17,841,369 | 18,019,114 | 12,789 | - | 35,873,272 | |
| Debt securities issued | 2,765,826 | 1,032,620 | (69,505) | - | 3,728,941 | |
| Other financial liabilities | - | - | 218,021 | - | 218,021 | |
| Derivatives – Hedge accounting | - | - | - | 393,831 | 393,831 | |
| 23,913,828 | 22,019,968 | 119,958 | 1,508,534 | 47,562,288 |
As at December 31, 2020 and 2019 the breakdown of financial instruments by exposure to interest-rate risk, by interest rate ranges, was as follows:
| 2020 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Rate intervals | Not subject to | |||||||
| [ <1% ] | [ 1%-3% ] | [ 3%-5% ] | [ 5%-10% ] | [ >10% ] | interest rate risk | Derivatives | Total | |
| Assets | ||||||||
| Cash, cash balances at central banks and other demand deposits | 3,932,058 | - | - | - | - | 603,757 | - | 4,535,815 |
| Financial assets held for trading | - | - | - | - | - | - | 916,039 | 916,039 |
| Non-trading financial assets mandatorily at fair value | ||||||||
| through profit or loss | - | - | - | - | - | 132,905 | - | 132,905 |
| Financial assets at fair value through other comprehensive income | ||||||||
| comprehensive income | 249,321 | 1,753,332 | 4,136,155 | 25,000 | - | 1,565,357 | - | 7,729,165 |
| Financial assets at amortised cost | 18,920,417 | 17,296,808 | 2,004,074 | 1,329,119 | 325,539 | (55,375) | 39,820,582 | |
| Derivatives – Hedge accounting | - | - | - | - | - | - | 23,719 | 23,719 |
| 23,101,796 | 19,050,140 | 6,140,229 | 1,354,119 | 325,539 | 2,246,644 | 939,758 | 53,158,225 | |
| Liabilities | ||||||||
| Financial liabilities held for trading | - | - | - | - | - | - | 941,528 | 941,528 |
| Financial liabilities measured at amortised cost | ||||||||
| Deposits - central banks | 6,809,859 | - | - | - | - | (18,039) | - | 6,791,820 |
| Deposits - credit institutions | 1,548,675 | - | - | - | - | 294 | - | 1,548,969 |
| Deposits - customers | 36,129,775 | 128,836 | 3,148 | 1,064 | - | 7,169 | - | 36,269,992 |
| Debt securities issued | 1,953,873 | 1,014,727 | - | - | - | (61,250) | - | 2,907,350 |
| Other financial liabilities | - | - | - | - | - | 205,656 | - | 205,656 |
| Hedging derivatives Other liabilities | - | - | - | - | - | - | 522,283 | 522,283 |
| 46,442,182 | 1,143,563 | 3,148 | 1,064 | - | 133,830 | 1,463,811 | 49,187,598 |
| 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Rate intervals | Not subject to | |||||||
| [ <1% ] | [ 1%-3% ] | [ 3%-5% ] | [ 5%-10% ] | [ >10% ] | interest rate risk | Derivatives | Total | |
| Assets | ||||||||
| Cash, cash balances at central banks and other demand deposits | 2,798,891 | - | - | - | - | 693,773 | - | 3,492,664 |
| Financial assets held for trading | - | - | - | - | - | - | 1,085,927 | 1,085,927 |
| Non-trading financial assets mandatorily at fair value | ||||||||
| through profit or loss | - | - | - | - | - | 144,998 | - | 144,998 |
| Financial assets at fair value through other comprehensive income | ||||||||
| comprehensive income | 3,832 | 2,781,249 | 2,179,123 | 28,877 | - | 869,268 | - | 5,862,349 |
| Financial assets at amortised cost | 15,458,447 | 17,930,244 | 4,848,988 | 1,265,294 | 445,112 | 119,581 | - | 40,067,666 |
| Derivatives – Hedge accounting | - | - | - | - | - | - | 56,246 | 56,246 |
| 18,261,170 | 20,711,493 | 7,028,111 | 1,294,171 | 445,112 | 1,827,620 | 1,142,173 | 50,709,850 | |
| Liabilities | ||||||||
| Financial liabilities held for trading | - | - | - | - | - | - | 1,114,703 | 1,114,703 |
| Financial liabilities measured at amortised cost | ||||||||
| Deposits - central banks | 3,079,382 | - | - | - | - | (41,858) | - | 3,037,524 |
| Deposits - credit institutions | 3,019,234 | 176,251 | - | - | - | 511 | - | 3,195,996 |
| Deposits - customers | 34,829,224 | 958,238 | 67,902 | 5,119 | - | 12,789 | - | 35,873,272 |
| Debt securities issued | 2,486,980 | 1,303,867 | - | 7,599 | - | (69,505) | - | 3,728,941 |
| Other financial liabilities | - | - | - | - | - | 218,021 | - | 218,021 |
| Hedging derivatives | - | - | - | - | - | - | 393,831 | 393,831 |
| 43,414,820 | 2,438,356 | 67,902 | 12,718 | - | 119,958 | 1,508,534 | 47,562,288 |
The method of calculation of the sensitivity of the asset value involves simulation of the change in the market value of the assets and liabilities, based on 100 basis point (bp) shifts of the forward interest-rate curve. This methodology uses the following parameters and assumptions:
The interest-rate gap allows an approximation of the sensitivity of the asset value and of the net interest income in the light of market-rate variations. This approach has the following assumptions:
From the perspective of variation of the asset value, interest-rate increases entail a decrease of value in the intervals with positive gaps, and an increase of value in the negative gaps. Interest rate reductions have the opposite effect.
General assumptions of this Interest-rate sensitivity analysis
As at December 31, 2020 and 2019, the sensitivity of the asset value of the Bank's financial instruments to positive and negative variations of 100 basis points (bp) for a one-year time horizon was:
| 31-12-2020 | 31-12-2019 | ||||
|---|---|---|---|---|---|
| + 100 bp's | - 100 bp's | + 100 bp's | - 100 bp's | ||
| variation | variation | variation | variation | ||
| Assets | |||||
| Cash, cash balances at central banks | (2,135) | 59,081 | (207) | 91,492 | |
| Financial assets at fair value | |||||
| through other comprehensive income | (114,692) | 36,461 | (190,829) | 150,794 | |
| Financial assets at amortized cost | (1,020,001) | 553,086 | (948,285) | 953,796 | |
| (1,136,828) | 648,628 | (1,139,321) | 1,196,082 | ||
| Derivatives – Hedge accounting | 315,516 | (182,329) | 276,455 | (363,242) | |
| Liabilities | |||||
| Financial liabilities at amortised cost | |||||
| Deposits - central banks | 1,260 | 32,731 | (19,139) | 8,281 | |
| Deposits - credit institutions | (1,230) | 285 | (4,861) | 16,808 | |
| Deposits - customers | (1,141,738) | 379,403 | (987,540) | 714,077 | |
| Debt securities issued | (143,800) | 58,577 | (166,593) | 157,667 | |
| Other financial assets | (25,028) | 13,289 | (39,113) | 34,309 | |
| Other financial liabilities | (1,310,536) | 484,285 | (1,217,246) | 931,142 |
The basic parameters for calculation of the VaR applicable in general are, besides the calculation method itself, as follows:
Calculation currency: In the process of calculating the VaR all positions are valued in euros, which guarantees that the risk-free currency is the local currency. However, VaR values are reported in US dollars (USD) in order to allow the aggregation of different units; and
Market data time window: A 2-year time window is used, or at least 520 data obtained from the VaR calculation reference date going back in time.
The calculation of the VaR Percentile gives equal weighting to the set of 520 observations considered. The Weighted Percentile VaR gives a significantly higher weighting to the most recent observations in relation to the reference date of the analysis.
Historical simulation consists of using the historical variations as the distribution model of possible variations in the risk factors. For this reason, the chosen period is sufficiently long and significant for all interactions between the market factors, its volatilities and the correlations among them, to be duly mirrored in the historical period selected.
On the other hand, the complete revaluation of the portfolio requires a valuation of each of the instruments, using the respective mathematical expression to obtain the market value of each individual position. In using forms of revaluation, non-linear effects implicit in certain financial products as a result of changes in market factors are calculated and collected on the VaR values.
