Annual Report • May 11, 2022
Annual Report
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| 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 2021 | 6 |
| Customers and the Bank's distribution network | 13 |
| Responsible Banking | 15 |
| Business Environment | 20 |
|---|---|
| Major Risks and Uncertainties for 2022 | 27 |
| Business Areas | 28 |
| Business Support Areas | 37 |
| Economic and Financial Information | 47 |
| Relevant Facts After the End of the Period, and | |
| Outlook for 2022 | 54 |
| Risk Management and Monitoring Model | 55 |
|---|---|
| Risk Management in 2021 | 59 |
| Proposal for the Appropriation of Net Income | 66 |
| Additional Information | 67 |
| Corporate Governance Report | 73 |
| Financial Statements, Notes to the Accounts, and | |
| Reports and Opinions |
| Consolidated Financial Statements | 117 |
|---|---|
| Notes to the Consolidated Financial Statements | 123 |
| Reports and Opinions on the Consolidated Business | 269 |
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 March 29, 2022
| BALANCE SHEET AND RESULTS (million euro) | Dec-21 | Dec-20 | Var. |
|---|---|---|---|
| Total Net Assets | 56,167 | 54,403 | +3.2% |
| Loans and advances to customers (net) | 42,404 | 41,680 | +1.7% |
| Customers' Resources | 47,438 | 43,539 | +9.0% |
| Total shareholders' equity | 4,251 | 4,111 | +3.4% |
| Net Interest Income | 728.7 | 785.0 | -7.2% |
| Net Fees and Other Income | 441.8 | 386.0 | +14.4% |
| Net Income from Banking Activities | 1,317.5 | 1,274.8 | +3.3% |
| Net Operating Income* | 757.9 | 667.7 | +13.5% |
| Income before taxes and non-controlling interests | 403.1 | 368.5 | +9.4% |
| Consolidated net income attributable to BST shareholders | 270.5 | 257.7 | +4.9% |
| RATIOS | Dec-21 | Dec-20 | Var. |
|---|---|---|---|
| ROE | 6.6% | 7.1% | -0.5 p.p. |
| ROA | 0.5% | 0.5% | +0.0 p.p. |
| Efficiency ratio | 40.8% | 46.1% | -5.3 p.p. |
| CET I ratio** | 26.4% | 20.8% | +5.6 p.p. |
| Tier I ratio** | 26.4% | 20.8% | +5.6 p.p. |
| Capital ratio** | 29.0% | 23.1% | +5.9 p.p. |
| Non-Performing Exposure Ratio | 2.3% | 2.6% | -0.3 p.p. |
| Non-Performing Exposure coverage ratio | 81.0% | 72.3% | +8.7 p.p. |
| Cost of credit | 0.17% | 0.45% | -0.28 p.p. |
| Loans-to-deposits ratio (transformation ratio) | 108.8% | 114.9% | -6.1 p.p. |
| RATING | Dec-21 | Dec-20 | |
|---|---|---|---|
| FitchRatings | BBB+ | BBB+ | |
| Moody´s | Baa2 | Baa3 | |
| Standard & Poor´s | BBB | BBB | |
| DBRS | A | A |
| Other Data | Dec-21 | Dec-20 | Var. |
|---|---|---|---|
| Employees*** | 4,776 | 5,969 | -1,193 |
| Employees in Portugal*** | 4,764 | 5,937 | -1,173 |
| Branches | 393 | 477 | -84 |
| Total Branches and Corporate Centers in Portugal | 390 | 469 | -79 |
* The Net Operating Income includes "Cash contributions to resolution funds and deposit guarantee schemes". In 2020, this amount was adjusted for comparability purposes
** Fully implemented with results net of payout
*** Headcount criteria
The year 2021 was a remarkable year for Santander Portugal. The pandemic and its impacts on the economy accelerated the need for transformation and adaptation of many sectors and banking was certainly one of them.
The new work habits, as well as the new consumption habits, the increasing digitalization of services, and the entry of new players in the market naturally led to transformations at Santander. Like all change processes, this has been a challenging process that has turned us into a more modern, more agile Bank, better prepared for the future.
From a business point of view, despite the challenging economic environment, the Bank presented solid results, reaching € 270.5 million, which represents a year-on-year increase of 4.9%.
Total loans to customers increased by 1.7%, standing at € 43.4 billion, showing that the Bank remains determined in its mission of contributing to the development of companies and families. The market shares of new loans to companies as well as housing loans stood at 22.7% and 21.2%, respectively. Deposits and Off-balance sheet resources also recorded a positive trajectory, with growth of 7.4% and 16.6%. ROE reached 6.6%.
I would also like to mention that the Bank reached the landmark of 1 million digital customers, an increase of 7.5% compared to the same period last year. This dynamic also reflects the commercial and digital transformation that has been developed, with a view to improve customer experience and satisfaction.
One of the great challenges we face – actually everyone, as a society – is the climate challenge. It is important to structure our activity so that our results are achieved in the right way — #rightway. That is why the Bank is taking clear, decisive steps to increasingly assert itself as a responsible Bank, which meets the ESG (Environmental, Social and Governance) criteria in all its activity.
At the end of the year, Santander Portugal Foundation was created, which will count on € 22.5 million for projects in the social and green areas, and that will also manage the Bank's entire cultural heritage. The Bank occupies a
prominent position in the sustainability rankings and also because of this, our responsibility towards our customers and towards society is greater.
The work carried out by the Bank in Portugal throughout the year resulted in external recognition by the main specialised magazines. In 2021, The Banker magazine distinguished Santander as the best bank in Portugal. This recognition joins other distinctions such as the "Best Private Banking" and "Best Bank for Small and Medium Enterprises" in Portugal, by the Global Finance magazine.
Finally, I would like to acknowledge the extraordinary work that Santander's employees did in 2021, many of them at the forefront, keeping the branch network open and serving the community, others adapting their lives to be able to deliver from home the same quality and dedication they had from the office, never failing to support the commercial area.
Remembering the words of António Vieira Monteiro, the Bank cannot stop, and has not stopped, thanks to the work and dedication of Santander's employees in Portugal, and their dedication to our customers.
José Carlos Sítima
Dear Stakeholders,
The year 2021 was a particularly difficult year, marked by an ongoing pandemic, which defined our entire activity and made us keep our support to families, companies and society as a main priority.
For our customers, we have implemented various measures with exceptional conditions to help them settle and lower their charges, especially in the 1st quarter of the year, when Portugal faced a very complicated 2nd pandemic wave, which forced a new lockdown. We kept supporting them through the moratoria mechanisms for credit to individuals and companies, and we kept available the credit facilities guaranteed by the State, among other aids.
With regard to support to Society, we were particularly concern with helping fight Covid-19, especially in the health area, such as by donating hospital materials and equipment, and by carrying out a blood collection campaign in six cities, which served to increase the blood reserves in the country. A portion of the total amount invested in the community – €6.7 million in 2021 – was directed towards the most vulnerable sectors of society, and to projects by Higher Education Institutions.
In addition to the health and economic situation, we are experiencing a period of profound transformation in the banking business and in the way customers interact with banks, which is increasingly
digital. Something that was also accelerated by the pandemic itself.
In this sense, Santander has been making an extra effort to adapt its operations to the needs of its customers, thus guaranteeing the Bank's future sustainability. We implemented a plan to adjust our structure, and at the same time we made a strong investment in automation and digitalization, to take a qualitative leap in terms of the service we offer.
The growth of digital customers is notorious. There are already one million customers who have contributed every day so that sales through digital channels made in complete safety —, reached 56% of the total sales amount last year. In 2021 we launched a new App, common to four European countries of the Group simpler, more intuitive and more personalized, in the image of each customer. And we have simplified several processes, such as the offer of cards and the credit decision at branches. In order to provide a better response to customers residing abroad, we created the Próximo International Centre, through which these customers now have an innovative customer service with all the technological support to accompany them from a distance.
Despite the huge challenges, we continued to deliver solid results — from January to December, we achieved a net income of € 270.5 million — and this is due to a customer-centric business model, with high levels of capitalization, which asserts our Bank as a strong, well-structured institution with the necessary means to keep contributing to the well-being and prosperity of Portuguese families and companies.
Throughout the year, Santander was distinguished as the best bank operating in Portugal by several national and international entities, which highlighted our financial performance, reputation and
service, which makes us feel very happy and proud. We must thank our teams for their dedicated work and commitment, who actually deserve this recognition, plus the great help of the OneEurope project, led by António Simões, which allows us to have a decisive scale effect in the bank's innovation and transformation process. All of this would not have been possible without the support of our shareholders, and, of course, without our customers, whose bonds of trust we work every day to satisfy.
The year 2021 was also marked by the 25th anniversary of our commitment to education, employment, and entrepreneurship. It is already two and a half decades of work, with figures that make us feel very proud: 630 thousand students, professionals, entrepreneurs and SMEs were supported. More than € 2 billion were invested, and agreements were made with more than 1,000 universities and academic institutions in 11 countries. And we're not going to stop here.
In the final stretch of the year, we announced the creation of the Santander Portugal Foundation. With an initial allocation of € 22.5 million. The Foundation will play a very important role in the areas of Education, Employability, Ecology, and Social Affairs, helping people and companies to progress in a fair, inclusive, and sustainable way.
A purpose that encourages us to do more and better, not only for the benefit of society, but of all our stakeholders. The indicators make us feel optimistic about the future, and we will work, as always, to support, innovate and help the Portuguese economy to grow and be increasingly competitive.
Pedro Castro e Almeida
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, customers, shareholders, and society.
The future is about offering the best customer experience. In this sense, the Bank implemented a digital transformation plan to modernize and simplify its processes and provide increasingly faster responses to its customers. The number of digital customers has been increasing — it has reached 1 million already — and around 60% of sales are made through digital channels.
Santander provides a personalized, differentiated service, through innovative products and services, new digital solutions and flexible communication channels, and modern and welcoming service spaces, such as the WorkCafé branches or the SmartRed branches that favour more welcoming spaces, with developed digital features. There has also been a major focus on simplifying processes and automating tasks, allowing for faster and more efficient results. For example, a Housing
Credit platform that reduced the average time for taking out a loan by more than 50%.
Another focus has been the development of digital payment solutions to enable customers to pay for their purchases with any mobile device, anywhere in the world, in a simple, fast and secure way. Through partnerships with Apple, Garmin and Fitbit, it is now possible to make contactless payments with smartwatches, bracelets and other devices. The Bank also provides the Digital Card, which allows customers to carry out operations immediately after contracting, while waiting for the physical card. Nowadays, it is possible to open an online bank account in 5 minutes from home, without any human intervention.
In 2021, Santander launched the new Private App, which was born from a common vision and strategy for 4 European countries (One Europe), and which is now more modern, intuitive, customizable, and with new features.
With regard to supporting society, Santander remains committed to the UN Sustainable Development Goals, and has established the 11 Responsible Banking goals in order to ensure the sustainable development of its activity.
In 2021, the Bank invested about € 7.5 million in community support projects in Portugal, through sustainability initiatives and Santander Universities. More than 300 Associations are supported annually in projects related to education, protection of minors, health, disability, social inclusion, and care for the elderly, achieving a direct impact on 89,000 people in the local community in 2021.
The Bank's commitment to Education is materialized in its relationship with the main Higher Education institutions in Portugal and through the policy of grants awarded by Santander Universities, which in 2021 reached about 4 thousand beneficiaries, including merit grants, social support, mobility, accommodation, research, and internship. It was an important year in this area, as the scope of the programme was extended beyond the university community, so that more people could have access to scholarships and training initiatives, especially in the types of skills most valued by the labour market, such as digital and languages. At the end of the year, the creation of the Santander Portugal Foundation was also announced, which aims to contribute to a more inclusive community, through programmes with a high social, economic, and environmental impact.
Santander seeks to position itself as a close, reliable, relevant brand in the lives of the Portuguese, affirming its commitment to the development of society, acting in a simple, close and fair way. This is our mission, the way we do things, the Santander Way. Our purpose is to contribute to the development of people and companies, fulfilling the needs of our customers, whether by helping companies to develop their businesses, in the daily lives of families, or in the financial empowerment of people (so that they receive the education and training they need), among other things. And all of this, always with the constant concern of creating a positive impact on society.
At the end of October 2021, Santander launched a campaign to strengthen the relationship of trust and proximity between employees and customers. With the protagonism of Tony Carreira and his two sons, Mickael and David Carreira, the campaign ran under the slogans "Vamos Juntos", and "O Banco Sou Eu", focusing on our customers and on the important relationship they establish with the Bank. Presenting real testimonies, it was intended to show that all of the approximately 5 thousand employees of Santander Portugal are a key part of the Bank, generating a positive impact on the lives of our customers, constructively helping them, on a daily basis, fulfil their goals.
Awards, Distinctions and Other Relevant Facts in 2021
| Bank of the Year |
Santander was distinguished as the Bank of the Year in Portugal by The Banker magazine, belonging to the Financial Times Group, at The Banker Awards 2021, for the "digital transformation of the bank, and the support provided to customers and the country." |
|---|---|
| Best Bank in Portugal |
Santander was distinguished with the award for Best Bank in Portugal 2021, awarded by Euromoney magazine for "having remained focused on supporting the community, and adapting its business to the context of the pandemic." |
| Best Bank in Portugal |
The North American magazine Global Finance distinguished Santander as the Best Bank in Portugal, in the World's Best Banks 2021 awards for "being among the banks that are better responding to customer needs and playing a key role in the recovery of the economy." |
| Best Retail Bank in Portugal |
Santander was distinguished as the Best Retail Bank in Portugal, by the World Finance magazine, within the scope of the World Finance Banking Awards 2021. |
| Best Bank for SMEs in Portugal |
Santander was distinguished by the Global Finance magazine as the Best Bank for SMEs in the 1st edition of the SME Bank Awards, which distinguish the financial institutions that best respond to the needs of SMEs in their markets, acknowledging the support provided and the quality of the services offered. |
| Best Private Banking Services Overall |
Santander was distinguished by the Euromoney magazine as the "Best Trade Finance Bank" in Portugal, coming first in the "Market leader" and "Best Service" categories. Euromoney highlights the bank's remarkable contribution to the international business sector. |
| Best Investment Bank in Portugal |
Santander received the Best Investment Bank award from Euromoney magazine for its "strong dynamics and leadership in merger and acquisition transactions, and strong involvement in advising and financing renewable energy, telecommunications, and real estate projects." |
| Best Private Banking in Portugal |
For the tenth consecutive time, Santander's Private Banking was considered by the Euromoney magazine as the "Best Private Banking Services Overall in Portugal", an award that distinguishes the best private banking services worldwide. |
| Best Private Banking in Portugal |
Santander's Private Banking was also distinguished as the "Best in Portugal" by the Global Finance magazine, within the scope of The World's Best Private Banks Awards 2022. For seven consecutive years, this publication has recognized the Bank's business model and the service provided to customers in this segment. |
|---|---|
| Most Reputed Banking Brand in Portugal |
Santander is the brand with the best reputation and the greatest relevance in the banking sector in Portugal, according to the Global RepScore Pulse study, published by OnStrategy. |
| Family Responsible Company |
Merco, a reference monitor that assesses the reputation of companies, highlights, in its study Merco Leaders and Companies, the main 100 companies and the main 100 leaders with the best reputation in Portugal, in 2021. Santander was ranked 1st in the banking sector. |
Santander was selected by Euronext as the financial intermediary that carried out the largest number of shares and bonds issuances registered with Interbolsa (and not admitted to trading), weighted by the respective amounts.
Euronext recognized Santander as the placing financial intermediary with the largest number of issuances and amounts placed in the various securities identified in this category, listed with Euronext Lisbon.
Euromoney distinguished Santander as the "Best Global Bank in Financial Inclusion" in the "Global Awards for Excellence 2021" recognizing the effort made by the Group to make financial services more accessible. Euromoney highlighted Santander's commitment to financially empowering both individuals and entrepreneurs, namely through various programs in Latin America, Europe and in the USA, as well as through the work that Santander has done to help people adopt digital channels during the pandemic, in particular the most senior.
These awards are the responsibility of the entities that granted them.
Santander Portugal invested a total of € 6.7 million euros in community support projects, through sustainability initiatives and through Santander Universities. The Bank supported 112,462 people in projects related to social welfare, employability, education, and protection of vulnerable groups.
Collection of € 250,000 for food and medicines for people in situations of vulnerability. Through Santander's contribution, more than74,000 people were supported.
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 having to go to branches during the period of the pandemic. In 2021, 85,752 customers were supported in the 2nd edition of this programme.
In November, the creation of the Santander Portugal Foundation was announced, with the aim of developing programmes with a high social, economic, and environmental impact. With an initial allocation of € 22.5 million, the Foundation will intervene decisively in the fields of Education, Employability, Ecology, and Social Affairs.
Social inclusion initiatives through rugby with children and young people.
Support for 16 Social and Environmental institutions, selected by Santander employees.
Launching of the Santander More Community Award Support to Social and Environmental projects, selected by society through the Santander Website.
Santander joined the cause of the Sara Carreira Association, to support children and young people with financial constraints, helping them progress throughout their education, by awarding 21 scholarships.
This protocol aims to support the project "Destination: Employment", whose objective is to promote the employability of people with physical disabilities.
Santander joined the Café Joyeux Portugal project. This initiative aims to promote the employability of people with Intellectual and Developmental Disabilities (IDD).
The Bank has implemented a recycling process for expired bank cards, which will be used to produce street furniture. With this project, for each kilogram of bank cards collected, a tree will be planted in a protected area, with the guarantee of being taken care of for 5 years.
In partnership with the Portuguese Blood and Transplantation Institute, plus three local hospitals, Santander launched a blood collection campaign to help increase the country's blood supply, responding to a growing need caused by Covid-19. The initiative took place in Lisbon, Coimbra, Porto, Faro, Funchal, and Ponta Delgada.
The digital and commercial transformation have allowed the growth of the digital customer base and the increase of transactionality through the various remote channels
One Santander: building a Bank for a better experience for our customers, aspiring to reach Position #1 in NPS
In 2021, as part of the transformation of the network, new Service models were implemented:
A new Service Model, made up of teams of Managers managing customers remotely, with the possibility of face-to-face service, subject to prior appointment. These teams are integrated into each Branch's own team (as back office), and this model is available in areas where there is sufficient critical mass of eligible customers. This service has already been implemented in 24 branches. A Service Model that combines remote and physical service.
Branches with a dedicated bank teller service for companies, with specialized equipment and dedicated employees. In 2021, 20 branches were implemented with this service model.
Implementation of a new concept, reformulating the Teller function, with the creation of a "pool" of 1 to 2 account managers who simultaneously perform the Teller functions. The aim is to create value for customers, meet their expectations, and improve their experience. This concept was implemented in 185 branches of the commercial network in 2021.
The main Sustainable Development Goals (SDG) where Santander's business and investment in the community has a higher incidence.
Our skilled, committed teams allows us to respond to customer needs; help entrepreneurs create businesses and jobs; and strengthen local economies.
We fight climate change by reducing our own carbon footprint and our environmental impact, while helping our customers in the transition to a sustainable economy.
We promote transparency, the fight against corruption, and solid institutions for sustainable development. We have policies and codes of conduct that regulate our activity and behaviour, and guide our commitment to a more responsible banking system.
We are committed to reducing poverty and strengthening the well-being of the local economies in which we operate. Our financial inclusion products and community investment services and programmes empower millions of people every year.
Through Santander Universities — a unique, pioneering programme 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 programmes funded by the private sector.
We foster a diverse, inclusive work environment. We ensure equal opportunities and promote gender equality at all levels as a strategic priority. We also support initiatives that promote diversity in our business.
We are global 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.
We develop products and services for the most vulnerable in society, giving them access to financial services, and teaching them how to use them properly to manage their finances in the best possible way.
We fund the construction of sustainable infrastructures that guarantee basic services and promote inclusive economic growth. We also promote affordable housing opportunities.
We are firmly committed to reducing our environmental footprint, by implementing energy efficiency plans and promoting the use of renewable energies, as well as offsetting the environmental impact of our internal operations.
To move forward with our responsible Banking agenda, we take part in regional and international initiatives and working groups.
of these IPSS. Santander contributed an amount equal to each employee's purchase, and, together, we were able to contribute with a donation of about € 20 thousand to these causes.
• In November 2021, the creation of the Santander Portugal Foundation was announced, with the aim of developing programmes with a high social, economic, and environmental impact. With an initial allocation of € 22.5 million, the Santander Portugal Foundation will intervene decisively in the fields of Education, Employability, Ecology, and Social Affairs.
The Bank also offers several free online courses and workshops, aimed at SMEs, to improve their entrepreneurial skills.
We joined the cause of the Sara Carreira Association, to support the fulfilment of children and youngsters' dreams with lesser resources, helping them evolve throughout their education. The Association awarded 21 scholarships in 2021, aimed at children and young people aged between 12 and 21, with financial constraints.
Sustainable Finance
The Bank has played an important role in sustainable financing in Portugal. In 2021, it participated in the issuance of € 750 million and € 1,250 million of green hybrid debt by EDP, and € 300 million of green bonds by REN. Additionally, in 2021, Santander financed € 55 million in renewable energy projects, with a total installed capacity of over 70MW.
Additionally, we offer a wide variety of products and services that incorporate environmental, social and governance criteria.:
Personal Loans for Renewable Energies Santander is a leading partner for investors in renewable energy production technologies. The Renewable Energy Facility is a credit designed for those wanting to invest in alternative forms of energy, by purchasing equipment that, in addition to being able to reduce their energy costs, also lower their carbon footprint. With a reduced spread of 2%, and exemption from the credit formalization fee, lower monthly instalments are obtained, with payment terms that can be extended up to 8 years, provided that the sum of the holders' age with the term does not exceed 72 years.
Green Housing — Santander offers housing credit with a green component, with a lower spread for housing with the best energy rating (A and A+).
The world economy recovered in 2021, with a growth rate of about 5.9% compared to 2020, the year most affected by the Covid-19 pandemic (when it recorded a contraction of 3.1%).
The year 2021 shall remain as the year in which the vaccination process began in most of the developed economies, with which it was possible to reduce both the number of hospitalization cases due to severe illness, and deaths. By the end of February 2022, 63% of the world's population had been vaccinated, of which 56% is considered fully vaccinated, and 7% partially vaccinated.
However, the vaccination process evolved at two speeds, with the most developed economies concentrating more than 2/3 of the inoculated doses, and, at the opposite end, the poorest economies, namely those in Africa, where the percentage of totally vaccinated population is only 12%.
Among the most developed economies, it is worth mentioning the European Union, the United Kingdom, and the United States with the highest percentages of complete vaccination, 73%, 72%, and 65% respectively. The acceleration of the vaccination process was essential to allow the restrictions on mobility and economic activity to be lifted, which was further intensified from 2Q 2021, that is, after the 3rd pandemic wave in 1Q 2021.
However, in 1Q 2021, the growing number of new infection cases required that lockdown and restrictions again be imposed, especially in the most developed economies, whose adverse impact on growth was immediate, and which translated into a slowdown in the pace of recovery. Economic signs showed a positive but heterogeneous trend across sectors and countries, with the US, China, India and Russia in the group of economies with stronger signs of recovery, and others, such as the UK, Japan, and Brazil, with signs of a declining activity.
This pandemic dynamic resulted in the fact that, in 2021 as a whole, most economies recovered strongly compared to 2020, but intra-annual dynamics showed greater volatility.
| 2020 | 2021 | 2022 P | |
|---|---|---|---|
| World | -3.1 | 5.9 | 4.4 |
| Advanced Economies | -4.5 | 5.0 | 3.9 |
| USA | -3.4 | 5.6 | 4.0 |
| Euro Area | -6.4 | 5.3 | 3.9 |
| United Kingdom | -9.4 | 7.2 | 4.7 |
| Japan | -4.5 | 1.6 | 3.3 |
| Developing Countries | -2.0 | 6.5 | 4.8 |
| Africa | -1.7 | 4.0 | 3.7 |
| Asia | -0.9 | 7.2 | 5.9 |
| China | 2.3 | 8.1 | 4.8 |
| Central and Eastern Europe | -1.8 | 6.5 | 3.5 |
| Middle East | -2.8 | 4.2 | 4.3 |
| Latin America | -6.9 | 6.8 | 2.4 |
| Brazil | -3.9 | 4.7 | 0.3 |
Source: IMF (January 2022)
In the US, GDP grew by 5.6%, with a dynamic first semester, but a weaker 3rd quarter, as a result of the expressive rise in the number of infections, with economic activity resuming its recovery trend at the end of the year.
Families maintained a strong demand for services and durable goods, but with supply being negatively affected by the distribution constraints, resulting from the pandemic. More recently, delivery times and transport costs between China and the US have started to decrease, helping to unblock the situation. Stock levels remain below those observed in the prepandemic period, with potential for growth in economic activity due to a more normal functioning of global distribution chains. The inflation rate rose to 7% at the beginning of 2022, influenced by the rise of energy and food prices, with the underlying inflation rate (excluding energy and food) exceeding 5%. Pressure on prices was more prevalent on goods, as a result of blockages in distribution chains, and was reflected, albeit more moderately, in the prices of services.
Also at the end of 2021, there was an emergence of wage pressures, with the labour cost index showing signs of acceleration and across all business sectors.
In China, despite the recovery compared to 2020 (which reflects the basic effects of the pandemic), economic activity decelerated sharply throughout 2021, as a result of shortfalls in energy supplies, instability in the residential real estate sector, and the resurgence of new Covid-19 cases. Consumer confidence indicators showed mixed signs regarding the evolution of private consumption; while regarding production and investment, the feelings remained subdued as a result of constraints in distribution chains. Demand for energy remained quite high, albeit with some slowdown, supported by public measures aimed at increasing production through the use of coal and national reserves, in an attempt to reduce the escalation of prices, and ensure energy independence. The crisis in the residential real estate sector, resulting from Evergrande's liquidity issues — characterized by rating agencies as being in a situation of restricted default —, forced the Chinese government to allow the central bank of China to cut the liquidity reserve requirements of exposed banks, and thus have greater capacity to support the entire real estate sector's liquidity.
In Japan, in the intra-annual dynamics, the economy decelerated in 3Q 2021, also as a result of restrictions in the distribution of raw materials, and the higher number of infections by Covid-19. Economic recovery was therefore closely linked to restrictions on mobility, with recovery dependent on the intensification of the vaccination process and government support. The inflation rate remained negative for most of the year, accelerating towards the end of 2021, as a result of higher energy prices.
In the UK, there was a similar trend, with economic activity remaining moderate towards the end of the year, after an unexpectedly weaker 3Q 2021, as a result of the combination of restrictions in distribution chains and the lack of manpower, as a consequence of the pandemic context, clearly amplified by Brexit. Private consumption was the main driver of growth, more visible when lockdown measures were lifted. On the other hand, investment continued to evolve at a weak pace. At the end of 2021, the economy had not yet recovered to pre-pandemic levels.
In the Euro Area, the annual recovery also hides strong intraannual volatility. After the economic contraction of 1Q 2021 (-0.2% quarter-on-quarter), the decline in the number of infections allowed economic activity to gradually open up, reinforced by an intensification of the vaccination process, which led to a 2.2% growth (also quarter-on-quarter) in 2Q 2021, with the services sector leading the recovery, as people were able to again go to shops and restaurants, as well as to an increase in travels and tourism. The industrial sector continued to operate at a good pace, despite the shortfalls and lack of raw materials and equipment, as a result of the reallocation of productive factors for fighting the pandemic, amplified by a strong recovery in demand.
The emergence of the Omicron variant of the SARS-Cov2 virus (whose transmission capacity is considered higher than that of the Delta variant, although with less harmful characteristics), and whose propagation speed increased with the arrival of colder weather throughout Q4 2021, giving rise to the 5th pandemic wave in the Euro Area as a whole.
Nevertheless, the economic recovery remained solid, despite the momentary negative impact of the 5th wave. As a result of the successful vaccination, it was possible to avoid the closure of a number of services and keep economic activity going, although with differences between the various countries.
The unemployment rate in the Euro Area maintained a downward trend, and the number of people on layoff fell significantly, compared to 2020, supporting the improvement in household income and consumption. On the other hand, the number of people who make up the workforce, and the hours worked remain below pre-pandemic levels.
| GDP | Inflation | |
|---|---|---|
| Euro Area | 5.3 | 2.6 |
| Germany | 2.8 | 3.2 |
| France | 7.0 | 2.1 |
| Spain | 5.0 | 3.0 |
| Italy | 6.5 | 1.9 |
Source: EC (February 2022)
The faster recovery of economic activity, in a context of restrictions in global distribution chains, led to an increase in the inflation rate, as a result of the surging of raw material prices, including energy, but also of services. The price surge was more visible in the second half of the year, starting to capture the attention of central banks.
The global inflationary dynamics was also evidenced in the projections of the International Monetary Fund, which, in the World Economic Outlook of January 2022, estimated that the acceleration of the inflation rate in the second half of 2021 would be reflected in higher price rises in 2022, higher than those seen in 2021.
From the IMF's point of view, the essential factor is that, in most of the developed economies, keeping inflation expectations anchored, the gradual dissipation of the pandemic crisis in 2022 would contribute to a more normal functioning of distribution chains, as well as of the consumption patterns between goods and services, contributing to the disappearance of inflationary pressures throughout 2022. At the turn of the year, nominal pressures of rising wages remained under control in most of the developed countries, except in the USA, where low levels of unemployment and the high number of workers unavailable for work were already putting pressure on a structural rise in wages.
The US Federal Reserve, which throughout the year has adapted its speech to the evolution of the economic situation, announced in December 2021 that it would accelerate the pace of decline in the acquisition of financial assets, and that it would implement a cycle of benchmark interest rate hikes throughout 2022.
In the Euro Area, the Central Bank maintained an accommodative monetary policy, through the extraordinary use of a pandemic emergency asset purchase program (PEPP), and the intensification of the asset purchase program (APP). As part of the PEPP, the ECB announced that it intends to reduce the volumes of net asset purchases at a slower pace than in the previous quarter, discontinuing them at the end of March 2022. However, it proposed to extend the reinvestment horizon to at least the end of 2024, with the aim of avoiding interference or causing signs of financial instability.
In line with a gradual reduction in asset purchases, and to ensure that the monetary policy stance remains consistent with the stabilization of inflation at the symmetrical medium-term objective of 2%, the ECB established a monthly pace of net purchases of € 40 billion in 2Q 2022 and € 30 billion in 3Q 2022, under the asset purchase program. As of October 2022, the ECB signalled to maintain net asset purchases under the APP at a monthly pace of € 20 billion, for as long as required, to reinforce the accommodative impact of the key ECB interest rates.
Additionally, the Governing Council reinforced the message of waiting for net purchases to end shortly before starting to increase the key ECB interest rates.
The development of inflationary pressures in many economies led several central banks, both in developing economies and in some developed economies, to an increase in reference interest rates. These more restrictive monetary policy decisions compete with the speed of economic recovery in an attempt to avoid a sustained price and cost surge.
Particularly in economies such as the US and the UK, where monetary policy has clearly taken a less expansionary stance, short-term interest rates reflected an upward trend in December 2021, a trend that continued into January 2022.
In the Euro Area, in 2021, short-term interest rates remained close to the minimum, although the longer maturities started to rise in the last months of the year.
3-Months Interest Rates
The performance of the European Central Bank, throughout the year, and even at the end of 2021, when inflation reached 5%, was associated with its view — shared by most central banks that inflation reflected specific occasional factors, related to with the rise in energy prices and disruptions in distribution chains resulting from the pandemic, which should dissipate in the course of 2022.
In February 2022, and despite no signs of wage pressures (in turn, already visible in the US and UK), the ECB reinforced its surveillance over the evolution of inflation, considering that it would remain high for a longer period of time, leaving open all options for action, in case of need.
In this context of accelerating inflation, long-term interest rates showed an upward trend, accommodating the decrease announced or executed —, in the pace of net acquisition of financial assets by central banks. In the Euro Area, throughout 2021, the ECB sought to ensure stability of yields, while the prospects of inflationary pressures combined with a less expansionary monetary policy by the US Federal Reserve resulted in a rise in long term interest rates.
Sovereign interest rate differentials rose at the end of 2021, revealing a change in investors' risk perception in the face of a potential scenario of rising interest rates in the Euro Area and its implications for asset value, particularly in economies whose debt ratios are higher.
In Portugal, the 10-year yield intensified its upward trend, especially after the ECB meeting of February 3, 2022, having surpassed the 1% level, which resulted in a slight widening of the spread vis-à-vis Germany, in about 10 bp, to 78 basis points, above the levels observed throughout 2021. The last time the yield had reached 1% was in April 2017, but the spread had reached 150 bp, in a context in which unconventional monetary policy sought to respond to persistently low rates of underlying inflation, despite favourable economic growth.
In the foreign exchange market, the euro tended to depreciate throughout 2021 against the main currencies, reflecting the mismatch between the ECB pursuing an expansionary monetary policy, while other central banks began to announce the reduction of or even reduce their stimuli, namely the US Federal Reserve and the UK Central Bank. Against the dollar, the euro ended the year at about 1.14 dollars, a depreciation of about 7%.
Main Exchange Rates
Source: BCE
The improvement in the pandemic situation contributed to a general appreciation of equity markets, as a result of a faster economic recovery than expected, supported by broadly expansionary monetary policies. At the end of the year, North American and European markets recorded a growth of almost 20%, supported by the speed of recovery of the main developed economies. In Portugal, the PSI followed the European trend, benefiting from the optimism associated with the success of the vaccination process and economic recovery. At the end of 2021, it reached the maximum levels recorded in 2018.
The pandemic crisis contributed to the appreciation of gold to levels above 1,800 dollars per ounce. Despite the economic recovery, the uncertainty regarding the emergence of new variants of the virus, and the growing geopolitical risks, namely between Russia and the USA, keep supporting structurally higher prices compared to the pre-pandemic period.
Oil appreciated sharply, with Brent recovering from the low levels of about USD 20/barrel, in 2020, to USD 90/barrel at the beginning of 2022. The swift economic recovery, associated with higher costs related to the energy transition, are the main drivers of the surge in crude oil barrel prices.
Brent crude oil (US\$/Barrel) and Commodity Price Index (YoY)
Source: Bloomberg
The recovery of economic activity in 2021 was based on the success of the vaccination process, with the population joining in a massive way, culminating in more than 90% of citizens completing the vaccination plan. Despite the increase in the number of active cases resulting from the Omicron variant, the number of people with severe symptoms and the number of deaths were, at the end of 2021, 70% lower than the figure recorded at the end of 2020.
In a context of a more controlled pandemic, the various sectors of economic activity gradually reopened and normalized their operations, although subject to specific, occasional pandemic mitigation rules, such as the use of masks, mandatory presentation of vaccination certificates or negative Covid-19 tests to access recreational and tourism facilities, for example.
| Source: INE | ||||
|---|---|---|---|---|
| operations, although subject to specific, occasional pandemic | ||||
| mitigation rules, such as the use of masks, mandatory presentation of vaccination certificates or negative Covid-19 tests to access recreational and tourism facilities, for example. |
||||
| In Q4 2021, the increased number of contagions with the Omicron variant forced the Portuguese authorities to reactivate a set of specific measures for the Christmas and New Year period, with the return to mandatory teleworking, closing of bars and clubs, mandatory negative tests, and less people in commercial facilities. In 2021, the Portuguese economy grew by 4.9% in volume, the highest rate since 1990, after the historic decrease of 8.4% in 2020, following the markedly adverse effects of the pandemic on economic activity. The economy started the year in decline, with an extended general lockdown, as a result of the 3rd |
||||
| Macroeconomic Data | ||||
| 2020 | 2021 | 2022 P | ||
| -8.4 | 4.9 | 5.1 | ||
| -7.1 | 4.4 | 3.9 | ||
| 0.4 | 5.0 | 4.6 | ||
| -5.7 | 7.2 | 12.3 | ||
| -18.6 | 13.0 | 17.7 | ||
| -12.1 | 12.8 | 17.8 | ||
| 0.0 7.0 |
1.3 6.5 |
2.8 6.3 |
||
| -5.1 | -2.3 | |||
| pandemic wave, and ended with a partial lockdown. GDP Private Consumption Public Consumption Investment Exports Imports Inflation (average) Unemployment Fiscal Balance (% GDP) Public Debt (% GDP) |
135.2 | -4.2 (e) 127.5 |
126.5 |
Domestic demand contributed positively to growth, after a strongly negative period in 2020, with a recovery of private consumption and investment. The contribution of net external demand was much less negative in 2021, with significant growth in imports and exports of goods and services.
Contributions to GDP Growth
Private consumption grew by 4.4% in 2021, reaching the same figure of the end of 2019 in Q4 2021. The high growth rate in 2021 reflected the recovery of expenditure on services, which benefited from the easing of lockdown measures and increased confidence with the progress of vaccination. The consumption of durable goods shows a quite high dynamic, reflecting the realization of expenditure postponed during the crisis, when several activities remained closed.
The recovery in private consumption flowed from the downward trend in the unemployment rate, which, accompanied by an increase in the active population, with consequent growth in employment, contributed to a 6.6% increase in nominal disposable income. Household disposable income benefited from the swift, complete recovery of wages, together with the growth of social benefits made available during the lockdown.
The household savings rate reached a maximum of 12.8% in 2020, reflecting precautionary reasons and involuntary savings arising from consumption limitations. However, throughout 2021, the savings rate declined moderately, as consumption patterns were resumed, according to the degrees of freedom allowed by restrictions to stop the pandemic. However, the savings rate remained above pre-pandemic levels.
Investment showed a recovery trend throughout 2021, after a contained drop in 2020, compared to previous recessions. The investment dynamic was common to both the public and private sector, with emphasis on the growth of the public component, as a result of the impact of European funds, in particular the Recovery and Resilience Plan, and structuring investments.
The Portuguese Recovery and Resilience Plan was approved by the European Commission and the Council in July, allowing
Portugal to immediately receive a first tranche of about €2.2 billion (out of the €16.6 billion that make up the global financial envelope, of which €13.9 billion correspond to non-repayable grants). The execution of the final projects of Portugal 2020 was also added.
Exports of goods and services grew by 13% in 2021, characterized by a differentiated recovery between goods and services, with exports of goods exceeding the pre-pandemic level at the end of 2021. Disruptions in the supply of raw materials and intermediate goods penalized exports from some sectors, namely the automotive sector.
The lifting of restrictions on international mobility, and the increased confidence allowed exports of services, in particular tourism and transport, to progressively recover, after the abrupt drop in 2020 and early 2021. The worsening of the pandemic, as a result of the Omicron variant in Q4 2021, implied a more contained evolution of tourism flows, although October and November had recorded levels of activity very close to those of 2019.
Imports of goods grew in line with aggregate demand, in a sustained manner, despite restrictions in global chains and disruptions in some sectors. Imports thus grew by 12.8% in 2021.
The current and capital account balance again turned positive in 2021, supported by the partial recovery of the services account, reflecting the partial recovery of tourism, especially in the 3rd quarter. The goods account worsened the deficit, reflecting the higher demand for goods that accompanied the gradual reduction of measures to restrict the normal functioning of economic activity, as well as the rise in fuel prices. The capital account benefited from European funds, reinforcing its contribution to the surplus, while the reduction in interest payments on public debt abroad also had a positive impact on external accounts.
Current and Capital Account
Source: Banco de Portugal, INE
Public accounts in 2021 were characterized by a reduction in the budget deficit compared to 2020, which may have been close to, but below the 3% of GDP threshold, as a result of an economic recovery that proved to be more favourable than initially expected, and whose impact contributed to an increase in tax revenues. The dynamics of the labour market also contributed to the growth of social contributions.
Source: Ministério das Finanças
State financing needs decreased in 2021, compared to 2020, by about € 4 billion, due to an increase in revenue greater than the growth in expenditure. The increased revenues were the result of the favourable evolution of tax and contributory revenue, and of the contribution of non-tax and non-contributory revenues, reflecting the recovery of economic activity and greater transfers from European funds within the scope of REACT-EU, RRP, and ESF.
The increase in expenditure was mainly due to greater transfers, acquisition of goods and services, and personnel expenses, mitigated by the favourable evolution of interest expenses and other charges.
Source: Ministério das Finanças
Within the framework of the Treasury's 2021 financing plan, it is worth highlighting the issuance, in February, of a 30-year maturity bond, with a security of € 3 billion and a 1.022% coupon rate. In April 2021, it carried out a 10-year maturity syndicated issuance, in the amount of € 4 billion, with a 0.3% coupon. These issuances contributed to increasing the average maturity of public debt and, at the same time, to reducing its average cost.
Public debt fell to 127.5% of GDP in 2021, a reduction of almost 8 bp compared to 2020. However, in absolute terms, it maintained its growth trajectory, remaining close to € 280 billion, an increase of almost 4% compared to 2020 levels.
In the Portuguese economy as a whole, the overall debt ratio was close to 332% of GDP, with the private business sector standing at 131%, and households at 71% of GDP, clearly below the levels observed in the period before the 2011-14 economic and financial adjustment programme.
The Portuguese banking sector (data from September 2021) was characterized by an increase in credit granted to the most affected sectors and to housing, following an economic recovery above expectations. As far as return on assets, there was a recovery compared to 2020 (from 0.1% to 0.5%), namely with a stabilization of the core capital ratio (15.4%). The NPL ratio decreased slightly from 4.9% (as of December 2020) to 4.0%, accompanied by an increase in coverage ratios, especially in the most affected sectors, to almost 56%.
The Country's credit rating by S&P, Fitch, and Moody's is BBB (stable), BBB (stable) and Baa2 (stable), respectively. DBRS maintains a BBB–high (stable) rating. This situation is consistent with the previous year, with the exception of Moody's, which revised the rating upwards.
Note: Text written with the information available up to February 11, 2022.
The main risks and uncertainties for Santander's business in Portugal are associated with two major factors.
The first, which was already underway in the last months of 2021, is associated with the rapid acceleration of inflation, as a result of the surge in raw material prices, especially energy, associated with the tensions in global supply chains caused by the pandemic. The closure of activities and the unequal distribution of the vaccination process, on the one hand, and the rapid recovery of demand in advanced economies, on the other, resulted in reductions and delays in the supply of goods and commodities, with sharp price surges. In some countries, such as the USA, there were already second-order effects, with salary increases, in the context of low unemployment rates.
In the first weeks of 2022, the central banks of the main developed economies were starting to raise benchmark interest rates. The Bank of England was more advanced in the process, having raised the main benchmark interest rate twice, in December 2021 and January 2022, to 0.5%. The US Federal Reserve reinforced its message of withdrawing stimuli, with the announced end of the programme for the acquisition of financial assets, and that it would, in March, start raising its reference interest rates. In February, the European Central Bank was also more concerned about the acceleration of inflation, signalling that in March it would change its position.
The second risk factor stems from Russia's military offensive in Ukraine, started on the night of February 23 to 24, 2022. The conflict is still going on (as of March 18), with the population exodus already exceeding 3 million people. The imposition of sanctions on Russia, in response to the military offensive, will have economic impacts in Europe, which are still difficult to assess, and which are combined with the rise in prices of raw materials and, in particular, energy. Russia is the 3rd world producer of crude oil, and is the biggest supplier of natural gas to Europe. As a result, raw material prices climbed to more than a decade highs, as is the case with oil.
Therefore, Europe, and also Portugal, is suffering a double shock, with a more intense acceleration of inflation, which can be accompanied by an increase in interest rates.
Rising inflation reduces households' purchasing power, and may lead to a retraction in consumption, a dynamic that could be amplified with an increase in uncertainty related to the military conflict. On the companies' side, it may be that they are not able to fully reflect the increased costs in their sales prices, thus decreasing their margins.
If interest rates rise, in both cases, for households and companies, their lower income could affect the ability to meet debt service, in particular for customers who have been most affected by the pandemic, and who were already being monitored following the end of the credit moratoria, at the end of September 2021.
Overall, the current combination of risk factors translates into increased uncertainty and generates negative risks for growth, compared to what was initially estimated, which was a scenario of full recovery of activities after the disruptions caused by the pandemic. The dimension of the impacts is difficult to assess at the present time.
Therefore, Santander Portugal will carry out its activity in a complex context, with the risk of a further slowdown of its business and with higher interest rates, requiring that it keeps constantly monitoring credit quality.
2021 was a particularly challenging year for everyone, and, in particular, for the commercial areas, nevertheless allowing them to overcome challenges and conquer new paths.
The strategy in the Individuals area involved a focus on simplifying processes, consolidating new service models, and improving customer experience. The commercial activity results, in this segment, were in line with the goals for the year, with emphasis on the reinforcement of leadership in Mortgage Credit, increased productivity in the areas of Protection, Savings and Payments, and improvements in our customers' level of satisfaction (NPS). These results were clearly leveraged by the Bank's digital transformation process, along with a restructuring of the commercial and process areas.
In 2021, the Insurance Protection activity was focused on expanding the customer base, and the level of protection for each customer.
With regard to Autonomous Insurance, new Products were launched with optimized journeys and differentiating characteristics (for example, one-click quote): Auto Insurance, Corporate Liability Insurance, and Corporate Health Insurance. Packages were made available for the combined sale of insurance with advantageous conditions, and the offer on digital channels was reinforced (whose weight in the placement of new policies has doubled). At the same time, new commercial information tools and an integrated view of the customer with data from all policies were developed, to allow a better quality of service and information to customers.
With regard to Credit-Associated Insurance, it is worth highlighting the review of the entire simulation and contracting process, which is now much simpler and more intuitive, for both Mortgage and Personal Credit. The offer was also strengthened with the new coverage for orphans who have lost both parents, and the availability of the House Pack. On the other hand, the possibility of renewing Life Insurance with a Single Premium (VPU) and contracting insurance for Personal Credits in progress (until then it was only possible to protect one's credit at the time of contracting) was also introduced.
Additionally, the Bank kept the exceptional measures taken within the context of Covid-19 in force, which included eliminating the pandemic exclusion in Health, Life and Wage Protection Insurance (both for Self-Employed and Associates modalities)
Finally, the after-sales activity of Protection Insurance recorded significant progress in terms of both renewal of policies and claim management. The Bank started to measure the NPS of the after-sales journeys for various insurances, which helps identify and correct opportunities for improvement in customer service.
In terms of Savings, there was an increase in the diversification of off-balance sheet investments, mainly in investment funds and retirement savings — a process that was much helped by the fact that markets had a very positive year. It was also a year in which the digitalization path was continued, through the conclusion
of several technological projects with a view to improving customer experience.
In terms of Payments, the focus was still to position Santander as the bank for digital payments. Thus, within the scope of the digital transformation plan and the launch of the "One App", various digital payment features were made available, which make our customers' day-to-day much easier. A new, simpler experience, common to the various One Europe countries.
Also, within the scope of digital payments, it should be noted that customers continued to digitize their cards on Wallets (Apple, Garmin, Fitbit and Santander), and on electronic platforms for online trade.
With regard to corporate customers' transactions, the marketing of products that simplify their day-to-day management was promoted, such as the commercial promotion of the Dedicated IBANs Product (a solution that facilitates the process of reconciling their bank charges), and the launch of Payment for services by batch in XML format (a solution that allows them to make payments in an aggregated way).
Additionally, with regard to Points of Sale (POS) terminals, the Bank focused on developing the service and differentiating payment solutions, namely through digital contracting and the development of new equipment, such as SmartPOS, having ensured sustained growth throughout the year. The pandemic context kept the focus on online services. Thus, the promotion and dissemination of the Payment Gateway, which allows the acceptance of cards, payments for services, and MB Way on a single platform, resulted in an increased number of merchants compared to the previous year.
Lastly, with regard to regulatory compliance with PSD2, more than two million cards were enabled to carry out strong authentication of online purchases through the Santander App. Additionally, there were further developments in terms of open banking, namely the expansion of the offer of entities that customers can aggregate through the bank's channels, which, in addition to the main national banks, now include the accounts of Revolut, Cetelem, and Universo. In this way,
Santander customers can consult all their accounts without leaving Santander, and initiate transfers from any bank. Also, with regard to open banking, and within the scope of "Collections", it should be noted that the Bank now allows its customers to initiate transfers from other banks through our channels, in order to settle debts they have with Santander.
Additionally, with regard to Points of Sale (POS) terminals, the Bank focused on developing the service and differentiating payment solutions, namely through digital contracting and
the development of new equipment, such as SmartPOS, having ensured sustained growth throughout the year. The pandemic context kept the focus on online services. Thus, the promotion and dissemination of the Payment Gateway, which allows the acceptance of cards, payments for services, and MB Way on a single platform, resulted in an increased number of merchants compared to the previous year.
Regarding Personal and Housing Credit, despite the pandemic context, the accumulated production of housing credit grew by about 20% compared to 2020, putting the Bank's production market share above 20%.
The production of personal loans amounted to € 415 million (10% more than in 2020), with emphasis on the Bank's evolution towards a fully digital, omnichannel (available on all channels), end-to-end solution, making contracting much easier. The contracting of personal credit online represented 54% of all personal credit granted.
The Daily Banking area continued its work on managing the day-to-day banking offer for customers, whose strategic priority is to provide a simple, secure, accessible payment experience through any channel. Despite the pandemic situation, 2021 was characterized by a positive evolution of customers who use the Bank in their daily lives, namely for their Purchases, Payments, Transfers, Withdrawals and Direct Debits.
The positive evolution in the number of World 123 Private customers who enjoy an ecosystem of advantages and cashbacks when using their credit card is also noteworthy. About 80% of these customers have Santander as their first Bank. In 2021, the Bank returned cashback benefits into the card account to about 85% of these customers, amounting to approximately € 15.9 million.
With the aim of improving customer experience, several initiatives were implemented, such as a more simplified card offer, in line with the image at European level; sending of the Digital PIN of cards by SMS at the time of activation; the possibility for breaking down purchases made with a credit card at the POS into 3, 6 or 12 months; the possibility of requesting a prepaid card through digital channels; cost exemption when using MB Way on any platform; and exemption from purchase and withdrawal costs in foreign currencies up to one thousand euros on debit cards.
The Bank also reinforced its commitment to security. In online purchases, payment validation in the Santander App (3D Secure) became mandatory, and in situations of transactions refused by security blockages, a notification is now sent to the customer, helping him/her complete their transactions.
In terms of Responsible Banking, cards are now issued in biodegradable material, with the Carbon Neutral quality seal, in order to reduce the Bank's environmental footprint. Additionally, the Bank implemented a recycling process for expired cards, which will be used to produce street furniture. Another implemented initiative was that for each kilo of cards collected, a tree will be planted in a protected area, with the guarantee of it being taken care of for 5 years.
The Santander Boutique (Marketplace) celebrated one year of activity. It currently has 16 partners, and offers credit solutions (personal credit and credit card) with the possibility of customers splitting their purchases up to 36 months.
Going deeper into the topic of digital transformation, 2021 was a very important year.
The launch of the new App in Portugal was a milestone in the Bank's digital transformation plan. Its aim is to better serve our customers and the way we interact with them, through a mobile banking experience model common to the various European markets. The new App was based on the structure of the App launched in Spain, recognized and awarded as the Best Digital Bank in Western Europe by Euromoney.
In addition, the Bank focused on
launching various initiatives to boost commercial and internal communication, and externally, through the implementation of a strong communication plan for customers, of which the "What is your Digilosophy?" campaign stands out. In this campaign, the concept of Digilosophy — a philosophy of digital life —, was transported to customers themselves.
This transformation strongly contributed to the continued growth trend in the number of digital customers, and, above all, to the deepening of the Bank/Customer digital relationship.
At the end of 2021, the Bank surpassed the landmark of one million digital customers, an increase of 7.5% compared to the same period last year (70 thousand more customers). This figure represents a global digital
penetration rate (over active Customers) of about 60%.
At the same time, there was also a solid qualitative growth. At the end of this year, compared to the same period last year, the number of customers with a mobile App grew by almost 20%, and the number of customers with Wallet grew by more than 75%.
With regard to the transformation of Branches and simplification of processes, in recent times, banking has been experiencing a period of great challenges due to the changing behaviours in the use of banking services, in which customers seek swifter responses and use the channels of their choice at each point in time, and, increasingly in self-service. In response to this challenge, the Bank promoted the change of its service models, either by promoting the availability of its products and services in omnichannel, or by evolving its physical service channels.
This transformation was carried out based on a significant investment in simplified procedures.
At Branch level, 3 new service concepts were developed at every Branch.
The Advanced Teller Post Model, implemented in more than 70% of the Branches, aims to promote comprehensive customer service whenever it is used, not differentiating commercial activity from transactional activity, at the time of one's relationship with the Bank. This is also a solution that allows the Branch to better manage the flow of customers according to their needs.
The Dedicated Corporate Teller Model, implemented in 20 Branches, considerably improves the experience of any corporate customer wanting to carry out transactions such as deposits, payments and withdrawals, as it is equipped with more sophisticated equipment that complement the customer's activity, such as the machine that counts and stores the coins prior to the customer being served. An exclusive and specialized service point was made available for transactions of companies.
At the same time, the Bank has invested in more sophisticated Selfbanking machines for coin deposits and withdrawals, in addition to the usual banknote and check deposits, in self-
service areas, available 24/7. These machines are yet another channel through which Santander customers can carry out their transactions, at the time that is most convenient for them, and which will also be the subject of software developments
that will allow new functionalities in the near future. In 2021, 29 Virtual Teller Machines (VTM) were installed. The ongoing reinforcement of this equipment has already been planned.
The Bank's main processes, with an impact on its customers, underwent a deep restructuring, in order to respond to customers in a simpler, closer and fairer way. It was a profound transformation, developed on new IT platforms, modernizing and digitizing all processes in order for the Bank to be more available to our customers.
In the Business, Corporate, and Institutional segment, Santander Portugal maintains its strong commitment to support the Portuguese business community, making available a commercial network of experienced, qualified professionals to find the solutions that best suit the needs of companies at every moment, as well as a vast financial and non-financial offer that supports customer companies in empowering their resources and in the transition towards a more efficient and sustainable economy.
Thus, in a year still marked by the pandemic and by its adverse impacts on economic activity, making initiatives promoted by the Government reach companies (credit facilities with State Guarantee), and supporting public and private investment projects within the scope of European Funds, remained as an important priority for the Bank. Thus, Santander has made a page available on its public website just dedicated to European Funds, where information on the various programmes,
investment agendas, and active application notices is presented in an organized, systematic manner, aimed at being a differentiating factor, when it comes to clarifying and identifying opportunities.
Throughout 2021, Santander developed, and will continue to develop, initiatives that support companies in their transition to a more sustainable, socially and environmentally responsible economy, where innovation plays a key role. In this context, in Q2 2021, for example, it launched the Agriculture Equipment Renewal Plan, to support and accelerate the digitization and sustainability of Portuguese agriculture, in order to enable investment in equipment fitted with precision techniques and other.
The Bank maintains its commitment to the improvement of internal procedures and processes, in order to guarantee the availability of liquidity to companies, in a swift, timely manner, so that they can meet their commitments to third parties, namely employees, suppliers, and the State. Santander Portugal also reinforced its omnichannel approach, in addition to the service provided by the physical network, with a strong investment in digital channels, which has greatly contributed to increasing the degree of customer autonomy, satisfaction and loyalty. This positioning of service quality and proximity has allowed the sustained growth of business in the Corporate segment.
With regard to International Business, Santander can provide teams of Trade Finance specialists, plus resources and tools (Trade Club and Trade Markets) to help companies develop coordinated work, find partners, and successfully complete their global expansion process.
It is worth highlighting the new offer made available to Portuguese companies — swift GPI —, which enables the traceability of international transfers, both issued and received, with real time validation and tracking of international payments that are made, as well as verification of the status of transfers received from abroad. It should be noted that Santander Portugal is the 1st and only Portuguese bank to provide this service to its corporate customers.
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 in 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 have played a key role in supporting families with less resources.
The year 2021 ended as it had started, conditioned by news on the development of the pandemic, and by fears that the inflationary pressures seen in the last half of 2021 would prove to be more structural than just short-term. In fact, the shock on the demand side, combined with logistic and distribution constraints, caused a general inflation peak, reaching 7% in the US, and 5% in Europe. However, these factors did not prevent the main stock indices from closing with very positive performances: S&P 500 with valuations close to 30%, and Eurostoxx 50 above 25%, based on expectations of robust economic growth and normalization of distribution chains (with normalization of expected inflation levels).
Thus, for most of Santander Portugal's Private Banking business indicators, 2021 proved to be a very positive year, with a 9% growth in assets under management, as well as a 29% growth in Off-Balance Sheet Resources (Funds, Insurance, and Discretionary Portfolio Management).
The strong growth of the Private Banking customer base is also noteworthy, with a very strong dynamic, based on a strong external prospecting activity, and great collaboration and support from the branch network and corporate centres.
Initiatives aimed at improving the commercial effectiveness of Private Banking managers have yielded the expected results, freeing up more time for proximity and advisory business to Private Banking customers, and thus improve the excellent service that characterizes this segment.
In recognition for its service and customer care of excellence, at the beginning of 2021, Santander Portugal's Private Banking was distinguished as the best Private Banking operating in Portugal for the 10th consecutive year, according to Euromoney magazine. And, towards the end of the year, it was awarded the same distinction for the 7th consecutive year by the Global Finance magazine. These distinctions recognize and reinforce the quality of our teams and the investment solutions provided by Santander's Private Banking, and encourage us to keep up with the continuous development, and improvement of customer service and of our value proposition.
The year 2021 was marked by a general rise in stock markets: global equity markets appreciated by about 20%. This behaviour was justified by the economic growth recorded in this period following (1) the start of the distribution of vaccines against Covid-19 at the end of 2020, and (2) the expansionary monetary and fiscal policies implemented by most central banks and governments. In this context, there was an upward movement in the main yield curves, and the consequent devaluation of bonds issued by governments and companies.
Santander Asset Management (SAM) sought to manage its securities investment funds (FIM) in an active manner, with the aim of maximizing returns for all those participating in it. Thus, numerous initiatives were carried out throughout the
year, in particular the changes in investment policies of the mixed and bond Funds, with a view to a more flexible, global management, and merging the Popular Global range funds into the range of Santander Select funds. Additionally, two new innovative funds were launched, Santander Global Investment and Santander Multi-Strategy.
The year was marked by strong demand for investment funds, which ended with assets worth € 4.6 billion, benefiting from a growth of € 1 billion.
Retirement solutions were a very important focus of the Bank's commercial business, bearing in mind the growing challenges faced by families in this area. Retirement products grew by € 183 million, benefiting from the rebranding carried out for this type of product.
The Financial Insurance area recorded strong dynamics in open financial insurance, both in terms of the Individuals and Businesses Network, and in terms of the Private Banking segment also, closing with global assets worth € 3.7 billion. During this period, the Insurance range was complemented with the launching of Santander Future Wealth, an innovative product that provides access to major future trends: technology, sustainability and health. The various initiatives helped mitigate the volume of maturities that occurred within the period, of about € 315 million.
Throughout the year, the Bank kept promoting initiatives aimed at improving the quality of service and of Customer experience, for instance, with the implementation of a paperless contracting process. In terms of training, various initiatives were developed, mostly as internal webinars, and webinars for customers also, with the aim of promoting greater knowledge on financial markets and on product positioning.
The year 2021 was marked by high economic uncertainty arising from the pandemic context. During this period, the Bank reinforced its proximity to its customers, and improved its digital platforms, allowing for more useful and effective communication. Resilience, commitment, and innovation were differentiating factors in the Bank's relationship with its customers.
In the Corporate & Investment Banking area, the focus remained mostly on our customers and on offering solutions suited to their needs. In this section, we highlight the offer of ESG (Environmental, Social, Governance) products, and the focus on digital channels, highlighting the digital exchange contracting platform (via NetBanco Corporate).
The loan portfolio recorded a decrease of -1.7%, justified by the recovery of economic activity, which led to increased customer liquidity.
Regarding the same period last year, operating income increased by +1% due to the good performance of recurring business.
Net interest income grew by +3% compared to 2020, and, as far as commissions are concerned, there was a recovery in transactional items, in particular ATMs and POSs, after a sharp drop in 2020.
It is important to highlight the distinction by Euromoney with the award "Best Investment Bank Portugal 2021."
In the Global Debt Financing area, 2021 was marked by the presence of Santander, as bookrunner, in the following debt issuances:
Santander was present in all these issuances carried out this year in the Portuguese market.
With regard to structured financing business in 2021, it is worth highlighting the working capital financing operation for Medway Portugal, intended for the acquisition of new locomotives to enable the company's expansion in the Iberian Peninsula, in the amount of € 122 million euros, of which Santander ensured about € 77 million.
During this period, several relevant financing operations were also concluded in a wide range of sectors, of which several financing operations in the renewable energy sector and in the real estate sector stand out, namely, real estate development for student residences. Also in the retail, telecommunications infrastructure, and hospital infrastructure sectors, various financing agreements were concluded.
In 2021, the Corporate Finance area continued to develop an intense activity in Mergers & Acquisitions and Equity Capital Markets operations, of which it is worth highlighting the successful completion of the following financial advisory operations:
With regards to Treasury, particularly in the Corporate and Commercial Banking area, 2021 marked the consolidation of an alternative customer follow-up model, designed, tested and correctly implemented throughout 2020.
With the return to "normality" of most economic activities, and after the balance of activity in 2021 was made, it was concluded that the constraints caused by the pandemic in connecting with customers was overcome with great success, in a relationship of greater physical distancing, but with effective proximity in the presentation of solutions that responded to the needs of Companies supported by Santander Portugal.
With regards to Exchange and Interest Rate operations, activity grew quite smoothly, following the previous year's trend, supported by consolidation of the business model and the recognition by our customers for the services we provide.
Specifically in the Foreign Exchange area, it was possible to keep the business growth trajectory, compared to the same period in the previous year, based on the alternative contracting channels made available to all customers.
In 2021, there was, simultaneously: (1) an increase in the number of active customers in foreign exchange operations in the various segments (Companies, Private and Individuals); (2) growth in the number of customers who choose to use digital channels (the foreign exchange contracting platform available through NetBanco); (3) growth in trading volume; and (4) growth in the volume traded with customers with direct access to the Trading Room.
In this section, it is particularly noteworthy that, after the State of Emergency periods that kept many Banco Santander customers working from their homes, all means for contracting foreign exchange operations were always available, with a team permanently present in the Trading Room, the commercial teams available at the branches and commercial departments, and with the electronic platform, available through NetBanco Corporate, ensuring an adequate response to all customer needs.
Regarding interest rate risk management, the search for fixedrate credit solutions increased, namely with regards to Stateguaranteed facilities made available throughout 2021 (European Investment Fund Facility), whose formalization has mostly taken place in the form of flat rate.
The increased volatility in most financial markets, in a context of macroeconomic uncertainty, has justified a greater proximity to companies when renewing their financing or contracting new credit operations.
The escalation of the inflation rate that was already observed in some of the main world economies, the sharp increase in the value of commodities (with Brent in the spotlight), and the uncertainty surrounding the policies that will be followed by the Central Banks, gave rise to a greater need for interest rate risk coverage, both for new financing and for that already in progress.
In this context, in 2021 we witnessed a significant growth in formalized fixed-rate credit operations, with this modality representing a very significant percentage of all financing granted to Companies.
In the Retail Structured Products area, after a long period of adaptation to the new reality of negative interest rates, activity has been resumed, namely with the sale of 5 Structured Notes in 2021 for a total of € 40.4 million. It should be noted that the first two notes for 2021 are green notes (Santander 360º Sustainable, where all parties involved are 100% Santander – issuer, index, investor, sustainable asset). The capital of these notes was used to finance sustainable projects managed by Santander in accordance with Environmental, Social, Governance (ESG) criteria and their yield is indexed to the Eurostoxx® 50 ESG –X.
continues to be a country with an attractive legal framework for foreigners interested in investing in Portugal or wanting to live in Portugal permanently or with regular residence. On the other hand, the community of Portuguese emigrants
residing abroad has a very significant importance.
Attentive to these two segments — Residents Abroad and Foreigners —, 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 in and / or to establish their residence.
Santander has a remote service dedicated to Customers residing abroad — Santander Próximo International. It is a digital branch, dedicated to customers residing abroad, providing an innovative customer service, with all the technology for remote monitoring, plus a team 100% dedicated to these customers.
With this solution, any Santander customer residing abroad will be able to interact with the Bank remotely, in the same way as a customer living in Portugal.
In view of the Bank's commitment to digital transformation, there has been a decrease in the need for physical contact, so there has been a gradual reduction in terms of the Bank's physical presence, namely with the closure of representative offices in Germany, France, and Switzerland, countries where customers are already being followed through this digital, remote service model.
In 2021, Santander continued to strengthen its digital transformation process. This process — boosted by the pandemic context — has the main objective of being closer to our customers, and of simplifying processes through digital solutions.
This strategy has allowed the consolidation of the growth trend in the number of Digital Customers.
At the end of the last half of 2021, the Bank had 1 million digital customers, a 7% increase compared to the same period last year (70,000 more customers).
In 2021, it is worth highlighting the launching of the new Santander App in October. This was a significant milestone in the Bank's digital transformation plan, and integrates the strategy of building a common mobile banking experience model for the Bank's various geographies in Europe.
With regard to the adoption of digital channels, the growth trend in the number of Digital Customers continued throughout the year. The App showed a 19% growth in the number of users compared to the end of 2020 (+110 thousand). Currently, 683 thousand customers use the App at least once a month. Regarding the web channel, the number of users remained stable compared to the previous year, having closed the year with 448 thousand users in NetBanco Private with logins in the last 30 days.
Regarding the intensity of use, the average number of monthly logins per user was 8 logins for NetBanco, and 22 logins for the App. These figures are in line with those recorded at the end of the previous year for the NetBanco channel, but represent a slight reduction in the App channel, reflecting the growing adoption of this channel by customers with less intensive use.
The penetration of digital sales in private channels reached 56% in the last semester, representing a significant increase of 13 pp compared to the end of 2020.
With regard to satisfaction indicators, the NPS – Net Promoter Score for Private Digital Channels kept the positive trajectory
for NetBanco, having recorded a slight reduction in the App. Compared to the closing figures for 2020, NetBanco's NPS grew by 18 pp, while the App's NPS dropped by 4 pp. This reduction is also a reflection of the divestment in the old App, and it is expected that, following the launch of the new App in October, the level of satisfaction with this channel will increase again in 2022.
In 2021, Private Digital Channels had three main goals:
Thus, the modernization process of NetBanco was continued, with emphasis on the renewal of the card pages, the consultation and contracting of deposits, the top-up functionality, the consultation and creation of direct debits, the consultation of loans, and the portal for prepaid and meal cards. The improvements implemented reflect not only a more modern interface, but also a new information architecture, optimized for our customers' current needs.
Regarding the increased offer of products through Channels, the new SafeCare Health was launched. NetBanco customers can now also make term deposits in different currencies, contract pre-paid cards, subscribe to Funds and PPRs on a timely and periodic basis at the same time, as well as contract overdrafts on their account.
In the Late Payments area, customers in this situation can now pay the minimum amount, as well as settle their debt through external accounts, with the Open Banking capabilities available in both channels.
Since 2021, private customers have been able to update their personal, professional, and contact data on Netbanco through the digital mobile key. In addition, the descriptions of transactions were also improved and optimized, with a coverage of almost 90% of the volume of transactions already worked, revised and available to the customer.
The launch of the structural solution for opening a digital account, using the digital mobile key or through a video call, is also noteworthy. This solution is available on the Bank's public website and on the App.
Throughout 2021, Santander Portugal kept strengthening its relationship with its Corporate customers on its digital channels, through continuous improvement and modernization of existing functionalities.
In December 2021, NetBanco Corporate had 117,000 users with logins in the last 30 days, with an increase of 3 thousand users compared to the end of 2020 (a 3% increase).
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On the other hand, the Corporate App showed a 30% growth in the number of
users (+10,000 users compared to the end of 2020), reaching a total of 41,000 users at the end of 2021, and is leading the App Stores ratings in Banking Apps for Businesses.
Regarding intensity of use, the average number of monthly logins per user was 20 logins for NetBanco Corporate, and 21 logins for the Corporate App. These figures represent an increase of 1, and 3 average monthly logins in both channels, respectively.
Currently, on NetBanco Corporate, customers can consult new and improved pages on loans, escrow accounts, and guarantees. After having been allowed to consult commission statements at the beginning of the year, improvements were also made to the digital document pages, and the possibility of consulting Leasing invoices was also included.
Customers can also find out more information about their late payments and settle their situation through external accounts, through the option open banking.
In addition, since March, Corporate customers can contract their Santander Business credit card through NetBanco Corporate, as well as manage their card limits completely online.
A renewed login page was made available at Netbanco Corporate, allowing the recovery of username and password in an autonomous way.
Through the Corporate App, our customers can consult their digital documents such as account statements and tax returns,
as well as get proofs of their transfers from the details of account movements.
It is now possible to authenticate online purchases made, by using corporate customer cards through push notifications, and provide simplified access to cardholders who do not use the channels.
Features such as credit card payments, card cancellation requests, as well as smartphone top-ups, and other services, as well as the possibility of scheduling periodic transfers were also introduced in the App.
Our customers have been the permanent focus of our work and are the key to our creation of value.
Customer Experience
Customer focus is one of the Bank's strategic pillars, and its fulfilment is inseparable from the Customer Centre.
Developing banking activity with the customer at the centre requires a very concrete, real attitude that is close to the focus, which can only be achieved through an impartial laboratory whose mission is to listen, explore, analyse, and monitor the customer.
Abstracting our customers, ignoring their contact, underestimating their perception regarding the offer of products and services deviate us from the path.
This fact has created, in all areas, from the most operational to the most commercial, the need to integrate the Customer Centre as a step in the process of building, validating and modifying the strategy and, consequently, the solutions that serve our customer.
In two years, the Customer Centre contributed to improve the Bank's internal and external service, involving 700 people, of which 300 are employees, in a joint connection between the Commercial Network and Central Services, where everyone walks in the same direction.
Various user experience methodologies were applied to the 70 projects carried out, always appropriate and adapted to the object of research, which made it possible to provide the various areas with solutions aimed at the supreme goal of improving customer satisfaction in their relationship with the Bank, and of transforming Santander into the 1 st Bank within the Market in NPS.
2021 was a year of consolidation of the concept and of customer satisfaction results based on the NPS (Net Promotor Score) metric.).
With the NPS, the Bank intends to assess the reliability of its customers on the Santander brand. This need has led to an attempt to measure more and more experiences, favouring faster and closer contact with our customers.
Continuing with the previously adopted strategy, 2021 marked the conclusion of the "VOC – Voice of Customer" programme, in which 48 questionnaires were reviewed and adjusted to the best market practices, closing the year with an NPS of 60.5 pp, 9.5 pp more than in 2020.
In the same line, the Stars model was extended and enriched, which, similarly to what happens in the hotel industry, classifies each of the Bank's Branches within a ranking of 2 to 5 stars, incorporating new and more challenging attributes, whether in
terms of the customer's perception of quality, or operational aspects, related to effectiveness and good practices.
Understanding the customers' satisfaction or dissatisfaction reasons allows the Bank to act and improve customer experience, thus contributing to the Bank's transformation.
An example of the added value of such a robust measurement system was that it enabled an almost daily monitoring of the transformation process, thus allowing to react, mitigate impacts, and correct what was required in order to reverse the negative trend of some indicators.
Thus, two tactical plans were defined, with 25 additional measures, to react to the impacts of the transformation plan that was implemented, and which had the greatest negative impact in the summer.
In the benchmark study in which the most outstanding peers in the sector are monitored throughout the year, there is clearly a top of the table, one more ranking, where Santander is always positioned, and with a great balance between the 3 main banks that stand out.
Given such proximity between banks, any disturbance could result in losing positions in such ranking. This is what happened in 2021, when Santander Portugal lost the first position achieved in 2020 due to the impact of the transformation process that was expected to generate some drop in customer satisfaction.
However, the results of the last months of the year show that the Bank is recovering, having already closed 2021 in the first position, with the bank resuming the position which it wants to be Santander's position — precisely TOP 1.
This programme, started in 2020, is based on the involvement
of the entire bank in determining and implementing transformative measures from Customer Experience. Thus, 14 action measures were defined and implemented, aimed at responding to situations identified by customers through our accurate
measurement system.
A second goal of this programme was passed it on to the entire organization, in order to improve an entire customer culture, and ensure that the whole Bank keeps the customer at the centre of its business.
Thus, we started to prepare and internally publicize the concept that I'm the Bank, now materialized in a new attitude towards our customers, with each employee's clear commitment of being the bank himself/herself, and to present himself/herself before the customer with this indication on their coat.
We also started an initiative to review our behavioural standards under the motto "Serving with the Heart," with which we intend to review behaviours in order to generate empathy with our customers, "taking on their concerns," to allow a better response to their needs.
This new attitude is reflected in the new campaign in which we communicate customer experience. And under the motto "Let's go Together", we tell customers that we are here to serve them, and that each of our employees is the Bank, and considers as his/her ultimate objective to serve that specific customer.
We are increasingly and definitively a service bank at your service, and it is this vocation that we want to exercise in order to fulfil our purpose with distinction and decisively contribute to the prosperity of people and companies.
In April 2020, the customer experience area promoted a new original system of knowledge about our customers and the bank on the part of its first-line managers, consisting in each of the eighty eligible managers, making, each month, at least ten phone calls to customers who gave the bank a negative rating in satisfaction surveys carried out during the period.
The distribution of dissatisfied customers among managers was at random, in the sense that the type of dissatisfaction does not correspond to the usual duties of a given manager who takes charge of the respective customer, in order to promote overall knowledge of the Bank, to the detriment of specialization in just the most popular areas.
In the same way, the main agenda of the phone call is not to solve the specific issue that left the customer dissatisfied, but to establish and increase dialogue and personal relationships that may allow the manager to acquire knowledge, and create ties of recognition and trust with the customer.
The initiative was and is a success, with the dedicated involvement of managers, especially of the members of the Executive Committee.
The year 2021 was still marked by the Covid-19 pandemic, and, as far as banking is concerned, the moratoria and limitations in face-to-face service at the branches according to DG Health (DGS) guidelines were the main reasons for customer dissatisfaction. With this reaction in mind, Santander took preventive and continuous measures throughout the year with a view to mitigate all factors that generated greater dissatisfaction among customers, thus allowing it to maintain a positive trend of a 13% reduction in complaints received throughout the year, compared to the same period in the previous year.
Additionally, there was a reduction in entries by regulators, which demonstrates greater trust by customers in Santander's ability to solve situations and their concerns.
This favourability was decisive in the positive result of the three main indicators of the Bank of Portugal, published in the half-yearly report on Behavioural Supervision, with a reduction in the volume of complaints on each subject.
With the exception of the item cancellation of insurance associated with mortgage loans, which present significant materiality due to procedural changes of the Group's Insurance Companies, and which were reflected in complaints addressed to the Bank, the main complaints did not undergo significant changes in line with the years previous accounts, namely current accounts (closing and commissions), credit, cards, and even moratoria. However, with a relevant reduction compared to the same period last year, as a result of the improvements implemented throughout the year.
The main indicators of the year are as follows:
| Complaints | ||
|---|---|---|
| 2021 | 2020 | |
| Complaints received | 3,570 | 4,036 |
| Growth yoy | - 12 % | - 13 % |
| Complaints to Customers * Ratio | 0.97 | 1.10 |
| Complaints originated by Regulators | 69% | 70% |
* per 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, several technological solutions were implemented and improved, namely the improvement of applications that support contracting procedures, the monitoring of customers with more complete information, and greater efficiency in the execution of operations, continuing the evolution of the Cockpit as a gateway for all branch tools, and VOICE with aggregated information and customer knowledge.
From an external perspective, with improvements in the solutions available to customers through more features and a better user experience, of which we highlight the opening of a digital account in the Netbanco and App channels, and the implementation of the new Santander App for individuals, in
line with the One Europe initiative, which provides a more personalized, simpler, and more secure App.
From a mixed perspective, with internal and external benefits, we also highlight the improvements and automatizations introduced in the Contact Centre, more specifically in the SuperLine, guided towards the internal efficiency of procedures and improved customer service.
The year 2021 still had a relevant impact caused by the pandemic, in general terms, due to the challenges of the different work models, and, in particular, due to the need for a technological response to the management of public and private moratoria as an important support mechanism for families and businesses.
Along with the development and evolution of technological solutions, the Technology area kept an important focus on the compliance dimension, a fundamental pillar in Santander's operations, ensuring the implementation of initiatives to ensure compliance with legal and regulatory requirements, as well as the implementation of recommendations resulting from internal and external audits.
Throughout the year of 2021, we revisited and updated our IT Strategy, covering the dimensions of Technology, Operating Model, and People, operationalized through a set of initiatives, and measured through various success metrics. Thus, we launched several initiatives to speed up the transformation of information systems and the journey to the Cloud, the creation of enablers for digital transformation, and the promotion of a development model with greater agility and automation. The foundations created during this year will be the fundamental pillars for accelerating next year's IT Strategy.
The Bank keeps renovating its infrastructure in order to ensure controlled levels of obsolescence. During the year, some AIOPS initiatives were launched with a view to evolving the systems monitoring model to a higher level of maturity, which is able to predict, correlate and avoid events that cause infrastructure errors.
Under the aegis of "Helping people and businesses thrive", the Cybersecurity area guided its plan of activities following the multiple challenges that it had already been managing since the beginning of the pandemic situation that has been affecting the country, and, in particularly the financial sector. Having completed the Cybersecurity Transformation Plan, it continued with its journey by analysing the threats that are expected to affect the business and the technology on which it is based, in order to face the emerging risks with confidence.
In a financial ecosystem that is progressively more interconnected and interdependent, it has invested in resilience by adopting innovative solutions in the detection and response
People Management
Introduction
A committed team
to emerging risks and threats in key areas such as fraud management, cyber risks in the perimeter of the supply chain, and in solutions based on Security by Design.
Because data is the new perimeter, cyber resilience emerges as a commercial advantage that is required to be competitive and to drive the trust and loyalty, of our customers, partners and society in general. These pillars that guide us, translate into initiatives as diverse as the creation of cyber services focused on our customers, security of access to the Bank, and actively collaborating in public-private initiatives that enable a better response capacity to society in general through information sharing and cyber excellence.
The Operations area pursued the Transformation Project with the same strategic objectives defined initially, including technological evolution, process automation, and the digitization of operations, guided by the quality of service provided to our customers and improved execution times (SLAs - Service Level Agreements) with a commitment to improve our customers' NPS.
Thus, the year was essentially marked by the expansion of the Business Process Management (BPM) platform to Commercial Networks, where the integration of the platform into the Commercial Network framed with the ergonomics of the Branch within the scope of its daily operations was guaranteed, enabling less duplication of activities with the automatic filling of data and validation within the context of the Bank's systems, the adoption of standardized forms, among others. This action helped to simplify operations, reduce the administrative burden, and offer a better user experience (e.g., end-to-end visibility of all tasks, assisted execution with a checklist of documents, among others).
Additionally, along with these activities, and as a result of an analysis conducted to all Operation procedures with a joint view of their execution, with the purpose of defining and implementing a set of automation and process reengineering initiatives, enabling the integration of transactions, easier execution and operational simplification, both in Operations and in the Commercial Network. While also reinforcing sustainability and digitization criteria, the digital strategy aimed at Operations increased its pace of implementation, with the aim of simplifying processes and reducing the consumption of physical documents in the workflow (leveraging the adoption of digital tools), thus helping to accelerate process execution and reduce costs, by reducing paper consumption and the amount of space used for physical archives.
This activity plan pursues the initial goals of the Transformation Project, allowing for excellence in the execution of all operational tasks, and decisively contributing to the NPS (Net Promoter Score) of our customers.
Our team reflects the diversity of our communities and adapts to the new business environment, inspiring customer loyalty and responding to the needs of society.
Our employees, the cornerstone of our strategy
Treating our employees responsibly, building stronger teams, willing to inspire our customers' loyalty, guaranteeing that our shareholders get the return they expect.
In this way, we are able to invest more in our communities, which makes our Employees feel proud of being part of Santander, forming a virtuous circle of loyalty that drives our success.
In Portugal, in 2021, Santander was certified as a "Great Place to Work" by the Great Place To Work — a leading external entity, and we maintained the 75 Measures as a Family-Responsible Company, in which the Bank has certification for the triennium 2020/2022, with level (A) of Excellence, as a Family-Responsible Company (EFR) — Foundation Más Familia. In Portugal there are only 2 companies with this certification, one of which is Banco Santander.
In the global commitment survey, conducted across the entire Group from May 24 to June 11, 2021, we highlight the alignment of Employees in Portugal with the Santander Way: i) respect for useful and purposeful work (94% favourability, 6 pp above the Santander Group, and 16 pp above the financial sector benchmark), and the possibility of helping in the mission of contributing to the development of people and companies (91% favourability, 11 pp above the last survey carried out in 2019); and ii) alignment with the Risk culture, the belief in the priority of cybersecurity (92% favourability), and the sense of responsibility for the risks faced (also with 92% favourability). volunteers. Talent Management
We also highlight 91% of responses in favour of the response to the pandemic — "Where I work, everyone takes personal responsibility to follow the safety rules and procedures related to the coronavirus."
The year 2021 required an ongoing strong focus on managing the pandemic, as a result of the different COVID19 variants that appeared throughout the year.
As a result of the new ways of working in the acceleration, simplification, and digitization of end-to-end processes, of automation and of increased number of digital Customers, the year 2021 was marked by a major restructuring of the Bank.
We keep progressing and developing our work in a more responsible and sustainable way, focusing on our mission — to contribute to the development of people and companies — in a simple, close, and fair way.
The Bank has been launching several initiatives in the field of sustainability, and, in 2021, we implemented measures to reduce paper, thus contributing to the preservation of trees, improving the environment, and reducing unnecessary costs.
The pandemic has changed the way we work, making us more digital and proving that we can carry out our tasks without printing. Thus, in central buildings, i) we have reduced the number of printers, ii) we relocated them to places further away from the workstations, thus discouraging printing, and iii) we established monthly printing quotas for all Employees.
Also, within the scope of a more sustainable Bank, we replaced all paper business cards with sharing telephone contacts and consulting the App.
This year also represented the opportunity to be part of the Bank's simplification and transformation into a digital platform, to work with inspiring professionals who care about people's professional and personal growth, and to participate in building a better company to work for.
Transforming the Bank into an open financial services platform was accelerated, 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.
Also, in terms of restructuring and reducing the number of Employees, which was a major focus in 2021, the Bank created the New Stage Programme, which consisted of an Office and a New Stage Pack.
This program was designed to support people leaving the Bank and transitioning to a new personal and professional stage, namely for all people who leave the Bank by mutual agreement or that retire before the age of 65, encompassing a set of benefits and support upon departure — a new stage pack lasting up to 3 years, depending on benefits.
We followed, adapted and adopted all recommendations from the Government and the health authorities on Covid-19 in 3 main pillars: (1) development and implementation of health and safety protocols; (2) prioritization and monitoring of our employees' health, namely through a survey conducted by Occupational Medicine on the vaccination rate of our Employees; and (3) testing, through a protocol with a reference laboratory, and availability of antigen tests at the Santander Centre via our nursing office — Occupational Medicine.
Our talent management strategy helps us attract and retain the most talented and qualified employees.
It also contributes to accelerating our transformation by encouraging their continuous development. Several corporate projects in progress that contribute to this objective are the following:
These programs are complemented by local initiatives to nurture talent according to the specific requirements of each geography.
| 2021 | 2020 | 2019 | |
|---|---|---|---|
| Total Employees (thousands) | 4.817 | 6.012 | 6.226 |
| % employees with open-ended contracts | 100.0 | 100.0 | 99.7 |
| % employees working full time | 99.8 | 99.9 | 99.9 |
| % employees promoted | 3.9 | 8.7 | 3.9 |
| % employees covered by collective agreements | 99.8 | 99.6 | 99.5 |
In order to communicate all the procedures, protocols, and all the changes and measures that we have launched as a consequence of the Covid-19 crisis, the People Management area kept the line of communication implemented in 2020 active, communicating in a simple, close way with Employees, establishing a strong connection with the Bank, both in teleworking and also when returning to the workplace, conveying support, security, and confidence.
We communicated with all Employees, through informative emails, with creative headlines, appealing messages, illustrated with images from the Santander brand manual.
This "new" way of communicating also contributed to a better understanding of the Santander Way. The Santander Way is the "path" chosen by the Group to identify the Group's and the Bank's culture, always highlighted and included in all internal communications.
We believe that, in this way, the results of the Bank and its employees, the quality of customer service, the delivery of shareholder value, and support we provide to society will be carried out in a responsible, sustainable manner.
The 8 behaviours that should be applied by all employees in their daily lives are: I Promote Change, I Promote Collaboration, I Speak Clearly, I Listen Carefully, I Support People, I Work With Passion, I Show Respect, and I Keep my Promises. These 8 behaviours will help us be:
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 our leaders were created, guiding and aligning the path and expectations in order to be responsible by focusing on the following areas of activity:
The focus on leadership development has been, for many years, a strategic axis of action, since the framing of teams has an impact on individual performance, and, consequently, upon the organization as a whole.
To embody this commitment, two executive training programs were developed entirely according to the needs identified:
• Elevate: a program aimed at developing leadership skills in 4 main areas: 1. Elevate myself; 2. Elevate my team; 3. Elevate the business and 4. Elevate the vision.
The programme totalled 120 hours of training for a universe of 35 employees, thus totalling 4,200 hours.
• At the same time, many opportunities were granted in open programmes at the best universities in the country, in order to promote not only the acquisition of current and relevant knowledge, but also the exchange of experiences with workers from other sectors.
In order to transform the Bank into the best open platform for financial services, we have a value proposition with advantages for candidates and attractive communication, used internally for employees and also for external candidates. A global recruitment process is also being developed. This way of acting is already being implemented in the ongoing recruitment processes, with Santander taking on the main objective of acting uniformly, and that newly integrated employees are welcomed in the same way, regardless of the country that hires them, and that they receive, from the very beginning, the same values and principles that characterize the Santander brand throughout the world.
As part of the staff rejuvenation process, throughout 2021 we recruited 92 people with skills in areas associated with the Bank's transformational process.
Our employee value proposition drives the impact that technology and digital experts can have on the organization. Thus, we keep closely connected to leading universities in the field of Technology and Digital, seeking to attract the best talents, which is critical to support our digital transformation.
Santander's transformation is driven by our continuous learning approach. Our training and development programmes help employees acquire new skills, increase performance and productivity, and become better professionals. There is also a concern to improve the leadership skills of team leaders, as they have a critical role in the performance of the entire organization.
These are the main corporate talent and career development programmes:
support to create a development plan based on their main strengths and areas for improvement.
• Elevate
Mobility is vital for the development of our employees, and for setting up teams with as much diversity as possible. The main corporate mobility programmes are the following:
Due to travel restrictions caused by the pandemic, the Santander World programme was redesigned so that participants can work virtually on international projects, in order to promote the development of their careers in these new circumstances.
In 2021, a total of 5,836 employees participated in training initiatives, 78% of which through e-learning.
A total of 219,786 hours of training were imparted, representing an investment of about €1.3 million in training, over the year.
Corresponding to an average of 44.6 hours per capita distributed in three modalities: e-learning, virtual classes, and in person classes.
In 2021, online training and several webinars were offered to Employees on topics such as: human rights, namely diversity and inclusion; health and safety; customer and supplier relationships; the environment, and the fight against corruption.
The Group's remuneration model is quite comprehensive, and combines variable and fixed regimes, based on employee and company results.
Variable remuneration, in the short and long term, reflects what we have achieved (quantitative and qualitative objectives at Group level, as well as individual and team objectives), and how we have done it (e.g., behaviours, leadership, sustainability, commitment, growth, and risk management).
In addition, employees have competitive benefits, banking products and services, and life and health insurance.
Fixed remuneration schemes reflect local market conditions. For fixed remuneration, the reference criteria and the collective agreements in force in each country are strictly applied.
In order to comply with EU regulations on remuneration, the Santander Group classifies its employees as identified employees, whose decisions may have a material impact on the Group's capital. These employees are subject to a variable remuneration deferral policy. This policy suspends a significant amount of their variable remuneration (40%-60%, depending on their responsibilities) for a period of three to seven years, in accordance with internal and local regulations. 50% of this remuneration is delivered in shares and is subject to potential reductions malus) or recoveries (clawback).
Main initiatives in 2021:
MyContribution is the Group's Performance Management common model. Performance Management is essential to enriching our culture and ensuring that Employees do their best to achieve their career goals.
Our commitment to a diverse, inclusive work environment is a cornerstone of our corporate strategy.
The global executive D&I working group and the network of local D&I representatives of the Santander Group play a vital role in driving and creating a "ripple effect" on the importance of diversity and inclusion across the Group.
To recruit, manage and develop talent that reflects society in general, we maintain a diversity and inclusion (D&I) strategy.
The aim of this strategy is to consolidate an inclusive team in terms of gender, LGBTI, people with disabilities, and cultural diversity (age, ethnicity, religion and educational background), by:
Our strategy also prioritizes equal pay for the same role between men and women. We measure this indicator in terms of equal pay gap and gender pay gap.
The Santander Group has plans in place to include and increase accessibility for people with disabilities. We believe that the inclusion of people with disabilities is a matter of talent, ethics
and responsibility. While promoting their independence, freedom and dignity, it enriches the teams these people join. Our D&I strategy defines two main objectives to promote the inclusion of people with disabilities:
Best practices for the inclusion of people with disabilities — Santander Portugal
It is important to highlight our active role with the Inclusive Community Forum (ICF), under which we helped establish an inclusive recruitment process, which was taken up by the partner companies of this forum.
Another program worth being highlighted in this area, which has the support of Santander, is the Salvador Employability Programme 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. Thus, we helped the Salvador Association develop skills in the young people it supports through bootcamps and job fairs.
We are part of the network of Receptive Companies of the Portuguese Association of Asperger Syndrome (APSA). As part of our support to this association, we have hired two persons who are currently working for Santander.
Our teams' motivation is vital to ensure commitment and success in the mission of supporting the development of people and companies.
In a responsible Bank, everyone should feel that they can suggest better ways of doing things, and warn management when things go wrong or when they suspect misconduct.
In the Global Commitment Survey, conducted in 2021, we had 82% favourable responses to the question: "Can I have constant, open conversations with my line manager to improve my performance".
The Group, in line with our corporate behaviour, listens carefully to all our colleagues and encourages them to speak clearly and openly.
In order to drive change, we take action driven by feedback, data and experience, rather than by processes. We carry out many large-scale internal listening exercises, such as employee surveys (our Global Commitment Survey), performance checks and appraisals, exit interviews, incident follow-up, and reporting channels.
We are also evaluated by external certifications, such as Top Employer and/or Great Place To Work, which highlight the way in which we listen to employees.
The Open Channel was implemented in the main markets of the Santander Group.
In Portugal, it has existed since 2020 with the purpose of allowing employees to report breaches to the general code of conduct, and actions that do not comply with corporate behaviour.
We offer various benefits to employees in all geographies. Each country establishes programmes adapted to local conditions, with benefits ranging from free services for employees and their families, to discounts on products and services.
During the pandemic, we expanded these services to ensure the well-being of employees during this challenging time. We focused particularly on helping employees stay physically and psychologically healthy during the lockdown. We have adapted health coverage to new circumstances and needs.
We maintained and adapted, in 2021, the package of measures within the scope of Covid-19:
In 2021, we extended the measure, by including antigen tests, and provided the Santander Centre nursing office with antigen tests, so that Employees with symptoms, with direct contacts or if they needed to present a negative result to this test, could carry out the antigen test by directly calling the Nursing Office.
It is an acknowledgment made by the Bank to its employees' children that complete secondary education with averages equal to or above 16/20. This measure also came up in order to reward what is considered to be a reflection of the merit of parents who encourage meritocracy, and pass on to their children the importance of doing well.
The prizes awarded in 2021, materialized in a gift card delivered at the event, corresponding to the amount of 3, 2 and 1 year of university tuition fees, whose reference value is that announced by the General Directorate of Higher Education for each academic year, which for the year of 2021, was € 697.00. The total investment by the Bank was € 66,912.00.
The first 8 students were offered the amount of the tuition fees for a 3-year graduate degree (2,091 euros), those in second position (20), received 2 years of higher education tuition fees (1,394 euros), and those in third position (32), received the amount corresponding to 1 year of tuition fees (697 euros). Santander already has a history of being close to the academic world, and this award aims to reinforce what is already being done, and to meet the talent and excellence of its employees' children.
Yet another year in which the Bank offered its Employees' children (up to the age of 16) a Christmas gift — a rechargeable card with €25 — the STAR card.
The Santander Group promotes a good balance between professional and personal life, through flexible work, as well as health and well-being programmes for its employees.
Our global FlexiWorking model includes several formal and informal measures related to "where", "when" and "how much" we work.
We motivate Employees to improve their work-life balance.
We are committed to promoting practical time management and the use of technology that helps employees better organize their work and protect their right to "digitally disconnect" when away from their workplace.
In Portugal, FlexiWorking allowed more than 90% of Employees working at central services to work remotely during the peak of the pandemic.
We work with agile methodologies to promote collaboration, speed up decision making, and drive change through remote teams in multiple countries. In Portugal, more than one third of central services already work under the agile methodology.
Volunteering creates a strong team spirit and a sense of purpose, while supporting the communities we serve. The corporate volunteering model, included in the Corporate Culture Policy, allows employees to dedicate a certain number of working hours per month or per year to volunteering initiatives.
Annually, two important volunteering events are held for employees at Group level: the We're Santander week, observed in all countries at the same time, and the International Volunteering Day. Locally, the Group's subsidiaries organize various volunteer programmes as part of their community investment commitments.
We kept supporting communities despite the pandemic
We did not give up our collaboration and commitment to social organizations during the pandemic. Our volunteers continued to dedicate their time to promoting a more inclusive society.
The Bank's Executive Committee offered 25 euros per Employee to promote team spirit and sharing, allowing Christmas dinners to be held until the end of January.
Keeping our employees safe, healthy, and well has always been a key priority for us.
In addition to the measures we have taken to protect employees, we have collective bargaining agreements and other sectoral and banking sector agreements that include provisions on the prevention of occupational health and safety risks, such as regular check-ups and analyses or after prolonged absence.
We have a global head of health and safety to coordinate and centralize all initiatives related to employee well-being.
We also work to regularly review our occupational risk prevention plans, which we implement through:
On the question "Does my direct line manager help me maintain a good balance between my work and personal life" we received 81% favourable responses in the 2021 Global Commitment Survey.
Also, on the question "Is Santander taking the appropriate measures to ensure that its employees are safe and healthy during this pandemic stage", we received 82% of favourable responses.
Santander has a corporate program that aims to position the Bank as the healthiest company in the world. This programme is called
BeHealthy, and aims to promote and create healthy lifestyle habits for its employees based on 4 pillars of development:
Every year the Santander Group — in all countries where it is present — holds the "Santander Week", where the main beneficiaries 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 ties between teams, hierarchies and employees. In 2021, this event was held remotely, in September, and was dedicated to the Bank's Culture - the "Santander Way." On each day of the week, focus was given to each of the 5 dimensions: 1) Values: Simple, Close and Fair; 2) Behaviours; 3) Risk Pro; 4) the 4 Leadership commitments; and 5) the Santander Way,
During this week we held several events:
• Videos with the CRO, on "risk pro" — Santander's risk culture, the "Collections and Recoveries" strategy, as well as the Cybersecurity challenges
At the end of 2021, Santander Totta achieved a consolidated net income attributable to BST shareholders of €270.5 million, compared to €257.7 million recorded in the same period of the previous year, up by 4.9%, in an economic environment constrained by the pandemic situation.
Return on Equity (ROE) stood at 6.6%, and the efficiency ratio at 40.8%. (5.3pp below the 2020 figure).
Loans and Advances to Customers (gross) totalled € 43.4 billion, representing a year-on-year rise of 1.7%. Loans to individuals increased by 5.6%, and loans to companies declined by 1.3%. State-guaranteed credit facilities amounted to € 1.8 billion. Altogether, over 16,000 customers were supported.
The Non-Performing Exposure ratio stood at 2.3%, decreasing by 0.3 pp, compared to the 2.6% recorded in 2020, with provisions coverage of 81.0% (8.7 p.p. more than in the same period last year).
Customers' resources reached € 47.4 billion, increasing by 9.0% over the same period last year, with an increase of 7.4% in deposits, and 16.6% in off-balance sheet resources.
The Common Equity Tier 1 ratio (fully implemented) amounted to 26.4%, increasing by 5.6 p.p. compared to the same period last year.
The MREL ratio stood at 26.5% (fully implemented), above the requirement of 17.8%, required from January 1, 2022.
Financing obtained from the European Central Bank, in the amount of € 7.5 billion, refers entirely to long-term operations, through the TLTRO III Programme, which, together with the growth in deposits, resulted in a net exposure surplus to the Eurosystem.
In long-term financing, there are also €2.0 billion of mortgage bonds, and €0.5 billion of securitizations.
Short-term funding, either through repurchase agreements or through institutional deposits, was nil.
The liquidity reserve reached €17.1 billion.
The Liquidity Coverage Ratio (LCR), calculated in accordance with the CRD IV rules, stood at 131.6%, thus meeting the regulatory requirement on the fully-implemented basis.
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 – Baa2 (Portugal – Baa2); Standard & Poor's – BBB (Portugal – BBB); and DBRS – A (Portugal – BBB high).
| CONSOLIDATED INCOME STATEMENTS (million euro) | Dec-21 | Dec-20 | Var. |
|---|---|---|---|
| Net interest income | 728.7 | 785.0 | -7.2% |
| Income from equity instruments | 1.5 | 1.7 | -11.4% |
| Results from associates | 4.2 | 5.6 | -24.7% |
| Net fees | 432.1 | 377.7 | +14.4% |
| Other operating results | 9.6 | 8.4 | +15.1% |
| Commercial revenue | 1,176.2 | 1,178.3 | -0.2% |
| Gain/losses on financial assets | 141.3 | 96.5 | +46.4% |
| Net Income from Banking Activities | 1,317.5 | 1,274.8 | +3.3% |
| Operating costs | (472.6) | (519.4) | -9.0% |
| Staff expenses | (279.4) | (321.8) | -13.2% |
| Other Administrative Expenses | (193.2) | (197.6) | -2.2% |
| Cash contributions to resolution funds and deposit guarantee schemes | (37.7) | (35.6) | +5.8% |
| Depreciation | (49.3) | (52.0) | -5.2% |
| Net operating Income | 757.9 | 667.7 | +13.5% |
| Impairment, net provisions and other results | (354.8) | (299.2) | +18.6% |
| Income before taxes and non-controlling interests | 403.1 | 368.5 | +9.4% |
| Taxes | (132.6) | (110.7) | +19.8% |
| Income after taxes and before non-controlling interests | 270.5 | 257.7 | +4.9% |
| Non-controlling interests | 0.0 | 0.0 | -100.0% |
| Consolidated net income attributable to BST shareholders | 270.5 | 257.7 | +4.9% |
At the end of 2021, net interest income stood at € 728.7 million, down by 7.2% from the € 785.0 million recorded in the same period of 2020, as a result of negative market interest rates, the reduction of credit spreads, in the context of a very competitive sector, and the management of the public debt securities portfolio.
The results from associates amounted to €4.2 million, decreasing by 24.7%, compared to the €5.6 million recorded in the same period last year.
Net fees amounted to € 432.1 million, representing an increase of 14.4%, compared to € 377.7 million recorded a year earlier, with special emphasis on account commissions, with the offer of bundled accounts with a set of associated services and means of payment, due to the greater volume of transactions, given the progressive reopening of economic activity, of funds and of insurances, reflecting the diversification of customer resources, and the strategic focus on the distribution of autonomous
insurance and credit, due to the commercial dynamics of the new concession.
Other operating results stood at €9.6 million, 15.1% above the €8.4 million in the same period last year.
The commercial revenue reached €1,176.2 million, 0.2% less than the €1,178.3 million recorded in the same period of 2020, with the favourable evolution of commissions, mitigated by the reduction in net interest income.
Gain/Losses on financial assets amounted to €141.3 million, up by 46.4% compared to the €96.5 million obtained a year earlier, influenced by the result generated in the management of the public debt securities portfolio.
Net income from banking activities amounted to €1,317.5 million, up by 3.3% from the €1,274.8 million at the end of 2020.
Net fees, Income from equity instruments, Results from associates and Other operating results
Operating costs stood at € 521.9 million, down by 8.7% from the € 571.5 million recorded in the same period last year.
In 2021, the Bank implemented an operational and commercial transformation plan to adapt to a more competitive and digital context, with a significant investment in organizational simplification, process automation, and technological capacity, aimed at improving the quality of service provided, customer satisfaction and loyalty, which led to the reduction of 84 branches and 1,193 employees.
Staff expenses totalled €279.4 million, down by 13.2%, compared to the €321.8 million in the same period last year. Other administrative expenses reached €193.2 million, 2.2% less compared to the € 197.6 in 2020.
Depreciations totalled €49.3 million, down by 5.2%, compared to the € 52.0 million at the end of 2020.
In the operating cost structure, staff expenses account for 54% of the total, followed by other administrative expenses at 37%, and depreciations at 9%.
| OPERATING COSTS (million euro) | Dec-21 | Dec-20 | Var. |
|---|---|---|---|
| Staff expenses | (279.4) | (321.8) | -13.2% |
| Other Administrative Expenses | (193.2) | (197.6) | -2.2% |
| Depreciation | (49.3) | (52.0) | -5.2% |
| Operating costs | (521.9) | (571.5) | -8.7% |
| Efficiency ratio | 40.8% | 46.1% | -5.3 p.p. |
At the end of 2021, the efficiency ratio stood at 40.8%, which corresponds to a decrease of 5.3 pp, compared to 46.1% in the previous year, given the 3.3% increase in Net Income from Banking Activities, and an 8.7% decrease in operating costs.
The cost of cash contributions to the Resolution Fund and the Deposit Guarantee Fund amounted to € 37.7 million, +5.8%, compared to the cost of € 35.6 million incurred in the previous year.
Net Operating Income reached € 757.9 million, up by 13.5% from the € 667.7 million recorded in the same period last year, reflecting the positive evolution of revenues and the decrease in operating costs.
Impairment, net provisions and other results recorded a cost of € 354.8 million, up by 18.6%, when compared to the cost of € 299.2 million in the same period of the previous year.
Net impairment of financial assets at amortized cost totalled a cost of € 73.5 million, 60.8% less than the cost of € 187.7 million recorded a year earlier, when an additional overlay provision had been established, following the inclusion of the forward looking component of the macroeconomic scenario associated with the pandemic context. The recovery of economic activity and the prudent conduct adopted in the event of a possible degradation of the loan portfolio, allowed the partial reversal of the overlay provision previously established.
Net provisions and other results include an extraordinary provision of € 235.0 million for the Bank's transformation plan, through the optimization of the branch network and investments in processes, digitalisation, and technology. A cost of € 22.5 million was also recorded, referring to the initial allocation to the Santander Portugal Foundation, whose purpose is based on intervention in the education, employability, ecology, and social fields.
The regulatory cost with the Banking Sector Contribution and the Solidarity Contribution in the amount of € 35.1 million, increased by 1.7%, compared to the € 34.5 million, observed last year.
Income before taxes and non-controlling interests totalled € 403.1 million, up by 9.4% compared to the € 368.5 million in the same period last year.
Taxes amounted to € 132.6 million, a 19.8% increase compared to the € 110.7 million recorded a year earlier.
At the end of the financial year of 2021, Santander Totta recorded a consolidated net income attributable to BST shareholders of € 270.5 million, 4.9% more than the € 257.7 million recorded in the same period of 2020.
At the end of 2021, the business volume amounted to € 90.9 billion, up by 5.4%, compared to the amount of € 86.2 billion in the same period in 2020, resulting from the 1.7% increase in
Loans and advances to customers (gross), and the 9.0% increase in customer resources.
| BUSINESS VOLUME (million euro) | Dec-21 | Dec-20 | Var. |
|---|---|---|---|
| Business Volume | 90,854 | 86,220 | +5.4% |
| Loans and advances to customers (gross) | 43,416 | 42,681 | +1.7% |
| Customers' Resources | 47,438 | 43,539 | +9.0% |
The loans / deposits ratio, measured by the ratio of loans and advances to customers (net) to deposits, stood at 108.8% in
December 2021, 6.1 pp less than in the same period last year, given the lower growth in credit than in deposits.