As at December 31, 2020 and 2019, the VaR associated with the interest-rate risk corresponded to:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| VaR 99% percentile | (1) | - |
| VaR Weighted 99% percentile | - | - |
The profile defined for the exchange-rate risk is quite conservative, and is embodied in the hedging policy used. Its implementation is the responsibility of the Treasury Area, so the risks involved are not very relevant, and it is implemented primarily through the use of currency swaps. Risk limits are stipulated for the exchange-rate risk that are controlled by the Market Risks area.
| 31-12-2020 | ||||||
|---|---|---|---|---|---|---|
| US | Other | |||||
| Euros | Dollars | currencies | Total | |||
| Assets | ||||||
| Cash, cash balances at central banks and other demand deposits | 4,353,824 | 28,489 | 153,502 | 4,535,815 | ||
| Financial assets held for trading | 913,609 | 1,748 | 682 | 916,039 | ||
| Non-trading financial assets mandatorily | ||||||
| at fair value through profit or loss | 132,905 | - | - | 132,905 | ||
| Financial assets at fair value | ||||||
| through other comprehensive income | 7,704,138 | 52 | - | 7,704,190 | ||
| Financial assets at amortised cost | 39,143,852 | 637,742 | 38,988 | 39,820,582 | ||
| Derivatives – Hedge accounting | 23,478 | 241 | - | 23,719 | ||
| Investments in subsidaries, joint ventures and associates | 62,582 | - | - | 62,582 | ||
| 52,334,388 | 668,272 | 193,172 | 53,195,832 | |||
| Liabilities | ||||||
| Financial liabilities held for trading | 939,085 | 1,749 | 694 | 941,528 | ||
| Financial liabilities measured at amortised cost | ||||||
| Deposits - central banks | 6,791,820 | - | - | 6,791,820 | ||
| Deposits - credit institutions | 1,431,446 | 117,260 | 263 | 1,548,969 | ||
| Deposits - customers | 34,498,895 | 1,413,677 | 357,420 | 36,269,992 | ||
| Debt securities issued | 2,907,350 | - | - | 2,907,350 | ||
| Other financial liabilities | 205,656 | - | - | 205,656 | ||
| Derivatives – Hedge accounting | 520,761 | 1,507 | 15 | 522,283 | ||
| 47,295,013 | 1,534,193 | 358,392 | 49,187,598 |
| 31-12-2019 | ||||
|---|---|---|---|---|
| US | Other | |||
| Euros | Dollars | currencies | Total | |
| Assets | ||||
| Cash, cash balances at central banks and other demand deposits | 3,267,429 | 79,727 | 145,508 | 3,492,664 |
| Financial assets held for trading | 1,083,105 | 2,570 | 252 | 1,085,927 |
| Non-trading financial assets mandatorily | ||||
| at fair value through profit or loss | 144,998 | - | - | 144,998 |
| Financial assets at fair value | ||||
| through other comprehensive income | 5,862,292 | 57 | - | 5,862,349 |
| Financial assets at amortised cost | 39,598,780 | 436,817 | 32,069 | 40,067,666 |
| Derivatives – Hedge accounting | 55,168 | 1,078 | - | 56,246 |
| Investments in subsidaries, joint ventures and associates | 59,240 | - | - | 59,240 |
| 50,071,012 | 520,249 | 177,829 | 50,769,090 | |
| Liabilities | ||||
| Financial liabilities held for trading | 1,111,881 | 2,570 | 252 | 1,114,703 |
| Financial liabilities measured at amortised cost | ||||
| Deposits - central banks | 3,037,524 | - | - | 3,037,524 |
| Deposits - credit institutions | 3,008,714 | 186,486 | 796 | 3,195,996 |
| Deposits - customers | 34,152,470 | 1,471,381 | 249,421 | 35,873,272 |
| Debt securities issued | 3,728,941 | - | - | 3,728,941 |
| Other financial liabilities | 218,021 | - | - | 218,021 |
| Derivatives – Hedge accounting | 390,861 | 2,749 | 221 | 393,831 |
| 45,648,412 | 1,663,186 | 250,690 | 47,562,288 |
As at December 31, 2020 and 2019, the VaR associated with the exchange-rate risk corresponded to:
| 31-12-2020 | 31-12-2019 | |
|---|---|---|
| VaR 99% percentile | (8) | (3) |
| VaR Weighted 99% percentile | (6) | (2) |
As at December 31, 2020 and 2019, the Bank had no risk associated with asset prices with regard to its trading financial instruments, and so the VaR associated with this risk is zero.
As at December 31, 2020 and 2019, the value of derivative financial instruments traded over the counter, offset by related financial derivatives, by type of counterparty, is as follows:
| 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Financial assets/Liabilities |
Related values not compensated in financial statements |
|||||||||
| in financial | Financial | Cash collateral | Net | |||||||
| Counterpart | statements | Instruments | set as guarantee | Value | ||||||
| Financial Institutions | (400,601) | - | 52,986 | (347,615) | ||||||
| Group Companies | (696,545) | - | 583,014 | (113,531) | ||||||
| (1,097,146) | - | 636,000 | (461,146) |
| 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Financial | Related values not compensated | ||||||||
| assets/Liabilities | in financial statements | Net | |||||||
| in financial | Financial | Cash collateral | |||||||
| Counterpart | statements | Instruments | set as guarantee | Value | |||||
| Financial Institutions | (292,042) | - | 371,927 | 79,885 | |||||
| Group Companies | (908,865) | - | 301,500 | (607,365) | |||||
| (1,200,907) | - | 673,427 | (527,480) |
| 31-12-2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Financial assets/Liabilities |
Related values not compensated in financial statements |
|||||||||
| in financial | Financial | Cash collateral | Net | |||||||
| Counterpart | statements | Instruments | set as guarantee | Value | ||||||
| Finantial institutions | (1,255,805) | 1,256,208 | 23,093 | 23,496 | ||||||
| (1,255,805) | 1,256,208 | 23,093 | 23,496 | |||||||
| 31-12-2019 | ||||||||||
| Financial | Related values not compensated | |||||||||
| assets/Liabilities | in financial statements | |||||||||
| in financial | Financial | Cash collateral | Net | |||||||
| Counterpart | statements | Instruments | set as guarantee | Value | ||||||
| Finantial institutions | (1,654,668) | 1,656,197 | 32,461 | 33,990 | ||||||
| (1,654,668) | 1,656,197 | 32,461 | 33,990 |
As at December 31, 2020 and 2019, the value of the sale transactions with repo agreement, by type of counterparty, is as follows:
The Bank seeks a high financial solidity based on the maintenance of a capital adequacy ratio - relationship between Eligible Equity Funds and risk-weighted assets. The policy for the distribution of results is conditioned by the maintenance of capital levels that allow the Group to sustain the development of its operations within its risk policy.
The Bank uses the mixed method for credit risk, namely the advanced method (IRB) for most credit segments, and the standard method for manual operations, Banif portfolio and BAPOP portfolio. The Bank uses the standard method to calculate the market risk. In June 2012, the Bank began using the standard method for the determination of the operational risk requirements, having till then used the basic indicator method.
As of January 1, 2014, it started reporting capital ratios in accordance with the new regulatory framework of BIS III, which, although it provides for a phasing in period, is more demanding for the core capital ratio (or Common Equity Tier I, CET1), in particular through additional deductions and higher weights in the computation of exposures.
On June 28, 2019, the Bank operationalized the first synthetic securitization operation originated by the Bank. The operation is based on a portfolio of Corporates, SMEs, City Councils and ENI's in the amount of €2.4Bn, in relation to which the Bank buys protection corresponding to a mezzanine tranche with a 1% attachment point and an 8.5% detachment point. The € 181.3Mn mezzanine tranche was fully placed to foreign institutional investors, in the form of a CLN with a premium of 8.7%.
The following table summarises the composition of the regulatory capital and prudential ratios of the Bank as of December 31, 2020 and 2019 (both in BIS III - Phasing in):
| Amounts in million Euro | ||
|---|---|---|
| dec 2020 | dec 2019 | |
| A - LEVEL 1 OWN FUNDS (TIER I) | 3,759 | 2,858 |
| Share Capital (includes addicional instruments eligible as Tier I) | 1,541 | 1,541 |
| Reserves and Retained earnings (excluding Non-controlling interests) | 2,312 | 1,606 |
| Eligible minority interests | - | - |
| Deduction to base own funds | (94) | (290) |
| B - LEVEL 2 OWN FUNDS (TIER II) | 410 | 408 |
| Remeasurements of pension liabilities (Note 35) | 346 | 347 |
| Eligible minority interests | - | - |
| Other elements/deductions to complementary own funds | 6 4 | 6 1 |
| C - DEDUCTIONS TO TOTAL OWN FUNDS | - | - |
| D - TOTAL OWN FUNDS (A+B+C) | 4,169 | 3,266 |
| E - ASSETS WEIGHTED BY RISK | 17,982 | 18,681 |
| RATIOS | ||
| TIER I (A/E) | 20.9% | 15.3% |
| CORE CAPITAL (CET1) | 20.9% | 15.3% |
| TIER II (B/E) | 2.3% | 2.2% |
| CAPITAL ADEQUACY RATIO (D/E) | 23.2% | 17.5% |
| LEVERAGE | 6.5% | 4.7% |
Note: Non audited information
The Resolution Fund is a legal person under public law with administrative and financial autonomy, established by Decree-Law 31-A/2012 of February 10, which is governed by the General Credit Institutions and Financial Companies Regime ("RGICSF") and by its regulation, the mission of which is to provide financial support for the resolution measures implemented by the Bank of Portugal, in the capacity of national liquidation authority, and to perform all other functions conferred by law within the scope of implementation of such measures.
The Bank, like the majority of the financial institutions operating in Portugal, is one of the institutions taking part in the Resolution Fund, making contributions resulting from the application of a rate set annually by the Bank of Portugal essentially on the basis of the amount of their liabilities. In 2020, the periodic contribution made by the Bank amounted to €12,875k, based on a contribution rate of 0.048%.
Within the scope of its responsibility as supervision and liquidation authority of the Portuguese financial sector, on August 3, 2014, the Bank of Portugal decided to apply to Banco Espírito Santo, S. A. ("BES") a liquidation measure under Article 145-G(5) of the RGICSF, which consisted of the transfer of most of its business to a transition bank called Novo Banco, S. A. ("Novo Banco") created especially for the purpose.
To pay up the Novo Banco share capital, the Resolution Fund, as its sole shareholder, provided €4,900 million, of which €365 million corresponded to own financial resources. A loan was also granted by a banking syndicate to the Resolution Fund in the amount of €635 million, with the participation of each credit institution weighted in the light of several factors, including the respective dimension. The remainder (€3,900 million) consisted of a repayable loan granted by the Portuguese State.
Following the implementation of the said liquidation measure, on July 7, 2016, the Resolution Fund stated that it would review and assess the steps to be taken following the publication of the report on the results of the independent evaluation conducted to estimate the credit recovery level for each class of creditors in a hypothetical scenario of a process of normal insolvency of BES on August 3, 2014. Under applicable law, if it is found that creditors whose credits have not been transferred to Novo Banco entail a larger loss than would hypothetically be the case if BES had entered into liquidation at a moment immediately preceding that of the application of the liquidation measure, those creditors would be entitled to receive the difference from the Resolution Fund.
On March 31, 2017, the Bank of Portugal reported that it had selected the Lone Star Fund for the purchase of Novo Banco, which purchase was completed on October 17, 2017, with the injection, by the new shareholder, of €750 million, which will be followed a new inflow of share capital in the amount of €250 million, to be implemented over a period of up to three years. This operation put an end to Novo Banco's status as a transition bank, the Lone Star Fund having acquired 75% of the Novo Banco share capital and the Resolution Fund the remaining 25%, albeit without voting rights.
On February 26, 2018, the European Commission released the non-confidential version of the decision approving the State aid underlying the Novo Banco sale process, which includes a contingent capitalisation mechanism, under which the Resolution Fund may be called upon to inject capital in the event of occurrence of certain conditions relating to the performance of a restricted set of Novo Banco's assets and to the evolution of the bank's capital levels.
This mechanism is triggered every year on the basis of Novo Banco's annual accounts certified by the respective auditor, and there is a possibility of intra-annual determinations only in the event of default, by Novo Banco, of the prudential requirements. For the purpose of this mechanism, consideration is given to the asset valuation differences (positive or negative) compared to their carrying amounts, net of impairment, as at June 30, 2016 (around €7.9 billion according to information provided by Novo Banco). Thus, economic losses or gains are considered, resulting, for example, from the sale of assets or restructuring of loans, as well as impairments, or their reversal, which are recorded at Novo Banco in
accordance with the accounting rules, as well as the financing costs associated with maintaining the assets in the Novo Banco balance sheet.
Under that mechanism, to date, the Resolution Fund made a payment of €2,987 million to Novo Banco in respect of the 2017 to 2019 accounts, having used for the purpose its own financial resources resulting from the contributions paid up, directly or indirectly, by the banking sector, complemented by a State loan of €2,130 million within the scope of the framework agreement between the Portuguese State and the Resolution Fund.
This mechanism will be in force until December 31, 2025 (which may be extended until December 31, 2026), and is limited to an absolute maximum of €3,890 million.
On December 19, 2015, the Bank of Portugal decided to declare that Banif - Banco Internacional do Funchal, S. A. ("Banif") was "at risk of or was in a situation of insolvency," and began a process of urgent liquidation of the institution in the form of partial or total sale of its business, which came about with the sale on December 20, 2015, to Banco Santander Totta S. A. ("Santander Totta") of the rights and obligations including assets, liabilities, off-balance sheet items, and assets under Banif management, for €150 million.
Most of the assets that were not sold were transferred to an asset-management vehicle called Oitante, S. A. ("Oitante"), created specifically for the purpose, which has the Resolution Fund as its sole shareholder. Oitante issued bonds representing the debt, in the amount of €746 million, a guarantee having been provided by the Resolution Fund and a counter-guarantee by the Portuguese State.
This operation also involved public support estimated at €2,255 million, which aimed to cover future contingencies, of which €489 million was financed by the Resolution Fund, and €1,766 million directly by the Portuguese State.
On July 21, 2016, the Resolution Fund made a payment to the State in the amount of €136 million by way of partial early repayment of the liquidation measure applied to Banif, allowing the amount owed to fall from €489 million to €353 million.
To date the findings of the independent evaluation exercise, conducted to estimate the credit recovery level for each class of creditors in the hypothetical scenario of normal insolvency proceedings of Banif as of December 20, 2015 are not yet known. As mentioned above for BES, if it is found that creditors entail a larger loss than would hypothetically be the case if Banif had entered into liquidation at a moment immediately preceding that of the application of the liquidation measure, those creditors would be entitled to receive the difference from the Resolution Fund.
Following the liquidation measures applied to BES and Banif, and the agreement for the sale of Novo Banco to Lone Star, the Resolution Fund contracted the loans referred to above and assumed liabilities and contingent liabilities arising from:
In order to preserve financial stability by promoting the conditions that lend predictability and stability to the contribution effort for the Resolution Fund, the Portuguese government reached an agreement with the European Commission to alter the conditions of the loans granted by the Portuguese State and by the participating banks to the Resolution Fund. To this end, an addendum to the Resolution Fund funding agreements was formalised, which introduced a number of amendments to the repayment plans, remuneration rates and other terms and conditions associated with these loans so that they are suited to the Resolution Fund's ability to fulfil its obligations in full on the basis of its regular revenues, that is, without a need for the banks participating in the Resolution Fund to be charged special contributions or any other type of extraordinary contribution.
According to the announcement of the Resolution Fund of March 31, 2017, the review of the conditions of the funding granted by the Portuguese State and the participating banks aimed to ensure the sustainability and the financial balance of the Resolution Fund, on the basis of a stable, predictable and affordable charge for the banking sector. Based on this review, the Resolution Fund considered that full payment of its liabilities is assured, as well as the respective remuneration, with no need for recourse to special contributions or any other type of extraordinary contributions on the part of the banking sector.
Notwithstanding the possibility provided for in applicable legislation governing the collection of special contributions, given the renegotiation of the conditions of the loans granted to the Resolution Fund by the Portuguese State and by a banking syndicate, in which the Bank is included, the public announcements made by the Resolution Fund and the Office of the Minister of Finance state that this possibility will not be used. These financial statements reflect the Board of Directors' expectation that no special contributions or any other type of extraordinary contributions will be required of the Bank to finance the Resolution Fund.
Any significant changes regarding this matter may have relevant implications for the Bank's financial statements.
In 2012 administrative-offence proceedings were instituted by the Competition Authority ("AdC"), for alleged signs of infringement of Article 9 of Law 19/2012, of May 8 (Competition Act).
Within the scope of these proceedings, search and seizure measures were carried out at the premises of the Bank and other credit institutions on March 6, 2013, and indiscriminate documentation was seized to determine possible evidence of infringement of the aforesaid legal precept.
On June 3, 2015, the Bank, like other 14 credit institutions, was notified of the Statement of Objections issued by the AdC regarding the administrative-offence under appraisal (Case No. PRC 9/2012), accused of taking part in an exchange of certain commercially sensitive information between competitors.
On September 9, 2019, the Competition Authority issued the final decision, essentially maintaining the theory presented in the 2015 Statement of Objections, namely the presumption of anti-competitive conduct based on the exchange of information between competitors on Mortgage Loans, Consumer Credit and Loans to Companies. Bank Santander Totta was sentenced to a fine of €35 million, plus a fine of €650k applied to BAPOP.
The fine imposed - which could amount to a maximum equivalent to 10% of the annual turnover of the infringing company in the year before the decision -, came to be applied for an amount corresponding to about 2.02% of that indicator (considering not only the penalty imposed on the Bank, but also on BAPOP).
Nevertheless, on October 21, 2019, the Bank judicially challenged the final decision of the Competition Authority, the case now pending before the Competition, Regulation and Supervision Court.
In December 2020, a hearing was held at the Competition Court, in which a consensual solution was reached between the Competition Authority and the appealing banks, including the Bank, regarding the amount of the fine and the types of collateral to be provided, in order to suspend the contested decision. In this regard, the Bank presented a bank guarantee in the amount of €17,825k, issued by the Bank itself, as a way to fulfil the mentioned collateral.
In line with what has been its position throughout the proceedings, the Bank strongly refutes all the arguments underlying the decision of the Competition Authority, and its judicial challenges through the Competition, Regulation and Supervision Court has been supported, in particular, by the opinion of distinguished Law Professors, attesting to the absence of any unlawful conduct by the institution.
The Bank will now await the judgement and subsequent decision on the judicial challenge submitted, and will not waive the exercise of all the legal and judicial faculties ensuring the protection of its interests.
Taking the foregoing into consideration, the Bank's Board of Directors is convinced that the likelihood of the Bank not being ordered to pay a fine by the end of the proceedings are greater than those of being so
ordered, and therefore no provision for this case has been recorded in the financial statements as at June 31, 2020.
The current economic crisis caused by the Covid-19 pandemic has increased the risks for the financial system, with special relevance for those related to credit risk. In this context, the adoption of a significant set of measures, both exceptional and temporary, to support families and companies in a situation of insufficient liquidity associated with the economic slowdown should be highlighted. In particular, moratoria schemes were created – of both a legislative and non-legislative nature – to fulfil credit obligations towards the banking system, and for obtaining new financing (for companies) through the contracting of credit facilities with State guarantees (which guarantee the payment of the capital in case of default) in a percentage that varies between 80% - 90%, depending on the size of the company, thus avoiding immediate disruptions in the beneficiaries' liquidity positions.
The European Banking Authority, through the guideline EBA/GL/2020/02, came to detail the conditions that moratoria regimes must fulfil so that covered exposures are not automatically classified as restructured due to the debtors' financial difficulties or to them being in a situation of default. However, this guideline also reinforces the need for credit institutions to keep – also during the period in which the moratoria are in force – a timely monitoring of their exposures that will help them identify any indications that the debtor is unable to fully comply with its credit obligations (unlikeliness to pay), and its consequent marking.