LOANS / DEPOSITS RATIO (Transformation ratio)
At the end of 2021, the loans and advances to customers (gross) portfolio amounted to € 43.4 billion, 1.7% more than in the same period of the previous year, reflecting the favourable
evolution of the production of mortgage credit, of credit facilities guaranteed by the State, and of public and private investment projects, within the scope of European Funds.
| LOANS (million euro) | Dec-21 | Dec-20 | Var. |
|---|---|---|---|
| Loans and advances to customers (gross) | 43,416 | 42,681 | +1.7% |
| of which | |||
| Loans to individuals | 24,035 | 22,768 | +5.6% |
| of which | |||
| Mortgage | 21,921 | 20,671 | +6.0% |
| Consumer | 1,716 | 1,681 | +2.1% |
| Loans to corporates | 16,159 | 16,371 | -1.3% |
Loans to individuals totalled € 24.0 billion, corresponding to a 5.6% increase, compared to the € 22.8 billion in the same period last year.
Housing Credit, amounting to € 21.9 billion, grew by 6.0%, year on year. Santander Portugal followed the upturn in the housing credit market, with a strong commercial dynamic, and the production of new housing credits reaching a market share above 20%.
Consumer credit, in the amount of € 1.7 billion, showed a yearon-year growth of 2.1%, reflecting the increase in expenditures, in the context of the reopening of economic activity.
Loans to companies stood at € 16.2 billion, down by 1.3% yearon-year, due to the maturity of operations in large companies' segment in the last quarter of the year, in a context of high liquidity. Santander Portugal maintained its strong commitment in supporting the Portuguese business community, namely by providing companies with state-guaranteed credit facilities (more than 16,000 customers were supported, totalling € 1.8 billion), and by supporting public and private investment projects within the scope of European Funds.
The Non-Performing Exposure (NPE) ratio, calculated in accordance with the EBA definition (in relation to balance sheet exposures), stood at 2.3% in December 2021, recording a reduction of 0.3 pp compared to 2.6% year-on-year, with impairment coverage of 81.0% (72.3% in December 2020).
billion euro
The cost of credit stood at 0.17%, 0.28 pp less than the 0.45% recorded in the same period last year.
In the last quarter of 2021, after the end of the legal credit moratorium, normal compliance with payment plans was resumed by the Bank's customers, with no relevant implications for the quality of the credit portfolio, while the usual follow-up was naturally carried out in these adjustment stages, after a long moratorium period.
| CREDIT RISK RATIOS | Dec-21 | Dec-20 | Var. |
|---|---|---|---|
| Non-performing exposure Ratio | 2.3% | 2.6% | -0.3 p.p. |
| Non Performing Exposure coverage ratio | 81.0% | 72.3% | +8.7 p.p. |
| Cost of credit | 0.17% | 0.45% | -0.28 p.p. |
At the end of the financial year of 2021, customers' resources amounted to € 47.4 billion, a growth of 9.0% compared to the same period in 2020, with a 7.4% growth in deposits, and of 16.6% in off-balance sheet resources.
| RESOURCES (million euro) | Dec-21 | Dec-20 | Var. |
|---|---|---|---|
| Customers' resources | 47,438 | 43,539 | +9.0% |
| On-balance sheet resources | 38,959 | 36,270 | +7.4% |
| Deposits | 38,959 | 36,270 | +7.4% |
| Off-balance sheet resources | 8,479 | 7,269 | +16.6% |
| Investment funds marketed by the Bank | 4,340 | 3,252 | +33.4% |
| Insurance and other resources marketed by the Bank | 4,139 | 4,017 | +3.1% |
Banco Santander Totta, S. A. 52
Deposits amounted to € 39.0 billion, up by 7.4%, compared to the € 36.3 billion in the same period last year, constituting the main source of funding of the balance sheet, and reflecting the increase in the savings rate of families, as well as the trust and connection of customers with the Bank, in a context of interest rates at historic lows.
Customers' off-balance sheet resources stood at € 8.5 billion, up by 16.6%, when compared with the € 7.3 billion in 2020.
Investment funds managed or marketed by the Bank, in the amount of € 4.3 billion, rose by 33.4%, compared to € 3.3 billion
At the end of 2021, the Common Equity Tier 1 (CET 1) ratio calculated according to CRR / CDR IV standards — stood at 26.4% (fully implemented), an increase of 5.6 p.p. compared to the 20.8% in the same period last year, reflecting the Bank's ability to generate organic capital and the management of riskweighted assets.
Considering 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 2021. in the same period last year. Insurance and other resources, in the amount of € 4.1 billion, grew by 3.1% year-on-year. This evolution reflected the Bank's investment policy, with a more flexible and global portfolio management, with the objective of maximizing return, and the launching of innovative products, in a context marked by favourable feelings by investors, with a strong dynamic in the search for investment funds and financial insurance, through the strategy pursued to diversify resources, in a context of negative market interest rates.
Santander Totta has a very high capitalization rate, above the minimum requirements set by the European Central Bank within the scope of the Supervisory Review and Evaluation Process (SREP). In 2021, CET1 ratio was 8.3%, Tier 1 ratio was 10.1%, and Total Capital ratio was 12.5%, fully implemented).
The 26.5% MREL ratio (Minimum Requirement for Own Funds and Eligible Liabilities) was above the fully implemented requirement of 17.8%, required from January 1, 2022.
| CAPITAL (million euro) | Dec-21 | Dec-20 | Var. |
|---|---|---|---|
| Common Equity Tier 1 | 3,797 | 3,729 | 1.8% |
| Tier 1 Capital | 3,797 | 3,729 | +1.8% |
| Total Capital | 4,178 | 4,138 | +1.0% |
| Risk Weighted Assets (RWA) | 14,408 | 17,954 | -19.8% |
| CET 1 ratio | 26.4% | 20.8% | +5.6 p.p. |
| Tier 1 ratio | 26.4% | 20.8% | +5.6 p.p. |
| Total Capital Ratio | 29.0% | 23.1% | +5.9 p.p. |
On the night of the 23rd to the 24th of February 2022, Russia launched a military offensive in Ukraine, resulting in a conflict that again brings a war scenario to Europe, which is still ongoing at the time of approval of this Report. Negotiations are taking place between the parties, while hostilities are going on, and it is not possible to assess when the conflict will end.
Most of the international community reacted by condemning the military aggression, in support of Ukraine, and the G7 imposed heavy economic sanctions on Russia. These, however, will also, predictably, have adverse effects on the main developed economies, and, in particular, on the European Union, aggravated by the escalation of commodity prices, which reached maximums of more than a decade, as in the case of oil.
As mentioned in the chapter "Main risks and uncertainties for 2022", the evolution of Santander's activity in Portugal will depend on the impact, upon the Portuguese economy, of the two factors mentioned therein.
The different impacts contribute to increased uncertainty, together with the possibility of a reduction in purchasing power on the part of families, resulting from higher inflation rates, which could be amplified if the European Central Bank reacts by increasing reference interest rates.
In such a context of uncertainty, Santander Portugal remains focused on pursuing its well defined strategic lines, namely support to families and companies, with a special orientation to adopting the necessary initiatives, for its part, to mitigate the effects on income and the ability to service debt.
The risks to economic activity are, therefore, biased downwards, thus having implications for the Bank's activity, and, consequently, for profitability. The Bank's revenues may be affected by a lower demand for credit, while costs may be under upward pressure, with higher inflation. Additionally, the context of uncertainty keeps requiring close monitoring of the credit quality of customers, with a potential impact on impairments, especially considering that some sectors of activity have not yet fully recovered to pre-pandemic levels.
Notwithstanding these factors, the Bank will keep pursuing its digital and commercial transformation process, seeking to further simplify processes and improve the interaction channels with customers, whose behaviour, in terms of relationship with banks, was already changing — a process that was accelerated by the pandemic.
The Bank will continue to develop its strategy and deepen its transformation, essentially based on: i) the continuous optimization of processes, namely through greater innovation in digital channels and the strengthening of the multichannel distribution model, in order to provide a more complete and accessible service to its customers; ii) simplifying and continually adapting the commercial offer to customer needs; iii) organic growth, with a special focus on increasing market shares in segments where adequate remuneration on allocated capital is obtained; iv) strict control over credit quality; and, by v) maintaining a solid capital and liquidity position, in line with 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, namely by 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.
The Bank's risk management and control model is based on a set of common principles, on an integrated risk culture across the Santander Group, on a strong governance structure, and upon advanced risk management processes and tools.
Risk management and control principles are mandatory and applicable 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 our risk appetite statement, 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:
• Credit risk: is the risk of financial loss resulting from the default or deterioration in the credit quality of a given customer or counterparty, to whom the Bank has granted credit directly or for which it took on a contractual obligation;
Additionally, the risk elements related to the environment and climate change — physical and transactional — are considered factors that may influence 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.
At the Bank we follow a three-pronged model to ensure effective risk management and control:
While each of the three lines of defence has a separate organizational structure and a certain degree of independence, they must collaborate whenever necessary to ensure that business objectives are met. The Risk, Compliance and Conduct, and Internal Audit areas have direct access to the Board of Directors and to its Committees.
The business lines and all support functions that generate risk exposure constitute the first line of defence. The first line of defence identifies, measures, controls, tracks and reports the risks that they give rise to, and applies the policies, models and procedures that regulate risk management. Risk generation must be in accordance with the approved risk appetite and associated limits. The person in charge of any unit that gives rise to a risk is primarily responsible for managing that risk.
The first line of defence is responsible for:
The first line of defence shall support and promote the Bank's risk management culture.
The Risk, and the Compliance and Conduct areas, as the second line of defence, will independently oversee and challenge the risk management activities carried out by the first line of defence. This second line of defence shall ensure, within their respective scope of responsibility, that risks are managed in accordance with the risk appetite defined by top management, and shall promote a strong risk management culture throughout the organisation.
The second line of defence is responsible for:
Within the Bank's structure, the second line of defence includes the Risks and the Compliance and Conduct areas, although the organizational structures within the second line of defence may vary by type of risk.
The responsibility of the second line of defence includes the obligation to report to the appropriate governing bodies, as required, the risks, risk appetite and breaches thereof.
The second line of defence shall adopt and promote a common risk management culture. It shall also provide guidance, advice and expert judgment on all relevant risk-related matters.
Internal Audit is a permanent function, independent of any other function or unit, whose mission is to provide the Board of Directors and Senior Management with an independent guarantee on the quality and effectiveness of the processes and systems of internal control, risk management (current or emerging), and governance, thus contributing to protecting the organisation's value, solvency and reputation. To this end, the Internal Audit evaluates:
• The effectiveness and efficiency of the processes and systems referred to above;
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.
TheChief 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)
This Committee is responsible for risk control, determining whether the risks arising from business lines are managed according to our risk appetite limits, 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, Risk Appetite (from the acronym RAS - Risk Appetite Statement), is defined as the amount and type of risks considered prudent to accept in the execution of our business strategy so that the Bank can carry on with its normal business in case 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 Santander Group 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 Santander Portugal, is governed by the following principles:
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 by the Bank to identify and assess the various types of risks to which it 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.
For Santander Totta, quality in risk management is a fundamental axis of its activity, 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 throughout the last year and a half, not only due to the emergence of the pandemic that affected the entire world, but also due to the continued demands 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 surrounding environment, but also attitudes, behaviours, values and the principles that each employee demonstrates in the face of the various types of risks we face. This risk culture is especially important in very challenging times, such as this last year and a half, enabling both the Bank and the various teams to swiftly adapt to different circumstances.
The year of 2021 was marked by the continued careful management of the pandemic in the day-to-day commercial and risk management of our customers.
The intensity of the customer monitoring and follow-up work was maintained, namely through the first line of defence (Commercial Area), jointly with the second line of defence (Risk Area).
Periodic analyses of the most critical and worrisome sectors were conducted, based on the study and analysis of customer portfolios, consisting of 4 chapters:
All these studies were presented in a specific forum for each of them, in which members from the Commercial and Risk Areas took part. They were also presented and discussed in the Bank's last credit decision step.
Customers (private individuals and small companies) whose credit decision is made mostly through decision-making 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 analyses and monitoring of behavioural metrics in these customers were strengthened in order to detect in advance the possible deterioration in their real payment capacity.
The maturity of private moratoria was monitored on a daily basis, monitoring the maturities of instalments and their respective settlement.
The basic operating principles with regard to the analysis and granting of credit risk remained unchanged:
preventative and roll-over measures to be offered to its customers.
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 Santander Portugal is specialised in the light of customer typology, throughout the entire risk-management process, between portfolioed customers (made-to-measure or personalised treatment), and non-portfolioed customers (standardised or under mass-treatment).
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 a risk analyst specifically assigned to monitor them. This group includes Private Customers, Individual Entrepreneurs and nonportfolioed Retail Banking companies. Assessment of these risks is based on in-house valuation and automatic decisionmaking models, complemented by specialised risk-analyst teams whenever required.
Santander uses its own in-house solvency 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 country-risk, 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 meanwhile becomes available, as well as, at qualitative level, the experience arising from assessment of the existing credit 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 decisionmaking models are implemented, which automatically assign an assessment/decision of the transactions presented. These decision tools can be complemented with a behavioural scoring model — an instrument that allows greater predictability of the risks assumed and that are used for commercial initiatives.
Evaluation of the customer and/or transaction by rating or scoring constitutes an assessment of the creditworthiness, which is quantified by the probability of default (PD).
In addition to the valuation performed on the customer, the quantitative risk analysis considers other aspects such as the term of the operation, the type of product, and the existing guarantees. What is thus taken into account is not just the probability 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 major credit-risk parameters, and, taken jointly, allow a calculation of the expected loss and the unexpected loss.
Their combination allows the calculation of the expected loss (or probable loss), which is considered as an additional business cost (reflecting the risk premium), and this cost is duly reflected in the price of transactions.
It also allows the calculation of the unexpected loss, which is the basis for the calculation of regulatory capital in keeping with the rules of the Basel (BIS II) capital accord, which, given its nature, is not considered recurrent and must therefore be duly covered by own funds.
PD is defined as the probability that a counterparty may not be able to meet its obligations within one year, through statistical observation.
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 comparing 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 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 take through the assessment of the business proposals and the opinion of the Risks Area, through the definition of Strategic Business Plans (SCP).
At the level of large corporate groups, a pre-classification model is used, a model based on an economic capital measurement and monitoring system.
In terms of portfolioed risks, management is carried out at the level of the Economic Group, where the risk appetite for such risk is defined, and credit limits are established.
At the level of standardised risks, the planning and limit setting process is undertaken by means of joint preparation, by the Risk, the Business, and the Strategic Commercial Planning (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 Santander Totta. 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 Risk Area. This function is also specialised according to customer segmentation and is fundamentally based on a continuous process of observation, allowing advance detection of possible occurrences in the evolution of risk, of transactions, and of the customer, for
the purpose of implementing measures, in advance, to mitigate them.
Recoveries management at Santander Totta is a strategic, comprehensive, 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 nonperforming 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, pre-emptive management of (nonportfolioed) customers, through the development of strategies, procedures and commercial offers in an omnichannel environment (differentiated communication channels according to the type of customer), constituting a sophisticated approach that helped minimize the impacts after the end of the moratoria on the segment of private customers and businesses, through the speed of response to treasury difficulties of customers that showed such difficulties.
Counterparty risk, latent in contracts entered into in financial markets — organised or over-the counter (OTC) markets consists on the possibility of default by 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.
Throughout 2021 current exposure of transactions on interestrate indexes (Euribor) decreased sharply, reflecting the evolution of medium- and long-term market rates. With regard to exposure to Financial Groups, structural interest-rate 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 with the correct calculation methodology.
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 Totta 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 2021 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 likelihood 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 back testing analysis. Back testing 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/episodic deviations of the results found, compared to the estimated measurements, are analysed.
The back testing analyses performed at Santander Portugal comply with the BIS recommendations as regards comparison of the internal systems used in the measurement and management of financial risks. Additionally, hypotheses tests are carried out in back testing: 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, 2021.
Control of the balance-sheet structural risk is directed at the interest-rate risk and the liquidity risk.
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 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).
Liquidity risk consists on the risk of the Bank not having the liquid financial resources required to meet its obligations when due or that it incurs an excessive cost to meet them. 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 well as intraday liquidity indicators in normal and stress situations, and early warning indicators.
The Liquidity Coverage Ratio (LCR) calculated in accordance with ECB rules stood at 131.62% on Dec. 31, 2021.
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:
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 to all products, activities, processes and systems and is generated in all business and support areas. Thus, all employees are responsible for managing the operational risk inherent to their activities, processes and systems in their regular positions.
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 Totta, in terms of management and control of the Operational Risk 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 review of relevant aspects in the management and mitigation of Operational Risk.
In order to comply with regulatory requirements and in accordance with the best practices in the banking sector, the Group defined an organizational model structured around 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 the actual control of 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 it 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 help:
The operational-risk control model implemented provides us with the following benefits:
• Promotes the development of a robust operational-risk culture.
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:
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 Santander Portugal's risk culture enable a more efficient evaluation and monitoring of 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 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.
Corruption Protection and Corporate Defence Policies (Santander has a Corporate Corruption Prevention Policy, including, among others: i) A whistleblowing channel (Open Channel), through which any employee can confidentially and anonymously report possible breaches of the Codes of Conduct and/or the Corruption Prevention Policy and ii) other possible irregularities);
Monitoring and follow-up of new regulations;
Reputational risk policies
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.
In this context, the Environmental, Social and Climate Change Risk Management Policy should also be highlighted, followed in the Risk Area, which brought together the previous social and environmental sectoral policies (energy, mines and mining sector, and soft commodities), defining the principles and criteria of the Santander Group for the identification, assessment, monitoring and management of environmental and social risks and other activities related to climate change.
The Net Income for the Year, in separate terms, in respect of 2021, was € 303,342,559.00 (three hundred and three million, three hundred and forty-two thousand, five hundred and fifty-nine Euros), and the Consolidated Result in 2021 was € 270,493,858.00 (two hundred and seventy million, four hundred and ninety-three thousand, eight hundred and fifty-eight Euros).
Thus, the Board of Directors proposes to the General Meeting the following appropriation of profits:
Legal Reserve: € 30,334,255.90 (thirty million, three hundred and thirty-four thousand, two hundred and fifty-five Euros and ninety cents);
Distribution of Dividends: € 273,008,303.10 (two hundred and seventy-three million, eight thousand, three hundred and three Euros and ten cents).
Lisbon, March 29, 2022
THE BOARD OF DIRECTORS
Bank Santander Portugal's compliance function in terms of money laundering and 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 AML/CFT area has functional autonomy and reports to the Chief Compliance Officer.).
Its main objective is to manage compliance risks relating to money laundering, financing of terrorism and sanctions, ensuring that the activity is carried out in accordance with all applicable regulations, in the prevention and minimization of damage, in particular resulting from any sanctions, as well as of a reputational nature.
For this purpose, in addition to a "Head of Regulatory Compliance" and a specialized, exclusively dedicated organic structure, there are internal regulations and specific procedures and controls in place, incorporating the internal control system in the field of AML/CFT, which is subject to an annual audit.
The Head of Regulatory Compliance in this matter is responsible for:
The Chief Compliance Officer is responsible, in particular, for coordinating the PBCFT area and for assessing the situations submitted to him by the Head of Regulatory Compliance.
In 2021, 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 25, 2021, Banco Santander Totta, S. A., 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 (September 30, 2021)2 .
On December 31, 2020, Santander Totta S. A., held 416,525 treasury shares corresponding to 0.033% of its Share Capital. Throughout the year of 2021, Banco Santander Totta S. A. purchased 6,535 treasury shares, corresponding to 0.0005% of its Share Capital, closing the year with a total of 423,060 treasury shares.
| communication and collaboration obligations. | ||||
|---|---|---|---|---|
| TRANSACTION WITH OWN SHARES - 2021 | ||||
| Banco Santander Totta, S.A. | Number of shares | Average unit price (€) | Book value (€) | % of share capital |
| 31-12-2020 | 416,525 | 5.23 | 2,177,699 | 0.033% |
| Purchases | 6,535 | 4.66 | 30,424 | 0.0005% |
| Disposals | 0 | 0.00 | 0 | 0.000% |
| 31-12-2021 | 423,060 | 5.22 | 2,208,122 | 0.034% |
2https://www.bankingsupervision.europa.eu/press/pr/date/2021/html/ssm.pr210723~7ef2cdf6b7.en.html
| Entity | Position at 31/Dec/2020 |
Transactions in 2021 | Position at 31/Dec/2021 |
|
|---|---|---|---|---|
| José Carlos Brito Sítima | Banco Santander, SA | 146,571 | 23.02.2021 - shares deposit (corporate allocation): 8,660 - 2.91€ | 155,231 |
| Pedro Aires Coruche Castro e Almeida | Banco Santander, SA | 110,175 | 23.02.2021 - shares deposit (corporate allocation): 46,001 - 2.91€ | 156,176 |
| Amilcar da Silva Lourenço | Banco Santander, SA | 37,855 | 23.02.2021 - shares deposit (corporate allocation): 12,788 - 2.91€ | 25,643 |
| 07.09.2021 - sale: 25,000 - 2.61€ | ||||
| Ana Isabel Abranches Pereira de Carvalho Morais | - | 0 | - | 0 |
| Andreu Plaza Lopez | Banco Santander, SA | 241,063 | 16.02.2021 - shares deposit (corporate allocation): 25,425 - 2.91€ | 266,488 |
| Daniel Abel Monteiro Palhares Traça | - | 0 | - | 0 |
| Inês Oom Ferreira de Sousa | Banco Santander, SA | 45,042 | 23.02.2021 - shares deposit (corporate allocation): 16,397 - 2.91€ | 61,439 |
| Isabel Cristina da Silva Guerreiro | Banco Santander, SA | 35,611 | 23.02.2021 - shares deposit (corporate allocation): 15,511 - 2.91€ | 39,622 |
| 04.05.2021 - sale: 11,500 - 2.61€ | ||||
| Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota | - | 0 | - | 0 |
| Manuel António Amaral Franco Preto | Banco Santander, SA | 199,792 | 23.02.2021 - shares deposit (corporate allocation): 34,171 - 2.91€ | 233,963 |
| Manuel de Olazábal y Albuquerque | - | 0 | - | 0 |
| Maria Manuela Machado Farelo Ataíde Marques | - | 0 | - | 0 |
| Miguel Belo de Carvalho | 15.02.2021 - Sale: 6,358 - 2.90€ | |||
| 19.02.2021 - Sale: 1,909 - 2.97€ | ||||
| Banco Santander, SA | 46,026 | 22.02.2021 - Sale: 12,850 - 2.90€ | 47,547 | |
| 23.02.2021 - shares deposit (corporate allocation): 22,638 - 2.90€ | ||||
| Remedios Ruiz Maciá | 04.01.2021 - shares deposit (corporate allocation): 3,709 - 2.50€ | |||
| Banco Santander, SA | 85,799 | 16.02.2021 - shares deposit (corporate allocation): 17,112 - 2.83€ | 106,620 |
| Other Positions of Note | ||
|---|---|---|
| Within the consolidation perimeter | Outside the consolidation perimeter | |
| José Carlos Brito Sítima | Santander Totta SGPS (Chairman of the Board of Directors NE) |
Portal Universia Portugal – Prestação de Serviços 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 Directors; Chairman of the ExCo CEO) Fundação Santander Portugal Chairman of the Board of Trustees |
ACEGE - Associação Cristã de Empresários e Gestores (Strategy Council Member); Centro Paroquial São Francisco de Paula (NE Director); ISEG - Lisbon School of Economics & Management, Universidade de Lisboa (Advisory Council Member); Fundação Alfredo de Sousa (Board of Trusttees Member); Associação Portuguesa de Bancos (Board Member on behalf of Banco Santander Totta, SA) |
| Amilcar da Silva Lourenço | - | - |
| Ana Isabel Abranches Pereira de Carvalho Morais | - | ISEG - Lisbon School of Economics & Management, Universidade de Lisboa (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 | - | - |
| Daniel Abel Monteiro Palhares Traça | - | Nova School of Business and Economics (Dean); Fundação Alfredo de Sousa (NE Board Member, on behalf of Nova SBE); Casa de Investimentos- Gestão de Património e Fundos de Investimento – SGOIC, SA (Chairman General Meeting) |
| Inês Oom Ferreira de Sousa | - | Portal Universia Portugal – Prestação de Serviços Informáticos, S.A. (Non-Executive Chairwoman); 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); Fundação Santander Portugal (Executive Chairwoman) |
| Isabel Cristina da Silva Guerreiro | Banco Santander SA Head of Digital Europe |
Santander Bank Polska, S.A. (NE Supervisory Board Member) |
| 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 - Sociedade Gestora de Participações Sociais, S.A. 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 Partner); European Money Markets Institute (NE Board Member Supervisory and Risk Board Member) |
| Miguel Belo de Carvalho | Fundação Santander Portugal NE Board Member |
Fundação Económicas - Fundação Para o Desenvolvimento das Ciências Económicas, Financeiras e Empresariais (NE Board Member, on behalf of Banco Santander Totta, SA); Universidade Lusíada - Faculdade de Ciências da Economia e da Empresa (Advisory Council Member) |
| Remedios Ruiz Maciá | Banco Santander SA Global Head EWRM |
UCI SA (NE Board Member, on behalf of banco Santander, SA); UCI SA (EFC) (NE Board Member); Tresmares Capital Corporate SL (NE Board Member, on behalf of Banco Santander, SA); Deva Capital Holding Company, SL Deva Capital Management Company, SL (NE Board Member); Servicios de Cobranza, Recuperación y Seguimiento, SA de CV (SECORSE) (NE Board Member, on behalf of Deva Capital Servicer Company, S.L.U) |
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.
In 2020 corresponds to "Investments in subsidiaries, joint ventures and associates accounted for using other than equity method" and in 2021 corresponds to "Share of the profit or loss of investments in subsidiaries, joint ventures and associates accounted for using the equity method", as presented in the Statement of Profit or Loss for each period.
"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 "Gains or losses on hedge accounting, net", plus "Exchange differences, net" plus "Gains or losses on derecognition of non-financial assets, net ", plus "Gains or losses on derecognition of investments in subsidiaries, joint ventures and associates", 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" minus "Cash contributions to resolution funds and deposit guarantee schemes", as shown in the Statement of Profit or Loss.
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", as presented in the Statement of Profit or Loss.
"Net operating income" minus "Impairment, net provisions and other results".
"Tax expense or income related to profit or loss from continuing operations", as presented in the Statement of Profit or Loss.
"Income before taxes and non-controlling interests" less "Taxes", 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.
"Income after taxes and before non-controlling interests" less "Non-controlling interests", also mentioned as "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 "Customer's resources".
Corresponds to the sum of the following statement of financial position items: "Financial assets at fair value through other comprehensive income – Loans and advances" plus "Financial assets at amortized cost – debt securities" plus "Financial assets at amortized cost – Loans and advances" excluding "Loans and advances – Customers – Other balances receivable", "Loans and advances – Credit institutions", as set out in note 9 of the chapter "Notes to the Consolidated Financial Statements". Amounts before impairments.
Loans and advances to customers (gross), net of impairments. Impairments correspond to the sum of "Impairments of debt securities" plus "Impairment 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 of 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 statement of financial position).
Impairments of non-performing exposures in relation to total non-productive 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 managed or sold by the Bank" and "Insurance and other resources", whose 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 "Consolidated Net Income Attributable to BST Shareholders" and "Total equity" at the beginning of the period, as presented in the statement of financial position.
Ratio between "Consolidated Net Income Attributable to BST Shareholders" and "Total 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 2021, Santander Totta S. A. 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 29-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.
It should be noted that, during the financial year of 2021, and regarding its corporate governance and internal control model, Santander Totta S. A., observed and complied with the procedures imposed by Bank of Portugal Notice No. 3/2020, and with the revised guidelines (EBA/GL/2021/05) of the European Banking Authority (EBA) regarding their application.
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 98.763% held by Santander Totta SGPS, S. A., which is directly controlled by Banco Santander, S. A., which holds a 99.85% stake in it.
Of the remaining capital of the Bank, there is also a percentage of 1.161% that belongs to the Taxagest – Sociedade Gestora de Participações Sociais, SA, a company also under the full control, either direct or indirect, of Santander Totta SGPS, S. A., and Banco Santander, S. A.
Of the remaining capital, 0.0432% is dispersed among several shareholders and 0.032% corresponds to Banco Santander Totta, S. A.'s own shares.
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 to share in the profits.
There are, therefore, no privileged shares of any kind. Likewise, there are no restrictions of any kind on the transferability of shares, which is completely 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 the terms of the Company's Articles of Association, one vote is assigned to each share.
In order for shareholders to have the right to participate in the General Meeting, they must prove before the Chairman of the Board of the General Meeting, at least 10 days before the date established for the AGM, the registration or deposit of shares in financial intermediaries by the fifteenth business day prior to the AGM date.
No agreements are established by the Company whose entry into force is dependent on the change in the Bank's shareholder composition or which are altered or cease as a result thereof.
However, within the scope of the normal performance of banking activity, in its various components, certain agreements give the counterparty the right to terminate them in the event of changes in the Bank's shareholder control, in line with what is current and common in banking practice.
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 public offer for acquisition.
The indication of the number of shares and bonds held by members of the management and supervisory bodies can be found in the "Additional 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.
The corporate bodies are the General Meeting, the Board of Directors, and the Audit Committee:
Under the terms of the Law, the supervision of the Company is also the responsibility of a Statutory Auditor or of an Audit Firm, as resolved by the Annual General Meeting.
The members of the Board of the General Meeting, the Board of Directors, the Audit Committee, as well as the Statutory Auditor, are appointed by the General Meeting, and their terms of office last for three years, with the possibility of being re-elected one or more times
There is also a Remuneration Committee appointed by the General Meeting.
The Board of Directors and the Audit Committee are responsible — within the scope of their respective powers —, for promoting the existence, within the Institution, of an organizational culture based on high ethical standards, exercising their respective supervisory and control functions, within the scope of the guidelines from the European Banking Authority (EBA), and within the framework of the provisions set forth in Bank of Portugal Notice No. 3/2020, of July 15, 2020.
The Board of Directors and the Audit Committee — within the scope of their powers —, are responsible for ensuring that the Bank's organizational culture and its governance and internal control systems are adequate and effective, with the objective of reasonably guaranteeing the orderly, efficient conduct of the Bank's business, namely, regarding the implementation of a set of strategies, policies, processes, systems and procedures, and the institution's sustainability in the medium and long term, and the prudent conduction of its activity.
Within the scope of their respective powers, the Board of Directors and the Audit Committee are also responsible for ensuring the implementation and maintenance of an environment of adequate control, compliance with the objectives established in the strategic planning, and adequate risk identification, evaluation, monitoring and control, as well as the existence of complete, relevant, reliable and timely financial and non-financial information.
Within the scope of their respective powers, the Board of Directors and the Audit Committee are also responsible for ensuring the adoption of sound accounting procedures, compliance with the legislation, regulations and guidelines applicable to the Institution's activity, issued by the competent authorities, compliance with the Institution's own internal rules and regulations, as well as of the professional and deontological norms and practices, and of the rules of conduct and relationships with the Institution's customers.
Minutes are drawn up from the meetings of the Governing Bodies and of the Committees, which help identify its participants in an adequate manner, including its Secretary, as well as adequately understand the matters dealt with therein, the deliberations adopted, any recommendations made, or matters that need to be followed up in future meetings.
The members of the management and supervisory body are permanently subject to the requirements of adequacy, suitability, aptitude, experience, availability, independence, and professional qualifications for carrying out the positions that are defined by applicable rules, submitting to the periodic evaluation rules, individual and collective, that may be defined by the Company.
The organizational structure of the Bank's Governance Model in 2021 was as follows:
The Board of Directors delegated part of its powers to an Executive Committee, to which it delegated the day-to-day management of the Bank, and to three other specialized committees with the essential function of permanently monitoring specific matters, namely, the Risk Committee, the Remuneration Committee, and the Appointments Committee.
The Executive Committee appointed several Committees and Sub-Committees to assist it in day-to-day management.
During the financial year of 2021, the composition of the governing bodies of the Bank was as follows:
| Chair: | José Manuel Galvão Teles |
|---|---|
| Deputy-Chair: | António Maria Pinto Leite |
| Secretary | Company Secretary |
| 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 | |
| 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 | |
| STATUTORY AUDITOR | PricewaterhouseCoopers & Associados, SROC, LDA., represented by José Manuel |
Henriques Bernardo(2)
(1) Lead Independent Director
(2) The Statutory Auditor in office, PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda., by communication dated May 11, 2021, appointed as its new representative, Mr Jose Manuel Henriques Bernardo
| 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 | |
On November 23, 2021, the General Shareholders' Meeting of Santander Totta, S. A. was held, and the election of the governing bodies was approved, including the members of the Board of the General Meeting, the Board of Directors, the Audit Committee, and the Audit Firm, for the three-year period 2022/2024.
These new members of the governing bodies will take office after the appropriate authorization or non-opposition is issued by the competent supervisory bodies.
As of the date of preparation of this report [March 29, 2022], the aforementioned authorization procedure had not yet been completed.
The governing bodies of Banco Santander Totta, S. A. for the three-year period 2022/2024 are the following:
| BOARD OF THE GENERAL MEETING | |
|---|---|
| Chair | António Maria Pinto Leite |
| Deputy-Chair | Ricardo Andrade Amaro |
| 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 | |
| Cristina Alvarez | |
| Daniel Abel Monteiro Palhares Traça | |
| João Pedro Cabral Tavares | |
| Isabel Cristina da Silva Guerreiro | |
| Manuel António Amaral Franco Preto | |
| Manuel Maria de Olazabal y Albuquerque | |
| Maria Manuela Machado Farelo Ataíde Marques | |
| Miguel Belo de Carvalho | |
| Remedios Ruiz Macia | |
| Ricardo Lopes da Costa Jorge | |
| AUDIT COMMITTEE | |
| Chair | Ana Isabel Abranches Pereira de Carvalho Morais |
| Members | Daniel Abel Monteiro Palhares Traça |
| João Pedro Cabral Tavares | |
| Manuel Maria de Olazabal y Albuquerque | |
| Maria Manuela Machado Farelo Ataíde Marques | |
| STATUTORY AUDITOR | PricewaterhouseCoopers & Associados, Sociedade de Revisores Oficiais de Contas, Lda. represented by José Bernardo (Statutory Auditor) |
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 Annual General Assembly held on December 13, 2018, for the 2019/2021 term, thus fulfilling the third and last year of their 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.
On May 25, 2021, the Bank's Annual General Meeting was held. At this meeting, the management report, the balance sheet, and the separate and consolidated accounts for the financial year of 2020, including the corporate governance report and the non-financial statement were approved (Report of Responsible Banking).
The proposal for the application of profits for the same financial year was also approved, in the amount of € 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), as follows:
Legal Reserve: € 27 520 992,39 (twenty-seven million, five hundred and twenty thousand, nine hundred and ninety-two Euros and thirty-nine cents);
Retained Earnings: € 247,688,931.53 (two hundred and forty-seven million, six hundred and eighty-eight thousand, nine hundred and thirty-one Euro and fifty-three cents).
It was also approved not to distribute dividends corresponding to the financial year of 2020, in accordance with the terms set out in the recommendation of the European Central Bank of December 15, 2020.
The following were approved: (i) the statement of the company's remuneration policy under the terms of Article 115-C.4 of the Legal Framework for Credit Institutions and Financial Companies; (ii) the internal policy for the selection and assessment of suitability, pursuant to Article 30-A of the Legal Framework for Credit Institutions and Financial Companies, and (iii) the Policy for the selection and appointment of Statutory Auditors and Audit Firms, and for contracting non-prohibited services different from auditing.
The meeting was held in person, with the possibility of Shareholders taking part in the General Meeting by telematic means, while ensuring the security and confidentiality of all communications.
On November 23, 2021, the Bank held another General Shareholders' Meeting to approve the election of the Governing Bodies and the Audit Firm for the three-year period 2022 / 2024.
The Bank's Board of Directors is the highest decision-making body, except in matters reserved for shareholders at the Annual General Meeting.
The members of the Board of Directors are elected by the Annual General Meeting.
Before submitting any names to be elected for the governing bodies by the Annual General Meeting, the Bank carries out an individual and collective assessment of the candidates for the Board of Directors, and prepares the proposal that is submitted to the electing Annual General Meeting, with all the documentation for assessing the adequacy of the profile, as well as the knowledge and professional experience of each candidate.
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.
No powers are conferred on the Board of Directors to decide increases of the Company's share capital.
There are also no special rules regarding the appointment and replacement of Directors, as well as regarding amendments to the Articles of Association, the General Law being applied to these matters.
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.
All the members of the Board of Directors, in office in the financial year of 2021, were elected by the Annual General Meeting held on December 13, 2018, for the 2019/2021 term of office.
The Company Secretary was nominated by the Board of Directors on January 2, 2019, for the 2019/2021 term of office.
In accordance with the best governance practices, as well as the rules and regulations and governance model of the Santander Group, the Board of Directors has implemented a governance structure that allows it to ensure the effective fulfilment of its responsibilities:
During 2021, the Bank's Board of Directors was comprised of fourteen members, eight non-executive (57%), and six executive (43%) members.
Excluding the Executive Directors, five members of the Board of Directors, out of a total of eight, are independent, representing 63% of non-executive directors and 36% of the total Board of Directors.
In 2021, the Board of Directors included six female members, representing 43% of the total of 14 members, and the Chairman of the Audit Committee — the Bank's supervisory body, which includes 5 members —, is a woman, thus the Bank fulfils the gender balance requirements and criteria regarding the composition of its Board of Directors.
The Bank considers that the composition of its Board of Directors is adequate, balanced, ensures its diversity, and strengthens its skills, efficiency and quality in decision-making.
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 Pereira de | Board of Directors - Member | Non-Executive Independent |
| 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 Palhares | Board of Directors - Member | Non-Executive Independent |
| 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 Guerreiro | Board of Directors - Member | Executive Not independent |
| Executive Committee - Member | ||
| Isabel Maria de Lucena | Board of Directors - Member | Non-Executive Independent |
| Vasconcelos Cruz de Almeida | Audit Committee - Member | |
| 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 Farelo | Board of Directors - Member | Non-Executive Independent |
| Ataíde Marques | Audit Committee - Member | |
| Risk Committee - Member | ||
| Remuneration Committee - Member | ||
| Manuel António Amaral Franco | Board of Directors - Member | Executive Not independent |
| 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 Board of Directors has delegated the daily management of the Bank and the implementation of its strategy to an 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 Articles of Association of the Bank, and its Internal Regulations.
And under the terms of Article 407 of the Commercial Companies Code, and of Article 17 of the Bank's 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.
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.
Pursuant to the provisions of Article 6.4 of the Board of Directors' Internal Regulation, the Board has kept the following matters for itself:
Expansion of the Bank's business to new geographies or markets;
Approval of Self-Assessment of Capital Adequacy or Internal Liquidity processes
Although the Board meetings follow a calendar defined annually (FLA), new topics can be added to the agenda, and extraordinary meetings can be called, in accordance with its Regulation.
Without prejudice to the provisions of the Bank's Articles of Association and of the Regulations of the Board of Directors, throughout 2021, the members of the Board of Directors were regularly informed about the evolution of the coronavirus pandemic - Covid-19 in the Bank, and about the decisions taken to mitigate its impact on the Bank, as well as on the global economy, on employees, customers, and on the general public.
Likewise, and because in 2021 the Bank continued to develop its strategic plan for digital transformation, and intensified the Group's process of One Europe Santander, the Board of Directors ensured that it was regularly informed on the activities carried out by the Bank to achieve its goals, as set within the scope of its strategic plans.
In February 2021, the Board of Directors updated its Regulations in accordance with Bank of Portugal Notice No. 3/2020.
The members of the Board of Directors receive the relevant documents for each meeting sufficiently in advance, through secure, electronic means, which help them prepare the meetings in an effective way.
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 the financial year of 2021, it met twelve times, and for reasons arising from the pandemic situation, the meetings were held through telematic means.
The Company Secretary acted as the secretary of all such meetings. The minutes of all these meetings were duly prepared, approved and signed.
The Regulations of the Board of Directors are available on the Bank's intranet and website at: https://www.santander.pt/institucional/investor-relations/santander-totta-sa/governo-sociedade
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.
The members of the Audit Committee are appointed for three-year terms, and may be re-elected.
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 members of the Bank's Audit Committee were elected by the Annual General Assembly held on December 13, 2018, for the 2019/2021 term, thus fulfilling the third and last year of their current term.
During the financial year of 2021, the Audit Committee was comprised of 5 members, a Chairwoman plus four members, all of its members being qualified as independent.
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:
Pursuant to Article 4 of the Audit Committee Regulations, the Chairman must annually report to the Board of Directors on the various activities carried out by the Committee and the expenses it incurs.
Likewise, the Audit Committee must inform the Board of Directors of the relevant accounting changes and their effects, and on the conclusions and recommendations obtained from the internal audit function, including any recommendations related to the scarcity of resources allocated to certain functions.
The Audit Committee is also responsible for reviewing, along with the Board of Directors and/or the Executive Committee, any relevant matters related to compliance of the Bank's activity and business with the applicable legal, regulatory and statutory provisions, as well as with the instructions, recommendations, and guidelines issued by the competent authorities.
The Audit Committee meets regularly with the External Auditors, with the Chief Audit Officer (CAE), the Chief Risk Officer (CRO), the Chief Compliance Officer (CCO), and with the Controller (the head of Accounting). Without prejudice to the administrative and hierarchical reporting to the Chairman of the Board of Directors, the CAE functionally reports to the Audit Committee.
In the financial year of 2021, 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 |
| Monitoring the management and evolution of the Bank's business |
The Audit Committee monitored the Bank's management, operations and business developments during its meetings; by attending meetings of the Board of Directors; by accessing all quarterly and annual documentation and information on the Bank's activity and results, and other relevant documentation; and through regular contacts with its various officers. |
|---|---|
| It also monitored the following topics: variable remuneration of control functions, response letter to the European Central Bank on Identification and Measurement of Credit Risk within the context of COVID-19; underlying vision of the Cyber 2025 strategy; climate change and trends in non-financial information; models; stress scenarios that the Bank uses in each of its financial years. |
|
| Monitoring and inspection of the process of preparing and disclosing financial information |
It monitored, on a quarterly basis, the process of preparing and disclosing the Bank's financial information, the management report and accounts for the year ended on December 31, 2020, and the Committee also assessed the Legal Certification of Accounts and the Additional Report submitted by the Statutory Auditor; it issued its opinion on the 2020 Annual Report and Accounts; and approved the Audit Committee's Annual Report for the financial year of 2020. |
| A status report on accounting and financial management matters was regularly submitted, including: analysis of the credit portfolio and credit impairment, namely the classification of credits by stages and the impact of the pandemic; analysis of moratoria and recoveries; deficiencies detected in the internal financial control system and accounting system, and status of implementation of corrective measures; disclosure duties and prudential reporting; analysis of the main management judgments and estimates, namely those relating to deferred taxes and pension funds. |
|
| The Audit Committee also reviewed the Bank's liquidity, capital and efficiency ratios. | |
| Supervision of the effectiveness of activities within the scope of organizational culture and governance and internal control systems, covering risk management and control, compliance, and internal audit. |
It monitored the effectiveness of the internal control system. It reviewed the self assessment report, including the reports of the risk management, compliance and internal audit functions, and the activity plans of the control functions, and issued its assessment, in accordance with Article 56.1 subparagraph c), of Notice No. 3/2020 of the Bank of Portugal. |
| It monitored the Risk Management activity, appreciating the activity carried out by the CRO, namely that reflected in the reports on the evolution of the main risk indicators (the main indicators, Top Risks, risk profile, and risk appetite). The CISO (Chief Information Security Officer) also presented the investment plan and general cybersecurity governance, metrics, and general risk limits. The Audit Committee also took note of the results of the Assessment and Certification of Risks and Controls of the Internal Control Model. |
|
| It monitored the evolution of the Compliance area's activity, including the new products approved; the implementation of the General Data Protection Regulation; the review of the General Code of Conduct and of the Securities Market and Global Compliance Policy; the transformation and strategy of the area devoted to Prevention of Money Laundering and Financing of Terrorism (KYC, WLM, and ALM) — Follow-up of recommendations and determinations regarding sanctions (WLM); the summary of legal contingencies; the Related Party Transactions Policy, and the list of related parties and related party transactions (submitted every quarter); the Remuneration policy for credit intermediaries; |
| the Policy for granting and restructuring credits to debtors or groups of debtors at increased risk; the Credit risk management policy — moratoria; and the social, environmental and climate risk management policy, and the updating of the regulatory risk tree. |
|
|---|---|
| It monitored the status of customer complaints on a quarterly basis. | |
| It monitored the Internal Audit activity, in particular: it supervised the internal audit function, ensuring its independence and effectiveness; it was informed about the execution of the internal audit plan, allowing for an extensive control over the internal audit's recommendations; it was informed about the reports issued by internal audit, it assessed the conclusions of the audits carried out, and monitored the deadlines and the degree of compliance with the recommendations; it was informed of the results of the Internal Audit Internal Quality Management System. |
|
| It was regularly informed of the most relevant correspondence exchanged between the Bank and the national and European supervisory entities, having asked the Executive Committee and the relevant Committees for clarifications deemed necessary. It also followed up on the progress reports on initiatives to mitigate short comings and discrepancies on the implementation of recommendations identified by supervisors. |
|
| Supervision and monitoring of the Statutory Auditor's activity |
It was informed of the Audit Plan submitted by PwC; it carried out a critical analysis of the procedures implemented by the auditors and the respective conclusions regarding the closure of accounts for the financial year of 2020, in accordance with the Portuguese Securities Market Commission (CMVM) Circular Letter to the supervisory bodies of entities of public interest, dated December 18, 2020; it issued a positive opinion regarding the review of the Policy for the Selection and Appointment of Statutory Auditors and Audit Firms, and for the Contracting of Non-Prohibited Services Different from Auditing; it carried out the annual monitoring of the professional performance of external auditors; it was informed about the status of the recommendations made by external audit and regulators; it reviewed the scope and approach of the internal control work for 2021, under Notice No. 3/2020 of the Bank of Portugal. |
| It approved the provision of additional services, other than auditing services, under the terms of paragraphs 10 and 11 of Article 77 of the Statute of Statutory Auditors, after prior verification of their suitability. In particular, it considered: (i) that the services in question could not be included in the list of prohibited services, and would not constitute a threat to the independence and objectivity of the Statutory Auditor within the context of the statutory audit work; (ii) that the amounts of fees proposed did not exceed the limits of fees for services other than auditing legally provided for; (iii) that the services different from auditing contracted to PwC were justified by their experience in the development of similar works, and thus the conditions were met for such work to be provided with independence and objectivity. |
|
| Reappointment of the Statutory Auditor |
Under the terms of the Policy for the selection and appointment of Statutory Auditors and Audit Firms, and for contracting non-prohibited services by the Bank, other than auditing, the Audit Committee endeavoured to assess the performance of the Bank's Statutory Auditor and reviewed its adequacy, having concluded that a proposal be submitted to the Annual General Meeting for renewing the mandate of the Bank's Statutory Auditor, namely PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda., represented by José Bernardo, Statutory Auditor, for the three-year period 2022-2024. |
| Reporting of irregularities | It assessed the proper functioning of the irregularities reporting channel on a regular basis. The Audit Committee followed up on the complaints received. Detailed information on the complaints received and the respective processing are included in a specific report, in accordance with the provisions of Article 116-AA.7, of the Legal Framework for Credit Institutions and Financial Companies. |
The Audit Committee meets at least once every two months, and whenever the Chairman or any of the other members so requests.
During the financial year of 2021, it met nineteen times, and for reasons arising from the pandemic situation, the meetings were held through telematic means.
The Bank's Internal Government served as the secretary for this Committee, and provided it with logistical and technical support. Minutes of all meetings were duly drafted, approved and signed.
The Regulations of the Audit Committee, upadated in February 2021, are available on the Bank's intranet and website at: https://www.santander.pt/institucional/investor-relations/santander-totta-sa/governo-sociedade
Pursuant to Article 16 of the Articles of Association, the Board of Directors appointed an Executive Committee composed of six of its 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.
As part of its internal organization, the Executive Committee assigned certain matters (Portfolios) to each of its members.
And to assist the Executive Committee, several Committees and subcommittees have been appointed which, in addition to one or two Executive Directors, also include the Bank's first-line reporting officers on a permanent basis.
As of December 31, 2021, the distribution of Portfolios among the members of the Executive Committee was as follows:
| Pedro Castro e Almeida Chairman of the Executive Committee CEO |
Communication and Corporate Marketing; CEO Staff; 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 Research; Tax; Financial and Capital Management; Procurement and Costs; Real Estate; Organization. Add the areas identified below in Agile Areas . |
|
| Miguel Belo de Carvalho | North Commercial Area; South and Islands Commercial Area; 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; Universities. 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.
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 financial year of 2021, the Executive Committee met 46 times and the Company Secretary served as its secretary. Minutes of all meetings were duly drafted, approved and signed.
The Regulations of the Executive Committee, updated in March 2021, are available on the Bank's intranet and website at: https://www.santander.pt/institucional/investor-relations/santander-totta-sa/governo-sociedade
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.
The main activities of the Risk Committee in 2021 were the following:
Remuneration policy incentives taking into account risk, capital, liquidity, and expectations regarding results
Updating the code of conduct and corporate policies on compliance
In 2021, the Risk Committee had the following composition:
| Chair: | Manuel Maria de Olazábal Albuquerque |
|---|---|
| Member: | Daniel Abel Monteiro Palhares Traça |
| Maria Manuela Machado Costa Farelo Ataíde Marques | |
| Remedios Ruiz Macia |
The Risk Committee meets at least four times a year. In 2021 it met twelve times, the Bank's Internal Government served as the secretary for this Committee, and provided it with logistical and technical support. Minutes of all meetings were duly drafted, approved and signed.
The Regulations of the Risk Committee, updated in February 2021, are available on the Bank's intranet and website at: https://www.santander.pt/institucional/investor-relations/santander-totta-sa/governo-sociedade
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, shall submit periodic written reports on its activities to the Board of Directors.
The main activities of the Remuneration Committee in 2021 were the following:
• Assessment of the Chief Executive Officer (CEO)
In 2021, the Remuneration Committee was composed as follows:
| Chair: | Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota |
|---|---|
| Member: | Daniel Abel Monteiro Palhares Traça |
| Manuel Maria de Olazábal Albuquerque | |
| Maria Manuela Machado Costa Farelo Ataíde Marques | |
| Remedios Ruiz Macia | |
The Remuneration Committee meets at least four times a year. In 2021 it met twelve times, the Bank's Internal Government served as the secretary for this Committee, and provided it with logistical and technical support. Minutes of all meetings were duly drafted, approved and signed.
The Regulations of the Remuneration Committee, updated in February 2021, are available on the Bank's intranet and website at: https://www.santander.pt/institucional/investor-relations/santander-totta-sa/governo-sociedade
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 Appointments 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.
The main activities of the Appointment Committee in 2021 were the following:
| 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 Appointments Committee meets at least four times a year. In 2021 it met five times, the Bank's Internal Government served as the secretary for this Committee, and provided it with logistical and technical support. Minutes of all meetings were duly drafted, approved and signed.
The Regulations of the Appointments Committee, updated in February 2021, are available on the Bank's intranet and website at: https://www.santander.pt/institucional/investor-relations/santander-totta-sa/governo-sociedade.
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:
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
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, considering to this end, the identification and monitoring of current and future risks and their impact on the risk profile of the Santander Portugal Group.
Chairman: Alfredo Fernandez | CRO
• Data and Information Committee: It is responsible for overseeing and ensuring the creation of business value through the responsible use of data and the strict management and governance of data, monitoring the quality of such data.
Chair: Isabel Guerreiro | Executive Director
• Steering Committee: Its main objective is the general monitoring of the Bank's activity.
Chairman: Pedro Castro e Almeida | CEO
• 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.
Chairman: Pedro Castro e Almeida | CEO
• People Management Committee: its main objective is to implement the Bank's People Management strategy.