In this context, it is crucial that credit institutions, on the one hand, develop an appropriate strategy to ensure sustainable solutions for debtors who, despite having financial difficulties, remain viable, thus contributing to preserve the Bank's economic value in the medium and long term; while, on the other hand, adopting measures that may allow them to monitor and evaluate the evolution of the risks incurred and the timely marking of the exposures in question, in order to mitigate the negative effects that may arise from the termination of the moratoria ("cliff effects").
From the very first moment, the Bank has had a leading position in supporting its clients affected by the economic crisis resulting from the Covid-19 health crisis, both in terms of the granting of moratoria, and as a leading Bank in the agreed support credit facilities for the economy.
In order to establish the criteria for the admission and classification of refinancing, renegotiation, and / or new credit operations, derived from economic impacts, in particular upon our clients' liquidity as a result of the Covid-19 pandemic, the Extraordinary Policy for Admission and Classification of Covid-19 Risks has been developed and approved by the Bank's own bodies.
In fact, given the strong economic impacts of the health crisis on families and companies, exceptional measures had to be adopted to support them, forcing the definition of a specific Policy that, with both a temporary and extraordinary nature, would define the criteria for admission and rating of renegotiation operations and / or the granting of new credits related to the financial needs of customers arising from liquidity problems.
This Policy incorporated the directions, guidelines and recommendations of the European Banking Authority (EBA), the European Central Bank (ECB), the European Securities and Markets Authority (ESMA), and the International Accounting Standards Board (IASB), and was applied equally to legislative and non-legislative moratoria. Although it is accepted that in the short term it is difficult to carry out a detailed analysis, and it is therefore recognized that there should be no immediate impacts upon the risk ratings of clients, the importance of carrying out an individual analysis of the client's real likelihood of being able to overcome the situation resulting from this crisis, as well as the importance of adequate risk measurement, are both stressed, hoping that institutions prioritise individual assessments of the likelihood of payment by debtors whenever possible.
The current economic context is characterized by a high level of uncertainty regarding the duration and depth of the pandemic, both globally and in Portugal.
Despite the authorities' efforts to mitigate negative impacts on the economy, lockdown measures have resulted in significant reductions in economic activity, and high uncertainty in the recovery dynamics.
Thus, the processes used in calculating impairments require adaptations to take due account of changes in clients' capacity and, consequently, of the impact on expected credit losses.
In order to ensure a consistent approach within the banking industry, the ECB issued a general recommendation on IFRS9 in the context of the Covid-19 pandemic on April 1, 2020 (SSM-2020-0154), indicating in particular that the modelling assumptions and methodologies used in normal situations might have gaps in the current context of extraordinary uncertainty. Thus, particular attention must be paid to the adjustments and overlays that will be required, due to the scarcity of forward looking information.
Given the level of uncertainty, the ECB gives each institution the necessary degree of freedom to set the speed at which each economy will revert to its level of potential growth, provided it is duly substantiated.
Taking into account the aforementioned guidelines from the supervisor, a Long Run based macroeconomic scenario (hereinafter, the Covid scenario) was defined by the Bank's Research Department. Thus, the adjustment to be made in this stage of the cycle, framed in the current methodology, is the updating of the Forward Looking component in the PD and LGD models, based on the Covid scenario.
Based on the information available, and in line with the scenarios used at the Bank, a base scenario was used for the purposes of calculating the macroeconomic overlay.
Since the beginning of the Covid-19 pandemic, a number of critical sectors have been identified by the Bank and by the various relevant authorities regarding which there is an increased concern with regard to their future, due to the uncertainty that this pandemic has brought to the whole of society. Since the beginning of april, and in compliance with both the policies instituted at the Bank and with the guidelines of the ECB and EBA, namely that during the term of the moratoria, the monitoring and follow-up activity of clients would have to be reinforced, in order to identify in a timely manner any indications that debtors may not be able to
meet their credit obligations after the end of the moratoria. This monitoring and follow-up of clients is being carried out, first through the first line of defence (Commercial Area), and jointly with the second line of defence (Risk Area).
Countries and economic agents linked to the sectors most exposed to international and internal movements of people and goods, were immediately considered as the most vulnerable. Within this universe are the sectors linked to tourism and leisure activities, including the catering sector and the transport sectors (especially air transport), as well as trade in goods and services, including the Automobile Business. In a second line, and possibly due to the impact induced by the progressive closing of economies and the reduction of domestic and international consumption, the industrial, textile and footwear sectors – which are very relevant in the Portuguese economy – were also considered to have a significant potential impact.
Other sectors were also listed for special monitoring, due to their traditional relevance in the national productive structure and in the exposure volume of the banking sector, as well as due to the impact they suffered in the previous economic crisis, as are all real estate and construction sector exposures.
As far as the private sector, the negative impact of the pandemic on household income is quite significant, but the effects vary widely from case to case. The impact on disposable income depends largely on the number of people in the household who get their income from work, as well as their employment status (whether they are permanent workers or self-employed), and the sector for which they work.
After having identified the most critical sectors, studies were carried out on the various client portfolios, subdivided into 4 chapters:
In May 2020, the Bank initiated the development of an End to End transformation project, called "Collections and Recoveries", which aims at the massive and anticipatory management of (non-portfolio) clients, through the development of strategies, procedures and commercial offers in an omnichannel environment (differentiated communication channels according to the type of client), constituting an advanced approach, to help manage any impacts after the end of the moratoria in this segment of private clients and micro and small companies.
The identification of potential impairment needs will depend on the evolution of the Bank's portfolio and on the specific environment at each moment. It is not possible to present a priori an exhaustive list of criteria that require an impairment analysis of segments or sub-segments. The idiosyncratic situations identified by the Portfolio Manager led to a reclassification of €2.4 billion from Stage 1 to Stage 2, and the endowment of an idiosyncratic overlay impairment.
Operations subject to legislative and non-legislative moratoria, and new loans granted under new public guarantee schemes in response to the current economic crisis caused by the Covid-19 pandemic
The following tables show the characterization of the transactions that, as at December 31, 2020, were subject to legislative and non-legislative moratoria, as well as the new loans granted under new public guarantee schemes.
The gross amount of loans and advances covered by the moratoria is as follows:
| Gross Value | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Productive | Non productive | |||||||||
| Of which: subject | Of which: | Of which: subject | Of which: with | |||||||
| to restructuring | Stage 2 | to restructuring | reduced probability | Total | ||||||
| measures | measures | of payment | ||||||||
| Loans and advances subject to moratorium | 8,004,249 | 294,628 | 910,217 | 545,727 | 450,657 | 525,377 | 8,549,976 | |||
| of which: Families | 4,981,154 | 235,313 | 480,080 | 139,891 | 126,294 | 130,999 | 5,121,045 | |||
| of which: secured by housing real estate | 4,551,971 | 216,345 | 401,358 | 115,590 | 107,741 | 109,957 | 4,667,561 | |||
| of which: non-financial corporations | 3,023,095 | 59,315 | 430,136 | 405,836 | 324,363 | 394,378 | 3,428,931 | |||
| of which: small and medium-sized companies | 1,992,188 | 46,157 | 370,691 | 252,725 | 198,296 | 241,661 | 2,244,913 | |||
| of which: secured by commercial real estate | 1,297,684 | 21,100 | 151,825 | 282,193 | 243,321 | 275,718 | 1,579,877 |
The impairment of loans and advances covered by the moratoria is as follows:
| Productive | Non productive | Gross value | ||||||
|---|---|---|---|---|---|---|---|---|
| Of which: subject | Of which: | Of which: subject | Of which: with | Total | Entries to non | |||
| to restructuring | Stage 2 | to restructuring | reduced probability | productive | ||||
| measures | measures | of payment | exposures | |||||
| Loans and advances subject to moratorium | 50,396 | 16,489 | 37,641 | 223,478 | 181,246 | 216,352 | 273,875 | 24,157 |
| of which: Families | 19,427 | 9,224 | 15,549 | 49,475 | 45,513 | 45,576 | 68,902 | 6,126 |
| of which: secured by housing real estate | 14,041 | 7,825 | 11,648 | 36,572 | 34,335 | 34,638 | 50,613 | 3,981 |
| of which: non-financial corporations | 30,969 | 7,266 | 22,092 | 174,003 | 135,733 | 170,776 | 204,972 | 18,031 |
| of which: small and medium-sized companies | 26,180 | 7,001 | 20,470 | 106,401 | 85,218 | 103,374 | 132,581 | 9,596 |
| of which: secured by commercial real estate | 10,079 | 791 | 7,282 | 100,991 | 88,264 | 100,290 | 111,070 | 1,559 |
The breakdown of loans and advances subject to legislative and non-legislative moratoria and by residual term of the moratoria is as follows:
| Gross Amount | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Productive | Residual term | ||||||||
| Number of debtors |
Of which: legislative moratorium |
Of which: Expired |
<= 3 months |
> 3 months <= 6 months |
> 6 months <= 9 months |
> 9 months <= 12 months |
|||
| Loans and advances that have been offered a moratorium | 94,008 | 9,918,579 | |||||||
| Loans and advances subject to moratorium | 92,862 | 9,303,867 6,684,126 | 753,891 | 1,909,225 | 282,110 | 17,205 | 6,341,436 | ||
| of which: Families | 5,426,937 3,068,796 | 305,892 | 1,899,864 | 280,996 | 17,161 | 2,923,024 | |||
| of which: secured by housing real estate | 4,951,592 2,997,252 | 284,031 | 1,813,146 | 3,958 | 179 | 2,850,276 | |||
| of which: non-financial corporations | 3,876,930 3,615,331 | 447,999 | 9,361 | 1,113 | 4 4 | 3,418,412 | |||
| of which: small and medium-sized companies | 2,464,511 2,343,773 | 219,598 | 9,041 | 876 | 4 4 | 2,234,952 | |||
| of which: secured by commercial real estate | 1,724,109 1,659,676 | 144,233 | 3,781 | 590 | - | 1,575,505 |
The loans and advances granted under new public guarantee schemes in response to the current economic crisis caused by the Covid-19 pandemic, are as follows:
| Maximum | ||||||
|---|---|---|---|---|---|---|
| Gross Amount | amount of | Gross Amount | ||||
| Of which: restructured |
Public guarantees received |
Entries to non productive exposures |
||||
| Loans and advances subject to moratorium | 1,331,672 | - | 1,069,839 | 233 | ||
| of which: Households of which: secured by housing real estate |
36,090 - |
43 - |
||||
| of which: non-financial corporations | 1,295,582 | - | 1,039,263 | 190 | ||
| of which: small and medium-sized companies of which: secured by commercial real estate |
877,449 - |
150 - |
On the date of approval of these consolidated financial statements by the Bank's Board of Directors, there was no event subsequent to December 31, 2020 – the reference date of these financial statements – which would require adjustments or modifications to the amounts of assets and liabilities under the terms of IAS 10 – Events after the reporting period.