Chairman: Pedro Castro e Almeida | CEO
• Special Situations Management Committee (Gold Committee): Its main objectives are the management of Special Situations within the scope of assigned responsibilities, and providing support to the competent authorities in a Termination event.
Chairman: Pedro Castro e Almeida | CEO
• Models Committee: It is responsible for monitoring the exposure and profile of the risk model at Grupo Santander in Portugal, with a view to ensuring that it fits within the approved risk appetite. Its powers are delegated by the Executive Risk Committee.
Chairman: Pedro Castro e Almeida | CEO
• Pensions Committee: It monitors the Bank's responsibilities with retirement and survivors' pensions and the management of assets of associated funds, in accordance with the legislation applicable to the corporate pension policy.
Chairman: Pedro Castro e Almeida | CEO
• 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. Its powers are delegated by the Executive Risk Committee.
Chairman: Pedro Castro e Almeida | CEO
• Non-Financial Risks Committee: It is responsible for monitoring the operational risk exposure and profile at the Santander Portugal Group, with a view to ensuring that it fits within the approved risk appetite. Its powers are delegated by the Executive Risk Committee.
Chairman: Alfredo Fernandez | CRO
• 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 has implemented Notice No. 3/2020 and Instruction No. 18/2020 of the Bank of Portugal, and Regulation No. 9/2020 Risks of the Securities Market Commission (CMVM), taking into account the requirements relating to the Risk Management System contained in those rules, and related to Internal Control, as well as those established by Directive No. 2013/36/EU, of June 26 2013 (CRD IV), which were transposed to the Legal Framework for Credit Institutions and Financial Companies, and the guidelines of the European Banking Authority (EBA) regarding their application.
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.
It should also be noted that the Bank is implementing the revised EBA Internal Governance guidelines (EBA/GL/2021/05).
An adequate Internal Control Model requires the complete documentation and regular updating of operational procedures, with a detailed description thereof from the beginning to the recording and accurate accounting, the identification of relevant risks associated with those procedures, and the identification of key mitigating control procedures. Periodic tests of effectiveness are carried out to identify failures in the Internal Control System, and to take the appropriate corrective measures, allowing the continued focus on the main objectives in this area.
The system implemented by the Bank is organized in such a way as to promote an appropriate control environment and a solid risk management system, and allows the continued focus on the main objectives in 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;
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.
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.
The Bank is organised 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 Control/Monitoring Committees also monitor the recommendations made by all internal or external entities, even if they are recommendations for improvement. Thus, an important reinforcement of activity control is achieved, which greatly contributes to the internal control environment. The Risk Management and Compliance Functions closely monitor the activities, areas or projects they deem necessary with complete freedom of action.
Also, within the scope of the second line of defence, reference should be made to the objective of seeking to test the material impact of adverse economic situations such as stress test exercises, self-assessment of internal capital (ICAAP), self-assessment of liquidity (ILAAP), and Liquidity Recovery or Contingency Plans, which seek to assess the Bank's resilience in terms of liquidity adequacy and capital sufficiency.
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 horizontal across the entire Santander Totta Group. This 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/2021/05), 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:
Ensure that risk levels and business processes are consistent with risk appetite, risk policies, and regulatory requirements, promoting the necessary measures to ensure effective management and, where applicable, the mitigation of risks considered as inadequate;
Promote the dissemination of an adequate risk culture;
As part of the second line of defence, under the exclusive responsibility of the Chief Risk Officer, the RMF has a structure unit responsible for the supervision and horizontal consolidation of all risks, and units specialized in certain types of risk or processes, according to the required knowledge and technical skills, jointly constituting the so-called Risk Area of Santander Totta (hereinafter the "Risk Area").
Regarding the Risk Management Function, it should be noted that it:
In addition to the Committees that make up the governance model for risk management and control, the RMF also takes part in several committees of the internal governance model, of which the CRO is a permanent member, ensuring an independent analysis and/or validation of the matters, procedures, and proposals submitted.
The activity carried out by the Risk Management Function is documented in a specific annual report, the "RMF Report."
In 2021, two reports were prepared, in accordance with the provisions of Bank of Portugal Notice No. 3/2020, the last one dated from November 2021.
This document is intended to support the risk management system of Banco Santander Totta, S. A. In the last report it is worth highlighting the following conclusions:
Chief Risk Officer: Alfredo Fernandez Diez
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 independence of the Compliance Function involves four essential, distinct, but related elements:
iv. employees assigned to the compliance function must have unrestricted access to information and to any employees in order to be able to properly perform their duties.
All the aforementioned elements are duly safeguarded and formalized at the Bank.
In fact, the Bank's organization includes the compliance function as part of the Compliance and Conduct area, which operates independently and on a permanent basis.
The Compliance and Conduct Area is a first-line area, directly and exclusively dependent on the Board of Directors, independent from all other areas, namely those dedicated to business;
It is endowed with its own staff, which is included in the institution's permanent staff, exclusively assigned to carrying out the duties committed to the Compliance and Conduct Area, hierarchically and functionally dependent upon the respective Chief Compliance Officer (CCO);
The Compliance and Conduct Area, in carrying out its duties, acts as a second line of defence, in monitoring, controlling and managing the risk of default, and has free access to all information and details that it requests or that it needs related to the Bank's activity, as well as to the institution's facilities and equipment;
The CCO communicates unlimitedly with the Board, and, within the scope of its duties, it executes, proposes and recommends what it deems convenient with a view to preventing legal, reputational and compliance risks, and, if applicable, for repairing any incidents;
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).
The Bank has a General Code of Conduct, a specific Code of Conduct for the Stock Market, and a Code of Conduct for its Relationships with Customers, which establish the ethical principles and procedures that govern the actions of the relevant persons, and that, among other relevant aspects, favour the prevention and resolution of conflicts of interest. Compliance with the Code of Conduct for the Stock Market is specifically monitored by the Compliance and Conduct Area, which also supports and follows-up on the compliance with the General Code, whose control is, however, the responsibility of the People Management Area.
In addition to the provisions of the General Code in this regard, the Bank also has a Corruption Prevention Programme that reinforces the corporate commitment to an absolute rejection of any corrupt practices, involving the entire corporate organization in this regard.
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 all other control areas (Audit and Risk Management Function), in order to enhance the approach to, 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 documented in a specific annual report, namely, the "Annual Report on Compliance."
In 2021, two reports were prepared, in accordance with the provisions of Bank of Portugal Notice No. 3/2020, the last one dated from November 2021, and from which it is worth highlighting that the CCO is convinced 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 whenever required, as well as to the Audit Committee, and attends to the information requirements it receives from it in the performance of its duties.
The head of the internal audit function (Chief Audit Executive – CAE) is appointed by the Board, reports directly to the Chairman of the Board of Directors and functionally to the Group's CAE, while also keeping the Chairman of the Executive Committee of the Bank regularly informed of all internal audit activities.
The CAE is granted all the powers required 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 purpose, 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:
The activity carried out within the scope of the audit function is documented in a specific report, published annually, called the "Internal
Audit Function Report", which in 2021 was dated from November.
Chief Audit Executive: Ignácio Garcia Marquez
Banco Santander Totta S. A. makes available at its Internet address https://www.santander.pt/institucional/investor-relations/santandertotta-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 Regulations of the Board of Directors and of its Committees, the Representative for market relations, as well as all main policies.
The Bank has a broad, well detailed internal set of rules and regulations that establish clear rules, is widely disseminated, and is permanently available to all employees on the Bank's Intranet portal.
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 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 Bank's website at: 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 Shareholders' General Meeting, held on May 25, 2021.
The Remuneration Policy of the Members of the Management and Supervisory Board is available at the Bank's website, at: 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 2021, is proposed to the General Meeting of shareholders for approval of the accounts for the financial year of 2020.
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).
In accordance with the Policy, 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 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 2021, 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 objectives for the year 2021 are those set out in Annex 2, which are part of the Declaration for all due purposes.
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 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.
a) Variable remuneration is due 50% in cash and 50% in shares, partly paid in 2022, and partly deferred over three or five years, subject to the following parameters:
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 2016, the fifth part of the deferred variable remuneration remains to be paid, in cases where it is applicable.
For the financial year of 2017, 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 2018, one third and the fourth and fifth part (when applicable) of the deferred variable remuneration are unpaid.
Of the variable remuneration for 2019, two thirds and the fourth and fifth part (when applicable) of the deferred variable remuneration are unpaid.
Of the variable remuneration for 2020, the non-deferred portion was paid in 2021. 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 2020, 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 May 2020 the Bank's Remuneration Committee includes Isabel Mota (Chair), Daniel Traça, Manuel Olazábal, Manuela Ataíde Marques and Remedios Ruiz (Members), with the majority of its members legally qualifying as independent (namely, Isabel Mota, Daniel Traça, Manuel Olazábal, and Manuela Ataíde Marques).
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 2021 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 2021, except for what is foreseen regarding the Digital Award.
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.
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 15, 2021
The Board of Directors submitted to the approval of the Bank's General Shareholders Meeting held on May 25, 2021, 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 Bank's website at: https://www.santander.pt/institucional/investor-relations/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 Article 17 of Notice No. 10/2011 of the Bank of Portugal, of December 29 (Official Gazette, 2nd Series, of January 9, 2012), in the part that refers to the disclosure of the annual amount of remuneration earned by the members of the management and supervisory bodies.
Fixed and variable remuneration, in aggregate terms for 2021, for the members of the Board of Directors and the Audit Committee, were, respectively, € 3,228k for fixed, and € 3,335k for variable remunerations.
As at December 31, 2021, the cumulative and current set of loans granted to members of the Board of Directors under Article 85 of the Legal Framework for Credit Institutions and Financial Companies was € 1,070k, with the following breakdown:
| thousand euro | |
|---|---|
| Name | Mortgages |
| Pedro Aires Coruche Castro e Almeida | 348 |
| Inês Oom Ferreira de Sousa | 303 |
| Miguel Belo de Carvalho | 49 |
| Amilcar Silva Lourenco | 257 |
| Daniel Abel Monteiro Palhares Traça | 113 |
| Total | 1,070 |
The individual remuneration paid and deferred for 2021 is shown in the tables below.
| Fixed remuneration | ||
|---|---|---|
| Name | (thousand euro) | |
| José Carlos Brito Sítima | Chairman | 350 |
| Pedro Aires Coruche Castro e Almeida | Deputy-Chairman | 513 |
| Amílcar da Silva Lourenço | Member | 200 |
| Ana Isabel Abranches Pereira de Carvalho Morais | Member | 150 |
| Andreu Plaza Lopez | Member | 150 |
| Daniel Abel Monteiro Palhares Traça | Member | 150 |
| Inês Oom Ferreira de sousa | Member | 250 |
| Isabel Cristina da Silva Guerreiro | Member | 300 |
| Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota | Member | 150 |
| Manuel António Amaral Franco Preto | Member | 465 |
| Manuel Maria Olazabal Albuquerque | Member | 150 |
| Maria Manuela Machado Costa Farelo Ataíde Marques | Member | 150 |
| Miguel Belo de Carvalho | Member | 250 |
| Remedios Ruiz Macia | Member | - |
3,228
| Bonuses 2021 (cash) | ||
|---|---|---|
| Name | Position | thousand euro |
| Pedro Aires Coruche Castro e Almeida | Deputy Chairman | 261 |
| Amílcar da Silva Lourenço | Member | 80 |
| Inês Oom Ferreira de sousa | Member | 84 |
| Isabel Cristina da Silva Guerreiro | Member | 144 |
| Manuel António Amaral Franco Preto | Member | 209 |
| Miguel Belo de Carvalho | Member | 153 |
| 930 |
| Bonuses 2021 (retained by | ||
|---|---|---|
| Name | Position | one year) thousand euro |
| Pedro Aires Coruche Castro e Almeida | Deputy Chairman | 278 |
| Amílcar da Silva Lourenço | Member | 85 |
| Inês Oom Ferreira de sousa | Member | 90 |
| Isabel Cristina da Silva Guerreiro | Member | 154 |
| Manuel António Amaral Franco Preto | Member | 222 |
| Miguel Belo de Carvalho | Member | 163 |
| 992 |
This amount corresponds to 299,459 shares of Banco Santander, S. A., at a value per share of €3.31, as 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 2021 is as follows:
| Bonuses - 2021 | ||||||
|---|---|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2022 | 2023 | ||
| Name | Position | Cash | Cash | Cash | Cash | Cash |
| Pedro Aires Coruche Castro e Almeida | Deputy Chairman | 52 | 52 | 52 | 52 | 52 |
| Amílcar da Silva Lourenço | Member | 18 | 18 | 18 | - | - |
| Inês Oom Ferreira de Sousa | Member | 19 | 19 | 19 | - | - |
| Isabel Cristina da Silva Guerreiro | Member | 32 | 32 | 32 | - | - |
| Manuel António Amaral Franco Preto | Member | 46 | 46 | 46 | - | - |
| Miguel Belo de Carvalho | Member | 34 | 34 | 34 | - | - |
| - 201 |
- 201 |
- 201 |
- 52 |
- 52 |
||
The shares portion of the deferred remuneration regarding 2021, is as follows:
| Board of Directors | Bonuses - 2021 | |||||
|---|---|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2022 | 2023 | ||
| Name | Position | Shares (#) | Shares (#) | Shares (#) | Shares (#) | Shares (#) |
| Pedro Aires Coruche Castro e Almeida | Deputy Chairman | 16,817 | 16,817 | 16,817 | 16,817 | 16,817 |
| Amílcar da Silva Lourenço | Member | 5,692 | 5,692 | 5,691 | - | - |
| Inês Oom Ferreira de Sousa | Member | 6,014 | 6,014 | 6,013 | - | - |
| Isabel Cristina da Silva Guerreiro | Member | 10,310 | 10,310 | 10,308 | - | - |
| Manuel António Amaral Franco Preto | Member | 14,927 | 14,927 | 14,927 | - | - |
| Miguel Belo de Carvalho | Member | 10,920 | 10,920 | 10,918 | - | - |
| 64,680 | 64,680 | 64,674 | 16,817 | 16,817 |
As of the present date, two thirds of the deferred variable remuneration for 2020 are deferred (with the exception of the Deputy-Chairman's variable remuneration, which is deferred in four fifths), while the 2022 portion of this remuneration has already been paid.
| Inflation adjust. | Cash | Shares |
|---|---|---|
| Deputy Chairman 1 |
30 | 37 |
| 0 | 8 | 10 |
| 0 | 8 | 10 |
| 0 | 11 | 13 |
| 1 | 21 | 26 |
| 0 | 13 | 16 |
| - 2 |
- 91 |
- 112 |
| Bonuses - 2020 paid in February 2022 |
The shares amount corresponds to 33,738 shares of Banco Santander, S. A., at a value per share of €3.31, as this is the market value (listed on the stock exchange) on the date of the respective allocation.
| Bonuses - 2020 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Position | 2023 | 2024 | 2025 | 2026 | |||||
| Name | Shares (#) | Cash | Shares (#) | Cash | Shares (#) | Cash | Shares (#) | Cash | |
| Pedro Aires Coruche Castro e Almeida | Deputy Chairman | 11,173 | 30 | 7,910 | 21 | 7,910 | 21 | 7,910 | 21 |
| Amílcar da Silva Lourenço | Member | 2,917 | 8 | 2,431 | 7 | - | - | - | - |
| Inês Oom Ferreira de Sousa | Member | 2,917 | 8 | 2,431 | 7 | - | - | - | - |
| Isabel Cristina da Silva Guerreiro | Member | 3,973 | 11 | 3,309 | 9 | - | - | - | - |
| Manuel António Amaral Franco Preto | Member | 7,781 | 21 | 6,482 | 17 | - | - | - | - |
| Miguel Belo de Carvalho | Member | 4,977 | 13 | 4,146 | 11 | - | - | - | - |
| 33,738 | 91 | 26,709 | 72 | 7,910 | 21 | 7,910 | 21 |
| Board of Directors | ||||
|---|---|---|---|---|
| Bonuses - 2019 paid in February 2022 | ||||
| Name | Position | Inflation adjust. | Cash | Shares |
| Pedro Aires Coruche Castro e Almeida | Deputy Chairman | 1 | 37 | 34 |
| Amílcar da Silva Lourenço | Member | 0 | 17 | 15 |
| Inês Oom Ferreira de Sousa | Member | 1 | 20 | 18 |
| Isabel Cristina da Silva Guerreiro | Member | 1 | 20 | 18 |
| Manuel António Amaral Franco Preto | Member | 1 | 39 | 35 |
| Miguel Belo de Carvalho | Member | 1 | 22 | 20 |
| - 4 |
- 155 |
- 140 |
| Board of Directors | Bonuses - 2019 | ||||||
|---|---|---|---|---|---|---|---|
| 2023 | 2024 | 2025 | |||||
| Name | Position | Shares (#) | Cash | Shares (#) | Cash | Shares (#) | Cash |
| Pedro Aires Coruche Castro e Almeida | Deputy Chairman | 4,766 | 17 | 4,766 | 17 | 4,766 | 17 |
| Amílcar da Silva Lourenço | Member | 2,167 | 8 | - | - | - | - |
| Inês Oom Ferreira de Sousa | Member | 2,599 | 10 | - | - | - | - |
| Isabel Cristina da Silva Guerreiro | Member | 2,599 | 10 | - | - | - | - |
| Manuel António Amaral Franco Preto | Member | 5,091 | 19 | - | - | - | - |
| Miguel Belo de Carvalho | Member | 2,816 | 10 | - | - | - | - |
| 20,038 | 74 | 4,766 | 17 | 4,766 | 17 |
| Name Pedro Aires Coruche Castro e Almeida 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 As of the present date, one third of the deferred variable remuneration for 2019 is deferred (with the exception of the former Chairman's variable remuneration, which is deferred in two fifths), while the 2022 portion of this remuneration has already been paid. Board of Directors |
Position Deputy Chairman |
2023 Shares (#) Cash 11,173 30 2,917 8 2,917 8 3,973 11 7,781 21 4,977 13 33,738 91 |
2024 Shares (#) 7,910 2,431 2,431 3,309 6,482 4,146 26,709 |
Cash 21 7 7 9 17 11 72 |
2025 Shares (#) 7,910 - - - - - 7,910 |
Cash 21 - - - - - 21 |
2026 Shares (#) 7,910 - - - - - 7,910 |
Cash 21 - - - - - 21 |
|---|---|---|---|---|---|---|---|---|
| Bonuses - 2019 paid in February 2022 | ||||||||
| Name | Position | Inflation adjust. | Cash | Shares | ||||
| Pedro Aires Coruche Castro e Almeida | Deputy Chairman | 1 | 37 | 34 | ||||
| Amílcar da Silva Lourenço | Member | 0 | 17 | 15 | ||||
| Inês Oom Ferreira de Sousa | Member | 1 | 20 | 18 | ||||
| Isabel Cristina da Silva Guerreiro | Member | 1 | 20 | 18 | ||||
| Manuel António Amaral Franco Preto | Member | 1 | 39 | 35 | ||||
| Miguel Belo de Carvalho | Member | 1 | 22 | 20 | ||||
| - 4 |
- 155 |
- 140 |
||||||
| The shares amount corresponds to 42,210 shares of Banco Santander, S. A., at a value per share of €3.31, as this is the market value (listed on the stock exchange) on the date of the respective allocation. |
||||||||
| Board of Directors | ||||||||
| Name | Bonuses - 2019 | |||||||
| Position | 2023 Shares (#) |
Cash | Shares (#) | 2024 Cash |
2025 Shares (#) |
|||
| Pedro Aires Coruche Castro e Almeida | Deputy Chairman | 4,766 | 17 | 4,766 | 17 | 4,766 | Cash | |
| Amílcar da Silva Lourenço | Member | 2,167 | 8 | - - |
- - |
- - |
||
| Inês Oom Ferreira de Sousa Isabel Cristina da Silva Guerreiro |
Member Member |
2,599 2,599 |
10 10 |
- | - | - | ||
| Manuel António Amaral Franco Preto | Member | 5,091 | 19 | - | - | - | ||
| Miguel Belo de Carvalho | Member | 2,816 20,038 |
10 74 |
- 4,766 |
- 17 |
- 4,766 |
||
| Bonuses - 2018 paid in February 2022 | ||||||||
| Position | Inflation adjust. | Cash | ||||||
| Presidente | 1 | 17 | ||||||
| Deputy Chairman | 1 | 16 | ||||||
| Member | 0 | 9 | ||||||
| Member | 0 | 9 | ||||||
| Member | 0 | 3 | ||||||
| Member | 1 | 13 | Shares | |||||
| On this date, one third of the variable remuneration for 2018 has been paid. Board of Directors Name José Carlos Brito Sítima Pedro Aires Coruche Castro e Almeida Amílcar da Silva Lourenço Inês Oom Ferreira de Sousa Isabel Cristina da Silva Guerreiro Manuel António Amaral Franco Preto Miguel Belo de Carvalho |
Member | - | 0 | - | 16 |
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, 2021, and 2020, liabilities with this plan amounted to €14,268k and €14,201k, 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 2021, there were no payments of indemnities for early termination of functions of holders of governing bodies.
The remuneration policy of the members of the Management and Supervisory Bodies of Banco Santander Totta, for the year 2022, will be the subject of a resolution at the Annual General Meeting, in compliance with 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 2021.
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 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 objectives for the year 2021 are those set out in Annex 3, which are part of the Declaration for all due 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 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 the internal provisions regarding the setting of objectives and the annual evaluation of Managers of the Control Functions, the Remuneration Committee is responsible for evaluating the execution and compliance with the principles set out in this Policy.
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 2017, the last third of the deferred variable remuneration has been paid.
For the year 2018, one third of the deferred variable remuneration remains to be paid.
Of the variable remuneration for 2019, two thirds of the deferred variable remuneration remains to be paid.
Of the variable remuneration of 2020, the non-deferred portion was paid in 2021. The remaining payment is deferred for three years.
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 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 2021, except for what is foreseen regarding the Digital Award.
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 18, 2021
EXECUTIVE DIRECTOR OF CORPORATE & INVESTMENT BANKING
This information is provided in compliance with the provisions of Article 17 of Notice No. 10/2011, of the Bank of Portugal, of December 29 (Official Gazette, 2nd Series, of January 9, 2012), namely in the section referring to the disclosure, in aggregate terms, of the annual amount of remuneration earned by employees who, while not being members of the management or supervisory bodies of Banco Santander Totta, S. A., carry out their professional activity within the scope of control functions provided for in Notice No. 5/2008, of the Bank of Portugal, of July 1, or perform duties with responsibilities in terms of assumption of risks on behalf of the Bank or of its customers, with a material impact on the Bank's risk profile (hereinafter, the "Leading Managers").
| Amount of fixed remuneration: | |
|---|---|
| Control functions | € 655k |
| Other functions | € 4,933k |
| Amount of variable remuneration: | |
| Control functions | € 115k |
| Other functions | € 1.405k |
| Number of beneficiaries: | |
| Control functions | 3 |
| Other functions | 41 |
Performance bonus for 2021, retained for one year in the amount of € 1,507k corresponds to 455,162 shares of Banco Santander, S. A., at a value per share of € 3.31, as this is the market value (stock exchange quotation) on the date of the respective award.
On the present date, the following amounts are deferred:
| Bonuses - 2021 | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2024 | 2025 | ||||
| Shares (#) | Cash | Shares (#) | Cash | Shares (#) | Cash | |
| Control functions | 9,519 | 30 | 9,519 | 30 | 9,520 | 30 |
| Other functions | 92,937 | 288 | 92,937 | 288 | 92,938 | 288 |
On the present date, two thirds of the deferred variable remuneration for 2020 are deferred, while one third of this remuneration has already been paid.
| Bonuses - 2020 | |||||||
|---|---|---|---|---|---|---|---|
| Paid in 2022 | 2023 | 2024 | |||||
| Inflation adjust. | Shares | Cash | Shares (#) | Cash | Shares (#) | Cash | |
| Control functions | 0 | 11 | 9 | 3,908 | 10 | 3,472 | 9 |
| Other functions | 2 | 111 | 90 | 33,394 | 90 | 31,956 | 86 |
The shares amount delivered corresponds to 36,626 shares of Banco Santander, S. A., at a value per share of € 3.31, 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 - 2019 | ||||||
|---|---|---|---|---|---|---|
| Paid in 2022 | ||||||
| Inflation adjust. | Shares | Cash | Shares (#) | Cash | ||
| Control functions | 0 | 15 | 17 | 4,541 | 13 | |
| Other functions | 6 | 182 | 202 | 54,953 | 180 | |
The value of the shares delivered corresponds to 59,494 shares of Banco Santander, S. A., at a value of € 3.31 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 2018 was as follows:
| Bonuses - 2018 | ||||||
|---|---|---|---|---|---|---|
| Paid in 2022 | ||||||
| Inflation adjust. Shares Cash |
||||||
| Control functions | 1 | 13 | 17 | |||
| Other functions | 6 136 182 |
The value of the shares delivered corresponds to 45,123 shares of Banco Santander, S. A., at a value of € 3.31 per share, as this is the market value (quoted on the stock exchange) on the date of the respective allocation.
Leading Managers benefit from health insurance complementary to the Medical and Social Assistance Services (SAMS) provided for in the collective regulation of the banking sector, as well as a personal accidents insurance, as defined in the collective regulation of the banking sector.
Some Leading Managers benefit from life insurance, as a result of a contractual connection with the former Banco Santander Portugal or Banco Santander, S. A.
Some Leading Managers benefit from a supplementary retirement plan, under the terms of the Resolution of the Board of Directors of the Bank 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 18, 2021.
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., here identified by name, each signed the declaration transcribed hereunder:
"I hereby declare, under the terms and for the purposes set out in Article 29-G.1 subparagraph c) of the Securities Code that, to the best of my knowledge, the Management Report, the Annual Accounts, the Legal Certification of Accounts, and all other documents for rendering accounts of Banco Santander Totta, S. A., all related to the financial year of 2021, were prepared in accordance with the applicable accounting standards, providing a true and fair view of the Company's assets and liabilities, financial situation, and results, as well as of the companies included in the Company's consolidation perimeter, and that the management report faithfully sets out the evolution of the business, performance and position of the Company and of the companies included in the Company's consolidation perimeter, containing a description of the main risks and uncertainties that 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 |
Article 29-G.1 sub-paragraph 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 29-G.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 2021, 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
| (Amounts expressed in thousands of Euros - tEuros) | |||
|---|---|---|---|
| Notes | 31-12-2021 | 31-12-2020 | |
| ASSETS | |||
| Cash, cash balances at central banks and other demand deposits | 5 | 8,711,389 | 4,535,815 |
| Financial assets held for trading | 6 | 587,772 | 916,039 |
| Non-trading financial assets mandatorily at fair value through profit or loss | 7 | 99,167 | 132,905 |
| Equity instruments | 99,167 | 132,905 | |
| Financial assets at fair value through other comprehensive income | 8 | 5,339,913 | 7,704,190 |
| Equity instruments | 72,520 | 72,634 | |
| Debt securities | 2,288,091 | 4,491,485 | |
| Loans and advances | 2,979,302 | 3,140,071 | |
| Financial assets at amortised cost | 9 | 40,373,867 | 39,820,582 |
| Debt securities | 3,458,792 | 3,965,219 | |
| Loans and advances | 36,915,075 | 35,855,363 | |
| Derivatives – Hedge accounting | 10 | 7,447 | 23,719 |
| Investments in subsidiaries, joint ventures and associates | 11 | 38,161 | 62,582 |
| Tangible assets | 12 | 497,500 | 584,451 |
| Investment property | 213,731 | 250,531 | |
| Property, Plant and Equipment | 283,769 | 333,920 | |
| Intangible assets | 12 | 33,648 | 36,573 |
| Tax assets | 13 | 254,508 | 370,942 |
| Other assets | 14 | 148,336 | 164,151 |
| Non-current assets and disposal groups classified as held for sale | 15 | 74,911 | 51,460 |
| TOTAL ASSETS | 56,166,619 | 54,403,409 | |
| LIABILITIES | |||
| Financial liabilities held for trading | 6 | 605,331 | 941,528 |
| Financial liabilities at amortised cost | 16 | 49,988,573 | 47,723,787 |
| Deposits | 46,762,551 | 44,610,781 | |
| Debt securities issued | 3,006,747 | 2,907,350 | |
| Other financial liabilities | 219,275 | 205,656 | |
| Derivatives – Hedge accounting | 10 | 294,108 | 522,283 |
| Provisions | 17 | 201,810 | 231,324 |
| Commitments and guarantees given | 51,178 | 57,466 | |
| Other provisions | 150,632 | 173,858 | |
| Tax liabilities | 13 | 344,847 | 374,991 |
| Share capital repayable on demand | 18 | 54,805 | 64,692 |
| Other liabilities | 19 | 426,256 | 433,448 |
| TOTAL LIABILITIES | 51,915,730 | 50,292,053 | |
| 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 | (139,544) | (7,360) |
| Items that will not be reclassified to profit or loss | (609,005) | (658,910) | |
| Items that may be reclassified to profit or loss | 469,461 | 651,550 | |
| Retained earnings | 20 | 1,608,681 | 951,973 |
| Other reserves | 20 | 969,610 | 1,367,315 |
| Treasury shares | 20 | (44,091) | (44,061) |
| Profit or loss attributable to owners of the parent | 21 | 270,494 | 257,749 |
| Minority interests [Non-controlling interests] | 22 | 626 | 627 |
| TOTAL EQUITY | 4,250,889 | 4,111,356 | |
| TOTAL LIABILITIES AND EQUITY | 56,166,619 | 54,403,409 | |
The accompanying notes form an integral part of the consolidated statement of financial position for the year ended December 31, 2021
| (Amounts expressed in thousands of Euros - tEuros) | ||||
|---|---|---|---|---|
| Notes | 31-12-2021 | 31-12-2020 | ||
| Interest income | 24 | 1,012,164 | 1,113,306 | |
| Interest expenses | 24 | (283,508) | (328,356) | |
| NET INTEREST INCOME | 728,656 | 784,950 | ||
| Dividend income | 25 | 1,537 | 1,734 | |
| Share of the profit or loss of investments in subsidiaries, joint ventures and associates accounted for using the equity method | 26 | 4,231 | 5,617 | |
| Fee and commission income | 27 | 533,691 | 484,475 | |
| Fee and commission expenses | 27 | (101,547) | (106,815) | |
| Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 28 | 129,180 | 90,879 | |
| Gains or losses on financial assets and liabilities held for trading, net | 28 | (4,409) | (9,299) | |
| Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss, net | 28 | 2,991 | 3,577 | |
| Gains or losses on hedge accounting, net | 28 | - | - | |
| Exchange differences, net | 28 | 13,505 | 11,192 | |
| Gains or losses on derecognition of investments in subsidiaries, joint ventures and associates, net | 63 | - | ||
| Gains or losses on derecognition of non-financial assets, net | 29 | (43) | 132 | |
| Other operating income | 30 | 19,612 | 20,057 | |
| Other operating expenses | 30 | (9,989) | (11,699) | |
| TOTAL OPERATING INCOME, NET | 1,317,478 | 1,274,800 | ||
| Administrative expenses | 31 | (472,611) | (519,433) | |
| Staff expenses | (279,418) | (321,795) | ||
| Other administrative expenses | (193,193) | (197,638) | ||
| Cash contributions to resolution funds and deposit guarantee schemes | 32 | (37,679) | (35,624) | |
| Depreciation | 12 | (49,300) | (52,016) | |
| Provisions or reversal of provisions | 17 | (243,411) | (65,849) | |
| Commitments and guarantees given | 6,288 | (4,217) | ||
| Other provisions | (249,699) | (61,632) | ||
| Impairment or reversal of impairment of financial assets not measured at fair value through profit or loss | 17 | (73,523) | (187,683) | |
| Financial assets at fair value through other comprehensive income | (38) | 75 | ||
| Financial assets at amortised cost | (73,485) | (187,758) | ||
| Impairment or reversal of impairment of non-financial assets | 17 | (16,777) | (16,208) | |
| Other profit or loss, net | 1.3 l) | (35,075) | (34,495) | |
| Profit or loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | 33 | 14,006 | 4,990 | |
| PROFIT OR LOSS BEFORE TAX FROM CONTINUING OPERATIONS | 403,108 | 368,482 | ||
| Tax expense or income related to profit or loss from continuing operations | 13 | (132,614) | (110,733) | |
| PROFIT OR LOSS FOR THE YEAR | 270,494 | 257,749 | ||
| Attributable to minority interest [non-controlling interests] | 22 | - | - | |
| Attributable to owners of the parent | 270,494 | 257,749 | ||
The accompanying notes form an integral part of the consolidated statement of profit and loss for the year ended December 31, 2021
AS OF DECEMBER 31, 2021 AND 2020
| 2021 | 2020 | |||||
|---|---|---|---|---|---|---|
| Attributable to the shareholders |
Attributable to non-controlling |
Attributable to the shareholders |
Attributable to non-controlling |
|||
| Notes | of BST | interests | of BST | interests | ||
| Profit or loss for the year | 270,494 | - | 257,749 | - | ||
| Other comprehensive income | 20 | (130,920) | - | 218,758 | - | |
| Items that will not be reclassified to profit or loss | ||||||
| Actuarial gains or losses on defined benefit pension plans | 20 | |||||
| . Gross amount | 49,918 | - | (5,514) | - | ||
| . Tax effect | - | - | (19) | - | ||
| Fair value changes of equity instruments measured at fair value through other comprehensive income | ||||||
| . Gross amount | 8 | (814) | - | (238) | - | |
| . Tax effect | - | - | - | - | ||
| Items that may be reclassified to profit or loss | ||||||
| Cash flow hedges | 20 | |||||
| . Fair value | 43,623 | - | 8,387 | - | ||
| . Tax effect | (13,523) | - | (2,600) | - | ||
| Debt instruments at fair value though other comprehensive income | ||||||
| Valuation gains or (-) losses taken to equity | ||||||
| . Fair value | 8 | (238,961) | - | (178,470) | - | |
| . Tax effect | 73,973 | - | 55,221 | - | ||
| Loans and advances carried at fair value through other comprehensive income | ||||||
| Gains or losses on valuation imputed to net equity | ||||||
| Change in business model (Note 1.3 c)) | ||||||
| . Initial impact | ||||||
| . Gross amount | - | - | 373,172 | - | ||
| . Tax effect | - | - | (115,683) | - | ||
| Fair value changes | ||||||
| . Gross amount | 8 | (68,779) | - | 121,266 | - | |
| . Tax effect | 21,322 | - | (37,593) | - | ||
| Share of other recognised income and expense of Investments in subsidiaries, joint ventures | ||||||
| and associates | ||||||
| . Gross amount | 2,262 | - | 1,113 | - | ||
| . Tax effect | 59 | - | (284) | - | ||
| Total comprehensive income for the year | 139,574 | - | 476,507 | - | ||
The accompanying notes form an integral part of the consolidated statement of other comprehensive income for the year ended December 31, 2021
| (Amounts expressed in thousands of Euros - tEuros) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity instruments | Accumulated other comprehensive income | Profit or loss attributable | |||||||||
| Share | issued other | Fair | Retained | Other | Treasury | to owners of the | Minority | ||||
| Capital | premium | than capital | value | Taxes | earnings | reserves | shares | parent | interests | Total | |
| 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 (Note 20) | - | - | - | - | - | 438,839 | 50,612 | - | (489,451) | - | - |
| Acquisition of own shares (Note 20) | - | - | - | - | - | - | - | 4 | - | - | 4 |
| 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 |
| Appropriation of net income | |||||||||||
| . Transfer to reserves (Note 20) | - | - | - | - | - | 656,708 | (398,959) | - | (257,749) | - | - |
| Acquisition of own shares (Note 20) | - | - | - | - | - | - | - | (30) | - | - | (30) |
| Sale of equity instruments at fair value | |||||||||||
| through other comprehensive income | - | - | - | (1,499) | 235 | 1,264 | - | - | - | - | |
| Other | - | - | - | - | - | - | (10) | - | - | (1) | (11) |
| Consolidated comprehensive income in 2021 | - | - | - | (212,751) | 81,831 | - | - | - | 270,494 | - | 139,574 |
| Balances as at December 31, 2021 | 1,256,723 | 193,390 | 135,000 | (134,331) | (5,213) | 1,608,681 | 969,610 | (44,091) | 270,494 | 626 | 4,250,889 |
The accompanying notes form an integral part of the consolidated statement of changes in shareholders' equity for the year ended December 31, 2021
| (Amounts expressed in thousands of Euros - tEuros) | |||
|---|---|---|---|
| Notes | 31-12-2021 | 31-12-2020 | |
| CASH FLOW FROM OPERATING ACTIVITIES: | |||
| Interest and commissions received | 1,507,892 | 1,520,490 | |
| Payments of interest and commissions | (422,918) | (381,592) | |
| Payment to staff and suppliers | (573,499) | (534,340) | |
| Pension Fund contributions | 35 | (23,860) | (19,400) |
| Foreign exchange and other operating results | (14,551) | (16,074) | |
| Recovery of uncollectable loans | 17 | 3,735 | 7,317 |
| Operating results before changes in operating assets and liabilities | 476,799 | 576,401 | |
| (Increase) / Decrease in operating assets: | |||
| Loans and advances to credit institutions | (10,293) | 751,463 | |
| Financial assets held for trading Financial assets held for trading |
328,267 | 169,888 | |
| Credit granted and other balances receivable at amortised cost | (693,769) | (2,997,582) | |
| Assets and liabilities at fair value through profit or loss | 15,737 | 24,731 | |
| Non-current assets held for sale | 72,874 | (48,149) | |
| Investment properties | 36,801 | 1,981 | |
| Other assets | (92,375) | 52,104 | |
| (342,758) | (2,045,564) | ||
| Increase / (Decrease) in operating liabilities: | |||
| Resources from financial institutions | (464,243) | 2,083,719 | |
| Resources from customers and other debts | 2,687,039 | 407,697 | |
| Financial liabilities held for trading | (336,197) | (173,175) | |
| Other liabilities | (59,899) | (9,344) | |
| 1,826,700 | 2,308,897 | ||
| Net cash flow from operating activities before income taxes | 1,960,741 | 839,734 | |
| Income tax paid | (10,075) | (192,813) | |
| Net cash flow from operating activities | 1,950,666 | 646,921 | |
| CASH FLOW FROM INVESTING ACTIVITIES: | |||
| Dividends received | 25 | 1,537 | 1,734 |
| Purchase of financial assets at fair value through other comprehensive income | (823) | (153,454) | |
| Sale of financial assets at fair value through other comprehensive income | 2,050,752 | 1,396,626 | |
| Other financial assets mandatorily at fair value through profit or loss | 7 | 33,738 | 12,093 |
| Income from financial assets at fair value through other comprehensive income | 73,769 | 83,566 | |
| Purchase of tangible and intangible assets | 12 | (33,257) | (50,920) |
| Sale of tangible assets | 10,932 | 7,341 | |
| Investments in subsidiaries, joint ventures and associates Net cash flow from investing activities |
11 | 26,235 2,162,883 |
- 1,296,986 |
| CASH FLOW FROM FINANCING ACTIVITIES: | |||
| Issuance of securities and subordinated debt | 16 | 183,000 | 320,000 |
| Redemption of securities and subordinated debt | (85,719) | (1,149,845) | |
| Interest paid on bonds issued and other | (35,256) | (26,601) | |
| Dividends paid | - | - | |
| Net cash flow from financing activities | 62,025 | (856,446) | |
| Net Increase / (Decrease) in cash and cash equivalents | 4,175,574 | 1,087,461 | |
| Cash and cash equivalents at the beginning of the period | 5 | 4,535,815 | 3,448,354 |
| Cash and cash equivalents at the end of the period | 5 | 8,711,389 | 4,535,815 |
The accompanying notes form an integral part of the consolidated statement of cash flows for the year ended December 31, 2021
Banco Santander Totta, S.A. (hereinafter also "Bank" or "Group") was incorporated 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 2, 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 latter. The main balances and transactions maintained with companies of the Santander Group during 2021 and 2020 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 entirety 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 entire 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 358 branches (434 branches as at December 31, 2020). It also has several branches and representation offices abroad, and holdings in subsidiaries and associated companies.
The Bank's financial statements for financial year ended December 31, 2021, were approved at the Board of Directors meeting on March 29, 2022. 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 as from 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, 2021, are consistent with those used in preparing the consolidated financial statements with reference to December 31, 2020.
As from financial year 2020, the Bank presents its financial statements according to the Regulation guidelines (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 historical cost convention, modified, when applicable, by measuring the fair value of: - Financial assets held for trading; - Non-trading financial assets mandatorily at fair value through profit or loss; - Financial assets at fair value through other comprehensive income; - Derivatives; and - Investment property.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates, also implying 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, 2021:
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.
The following table presents the main captions of the statement of financial position impacted by the benchmark rates:
| Loans and advances |
Deposits | Debt securities (assets) |
Debt securities issued |
Trading derivatives (assets) |
Hedging derivatives (assets) |
Trading derivatives (liabilities) |
Hedging derivatives (liabilities) |
Credit commitments |
|
|---|---|---|---|---|---|---|---|---|---|
| referenced to EONIA | 606,484 | 614,946 | - | - | - | - | - | - | - |
| referenced to EURIBOR | 31,145,421 | 750,799 | 2,921,180 | 182,884 | 20,777 | 1,946 | 218,877 | 288,657 | - |
| referenced to LIBOR | 36,162 | 95,395 | 15,665 | - | 17,172 | 5,501 | 17,281 | 5,451 | - |
| of which: USD | 33,890 | 78,784 | 10,992 | - | 17,172 | 5,501 | - | 5,343 | - . |
| of which: GBP | 2,273 | 6,930 | - | - | - | - | - | 107 | - |
| referenced to a fixed interest rate | 8,048,666 | 37,692,808 | 2,810,038 | 2,823,863 | 549,823 | - | 369,173 | - | 6,944,748 |
| referenced to other indices - base rate | 57,644 | 7,608,603 | - | - | - | - | - | - | - |
| 39,894,377 | 46,762,551 | 5,746,883 | 3,006,747 | 587,772 | 7,447 | 605,331 | 294,108 | 6,944,748 |
As regards the application of IAS 39 followed by the Bank for hedge accounting, the main assumptions assumed in the context of this Benchmark Interest Rate Reform were:
The notional value of hedging derivative financial instruments that were affected by the substitution of benchmark rates represents 4% of the total notional value of the hedging derivatives.
For financial instruments designated as covered elements that have been affected by the transition introduced by the benchmark interest rate reform, their value represents 4.2% of the total notional value of the elements covered.
In the wake of the standards and interpretations referred to above no material impacts were identified.
Standards (new and amendments) published, which application is mandatory for annual periods beginning on or after January 1, 2022, and that the European Union has endorsed:
IFRS 3 (amendment), 'Reference to the Conceptual framework'. This amendment updates the references to the Conceptual Framework in the text of IFRS 3, without changing the accounting requirements for business combinations. This amendment also clarifies the accounting treatment to be given to contingent liabilities and liabilities under IAS 37 and IFRIC 21, incurred separately versus within a business combination. This amendment is applied prospectively.
IFRS 16 (amendment), 'Leases COVID-19 related rent concessions beyond 30 June 2021'. This amendment extends the date of application of the IFRS 16 – 'Leases – COVID-19 related rent concessions' amendment from 30 June 2021 to 30 June 2022. The conditions required to apply the practical expedient remain unchanged, such that: i) if the lessee already applied the 2020 practical expedient it is required to continue to apply the practical expedient consistently, to all lease contracts with similar characteristics and in similar circumstances; and ii) If the lessee did not apply the 2020 practical expedient to eligible lease concessions, it is prohibited from applying the extension of the practical expedient, as per this amendment. This amendment is applied retrospectively with the impacts reflected as an adjustment to the opening balance of retained earnings of the annual reporting period in which the lessee applies this amendment for the first time.
IAS 1 (amendment), 'Disclosure of accounting policies'. Amendment to the requirement to disclose the accounting policies based on "material" instead of "significant". The amendment specifies that an accounting policy information is expected to be material if, in its absence, the users of the financial statements would be unable to understand other material information in those same financial statements. Immaterial accounting policy information need not be disclosed. The IFRS Practice Statement 2 was also amended to provide guidance for the application of the concept of material" to accounting policy disclosures.
IAS 8 (amendment), 'Disclosure of accounting estimates'. Introduction of the concept of accounting estimate and the way it is distinct from changes to accounting policies. The accounting estimates are defined as corresponding to monetary amounts that are subject to measurement uncertainty, used to achieve an accounting policy's objective(s).
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 because they have not yet been endorsed by the European Union:
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 those over through the power it has over relevant activities of that entity. The financial statements of subsidiaries are consolidated using the full consolidation method from the moment the Group takes control over their activities until the moment when the control ceases. Transactions and balances between the companies subject to consolidation have been eliminated. In addition, when applicable, consolidation adjustments are made to ensure consistency in the application of accounting principles. The amount corresponding to third-party shareholdings in the subsidiaries consolidated using the full consolidation method is presented in the caption "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 special purpose entities, namely vehicles and funds created in the scope of securitisation operations, when exercising effective financial and operating control over them and when it is exposed to the majority of the 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, which 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 full consolidation method. In accordance with IAS 32 and IFRS 10, the amount corresponding to third-party participation in investment funds consolidated by the full consolidation method is presented as a liability in the caption "Share capital redeemable at sight". Non-controlling interests in the profit or loss of the Novimovest Fund are recognised as a deduction from the caption "Other operating income / expenses", considering the nature of the main income earned by that fund.
Financial investments in associated companies are measured 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 over 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 of the total equity and of the profits and losses recognised by the associated companies. Dividends attributed 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 years 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 than the group of assets comprising each of the Group's operational segments, with the determination of the respective recoverable amount being based on estimates of future cash flows, updated using discount rates considered appropriate by the Group, and relying on appropriate and 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, which 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 applied. 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 fair value 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 to 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 purchase cost (gain on the purchase at a discount), the difference is recognised in the statement of profit or loss. 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 the 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 through step acquisition of subsidiaries. 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 purchase cost and the proportion of the fair value of the assets and liabilities of the subsidiary. Similarly, on the application of the amendments to the standards referred to above, the Group revalued through 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 captions of the financial statements. Thus, expenses and income are recorded as and when generated, regardless of the time of payment or receipt.
b) Foreign currency transactions
The Bank's accounts are prepared in the currency of the economic environment in which it operates ("functional currency") and are stated in Euros.
| 2021 | 2020 |
|---|---|
| 1.13260 | 1.2271 |
| 0.84028 | 0.89903 |
The classification of financial assets follows three main criteria:
In this connection, the categories of financial assets laid down for financial debt instruments are:
A financial debt instrument that (i) is managed under a business model which objective involves keeping the financial assets in the portfolio and receiving all of their contractual cash flows and (ii) has contractual cash flows on specific dates that correspond exclusively to the payment of principal and of interest on the outstanding principal – must be measured at amortised cost unless designated at fair value through profit or loss under the fair value option – "Hold to Collect".
A financial debt instrument that (i) is managed under a business model which objective is achieved either through the receipt of contractual cash flows or through the sale of financial assets and (ii) include contractual clauses that give rise to cash flows that correspond exclusively to the payment of principal and of interest on the outstanding principal – must be measured at fair value through other comprehensive income ("FVTOCI"), unless it is designated at fair value through profit or loss under the fair value option – "Hold to Collect & Sale".
The Bank assessed its business models based on 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, 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 Bank.
The other financial instruments, specifically equity instruments and derivatives, the latter by definition, are 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 manage a portfolio of financial assets. According to said 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 made the decision to discontinue the activity of granting loans that require stable financing and imply large amounts and extended 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 considers that loans affected by changes in the business model have a significant impact on the Bank's statement of financial position, as can be seen in Note 8.
In view of the above, and since all the requirements defined in IFRS 9 were met, the Bank proceeded to reclassify the respective contracts, and these are now measured at fair value through other comprehensive income, when they were previously measured at amortised cost. The difference between the fair value and the respective statement of financial position value on the reclassification date, was recognised in other comprehensive income, as shown:
| Measurement At fair value |
||
|---|---|---|
| At amortised | through 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 loans on a definitive basis are recorded in the statement of profit or loss caption "Impairment of financial assets at amortised 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 from assets loans sold in securitisation operations when:
Loans sold and not derecognised are carried under "Financial assets at amortised cost" and are subject to accounting criteria identical to other credit operations. Interest and commissions associated with the securitised loan 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 flows 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 has transferred control over the assets.
Liabilities for guarantees provided and irrevocable commitments are recorded in off-balance sheet captions 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 the contractual breach, the Bank has the right to reverse the guarantee, with the amounts being recognised under Financial assets at amortised cost after the transfer of the loss compensation 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 year 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 measured 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 subsequently measured at fair value. Gains and losses related to subsequent changes in fair value are reflected under a specific equity caption named "Accumulated other comprehensive income" until their sale, when they are reclassified to profit or loss for the year, except for equity instruments that remain in equity.
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 statement of profit or loss under Dividend income on the date when they are attributed. In accordance with this criterion, interim dividends are recorded as income in the year in which their distribution is decided.
Financial assets held for trading 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 options bought are included under Financial assets held for trading. Trading derivatives with net amount payable (negative fair value), as well as options sold are included under Financial liabilities held for trading.
Financial assets and liabilities held for trading and non-trading financial assets and liabilities mandatorily at fair value through profit or loss are initially recognised at fair value, with 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 statement of profit or loss, under the captions "Gains or losses on financial assets and liabilities held for trading, net value" and "Gains or losses on non-trading financial assets mandatorily 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 based on valuation techniques, including price valuation 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 recognised at their fair value, which normally corresponds to the consideration received, net of transaction costs, and are measured at amortised cost, in accordance with the effective interest rate method.
Financial liabilities correspond mainly to 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 proportionally under the respective bonds issued captions (principal, interest and commissions) and the differences between the amount settled and the respective carrying amount.
The 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, extend the eligibility of a greater number of hedged and hedging instruments, but also types of risk.
IFRS 9 still does not provide rules for the accounting of the so-called macro-hedges, with these still to be defined by the IASB. Because of this limitation of IFRS 9, and regarding hedge accounting, institutions may choose to maintain the accounting principles of IAS 39 (only for hedge accounting) until completion of the macro-hedging project by the IASB. In this context, the Bank decided to continue applying the hedge accounting defined within the scope of IAS 39.
The Bank uses derivative financial instruments, namely, to hedge the interest-rate risk arising from financing and investment activities. Derivatives that qualify for hedge accounting are measured at their fair value and gains or losses are recognised in keeping with the Bank's hedgeaccounting model.
Under the terms of the standard, the 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 recognised in profit or loss. Should the hedge be effective, the gains or losses resulting from the fair value changes 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 on 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 on the valuation of the hedged risk are recognised in profit or loss for the year 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 statement of profit or loss, as are foreignexchange 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 derivative financial instruments to hedge future flows from the sale of part of its portfolio at fair value through other comprehensive income.
The 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 a transaction that is not expected to be realised, the amount of the derivative still recognised in equity is immediately transferred to profit or loss, with 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 measured at fair value.
Except for 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:
The expected credit-risk loss 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 measurement of the provision for losses is based on the present value of the expected cash flows of the asset determined 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 the loans are referred to as Stage 3 assets. The Bank adopted in 2021 the new definition of default as the criterion for the identification of Stage 3 loans, following the recommendation of EBA GL 2017/06. The internal definition of non-performing loans is governed by objective and subjective criteria and is used 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 the assets, the expected loss to maturity is applied. The associated interest is calculated by applying the effective interest rate to the net amount.
The Bank monitors all financial assets 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 provision for expected credit-risk loss to maturity (PDLT (lifetime)) 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 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 and 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 to 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 different counterparties. The classification models (rating and scoring) are used in the management and are based on internal data comprising both quantitative and qualitative factors. The estimate is based on current conditions, adjusted to consider the estimates of future conditions that will affect the PD.
LGD is an estimate of the total loss, should the asset enter default. It is based on the difference between the contractual cash flows due and those that the Bank expects to receive, considering the cash flows of existing guarantees. The LGD models for secured assets consider the valuation of the guarantees, considering 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 consider the estimates of future conditions that will affect the LGD.