These financial statements were approved by the Board of Directors on April 20, 2021.
These financial statements are a free translation of the financial statements originally issued in the Portuguese language. In the event of discrepancies, the Portuguese language version prevails.
| Amount issued | Value adjustment | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Subscribed | Consolidated | from hedge | Consolidated | Interest | Issue | Maturity | |||||
| Securities issued | Currency | Total | by the Group | Balance sheet | Accrual | operations | Balance sheet | rate | date | date | Index |
| Structured bonds | |||||||||||
| OB.BST INDEX LINKED NOTES 2024 23/12/2024 | EUR | 8,227 | - | 8,227 | 97 | 250 | 8,574 | Variável | 20-12-19 | 23-12-24 | Index basket |
| Total | 8,227 | - | 8,227 | 97 | 250 | 8,574 | |||||
| Covered Bonds | |||||||||||
| Hipotecária XIV | EUR | 750,000 | 750,000 | - | (301) | - | (301) | 0.754% | 04-03-15 | 04-03-22 | Fixed interest rate |
| Hipotecária XVI | EUR | 200,000 | 200,000 | - | (40) | - | (40) | 0.842% | 24-02-16 | 24-02-22 | Fixed interest rate |
| Hipotecária XVII Hipotecária XVIII |
EUR | 750,000 | 750,000 | - | (347) | - | (347) | 0.902% | 15-04-16 | 15-04-23 | Fixed interest rate |
| Hipotecárias XX - 1ª | EUR | 750,000 | 750,000 | - | (454) | - | (454) | 0.652% | 26-07-16 | 26-07-23 | Fixed interest rate |
| Hipotecárias XXI | EUR | 750,000 | 750,000 | - | (1,070) | - | (1,070) | 1.201% | 07-12-17 | 07-12-27 | Fixed interest rate |
| Hipotecárias XXII | EUR EUR |
1,000,000 1,000,000 |
1,000,000 - |
- 1,000,000 |
(1,423) | - - |
(1,423) 1,000,158 |
1.481% 0.875% |
10-04-17 | 10-04-27 | Fixed interest rate Fixed interest rate |
| Hipotecárias XXIII | EUR | 1,000,000 | - | 1,000,000 | 158 (6,055) |
- | 993,945 | 1.250% | 25-04-17 05-07-19 |
25-04-24 05-07-29 |
Fixed interest rate |
| Hipotecária XXIV | EUR | 1,100,000 | 1,100,000 | - | (2,021) | - | (2,021) | 0.412% | 05-07-19 | 05-07-29 | Fixed interest rate |
| Hipotecárias XXV | EUR | 750,000 | 750,000 | - | (759) | - | (759) | 0.51% | 27-03-20 | 27-03-25 | Fixed interest rate |
| Hipotecária XXVI | EUR | 750,000 | 750,000 | - | (1,535) | - | (1,535) | 0.00% | 28-10-20 | 28-10-30 | Fixed interest rate |
| Total | 8,800,000 | 6,800,000 | 2,000,000 | (13,847) | - | 1,986,153 | |||||
| Bonds issued on securitization operations from mortgage credit | |||||||||||
| Hipototta 4 - Class A - Notes | EUR | 436,257 | 319,250 | 117,007 | (387) | - | 116,620 | Variável | 09-12-05 | 30-12-48 | Euribor 3m+0.12% (up to early redemption date in December 2014); Euribor 3m+0.24% (After early redemption date) |
| Hipototta 4 - Class B - Notes | EUR | 15,871 | 15,871 | - | - | - | - | Variável | 09-12-05 | 30-12-48 | Euribor 3m+0.19% (up to early redemption date in December 2014); Euribor 3m+0.40% (After early redemption date) |
| Hipototta 4 - Class C - Notes | EUR | 50,125 | 50,125 | - | - | - | - | Variável | 09-12-05 | 30-12-48 | Euribor 3m+0.29% (up to early redemption date in December 2014); Euribor 3m+0.58% (After early redemption date) |
| Hipototta 4 - Class D - Notes | EUR | 7,000 | 7,000 | - | - | - | - | Variável | 09-12-05 | 30-12-48 | Residual return generated by securitized portfolio |
| Hipototta 5 - Class A2 - Notes | EUR | 399,270 | 322,776 | 76,494 | (128) | - | 76,366 | Variável | 22-03-07 | 28-02-60 | Euribor 3m+0.13% (up to early redemption date in February 2014); Euribor 3m+0.26% (After early redemption date) |
| Hipototta 5 - Class B - Notes | EUR | 26,000 | 26,000 | - | - | - | - | Variável | 22-03-07 | 28-02-60 | Euribor 3m+0.17% (up to early redemption date in February 2014); Euribor 3m+0.34% (After early redemption date) |
| Hipototta 5 - Class C - Notes | EUR | 24,000 | 24,000 | - | - | - | - | Variável | 16-03-07 | 28-02-60 | Euribor 3m+0.24% (up to early redemption date in February 2014); Euribor 3m+0.48% (After early redemption date) |
| Hipototta 5 - Class D - Notes | EUR | 26,000 | 26,000 | - | - | - | - | Variável | 22-03-07 | 28-02-60 | Euribor 3m+0.50% (up to early redemption date in February 2014); Euribor 3m+1.00% (After early redemption date) |
| Hipototta 5 - Class E - Notes | EUR | 31,000 | 31,000 | - | - | - | - | Variável | 22-03-07 | 28-02-60 | Euribor 3m+1.75% (up to early redemption date in February 2014); Euribor 3m+3.50% (After early redemption date) |
| Hipototta 5 - Class F - Notes | EUR | 6,000 | 6,000 | - | - | - | - | Variável | 22-03-07 | 28-02-60 | Residual return generated by securitized portfolio |
| Azor Mortgages 1 - Class B | EUR | 12,377 | 9,055 | 3,322 | 285 | - | 3,607 | Variável | 25-11-04 | 20-09-47 | 3m Euribor + 0.30% |
| Azor Mortgages 1 - Class C | EUR | 9,000 | 2,500 | 6,500 | 391 | - | 6,891 | Variável | 25-11-04 | 20-09-47 | 3m Euribor + 1.75% |
| Azor Mortgages 1 - Class D | EUR | 10,000 | 10,000 | - | - | - | - | Variável | 25-11-04 | 20-09-47 | Residual return generated by securitized portfolio |
| Azor Mortgages 2 - Class A | EUR | 74,685 | 74,685 | - | - | - | - | Variável | 3mth Euribor + 0.30% | ||
| 24-07-08 | 14-12-65 | ||||||||||
| Azor Mortgages 2 - Class B | EUR | 43,080 | 43,080 | - | - | - | - | Variável | 24-07-08 | 14-12-65 | 3mth Euribor + 0.8% |
| Azor Mortgages 2 - Class C | EUR | 6,750 | 6,750 | - | - | - | - | Variável | 24-07-08 | 14-12-65 | Residual return generated by securitized portfolio |
| Atlantes Mortage 2 - Class A | EUR | 99,053 | - | 99,053 | (12,727) | - | 86,326 | Variável | 05-03-08 | 18-09-60 | 3m Euribor + 0.33% |
| Atlantes Mortage 2 - Class B | EUR | 12,332 | 12,332 | - | - | - | - | Variável | 05-03-08 | 18-09-60 | 3m Euribor + 0.95% |
| 3m+0.24% (After early redemption date) | |
|---|---|
| 3m+0.40% (After early redemption date) | |
| 3m+0.58% (After early redemption date) | |
| 3m+0.26% (After early redemption date) | |
| 3m+0.34% (After early redemption date) | |
| 3m+0.48% (After early redemption date) | |
| 3m+1.00% (After early redemption date) | |
| 3m+3.50% (After early redemption date) | |
| Amount issued | Value adjustment | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Subscribed | Consolidated | from hedge | Consolidated | Interest | Issue | Maturity | |||||
| Securities issued | Currency | Total | by the Group | Balance sheet | Accrual | operations | Balance sheet | rate | date | date | Index |
| Atlantes Mortage 2 - Class C | EUR | 5,027 | 5,027 | - | - | - | - | Variável | 05-03-08 | 18-09-60 | 3m Euribor + 1.65% |
| Atlantes Mortage 2 - Class D | EUR | 10,295 | 10,295 | - | - | - | - | Variável | 05-03-08 | 18-09-60 | Residual return generated by securitized portfolio |
| Atlantes Mortage 3 - Class A | EUR | 172,742 | 53,837 | 118,905 | (9,232) | - | 109,673 | Variável | 30-10-08 | 20-08-61 | 3m Euribor + 0.20% |
| Atlantes Mortage 3 - Class B | EUR | 24,773 | 24,773 | - | - | - | - | Variável | 30-10-08 | 20-08-61 | 3m Euribor + 0.50% |
| Atlantes Mortage 3 - Class C | EUR | 43,923 | 43,923 | - | - | - | - | Variável | 30-10-08 | 20-08-61 | Residual return generated by securitized portfolio |
| Atlantes Mortage 4 - Class A | EUR | 193,401 | - | 193,401 | (26,185) | - | 167,216 | Variável | 16-02-09 | 30-12-64 | 3m Euribor + 0.15% |
| Atlantes Mortage 4 - Class B | EUR | 21,298 | 21,298 | - | - | - | - | Variável | 16-02-09 | 30-12-64 | 3m Euribor + 0.30% |
| Atlantes Mortage 4 - Class C | EUR | 58,974 | 58,974 | - | - | - | - | Variável | 16-02-09 | 30-12-64 | Residual return generated by securitized portfolio |