EAD is an estimate of exposure on a date of future default, considering 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 impairment-loss purposes, 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 during the contractual notice period. For such financial instruments, the Bank measures the expected credit-risk loss for the period historically observed to be the average life of these instruments.
When the expected credit-risk loss is measured collectively, the financial instruments are grouped based on common risk characteristics, such as instrument type, customer type, credit-risk level as measured by the rating 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.
In relation to the calculation of the expected loss through collective analysis, same results from the product of the financial asset's PD, LGD and EAD, discounted at the original effective interest rate of the asset.
The process of impairment loss quantification through individual analysis is applied to customers with individually significant (exposure greater than Euros 1 million in 2021 and Euros 0.5 million in 2020) Stage 3 exposure (assets impaired and in default).
The process involves the calculation of an estimated loss, considering foreseeable future cash flows under several different scenarios, each using specific factors and circumstances of the customers, namely execution of guarantees in situations in which customers do not generate sufficient cash flows for the payment of the debt, or projection and discounting of the cash flows of the deal for the remaining customers. The net present value of the cash flows is calculated considering the original effective interest rate of the contracts.
This assessment process is updated at least every quarter but occurs 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, namely budgeting, strategic planning and ICAAP. In this connection, different macroeconomic scenarios are generated, including two pessimistic scenarios, one base scenario and two optimistic scenarios.
For impairment-loss purposes, a pessimistic scenario (18.5%), the base scenario (63.1%) and an optimistic scenario (18.4%) are used. 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.
d) Leases
IFRS 16 defines a set of requirements, namely regarding the classification and measurement of lease transactions from the lessee's perspective. As a lessee, the Bank records a right-of-use asset that is recognised in the caption "Property, plant and equipment and Intangible assets" (Note 12) and a lease liability that is recognised in the caption "Financial liabilities recorded at amortised cost - other financial liabilities - commitments with future rents" (Note 16), on the date of entry into force of the respective transaction:
i. The lease liability is measured at the present value of the future rents to be incurred during the term of the contract, using a discount rate differentiated by maturity. Fixed payments, variable payments that depend on a rate or index, values relating to the exercise of the call option, are considered when estimating the liability, when the Bank 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 recognised against the right-ofuse (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.
Property, plant and equipment used by the Bank to carry on its business are measured at purchase cost (including directly attributable expenses), less accumulated depreciation and impairment losses, when applicable.
Depreciation of property, plant and equipment 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:
| Years of useful life | |
|---|---|
| Premises | 50 |
| Equipment | 4 to 10 |
Non-recoverable expenditure incurred with construction works on buildings that are not owned by the Bank (leased) are depreciated over a period compatible with their expected useful life, or the lease contract, if less, which on average corresponds to a period of ten years. Maintenance and repair expenses are recognised under Other administrative expenses.
Whenever there is an indication that property, plant and equipment may be impaired, an estimate of their 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 the 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 statement of profit or loss, 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 valuation amount corresponds to the market value of the property in its current state.
The Bank's own-service properties that have promissory purchase / sale agreements are accounted in the caption Non-current assets and disposal groups classified as held for sale and those that are 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 (purchase cost, net of accumulated depreciation and impairment losses), being tested for impairment at the time of the reclassification and subsequently undergoing periodic valuations to determine possible impairment losses.
Gains and losses on the sale of these assets are recognised 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 caption expenditure incurred during the development stage of projects relating to information technologies implemented and being implemented, as well as those relating to software purchased; in every case where their expected impact will be reflected in years subsequent to that in which they are realised.
Amortisation of intangible assets is accrued, monthly, over their estimated period of useful life, which is three years on average.
Internally developed software is recognised under intangible assets when, among other requirements, it can be verified that they are usable and capable of being sold and, additionally, that they are identifiable, and it is possible to demonstrate their ability to generate future economic benefits.
Investment property comprise buildings and land held by Novimovest - Fundo de Investimento Imobiliário Aberto (Novimovest Fund) 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 property is measured at fair value, determined by periodic valuations performed by specialised independent entities. Changes in the fair value of investment property is recognised directly in the statement of profit or loss for the year.
Expenses incurred with investment property in use, namely maintenance, repairs, insurance and property taxes (municipal property tax) are recognised in the statement of profit or loss for the year to which they refer. Ameliorations that are expected to generate additional future economic benefits are capitalised.
The Bank essentially recognises under the caption "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 the caption "Other assets" (Note 14).
Regarding assets received as payment in kind, their initial recognition is at the lower of their fair value, less expected selling expenses and the carrying amount of the loans granted constituting the object of the recovery, being tested for impairment on the date of reclassification to noncurrent assets held for sale. Subsequently, these assets are measured at the lower of the initial recognition amount and fair value less selling expenses, and they are not depreciated. Unrealised losses on these assets, thus determined, are recorded in profit or loss.
As described in Note 15 the methodology most frequently used by the Bank to value this type of asset is the market method. Under this method, the market comparison criterion is based on transaction values of real estate similar and comparable to the real estate under study obtained through market prospecting carried out in the area where it is located.
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 selling expenses, the impairment losses will be reverted up to the limit of the amount that the assets would have if they had not been reclassified to noncurrent assets held for sale.
The Bank does not recognise potential gains on these assets.
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, the caption "Provisions" includes provisions set aside to cover, namely, the postemployment 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 survivor 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 based on 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 regarding the defined-benefit plan in respect of those employees has consisted of the payment of retirement 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 those laid down under the terms of that Agreement.
Liabilities for past services recognised 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 to 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 survivor pensions and healthcare 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 at December 31, 2011.
This Decree-Law established that the liabilities to be transferred correspond to pensions payable as at 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 survivor pensions, death allowances and deferred survivor 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 several 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 several Banif employees.
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 employees of this entity.
The Bank's liabilities for retirement pensions are calculated by external experts (Mercer (Portugal), Limitada) based on 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 healthcare (SAMS), as well as the death allowance and the bonus on retirement.
According to IAS 19 - "Employee Benefits" remeasurements are recorded directly in equity (other comprehensive income) and under the caption "Staff expenses" of the statement of profit or loss, the following components are recognised:
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 based on the 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 recognised in the statement of profit or loss with a contra-entry in "Other comprehensive income."
Retirement-pension liabilities, less the fair value of the assets of the Pension Fund, are carried under the captions "Other assets" or "Other liabilities," depending on the existence of surplus or insufficient funding. Recognition of a surplus of the 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.
The Bank is subject to the tax system established in the Corporate Tax Code (IRC). Current taxes are calculated based on the Bank's taxable income, determined in accordance with the tax rules approved or substantively approved on the financial reporting date.
Following the enactment of Law No. 2/2014, of January 16 (IRC Reform) and the wording given by the State Budget Law for 2021 (Law No. 75-B/2020, of December 31), the taxation of corporate profits for financial years 2021 and 2020, is as follows:
Therefore, the aforementioned changes implied that the tax rate used by the Bank 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 years of 2020 and 2021 may be used in the subsequent twelve tax years. Additionally, the counting of the period for the tax loss carry forward is suspended for two tax years.
Thus, tax losses generated between 2014 and 2016, inclusive, can be used in the fourteen subsequent tax years, while those generated between 2017 and 2019, inclusive, can be used in the seven subsequent tax years.
The deduction of losses to be made in each year cannot exceed 70% of the respective taxable income (80%, in the case of tax losses generated in 2020 and 2021), the remainder being available for use until the end of the carry-forward period.
Law 98/2019, of September 4, approved a new regime in the matter of the impairments of credit and other financial institutions, also establishing the regime applicable to impairment losses recorded in previous taxation years not yet accepted for tax purposes.
Since this new system is of an optional nature during a five-year adjustment period commencing on or after January 1, 2019, the expected adherence to the new tax regime, applicable in the matter of impairments of credit 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 year (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 financial year 2017, the Special Taxation of Groups of Companies Regime (RETGS). Under this regime, the Group's taxable income/tax loss corresponds to the sum of the taxable income/tax loss that comes to be determined by the controlling company through the algebraic sum of the tax profit or loss 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 years resulting from timing differences between the carrying amount of an asset or liability and its tax base. Tax credits are also recorded as deferred tax assets.
Deferred tax liabilities are recognised on all taxable timing 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 business combination, and which at the date of the transaction do not affect the accounting or tax profit or loss.
The Bank does not recognise deferred tax assets or liabilities for the deductible or taxable timing 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 recognised when they are expected to be recoverable and up to the amount that it is likely that there will be future taxable profits that will accommodate the deductible timing differences.
Deferred tax assets and liabilities have been calculated based on 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 year 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, namely, potential gains and losses on Financial assets at fair value through other comprehensive income, on cash-flow hedging derivatives, as well as those associated with actuarial deviations relating to pension liabilities, which are also recorded in equity captions.
The Board of Directors periodically reviews the position assumed in the preparation of the tax returns 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 also covered by the Solidarity tax on the banking sector. This contribution aims to strengthen the financing mechanisms of the social security system.
These contributions have the same calculation basis, the only variant being the rates applied to the bases:
For the banking sector contribution, the rates applicable to the incidence bases defined in points (a) and b) above are 0.110% and 0.0003%, respectively, as provided for in the amendment made by Ordinance No. 165 - A/2016, of June 14, to Article 5 of Ordinance No. 121/2011, of March 30.
For the Additional solidarity tax on the banking sector, the rates applicable to the bases of incidence defined in points (a) and (b) above are 0.02% and 0.00005%, respectively.
Treasury shares are recorded as a debit in the capital accounts at the purchase cost and are not subject to revaluation, with 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, not affecting the financial 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. Distributions 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 treasury 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 the insurance brokerage business carried on by the Bank, other than those already disclosed.
For purposes of the preparation of the Statement of cash flows, the Bank considers as "Cash and cash equivalents" the balance of the caption "Cash, cash balances at central banks and other demand deposits" in that the items carried under this caption have a maturity period not exceeding 3 months, and their risk of change of value is immaterial.
Estimates and judgements impacting the Bank's consolidated financial statements are continually assessed, representing on each reporting date the Board of Directors' best estimate, considering historical performance, accumulated experience and expectations as to future events that, in the circumstances in question, 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 valuations 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 consider 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 impairment 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 impairment through collective analysis is performed based on parameters for comparable types of operations, such as instrument type, customer type, credit-risk level as measured by the rating or scoring system, type of collateral, date of initial recognition, relationship between loan and value of the guarantee (LTV), and inclusion of prospective information.
Properties, equipment and other goods received as payment in kind or auction for the payment of overdue loan transactions are measured at the amount agreed by negotiation or judicial means, after deduction of the expenses the Bank expects to incur with their sale, or their quick-sale value, if lower. Properties are subject to periodic valuations conducted by independent evaluators that incorporate various assumptions, namely as regards the evolution of the property market and, where applicable, expectations as to the development of real-estate projects. The assumptions used in the valuation of these properties have an impact on their valuation and hence on the determination of the impairment. Whenever the value resulting from these valuations (net of selling expenses) is lower than the value at which the properties are accounted for, impairment losses are recorded.
As described in Note 15, the methodology most frequently used by the Bank to value this type of asset is the market method. Under this method, the market comparison criterion is based on transaction values of real estate similar and comparable to the real estate under study obtained through market prospecting carried out in the area where it is located.
Recognition of deferred tax assets assumes the existence of profits and future taxable income. Additionally, current and deferred taxes were determined based on 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 based on assumptions. Thus, the recoverability of deferred tax assets depends on the implementation of the strategy of the Bank's Board of Directors.
Determination of the outcome of legal proceedings in progress and restructuring provisions (Notes 17 and 41)
A provision is recognised 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 disbursed to settle the liability on the statement of financial position 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 reorganising were considered, with the definition of the actions to be developed supported by 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, namely Corporate and Project Finance, 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 Euros 10 million, channelled through the branch network, and services provided by complementary channels.
This area comprises businesses with a turnover between Euros 10 million and Euros 125 million. This business is underpinned by the branch network, corporate centres and specialised services, and includes several products, namely loans and project, trade, exports and real-estate financing.
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 statement of profit or loss by operating segment as at December 31, 2021 and 2020, is as follows:
| 2021 | |||||
|---|---|---|---|---|---|
| Corporate | |||||
| Investment | Corporate | Corporate | |||
| Banking | Retail Banking | Banking | Activities | Total | |
| Net interest income | 51,390 | 435,792 | 84,905 | 156,569 | 728,656 |
| Dividend income | - | - | - | 1,537 | 1,537 |
| Share of the profit or loss of investments in subsidiaries, joint | |||||
| ventures and associates, accounted for under the equity method | - | - | - | 4,231 | 4,231 |
| Net fee and commission income | 48,271 | 372,289 | 24,896 | (13,312) | 432,144 |
| Gains/Losses on financial operations a) | 9,175 | 6,528 | 634 | 124,950 | 141,287 |
| Other operating income, net | 2,685 | 6,938 | 9,623 | ||
| Total operating income, net | 108,836 | 817,294 | 110,435 | 280,913 | 1,317,478 |
| Administrative expenses | (25,195) | (417,190) | (26,423) | (3,803) | (472,611) |
| Cash contributions to | |||||
| resolution funds and deposit guarantee schemes | - | - | - | (37,679) | (37,679) |
| Depreciation | (3,353) | (45,542) | (405) | - | (49,300) |
| Profit or loss before impairment and provisions | 80,288 | 354,562 | 83,607 | 239,431 | 757,888 |
| Impairment and provisions, net of reversals b) | (379) | (153,235) | (16,311) | (163,786) | (333,711) |
| Profit or loss from non-current assets and disposal groups | |||||
| classified as held for sale not qualifying as discontinued operations | - | - | - | 14,006 | 14,006 |
| Other profit or loss, net | - | - | - | (35,075) | (35,075) |
| Profit or loss before tax from continuing operations | 79,909 | 201,327 | 67,296 | 54,576 | 403,108 |
| Tax expense or income related to profit or loss from continuing operations | (24,771) | (62,412) | (20,862) | (24,569) | (132,614) |
| Profit or loss for the year | 55,138 | 138,915 | 46,434 | 30,007 | 270,494 |
| 2020 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Corporate | ||||||||
| Investment | Corporate | Corporate | ||||||
| Banking | Retail Banking | Banking | Activities | Total | ||||
| 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 subsidiaries, joint | ||||||||
| ventures and associates, accounted for under the equity method | - | - | - | 5,617 | 5,617 | |||
| Net fee and commission income | 45,927 | 340,836 | 23,389 | (32,493) | 377,660 | |||
| Gains/Losses on financial operations a) | 9,757 | 5,569 | 499 | 80,656 | 96,481 | |||
| Other operating income, net | - | 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 schemes | - | - | - | (35,624) | (35,624) | |||
| Depreciation | (3,265) | (46,891) | (1,860) | - | (52,016) | |||
| Profit or loss before impairment and provisions | 103,106 | 316,963 | 69,463 | 178,195 | 667,727 | |||
| Impairment and provisions, net of reversals b) | (2,024) | (4,373) | 5,760 | (269,104) | (269,740) | |||
| Profit or loss from non-current assets and disposal groups | ||||||||
| classified as held for sale not qualifying as discontinued operations | - | - | - | 4,990 | 4,990 | |||
| Other profit or loss, net | - | - | - | (34,495) | (34,495) | |||
| Profit or loss before tax from continuing operations | 101,082 | 312,591 | 75,223 | (120,415) | 368,482 | |||
| Tax expense or income related to profit or loss from continuing operations | (31,336) | (96,938) | (23,319) | 40,860 | (110,733) | |||
| Profit or loss for the year | 69,747 | 215,653 | 51,904 | (79,555) | 257,749 | |||
a) Includes the following captions in the statement of profit or loss:
Exchange differences, net.
b) This aggregate includes the following captions in the statement of profit or loss
As at December 31, 2021 and 2020, the breakdown of the assets and liabilities allocated to each operational segment, in accordance with information used by the Bank's Management for decision-making, is as follows:
| 31-12-2021 | |||||
|---|---|---|---|---|---|
| Corporate | |||||
| Investment | Retail | Corporate | Corporate | ||
| Banking | Banking | Banking | Activities | Total | |
| Assets | |||||
| Financial assets at fair value through other | |||||
| comprehensive income - loans and advances | - | - | - | 2,979,302 | 2,979,302 |
| Financial assets at amortised cost | |||||
| Mortgage loans | - | 21,920,887 | - | - | 21,920,887 |
| Consumer loans | - | 1,716,486 | - | - | 1,716,486 |
| Other loans | 3,205,133 | 6,305,840 | 6,276,536 | 30,470 | 15,817,979 |
| Other balances receivable | - | 38,927 | - | 879,588 | 918,515 |
| Total allocated assets | 3,205,133 | 29,982,140 | 6,276,536 | 3,889,360 | 43,353,169 |
| Total non-allocated assets | 12,813,450 | ||||
| Total Assets | 56,166,619 | ||||
| Liabilities | |||||
| Financial liabilities at amortised cost | |||||
| Deposits - Central banks | - | - | - | 7,410,242 | 7,410,242 |
| Deposits - Credit institutions | - | - | - | 393,405 | 393,405 |
| Deposits - Customers | 1,406,297 | 30,622,766 | 6,626,786 | 303,056 | 38,958,904 |
| Debt securities issued | - | - | - | 3,006,747 | 3,006,747 |
| Total allocated liabilities | 1,406,297 | 30,622,766 | 6,626,786 | 11,113,450 | 49,769,298 |
| Total non-allocated liabilities | 2,146,432 | ||||
| Total Liabilities | 51,915,730 | ||||
| Guarantees and sureties given | 157,386 | 535,587 | 984,137 | - | 1,677,110 |
| 31-12-2020 | |||||
|---|---|---|---|---|---|
| Assets | Corporate Investment Banking |
Retail Banking |
Corporate Banking |
Corporate Activities |
Total |
| Financial assets at fair value through other | |||||
| comprehensive income - loans and advances | - | - | - | 3,140,071 | 3,140,071 |
| Financial assets at amortised cost | |||||
| Mortgage loans | - | 20,669,687 | - | - | 20,669,687 |
| Consumer loans | - | 1,680,477 | - | - | 1,680,477 |
| Other loans | 3,742,161 | 6,326,349 | 6,121,296 | 20,170 | 16,209,975 |
| Other balances receivable | - | 52,845 | - | 1,207,598 | 1,260,443 |
| Total allocated assets | 3,742,161 | 28,729,358 | 6,121,296 | 4,367,839 | 42,960,653 |
| Total non-allocated assets | 11,442,756 | ||||
| Total Assets | 54,403,409 | ||||
| Liabilities | |||||
| Financial liabilities at amortised cost | |||||
| Deposits - Central banks | - | - | - | 6,791,820 | 6,791,820 |
| Deposits - Credit institutions | - | - | - | 1,548,969 | 1,548,969 |
| 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 liabilities | 1,331,680 | 29,070,914 | 5,529,016 | 11,586,521 | 47,518,131 |
| Total non-allocated liabilities | 2,773,922 | ||||
| Total Liabilities | 50,292,053 | ||||
| Guarantees and sureties given | 180,289 | 520,765 | 911,701 | - | 1,612,755 |
As at December 31, 2021 and 2020, the Bank did not have relevant business in any geography besides 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 to the financial statements.
As at December 31, 2021 and 2020, the subsidiaries and associated companies, and their most significant financial data, taken from the respective financial statements, excluding IAS/IFRS conversion adjustments, can be summarised as follows:
| Shareholding (%) | Shareholding (%) | Net | Shareholders' | Profit or loss | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Direct | Effective | assets | equity | for the year | ||||||
| Company | 31-12-2021 | 31-12-2020 | 31-12-2021 | 31-12-2020 | 31-12-2021 | 31-12-2020 | 31-12-2021 | 31-12-2020 | 31-12-2021 | 31-12-2020 |
| BANCO SANTANDER TOTTA, S.A. | Holding | Holding | Holding | Holding | 58,900,196 | 57,448,833 | 4,160,679 | 3,990,610 | 303,343 | 275,210 |
| TOTTA (IRELAND), PLC (2) | 100.00 | 100.00 | 100.00 | 100.00 | 568,046 | 536,675 | 460,490 | 461,336 | 1,088 | 1,455 |
| TOTTAURBE - EMP. ADMIN. E CONSTRUÇÕES, S.A. (1) | 100.00 | 100.00 | 100.00 | 100.00 | 99,856 | 134,313 | 96,928 | 127,726 | (4,748) | 583 |
| TAXAGEST, SGPS, SA | 99.00 | 99.00 | 99.00 | 99.00 | 55,737 | 55,746 | 55,732 | 55,744 | (12) | (3) |
| NOVIMOVEST - Fundo de Investimento Imobiliário Aberto | 78.74 | 78.74 | 78.71 | 78.71 | 263,711 | 311,513 | 257,792 | 304,335 | 3,960 | 341 |
| GAMMA, Sociedade Financeira de Titularização de Créditos, S.A. | 100.00 | 100.00 | 100.00 | 100.00 | 7,304 | 7,249 | 7,134 | 6,810 | 323 | 63 |
| HIPOTOTTA NO. 4 PLC | - | - | - | - | 511,024 | 562,050 | (4,286) | (3,564) | (806) | 1,088 |
| HIPOTOTTA NO. 5 PLC | - | - | - | - | 521,706 | 572,173 | (12,849) | (10,508) | (2,307) | 923 |
| HIPOTOTTA NO. 4 FTC | - | - | - | - | 450,577 | 500,515 | 447,251 | 499,365 | 1,928 | 168 |
| HIPOTOTTA NO. 5 FTC | - | - | - | - | 457,596 | 504,601 | 455,913 | 503,853 | 2,490 | 398 |
| Operações de Securitização geridas pela GAMMA, STC | - | - | - | - | 2,467,826 | 2,804,742 | - | - | - | - |
| UNICRE - INSTITUIÇÃO FINANCEIRA DE CRÉDITO, S.A. | 21.86 | 21.86 | 21.86 | 21.86 | 409,384 | 368,375 | 118,845 | 110,136 | 19,510 | 23,919 |
| LUSIMOVEST - FUNDO DE INVESTIMENTO IMOBILIÁRIO | - | 25.76 | - | 25.76 | - | 107,131 | - | 101,807 | - | 1,210 |
As at December 31, 2021 and 2020, the business, the location of the registered office, and the consolidation method used for the companies included in the consolidation were as follows:
| Registered | Consolidation | ||
|---|---|---|---|
| Company | Activity | office | method |
| BANCO SANTANDER TOTTA, S.A. | Banking | Portugal | Holding |
| 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. | Shareholding management | Portugal | Full |
| UNICRE - INSTITUIÇÃO FINANCEIRA DE CRÉDITO, S.A. | Issuance and management of credit cards | Portugal | Equity method |
| HIPOTOTTA nº 4 PLC | Investment management | Ireland | Full |
| HIPOTOTTA nº 5 PLC | Investment management | Ireland | Full |
| HIPOTOTTA nº 4 FTC | Securitised loans fund | Portugal | Full |
| HIPOTOTTA nº 5 FTC | Securitised loans fund | Portugal | Full |
| Operações de Securitização geridas pela GAMMA, STC | Securitised loans fund | Portugal | Full |
| NOVIMOVEST - Fundo de Investimento Imobiliário Aberto | Real Estate Fund | Portugal | Full |
| GAMMA, Sociedade Financeira de Titularização de Créditos, S.A. | Securitisation management | Portugal | Full |
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, namely, the bonds that they issued with a higher degree of subordination – "equity pieces".
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Real estate portfolio | 213,731 | 250,531 |
| Accounts receivable | 6,972 | 8,070 |
| Cash and banks | 42,901 | 52,874 |
| Accruals and deferrals | 107 | 38 |
| 263,711 | 311,513 | |
| Fund capital | 257,792 | 304,335 |
| Adjustments and provisions | 2,667 | 3,867 |
| Accounts payable | 1,037 | 1,461 |
| Accruals and deferrals | 2,215 | 1,850 |
| 263,711 | 311,513 | |
As at December 31, 2021 and 2020, the Novimovest Fund statement of financial position was as follows:
As at December 31, 2021 and 2020, the consolidated net income includes a profit of Euros 3,118 thousand and Euros 268 thousand, respectively, attributable to the Novimovest Fund.
The composition of this caption is as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Cash | 341,297 | 336,121 |
| Demand deposits at Central banks | ||
| European Central Bank | 8,141,015 | 3,932,058 |
| Other demand deposits at credit institutions | ||
| Demand deposits | 229,077 | 267,636 |
| 8,711,389 | 4,535,815 |
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 Eurozone, and all customer deposits with maturities of less than two years. A coefficient of 1% is applied to this base and an amount of Euros 100,000 is deducted. Compliance with the mandatory minimum deposits, for a given observation period, is measured taking into consideration the average of the balances of deposits placed with the Bank of Portugal during the reference 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, from the negative remuneration at the interest rate applicable to the permanent deposit facility. The ECB Council decided, namely, to exempt a multiple of the mandatory reserves of the institutions, setting 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 captions of financial assets and liabilities held for trading have the following composition:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Financial assets held for trading | ||
| Derivatives with positive fair value | 587,772 | 916,039 |
| Financial liabilities held for trading | ||
| Derivatives with negative fair value | 605,331 | 941,528 |
| 31-12-2021 | 31-12-2020 | Net 84 (2,823) (22,992) 145 - (2) |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| Notional value | Assets | Liabilities | Net | Notional value | Assets | Liabilities | |||
| OTC Markets | |||||||||
| Forwards | |||||||||
| Purchases | 308,284 | 347 | 401,114 | ||||||
| Sales | 307,801 | 4,737 | 4,390 | 401,024 | 6,820 | 6,736 | |||
| Swaps | |||||||||
| Currency swaps | |||||||||
| Purchases | 974,114 | 1,084,783 | |||||||
| Sales | 974,444 | 704 | 1,141 | (437) 1,086,821 |
512 | 3,335 | |||
| Interest rate swaps | 25,580,771 | 523,864 | 541,203 | (17,339) | 26,590,746 | 840,596 | 863,588 | ||
| Equity swaps | 686,516 | 37,864 | 38,006 | (142) | 705,726 | 26,014 | 25,869 | ||
| Options | |||||||||
| Currency swaps | |||||||||
| Purchases | Purchases 120,523 | 7,961 | |||||||
| Sales | Sales120,523 | 1,559 | 1,571 | (12) | 7,961 | 309 | 311 | ||
| Equity swaps | |||||||||
| Purchases | Purchases 16,262 | 46,765 | |||||||
| Sales | Sales16,262 | 1,177 | 1,180 | (3) | 46,765 | 2,115 | 2,113 | 2 | |
| Caps & Floors | 913,972 | 17,867 | 17,840 | 27 | 961,240 | 39,673 | 39,576 | 97 | |
| 30,019,472 | 587,772 | 605,331 | (17,559) | 31,340,906 | 916,039 | 941,528 | (25,489) |
As at December 31, 2021, the assets and liabilities captions relating to "Derivative financial instruments" are reduced by the amounts of, approximately, Euros 3,977 thousand and Euros 715 thousand "Credit Value Adjustments" and "Debit Value Adjustments", respectively (Euros 5,300 thousand and Euros 5,053 thousand as at December 31, 2020, respectively), in accordance with the method described in Note 38.
As at December 31, 2021 and 2020, almost all the trading derivative financial instruments were hedged back-to-back with Banco Santander, S. A..
The composition of this caption is as follows:
| Fair value | |||||
|---|---|---|---|---|---|
| Description | 31-12-2021 | 31-12-2020 | |||
| Equity instruments - residents | 99,167 | 132,905 |
The movement under this caption during 2021 and 2020 was as follows:
| 31-12-2020 | Purchases | Redemptions/ Amortisations/ Liquidations/Sales |
Unrealised gains/losses (Note 28) |
Realised gains/losses |
31-12-2021 | |
|---|---|---|---|---|---|---|
| Equity instruments - residents | 132,905 | 498 | (35,731) | 1,137 | 358 | 99,167 |
| 132,905 | 498 | (35,731) | 1,137 | 358 | 99,167 | |
| Redemptions/ Amortisations/ |
Unrealised | Realised | ||||
| 31-12-2019 | Purchases | Liquidations/Sales | gains/losses | gains/losses | 31-12-2020 | |
| (Note 28) | ||||||
| Debt instruments - residents | - | - | (3,013) | - | 3,013 | - |
| Equity instruments - residents | 144,998 | 528 | (13,185) | (2,209) | 2,773 | 132,905 |
| 144,998 | 528 | (16,198) | (2,209) - | 5,786 - | 132,905 |
The composition of this caption is as follows:
| 31-12-2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Fair Value Reserve | |||||||||
| Purchase | Interest | Hedge | Carrying | ||||||
| cost | receivable | adjustment | Positive | Negative | Total | Other | Impairment | amount | |
| Debt instruments | (Note 20) | (Note 17) | |||||||
| Issued by public residents | 1,953,077 | 51,533 | 29,255 | 255,306 | (41) | 255,265 | (2,184) | - | 2,286,946 |
| Issued by other residents | 1,194 | 1 | - | 2 | - | 2 | - | (52) | 1,145 |
| 1,954,271 | 51,534 | 29,255 | 255,308 | (41) | 255,267 | (2,184) | (52) | 2,288,091 | |
| Equity instruments | 72,853 | - | - | - | (333) | (333) | - | - | 72,520 |
| 2,027,124 | 51,534 | 29,255 | 255,308 | (374) | 254,934 | (2,184) | (52) | 2,360,611 | |
| Loans and advances | 2,300,000 | 31,153 | 222,491 | 425,658 | - | 425,658 | - | - | 2,979,302 |
| 4,327,124 | 82,687 | 251,746 | 680,966 | (374) | 680,592 | (2,184) | (52) | 5,339,913 | |
| 31-12-2020 | |||||||||
| Fair Value Reserve | |||||||||
| Purchase | Interest | Hedge | Carrying | ||||||
| cost | receivable | adjustment | Positive | Negative | Total | Other | Impairment | amount | |
| (Note 20) | (Note 17) | ||||||||
| Debt instruments | |||||||||
| Issued by residents | |||||||||
| Public residents | 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 | |||||||||
| Public non-residents | 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 |
On December 31, 2020, the column "Other" included an amount of Euros 39,198 thousand, relating to an adjustment of a discontinued hedge, which underlying asset was sold in 2021 and the amount reclassified to profit or loss.
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 and allocation of resources strategy, which will imply the discontinuation of activities (through sale or maturity) that require stable financing and in large amounts and extended terms. In view of the Bank's strategic change and considering its new business model ("hold to collect and sale"), this type of credit, which was previously measured at amortised cost, is now measured at fair value through other comprehensive income, the respective impacts of which can be seen in Note 1.3 c).
The movement under this caption during 2021 was as follows:
| Gains/Losses | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 31-12-2020 | Purchases | Redemptions/ Amortisations/ Liquidations/ Sales |
Unrealised | Realised through Profit or loss |
Realised through Equity |
Interest/ Hedging/ Other |
Impairment | 31-12-2021 | |
| Equity instruments | 72,634 | 2,103 | (1,408) | (811) | - | (2) | 4 | - | 72,520 |
| Debt securities | 4,491,485 | - | (1,884,562) | (49,454) | (189,507) | - | (79,833) | (38) | 2,288,091 |
| 4,564,119 | 2,103 | (1,885,970) | (50,265) | (189,507) | (2) | (79,829) | (38) | 2,360,611 |
| 31-12-2021 | 31-12-2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Purchase | Interest | Gains/Losses | Carrying | Purchase | Interest | Gains/Losses | Carrying | |
| Description | cost | receivable | and other | amount | cost | receivable | and other | amount |
| National public issuers | ||||||||
| . Maturing in up to three years | - | - | - | - | 22,217 | 185 | 929 | 23,331 |
| . Maturing between three and five years | 1,797,461 | 49,681 | 268,459 | 2,115,601 | 593,309 | 3,379 | 44,735 | 641,423 |
| . Maturing between five and ten years | 155,129 | 1,848 | 13,918 | 170,895 | 2,911,971 | 58,680 | 512,146 | 3,482,797 |
| . Maturing in more than ten years | 487 | 4 | (41) | 450 | 487 | 4 | (45) | 446 |
| Foreign public issuers | ||||||||
| . Maturing in up to three years | - | - | - | - | 1,503 | 4 | 17 | 1,524 |
| . Maturing between five and ten years | - | - | - | - | 307,743 | 1,412 | 31,298 | 340,453 |
| 1,953,077 | 51,533 | 282,336 | 2,286,946 | 3,837,230 | 63,664 | 589,080 | 4,489,974 |
As at December 31, 2021 and 2020, the Group's portfolio contained Portuguese Treasury Bonds in the amounts of Euros 99,868 thousand and Euros 535,499 thousand, respectively, used as collateral in funding operations (Note 16).
The "Debt securities" sub-caption has the following composition:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Securitised credit | ||
| . Commercial paper | 2,738,472 | 2,725,510 |
| . Bonds | 712,548 | 1,200,150 |
| Interest receivable | 11,122 | 15,704 |
| Value adjustments of hedged assets | 3,202 | 36,021 |
| Commissions associated with amortised cost (net) | (930) | (1,021) |
| 3,464,414 | 3,976,364 | |
| Impairment of debt securities (Note 17) | (5,622) | (11,145) |
| 3,458,792 | 3,965,219 |
The "Loans and advances" sub-caption has the following composition:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Loans and advances - Customers | ||
| To corporate customers | ||
| Discounts and other securitised credit | 337,554 | 412,444 |
| Loans | 8,420,936 | 8,085,223 |
| Current account loans | 796,595 | 826,486 |
| Overdrafts | 87,133 | 89,114 |
| Factoring | 1,689,031 | 1,675,690 |
| Finance leasing | 1,080,724 | 1,086,732 |
| Other loans | 30,554 | 47,989 |
| To individuals | ||
| Mortgage loans | 21,852,263 | 20,603,727 |
| Consumer loans and other | 2,266,939 | 2,236,858 |
| 36,561,729 | 35,064,263 | |
| Overdue loans and interest | 386,389 | 451,255 |
| Interest receivable | 37,602 | 56,694 |
| Values adjustments of hedged assets | 2,605 | 21,143 |
| Deferred expenses | 134,381 | 108,086 |
| Commissions associated with amortised cost (net) | (150,653) | (136,721) |
| 410,324 | 500,457 | |
| 36,972,053 | 35,564,720 | |
| Other balances receivable | ||
| Margin accounts | 587,536 | 865,734 |
| Checks collectible | 38,927 | 52,845 |
| Sundry debtors and other cash equivalents | 299,848 | 345,540 |
| 926,311 | 1,264,119 | |
| Loans and advances - Credit institutions | ||
| Deposits | 13,174 | 13,173 |
| Loans | 17,242 | 7,127 |
| Other applications | 14 | - |
| Purchase operations with resale agreement | 26 | - |
| Interest receivable | 1 | 3 |
| Deferred expenses/Deferred income | 130 | (7) |
| 30,587 | 20,296 | |
| Loans and advances | 37,928,951 | 36,849,135 |
| Impairment of loans and advances - customers and other balances receivable | (1,013,759) | (993,646) |
| Impairment of loans and advances - credit institutions | (117) | (126) |
| Impairment of loans and advances (Note 17) | (1,013,876) | (993,772) |
| 36,915,075 | 35,855,363 |
In the financial years ended December 31, 2021 and 2020, portfolios of loans granted to individuals and companies were sold, with a carrying amount of Euros 96,698 thousand and Euros 114,639 thousand, respectively. As a result of these transactions, in 2021 and 2020, gains were recorded in the net amount of Euros 6,376 thousand, and Euros 2,620 thousand, respectively (Note 17).
As at December 31, 2021 and 2020, the caption "Loans and advances - Customers – To individuals – Mortgage loans" included loans assigned to the autonomous property of the covered bonds issued by the Bank in the amounts of Euros 9,965,945 thousand and Euros 10,278,006 thousand, respectively (Note 16).
The movement under impairment losses during 2021 and 2020 is presented in Note 17.
The division, by stage, of the financial assets at amortised cost portfolio, has the following breakdown:
| 31-12-2021 | 31-12-2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Gross | Gross | |||||||
| amount | Impairment | Coverage | amount | Impairment | Coverage | |||
| Stage 1 | 33,733,999 | (65,342) | 0.19% | 35,182,147 | (92,478) | 0.26% | ||
| Stage 2 | 6,400,716 | (280,518) | 4.38% | 4,252,383 | (163,132) | 3.84% | ||
| Stage 3 | 1,258,650 | (673,638) | 53.52% | 1,390,969 | (749,307) | 53.87% | ||
| 41,393,365 | (1,019,498) | 40,825,499 | (1,004,917) |
As at December 31, 2021 and 2020, the non-productive assets, net of impairment, are detailed as follows by counterpart and default date:
| 31-12-2021 | |||||
|---|---|---|---|---|---|
| Counterparties | Non-performing exposures, net |
With reduced probability of payment, but not overdue or overdue by <= 90 days |
Overdue > 90 days <= 180 days |
Overdue > 180 days <= 5 years |
Overdue > 5 years |
| Debt securities | 462 | 462 | - | - | - |
| Non-financial companies | 462 | 462 | - | - | - |
| Loans and advances | 584,550 | 406,946 | 16,074 | 103,648 | 57,882 |
| Public sector | 97 | 97 | - | - | |
| Credit institutions | 154 | 154 | - | - | - |
| Other financial companies | 494 | 450 | - | 39 | 5 |
| Non-financial companies | 398,615 | 294,821 | 3,979 | 54,609 | 45,206 |
| Individuals | 185,190 | 111,424 | 12,095 | 49,000 | 12,671 |
| Total financial assets at amortised cost | 585,012 | 407,408 | 16,074 | 103,648 | 57,882 |
| 31-12-2020 | |||||
|---|---|---|---|---|---|
| Counterparties | Non-performing exposures, net |
With reduced probability of payment, but not overdue or overdue by <= 90 days |
Overdue > 90 days <= 180 days |
Overdue > 180 days <= 5 years |
Overdue > 5 years |
| Debt securities | 478 | 478 | - | - | - |
| Non-financial companies | 478 | 478 | - | - | - |
| Loans and advances | 641,184 | 388,861 | 11,675 | 194,753 | 45,895 |
| Public sector | 1 | 1 | - | - | - |
| Credit institutions | 197 | 197 | - | - | - |
| Other financial companies | 71 | 20 | 2 | 39 | 10 |
| Non-financial companies | 442,821 | 294,685 | 4,172 | 122,413 | 21,551 |
| Individuals | 198,094 | 93,958 | 7,501 | 72,301 | 24,334 |
| Total financial assets at amortised cost | 641,662 | 389,339 | 11,675 | 194,753 | 45,895 |
The evolution that occurred in the exposure and in the impairment of financial assets at amortised cost in financial years 2021 and 2020, was as follows:
| Loans and advances at amortised cost | Impairment | |||||||
|---|---|---|---|---|---|---|---|---|
| Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
| 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) |
| Change of business model | (2,331,153) | - | - | (2,331,153) | - | - | - | - |
| Idiosyncratic overlay | (2,433,000) | 2,433,000 | - | - | - | 57,000 | - | 57,000 |
| Macroeconomic overlay | - | - | - | - | 39,400 | 46,700 | 47,300 | 133,400 |
| Write-offs and sales | - | - | (133,327) | (133,327) | - | - | (91,621) | (91,621) |
| Origination, net of amortisations | 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 |
| Transfers: | ||||||||
| Stage 1 to 2 | (3.391.468) | 3.391.468 | - | - | (5,538) | 128,291 | - | 122,753 |
| Stage 1 to 3 | (83,436) | - | 83,436 | - | (377) | - | 21,856 | 21,479 |
| Stage 2 to 3 | - | (75,291) | 75,291 | - | - | (4,850) | 29,986 | 25,136 |
| Stage 2 to 1 | 847,539 | (847,539) | - | - | 2,311 | (18,159) | - | (15,848) |
| Stage 3 to 2 | - | 46,146 | (46,146) | - | - | 6,436 | (17,651) | (11,215) |
| Stage 3 to 1 | 3,003 | - | (3,003) | - | 129 | - | (466) | (337) |
| Macroeconomic overlay | - | - | - | - | (39,400) | (46,700) | (47,300) | (133,400) |
| Overlay re-rating | (300,000) | 300,000 | - | - | - | 15,000 | - | 15,000 |
| Idiosyncratic overlay | 378,700 | (378,700) | - | - | - | 11,900 | - | 11,900 |
| Other | - | - | - | - | - | 8,000 | 3,000 | 11,000 |
| Write-offs and sales | - | - | (98,662) | (98,662) | - | - | (72,295) | (72,295) |
| Origination, net of amortisations | 1,097,514 | (287,751) | (143,235) | 666,528 | 15,739 | 17,468 | 7,201 | 40,408 |
| Balance as at 31-12-2021 | 33,733,999 | 6,400,716 | 1,258,650 | 41,393,365 | 65,342 | 280,518 | 673,638 | 1,019,498 |
Bearing in mind the high uncertainty regarding the future impacts of the pandemic, as well as the lack of comparable historical information that may not be properly captured by the models in the calculated risk parameters, the Bank approved, in financial year 2020, a procedure of impairment overlays, which regulates the analysis of impairment in exceptional situations that are not properly captured by the models used in the calculation made by the Bank, due to the nature and/or particularities of same. Under this procedure, as at December 31, 2020, the Bank applied two impairment overlays, with the aim of reflecting the impacts, in a comprehensive and prudent manner:
In financial year 2021, the treatment given by the Bank to the Overlays was:
● At the end of the financial year, the Bank recalibrated the IFRS9 model (PD, LGD and EAD) and included the new macroeconomic scenarios in all PD and LGD models. With this update the model began to incorporate the expectations of the evolution of the economy and with this the macroeconomic overlay ceased to apply, with the corresponding impairment values being allocated to the respective exposures.
The composition of this caption is as follows:
| 31-12-2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying amount | |||||||||||
| Up to 3 | Between 3 months | More than | |||||||||
| Type of financial instrument | Assets Liabilities |
months | and 1 year | 1 year | Total | ||||||
| Hedging derivative instruments | |||||||||||
| Fair value hedging | |||||||||||
| Interest rate swaps | |||||||||||
| Liabilities and loans | Liabilities and loans 5,592 | 40,848 | 16,077 | 28,345 | 2,988,767 | 3,033,189 | |||||
| Financial assets at fair value | Financial assets at fair value | ||||||||||
| through other comprehensive income | - | through other comprehensive income 253,238 |
- | - | 3,380,000 | 3,380,000 | |||||
| Equity swaps | 312 | - | 8,151 | - | 8,111 | 16,262 | |||||
| Cash flow hedging | |||||||||||
| Interest rate swaps | |||||||||||
| Cash flows | 1,543 | 22 | - | - | 10,000,000 | 10,000,000 | |||||
| 7,447 | 294,108 | 24,228 | 28,345 | 16,376,878 | 16,429,451 |
| Carrying amount | Notional amount | |||||||
|---|---|---|---|---|---|---|---|---|
| Up to 3 | Between 3 months | More than | ||||||
| Type of financial instrument | Assets | Liabilities | months | and 1 year | 1 year | Total | ||
| Hedging derivative instruments | ||||||||
| Fair value hedging | ||||||||
| 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 hedging | ||||||||
| Interest rate swaps | ||||||||
| Cash flows | 22,906 | - | - | 3,000,000 | - | 3,000,000 | ||
| Forward 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 |
The Bank carries out derivatives transactions within the scope of its business, managing its own positions based on expectations as to 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 operations and covered bond issues are also managed by the Bank through the contracting of 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 derivative trading is usually based on a standard bilateral contract, which encompasses the set of operations over derivatives existing between the parties. In the case of inter-professional relationships, a Master Agreement of the International Swaps and Derivatives Association (ISDA). In the case of relationships with customers, a Bank contract.
In these types of contracts, offsetting liabilities is provided for in the event of default (this offsetting 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 for hedging or not.
In accordance with the standard, parts of operations commonly known as "embedded derivatives" are also separated and accounted for as derivatives, in a manner such as to recognise the fair value of these operations in profit or loss.
All derivatives (embedded or autonomous) are measured 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 composition of this caption is as follows:
| 31-12-2021 | 31-12-2020 | ||||||
|---|---|---|---|---|---|---|---|
| Effective shareholding (%) | Carrying amount Effective shareholding (%) Carrying amount | ||||||
| Lusimovest - Fundo de Investimento Imobiliário | - | - | 25.76 | 26,235 | |||
| Unicre - Instituição Financeira de Crédito, S.A. | 21.86 | 38,161 | 21.86 | 36,347 | |||
| 38,161 | 62,582 |
As at December 31, 2021 and 2020, 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.
Since the Bank did not vote in favour of extending the period of the Lusimovest Fund for a further five years, it requested the redemption of the 431,203 participation units which it held, which occurred in July 2021.
As of this day, there are no liabilities to be met vis-à-vis the associated companies, nor are there any contingent liabilities to be recognised by the Company arising from the holdings therein.
The composition of this caption is as follows:
During 2013, following the subscription of several participation units, the Bank came to consolidate, using the full consolidation method, the Novimovest Real Estate Fund, which main assets are rental properties.
As at December 31, 2021 and 2020, the properties held by the Novimovest Real Estate Fund had the following characteristics:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Land | ||
| Urbanised | 21,044 | 13,485 |
| Non-urbanised | 1,015 | 1,141 |
| Finished constructions | ||
| Leased | 142,239 | 172,173 |
| Not leased | 49,433 | 39,824 |
| Other construction projects | - | 23,908 |
| 213,731 | 250,531 | |
On the other hand, during the 2021 and 2020 years, the properties held by the Novimovest Real Estate Fund generated, among other, the following annual income and expenses:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Lease rentals (Note 30) | 10,287 | 9,991 |
| Taxes | (798) | (485) |
| Condominium charges | (992) | (938) |
| Maintenance and repairs | (584) | (841) |
| Insurance | (137) | (132) |
| 7,776 | 7,595 |
| 2021 | ||||||
|---|---|---|---|---|---|---|
| Balance as at | Fair value | Balance as at | ||||
| 31-12-2020 | Additions | adjustment | Sales | 31-12-2021 | ||
| Property held by Novimovest Fund | 250,531 | 346 | (36,492) | 213,731 | ||
| 2020 | ||||||
| Balance as at | Fair value | Balance as at | ||||
| 31-12-2019 | Additions | adjustment | Sales | 31-12-2019 | ||
| Property held by Novimovest Fund | 252,513 | 6,854 | (2,564) | (6,272) | 250,531 |
The effect of the valuation at fair value of the properties held by the Novimovest Real Estate Fund is recorded in the statement of profit or loss under the caption "Other Operating Gains / Losses - Investment property" (Note 30).
Investment property held by the Group are valued bi-annually, or more frequently if an event occurs in the meantime raising doubts as to the value of the latest valuation conducted by specialised, independent entities in accordance with the method described in Note 15.
As at December 31, 2021 and 2020, the form of the determination of the fair value of the investment property in accordance with the levels set out in IFRS 13 is as follows:
| Level 3 | ||
|---|---|---|
| 31-12-2021 | 31-12-2020 | |
| Investment property | 213,731 | 250,531 |
In accordance with the requirements established by IFRS 13, a summary of their main characteristics, the valuation techniques adopted and the most relevant inputs used in determining their fair value are presented below for the investment property with the highest value in the Group's portfolio as at December 31, 2021 and 2020:
| Value on | |||||
|---|---|---|---|---|---|
| Description of the property | Use | 31-12-2021 | 31-12-2020 | Valuation technique | Relevant inputs |
| Stª Cruz do Bispo - Lots 1, 2 & 3 Retail Park in Matosinhos |
Leased | 48,656 | 47,905 | Comparative market method / Residual value method | Lease value per m2 Capitalisation rate |
| Galerias Saldanha Residence Shopping Centre in Lisbon |
Leased | - | 26,439 | Income method / Comparative market method | Lease value per m2 Capitalisation rate |
| Armazém em Perafita Warehouse in Matosinhos |
Leased | 15,967 | 15,820 | Income method / Comparative market method | Lease value per m2 Capitalisation rate |
| Av. Antero de Quental, 9 Offices and shop in Ponta Delgada |
Leased | 11,397 | 11,464 | Income method / Comparative market method | Lease value per m2 Capitalisation rate |
| Estrada da Outurela, 119, Carnaxide Offices in Oeiras |
Leased | 11,141 | 11,072 Income method / Comparative market method Income method / Cost method |
Lease value per m2 Capitalisation rate |
|
| Campos de Golf Vila Sol - G1 & G2 Leased Golf Courses in Loulé |
12,147 | 13,537 Income method / Cost method | Lease value per m2 Capitalisation rate |
||
| Land in Valongo | Under construction | 10,185 | 10,426 Comparative market method / Cost method Residual value method |
Land value and Construction and marketing cost per m2 |
|
| 109,493 | 136,663 |
In the event of an increase in the value of rent per square metre or an increase in the occupancy rate or a decrease in the capitalisation rate, the fair value of investment property will increase. On the other hand, if there is an increase in construction or marketing costs, an increase in the capitalisation rate, a decrease in the value of rent per m2 or a decrease in the occupancy rate, the fair value of investment property will decrease
The movement under these captions during financial years 2021 and 2020 can be presented as follows.
| 2021 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Transfer to/from | |||||||||||||||
| 31-12-2020 | Write-offs and sales | other assets | Other | 31-12-2021 | |||||||||||
| Gross amount | Accumulated depreciation |
Impairment | Acquisition | Gross amount | Accumulated | depreciation Gross amount | Accumulated depreciation |
Gross amount | Impairment | Depreciation | Gross amount | Accumulated depreciation |
Impairment | Carrying amount | |
| (Note 17) | (Note 14) | (Note 17) | (Note 17) | ||||||||||||
| Property, plant and equipment | |||||||||||||||
| Property | |||||||||||||||
| . Property for own use | 402,826 | (141,579) | (23,623) | 818 | (3,910) | 1,648 | (64,161) | 20,862 | - | 17,477 | (7,910) | 335,573 | (126,979) | (6,146) | 202,448 |
| . Leasehold expenditure | 26,770 | (21,871) | - | 206 | (14,377) | 14,192 | (3,437) | 1,215 | - | - | (585) | 9,162 | (7,049) | - | 2,113 |
| . Rights of use (Note 16) | 37,155 | (12,335) | - | 5,345 | (1,101) | - | - | - | - | - | (4,519) | 41,399 | (16,854) | - | 24,545 |
| . Other property | 167 | (80) | - | - | - | - | - | - | - | - | (1) | 167 | (81) | - | 86 |
| 466,918 | (175,865) | (23,623) | 6,369 | (19,388) | 15,840 | (67,598) | 22,077 | - | 17,477 | (13,015) | 386,301 | (150,963) | (6,146) | 229,192 | |
| Equipment | 170,388 | (106,007) | - | 12,048 | (19,995) | 12,153 | (3,653) | 1,240 | (32) | - | (13,664) | 158,756 | (106,278) | - | 52,478 |
| Other equipment | 2,184 | (75) | - | - | (8) | - | - | - | - | - | (2) | 2,176 | (77) | - | 2,099 |
| 172,572 | (106,082) | - | 12,048 | (20,003) | 12,153 | (3,653) | 1,240 | (32) | - | (13,666) | 160,932 | (106,355) | - | 54,577 | |
| 639,490 | (281,947) | (23,623) | 18,417 | (39,391) | 27,993 | (71,251) | 23,317 | (32) | 17,477 | (26,681) | 547,233 | (257,318) | (6,146) | 283,769 | |
| Intangible assets | |||||||||||||||
| Software | 111,955 | (77,235) | - | 17,375 | - | - | - | - | 3,012 | - | (22,619) | 132,342 | (99,854) | - | 32,488 |
| Other intangible assets | 5,079 | (4,386) | - | 2,287 | (2,377) | 2,377 | - | - | (2,980) | - | - | 2,009 | (2,009) | - | - |
| Goodwill | 1,160 | - | - | - | - | - | - | - | - | - | - | 1,160 | - | - | 1,160 |
| 118,194 | (81,621) | - | 19,662 | (2,377) | 2,377 | - | - | 32 | - | (22,619) | 135,511 | (101,863) | - | 33,648 |
(Expressed in thousands of Euros, except where otherwise stated)
| 2020 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Transfer to/from | |||||||||||||||
| 31-12-2019 | Write-offs and sales | other assets | Other | 31-12-2020 | |||||||||||
| Gross amount | Accumulated depreciation |
Impairment | Acquisition | Gross amount | Accumulated depreciation |
Gross amount | Accumulated | depreciation Gross amount | Impairment | Depreciation | Gross amount | Accumulated depreciation |
Impairment | Carrying amount | |
| (Note 17) | (Note 14) | (Note 17) | (Note 17) | ||||||||||||
| Property, plant and equipment 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) | - | 87 |
| . Rights of use (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) | 81 | - | - | (14,193) | 170,388 | (106,007) | - | 64,381 |
| Other equipment | 2,184 | (70) | - | - | - | - | - | - | - | - | (5) | 2,184 | (75) | - | 2,109 |
| 161,979 | (96,617) | - | 16,774 | (5,987) | 4,652 | (194) | 81 | - | - | (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 |
| Goodwill | 1,160 | - | - | - | - | - | - | - | - | - | - | 1,160 | - | - | 1,160 |
| 90,599 | (59,865) | - | 27,595 | - | - | - | - | - | - | (21,756) | 118,194 | (81,621) | - | 36,573 |
The composition of these captions is as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Current tax assets | 2,459 | 47,924 |
| Deferred tax assets | 252,049 | 323,018 |
| 254,508 | 370,942 | |
| Current tax liabilities | 79,161 | 1,677 |
| Deferred tax liabilities | 265,686 | 373,314 |
| 344,847 | 374,991 | |
| Deferred taxes | (13,637) | (50,296) |
Taxes in the statement of profit or loss have the following composition:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Current taxes | (87,501) | (52,770) |
| Deferred taxes | (45,113) | (57,963) |
| (132,614) | (110,733) |
The movement under deferred tax assets and liabilities during the years ended December 31, 2021 and 2020, is as follows:
| Other | ||||
|---|---|---|---|---|
| Balance as at | comprehensive | Statement of | Balance as at | |
| 31-12-2020 | income | profit or loss | 31-12-2021 | |
| Provisions/Impairment temporarily not accepted for tax purposes: | ||||
| . Deferred tax assets | 159,564 | - | (33,498) | 126,066 |
| . Deferred tax liabilities | (5,222) | - | - | (5,222) |
| Revaluation of tangible fixed assets: | ||||
| . Deferred tax assets | 1,430 | - | (286) | 1,144 |
| . Deferred tax liabilities | (1,980) | - | 266 | (1,714) |
| Tax losses carried forward | 12,809 | - | (12,809) | - |
| Pensions: | ||||
| . Change in accounting policy related to pensions | 17,023 | - | (17,023) | - |
| . Early retirement pensions | 40,750 | - | 24,355 | 65,105 |
| . Retirement pensions | 4,621 | (510) | 4,111 | |
| . Transfer of pension liabilities to Social Security | 3,555 | - | (323) | 3,232 |
| Financial assets at fair value through other comprehensive income | (326,920) | 95,295 | - | (231,625) |
| Hedging derivatives - cash flows | 13,836 | (13,523) | - | 313 |
| Financial assets at fair value through profit or loss | 45,787 | - | (1,198) | 44,589 |
| Securitisation operations | (23,977) | - | 711 | (23,266) |
| Integration costs | 6,558 | - | (6,558) | - |
| Other | 1,870 | - | 1,760 | 3,630 |
| (50,296) | 81,772 | (45,113) | (13,637) |
| Other | |||||
|---|---|---|---|---|---|
| Balance as at | comprehensive | Statement of | Balance as at | ||
| 31-12-2019 | income | profit or loss | 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 fixed assets: | |||||
| . Deferred tax assets | 1,568 | - | (138) | - | 1,430 |
| . Deferred tax liabilities | (2,123) | - | 143 | - | (1,980) |
| Tax losses carried forward | 185,508 | - | (15,000) | (157,699) | 12,809 |
| Pensions: | |||||
| . Change in accounting policy related to pensions | 34,045 | - | (17,022) | - | 17,023 |
| . Early retirement pensions | 39,803 | - | 947 | - | 40,750 |
| . Retirement pensions | 4,113 | 508 | 4,621 | ||
| . Transfer of pension liabilities to 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 |
| Securitisation 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) |
To use the deferred taxes carried over from BANIF, on May 29, 2018, the Bank submitted a replacement Model 22 (Corporate Income Tax) return, regarding the 2015 financial year. The submission of that tax return 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 (as per 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 recognised the right to use BANIF's deferred taxes for the years 2009 through 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 Sub-Director-General only recognised the Bank's right to take advantage of BANIF's deferred taxes in the total amount of Euros 92,301 thousand, the Bank may demand - under the agreement with the Portuguese authorities involved in Banif's resolution proceedings - a compensation of Euros 157,699 thousand, either in cash or treasury bills. To comply with this decision, the Bank transferred the amount in question, from this caption to the caption "Other balances receivable" (Note 9).