| Atlantes Mortage 5 - Class A | EUR | 156,332 | 156,332 | - | - | - | - | Variável | 21-12-09 | 23-11-68 | 3m Euribor + 0.15% |
| Atlantes Mortage 5 - Class B | EUR | 28,863 | 28,863 | - | - | - | - | Variável | 21-12-09 | 23-11-68 | 3m Euribor + 0.30% |
| Atlantes Mortage 5 - Class C | EUR | 49,926 | 49,926 | - | - | - | - | Variável | 21-12-09 | 23-11-68 | Residual return generated by securitized portfolio |
| Hipototta nº13 Class A | EUR | 1,028,903 | 1,028,903 | - | - | - | - | Variável | 09-01-18 | 23-10-72 | 3m Euribor + 0.60% |
| Hipototta nº13 Class B | EUR | 484,000 | 484,000 | - | - | - | - | Variável | 09-01-18 | 23-10-72 | 3m Euribor + 1% |
| Hipototta nº13 Class C | EUR | 46,566 | 46,566 | - | - | - | - | Variável | 09-01-18 | 23-10-72 | Residual return generated by securitized portfolio |
| Hipototta nº13 Class D | EUR | 0 | 0 | - | - | - | - | Variável | 09-01-18 | 23-10-72 | |
| Atlantes Mortage 7 - Class A | EUR | 122,749 | 122,749 | - | - | - | - | Variável | 19-11-10 | 23-08-66 | 3m Euribor + 0.15% |
| Atlantes Mortage 7 - Class B | EUR | 22,810 | 22,810 | - | - | - | - | Variável | 19-11-10 | 23-08-66 | 3m Euribor + 0.30% |
| Atlantes Mortage 7 - Class C | EUR | 47,535 | 47,535 | - | - | - | - | Variável | 19-11-10 | 23-08-66 | Residual return generated by securitized portfolio |
| 3,806,917 | 3,192,235 | 614,682 | (47,983) | - | 566,699 | ||||||
| Total | 12,615,144 | 9,992,235 | 2,622,909 | (61,733) | 250 | 2,561,426 | |||||
| ISSUE | Maturity | |
|---|---|---|
| date | date | Index |
| 05-03-08 | 18-09-60 | 3m Euribor + 1.65% |
| 05-03-08 | 18-09-60 | Residual return generated by securitized portfolio |
| 30-10-08 | 20-08-61 | 3m Euribor + 0.20% |
| 30-10-08 | 20-08-61 | 3m Euribor + 0.50% |
| 30-10-08 | 20-08-61 | Residual return generated by securitized portfolio |
| 16-02-09 | $30 - 12 - 64$ | 3m Euribor + 0.15% |
| $16 - 02 - 09$ | $30 - 12 - 64$ | 3m Euribor + 0.30% |
| 16-02-09 | 30-12-64 | Residual return generated by securitized portfolio |
| $21 - 12 - 09$ | 23-11-68 | 3m Euribor + 0.15% |
| 21-12-09 | 23-11-68 | 3m Euribor + 0.30% |
| 21-12-09 | 23-11-68 | Residual return generated by securitized portfolio |
| 09-01-18 | $23 - 10 - 72$ | 3m Euribor + 0.60% |
| 09-01-18 | $23 - 10 - 72$ | 3m Euribor + 1% |
| 09-01-18 | $23 - 10 - 72$ | Residual return generated by securitized portfolio |
| 09-01-18 | 23-10-72 | |
| 19-11-10 | 23-08-66 | 3m Euribor + 0.15% |
| 19-11-10 | 23-08-66 | 3m Euribor + 0.30% |
| 19-11-10 | 23-08-66 | Residual return generated by securitized portfolio |
| Amount issued | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Total Balance | |||||||||
| Securities issued | Currency | Issued | Repurchased | Balance sheet | Accrual | Sheet | Interest rate | Maturity | Early repayment as from |
| Obrigações Perpétuas Subordinadas CPP 2001 | EUR | 54,359 | 50,084 | 4,275 | 20 | 4,295 | Floating | 1.30% Perpetual | February 23, 2011 |
| Obrigações Perpétuas subordinadas BSP 2001 | EUR | 172,833 | 159,016 | 13,817 | 64 | 13,881 | Floating | 1.30% Perpetual | February 23, 2012 |
| OB.BANCO SANTANDER TOTTA SA 7.5% 06/10/2026 | EUR | 7,599 | - | 7,599 | 135 | 7,734 | Fixed | 7.50% Perpetual | October 6, 2026 |
| OB. BST 2030 TIER2 | EUR | 320,000 | - | 320,000 | 14 | 320,014 | Floating | 1.58% Not Perpetual | December 31, 2025 |
| 554,791 | 209,100 | 345,691 | 233 | 345,924 |
(Free translation from the original in Portuguese)
We have audited the accompanying consolidated financial statements of Banco Santander Totta, S.A. (the "Group" or "Bank"), which comprise the consolidated balance sheet as at 31 December 2020 (which shows total assets of Euros 54.403.409 thousand and total shareholders' equity of Euros 4.111.356 thousand including a net profit of Euros 257.749 thousand), the consolidated income statement, the consolidated statement of other comprehensive income, the consolidated statement of changes in shareholder's equity and the consolidated statement of cash flows for the year then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly in all material respects, the consolidated financial position of Banco Santander Totta, S.A. as at 31 December 2020, and their consolidated financial performance and their consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union.
We conducted our audit in accordance with International Standards on Auditing (ISAs) and other technical and ethical standards and recommendations issued by the Institute of Statutory Auditors. Our responsibilities under those standards are described in the "Auditor's responsibilities for the audit of the consolidated financial statements" section below. In accordance with the law we are independent of the entities that are included in the Group and we have fulfilled our other ethical responsibilities in accordance with the ethics code of the Institute of Statutory Auditors.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
PricewaterhouseCoopers & Associados – Sociedade de Revisores Oficiais de Contas, Lda. Sede: Palácio Sottomayor, Rua Sousa Martins, 1 - 3º, 1069-316 Lisboa, Portugal Receção: Palácio Sottomayor, Avenida Fontes Pereira de Melo, nº16, 1050-121 Lisboa, Portugal Tel: +351 213 599 000, Fax: +351 213 599 999, www.pwc.pt Matriculada na CRC sob o NIPC 506 628 752, Capital Social Euros 314.000 Inscrita na lista das Sociedades de Revisores Oficiais de Contas sob o nº 183 e na CMVM sob o nº 20161485
Measurement and disclosures related to impairment losses on loans and advances to customers and other balances receivable at amortized cost presented in notes 1.3 c), 2, 9, 17 and 38 attached to the Bank's consolidated financial statements
The significant expression of loans and advances to customers and other balances receivable at amortized cost and associated impairment losses, which require a set of complex assumptions and judgments from the Bank's management in relation to the identification of clients with a significant increase in credit risk or in default, as well as the corresponding amount of impairment losses, justify that these constitute key matters for the purposes of our audit. As at 31 December 2020, the gross amount of loans and advances to customers and other balances receivable at amortized cost amounted to Euros 36.828.839 thousand and the corresponding impairment losses recognized at that date amounted to Euros 993.646 thousand.
Impairment losses on loans and advances to customers and other balances receivable at amortized cost are determined by Bank's management on an individual basis, through a caseby-case analysis of a significant component of the total loan portfolio, and for the remaining portfolio impairment is determined through a collective analysis.
For the most significant exposures classified in Stage 3, evaluated in terms of the total amount of responsibilities, the Bank performs an individual impairment measurement analysis, in which the amount of impairment is determined through a detailed analysis of the economic and financial position of each individual customer, with reference to (i) the estimated cash flows that may be generated in the future for the fulfilment of their responsibilities – going approach; or (ii) the evaluation attributed to the collateral received in the scope of the credit granted, whenever the recovery is anticipated by means of the assignment, execution and/or sale of the collateral, less the costs inherent to its recovery and sale – gone approach.