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 prior 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 date is that of the financial year in which that right is exercised.
The Bank was subject to a tax inspection up to and including financial year 2018. As a result of the inspection of financial year 2017, it was subject to an additional Corporate Tax assessment. To cover for this assessment, the Bank created a provision in the amount of Euros 17,705 thousand (Note 17). 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 timing 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 Santander 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 profit or loss 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 caption is as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Gold, other precious metals, coins and medals | 3,145 | 3,145 |
| Promises of payment in kind, auctions and other assets received | ||
| as payment in kind | 181,281 | 233,479 |
| Income receivable and deferred income | 24,232 | 20,947 |
| Prepayments | 3,117 | 1,486 |
| Asset operations pending settlement | 38,649 | 8,379 |
| 250,424 | 267,436 | |
| Impairment losses of assets received as payment in kind (Note 17) | (102,088) | (103,285) |
| 148,336 | 164,151 |
The "Income receivable and deferred income" caption mainly includes fees receivable from insurers for the marketing of their insurance (Note 34).
The "Asset operations pending settlement" caption includes asset/(liability) operations pending settlement as detailed below:
| 31-12-2021 | 31-12-2020 | |||
|---|---|---|---|---|
| Other Other |
Other | Other | ||
| assets | liabilities | assets | liabilities | |
| (Note 19) | (Note 19) | |||
| Values in transit and other transactions to be settled | 19,080 | (52,826) | 1,885 | (5,842) |
| SEPA transfers | 48 | (126,642) | 30 | (110,761) |
| Balances to be settled - ATM's | 2,598 | (69) | 1,991 | - |
| Other | 16,923 | (29,354) | 4,473 | (77,663) |
| 38,649 | (208,891) | 8,379 | (194,266) |
The movement under the caption "Promises of payment in kind, auctions and other assets received as payment in kind" during 2021 and 2020 was as follows:
| December 31, 2020 | December 31, 2021 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Transfers to/from NCAHS | Transfers/ | Impairment (Note 17) | |||||||||||||||
| Gross amount | Impairment | Net amount | Additions | Sales/ write-offs | Capital | Impairment | property, plant and equipment |
Increases | Reversals | Use | Other | Gross amount | Impairment | Net amount | |||
| (Note 17) | (Note 15) | (Note 12) | (Note 17) | ||||||||||||||
| Assets received as payment in kind | |||||||||||||||||
| Real estate | 51,356 | (29,489) | 21,867 | - | - | (14,025) | 5,299 | - | - | - | - | - | 37,331 | (24,190) | 13,141 | ||
| Promises of payment in kind | 1,856 | (64) | 1,792 | 147 | (860) | (806) | - | - | (1,317) | 183 | 861 | - | 337 | (337) | - | ||
| Auctions | 15,783 | (6,316) | 9,467 | 5,283 | (2,287) | (11,966) | - | - | (1,681) | 3,534 | 1,539 | - | 6,813 | (2,924) | 3,889 | ||
| Other | 32,546 | (25,942) | 6,604 | 5,308 | (8,979) | (1,026) | - | - | (2,819) | 3,371 | 1,371 | - | 27,849 | (24,019) | 3,830 | ||
| Own real estate properties for sale | 47,071 | (29,980) | 17,091 | 376 | (18,086) | (37,457) | - | 47,934 | (1,183) | 4,178 | 6,942 | (5,728) | 39,838 | (25,771) | 14,067 | ||
| Other property for sale | 84,867 | (11,494) | 73,373 | (15,754) - |
- | - | - | (14,740) | - | 1,387 | - | 69,113 | (24,847) | 44,266 | |||
| 233,479 | (103,285) | 130,194 | 11,114 | (45,966) | (65,280) | 5,299 | 47,934 | (21,740) | 11,266 | 12,100 | (5,728) | 181,281 | (102,088) | 79,193 | |||
| December 31, 2019 | Transfers to/from NCAHS | Transfers/ | Other | Impairment (Note 17) | December 31, 2020 | ||||||||||||
| property, plant | |||||||||||||||||
| Gross amount | Impairment | Net amount | Additions Sales/ write-offs | Capital | Impairment | and equipment | Capital | Impairment | Increases | Reversals | Use and other Gross amount | Impairment | Net amount | ||||
| (Note 17) | (Note 15) | (Note 12) | (Note 17) | ||||||||||||||
| Assets received as payment in kind | |||||||||||||||||
| Real estate | 64,026 | (28,141) | 35,885 | - | - | (12,670) | (1,348) | - | - | - | - | - | 51,356 - |
(29,489) | 21,867 | ||
| Promises of payment in kind | 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 purchase / sale agreement signed in November 2018 with Cerberus Capital Management (Tagus Project), the last sales deed was signed in March 2020; 143 properties were not sold and were returned to the portfolio of TottaUrbe as other assets, having an purchase cost of Euros 7,065 thousand.
As at December 31, 2021 and 2020, the typology of properties in the portfolio of assets received as payment in kind - real estate, is as follows:
| 2021 | 2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Gross | Carrying | Gross | Carrying | |||||
| Typology | No. properties | amount | Impairment | amount | No. properties | amount | Impairment | amount |
| Properties | ||||||||
| Urban land | 5 | 1,094 | (440) | 654 | 16 | 2,014 | (877) | 1,137 |
| Rural land | 20 | 1,513 | (810) | 703 | 21 | 1,220 | (862) | 358 |
| Constructed buildings | ||||||||
| .Residential | 304 | 22,478 | (14,845) | 7,633 | 339 | 30,922 | (18,072) | 12,850 |
| .Commercial | 67 | 12,246 | (8,095) | 4,151 | 128 | 17,200 | (9,678) | 7,522 |
| 396 | 37,331 | (24,190) | 13,141 | 504 | 51,356 | (29,489) | 21,867 | |
| Other properties for sale | ||||||||
| Urban land | 591 | 34,127 | (11,389) | 22,738 | 757 | 39,220 | (2,661) | 36,559 |
| Rural land | 94 | 22,844 | (12,348) | 10,496 | 103 | 23,684 | (7,065) | 16,619 |
| Constructed buildings | ||||||||
| .Residential | 122 | 3,534 | (76) | 3,458 | 121 | 5,075 | (16) | 5,059 |
| .Commercial | 47 | 8,608 | (1,034) | 7,574 | 165 | 16,888 | (1,752) | 15,136 |
| 854 | 69,113 | (24,847) | 44,266 | 1,146 | 84,867 | (11,494) | 73,373 | |
| 1,250 | 106,444 | (49,037) | 57,407 | 1,650 | 136,223 | (40,983) | 95,240 |
The determination of impairment losses is performed according to the methodology described in Note 15.
As at December 31, 2021 and 2020, the manner of determining the fair value of assets received as payment in kind in accordance with the levels defined in IFRS 13 is as level 3.
| December 31, 2020 | Transfers | Impairment (Note 17) | December 31, 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Accumulated | Accumulated | |||||||||||
| Gross amount | impairment | Additions | Sales | Capital | Impairment | Increases | Reversals | Use and other Gross amount | impairment | Carrying amount | ||
| (Note 17) | (Note 14) | (Note 17) | (Note 17) | |||||||||
| Assets received as payment in kind | ||||||||||||
| Real estate | 92,345 | (41,292) | 5,474 | (46,625) | 27,823 | (5,299) | (9,505) | 3,903 | 10,320 | 79,017 | (41,873) | 37,144 |
| Equipment | 2,006 | (1,599) | 1,770 | (1,369) | - | - | (878) | 177 | 200 | 2,407 | (2,100) | 307 |
| From own-use assets | - - |
- | - | 37,457 | - | - | - | - | 37,457 | - | 37,457 | |
| 94,351 | (42,891) | 7,244 | (47,994) | 65,280 | (5,299) | (10,383) | 4,080 | 10,520 | 118,881 | (43,973) | 74,908 | |
The movement under this caption during the years ended December 31, 2021 and 2020, was as follows:
a) Under the promissory purchase / sale agreement signed in November 2018 with Cerberus Capital Management (Tagus Project), the last sales deed was signed in March 2020; 269 properties were not sold and were returned to the Bank's portfolio as non-current assets held for sale, having an purchase cost of Euros 32,426 thousand and provisions of Euros 21,788 thousand.
In January 2022, the Bank entered into a promissory purchase / sale agreement of a central building (Ramalho Ortigão), which is on the statement of financial position for Euros 35 million.
As at December 31, 2021 and 2020, the typology of properties in the portfolio of assets received as payment in kind - real estate, is as follows:
| 2021 | 2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Gross | Carrying | Gross | Carrying | |||||
| Typology | No. properties | amount | Impairment | amount | No. properties | amount | Impairment | amount |
| Urban land | 146 | 16,131 | (9,094) | 7,037 | 197 | 17,374 | (6,711) | 10,663 |
| Rural land | 84 | 19,214 | (12,743) | 6,471 | 89 | 20,584 | (11,867) | 8,717 |
| Constructed buildings | ||||||||
| .Residential | 233 | 27,352 | (10,313) | 17,039 | 202 | 34,981 | (11,379) | 23,602 |
| .Commercial | 72 | 16,323 | (9,723) | 6,600 | 147 | 19,406 | (11,335) | 8,071 |
| 535 | 79,020 | (41,873) | 37,147 | 635 | 92,345 | (41,292) | 51,053 |
These assets are measured at the amount agreed by negotiation or judicial means, after deduction of the expenses the Bank expects to incur with their sale, or their quick-sale value, if lower. On the other hand, assets recovered following the termination of finance lease contracts are recorded under assets for the principal outstanding on the date of termination of the contract.
Real estate is subject to periodic valuations performed by independent appraisers. Whenever the amount arising from these valuations (net of selling expenses) is lower than the amount at which the properties are measured, 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 valuations 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 flow method.
The valuations performed of the properties referred to above are carried out by independent, specialised entities accredited by the Securities Markets Commission (CMVM).
As at December 31, 2021 and 2020, the manner of determining the fair value of non-current assets held for sale in accordance with the levels defined in IFRS 13 is as level 3.
The "Deposits" sub-caption has the following composition:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Deposits - Central banks | ||
| Resources from Bank of Portugal - Deposits | 7,401,255 | 6,781,961 |
| Resources from other Central banks - Deposits | 8,987 | 9,859 |
| 7,410,242 | 6,791,820 | |
| Deposits - Credit institutions | ||
| Resources from Credit institutions | ||
| Short-term resources | 130,673 | 52,970 |
| Deposits | 245,971 | 228,329 |
| Sale operations with repurchase agreement | 33 | 1,255,805 |
| Other resources | 16,598 | 11,571 |
| Interest payable/prepayments | 130 | 294 |
| 393,405 | 1,548,969 | |
| Deposits - Customers | ||
| Term deposits | 14,062,767 | 14,533,260 |
| Demand deposits | 24,278,923 | 20,977,020 |
| Structured deposits | 8,231 | 38,643 |
| Saving deposits | 573,104 | 686,479 |
| Other | 30,840 | 27,421 |
| Interest and charges payable | 4,988 | 6,932 |
| Value adjustments for hedging operations | 51 | 237 |
| 38,958,904 | 36,269,992 | |
| Deposits | 46,762,551 | 44,610,781 |
As at December 31, 2021 and 2020, "Deposits – Credit institutions – Resources from Credit institutions - Sales operations with repurchase agreement", is broken down, by type of asset underlying the repo operations, as follows:
| 31-12-2021 | |||||
|---|---|---|---|---|---|
| Capital | Interest | Prepayments | Total | ||
| Government Bonds - Portugal | (99,868) | - | (105) | (99,973) | |
| Bonds issued by non-residents | 99,945 | - | 61 | 100,006 | |
| 77 | - | (44) | 33 |
| 31-12-2020 | |||||||
|---|---|---|---|---|---|---|---|
| Capital | Interest | Prepayments | Total | ||||
| Government Bonds - Portugal | 535,640 | (120) | (22) | 535,498 | |||
| Non-subordinated debt | 669,696 | (145) | (116) | 669,435 | |||
| Bonds issued by non-residents | 50,872 | - | - | 50,872 | |||
| 1,256,208 | (265) | (138) | 1,255,805 |
| 31-12-2021 | 31-12-2020 | |||||
|---|---|---|---|---|---|---|
| Issued | Reacquired | Balance | Issued | Reacquired | Balance | |
| Mortgage bonds | ||||||
| Opening balance | 8,800,000 | (6,800,000) | 2,000,000 | 8,050,000 | (5,300,000) | 2,750,000 |
| Issued | - | - | - | 1,500,000 | - | 1,500,000 |
| Reacquired | - | - | - | - | (1,500,000) | (1,500,000) |
| Redeemed | (200,000) | 200,000 | - | (750,000) | - | (750,000) |
| Closing balance | 8,600,000 | (6,600,000) | 2,000,000 | 8,800,000 | (6,800,000) | 2,000,000 |
| Interest payable | - | - | 9,339 | - | - | 9,314 |
| Cost-related commissions | - | - | (18,674) | - | - | (23,161) |
| 8,600,000 | (6,600,000) | 1,990,665 | 8,800,000 | (6,800,000) | 1,986,153 | |
| Bonds issued in the scope of securitisation operations | ||||||
| Opening balance | 3,806,917 | (3,192,235) | 614,682 | 4,269,015 | (3,525,534) | 743,481 |
| Redeemed | (432,759) | 354,395 | (78,364) | (462,098) | 333,299 | (128,799) |
| Closing balance | 3,374,158 | (2,837,840) | 536,318 | 3,806,917 | (3,192,235) | 614,682 |
| Interest payable | - | - | - | - | - | 676 |
| Cost-related commissions | - | - | (41,992) | - | - | (48,659) |
| 3,374,158 | (2,837,840) | 494,326 | 3,806,917 | (3,192,235) | 566,699 | |
| Structured bonds | ||||||
| Opening balance | 8,227 | - | 8,227 | 8,227 | - | 8,227 |
| Issued | 183,000 | - | 183,000 | - | - | - |
| Reacquired | - | (116) | (116) | - | - | - |
| Closing balance | 191,227 | (116) | 191,111 | 8,227 | - | 8,227 |
| Interest payable | - | - | 2,796 | - | - | 97 |
| Value adjustments for hedging operations | - | - | 100 | - | - | 250 |
| 191,227 | (116) | 194,007 | 8,227 | - | 8,574 | |
| Subordinated liabilities | ||||||
| Opening balance | 554,791 | (209,100) | 345,691 | 522,099 | (225,362) | 296,737 |
| Issued | - | - | - | 320,000 | - | 320,000 |
| Redeemed | (227,192) | 209,100 | (18,092) | (287,308) | 16,262 | (271,046) |
| Closing balance | 327,599 | - | 327,599 | 554,791 | (209,100) | 345,691 |
| Interest payable | - | - | 150 | - | - | 233 |
| 327,599 | - | 327,749 | 554,791 | (209,100) | 345,924 | |
| 12,492,984 | (9,437,956) | 3,006,747 | 13,169,935 | (10,201,335) | 2,907,350 |
Under 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 of the cash bonds are described in Annex I, and those of the subordinated liabilities in Annex II.
Between May 2008 and December 2021, the Bank undertook twenty-six covered bond issuances under the "€ 12,500,000,000 Covered Bonds Programme". As at December 31, 2021 and 2020, the covered bonds had an autonomous set of net assets consisting of:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Loans and advances (Note 9) | 9,965,945 | 10,278,006 |
| Loan interest | 5,082 | 6,682 |
| Derivatives | (54,776) | (184,234) |
| 9,916,251 | 10,100,454 |
The "Other financial liabilities" sub-caption has the following composition:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Cheques and orders payable | 49,323 | 62,261 |
| Creditors and other resources | ||
| Creditors for futures operations Contributions to other health systems |
21,347 1,610 |
8,494 1,788 |
| Public sector | 34,537 | 31,222 |
| Creditors under factoring contracts | 62,137 | 47,418 |
| Creditors for supplies of goods | 1,969 | 2,266 |
| Creditors for values payable | 16,858 | 21,612 |
| Other | 6,664 | 5,363 |
| Commitments for future rents (application of IFRS 16) | 24,830 | 25,232 |
| 219,275 | 205,656 |
Commitments for future rents corresponds to the adoption of IFRS 16, and their movement during the 2021 and 2020 years was as follows:
| Lease liability | Right of use | |
|---|---|---|
| (Note 12) | ||
| Balance as at December 31, 2019 | 35,356 | 35,098 |
| Depreciation 2020 | (6,557) | (6,145) |
| Outs | (5,604) | (6,170) |
| Ins | 1,617 | 1,617 |
| Rent extensions and modifications | 420 | 420 |
| Balance as at December 31, 2020 | 25,232 | 24,820 |
| Depreciation 2021 | (4,575) | (4,519) |
| Outs | (1,172) | (1,101) |
| Ins | 2,345 | 2,345 |
| Rent extensions and modifications | 3,000 | 3,000 |
| Balance as at December 31, 2021 | 24,830 | 24,545 |
As at December 31, 2021 and 2020, the contractual cash flows are as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| .Up to 1 year | 4,663 | 3,801 |
| .Up to 2 years | 4,402 | 3,584 |
| .Up to 3 years | 4,160 | 3,372 |
| .Up to 4 years | 3,116 | 2,810 |
| .Up to 5 years | 3,005 | 2,621 |
| .More than 5 years | 5,484 | 9,044 |
| 24,830 | 25,232 |
The movement under Provisions during the 2021 and 2020 years was as follows:
| 2021 | ||||||
|---|---|---|---|---|---|---|
| 31-12-2020 | Increases | Reversals | Use | Transfers/Other | 31-12-2021 | |
| Impairment for guarantees and commitments | ||||||
| given (Note 23) | 57,466 | 4,645 | (10,933) | - | - | 51,178 |
| Restructuring | 54,369 | 220,000 | (187,165) | - | 87,204 | |
| Other provisions | 119,489 | 70,015 | (40,316) | (56,909) | (28,851) | 63,428 |
| 231,324 | 294,660 | (51,249) | (244,074) | (28,851) | 201,810 | |
| 2020 | ||||||
| 31-12-2019 | Increases | Reversals | Use | Transfers/Other | 31-12-2020 | |
| Impairment for guarantees and commitments | ||||||
| given (Note 23) | 53,249 | 6,289 | (2,072) | - | - | 57,466 |
| Restructuring | 62,277 | 20,000 | - | (27,908) | - | 54,369 |
| Other provisions | 107,503 | 49,150 | (7,518) | (10,864) | (18,782) | 119,489 |
| 223,029 | 75,439 | (9,590) | (38,772) | (18,782) | 231,324 | |
| The amount presented under the restructuring concept as at December 31, 2021 is intended to cover the commitments already assumed and disclosed to employees. |
||||||
| As at December 31, 2021 and 2020, the breakdown of Other Provisions was as follows: | ||||||
| 31-12-2021 | 31-12-2020 |
| Pensions and other post-employment defined benefit obligations | 14,268 | 14,201 |
|---|---|---|
| Tax issues (Note 13) | 17,955 | 10,642 |
| Legal issues and pending tax disputes | 2,065 | 32,990 |
| Other provisions | 29,140 | 61,656 |
| 63,428 | 119,489 |
In 2021, the Bank undertook a profound operational and commercial transformation plan, adapting to the new competitive, more digital context, with a significant investment in process simplification and technology, oriented to the improvement of the quality of service, and which allowed the optimisation of the branch network (-79), and consequent reduction of staff numbers (-1,175). To implement this transformation plan, a provision of Euros 235 million (Euros 220 million under the restructuring concept and Euros 15 million under the concept of other provisions) was recorded in the first quarter, which was added to the one already constituted at the end of 2020 in the amount of Euros 66 million (Euros 20 million under the concept of restructuring and Euros 46 million under the concept of other provisions). The amounts concerned were used to reduce the staff numbers, Euros 187 million, to optimise the branch network, Euros 23 million, and for the operational and commercial transformation, Euros 36 million. In addition, in 2021 the Bank transferred Euros 22.5 million as first allocation to the Fundação Santander Portugal (Foundation).
The movement under Impairment during the 2021 and 2020 years was as follows:
| 2021 | |||||||
|---|---|---|---|---|---|---|---|
| Reversals of | Recoveries | ||||||
| 31-12-2020 | Increases | impairment losses |
Use and others |
31-12-2021 | of past due loans and other |
Gain/loss from loan sales |
|
| Impairment or reversal of impairment of financial assets not measured at fair value through profit or loss: |
|||||||
| Impairment of debt securities (Note 9) | 11,145 | 8,576 | (14,099) | 5,622 | - | - | |
| Impairment of loan and advances (Note 9) Impairment of financial assets at fair value |
993,772 | 435,181 | (346,062) | (69,015) | 1,013,876 | (3,735) | (6,376) |
| through other comprehensive income (Note 8) | 14 | 73 | (35) | 52 | - | - | |
| 1,004,931 | 443,830 | (360,196) | (69,015) | 1,019,550 | (3,735) | (6,376) | |
| Impairment or reversal of impairment of non-financial assets: | |||||||
| Property, plant and equipment (Note 12) | 23,623 | - | - | (17,477) | 6,146 | - | - |
| Other assets (Note 14) | 103,285 | 21,740 | (11,266) | (11,671) | 102,088 | - | - |
| Non-current assets held for sale (Note 15) | 42,891 | 10,383 | (4,080) | (5,221) | 43,973 | - | - |
| 169,799 | 32,123 | (15,346) | (34,369) | 152,207 | - | - |
| 2020 | |||||||
|---|---|---|---|---|---|---|---|
| Reversals of | Recoveries | ||||||
| impairment | Use and | of past due | Gain/loss from | ||||
| 31-12-2019 | Increases | losses | others | 31-12-2020 | loans and other | loan sales | |
| Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss: |
|||||||
| Impairment of debt securities (Note 9) | 4,057 | 7,088 | - | - | 11,145 | - | - |
| Impairment of loan and advances (Note 9) Impairment of financial assets at fair value |
917,451 | 492,170 | (301,563) | (114,286) | 993,772 | (7,317) | (2,620) |
| 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 of non-financial assets: | |||||||
| Property, plant and equipment (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 |
- - |
- |
As at December 31, 2021 and 2020, this caption represented the participation units of the Novimovest Fund not owned by the Group.
The composition of this caption is as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Staff expenses | ||
| Holiday pay and subsidy | 36,152 | 41,294 |
| Other variable remuneration | 27,858 | 20,226 |
| End of career award (BAPOP) | 1,111 | 1,377 |
| Other staff expenses | 3,141 | 3,918 |
| Other charges | 69,181 | 94,018 |
| Deferred income | 10,163 | 9,687 |
| Liabilities with pensions and other benefits (Note 35) | ||
| Santander liabilities | Santander liabilities 1,155,946 |
1,123,784 |
| Santander Pension Fund book value | (1,164,211) Santander pension fund book value |
(1,143,046) |
| London Branch liabilities | London branch liabilities 52,915 |
56,628 |
| London Branch Pension Fund book value | (49,938) | (48,718) London branch pension fund book value |
| Banif liabilities | Former Banif liabilities 167,108 |
160,544 |
| Banif Pension Fund book value | (92,220) | (93,369) Former Banif pension fund book value |
| BAPOP liabilities | Former BAPOP liabilities 185,616 |
181,921 |
| BAPOP Pension Fund book value | (194,073) | (186,718) Former BAPOP pension fund book value |
| Liability operations to be settled | 8,616 | 17,636 |
| Other (Note 14) | 208,891 | 194,266 |
| 426,256 | 433,448 |
As at December 31, 2021, "Other charges" correspond, essentially, to expenses related to the normal activity of the Bank.
As at December 31, 2021 and 2020, the Bank's share capital was represented by 1,256,723,284 shares, each with a par value of Euro 1, fully subscribed and paid up by the following shareholders:
| 31-12-2021 | 31-12-2020 | |||||
|---|---|---|---|---|---|---|
| Number | Number | |||||
| of shares | Shareholding % | Amount | of shares | Shareholding % | 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 | 15,016,375 | 1.19% | 15,016 | 15,009,840 | 1.19% | 15,009 |
| Other | 527,396 | 0.04% | 527 | 533,931 | 0.04% | 534 |
| 1,256,723,284 | 100.00% | 1,256,723 | 1,256,723,284 | 100.00% | 1,256,723 |
During 2021, the Bank purchased 6,535 treasury shares for Euros 30 thousand.
Under the terms of Order No. 408/99, of June 4, published in the Official Gazette of Portugal – 1 st Series B, No. 129, the share premium, in the amount of Euros 193,390 thousand, cannot be used for the attribution of dividends or for the purchase of treasury shares.
The "Equity instruments issued other than share capital" refer to the ancillary capital contributions granted by the 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.
As at December 31, 2021 and 2020, the breakdown of the Accumulated other comprehensive income reserves was as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Other accumulated comprehensive income | ||
| Other comprehensive income - Gross amount | ||
| Financial assets at fair value through other comprehensive income (Note 8) | 680,592 | 989,146 |
| Revaluation reserves of companies under the equity method | 1,406 | 2,413 |
| Cash-flow hedging instruments | (1,008) | (44,631) |
| Actuarial gains or losses (Note 35) | ||
| BST Pension Fund | (758,860) | (795,764) |
| London Branch Pension Fund | (11,530) | (16,573) |
| Banif Pension Fund | (41,238) | (43,248) |
| BAPOP Pension Fund | (1,503) | (7,464) |
| Actuarial gains or losses of companies under the equity method | (2,190) | (3,960) |
| (134,331) | 79,919 | |
| Other comprehensive income - Tax effect | ||
| For timing differences | ||
| Reserves resulting from the fair value valuation of: | ||
| Financial assets at fair value through other comprehensive income | (210,410) | (305,705) |
| Revaluation reserves of companies under the equity method | (358) | (615) |
| Cash-flow hedging instruments | 313 | 13,836 |
| Tax effect of actuarial gains or losses | 204,286 | 204,286 |
| Tax effect of actuarial gains or losses of companies under the equity method | 956 | 919 |
| (5,213) | (87,279) | |
| (139,544) | (7,360) |
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 attribution of dividends or to increase share capital.
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Retained earnings | 1,608,681 | 951,973 |
| Other reserves | ||
| Legal reserve | 539,357 | 511,836 |
| Reserves of companies consolidated | 157,654 | 161,092 |
| Reserves of companies under the equity method | 11,729 | 8,045 |
| Merger reserves | ||
| 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 | (397,978) | 27,494 |
| 969,610 | 1,367,315 |
As at December 31, 2021, this caption recognises profits or losses of prior years not distributed (see "Other reserves").
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 profit or loss for the year of the Company's separate business is annually transferred to this reserve, until said amount is achieved. This reserve may only be used 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 caption includes the revaluation reserves. In 1998, under Decree-Law 31/98, of February 11, the Bank revalued its Property, Plant and Equipment, increasing their value, net of accumulated depreciation, by approximately Euros 23,245 thousand, 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 (amortised) or the assets to which they relate are sold. Additionally, this caption includes, since 2021, the impacts of accounting policy changes and the impacts originated by the sale of equity instruments. As at December 31, 2020, these amounts were recorded under the caption "Retained earnings".
In financial years 2021 and 2020, the determination of the consolidated profit can be summarised as follows:
| 31-12-2021 | 31-12-2020 | |||
|---|---|---|---|---|
| Contribution | Contribution | |||
| Profit or loss | to the | Profit or loss | to the | |
| for the | consolidated | for the | consolidated | |
| year | profit or loss | year | profit or loss | |
| Profit or loss of the Bank (individual basis) | 303,343 | 303,343 | 275,210 | 275,210 |
| Profit or loss of other Group companies: | ||||
| Totta (Ireland), Plc. | 8,278 | 8,278 | 9,214 | 9,214 |
| Novimovest - Fundo de Investimento Imobiliário Aberto | 3,960 | 3,118 | 341 | 268 |
| Unicre, Instituição Financeira de Crédito, S.A. | 19,510 | 4,265 | 23,919 | 5,229 |
| Gamma, Sociedade Financeira de Titularização de Créditos, S.A. | 323 | 323 | 63 | 63 |
| Totta Urbe, Empresa de Administração e Construções, S.A. | (4,748) | (4,748) | 583 | 583 |
| Lusimovest Fundo de Investimento Imobiliário | - | - | 1,210 | 312 |
| Taxagest, S.A. | (12) | (11) | (3) | (3) |
| 27,312 | 11,225 | 35,327 | 15,666 | |
| Elimination of intragroup dividends received: | ||||
| Totta (Ireland), Plc. | (9,124) | (6,853) | ||
| Unicre, Instituição Financeira de Crédito, S.A. | (4,704) | (3,192) | ||
| Totta Urbe, Empresa de Administração e Construções, S.A. | (26,270) | |||
| (40,098) | (10,045) | |||
| Adjustments related to securitisation operations | (2,421) | (18,635) | ||
| Other | (1,555) | (4,447) | ||
| Consolidated profit or loss attributable to the shareholders of the parent | 270,494 | 257,749 |
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.
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Consolidated profit or loss attributable to the shareholders of the parent | 270,494 | 257,749 |
| Weighted average number of ordinary shares issued | 1,256,723,284 | 1,256,723,284 |
| Weighted average number of treasury shares | 15,016,375 | 15,009,857 |
| Weighted average number of ordinary shares outstanding | 1,241,712,110 | 1,241,713,427 |
| Basic earnings per share attributable to the shareholders of the Bank (Euros) | 0.22 | 0.21 |
Basic earnings per share are the same as diluted earnings per share since there are no contingently issuable common shares, namely through options, warrants or equivalent financial instruments as at the reporting date.
The value of third-party holdings in Group companies is broken down by entity, as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Taxagest, S.A. | 557 | 557 |
| Other | 69 | 70 |
| 626 | 627 |
The breakdown of off-balance sheet liabilities is as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Guarantees given and other contingent liabilities | ||
| Guarantees and sureties | 330,997 | 648,253 |
| Commitments for credit granted | ||
| Revocable | 6,378,768 | 6,140,567 |
| Irrevocable | 565,980 | 949,459 |
| 6,944,748 | 7,090,026 | |
| Other commitments granted | ||
| Non-financial guarantees and sureties | 1,346,113 | 964,502 |
| Documentary credits outstanding | 315,004 | 363,131 |
| Deposit Guarantee Fund | 68,969 | 68,969 |
| Investor Indemnity System | 6,736 | 7,507 |
| Other commitments granted | - | 200,215 |
| 1,736,822 | 1,604,324 | |
| 9,012,567 | 9,342,603 | |
| Assets pledged as guarantee | ||
| Bank of Portugal | 152,926 | 148,206 |
| Deposit Guarantee Fund | 78,205 | 87,998 |
| Investor Indemnity System | 8,342 | 8,516 |
| Assets pledged as guarantee in monetary policy operations | 16,496,874 | 15,995,107 |
| 16,736,347 | 16,239,827 | |
| Liabilities for services provided | ||
| Deposit and custodianship services | 41,779,767 | 40,923,924 |
| Instruments received for collection | 617,382 | 444,411 |
| Other values | 151,679 | 113,603 |
| 42,548,828 | 41,481,938 |
Assets pledged as collateral for monetary policy operations correspond to the collateral pool that the Bank has with the European Central Bank, to secure operational liquidity.
| 31-12-2021 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Exposure | Impairment (Note 17) | |||||||
| Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
| Commitments for credit granted | 6,219,555 | 715,297 | 9,896 | 6,944,748 | 4,116 | 4,507 | 136 | 8,759 |
| Financial guarantees | 291,622 | 12,284 | 27,091 | 330,997 | 595 | 602 | 15,258 | 16,455 |
| Other commitments granted | 1,542,902 | 44,600 | 149,320 | 1,736,822 | 666 | 580 | 24,718 | 25,964 |
| 8,054,079 | 772,181 | 186,307 | 9,012,567 | 5,377 | 5,689 | 40,112 | 51,178 |
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 | |
| 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 |
Pursuant to Decree-Law 298/92, of December 31, the Deposit Guarantee Fund was established in November 1994 to secure the deposits made at credit institutions, in accordance with the limits established in the General Credit Institutions and Financial Companies Regime. The initial contribution to the Fund, established by an Order of the Ministry of Finance, was made through the delivery of cash and deposit securities, and was amortised over 60 months as from January 1995. Except for that referred to in the following paragraph, the regular annual contributions to the Fund are recognised as an expense for the year 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 an irrevocable commitment to the Deposit Guarantee Fund to pay up the 10 % of the annual contribution, if and when so requested. The accumulated unpaid amount, in respect of which this commitment was entered into, totalled Euros 68,969 thousand. The assets pledged to the Bank of Portugal are reflected under off-balance sheet captions at their market value. In 2021 and 2020, the Bank paid 100% of the annual contribution in the amounts of Euros 50 thousand and Euros 48 thousand, 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, 2021 and 2020, these liabilities amounted to Euros 6,736 thousand and Euros 7,507 thousand, respectively.
The composition of this caption is as follows:
| 2021 | 2020 | |
|---|---|---|
| Interest income | ||
| Interest on cash and deposits at Central banks and Credit institutions | - | 133 |
| Interest on non-trading financial assets mandatorily at fair value through profit or loss |
322 | 288 |
| Interest on financial assets at fair value through other comprehensive income | 134,965 | 148,044 |
| Interest on financial assets at amortised cost | ||
| Loans and advances - Credit institutions | 127 | 1,440 |
| Debt securities | 53,243 | 59,458 |
| Loans and advances - Customers | 544,566 | 602,497 |
| Interest on resources at Central banks and other Credit institutions | 72,911 | 24,984 |
| Interest on hedging derivatives | 205,090 | 274,477 |
| Other | 940 | 1,985 |
| 1,012,164 | 1,113,306 | |
| Interest expense | ||
| Interest on financial liabilities at amortised cost | ||
| Deposits - Credit institutions | (5,002) | (5,522) |
| Deposits - Customers | (6,360) | (19,824) |
| Debt securities issued | (37,225) | (34,574) |
| Interest on assets of Central banks and Credit institutions | (21,646) | (8,299) |
| Interest on assets of Individuals | (2,428) | (925) |
| Interest on hedging derivatives | (202,820) | (244,512) |
| Interest on lease liabilities | (398) | (565) |
| Other | (7,629) | (8,163) |
| (283,508) | (328,356) | |
| 728,656 | 784,950 |
This caption refers to dividends received and is broken down as follows:
| 2021 | 2020 |
|---|---|
| 1,533 | 1,733 |
| 4 | 1 |
| 1,537 | 1,734 |
| 2021 | 2020 | |
|---|---|---|
| Unicre - Instituição Financeira de Crédito, S.A. | 4,194 | 5,305 |
| Lusimovest - Fundo de Inv. Imobiliario | 37 | 312 |
| 4,231 | 5,617 |
| 2021 | 2020 | |
|---|---|---|
| Fee and commission income | ||
| On guarantees given | 16,795 | 17,189 |
| On commitments to third parties | 6,708 | 4,849 |
| On banking services rendered | ||
| Deposit and custodianship services | 6,142 | 6,067 |
| Collection and administration of values | 15,112 | 15,137 |
| Real estate and mutual fund management | 33,088 | 24,159 |
| Transfers of svalues | 1,942 | 1,542 |
| Card management | 130,370 | 119,034 |
| Loan operations | 52,201 | 48,612 |
| Other services rendered | 11,315 | 11,785 |
| On operations carried out on behalf of third parties | ||
| On securities | 15,177 | 15,471 |
| Other | 77 | 82 |
| Other commissions received | ||
| Intermediation for insurance companies (Note 34) | 114,291 | 100,783 |
| Demand deposits | 101,441 | 93,870 |
| Checks | 5,180 | 5,565 |
| Other | 23,852 | 20,330 |
| 533,691 | 484,475 | |
| Fee and commission expenses | ||
| On guarantees received | (4,193) | (4,313) |
| On banking services rendered by third parties | ||
| Collection and administration of values | (1,674) | (4,860) |
| Card management | (67,101) | (64,132) |
| Loan operations | (4,192) | (2,739) |
| Other services rendered | (7,803) | (2,615) |
| On operations carried out on behalf of third parties | ||
| On securities | (3,520) | (3,390) |
| Other | (6,451) | (7,016) |
| Other commissions paid | (6,613) | (17,750) |
| (101,547) | (106,815) |
The composition of these captions is as follows:
| 2021 | 2020 | |
|---|---|---|
| Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or | 129,180 | 90,879 |
| Gains or losses of financial assets at fair value through other comprehensive income - Debt instruments | 126,898 | 89,757 |
| Financial assets at amortised cost - Debt securities | 2,242 | - |
| Other | 40 | 1,122 |
| Gains or losses on financial assets and liabilities held for trading, net | (4,409) | (9,299) |
| Derivative instruments | (4,409) | (9,299) |
| Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss, net | 2,991 | 3,577 |
| Debt securities | - | 3,013 |
| Equity instruments | 1,495 | 564 |
| Other | 1,496 | - |
| Gains or losses from hedge accounting, net | - | - |
| Hedging derivatives | (171,854) | (202,144) |
| Hedged element | 171,854 | 202,144 |
| Exchange differences, net | 13,505 | 11,192 |
In financial years ended December 31, 2021 and 2020, the gains recorded in the caption "Financial assets at fair value through other comprehensive income" were justified, essentially, by the sale of public debt bonds. The Bank had forward sales operations in the amount of Euros 62,538 million (Note 10), with the amount recorded in this caption reflecting the contracted value.
| 2021 | 2020 | |
|---|---|---|
| Gains on investment property | 665 | 383 |
| Losses on investment property | (708) | (251) |
| (43) | 132 |
The composition of this caption is as follows:
| 2021 | 2020 | |
|---|---|---|
| Other operating income | ||
| Income from services rendered | 2,323 | 2,303 |
| Rents earned | 10,290 | 10,296 |
| Fair value changes of investment property | 2,455 | 3,997 |
| Other | 4,544 | 3,461 |
| 19,612 | 20,057 | |
| Other operating expenses | ||
| Fair value changes of investment property | (3,109) | (6,561) |
| Charges with customers | (3,017) | (3,339) |
| Other | (3,863) | (1,799) |
| (9,989) | (11,699) |
During 2021 and 2020, the caption "Rents earned" included the amounts of Euros 10,287 thousand and Euros 9,991 thousand, respectively, in respect of the rents earned by the Novimovest Real Estate Fund (Note 12).
In the caption "Charges with customers" are recorded expenses with internal and external fraud.
| 2021 | 2020 | |
|---|---|---|
| Remuneration | ||
| Management and supervisory boards | 6,563 | 4,684 |
| Employees | 200,735 | 222,244 |
| Other variable remuneration | 24,731 | 14,600 |
| 232,029 | 241,528 | |
| Mandatory social charges | ||
| Charges on remuneration | 30,709 | 61,165 |
| Pension Funds (Note 35) | 7,889 | 8,178 |
| Other | 1,068 | 1,119 |
| 39,666 | 70,462 | |
| Other staff expenses | ||
| Complementary pension plan (Note 35) | 370 | 537 |
| Staff transfers | 1,162 | 1,247 |
| Other | 6,191 | 8,021 |
| 7,723 | 9,805 | |
| 279,418 | 321,795 |
| 2021 | 2020 | |
|---|---|---|
| External services: | ||
| Specialised services | 71,549 | 73,659 |
| Maintenance of software and hardware | 68,935 | 58,623 |
| Other lease operations (short-term and low-value leases) | 4,287 | 4,287 |
| Communications | 6,747 | 7,716 |
| Advertising and publishing | 6,134 | 12,419 |
| Travel, lodging and representation expenses | 2,162 | 2,875 |
| Maintenance and repairs | 3,756 | 4,755 |
| Transportation | 3,972 | 4,599 |
| Insurance | 1,887 | 2,396 |
| Other services | 5,849 | 5,681 |
| External supplies | 7,431 | 9,947 |
| Subscriptions and donations | 6,767 | 6,600 |
| Other taxes | 3,717 | 4,081 |
| 193,193 | 197,638 |
The fees billed or to be billed by the audit firm and respective firms in the same network, in 2021 and 2020, excluding the Value Added Tax, were as follows:
| 2021 | 2020 | |||||
|---|---|---|---|---|---|---|
| Bank | Group | Total | Bank | Group | Total | |
| Audit and statutory audit | 1,655 | 70 | 1,724 | 1,350 | 69 | 1,419 |
| Other assurance services | 1,128 | - | 1,128 | 998 | - | 998 |
| Tax consulting services | - | - | - | - | - | - |
| Other services | 389 | - | 389 | 190 | - | 190 |
| 3,172 | 70 | 3,241 | 2,538 | 69 | 2,607 |
The above amounts correspond to those contracted for the financial year, irrespective of their billing date.
"Other assurance services" include fees for the following services:
"Other services" includes fees related to the following services:
The composition of this caption is as follows:
| 2021 | 2020 | |
|---|---|---|
| Contributions to the Resolution Fund | ||
| National Resolution Fund | (12,853) | (12,875) |
| Single Resolution Fund | (24,776) | (22,701) |
| Contributions to the Deposit Guarantee Fund | (50) | (48) |
| (37,679) | (35,624) |
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 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 of 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 resolution authority, determines the amount of the contribution of each institution depending on the risk profile of each entity. In 2021 and 2020, and as provided for in a Bank of Portugal 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 Euros 29,149 thousand and Euros 26,707 thousand, respectively.
The composition of this caption is as follows:
| 2021 | ||||||
|---|---|---|---|---|---|---|
| Gains | Losses | Net | Gains | Losses | Net | |
| Assets received as payment in kind | 7,172 | (273) | 6,899 | 6,840 | (6,807) | 33 |
| Other non-financial assets | 25,419 | (18,312) | 7,107 | 17,030 | (12,073) | 4,957 |
| 32,591 | (18,585) | 14,006 | 23,870 | (18,880) | 4,990 |
Income from the provision of insurance brokerage services relates primarily to commissions billed for the marketing of life and non-life insurance, as follows:
| 2021 | 2020 | |||||
|---|---|---|---|---|---|---|
| Life | Non-Life | Life | Non-Life | |||
| Products | Products | Total | Products | Products | Total | |
| (Note 27) | (Note 27) | |||||
| Santander Totta Seguros - Companhia de Seguros de Vida, S.A. | 39,762 | - | 39,762 | 39,772 | - | 39,772 |
| Aegon Santander Portugal Vida - Companhia de Seguros de Vida, S.A. | 45,156 | - | 45,156 | 36,811 | - | 36,811 |
| Aegon Santander Portugal Não Vida - Companhia de Seguros, S.A. | - | 27,324 | 27,324 | - | 22,783 | 22,783 |
| Other | 2,049 | 2,049 | - | 1,417 | 1,417 | |
| 84,918 | 29,373 | 114,291 | 76,583 | 24,200 | 100,783 |
As at December 31, 2021 and 2020, the caption "Other assets – Income receivable and deferred income" (Note 14) includes mainly commissions receivable from insurers as detailed hereunder:
| 2021 | 2020 | |
|---|---|---|
| Santander Totta Seguros - Companhia de Seguros de Vida, S.A. | 10,019 | 9,706 |
| Aegon Santander Portugal Vida - Companhia de Seguros de Vida, S.A. Aegon Santander Portugal Não Vida - Companhia de Seguros, S.A. |
4,233 2,521 |
3,063 2,025 |
| Other | 645 | 12 |
| 17,418 | 14,806 |
These amounts refer, essentially, to the commissions determined and not yet paid in respect of premiums of insurance marketed during the last quarters of 2021 and 2020.
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, healthcare and death allowances as at December 31, 2021 and 2020, as well as the respective coverage, are detailed as follows:
| Santander | BAPOP | |||
|---|---|---|---|---|
| 31-12-2021 | 31-12-2020 | 31-12-2021 | 31-12-2020 | |
| Estimate of liabilities for past services: | ||||
| Pensions: - |
||||
| .Current employees | 237,145 | 303,442 | 86,279 | 64,619 |
| .Pensioners | 59,716 | 52,496 | 7,444 | 7,806 |
| .Retired staff and early retired staff | 679,673 | 583,248 | 78,691 | 95,972 |
| 976,534 | 939,186 | 172,414 | 168,397 | |
| Healthcare systems (SAMS) - |
166,240 | 169,721 | 12,505 | 12,782 |
| Death allowance - |
6,162 | 6,399 | 697 | 742 |
| Retirement bonus - |
7,010 | 8,478 | - | - |
| 1,155,946 | 1,123,784 | 185,616 | 181,921 | |
| Coverage of liabilities: | ||||
| Net assets of the Fund - |
1,164,211 | 1,143,046 | 194,073 | 186,718 |
| Excess/insufficient funding (Note 19) | 8,265 | 19,262 | 8,457 | 4,797 |
| Actuarial and financial deviations generated in the period | ||||
| Change in assumptions - |
- | - | - | - |
| Experience adjustments: - |
||||
| .Other actuarial gains or losses | 8,430 | 4,984 | 1,077 | (80) |
| .Financial gains or losses | (45,334) | (8,445) | (7,038) | (493) |
| (36,904) | (3,461) | (5,961) | (573) | |
| (36,904) | (3,461) | (5,961) | (573) | |
As at December 31, 2021 and 2020, 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% |
| Salary growth rate | 0.75% |
| Pension growth rate | 0.50% |
| Inflation rate | 0.45% |
Decree-Law 167-E/2013, of December 31, changed the normal retirement age under the General Social Security Regime; however, the sustainability factor is 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 financial years 2021 and 2020, can be detailed as follows:
| Santander | BAPOP | ||||
|---|---|---|---|---|---|
| 31-12-2021 | 31-12-2020 | 31-12-2021 | 31-12-2020 | ||
| Liabilities at beginning of period | 1,123,784 | 1,131,980 | 181,921 | 181,503 | |
| Cost of current services | 5,462 | 5,580 | 1,363 | 1,348 | |
| Interest expense | 11,940 | 12,023 | 1,638 | 1,634 | |
| Actuarial gains or losses | 8,430 | 4,984 | 1,077 | (80) | |
| Early retirements | 81,386 | 21,682 | 10,139 | 785 | |
| Amounts paid | (60,193) | (54,946) | (4,182) | (3,889) | |
| Other | (17,352) | - | (6,953) | - | |
| Employee contributions | 2,489 | 2,481 | 613 | 620 | |
| Liabilities at end of period | 1,155,946 | 1,123,784 | 185,616 | 181,921 |
The expenses for the year relating to pensions include the cost of current services and interest expense, net of the expected return on the Pension Fund assets. In financial years 2021 and 2020, the expenses with pensions have the following composition (Note 31):
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Cost of current services | 6,825 | 6,928 |
| Interest expense | 13,578 | 13,657 |
| Income from assets calculated using the discount rate | (13,578) | (13,657) |
| Defined benefit plan | 6,825 | 6,928 |
| Defined contribution plan | 938 | 1,131 |
| London Branch plan | 126 | 119 |
| 7,889 | 8,178 |
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 93ª of the CBA. The plan is funded through contributions by employees (1.5%) and by the Bank (1.5%), calculated based on 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 2022, the Bank expects to contribute Euros 8,937 thousand to the defined-benefit plan of Santander and BAPOP.
Estimated salary and pension growths consider 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 2021 and 2020 was as follows:
| Santander | BAPOP | ||||
|---|---|---|---|---|---|
| 31-12-2021 | 31-12-2020 | 31-12-2021 | 31-12-2020 | ||
| Deviations at beginning of period (Note 20) | 795,764 | 799,225 | 7,464 | 8,037 | |
| Actuarial gains or losses | 8,430 | 4,984 | 1,077 | (80) | |
| Financial gains or losses | (45,334) | (8,445) | (7,038) | (493) | |
| Deviations at end of period (Note 20) | 758,860 | 795,764 | 1,503 | 7,464 |
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, 2021 and 2020, the number of participants of the Funds was the following:
| Santander | BAPOP | ||||
|---|---|---|---|---|---|
| 31-12-2021 | 31-12-2020 | 31-12-2021 | 31-12-2020 | ||
| Current employees | |||||
| Defined benefit plan | 3,272 | 3,885 | 673 | 722 | |
| Defined contribution plan | 496 | 460 | 98 | 119 | |
| Pensioners | 1,333 | 1,282 | 31 | 34 | |
| Retired staff and early retired staff | 6,113 | 5,773 | 210 | 157 | |
| 11,214 | 11,400 | 1,012 | 1,032 |
The main demographic changes during 2021 and 2020 were as follows:
| Assets | Retired and | |||||||
|---|---|---|---|---|---|---|---|---|
| Defined contribution plan | Defined benefit plan | early retired employees | Pensioners | |||||
| Santander | BAPOP | Santander | BAPOP | Santander | BAPOP | Santander | BAPOP | |
| Total number as at December 31, 2019 | 389 | 125 | 4,055 | 737 | 5,731 | 147 | 1,242 | 32 |
| Leavers: | ||||||||
| . Current employees | (9) | (6) | (30) | (10) | - | - | (4) | - |
| . Due to mortality | - | - | (4) | (1) | (118) | - | (42) | - |
| Transfers | - | - | (137) | (4) | 137 | 5 | - | (1) |
| Joiners | 80 | - | 1 | - | 23 | 5 | 86 | 3 |
| Total number as at December 31, 2020 | 460 | 119 | 3,885 | 722 | 5,773 | 157 | 1,282 | 34 |
| Leavers: | ||||||||
| . Current employees | (51) | (21) | (146) | (3) | - | - | (12) | (3) |
| . Due to mortality | - | - | (4) | - | (158) | - | (47) | - |
| Transfers | - | - | (463) | (46) | 463 | 46 | - | - |
| Joiners | 87 | - | - | - | 35 | 7 | 110 | - |
| Total number as at December 31, 2021 | 496 | 98 | 3,272 | 673 | 6,113 | 210 | 1,333 | 31 |
The movement under the Bank's Pension Fund during 2021 and 2020 was as follows.
| Santander | BAPOP | ||||
|---|---|---|---|---|---|
| 31-12-2021 | 31-12-2020 | 31-12-2021 | 31-12-2020 | ||
| Fund value at beginning of period | 1,143,046 | 1,160,573 | 186,718 | 185,459 | |
| Bank contributions (monetary) | 21,595 | 14,470 | 2,248 | 2,401 | |
| Employee contributions | 2,489 | 2,481 | 613 | 620 | |
| Profit or loss of the fund: | |||||
| Income from assets calculated using discount rate | 11,940 | 12,023 | 1,638 | 1,634 | |
| Income of the fund above the discount rate | 45,334 | 8,445 | 7,038 | 493 | |
| Amounts paid | (60,193) | (54,946) | (4,182) | (3,889) | |
| Fund value at end of period | 1,164,211 | 1,143,046 | 194,073 | 186,718 |
The yields of the Pension Fund amounted in 2021 to 5.13% in Santander and 5.27% in BAPOP, and in 2020 to 1.92% in Santander and 2.06% in BAPOP.
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 instruments, holdings in collective-investment institutions, bank deposits, other monetary assets, and land and buildings registered 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 shares or bonds, according to its expectations as to the evolution of the markets, and in accordance with the defined investment limits.
The investment policy of the Pension Fund in force provides for the following limits:
| Asset class | Buckets considered |
|---|---|
| Bonds | 40% to 95% |
| Real estate | 0% to 25% |
| Equities | 0% to 20% |
| Liquidity | 0% to 15% |
| Alternatives | 0% to 10% |
| Commodities | 0% to 5% |
| Santander | BAPOP | ||||
|---|---|---|---|---|---|
| 31-12-2021 | 31-12-2020 | 31-12-2021 | 31-12-2020 | ||
| Debt instruments: | |||||
| . Rating A | 46,393 | 88,135 | 9,672 | 19,894 | |
| . Rating AA | 5,233 | - | 843 | - | |
| . Rating AAA | 783 | - | 91 | - | |
| . Rating BBB | 426,870 | 370,511 | 85,689 | 67,661 | |
| . Rating BB | 40,584 | 13,764 | 8,046 | 3,476 | |
| . Without rating for the issuance and issuer | 17,311 | 67,857 | 1,127 | 10,937 | |
| Real estate funds | 118,103 | 125,008 | 926 | 913 | |
| Mutual funds | 427,943 | 352,167 | 76,366 | 72,747 | |
| Deposits | 37,521 | 53,779 | 7,101 | 7,382 | |
| Real estate | |||||
| . Commercial spaces | 19,551 | 19,515 | - | - | |
| . Land | 1,297 | 1,149 | - | - | |
| Equity instruments: | |||||
| . Portuguese shares – listed | - | 136 | - | - | |
| . Foreign shares – listed | 79 | 29,893 | - | - | |
| Derivative financial instruments | 1,954 | 632 | 210 | 110 | |
| Other | 20,589 | 20,500 | 4,002 | 3,598 | |
| 1,164,211 | 1,143,046 | 194,073 | 186,718 |
The method for calculating the fair value of the assets and liabilities mentioned above (except for deposits and other), adopted by the Managing Companies, as recommended in IFRS 13 (Note 38), was as follows:
| 31-12-2021 | 31-12-2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
| Debt instruments | 624,204 | 18,438 | 642,642 | 563,441 | 78,794 | 642,235 | ||
| Investment funds | 504,309 | - - |
119,029 | 623,338 | 424,914 | - - |
125,921 | 550,835 |
| Equity instruments | 79 | - | - | 79 | 30,029 | - | - | 30,029 |
| Derivative financial instruments | 2,164 | - | 2,164 | 742 | - | - | 742 | |
| Real estate | - | - | 20,848 | 20,848 | - | - | 20,664 | 20,664 |
| Other | - | - | 69,213 | 69,213 | - | - | 85,259 | 85,259 |
| 1,130,756 | - | 227,528 | 1,358,284 | 1,019,126 | - | 310,638 | 1,329,764 |
The Pension Fund's portfolio included the following assets related to companies of the Santander Group in Portugal:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Leased real estate properties | 14,253 | 13,028 |
| Securities (including units in funds managed) | 189,719 | 221,208 |
| 203,972 | 234,236 |
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 Euros 4,430 thousand. In financial years ended December 31, 2021 and 2020, the premium paid by the Bank amounted to Euros 370 thousand and Euros 537 thousand, 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 these occur. In the case of the beneficiary's death, this amount will be further increased by Euros 6,000.
As at December 31, 2021 and 2020, the main assumptions used in the calculation of retirement pension liabilities related to the pension plan covering the employees of the former Bank's London Branch were as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| 100% S3NMA_Light / 100% | 100% S3NMA_Light / 100% | |
| Mortality table | S3NFA_Light | S3NFA_Light |
| Technical actuarial rate (discount rate) | 1.8% | 1.2% |
| Salary growth rate | 3.2% | 2.7% |
| Pension growth rate | 2.2% | 2.1% |
| Inflation rate | 3.2% | 2.7% |
As at December 31, 2021 and 2020, the liabilities for the defined-benefit pension plan and their coverage were as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Estimated liabilities for past service | 52,915 | 56,628 |
| Coverage of liabilities | 49,938 | 48,718 |
| Excess/(insufficient) funding (Note 19) | (2,977) | (7,910) |
The movement under liabilities for past services in financial years 2021 and 2020, can be detailed as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Liabilities at beginning of period | 56,628 | 51,848 |
| Cost of current services | 25 | 17 |
| Interest expense | 718 | 921 |
| Actuarial gains or losses | (2,445) | 5,036 |
| Amounts paid | (2,011) | (1,194) |
| Liabilities at end of period | 52,915 | 56,628 |
The movement under the Fund during 2021 and 2020 was as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Book value at beginning of period | 48,718 | 44,654 |
| Profit or loss of the fund: | ||
| . Income from assets calculated using discount rate | 616 | 819 |
| . Income of the fund above/(below) the discount rate | 2,598 | 1,910 |
| Bank contributions | 17 | 2,529 |
| Amounts paid | (2,011) | (1,194) |
| Book value at end of period | 49,938 | 48,718 |
31-12-2021 31-12-2020 Deviations at beginning of period (Note 20) 16,573 13,447 Actuarial (gains)/losses (2,445) 5,036 Financial (gains)/losses (2,598) (1,910) Deviations at end of period (Note 20) 11,530 16,573
The movement under actuarial deviations during 2021 and 2020 was as follows:
As at December 31, 2021 and 2020, the portfolio of the Pension Fund of the London Branch included the following assets:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Debt instruments | 20,243 | 25,299 |
| Equity instruments | 21,800 | 20,771 |
| Other | 7,895 | 2,648 |
| Fund value | 49,938 | 48,718 |
The liabilities for defined-benefit pension plans expose the Bank to the following risks:
As at December 31, 2021 and 2020, a sensitivity analysis performed on a variation of the main financial assumptions as at those dates led to the following impacts on the current value of the Bank's and BAPOP's past-service liabilities:
| 2021 | 2020 | ||||
|---|---|---|---|---|---|
| (Decrease)/Increase | (Decrease)/Increase | ||||
| in % | in amount | in % | in amount | ||
| Change in discount rate: | |||||
| . Increase of 0.5% | (6.6%) | (88,554) | (7.0%) | (91,485) | |
| . Decrease of 0.5% | 7.4% | 99,685 | 7.9% | 103,384 | |
| Change in salary growth rate: | |||||
| . Increase of 0.5% | 7.1% | 55,129 | 5.3% | 60,240 | |
| . Decrease of 0.5% | (3.6%) | (46,502) | (5.3%) | (69,728) | |
| Change in pension growth rate: | |||||
| . Increase of 0.5% | 8.1% | 108,769 | 8.2% | 106,602 | |
| . Decrease of 0.5% | (7.3%) | (98,148) | (7.4%) | (96,595) | |
| Change in mortality table: | |||||
| . Two more years | (6.6%) | (87,914) | (6.7%) | (88,061) | |
| . Two less years | 6.7% | 89,342 | 6.9% | 89,421 |
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 being correlated.
As a result of the resolution measure applied to Banif on December 20, 2015, several 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 Fund Supervisory Authority for the transfer to the Bank of Banif's position as associate of the Banif Pension Fund, regarding 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 Fund Supervisory Authority.
Banif employees were covered by different types of pension plans:
Banif also had two defined-contribution pension plans:
The breakdown of the estimated liabilities for past services as at December 31, 2021 and 2020, using the Bank's assumptions, is as follows for the defined-benefit pension plan (considering both the Banif and the former BBCA subpopulations):
| 31-12-2021 | |||||
|---|---|---|---|---|---|
| Liabilities | |||||
| Pensions | Healthcare systems (SAMS) |
Death allowance |
Retirement bonus |
Total | |
| Current employees | 10,133 | 6,504 | 75 | 979 | 17,691 |
| Retired employees, pensioners and early retired employees | 128,607 | 12,085 | 522 | - | 141,214 |
| Former participants with vested rights Total liabilities for past services |
6,052 144,792 |
2,151 20,740 |
- 597 |
- 979 |
8,203 167,108 |
| Book value of the Pension Fund | 92,220 | ||||
| Insufficient funding | (74,888) | ||||
| 31-12-2020 | |||||
| Liabilities | Death | Retirement | |||
| Pensions | Healthcare | allowance | bonus | Total | |
| Current employees | 20,612 | 8,597 | 124 | 1,140 | 30,473 |
| Retired employees, pensioners and early retired employees | 112,917 | 10,680 | 482 | - | 124,079 |
| Former participants with vested rights | 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 funding | (67,175) |
The breakdown of the Banif Pension Fund portfolio associated with the defined-benefit pension plan, by asset type, is as follows:
| 31-12-2021 | 31-12-2020 | ||||
|---|---|---|---|---|---|
| Type of Asset | Total | Relative weight | Total | Relative weight | |
| Debt instruments | 47,366 | 49.88% | 40,269 | 41.97% | |
| Mutual fund | 1,738 | 1.83% | 3,294 | 3.43% | |
| Real estate fund | 2,952 | 3.11% | 387 | 0.40% | |
| Real estate | 13,699 | 14.43% | 13,734 | 14.31% | |
| Equity instruments | 21,599 | 22.75% | 32,607 | 33.98% | |
| Other | 7,604 | 8.01% | 5,663 | 5.90% | |
| 94,958 | 95,954 | ||||
| Net assets to be transferred | (2,738) | (2,585) | |||
| 92,220 | 93,369 |
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 Euros 25,450,000 thousand. In the older transactions the loans were sold at par (book) value to loan securitisation funds denominated Fundos Hipototta FTC. A substantial part of the securitisations was repurchased by the Bank under said agreements, while Hipototta No. 4 and Hipototta No. 5 remain active. In January 2018, the Bank carried out a new securitisation in the amount of Euros 2,266,000 thousand, 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, classes A, B and C bonds, with different levels of subordination and rating and, consequently, remuneration. These bonds were acquired, in their entirety, 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, the Hipototta Funds (No. 4 and No. 5) issued securitisation units of an amount identical to the loan portfolios acquired, which were subscribed, in their entirety, by Fundos Hipototta (nº 4 and nº 5) PLC, having its registered office in Ireland.
On the other hand, Fundos Hipototta (nº 4 and nº 5) FTC delivered all amounts received from the Bank and from the Directorate General of the Treasury to Fundos Hipototta (nº 4 and nº 5) PLC, separating the instalments into principal and interest.
As a form of funding, Fundos Hipototta (nº 4 and nº 5) PLC issued bonds with different levels of subordination and rating and, consequently, of remuneration.
| Hipototta nº 4 PLC | |||||||
|---|---|---|---|---|---|---|---|
| Amount Rating |
Remuneration | ||||||
| Issued debt |
Initial | Current | Fitch | Redemption date | Early redemption date |
Up to early redemption date | After early redemption date |
| Class A | 2,616,040 | 390,664 | A | September, 2048 | December, 2014 | Euribor 3 months + 0.12% | Euribor 3 months + 0.24% |
| Class B | 44,240 | 14,213 | A | September, 2048 | December, 2014 | Euribor 3 months + 0.19% | Euribor 3 months + 0.40% |
| Class C | 139,720 | 44,886 | BB- | September, 2048 | December, 2014 | Euribor 3 months + 0.29% | Euribor 3 months + 0.58% |
| 2,800,000 | 449,763 | ||||||
| Class D | 14,000 | 7,000 | NR | September, 2048 | December, 2014 | Residual income of the securitised portfolio | |
| 2,814,000 | 456,763 |
As at December 31, 2021, bonds issued that are still alive have the following characteristics:
| Hipototta nº 5 PLC | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Amount | Rating | Remuneration | |||||||
| Issued | Redemption | Early | After early redemption | ||||||
| debt | Initial | Current | S&P Moody´s | date | redemption date | Up to early redemption date | date | ||
| Class A1 | 200,000 | - | February, 2060 | February, 2014 | Euribor 3 months + 0.05% | Euribor 3 months + 0.10% | |||
| Class A2 | 1,693,000 | 350,683 | A | Aa2 | February, 2060 | February, 2014 | Euribor 3 months + 0.13% | Euribor 3 months + 0.26% | |
| Class B | 26,000 | 26,000 | A | Aa2 | February, 2060 | February, 2014 | Euribor 3 months + 0.17% | Euribor 3 months + 0.34% | |
| Class C | 24,000 | 24,000 | A | Aa2 | February, 2060 | February, 2014 | Euribor 3 months + 0.24% | Euribor 3 months + 0.48% | |
| Class D | 26,000 | 26,000 | A | A3 | February, 2060 | February, 2014 | Euribor 3 months + 0.50% | Euribor 3 months + 1.00% | |
| Class E | 31,000 | 31,000 | A | Ba2 | February, 2060 | February, 2014 | Euribor 3 months + 1.75% | Euribor 3 months + 3.50% | |
| 2,000,000 | 457,683 | ||||||||
| Class F | 10,000 | 6,000 CCC- | Ca | February, 2060 | February, 2014 | Residual income of the securitised portfolio | |||
| 2,010,000 | 463,683 |
The bonds issued by Fundos Hipototta nº 4 PLC earn interest quarterly on March, June, September and December 30 of each year. The bonds issued by Fundos Hipototta nº 5 PLC earn interest quarterly on February 28, and on May, August and November 30 of 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 options 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 Fundos Hipototta nº 5 PLC, 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 liabilities 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 the expenses 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 the event of a need for liquidity on the part of Hipototta. Swap Agreements were also concluded between the Santander Group and the securitisation vehicles, and between the Bank and the Santander Group, intended to hedge the interest-rate risk.
In the wake of the resolution measure applied to Banif, the Bank acquired several securitisation operations issued by said entity, and the corresponding securitised loans and bonds issued were transferred.
An operation carried out 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 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Rating Amount |
Remuneration | ||||||||||
| Issued debt |
Initial | Current | S&P | Fitch | Redemption date | Up to early redemption date | |||||
| Class A | 349,100 | 89,024 | AA | AA | September, 2060 | Euribor 3 months + 0.33% | |||||
| Class B | 18,400 | 11,083 | AA | A+ | September, 2060 | Euribor 3 months + 0.95% | |||||
| Class C | 7,500 | 4,518 BBB+ | A- | September, 2060 | Euribor 3 months + 1.65% | ||||||
| 375,000 | 104,625 | ||||||||||
| Class D | 16,125 | 9,422 | NR | NR | September, 2060 | Residual income of the securitised portfolio | |||||
| 391,125 | 114,047 |
An operation carried out in July 2008, in which mortgage loans originated at the former BBCA were assigned to Gamma STC. To finance itself, Gamma STC issued Azor Mortgages No. 2 classes 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 | ||||||
| Class A | 253,500 | 62,603 AA (sf) | A (sf) | December, 2065 | Euribor 3 months + 0.3% | |||||||
| Class B | 46,500 | 43,080 | NR | NR | December, 2065 | Euribor 3 months + 0.8% | ||||||
| 300,000 | 105,683 | |||||||||||
| Class C | 6,750 | 6,750 | NR | NR | December, 2065 | Residual income of the securitised portfolio | ||||||
| 306,750 | 112,433 |
An operation carried out 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 | 155,100 | AA | AA | August, 2061 | Euribor 3 months + 0.2% | |||||
| Class B | 41,400 | 22,243 | NR | NR | August, 2061 | Euribor 3 months + 0.5% | |||||
| 600,000 | 177,343 | ||||||||||
| Class C | 57,668 | 39,669 | NR | NR | August, 2061 | Residual income of the securitised portfolio | |||||
| 657,668 | 217,012 | ||||||||||
An operation carried out 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 | |||||||
|---|---|---|---|---|---|---|---|
| Rating Amount |
Remuneration | ||||||
| Issued | |||||||
| debt | Initial | Current | S&P | Fitch | Redemption date | Up to early redemption date | |
| Class A | 514,250 | 172,713 | AA | AA | December, 2064 | Euribor 3 months + 0.15% | |
| Class B | 35,750 | 19,020 | NR | NR | December, 2064 | Euribor 3 months + 0.3% | |
| 550,000 | 191,733 | ||||||
| Class C | 74,250 | 53,021 | NR | NR | December, 2064 | Residual income of the securitised portfolio | |
| 624,250 | 244,754 | ||||||
An operation carried out 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 | ||
| Class A | 455,000 | 140,337 | AA | AA | November, 2068 | Euribor 3 months + 0.15% | ||
| Class B | 45,000 | 25,910 | NR | NR | November, 2068 | Euribor 3 months + 0.3% | ||
| 500,000 | 166,247 | |||||||
| Class C | 66,250 | 44,995 | NR | NR | November, 2068 | Residual income of the securitised portfolio | ||
| 566,250 | 211,242 | |||||||
An operation carried out 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 | 110,474 | AA | AA- | August, 2066 | Euribor 3 months + 0.15% | |
| Class B | 39,700 | 20,529 | NR | NR | August, 2066 | Euribor 3 months + 0.3% | |
| 397,000 | 131,003 | ||||||
| Class C | 63,550 | 42,993 | NR | NR | August, 2066 | Residual income of the securitised portfolio | |
| 460,550 | 173,996 | ||||||
In January 2018, the Bank carried out a new securitisation in the amount of Euros 2,266,000 thousand, 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. These bonds were acquired, in their entirety, by the Bank.
| Hipototta 13 | |||||||
|---|---|---|---|---|---|---|---|
| Amount Rating |
Remuneration | ||||||
| Issued | |||||||
| debt | Initial | Current | S&P | Fitch | Up to early redemption date | ||
| Redemption date | |||||||
| Class A | 1,716,000 | 854,727 | NR | A+(sf) | October, 2072 | Euribor 3 m + 0.6% | |
| Class B | 484,000 | 484,000 | NR | NR | October, 2072 | Euribor 3 m + 1% | |
| 2,200,000 | 1,338,727 | ||||||
| Class C | 66,000 | 41,501 | NR | NR | October, 2072 | Residual income of the securitised portfolio | |
| 2,266,000 | 1,380,228 | ||||||
| VFN | 0.001 | 0.001 | NR | NR | October, 2072 | No remuneration |
During 2021, the Azor Mortgage No. 1 operation was wound up.
The Bank's related entities with which it maintained balances or transactions in 2021 are as follows:
| Registered | |
|---|---|
| Name of the related entity | office |
| Entities that directly or indirectly control the Group | |
| Santander Totta, SGPS | Portugal |
| Banco Santander, S.A. | Spain |
| Entities under direct or indirect control by the Group | |
| GAMMA, Sociedade Financeira de Titularização de Créditos, S.A. | Portugal |
| Fundo de Investimento Imobiliário Novimovest | Portugal |
| Taxagest, S.G.P.S., S.A. | Portugal |
| Totta (Ireland), PLC | Ireland |
| Tottaurbe - Emp. Admin. e Construções, S.A. | Portugal |
| Entities significantly influenced by the Group | |
| Unicre-Instituição Financeira de Crédito | Portugal |
| Lusimovest - Fundo de Inv. Imobiliario | Portugal |
| Entities that directly or indirectly ate 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 |
| CCPT - ComprarCasa Rede Serviços Imobiliários, S.A. | Portugal |
| Consulteam - Consultores de Gestão, Lda | Portugal |
| Financeira El Corte Inglés, Portugal, S.F.C., S.A. | Portugal |
| PSA Gestao Comercio&Aluguer Veiculos,SA | Portugal |
| Gesban Servicios Administrativos Globais | Spain |
| Ibérica de Compras Corporativas | Spain |
| Open Bank Santander Consumer S.A. | Spain |
| Mafre Santander Portugal - Co. de Seguros S.A. | Portugal |
| Portal Universia Portugal, Prestaçao de Serviços de Informática, 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, National Association | United States |
| Santander Consumer Bank AG | Germany |
| Santander Bank & Trust Ltd. | Bahamas |
| Santander Consumer Finance S.A. | Spain |
| Santander Consumer, EFC, S.A. | Spain |
| Santander Global Technology, S.L. | Spain |
| Santander Global Facilities, S.L. | Spain |
| 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 |
| Entities that directly or indirectly control the Group Santander Totta, SGPS Portugal Banco Santander, S.A. Spain Entities under direct or indirect control by the Group GAMMA, Sociedade Financeira de Titularização de Créditos, S.A. Portugal Fundo de Investimento Imobiliário Novimovest Portugal Taxagest, S.G.P.S., S.A. Portugal Totta (Ireland), PLC Ireland Tottaurbe - Emp. Admin. e Construções, S.A. Portugal Entities significantly influenced by the Group Unicre-Instituição Financeira de Crédito Portugal Lusimovest - Fundo de Inv. Imobiliario Portugal Entities that directly or indirectly ate 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 Portugal Gesban Servicios Administrativos Globais Spain Ibérica de Compras Corporativas Spain Open Bank Santander Consumer S.A. Spain Mafre Santander Portugal - Co. de Seguros S.A. Portugal Portal Universia Portugal, Prestaçao de Serviços de Informática, S.A. Portugal Retama Real Estate, S.L. Spain Santander Asset Management SGFIM, S.A. Portugal 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 Technology, S.L. Spain 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 | Registered office |
|---|---|---|
As at December 31, 2021 and 2020, the balances and transactions maintained during these financial years with related parties were as follows:
| 31-12-2021 | |||||
|---|---|---|---|---|---|
| Entities that | Entities | Entities under common | |||
| directly or indirectly | significantly influenced | direct or indirect | |||
| control the Group | by the Group | control by the Group | |||
| Assets: | |||||
| Cash balances in other credit institutions | 53,683 | - | 25,459 | ||
| Financial assets held for trading | 249,868 | - | 8,552 | ||
| Financial assets at amortised cost | |||||
| Loans and advances | 598,389 | 48,375 | 2,767 | ||
| Derivatives - hedge accounting | 5,904 | - | - | ||
| Investments in subsidiaries, joint ventures and associates | - | 38,161 | - | ||
| Tax assets | 3 | - | - | ||
| Other assets | 14 | - | 16,889 | ||
| Liabilities: | |||||
| Financial liabilities held for trading | 554,995 | - | 36,658 | ||
| Financial liabilities at amortised cost | |||||
| Deposits - Credit institutions | 24,238 | - | 857 | ||
| Deposits - Customers | 312,799 | 1 | 364,824 | ||
| Debt securities issued | 365,046 | - | 8,399 | ||
| Derivatives - hedge accounting | 48,990 | - | - | ||
| Tax liabilities | 78,189 | - | - | ||
| Other liabilities | 13,068 | - | 9,772 | ||
| Expenses: | |||||
| Interest expense | 209,568 | - | 374 | ||
| Fee and commission expenses | 3,176 | - | 1,389 | ||
| Losses on financial assets and liabilities at fair value through profit or loss | 370,481 | - | 100,325 | ||
| Administrative expenses | 8,006 | - | 46,300 | ||
| Income: | |||||
| Interest income | 178,173 | 328 | 84 | ||
| Fee and commission income | 853 | 339 | 116,831 | ||
| Gains on financial assets and liabilities at fair value through profit or loss | 471,315 | - | 83,650 | ||
| Exchange differences, net | 4,153 | - | - | ||
| Share of profit or loss from investments in subsidiaries, joint ventures and | |||||
| associates accounted for under the equity method | - | 4,194 | - | ||
| Other operating income | 16 | 1 | 208 | ||
| Off balance sheet items: | |||||
| Guarantees provided and other contingent liabilities | 50,420 | 22 | 149,287 | ||
| Guarantees received | 1 | - | - | ||
| Commitments to third parties | 120,997 | 2,002 | 17,453 | ||
| Foreign exchange operations and derivatives | 27,305,868 | - | 460,312 | ||
| Liabilities for services rendered | 2,010,648 | - | 10,601,270 |
| 31-12-2020 | ||||
|---|---|---|---|---|
| Entities that | Entities | Entities under common | ||
| directly or indirectly | significantly influenced | direct or indirect | ||
| control the Group | by the Group | control by the Group | ||
| Assets: | ||||
| Cash balances in other credit institutions | 22,417 | - | 98,764 | |
| Financial assets held for trading | 311,568 | - | 15,029 | |
| Financial assets at amortised cost | ||||
| Loans and advances | 791,508 | 45,793 | 2,899 | |
| Derivatives - hedge accounting | 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 | 896,236 | - | 23,057 | |
| Financial liabilities at amortised cost | ||||
| Deposits - Credit institutions | 6,489 | - | 2,371 | |
| Deposits - Customers | 49,479 | 21,825 | 328,408 | |
| Debt securities issued | 373,935 | - | 12,869 | |
| Derivatives - hedge accounting | 97,877 | - | - | |
| Tax liabilities | 450 | - | - | |
| Other liabilities | - | - | 9,310 | |
| Expenses: | ||||
| Interest expense | 213,028 | - | 2,335 | |
| Fee and commission expenses | 3,077 | - | 1,410 | |
| Losses on financial assets and liabilities at fair value through profit or loss | 767,415 | - | 187,401 | |
| Administrative expenses | 7,872 | - | 44,063 | |
| Income: | ||||
| Interest income | 192,088 | 263 | 65 | |
| Fee and commission income | 340 | 444 | 42,085 | |
| Gains on financial assets and liabilities at fair value through profit or loss | 680,132 | - | 191,515 | |
| Exchange differences, net | 8,768 | - | - | |
| Share of profit or loss from investments in subsidiaries, joint ventures and | ||||
| associates accounted for under the equity method | - | 5,617 | - | |
| Other operating income | - | - | 97 | |
| 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 | |
| Foreign exchange operations and derivatives | 27,822,340 | - | 465,183 | |
| Liabilities for services rendered | 1,634,922 | - | 10,061,165 |
Transactions with related entities arise from the normal course of business and are carried out under market conditions.
As at December 31, 2021 and 2020, advances or loans granted to members of the governing bodies, considered key personnel of the Bank's management, amounted to Euros 1,069 thousand and Euros 945 thousand, respectively. Deposits of members of the governing bodies were granted at market conditions. As at December 31, 2021 and 2020, fixed and variable remunerations totalled Euros 6,563 thousand and Euros 4,684 thousand, respectively.
Regarding 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 that previously defined in the former totta regulation. Members of the Board of Directors whose term of office 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 under 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, 2021 and 2020, liabilities with this plan amounted to Euros 14,268 thousand and Euros 14,201 thousand, respectively, and were covered by a provision of the same amount carried in the caption "Provisions and other post-employment defined-benefit obligations".
Regarding employment-termination benefits, as provided for in the Commercial 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 summarises, for each group of financial assets and liabilities, their fair values with reference to December 31, 2021 and 2020:
| 31-12-2021 | |||||
|---|---|---|---|---|---|
| Measured at | Measured at | Book | Measured at | ||
| fair value | amortised cost | Value | fair value | ||
| Assets | |||||
| Cash, cash balances at central banks and other demand deposits | - | 8,711,389 | 8,711,389 | 8,703,673 | |
| Financial assets held for trading | 587,772 | - | 587,772 | 587,772 | |
| Non-trading financial assets mandatorily | |||||
| at fair value through profit or loss | 99,167 | - | 99,167 | 99,167 | |
| Financial assets at fair value | |||||
| through other comprehensive income | 5,339,913 | - | 5,339,913 | 5,339,913 | |
| Financial assets at amortised cost | - | 40,373,867 | 40,373,867 | 40,149,005 | |
| Derivatives – Hedge accounting | 7,447 | - | 7,447 | 7,447 | |
| 6,034,299 | 49,085,256 | 55,119,555 | 54,886,977 | ||
| Liabilities | |||||
| Financial liabilities held for trading | 605,331 | - | 605,331 | 605,331 | |
| Financial liabilities at amortised cost | |||||
| Deposits | - | 46,762,551 | 46,762,551 | 46,713,455 | |
| Debt securities issued | - | 3,006,747 | 3,006,747 | 3,096,295 | |
| Other financial liabilities | - | 219,275 | 219,275 | 219,275 | |
| Derivatives – Hedge accounting | 294,108 | - | 294,108 | 294,108 | |
| 899,439 | 49,988,573 | 50,888,012 | 50,928,464 | ||
| 31-12-2020 | ||||
|---|---|---|---|---|
| Measured at | Measured at | Book | Measured at | |
| fair value | amortised 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 | - | 39,820,582 | 39,820,582 | 39,968,932 |
| Derivatives – Hedge accounting | 23,719 | - | 23,719 | 23,719 |
| 8,776,853 | 44,356,397 | 53,133,250 | 53,372,040 | |
| Liabilities | ||||
| Financial liabilities held for trading | 941,528 | - | 941,528 | 941,528 |
| Financial liabilities at amortised cost | ||||
| Deposits | - | 44,610,781 | 44,610,781 | 44,535,723 |
| Debt securities issued | - | 2,907,350 | 2,907,350 | 3,048,179 |
| Other financial liabilities | - | 205,656 | 205,656 | 205,656 |
| Derivatives – Hedge accounting | 522,283 | - | 522,283 | 522,283 |
| 1,463,811 | 47,723,787 | 49,187,598 | 49,253,369 |
As at December 31, 2021 and 2020, the carrying amount of the financial instruments measured at fair value, by valuation methodology, was as follows:
| 31-12-2021 | ||||||
|---|---|---|---|---|---|---|
| Methodology to determine fair value | ||||||
| Quotations on | Other valuation | |||||
| active market | techniques | |||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||
| Assets | ||||||
| Financial assets held for trading | - | 562,538 | 25,234 | 587,772 | ||
| Non-trading financial assets mandatorily | ||||||
| at fair value through profit or loss | - | - | 99,167 | 99,167 | ||
| Financial assets at fair value | ||||||
| through other comprehensive income | 204,778 | 5,061,470 | 73,665 | 5,339,913 | ||
| Derivatives – Hedge accounting | - | 7,447 | - | 7,447 | ||
| 204,778 | 5,631,455 | 198,066 | 6,034,299 | |||
| Liabilities Financial liabilities held for trading |
574,170 | 31,161 | 605,331 | |||
| Derivatives – Hedge accounting | - - |
294,108 | - | 294,108 | ||
| - | 868,278 | 31,161 | 899,439 | |||
| 31-12-2020 | ||||||
| Methodology to determine fair value | ||||||
| Quotations on | Other valuation | |||||
| active market | techniques | |||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||
| Assets | ||||||
| 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 | 5,295,529 | 74,145 | 7,704,190 | ||
| Derivatives – Hedge accounting | - | 23,719 | - | 23,719 | ||
| 2,335,294 | 6,208,115 | 233,444 | 8,776,853 | |||
| Liabilities | ||||||
| Financial liabilities held for trading | - | 911,551 | 29,977 | 941,528 | ||
| Derivatives – Hedge accounting | - | 522,283 | - | 522,283 | ||
| - | 1,433,834 | 29,977 | 1,463,811 |
For the determination of the fair value of the financial instruments, the valuation methods used consisted of obtaining quotations on active markets or using other valuation techniques, namely the discounting of future cash flows.
| 31-12-2021 | ||||
|---|---|---|---|---|
| Methodology to determine fair value | ||||
| Quotations on | Other valuation | |||
| active market | techniques | |||
| (Level 1) | (Level 2) | (Level 3) | Total | |
| Assets | ||||
| Cash, cash balances at central banks and other demand deposits | 8,703,673 | 8,703,673 | ||
| Financial assets at amortised cost | - | 355,177 | - 39,793,828 |
40,149,005 |
| - - |
9,058,850 | 39,793,828 | 48,852,678 | |
| Liabilities Financial liabilities at amortised cost |
||||
| Deposits | - | 7,753,321 | 38,960,134 | 46,713,455 |
| Debt securities issued | - | 2,041,267 | 1,055,028 | 3,096,295 |
| Other financial liabilities | - | 219,275 | 219,275 | |
| - | 9,794,588 | 40,234,437 | 50,029,025 | |
| 31-12-2020 | ||||
| Methodology to determine fair value | ||||
| Quotations on | Other valuation | |||
| active market | techniques | |||
| (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 at amortised cost | - | 595,281 | 39,373,651 | 39,968,932 |
| - | 5,221,536 | 39,373,651 | 44,595,187 | |
| Liabilities | ||||
| 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 | |
| - | 10,392,640 | 37,396,918 | 47,789,558 |
For the determination of the fair value of the financial instruments measured at amortised cost, the valuation methods used consisted of discounting the future cash flows.
The valuation at fair value of the Bank's financial assets and liabilities comprises three levels, under IFRS 7 and IFRS 13:
Level 1 - Financial instruments recorded at fair value based on quotes published in active markets, mainly comprising public debt and some private debt.
Level 2 - Financial instruments recorded at fair value using prices traded on markets that are not active or for which it is necessary to use valuation models or techniques with inputs that can be observed in the market, either directly (such as prices) or indirectly (derived from prices). This category includes some securities in the portfolio of other financial assets at fair value through other comprehensive income measured with indicative market bids or based on internal valuation models and the derivative financial instruments used for hedging and trading. It should be noted that the internal valuation models used mainly correspond to models for updating future cash flows and valuation methodologies based on the "Black-Scholes" model for options and structured products. The models for updating future cash flows ("present value method") update future contractual flows using the interest rate curves of each currency observable in the market, plus the credit spread of the issuer or entity with a similar rating.
For derivative financial instruments, the main valuation techniques are presented below:
| Derivative financial 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 |
The Bank calculates the "Credit Value Adjustment" (CVA) and the "Debit Value Adjustment" (DVA) for derivative financial instruments 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 the discount factor for the respective term. The CVA and DVA calculated for each counterparty thus result from the sum of the 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:
Probability of default calculated considering the internal rating assigned to the customer (see credit risk section of these Notes) x loss given default (specific for project finance customers and 60% for other customers).
Level 3 - The Bank classifies in this level financial instruments which are measured using internal models with some inputs that do not correspond to observable market data. In this category were classified, namely, securities not quoted in active markets for which the Bank uses extrapolations of market data and the derivatives entered in the scope of securitisation operations.
The main assumptions used in determining the fair value of the financial instruments measured at amortised cost, by type of financial instrument, were as follows:
In financial years ended December 31, 2021 and 2020, the movement under 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 | |
| December 31, 2019 | - | 144,244 | 74,706 |
| Purchases | - | 528 | 3,689 |
| Sales | - | (3,160) | (4,713) |
| Redemptions | - | (7,252) | (724) |
| Fair value changes | 27,172 | (2,233) | 1,112 |
| Impairment recognised in the year | - | - | 75 |
| December 31, 2020 | 27,172 | 132,127 | 74,145 |
| Purchases | - | 498 | 2,103 |
| Sales | - | - | (1,407) |
| Redemptions | - | (34,654) | - |
| Fair value changes | (1,938) | 1,196 | (1,176) |
| December 31, 2021 | 25,234 | 99,167 | 73,665 |
The interest rate curves for the most representative terms and currencies used in the valuation of financial instruments were as follows:
| 31-12-2021 | 31-12-2020 | ||||
|---|---|---|---|---|---|
| EUR | USD | EUR | USD | ||
| Overnight | -0.64% | 0.20% | -0.53% | 0.27% | |
| 1 month | -0.64% | 0.20% | -0.53% | 0.27% | |
| 3 months | -0.57% | 0.21% | -0.52% | 0.24% | |
| 6 months | -0.55% | 0.31% | -0.52% | 0.20% | |
| 9 months | -0.52% | 0.42% | -0.52% | 0.19% | |
| 1 year | -0.48% | 0.53% | -0.52% | 0.19% | |
| 3 years | -0.15% | 1.17% | -0.51% | 0.24% | |
| 5 years | 0.02% | 1.36% | -0.46% | 0.44% | |
| 7 years | 0.13% | 1.47% | -0.39% | 0.66% | |
| 10 years | 0.30% | 1.58% | -0.26% | 0.94% |
As at December 31, 2021 and 2020, the detail of hedging derivatives and financial instruments designated as hedged items was as follows:
| 31-12-2021 | |||||||
|---|---|---|---|---|---|---|---|
| Hedged element | Hedging instrument | ||||||
| Nominal | Amount net of | Carrying | Nominal | Fair | |||
| value | impairment | changes | amount | value | value | ||
| Fair value hedging: | |||||||
| Financial assets at amortised cost | 3,084,241 | 3,089,350 | 5,807 | 3,095,157 | 3,031,714 | (35,315) | |
| Financial assets at fair value | |||||||
| through other comprehensive income | 3,380,000 | 3,423,924 | 251,746 | 3,675,670 | 3,380,000 | (253,238) | |
| Financial liabilities at amortised cost | |||||||
| Deposits - Customers | (9,560) | (9,609) | (51) | (9,660) | 9,626 | 102 | |
| Debt securities issued | (8,111) | (8,299) | (100) | (8,399) | 8,111 | 269 | |
| Cash flow hedging: | |||||||
| Financial assets at amortised cost | 10,000,000 | 10,000,000 | - | 10,000,000 | 10,000,000 | 1,521 | |
| 16,446,570 | 16,495,366 | 257,402 | 16,752,768 | 16,429,451 | (286,661) |
| 31-12-2020 | ||||||
|---|---|---|---|---|---|---|
| Hedged element | Hedging instrument | |||||
| Nominal | Amount net of | Fair value | Carrying | Nominal | Fair | |
| value | impairment | changes | amount | value | value | |
| Fair value hedging: | ||||||
| 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 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 hedging: | ||||||
| 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) |
The expected periods for the occurrence of cash flows that will affect the profit or loss for the year present the following detail:
| 31-12-2021 | ||||||
|---|---|---|---|---|---|---|
| Up to 3 months |
From 3 to 6 months |
From 6 months | From 1 | More than | Total | |
| to 1 year | to 3 years | 3 years | ||||
| Interest rate swaps | 4,434 | 9,686 | 21,387 | -33,986 | - | 1,521 |
| 31-12-2020 | ||||||
| Up to 3 | From 3 to | From 6 months | From 1 | More than | ||
| months | 6 months | to 1 year | to 3 years | 3 years | Total | |
| Interest rate swaps | 4,027 | 4,157 | 14,722 | - | - | 22,906 |
The gains and losses recognised in the 2021 and 2020 statements of profit or loss, with fair-value hedging transactions, presented the following detail:
| 31-12-2021 | 31-12-2020 | |||||
|---|---|---|---|---|---|---|
| Hedged | Hedging | Hedged | Hedging | |||
| element | instrument | Net | element | instrument | Net | |
| Financial assets at amortised cost | (51,357) | 51,357 | - | (161,976) | 161,976 | - |
| Financial assets at fair value | ||||||
| through other comprehensive income | (120,832) | 120,832 | - | 364,084 | (364,084) | - |
| Financial liabilities at amortised cost | ||||||
| Deposits - Customers | 186 | (186) | - | 133 | (133) | - |
| Debt securities issued | 149 | (149) | - | (97) | 97 | - |
| (171,854) | 171,854 | - | 202,144 | (202,144) | - |
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, as well as within every area of activity.
Credit-risk management is carried out by an independent body, the Risks Area, which is responsible, namely, 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-loan operations, and 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, the contracting of repos, securities lending and derivative instruments. Given the high complexity and volume of transactions, as well as the requirements necessary for an 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 daily in accordance with an integrated system that allows the recording of the approved limits and the 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 risk concentration 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 derivative positions is captured through determination of the CVA/DVA.
For specific customer segments (namely global corporate customers) 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 Euros 500,000 are performed by risk analysts who monitor those customers and 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, has subjacent the degree of risk inherent to the customer and a probability of default 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:
| Factor | 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:
As at December 31, 2021 and 2020, the maximum exposure to the credit risk and the respective carrying amount of the financial instruments was as follows:
| 31-12-2021 | 31-12-2020 | |||
|---|---|---|---|---|
| Carrying | Maximum | Carrying | Maximum | |
| amount | exposure | amount | exposure | |
| Cash, cash balances at central banks and other demand deposits | 8,711,389 | 8,711,389 | 4,535,815 | 4,535,815 |
| Financial assets held for trading | 587,772 | 587,772 | 916,039 | 916,039 |
| Non-trading financial assets mandatorily | ||||
| at fair value through profit or loss | 99,167 | 99,167 | 132,905 | 132,905 |
| Financial assets at fair value | ||||
| through other comprehensive income | 5,339,913 | 5,339,913 | 7,704,190 | 7,704,190 |
| Financial assets at amortised cost | 40,373,867 | 47,318,615 | 39,820,582 | 46,910,608 |
| Derivatives – Hedge accounting | 7,447 | 7,447 | 23,719 | 23,719 |
| 55,119,555 | 62,064,303 | 53,133,251 | 60,223,277 | |
| Guarantees provided (Note 23) | ||||
| Financial guarantees and sureties | 330,997 | 330,997 | 648,253 | 648,253 |
| Non-financial guarantees and sureties | 1,346,113 | 1,346,113 | 964,502 | 964,502 |
| Documentary credits outstanding | 315,004 | 315,004 | 363,131 | 363,131 |
| 1,992,114 | 1,992,114 | 1,975,886 | 1,975,886 |
The maximum exposure in "Financial assets at amortised cost", as at December 31, 2021 and 2020, is as follows:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Carrying amount | 40,373,867 | 39,820,582 |
| Other commitments granted (Note 23) | ||
| Revocable | 6,378,768 | 6,140,567 |
| Irrevocable | 565,980 | 949,459 |
| Maximum exposure | 47,318,615 | 46,910,608 |
The Expected Credit Loss (ECL) calculation incorporates a Forward-Looking perspective by including macroeconomic scenarios (optimistic, base and acid) in the PD and LGD models, applying to each scenario a given probability of occurrence. The scenarios reflect the behaviour of macroeconomic variables used in stress models, such as GDP, the unemployment rate, the housing price index (HPI), Euribor rates, inflation, among others, being updated at least once a year. For sensitivity analysis, a 100% weighting is assumed in extreme scenarios. In a 100% acid scenario the impact on impairment would be Euros +77.1 million, in an 100% optimistic scenario it would be Euros -43 million, which represents an impact on the total of the impairment recorded at the close of 2021 of +7.3% and -4% respectively.
The impacts on the portfolios are different due to the sensitivities of each portfolio to specific macroeconomic variables, for example, the housing (mortgage) loan portfolio is highly sensitive to the housing price index, just as business or portfolio clients (clients with a risk manager) are sensitive to developments in GDP, unemployment, inflation or the Bond Yield 10y.
In a 100% acid scenario, it is considered that the macroeconomic context remains surrounded by uncertainty factors that may have a future impact on the calculation of the ECL, and an increase in volatility may occur, namely, with changes in macroeconomic variable forecasts, uncertainty as to the longevity of the COVID-19 pandemic, increased pressure on the effectiveness of the European Central Bank's monetary policies, measures taken at government level or other support measures. This scenario considers that the increase in inflationary pressures, the rise in interest rates, conditions the evolution of housing prices, weakens the evolution of the labour market, factors that penalise the expansion of the economy and the dynamics of recovery, resulting in an increase in the impairment of loan portfolios such as the mortgage, business or portfolio clients (clients with a risk manager) portfolios, which is reflected in the amounts mentioned above.
In an 100% optimistic scenario it is considered that in the definition of its monetary policies, the monetary authority (ECB) controls both the cost of short-term loans and the monetary base, seeking to ensure price stability, aimed at an inflation rate or interest rate, generating confidence in the currency, contributing to the stability of GDP, to maintain low unemployment levels and predictable exchange rates, factors that contribute to a reduction in the impairment of loans portfolios such as the mortgage, business or portfolio clients (clients with a risk manager).
As at December 31, 2021, the concentration by activity sector of the portfolio of loans and advances at amortised cost, was as follows:
| 31-12-2021 | ||||
|---|---|---|---|---|
| Gross amount | Impairment | Carrying | ||
| Activity sector | amount | Concentration % | ||
| Agriculture, animal husbandry, hunting, forestry and fisheries | 280,236 | (6,514) | 273,722 | 0.72% |
| Extractive industries | 25,361 | (1,989) | 23,372 | 0.06% |
| Manufacturing | 2,120,772 | (98,386) | 2,022,386 | 5.33% |
| Electricity, gas, steam, hot and cold water and cold air | 529,094 | (285) | 528,809 | 1.39% |
| Water catchment, treatment and distribution; sanitation, waste management and depollution | 68,640 | (1,822) | 66,818 | 0.18% |
| Construction | 958,136 | (75,050) | 883,086 | 2.33% |
| Wholesale and retail trade; motor vehicle and motorcycle repairs | 1,964,401 | (75,372) | 1,889,029 | 4.98% |
| Transport and storage | 608,178 | (29,125) | 579,053 | 1.53% |
| Accommodation, catering and similar | 1,362,541 | (81,132) | 1,281,409 | 3.38% |
| Information and communication activities | 108,576 | (3,020) | 105,556 | 0.28% |
| Real estate activities | 1,319,954 | (59,015) | 1,260,939 | 3.32% |
| Consultancy, scientific, technical and similar activities | 692,043 | (25,701) | 666,342 | 1.76% |
| Administrative and support activities | 378,102 | (37,701) | 340,401 | 0.90% |
| Public administration and defence; mandatory social security | 2,582 | (14) | 2,568 | 0.01% |
| Education | 71,749 | (1,244) | 70,505 | 0.19% |
| Human healthcare and social support activities | 272,813 | (3,621) | 269,192 | 0.71% |
| Artistic, shows, sports and recreational activities | 91,335 | (12,237) | 79,098 | 0.21% |
| Other services | 643,437 | (134,007) | 509,430 | 1.34% |
| Loans and advances - financial institutions | 902,343 | (791) | 901,552 | 2.38% |
| Loans and advances - public sector | 1,215,593 | (10,292) | 1,205,301 | 3.18% |
| Loans and advances - Individuals - secured by real estate | 21,839,928 | (219,768) | 21,620,160 | 57.00% |
| Loans and advances - Individuals - other | 2,473,137 | (136,790) | 2,336,347 | 6.16% |
| 37,928,951 | (1,013,876) | 36,915,075 | 100.00% |
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, 2021 and 2020, the breakdown of performing and non-performing exposures was as follows:
| 31-12-2021 | 31-12-2020 | |||||
|---|---|---|---|---|---|---|
| Gross | Gross | |||||
| amount | Impairment | Coverage | amount | Impairment | Coverage | |
| Performing exposures | 40,134,715 | (345,860) | 0.9% | 39,434,530 | (255,610) | 0.6% |
| Non-performing exposures | ||||||
| . Households | 383,618 | (198,428) | 51.7% | 408,592 | (210,498) | 51.5% |
| . Corporates | 875,032 | (475,210) | 54.3% | 982,377 | (538,809) | 54.8% |
| 1,258,650 | (673,638) | 1,390,969 | (749,307) | |||
| 41,393,365 | (1,019,498) | 40,825,499 | (1,004,917) | |||
The degree of coverage of non-performing exposures, net of impairment, by real guarantees was as follows:
| 31-12-2021 | 31-12-2020 | |||||
|---|---|---|---|---|---|---|
| Carrying | Carrying | |||||
| amount | Collateral | Coverage | amount | Collateral | Coverage | |
| Non-performing exposures | ||||||
| . Households | 185,190 | 144,819 | 78.2% | 198,094 | 180,684 | 91.2% |
| . Corporates | 399,822 | 266,368 | 66.6% | 443,568 | 314,480 | 70.9% |
| 585,012 | 411,187 | 641,662 | 495,164 |
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.
As at December 31, 2021 and 2020, the breakdown of forborne exposures was as follows:
| 31-12-2021 | 31-12-2020 | |||||
|---|---|---|---|---|---|---|
| Gross | Gross | |||||
| amount | Impairment | Coverage | amount | Impairment | Coverage | |
| Performing exposures | 487,720 | (45,137) | 9.3% | 446,717 | (19,038) | 4.3% |
| Non-performing exposures | ||||||
| . Households | 203,245 | (90,033) | 44.3% | 255,007 | (101,886) | 40.0% |
| . Corporates | 622,120 | (324,329) | 52.1% | 738,656 | (378,467) | 51.2% |
| 825,365 | (414,362) | 993,663 | (480,353) | |||
| 1,313,085 | (459,499) | 1,440,380 | (499,391) |
The movement during 2021 in forborne exposures was as follows:
| Gross | Net | ||
|---|---|---|---|
| amount | Impairment | amount | |
| Balance as at December 31, 2020 | 1,440,380 | 499,391 | 940,989 |
| Additions in year | 224,514 | 42,403 | 182,111 |
| Debt amortisations | (194,359) | (55,549) | (138,810) |
| Remedies | (116,045) | (8,946) | (107,099) |
| Portfolio sale | (46,131) | (31,374) | (14,757) |
| Other changes | 4,726 | 13,574 | (8,848) |
| Balance as at December 31, 2021 | 1,313,085 | 459,499 | 853,586 |
In accordance with the requirements set out in Bank of Portugal Instruction No. 28/2014, of January 15, 2015, the Bank now provides information on the encumbered assets.
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 from which it cannot be freely withdrawn.