For exposures not covered by the individual analysis, the Bank developed collective analysis models to calculate expected impairment losses, in light of the IFRS 9 requirements, namely the classification of
The audit procedures developed included the identification, understanding and assessment of the policies and procedures established by the Bank for the purpose of measuring impairment losses for loans granted and other balances receivable at amortized cost as well as its key controls with respect to refers to the approval, recording and monitoring of credit risk, moratorium process granting and Public State aids in the context of Covid-19 pandemic and the timely identification, recording and correct measurement of impairment losses.
On a sample basis, we analysed a group of clients within the Bank's individual analysis perimeter, based on the criteria defined in internal regulations, with the objective of: (i) reviewing the conclusions and results obtained by the Bank in the individual analysis of impairment measurement; (ii) obtain our own judgment on the existence of situations of significant increase in credit risk and default; and (iii) assess how the impairment losses were timely identified, measured and recognized by management. In this process, it was also confirmed that the perimeter of individual analysis included all the exposures that met the criteria defined by the Bank in its methodology.
For a sample of exposures classified in stage 3, representative of the credit population subject to individual analysis by the Bank as at 31 December 2020, the procedures we have developed consisted of: (i) reviewing the available documentation on credit processes; (ii) verify the adequacy of the financial plans used to determine impairment with those reflected in the contractual support; (iii) analyse the contractual support and the most relevant collaterals and confirm the registration of them in favour of the Bank; (iv) analyse the most recent evaluations of these collaterals; (v) to examine the criteria for classification under impairment (stage 3) on an individual basis; (vi) review the incorporation of forward looking information; (vii) a critical analysis of the discounted cash flows underlying the calculation of impairment; (viii) to assess the evolution of exposures; and (ix) understand the views of the Bank's management regarding the economic and
exposures by different stages according to the evolution of their credit risk since the date of its concession, and not according to the credit risk at the reporting date (stages 1, 2 or 3). These internal models are based on the internal historical information of defaults and recoveries and, in order to be representative of the current economic context but also to incorporate a perspective of future economic evolution, these models use forward looking prospective information such as (i) the GDP growth rate; (ii) the unemployment rate; (iii) the evolution of the interest rate; and/or (iv) the prospects for the real estate market. On the basis of these macroeconomic data, potential scenarios are developed that allow estimating the expected loss in each segment based on a probability of occurrence.
The specific context motivated by the Covid-19 pandemic which includes various support measures granted to families and companies, namely the introduction of credit facilities to the economy and the possibility of benefit from temporary payment holidays of loan instalments (moratoriums) led to an increase in complexity in identifying significant increase in credit risk and default indicators. In these circumstances, the internal models developed by the Bank for impairment assessment were adapted in order to incorporate new criteria and other judgments such as (i) the consideration of temporary flexibility measures to avoid stage deterioration and/or flagging as restructured operations with approved moratoriums in line with the supervisors' guidelines in this matter, (ii) the development of individual analyses for significant exposures of debtors included in the economic sectors most affected by the pandemic in order to identify situations of significant deterioration in credit risk; and (iii) updating the macroeconomic scenarios for the purpose of determining the expected credit loss taking into account the potential economic effects of the Covid-19 pandemic.
Considering all the above, changes in the methodologies or assumptions used by the Bank in the analysis and quantification of impairment losses of the loans and advances to customers to clients and other balances receivable, as well as different recovery strategies, condition the estimation of recovery flows and timing of their receipt may have a material impact on the determination of the amount of impairment losses recognized in each period.
Measurement and disclosures related to provisions and contingent liabilities presented in notes 1.3.i), 2,
financial situation of the clients, as to the predictability of expected cash flows of the respective businesses, as well as the prospects of collectability of credits.
Whenever we concluded for the need to review some assumption used by management, we recalculated the estimated amount of impairment and compared the results obtained with those calculated by the Bank, in order to assess the existence of possible divergences.
For the portfolio whose impairment is assessed through the collective analysis model, a set of specific procedures were developed with the objective of evaluating how the assumptions considered by management include the risk variables by comparison to the historic performance and recoveries of the Bank's loan portfolio, namely: (i) review of the methodological documentation for the development and validation of the models; (ii) analysis of the documentation of the backtesting exercise of the risk parameters and its results; (iii) review and testing of portfolio segmentation; (iv) analysis of the Bank's definition of default and the criteria applied in the classification of staging, on a sample basis, including the additional criteria established and the sectoral analyses developed by the Bank for the economic sectors most affected by the current pandemic; (v) review and testing of the main risk parameters, as well as the available prospective information and its update through the estimated economic effects of the pandemic; (vi) critical analysis of the main assumptions and sources of information used in the future recoveries incorporated in the LGD (Loss Given Default), including the test of historical recoveries incorporated in this calculation, on a sampling basis; and (vii) recalculation of Expected Credit Loss ("ECL") for the loan portfolio, with reference to 31 December 2020.
Our auditing procedures also included a review of the disclosures for loans and advances to customers and other balances receivable at amortized cost, as well as the related impairment losses, in the accompanying notes to the consolidated financial statements, considering applicable and current accounting standards.
As at 31 December 2020, the balance of the liability caption "Provisions" amounted to Euros 231.324 thousand and is intended to cover various liabilities, including those related with post-employment benefits specific to certain Bank directors, restructuring plans, tax risks, legal proceedings in progress and other specific risks arising from the Bank's activity, as well as other specific situations associated with the acquisition of a significant part of the activity of Banif – Banco Internacional do Funchal, S.A. ("Banif") and the totality of Banco Popular Portugal, S.A..
Among the contingent liabilities disclosed in notes 40 and 41 attached to the Bank's consolidated financial statements at 31 December 2020, the following stand out:
The resolution measures applied in 2014 to Banco Espírito Santo, SA - a process that led to the creation of Novo Banco, S.A. ("Novo Banco") - and in 2015 to Banif - Banco Internacional do Funchal, S.A. ("Banif") created uncertainties related to the possible insufficiency of resources of the Resolution Fund to ensure the fulfilment of its responsibilities, in particular the short-term repayment of the financing it has contracted for this purpose. These uncertainties have become more relevant due to the liabilities and contingent liabilities assumed, namely those resulting from: (i) effects of the application of the principle that no creditor of the credit institution under resolution may incur greater loss than it would if it had entered into liquidation; (ii) legal proceedings against the Resolution Fund; (iii) negative effects arising from the resolution process resulting in additional responsibilities or contingencies for Novo Banco that must be neutralized by the Resolution Fund; and (iv) the contingent capitalization mechanism associated with Novo Banco's sale process to Lone Star, under which the Resolution Fund, as shareholder of Novo Banco, may be called upon to make capital injections in the event of certain conditions related to the performance of a restricted set of assets of Novo Banco and the evolution of its capitalization levels.
• Portuguese Competition Authority
In 2012 the Portuguese Competition Authority (Autoridade da Concorrência) launched an offense
Key Audit Matter Summary of the Audit Approach
The audit procedures we have developed in this area included the identification and understanding of the key processes and controls established by the Bank with respect to the approval, registration and monitoring of these matters, as well as the analysis of the methodologies, data and assumptions adopted by the management in the assessment and quantification of contingencies and in the eventual recognition of provisions.
In this context, due to the relevance and complexity of the judgments required by the management, in the scope of our audit, we carried out, among others, the following procedures in relation to the Resolution Fund: (i) monitoring of major changes to the simplified model of cash flow projections of the Resolution Fund presented by the Bank when renegotiating loans granted , based on the contractual conditions agreed between the banks and the Resolution Fund; (ii) appreciation of the relevant public communications on responsibilities and the contingent liabilities assumed by the Resolution Fund and / or the Portuguese State; (iii) analysis of the evolution of the Bank's exposures with the Resolution Fund; and (iv) understanding of the views of the Bank's management regarding the Resolution Fund's economic and financial situation, and the predictability of expected cash flows from its regular revenues.
With regard to the process initiated by the Portuguese Competition Authority, our work included (i) analysing the Bank's assessment of the nature and situation of said process, which underlies the non-constitution of provisions, and (ii) assessing the information obtained from the Bank external lawyers who follow the process.
We also analysed the information available on developments after 31 December 2020 on the most relevant litigations.
Our audit procedures also included the review of the disclosures on provisions and contingent liabilities, included in the accompanying notes to the consolidated financial statements, considering applicable and current accounting standards.
Key Audit Matter Summary of the Audit Approach
claim against several banks, including Banco Santander Totta, S.A., for alleged restrictive competition practices. On 9 September 2019, the Competition Authority notified the banks of its decision, which points to their condemnation, with a penalty of Euros 36 million being applied to the Bank. The Bank understands that it did not commit the imputed infraction, so it filed on 21 October 2019 an appeal against that decision to the Competition, Regulation and Supervision Court. In May 2020, by decision of the aforementioned Court, the Bank provided a deposit of part of the penalty imposed, which is provisional in nature, providing that it is pending a decision on the judicial impugnation presented by the Bank.
The consolidated financial statements as of 31 December 2020 reflect the Bank's management expectation that the Bank, as an entity participating in the Resolution Fund, will not be required to make special contributions or any other type of extraordinary contributions to finance the resolution measures applied to the BES and Banif or any other liability or contingent liability assumed by the Resolution Fund. In addition, the Bank's management is also convinced that the probabilities that the process initiated by the Portuguese Competition Authority will end without the Bank having to pay a fine are higher than those of the opposite.
Contingent liabilities may evolve differently than originally expected, so they are subject to continuous review to determine whether this eventuality of outflow of resources has become probable. In these circumstances, the assessment of these contingent liabilities implies that the Bank's management employs complex estimates and judgments regarding the probability of materializing and quantifying the amounts of liabilities that may result from litigation and contingencies to which the Bank is a party and, to that extent , this was a matter considered relevant for the purposes of our audit.
Measurement and disclosures related to employees' post-employment benefits presented in notes 1.3 i), 2, 19 and 35 attached to the Bank's consolidated financial statements
At 31 December 2020, the liabilities for past services of the Bank in relation to its pensioners, employees and directors amounted to Euros 1.522.877 thousand, mainly covering retirement and survivors' pensions, disability, health care and death benefit , in particular
The audit procedures developed included the identification and understanding of the key controls instituted by the Bank to ensure that the information collected and provided to the independent actuary is correct and complete to calculate the plan's liabilities
| Key Audit Matter | Summary of the Audit Approach |
|---|---|
| those provided for in the Acordo Coletivo de Trabalho ("ACT") for the banking sector. |
and funding needs, as well as the suitability of the process of the fair value of the assets of the fund. |
| These liabilities are estimated based on actuarial valuations performed by an actuary certified by the Insurance and Pension Funds Supervisory Authority ("ASF"). These assessments incorporate a set of financial and actuarial assumptions, such as the discount rate, inflation rate, mortality and disability tables, pension and wages growth rates, among others, defined by management and adjusted to the characteristics of the benefits and the population of managers, employees and pensioners, and the current and future behaviour of these variables. In the specific case of the discount rate used in the actuarial studies, it is determined based on the market rates for high-quality entities in terms of credit risk, denominated in the currency in which the benefits will be paid (euros) and with a similar maturity the duration of the payment of the benefits of the plan. In this context, future changes in the assumed |
The audit work included meetings with the Bank's management and the independent actuary in order to identify the methodologies and options considered in the definition of the main financial and actuarial assumptions adopted. Given the relevance of the judgments required of management, we proceeded to evaluate the reasonableness of the main assumptions, comparing them with the data that, independently, we were able to obtain. A conformity review was performed to: (i) the employee information history used for the purposes of calculating responsibilities; (ii) the accounting recognition of plan cuts or liquidations, costs related to past services and other changes in assumptions and estimates that occurred during the year; and (iii) the fair value of the assets of the fund, calculating it, whenever possible, independently for a sample of assets. Finally, we have developed the detailed analysis of |
| financial and actuarial assumptions may give rise to material impacts on net liabilities as well as assets held to meet these liabilities, and this issue was considered a key matter for the purposes of our |
the actuarial study prepared with reference to 31 December 2020, based on the results of the procedures referred to above. |
| audit. | The audit procedures included the review of the disclosures on the post-employment benefits of directors, employees and pensioners in the notes to the Bank's consolidated financial statements, considering applicable and current accounting standards. |
| Fair value of financial instruments not quoted in an active market – level 3 of the fair value hierarchy |
|
| Measurement and disclosures related to the fair value of financial instruments not listed on an active market classified at level 3 of the fair value hierarchy and presented in notes 1.3 c), 2, 6, 7, 8, 9 and 38 attached to the Bank's consolidated financial statements |
|
| Due to its relevance in the context of the Bank's consolidated financial statements and the associated judgment, the fair value measurement of financial instruments not quoted in an active market classified at level 3 of the fair value was a relevant matter for the purposes of our audit. At 31 December 2020, the balance sheet balances of these financial instruments amount to Euros 136.555 thousand of assets and Euros 29.977 thousand of liabilities. |
The audit procedures we have developed included the identification and understanding of key controls established by the Bank underlying the fair value methodologies adopted and the determination of the main assumptions and inputs used in the determination of fair value for the financial instruments not quoted in an active market and classified as level 3 of the fair value hierarchy. For a sample of instruments whose measurement |
| consisted substantially of unobservable data, our |
The financial instruments thus classified are composed of (i) debt instruments whose business model is "hold to collect and sale" or trading; (ii) trading or hedging derivatives; (iii) equity instruments; and (iv) assets and liabilities subject to fair value hedge adjustments, namely loans to customers, debt securities and deposits from customers at amortized cost.
For these financial instruments classified at level 3 of the fair value hierarchy, and when observable market data is not available, the Bank determines fair value using estimates, namely through the use of valuation models based on discount cash flows techniques, which usually involve a high degree of judgment by the management in defining the assumptions and inputs to be used.
In this context, changes in the assumptions used in the measurement techniques used by the Bank's management may give rise to material impacts in the determination of the fair value of the instruments recognized in the Bank's consolidated financial statements.
Measurement of the receivable related with the resolution measure applied to Banif and related disclosures presented in notes 1.3 c), 9 and 13 attached to the Bank's consolidated financial statements
Within the scope of the resolution measure applied to Banif - Banco Internacional do Funchal, S.A. ("Banif") arising from the decision of the Board of Directors of Banco de Portugal of December 20, 2015 ("transaction"), and bearing in mind the understandings and subsequent clarifications communicated to the Bank by the Bank of Portugal, and the approval by the Ministry of Finance of the request for the transfer of Banif's tax losses, the Bank submitted, on May 29, 2018, a replacement corporate income tax declaration (Declaração Modelo 22 - IRC) for the 2015 financial year.
Subsequently, by order of the Deputy Director of the Major Taxpayers Unit (Unidade dos Grandes Contribuintes), the Bank was only granted the right to use Banif's tax losses for the years 2009 to 2014. Following the decision of the Ministry of Finance of 30 June 2020 regarding the rejection of the hierarchical appeal presented by the Bank in relation to the aforementioned order, the Bank demanded a compensation in the amount of Euros 157.699 thousand, in cash or in treasury bills, within the scope of the transaction and the agreement entered
procedures also included the assessment of whether the models developed by the Bank and the data and assumptions used are reasonable in the circumstances, having compared the data subject to observation with market information collected from external and independent sources, whenever available.
Our audit procedures also included the review of disclosures about financial instruments not quoted in an active market and classified as level 3 of the fair value hierarchy, included in the accompanying notes to the Bank's consolidated financial statements, considering applicable and current accounting standards.
The audit procedures we developed for this matter included the identification and understanding of the key processes and controls implemented by the Bank with regard to the approval, registration and monitoring of these matters, as well as the assessment of the assumptions adopted by the management body regarding their form of recovery and respective amount.
In view of the relevance of the judgments required by the management body, within the scope of our audit, we carried out, among others, the following procedures: (i) meetings with the management body to analyse the evaluation carried out by the Bank regarding the situation and evolution of the referred process; (ii) analysis of the contractual documentation associated with the transaction; (iii) appreciation of the communications made with the Tax Authority and the Ministry of Finance; (iv) appreciation of correspondence exchanged with Banco de Portugal; and (v) meetings with the Bank's external lawyers and legal advisors and analysis of its opinions.
| Key Audit Matter | Summary of the Audit Approach |
|---|---|
| into with the Portuguese authorities involved in the resolution measure applied to Banif. In the context of the decision now known, and as mentioned in Note 13 of the consolidated financial statements, the Bank proceeded to reclassify this amount to "Other balances receivable" financial statement line item. Due to its relevance in the context of the Bank's consolidated financial statements, and for the |
Our audit procedures also included the revision of the disclosures regarding the status of the process and the reclassification of the referred balance, contained in the notes attached to the Bank's consolidated financial statements, considering the applicable and current accounting standards. |
| significant change in the form and strategy of recovering the balance in question, this was a relevant matter for the purposes of our audit. |
Management is responsible for:
The supervisory board is responsible for overseeing the process of preparation and disclosure of the Group's financial information.
Our responsibility is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
Our responsibility also includes verifying that the information included in the consolidated Directors' report is consistent with the consolidated financial statements and the verification set forth in paragraphs 4 and 5 of article No. 451 of the Portuguese Company Law.
In compliance with paragraph 3 e) of article No. 451 of the Portuguese Company Law, it is our opinion that the consolidated Directors' report has been prepared in accordance with applicable requirements of the law and regulation, that the information included in the consolidated Directors' report is consistent with the audited consolidated financial statements and, taking into account the knowledge and assessment about the Group, no material misstatements were identified.
In compliance with paragraph 4 of article No. 451 of the Portuguese Company Law, it is our understanding that the corporate governance report includes the information required under article No. 245-A of the Portuguese Securities Market Code, that no material misstatements were identified in the information disclosed in this report and that it complies with paragraphs 1 c), d), f), h), i) and m) of that article.
In compliance with paragraph 6 of article No. 451 of the Portuguese Company Law, we hereby inform that the Group will prepare a separate report of the Directors' report that includes the consolidated non-financial statement set forth in article No. 508-G of the Portuguese Company Law, which should be published on its website until the legal deadline.
In accordance with article No. 10 of Regulation (EU) 537/2014 of the European Parliament and of the Council, of 16 April 2014, and in addition to the key audit matters referred to above, we also provide the following information:
d) We declare that we did not provide any prohibited non-audit services referred to in paragraph 8 of article No. 77 of the by-laws of the Institute of Statutory Auditors ("Estatutos da Ordem dos Revisores Oficiais de Contas") and that we remain independent of the Group in conducting our audit.
22 April 2021
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. represented by:
[Original in Portuguese signed by] Aurélio Adriano Rangel Amado, R.O.C.
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