As at December 31, 2021 and 2020, the breakdown of encumbered and unencumbered assets is as follows:
| Carrying amount of encumbered assets |
Fair value of encumbered assets |
Carrying amount of unencumbered assets |
Fair value of unencumbered assets |
|---|---|---|---|
| - | - | 8,370,092 | - |
| - | - | 171,687 | 171,687 |
| 1,703,462 | 1,674,830 | 4,043,421 | 3,952,244 |
| 11,945,772 | - | 27,948,605 | - |
| - | - | 1,983,580 | - |
| 13,649,234 | 1,674,830 | 42,517,385 | 4,123,931 |
| Fair value | Fair value | ||
| of encumbered assets | of encumbered assets | of unencumbered assets | of unencumbered assets |
| - | - | 4,199,694 | - |
| - | - | 205,539 | 231,640 |
| 2,695,331 | 2,662,814 | 5,761,373 | 5,950,394 |
| 11,550,890 | - | 27,444,544 | - |
| Carrying amount | 2021 2020 Carrying amount |
As at December 31, 2021 and 2020, liabilities associated with encumbered assets and the collaterals received are as follows:
Other assets - - 2,546,038 -
14,246,221 2,662,814 40,157,188 6,182,034
| 2021 | 2020 | |||
|---|---|---|---|---|
| Assets, collateral | Assets, collateral | |||
| received and own debt | received and own debt | |||
| Associated liabilities, | securities issued excl. | Associated liabilities, | securities issued excl. | |
| contingent liabilities | own covered bonds | contingent liabilities | own covered bonds | |
| and borrowed securities | or ABS encumbered | and borrowed securities | or ABS encumbered | |
| Carrying amount of financial liabilities | 7,401,288 | 9,871,616 | 8,037,903 | 10,230,399 |
| Other | 631,752 | 523,924 | 212,476 | 287,687 |
| 8,033,040 | 10,395,540 | 8,250,379 | 10,518,086 |
As at December 31, 2021 and 2020, the main captions of assets had the following breakdown by external rating (internal rating for credit granted), in keeping with the rating assigned by Standard & Poor's:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Cash, cash balances at central banks and other demand deposits: | ||
| Cash, cash balances at central banks | ||
| Rating S&P | ||
| AAA+ /AAA /AAA- | 8,141,015 | 3,932,058 |
| Not subject | 341,297 | 336,121 |
| 8,482,312 | 4,268,179 | |
| Other demand deposits | ||
| Rating S&P | ||
| A+ /A /A- | 113,821 | 83,442 |
| AA+ /AA /AA- | 28,160 | 21,199 |
| BBB+ / BBB / BBB- | 72,885 | 11,598 |
| BB+ / BB / BB- | 1,112 | 1,039 |
| CCC+/CCC/CCC- | 1,150 | - |
| No external rating | 11,949 | 150,358 |
| 229,077 | 267,636 | |
| 8,711,389 | 4,535,815 | |
| Financial assets at fair value through other comprehensive income | ||
| Rating S&P | ||
| A+ /A /A- | - | 341,977 |
| BBB+ / BBB / BBB- | 5,266,247 | 7,288,068 |
| No external rating | 1,198 | 1,525 |
| 5,267,445 | 7,631,570 | |
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| Financial assets at amortised cost | ||
| Debt securities | ||
| Rating S&P | ||
| AA+ /AA /AA- | 26,264 | - |
| AAA+ /AAA /AAA- | 50 | - |
| BBB+ / BBB / BBB- | - | 658,175 |
| No external rating | 3,438,100 | 3,318,189 |
| of which with internal rating: | ||
| Low credit risk | 2,403,713 | 1,870,170 |
| Medium credit risk | 896,071 | 1,142,039 |
| High credit risk | 13,510 | 19,720 |
| 3,464,414 | 3,976,364 | |
| Loans and advances - credit institutions | ||
| Rating S&P | ||
| A+ /A /A- | 122 | - |
| AA+ /AA /AA- | - | - |
| B+ / B / B- | - | 190 |
| BB+ / BB / BB- | 1,275 | 343 |
| BBB+ / BBB / BBB- | 16,796 | 3,031 |
| CCC+ / CCC / CCC- | 1,247 | - |
| No external rating | 11,147 | 16,732 |
| 30,587 | 20,296 | |
| Loans and advances - credit granted and other balances receivable | ||
| Internal rating | ||
| Low credit risk | 28,972,321 | 27,697,277 |
| Medium credit risk | 5,646,379 | 6,021,564 |
| High credit risk | 1,612,541 | 1,782,456 |
| No rating | 1,667,123 | 1,327,542 |
| 37,898,364 | 36,828,839 | |
| 41,393,365 | 40,825,499 | |
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 and Commercial areas. Committee meetings are held monthly, and at these meetings the balancesheet 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 minimisation 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, 2021 and 2020, the breakdown of the projected (not discounted) cash flows of the financial instruments, in keeping with their contractual maturities, was as follows:
| 31-12-2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Up to 3 | From 3 months | From 1 to | From 3 to | More than | |||||
| 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 | 570,374 | - | - | - | 8,141,015 | - | - | - | 8,711,389 |
| Financial assets held for trading | - | - | - | - | - | - | - | 587,772 | 587,772 |
| Non-trading financial assets mandatorily | |||||||||
| at fair value through profit or loss | - | - | - | - | - | - | 99,167 | - | 99,167 |
| Financial assets at fair value | |||||||||
| through other comprehensive income | 2 | 60,218 | 74,892 | 270,201 | 2,065,386 | 2,901,103 | 72,520 | - | 5,444,322 |
| Financial assets at amortised cost | 528,711 | 2,340,897 | 4,947,722 | 9,649,573 | 8,090,391 | 18,552,539 | - | - | 44,109,833 |
| Derivatives – Hedge accounting | - | - | - | - | - | - | - | 7,447 | 7,447 |
| Investments in subsidiaries, joint ventures and associates | - | - | - | - | - | - | 38,161 | - | 38,161 |
| 1,099,087 | 2,401,115 | 5,022,614 | 9,919,774 | 18,296,792 | 21,453,642 | 209,848 | 595,219 | 58,998,091 | |
| Liabilities | |||||||||
| Financial liabilities held for trading | - | - | - | - | - | - | - | 605,331 | 605,331 |
| Financial liabilities at amortised cost | |||||||||
| Deposits - Central banks | 8,987 | - | - | 7,264,073 | - | - | - | - | 7,273,060 |
| Deposits - Credit institutions | 337,492 | 53,081 | 1,766 | 30 | - | - | - | - | 392,369 |
| Deposits - Customers and other loans | 24,446,657 | 6,248,443 | 6,154,935 | 1,115,679 | 896,499 | 63,300 | - | - | 38,925,513 |
| Debt securities issued | - | 43,924 | 154,748 | 1,381,479 | 120,872 | 1,674,021 | - | - | 3,375,044 |
| Derivatives – Hedge accounting | - | - | - | - | - | - | - | 294,108 | 294,108 |
| 24,793,136 | 6,345,448 | 6,311,449 | 9,761,261 | 1,017,371 | 1,737,321 | - | 899,439 | 50,865,425 | |
| 31-12-2020 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Up to 3 | From 3 months | From 1 to | From 3 to | More than | |||||
| 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 subsidiaries, 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 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 and other loans | 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 |
Determination of the projected cash flows from financial instruments was based on principles and assumptions used by the Bank in the 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 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 entirety 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 probable 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, 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 the 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 price of the underlying item (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:
Regarding 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 repricing structure. This model allows the measurement and control of the risks originating directly from the movement of the income curve, namely 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 calculated based on statement of financial position values that act as indicators of structural and short-term liquidity requirements.
As at December 31, 2021 and 2020, the breakdown of financial instruments by exposure to interest-rate risk was as follows:
| 31-12-2021 | |||||
|---|---|---|---|---|---|
| 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 | - | 8,141,015 | 570,374 | - | 8,711,389 |
| Financial assets held for trading | - | - | - | 587,772 | 587,772 |
| Non-trading financial assets mandatorily | |||||
| at fair value through profit or loss | - | - | 99,167 | - | 99,167 |
| Financial assets at fair value | |||||
| through other comprehensive income | 4,253,077 | 1,194 | 1,085,642 | - | 5,339,913 |
| Financial assets at amortised cost | 7,257,500 | 33,373,241 | (256,874) | - | 40,373,867 |
| Derivatives – Hedge accounting | - | - | - | 7,447 | 7,447 |
| 11,510,577 | 41,515,450 | 1,498,309 | 595,219 | 55,119,555 | |
| Liabilities | |||||
| Financial liabilities held for trading | - | - | - | 605,331 | 605,331 |
| Financial liabilities at amortised cost | |||||
| Deposits - Central banks | 7,501,017 | - | (90,775) | - | 7,410,242 |
| Deposits - Credit institutions | 211,956 | 181,319 | 130 | - | 393,405 |
| Deposits - Customers and other loans | 14,629,200 | 24,324,665 | 5,039 | - | 38,958,904 |
| Debt securities issued | 2,335,710 | 719,318 | (48,281) | - | 3,006,747 |
| Other financial liabilities | - | - | 219,275 | - | 219,275 |
| Derivatives – Hedge accounting | - | - | - | 294,108 | 294,108 |
| 24,677,883 | 25,225,302 | 85,388 | 899,439 | 50,888,012 | |
| 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 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 and other loans | 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 |
| 2021 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Rate intervals | ||||||||
| [ <1% ] | [ 1%-3% ] | [ 3%-5% ] | [ 5%-10% ] | [ >10% ] | interest rate risk | Derivatives | Total | |
| Assets | ||||||||
| Cash, cash balances at central banks and other demand deposits | 8,141,015 | - | - | - | - | 570,374 | - | 8,711,389 |
| Financial assets held for trading | - | - | - | - | - | - | 587,772 | 587,772 |
| Non-trading financial assets mandatorily | ||||||||
| at fair value through profit or loss | - | - | - | - | - | 99,167 | - | 99,167 |
| Financial assets at fair value | ||||||||
| through other comprehensive income | 106,590 | 31,526 | 4,116,155 | - | - | 1,085,642 | - | 5,339,913 |
| Financial assets at amortised cost | 23,067,013 | 14,499,559 | 1,361,738 | 1,403,070 | 299,360 | (256,874) | 40,373,867 | |
| Derivatives – Hedge accounting | - | - | - | - | - | - | 7,447 | 7,447 |
| 31,314,618 | 14,531,085 | 5,477,893 | 1,403,070 | 299,360 | 1,498,309 | 595,219 | 55,119,555 | |
| Liabilities | ||||||||
| Financial liabilities held for trading | - | - | - | - | - | - | 605,331 | 605,331 |
| Financial liabilities at amortised cost | ||||||||
| Deposits - Central banks | 7,501,017 | - | - | - | - | (90,775) | - | 7,410,242 |
| Deposits - Credit institutions | 393,275 | - | - | - | - | 130 | - | 393,405 |
| Deposits - Customers and other loans | 38,916,684 | 37,181 | - | - | - | 5,039 | - | 38,958,904 |
| Debt securities issued | 1,544,429 | 1,320,000 | - | 190,599 | - | (48,281) | - | 3,006,747 |
| Other financial liabilities | - | - | - | - | - | 219,275 | - | 219,275 |
| Derivatives – Hedge accounting | - | - | - | - | - | - | 294,108 | 294,108 |
| 48,355,405 | 1,357,181 | - | 190,599 | - | 85,388 | 899,439 | 50,888,012 | |
| 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 | 249,321 | 1,753,332 | 4,136,155 | 25 | - | 1,565,357 | - | 7,704,190 |
| 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 | 1,329,144 | 325,539 | 2,246,644 | 939,758 | 53,133,250 | |
| Liabilities | ||||||||
| Financial liabilities held for trading | - | - | - | - | - | - | 941,528 | 941,528 |
| Financial liabilities 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 and other loans | 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 |
| Derivatives – Hedge accounting | - | - | - | - | - | - | 522,283 | 522,283 |
| 46,442,182 | 1,143,563 | 3,148 | 1,064 | - | 133,830 | 1,463,811 | 49,187,598 |
The method of calculation of the sensitivity of the net 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 net 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 net 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 decreases have the opposite effect.
General assumptions of this Interest-rate sensitivity analysis
As at December 31, 2021 and 2020, the sensitivity of the net 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:
| 31-12-2021 | 31-12-2020 | ||||
|---|---|---|---|---|---|
| + 100 bp's | - 100 bp's | + 100 bp's | - 100 bp's | ||
| variation | variation | variation | variation | ||
| Assets | |||||
| Cash, cash balances at central banks | (1,445) | 416,249 | (2,135) | 59,081 | |
| Financial assets at fair value | |||||
| through other comprehensive income | (89,928) | 94,045 | (114,692) | 36,461 | |
| Financial assets at amortised cost | (915,620) | 1,109,594 | (1,020,001) | 553,086 | |
| (1,006,993) | 1,619,888 | (1,136,828) | 648,628 | ||
| Derivatives – Hedge accounting | 202,485 | (231,190) | 315,516 | (182,329) | |
| Liabilities | |||||
| Financial liabilities at amortised cost | |||||
| Deposits - Central banks | (3,203) | 88,910 | 1,260 | 32,731 | |
| Deposits - Credit institutions | (79) | 79 | (1,230) | 285 | |
| Deposits - Customers and other loans | (1,230,462) | 1,302,594 | (1,141,738) | 379,403 | |
| Debt securities issued | (120,409) | 143,837 | (143,800) | 58,577 | |
| Other financial liabilities | (20,519) | 20,855 | (25,028) | 13,289 | |
| (1,374,672) | 1,556,275 | (1,310,536) | 484,285 |
The basic parameters for calculation of the VaR applicable are, in general, besides the calculation method itself, as follows:
− 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, such that all interactions between the market factors, their volatilities and the correlations between them, are 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, 2021 and 2020, the VaR associated with the interest-rate risk corresponded to:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| VaR 99% percentile | (1) | (1) |
| VaR Weighted 99% percentile | (1) | - |
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 using currency swaps. Risk limits are stipulated for the exchangerate risk that are controlled by the Market Risks Area.
| 31-12-2021 | ||||||
|---|---|---|---|---|---|---|
| US | Other | |||||
| Euros | Dollars | currencies | Total | |||
| Assets | ||||||
| Cash, cash balances at central banks and other demand deposits | 8,569,303 | 41,254 | 100,832 | 8,711,389 | ||
| Financial assets held for trading | 585,930 | 774 | 1,068 | 587,772 | ||
| Non-trading financial assets mandatorily | ||||||
| at fair value through profit or loss | 99,167 | - | - | 99,167 | ||
| Financial assets at fair value | ||||||
| through other comprehensive income | 5,339,913 | - | - | 5,339,913 | ||
| Financial assets at amortised cost | 39,720,655 | 612,783 | 40,429 | 40,373,867 | ||
| Derivatives – Hedge accounting | 1,903 | 5,544 | - | 7,447 | ||
| Investments in subsidiaries, joint ventures and associates | 38,161 | - | - | 38,161 | ||
| 54,355,032 | 660,355 | 142,329 | 55,157,716 | |||
| Liabilities | ||||||
| Financial liabilities held for trading | 603,908 | 774 | 649 | 605,331 | ||
| Financial liabilities at amortised cost | ||||||
| Deposits - Central banks | 7,410,242 | - | - | 7,410,242 | ||
| Deposits - Credit institutions | 203,010 | 188,589 | 1,806 | 393,405 | ||
| Deposits - Customers and other loans | 37,425,273 | 1,261,121 | 272,510 | 38,958,904 | ||
| Debt securities issued | 3,006,747 | - | - | 3,006,747 | ||
| Other financial liabilities | 219,275 | - | - | 219,275 | ||
| Derivatives – Hedge accounting | 288,657 | 5,344 | 107 | 294,108 | ||
| 49,157,112 | 1,455,828 | 275,072 | 50,888,012 |
| 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 subsidiaries, 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 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 and other loans | 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 |
As at December 31, 2021 and 2020, the VaR associated with the exchange-rate risk corresponded to:
| 31-12-2021 | 31-12-2020 | |
|---|---|---|
| VaR 99% percentile | (14) | (8) |
| VaR Weighted 99% percentile | (13) | (6) |
As at December 31, 2021 and 2020, 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, 2021 and 2020, the value of derivative financial instruments traded over-the-counter, offset by the related financial derivatives, by type of counterparty, is as follows:
| 31-12-2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Financial assets/liabilities |
Related amounts not offset in financial statements |
||||||||||
| in financial | Financial | Net | |||||||||
| Counterparty | statements | Instruments | Cash collateral | amount | |||||||
| Financial institutions | (250,552) | - | (1,661) | (252,213) | |||||||
| Group companies | (376,322) | - | 395,547 | 19,225 | |||||||
| (626,874) | - | 393,886 | (232,988) | ||||||||
| 31-12-2020 | |||||||||||
| Financial assets/liabilities |
Related amounts not offset in financial statements |
||||||||||
| in financial | Financial | Net | |||||||||
| Counterparty | statements | Instruments | Cash collateral | amount | |||||||
| Financial institutions | (400,601) | - | 52,986 | (347,615) | |||||||
| Group companies | (696,545) | - | 583,014 | (113,531) | |||||||
| (1,097,146) | - | 636,000 | (461,146) |
| 31-12-2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Financial assets/liabilities |
Related amounts not offset in financial statements |
|||||||||
| Counterparty | in financial statements |
Financial Instruments |
Cash collateral | Net amount |
||||||
| Financial institutions | (33) | 77 | 8,538 | 8,582 | ||||||
| (33) | 77 | 8,538 | 8,582 | |||||||
| 31-12-2020 | ||||||||||
| Financial | Related amounts not offset | |||||||||
| assets/liabilities | in financial statements | |||||||||
| in financial | Financial | Net | ||||||||
| Counterparty | statements | Instruments | Cash collateral | amount | ||||||
| Financial institutions | (1,255,805) | 1,256,208 | 23,093 | 23,496 | ||||||
| (1,255,805) | 1,256,208 | 23,093 | 23,496 |
The Bank has a solid capital position, coherent with its business model, statement of financial position structure, risk appetite and regulatory requirements. The strength of the statement of financial position and the profitability of the Bank allow us to exercise our activity of financing the economy and generate capital organically. The various capital metrics are stable, with ratios comfortably above regulatory requirements and aligned with the risk appetite approved by top management.
The management and adequacy of capital aims to ensure solvency and maximise profitability, as well as compliance with regulatory requirements. Capital management is a key strategic tool for decision making. There is a governance framework approved by top management where the criteria, policies, functions, metrics and processes related to capital management are established.
At the end of 2021, the CET1 phasing in ratio is 22.3% and the total phasing in capital ratio is 24.5%, comfortably meeting the minimum requirements of 8.34% and 12.5%, respectively. The increase in the CET1 ratio was 6.25%, which is explained by the retention of the 2020 profit or loss and the adequate management of the RWA growth, namely through the contracting of a synthetic securitisation operation.
On June 28, 2019, the Bank operationalised the first synthetic securitisation operation originated by the Bank. The operation is based on a portfolio of Corporates, SMEs, City Councils and ENI's in the amount of Euros 2.4b, 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 Euros 181.3 millions mezzanine tranche was fully placed with foreign institutional investors, through a special purpose vehicle being incorporated to the effect, with a premium of 8.7%.
On July 26, 2021, the Bank operationalised the second synthetic securitisation operation originated by same. The transaction has subjacent a portfolio of Corporates, SMEs, ENI's and Project Finance in the amount of Euros 3.05b, for which the Bank purchased protection corresponding to a mezzanine tranche with an attachment point of 1.2% and a detachment point of 7.2%. The mezzanine tranche, in the amount of Euros 183 millions, was fully placed with foreign institutional investors, in the form of a CLN issued directly by the Bank, with a premium of 9.0%.
The following table summarises the composition of the regulatory capital and prudential ratios of the Bank as at December 31, 2021 and 2020 (both in BIS III - Phasing in):
| Amounts in millions of Euros | ||
|---|---|---|
| dec 2021 | dec 2020 | |
| A - Level 1 own funds (TIER I) | 3,918 | 3,759 |
| Share capital (includes addicional instruments eligible as Tier I) | 1,541 | 1,541 |
| Reserves and Retained earnings (excluding non-controlling interest) | 2,349 | 2,312 |
| Eligible Minority interests | - | - |
| Deduction on base own funds | (62) | (94) |
| B - Level 2 own funds (TIER II) | 381 | 410 |
| Subordinated debt | 328 | 346 |
| Eligible Minority interests | - | - |
| Other elements/deductions to complementary own funds | 53 | 64 |
| C - Deductions to total own funds | - | - |
| D - Total own funds (A+B+C) | 4,298 | 4,169 |
| E - Assets weighted by risk | 14,428 | 17,982 |
| Ratios | ||
| TIER (A/E) | 27,2% | 20,9% |
| CORE CAPITAL (CET 1) | 27,2% | 20,9% |
| TIER II (B/E) | 2,6% | 2,3% |
| Capital adequacy ratio (D/E) | 29,8% | 23,2% |
| LEVERAGE | 7,1% | 6,5% |
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 resolution authority, and to perform all other functions conferred by law within the scope of the implementation of such measures.
The Bank, like the majority of the financial institutions operating in Portugal, is one of the institutions participating in the Resolution Fund, making contributions resulting from the application of a rate set annually by the Bank of Portugal based, essentially, on the amount of their liabilities. In 2021, the periodic contribution made by the Bank amounted to Euros 12,853 thousand, based on a contribution rate of 0.048%.
Within the scope of its responsibility as supervision and resolution 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 resolution 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 Euros 4,900 million, of which Euros 365 million corresponded to its own financial resources. A loan was also granted by a banking syndicate to the Resolution Fund in the amount of Euros 635 million, with the participation of each credit institution weighted in the light of several factors, including the respective dimension. The remainder (Euros 3,900 million) consisted of a repayable loan granted by the Portuguese State.
Following the implementation of said resolution 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 valuation, conducted to estimate the credit recovery level for each class of creditors in a hypothetical scenario of a normal insolvency process of BES as at August 3, 2014. Under applicable law, if it is found that creditors which credits have not been transferred to Novo Banco bear a larger loss than would hypothetically be the case if BES had entered liquidation at a moment immediately preceding that of the application of the resolution 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 Euros 750 million, which will be followed by a new inflow of capital in the amount of Euros 250 million, to be realised 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 the corresponding 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 the 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 based on Novo Banco's annual accounts certified by the respective auditor, and there is a possibility of intra-annual assessments 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 with their carrying amounts, net of impairment, as at June 30, 2016 (around Euros 7.9 thousand million 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 by Novo Banco in accordance with the accounting standards, as well as the financing costs associated with maintaining the assets in the Novo Banco statement of financial position.
Under that mechanism, to date, the Resolution Fund has made payments of Euros 3,293 million to Novo Banco in respect of the 2017 to 2020 accounts, having used for the purpose its own financial resources resulting from the contributions paid, directly or indirectly, by the banking sector, complemented by a State loan of Euros 2,130 million within the scope of the framework agreement celebrated between the Portuguese State and the Resolution Fund.
On May 31, 2021, the Resolution Fund entered a new loan agreement amounting to a maximum of Euros 475 million with a set of banks to meet the Fund's financing needs arising from commitments made to Novo Banco under the Contingent Capital Agreement. The Bank's share was Euros 104 million.
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 Euros 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 an urgent resolution process of the institution in the form of a 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 Euros 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, and which has the Resolution Fund as its sole shareholder. Oitante issued bonds representing the debt, in the amount of Euros 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 Euros 2,255 million, which aimed to cover future contingencies, of which Euros 489 million was financed by the Resolution Fund, and Euros 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 Euros 136 million, by way of partial early repayment of the resolution measure applied to Banif, allowing the amount owed to drop from Euros 489 million to Euros 353 million.
Following the resolution 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:
To preserve financial stability by promoting the conditions that lend predictability and stability to the contribution effort to 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 adjusted to the Resolution Fund's ability to fulfil its obligations in full on the basis of its regular income, 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, based on 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 the applicable legislation governing the charging of special contributions, and 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, and the public announcements made by the Resolution Fund and the Office of the Minister of Finance, 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 of 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 process 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 AdC 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 Loans and Loans to Companies. Bank Santander Totta was sentenced to a fine of Euros 35 million, plus a fine of Euros 650 thousand 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 AdC, with the case now pending before the Competition, Regulation and Supervision Court.
In the scope of the judicial challenge, the amount and type of the collateral to be provided, to suspend the contested decision was set. In this regard, the Bank presented a bank guarantee in the amount of Euros 17,825 thousand, issued by the Bank itself, to fulfil the mentioned collateral.
The trial hearing sessions took place between October 2021 and March 2022, with the final decision of the Court of Competition, Regulation and Supervision expected for the end of April 2022.
The Bank will await the decision on the judicial challenge lodged, not waiving the exercise of all the legal and judicial faculties that ensure the protection of its interests.
In line with what has been its position throughout the proceedings, the Bank strongly refutes all the arguments underlying the decision of the AdC, and its judicial challenge through the Competition, Regulation and Supervision Court has been supported, namely, by the opinion of distinguished Law Professors, attesting to the absence of any unlawful conduct by the institution.
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 December 31, 2021.
To mitigate the risks existing for the financial system, with special relevance for those related to credit risk provoked by the Covid-19 pandemic, a significant set of measures, exceptional and temporary, to support families and companies in a situation of insufficient liquidity associated with the economic slowdown were adopted. In particular, moratoria schemes were created – of both a legislative and non-legislative nature – covering the fulfilment of credit obligations towards the banking system, and new financing was obtained (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.
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.
With the end of the moratoriums during the 2021 financial year, the Bank defined a specific Policy that established the criteria for the treatment of customer/operations that ended the moratorium period, in particular the operations that came to undergo further changes in the reimbursement conditions, as well as to densify the follow-up policy of customers that adhered to the moratoria.
The fundamental criterion is the risk profile of the customer; at the end of the moratorium the customer may be in one of the following situations:
● Customers without structural financial difficulties, but for which in the current context it is considered to be a good option to offer commercial solutions that allow a relief of cash flow (business/companies) or disposable income (individuals).
By definition, all customers not meeting the classification criteria in one of the first two groups identified above are included in this group.
The treatment of operations at the end of the moratorium followed the following criteria:
Given the importance of identifying this universe of customers as early as possible, as well as the early definition of the alternatives to be made available, the Bank has developed an end-to-end transformation process, called "Collections and Recoveries", which aims at the massive and anticipatory management of (non- portfolio clients (clients without a risk manager), through the development of strategies, procedures and commercial offers in an omnichannel environment (differentiated communication channels according to the type of customer), constituting an advanced approach, to help manage any impacts after the end of the moratoria in this segment of individuals and micro and small company customers.
Bearing in mind the high uncertainty regarding the future impacts of the pandemic, as well as the lack of comparable historical information that may not be properly captured by the models in the calculated risk parameters, the Bank approved, in financial year 2020, an impairment overlays procedure, which regulates the impairment analysis in exceptional situations that are not properly captured by the models used in the calculation made by the Bank, due to their nature and/or particularities. The overlay amounts applied to the impairment are described in Note 9.
The following tables show the characterisation of the transactions that, as at December 31, 2021 and 2020, were subject to legislative and non-legislative moratoria, as well as the new loans granted under new public guarantee schemes.
The loans and advances subject to moratoria (legislative and non-legislative) expired as at December 31, 2021, and reported according to the EBA guidelines (EBA/GL/2020/07), are as follows:
| Gross amount | |||||||
|---|---|---|---|---|---|---|---|
| Performing | Of which: | Non-performing | Of which: | ||||
| instruments | with reduced | ||||||
| Of which: | with significant | Of which: | probability of | ||||
| exposures | increase in | exposures | collection and | ||||
| subject to | credit risk since | subject to | that are not | ||||
| restructuring | initial | restructuring | overdue or are | ||||
| measures | recognition but | measures | overdue by <= | ||||
| Loans and advances subject to moratoria, as per | |||||||
| EBA requirements, expired | 8,448,879 | 7,852,067 | 372,823 | 2,524,327 | 596,813 | 447,141 | 538,475 |
| of which: households | 4,994,946 | 4,848,368 | 340,026 | 1,392,279 | 146,578 | 111,050 | 114,669 |
| of which: secured by housing real estate | 4,615,507 | 4,497,479 | 312,107 | 1,149,799 | 118,028 | 97,065 | 101,548 |
| of which: non-financial companies | 3,453,933 | 3,003,699 | 32,797 | 1,132,047 | 450,234 | 336,091 | 423,806 |
| of which: small and medium-sized companies | 2,140,609 | 1,882,941 | 28,769 | 268,927 | 257,669 | 202,620 | 241,578 |
| of which: secured by commercial real estate | 1,610,942 | 1,327,629 | 10,509 | 122,589 | 283,313 | 236,139 | 271,364 |
The impairment of the loans and advances subject to moratoria (legislative and non-legislative) expired as at December 31, 2021, and reported according to the EBA guidelines (EBA/GL/2020/07), is as follows:
| Accumulated impairment, accumulated negative fair value changes due to credit risk | |||||||
|---|---|---|---|---|---|---|---|
| Performing | Of which: | Non-performing | Of which: | ||||
| instruments | with reduced | ||||||
| Of which: | with significant | Of which: | probability of | ||||
| exposures | increase in | exposures | collection and | ||||
| subject to | credit risk since | subject to | that are not | ||||
| restructuring | initial | restructuring | overdue or are | ||||
| measures | recognition but | measures | overdue by <= | ||||
| Loans and advances subject to moratoria, as per | |||||||
| EBA requirements, expired | (414,087) | (146,303) | (34,401) | (129,025) | (267,784) | (195,842) | (237,147) |
| of which: households | (137,329) | (83,263) | (30,587) | (78,271) | (54,066) | (40,366) | (40,104) |
| of which: secured by housing real estate | (106,444) | (68,050) | (27,896) | (63,893) | (38,395) | (32,705) | (33,402) |
| of which: non-financial companies | (276,758) | (63,040) | (3,814) | (50,754) | (213,718) | (155,476) | (197,042) |
| of which: small and medium-sized companies | (150,103) | (27,564) | (3,438) | (18,826) | (122,539) | (95,537) | (114,678) |
| of which: secured by commercial real estate | (131,930) | (14,146) | (1,415) | (8,704) | (117,784) | (95,093) | (110,723) |
| 31-12-2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross amount | |||||||||||
| Performing Of which: | |||||||||||
| exposures | exposures | Of which: | |||||||||
| subject to | subject to | with reduced | |||||||||
| restructuring | Of which: | restructuring | probability of | ||||||||
| measures | (Stage 2) | measures | collection | Total | |||||||
| Loans and advances subject to moratoria | 8,004,249 | 294,628 | 910,217 | 545,727 | 450,657 | 525,377 | 8,549,976 | ||||
| of which: households | 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 companies | 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 |
| 31-12-2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Impairment | ||||||||||
| Performing | Non-performing | |||||||||
| Of which: | Of which: | Of which: | ||||||||
| exposures | exposures | with reduced | ||||||||
| subject to | Of which: | subject to | probability of | |||||||
| restructuring | (Stage 2) | restructuring | collection | Total | ||||||
| Loans and advances subject to moratoria | (50,396) | (16,489) | (37,641) | (223,478) | (181,246) | (216,352) | (273,875) | |||
| of which: households | (19,427) | (9,224) | (15,549) | (49,475) | (45,513) | (45,576) | (68,902) | |||
| of which: secured by housing real estate | (14,041) | (7,825) | (11,648) | (36,572) | (34,335) | (34,638) | (50,613) | |||
| of which: non-financial companies | (30,969) | (7,266) | (22,092) | (174,003) | (135,733) | (170,776) | (204,972) | |||
| of which: small and medium-sized companies | (26,180) | (7,001) | (20,470) | (106,401) | (85,218) | (103,374) | (132,581) | |||
| of which: secured by commercial real estate | (10,079) | (791) | (7,282) | (100,991) | (88,264) | (100,290) | (111,070) |
The loans and advances granted under new public guaranteed schemes in response to the current economic crisis caused by the Covid-19 pandemic, are as follows:
| 31-12-2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Maximum | |||||||||
| amount of | |||||||||
| guarantee that | |||||||||
| can be considered | Gross amount | ||||||||
| Entries to non | |||||||||
| guarantees | performing | ||||||||
| received | exposures | ||||||||
| 1,877,482 | - | 1,486,555 | 8,356 | ||||||
| 50,098 | 52 | ||||||||
| - | - | ||||||||
| 1,827,384 | - | 1,444,419 | 8,304 | ||||||
| 1,178,591 | 1,449 | ||||||||
| - | - | ||||||||
| Gross amount Of which: restructured |
Public |
| 31-12-2020 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Maximum amount of |
|||||||||
| guarantee that | |||||||||
| Gross amount | can be considered | Gross amount | |||||||
| Of which: | Public | Entries to non | |||||||
| restructured | guarantees | performing | |||||||
| received | exposures | ||||||||
| Loans and advances subject to public guaranteed schemes | 1,331,672 | - | 1,069,839 | 233 | |||||
| of which: households | 36,090 | 43 | |||||||
| of which: secured by housing real estate | - | - | |||||||
| of which: non-financial companies | 1,295,582 | - | 1,039,263 | 190 | |||||
| of which: small and medium-sized companies | 877,449 | 150 | |||||||
| of which: secured by commercial real estate | - | - |
The physical consequences (physical risk) of climate change (e.g., rise in average temperature or adverse weather events) and the transition to a climate-neutral economy (transition risk) are priorities for the Bank. For this reason, the Bank is committed to the objectives of the Paris Agreement and considers that taking action to this end is a shared responsibility.
The Bank is increasingly aware of the impact climate change has on its business, so it treats this risk as strategic, also considering the impact of its lending policy on global climatic risks.
Climatic risks are a booster to traditional risks, including credit risk. Climate risks are amplified through transition channels, whether macro (e.g., GDP), or micro (e.g., destruction of agricultural crops). Both physical risk and transition risk can affect the quality of our credit portfolio, especially in the economic sectors of agriculture and food and in the mortgage segment. In addition, the Bank estimates that the energy, transport, materials and construction (including real estate), and agricultural, food and forestry sectors are those most exposed to the risks of climate change.
During 2020, a set of regulations related to climate change and environmental issues was issued for banking, and this trend is expected to continue in the future. The two most important guidelines issued in 2020 are the "ECB Guide on climate-related and environmental risks" and the "EBA guidelines on loan origination and monitoring". The common denominator of these guidelines is the focus on environmental and social aspects. In this vein, the ECB is expected to require banks to take an end-to-end approach to climatic and environmental risks across their processes and business management. In this sense, the Bank is developing initiatives to incorporate these guidelines into its risk management model, in origination and in its business processes.
The Bank is currently focused on measurement (heatmaps, stress tests, scenario analysis, customer risk assessments), structural data improvement and information collection, monitoring and reporting. The aim of these initiatives is to create awareness and knowledge and, later, expand the dissemination on climatic risks.
Regarding the estimates to be incorporated in the preparation of its financial statements, the Bank also considered the impact in terms of classification of financial instruments linked to climatic indicators or other sustainability indicators: relevance is given to the impact of the contractual conditions of financial instruments associated with climatic indicators or sustainability on the contractual cash flows of financial instruments (and whether they represent only capital and interest payments).
On the date of approval of these consolidated financial statements by the Bank's Board of Directors, there were no events subsequent to December 31, 2021 – 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.
The Bank exercised a clean-up call in February 2022, of the Atlantes Mortgages No. 5 and Atlantes Mortgage No. 7 securitisation operations.
On the night of 23 to 24 February 2022, Russia launched a military offensive in Ukraine, resulting in a conflict that brings a new war scenario to Europe, and which is still taking place on the date of approval of this report. Negotiations between the parties take place at the same time as hostilities continue, and it is not possible to assess when the conflict will be over.
Most of the international community reacted, with the condemnation of the military aggression, support for Ukraine, and the imposition by the G-7 of heavy economic sanctions on Russia. These, however, will also predictably have adverse effects on the major developed economies and, in particular, on the European Union, aggravated by rising commodity prices, which have surpassed a decade high, as in the case of oil.
Given the uncertainty that remains in relation to the magnitude of the effects arising from the events referred, which still depend on future developments, the Board of Directors is unable to estimate at this time, with adequate reliability, the future impacts on the national economy and, namely, on the Bank's banking activity and financial situation.
In this sense, the Board of Directors has followed up on the economic sanctions applied and will maintain regular and continuous monitoring of the situation to promote the updating of the estimates used whenever relevant information becomes available, adopting the response measures most appropriate to the estimated or verified impacts.
These financial statements were approved by the Board of Directors on March 29, 2022.
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 adjustments | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Subscribed | Consolidated | Interest payable/ | for hedging | Interest | Issue | Maturity | |||||
| Securities issued | Currency | Total | by the Group | Balance sheet prepaid commissions | operations | Total | rate | Date | date | Index | |
| Structured bonds | |||||||||||
| OB.BST INDEX LINKED NOTES 2024 23/12/2024 | EUR | 8,227 | 116 | 8,111 | 188 | 100 | 8,399 | Floating | 20 Dec 2019 | 23 Dec 2024 | Indices bucket |
| Credit Linked Notes due August 2037 | EUR | 183,000 | - | 183,000 | 2,608 | - | 185,608 | Floating | 26 Jul 2021 | 15 Aug 2037 | Euribor3M (floored at 0) + 9% |
| Total | 191,227 | 116 | 191,111 | 2,796 | 100 | 194,007 | |||||
| Covered Bonds | |||||||||||
| Hipotecária XIV | EUR | 750,000 | 750,000 | - | (150) | - | (150) | 0.754% | 4 Mar 2015 | 4 Mar 2022 | Fixed rate |
| Hipotecária XVII | EUR | 750,000 | 750,000 | - | (301) | - | (301) | 0.902% | 15 Apr 2016 | 15 Apr 2023 | Fixed rate |
| Hipotecária XVIII | EUR | 750,000 | 750,000 | - | (301) | - | (301) | 0.652% | 26 Jul 2016 | 26 Jul 2023 | Fixed rate |
| Hipotecárias XX - 1ª | EUR | 750,000 | 750,000 | - | (905) | - | (905) | 1.201% | 7 Dec 2017 | 7 Dec 2027 | Fixed rate |
| Hipotecárias XXI | EUR | 1,000,000 | 1,000,000 | - | (1,206) | - | (1,206) | 1.481% | 10 Apr 2017 | 10 Apr 2027 | Fixed rate |
| Hipotecárias XXII | EUR | 1,000,000 | - | 1,000,000 | 1,897 | - | 1,001,897 | 0.875% | 25 Apr 2017 | 25 Apr 2024 | Fixed rate |
| Hipotecárias XXIII | EUR | 1,000,000 | - | 1,000,000 | (4,647) | - | 995,353 | 1.250% | 5 Jul 2019 | 5 Jul 2029 | Fixed rate |
| Hipotecária XXIV | EUR | 1,100,000 | 1,100,000 | - | (1,766) | - | (1,766) | 0.412% | 5 Jul 2019 | 5 Jul 2029 | Fixed rate |
| Hipotecárias XXV | EUR | 750,000 | 750,000 | - | (603) | - | (603) | 0.51% | 27 Mar 2020 | 27 Mar 2025 | Fixed rate |
| Hipotecária XXVI | EUR | 750,000 | 750,000 | - | (1,353) | - | (1,353) | 0.00% | 28 Oct 2020 | 28 Oct 2030 | Fixed rate |
| Total | 8,600,000 | 6,600,000 | 2,000,000 | (9,335) | - | 1,990,665 | |||||
| Bonds issued under securitisation operations of mortgage loans | |||||||||||
| Hipototta 4 - Class A - Notes | EUR | 390,664 | 285,885 | 104,779 | (345) | - | 104,434 | Floating | 9 Dec 2005 | 30 Dec 2048 | 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 | 14,213 | 14213 | - | - | - | - | Floating | Euribor 3m+0.19% (up to early redemption date in December 2014); | ||
| 9 Dec 2005 | 30 Dec 2048 | Euribor 3m+0.40% (after early redemption date) | |||||||||
| Hipototta 4 - Class C - Notes | EUR | 44,886 | 44,886 | - | - | - | - | Floating | 9 Dec 2005 | 30 Dec 2048 | 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 | - | - | - | - | Floating | 9 Dec 2005 | 30 Dec 2048 | Residual return generated by securitised portfolio |
| Hipototta 5 - Class A2 - Notes | EUR | 350,683 | 287,641 | 63,042 | (117) | - | 62,925 | Floating | 22 Mar 2007 | 28 Feb 2060 | 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 | - | - | - | - | Floating | 22 Mar 2007 | 28 Feb 2060 | 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 | - | - | - | - | Floating | 16 Mar 2007 | 28 Feb 2060 | 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 | - | - | - | - | Floating | Euribor 3m+0.50% (up to early redemption date in February 2014); | ||
| 22 Mar 2007 | 28 Feb 2060 | Euribor 3m+1.00% (after early redemption date) | |||||||||
| Hipototta 5 - Class E - Notes | EUR | 31,000 | 31,000 | - | - | - | - | Floating | Euribor 3m+1.75% (up to early redemption date in February 2014); | ||
| 22 Mar 2007 | 28 Feb 2060 | ||||||||||
| Euribor 3m+3.50% (after early redemption date) | |||||||||||
| Hipototta 5 - Class F - Notes | EUR | 6,000 | 6,000 | - | - | - | - | Floating | 22 Mar 2007 | 28 Feb 2060 | Residual return generated by securitised portfolio |
| Azor Mortgages 2 - Class A | EUR | 62,603 | 62,603 | - | - | - | - | Floating | 24 Jul 2008 | 14 Dec 2065 | 3mth Euribor + 0.30% |
| Azor Mortgages 2 - Class B | EUR | 43,080 | 43,080 | - | - | - | - | Floating | 24 Jul 2008 | 14 Dec 2065 | 3mth Euribor + 0.8% |
| Azor Mortgages 2 - Class C | EUR | 6,750 | 6,750 | - | - | - | - | Floating | 24 Jul 2008 | 14 Dec 2065 | Residual return generated by securitised portfolio |
| Amount issued | Value adjustments | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Subscribed | Consolidated | Interest payable/ | for hedging | Interest | Issue | Maturity | |||||
| Securities issued | Currency | Total | by the Group | Balance sheet prepaid commissions | operations | Total | rate | Date | date | Index | |
| Atlantes Mortage 2 - Class A | EUR | 89,024 | - | 89,024 | (11,076) | - | 77,948 | Floating | 5 Mar 2008 | 18 Sep 2060 | 3mth Euribor + 0.33% |
| Atlantes Mortage 2 - Class B | EUR | 11,083 | 11,083 | - | - | - | - | Floating | 5 Mar 2008 | 18 Sep 2060 | 3mth Euribor + 0.95% |
| Atlantes Mortage 2 - Class C | EUR | 4,518 | 4,518 | - | - | - | - | Floating | 5 Mar 2008 | 18 Sep 2060 | 3mth Euribor + 1.65% |
| Atlantes Mortage 2 - Class D | EUR | 9,422 | 9,422 | - | - | - | - | Floating | 5 Mar 2008 | 18 Sep 2060 | Residual return generated by securitised portfolio |
| Atlantes Mortage 3 - Class A | EUR | 155,100 | 48,340 | 106,760 | (7,969) | - | 98,791 | Floating | 30 Oct 2008 | 20 Aug 2061 | 3mth Euribor + 0.20% |
| Atlantes Mortage 3 - Class B | EUR | 22,243 | 22,243 | - | - | - | - | Floating | 30 Oct 2008 | 20 Aug 2061 | 3mth Euribor + 0.50% |
| Atlantes Mortage 3 - Class C | EUR | 39,669 | 39,669 | - | - | - | - | Floating | 30 Oct 2008 | 20 Aug 2061 | Residual return generated by securitised portfolio |
| Atlantes Mortage 4 - Class A | EUR | 172,713 | - | 172,713 | (22,485) | - | 150,228 | Floating | 16 Feb 2009 | 30 Dec 2064 | 3mth Euribor + 0.15% |
| Atlantes Mortage 4 - Class B | EUR | 19,020 | 19,020 | - | - | - | - | Floating | 16 Feb 2009 | 30 Dec 2064 | 3mth Euribor + 0.30% |
| Atlantes Mortage 4 - Class C | EUR | 53,021 | 53,021 | - | - | - | - | Floating | 16 Feb 2009 | 30 Dec 2064 | Residual return generated by securitised portfolio |
| Atlantes Mortage 5 - Class A | EUR | 140,337 | 140,337 | - | - | - | - | Floating | 21 Dec 2009 | 23 Nov 2068 | 3mth Euribor + 0.15% |
| Atlantes Mortage 5 - Class B | EUR | 25,910 | 25,910 | - | - | - | - | Floating | 21 Dec 2009 | 23 Nov 2068 | 3mth Euribor + 0.30% |
| Atlantes Mortage 5 - Class C | EUR | 44,995 | 44,995 | - | - | - | - | Floating | 21 Dec 2009 | 23 Nov 2068 | Residual return generated by securitised portfolio |
| Hipototta No. 13 Class A | EUR | 854,727 | 854,727 | - | - | - | - | Floating | 9 Jan 2018 | 23 Oct 2072 | 3mth Euribor + 0.60% |
| Hipototta No. 13 Class B | EUR | 484,000 | 484,000 | - | - | - | - | Floating | 9 Jan 2018 | 23 Oct 2072 | 3mth Euribor + 1% |
| Hipototta No. 13 Class C | EUR | 41,501 | 41,501 | - | - | - | - | Floating | 9 Jan 2018 | 23 Oct 2072 | Residual return generated by securitised portfolio |
| Hipototta No. 13 Class D | EUR | 0 | - | - | - | - | - | Floating | 9 Jan 2018 | 23 Oct 2072 | |
| Atlantes Mortage 7 - Class A | EUR | 110,474 | 110,474 | - | - | - | - | Floating | 19 Nov 2010 | 23 Aug 2066 | 3mth Euribor + 0.15% |
| Atlantes Mortage 7 - Class B | EUR | 20,529 | 20,529 | - | - | - | - | Floating | 19 Nov 2010 | 23 Aug 2066 | 3mth Euribor + 0.30% |
| Atlantes Mortage 7 - Class C | EUR | 42,993 | 42,993 | - | - | - | - | Floating | 19 Nov 2010 | 23 Aug 2066 | Residual return generated by securitised portfolio |
| 3,374,158 | 2,837,840 | 536,318 | (41,992) | - | 494,326 | ||||||
| Total | 12,165,385 | 9,437,956 | 2,727,429 | (48,531) | 100 | 2,678,998 |
| Issue amount | Accruals | Total | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Subscribed | Consolidated | consolidated | ||||||||||||||||
| Securities issued | Currency | Issued | by the Group | balance sheet | Total | balance sheet | Interest rate | Maturity | Early repayment as from | |||||||||
| OB.BANCO SANTANDER TOTTA SA 7.5% 06/10/2026 | EUR | 7,599 | - | 7,599 | 136 | 7,735 | Fixed rate | 7.50% | 6 Oct 2026 | |||||||||
| OB. BST 2030 TIER2 | EUR | 320,000 | - | 320,000 | 14 | 320,014 | Floating | 1.58% | 31 Dec 2030 | 31 Dec 2025 | ||||||||
| 327,599 | - | 327,599 | 150 | 327,749 |
(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 statement of financial position as at 31 December 2021 (which shows total assets of Euros 56.166.619 thousand and total shareholders' equity of Euros 4.250.889 thousand including a profit or loss for the year of Euros 270.494 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 2021, 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 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 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 2021, the gross amount of loans and advances to customers at amortized cost amounted to Euros 37.898.364 thousand and the corresponding impairment losses recognized at that date amounted to Euros 1.013.759 thousand.
Impairment losses on loans and advances to customers at amortized cost are determined by Bank's management on an individual basis, through a case-by-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, evaluated in terms of the total amount of responsibilities and signs of a deterioration in the Bank clients' creditworthiness, the Bank performs an individual impairment measurement analysis, which includes an individual staging assessment, in order to validate the indicative attribution of stage automatically generated by the system (stage 1, 2 or 3), as well as an individual impairment measurement analysis. In this last scenario, the analysis is performed for the responsibilities classified in stage 3, and the amount of impairment is determined through a detailed analysis of the economic and financial position of each 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,
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 portfolio of loans granted at amortized cost as well as its key controls with respect to refers to the approval, recording and monitoring of credit risk, specifically loans with moratorium 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 stage and in the individual analysis of impairment measurement; (ii) formulate 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, extracted from the credit population subject to individual analysis by the Bank as at 31 December 2021, the procedures we have developed consisted of: (i) reviewing the available documentation on credit processes; (ii) verify the match of the financial plans used to determine impairment losses 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 to determine a significant increase in credit risk (stage 2) and under impairment (stage 3) on an individual basis; (vi) review the incorporation of forward looking information; (vii) a critical analysis of the discounted
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, which include the classification of 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 models are based on the internal historical information of defaults and recoveries and, in order to be representative of the current economic context and simultaneously incorporate a perspective of future economic evolution, these models also use forward looking prospective information such as (i) the GDP growth rate; (ii) the expected unemployment rate; (iii) the evolution of Euribor; 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 families and companies 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 assumptions or methodologies used by the Bank in the analysis and quantification of impairment losses of
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 financial situation of the clients, and 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 relevant material divergences.
For the portfolio whose impairment is assessed through the collective analysis model, specific procedures were developed with the objective of evaluating how the assumptions considered by management include the risk variables regarding all historic performance and recoveries of the Bank's loans and advances to customers 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 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), in order to estimate historical recoveries incorporated in this calculation, on a sampling basis; and (vii) recalculation of Expected Credit Loss ("ECL") for the loans and advances to customers portfolio, with reference to 31 December 2021.
Our auditing procedures also included a review of the disclosures for loans and advances to customers 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.
the loans and advances to customers, 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 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 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 significant change in the form and strategy of recovering the balance in question, this was a relevant matter for the purposes of our audit.
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.
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.
Fair value of financial instruments measured through fair value 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, 16 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 2021, the balance sheet balances of these financial instruments amount to Euros 198.066 thousand of assets and Euros 31.161 thousand of liabilities.
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 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 financial instruments recognized in the Bank's consolidated financial statements.
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 was based substantially of unobservable data, our procedures also included: (i) the understanding of methodologies and main assumptions utilized by the Bank; (ii) 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; and (iii) the analytical revision of fair value of those financial instruments, comparing the results with previous periods and with the last financial information available and respective audit reports, 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.
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 2021, the liabilities for past services of the Bank in relation to its pensioners, employees and directors amounted to Euros 1.561.585 thousand, mainly covering retirement and survivors' pensions, disability, health care and death benefit, in particular those provided for in the Acordo Coletivo de Trabalho ("ACT") for the banking sector.
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 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 audit.
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 and funding needs, as well as the suitability of the process of the fair value of the assets of the fund.
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; and (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.
Finally, we have developed the detailed analysis of the actuarial study prepared with reference to 31 December 2021, based on the results of the procedures referred to above.
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.
Provisions and contingent liabilities
Measurement and disclosures related to provisions and contingent liabilities presented in notes 1.3.i), 2, 40 and 41 attached to the Bank's consolidated financial statements
Among the contingent liabilities disclosed in notes 40 The audit procedures we have developed in this area
and 41 attached to the Bank's consolidated financial statements as at 31 December 2021, 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.
In 2012 the Portuguese Competition Authority (Autoridade da Concorrência) launched an offense 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.
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 2021 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.
The consolidated financial statements as of 31 December 2021 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.
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:
f) obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion;
g) communicate with those charged with governance, including the supervisory board, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit;
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. 29-H 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 l) 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.
The Entity's consolidated financial statements for the year ended on 31 st December 2021 must comply with the applicable requirements established in Commission Delegated Regulation (EU) 2019/815, of December 17, 2018 (ESEF Regulation).
The management is responsible for the preparation and disclosure of the annual report in accordance with the ESEF Regulation.
Our responsibility is to obtain reasonable assurance about whether the consolidated financial statements included in the annual report are presented in accordance with the requirements of the ESEF Regulation.
Our procedures took into account the OROC Technical Application Guide on ESEF reporting and included, among others:
In our opinion, the consolidated financial statements included in the annual report are presented, in all material respects, in accordance with the requirements of the ESEF Regulation.
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 1 of article No. 5 of Regulation (EU) 537/2014 of the European Parliament and of the Council, of 16 April 2014, and that we remain independent of the Group in conducting our audit.
19 April 2022
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. represented by:
[Original in Portuguese signed by]
José Manuel Henriques Bernardo, ROC no. 903 Registered with the Portuguese Securities Market Commission under no. 20160522
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