Message from Ana Botín

Building a responsible, digital bank

What makes a truly successful business? For me, the answer is simple. It’s a business that recognises it has a responsibility to its employees, customers, shareholders and the wider community - everyone who has a stake in the business, or is touched by its activities in some way. It’s a business that understands its purpose is more than making a profit: it has a clear sense of how, by making a profit, it benefits society as a whole, today and for generations to come.

By delivering on our purpose, and helping people and businesses prosper, we grow as a business and we can help society address its challenges too. Economic progress and social progress go together. The value created by our business is shared – to the benefit of all.

The reason “doing good” is good business can be summed up in one word: loyalty. A business that treats its team with respect, and nurtures talent, builds a motivated, loyal workforce. A loyal workforce serves customers with care and dedication, willing to go the extra mile to earn the loyalty of customers. Loyal customers generate growth year after year, which in turn creates lasting loyalty among shareholders. And by generating predictable profits, the business is able to invest in the communities it serves, sharing the profits it makes so more people benefit from growth. And this motivates the workforce - and so the virtuous circle of growth starts again.

The need to be responsible

To earn this loyalty, we need to act responsibly in all we do - in our day to day operations, and in how we fulfil our purpose. In doing so we face four clear challenges.

First - and most important of all - is the public’s loss of trust in banks following the challenge financial crisis. Ethics and conduct in the financial sector remain under the spotlight, for understandable reasons. Companies that do the right thing are rewarded. Those who don’t, pay the price. Doing the right thing means doing the basics properly. Dealing with complaints, selling products and services people understand and want, being open and transparent about their operations, treating employees with courtesy and respect - these are essential, a given.

The second challenge has been created by the digital revolution. Digital technology has given people more 2017 Sustainability report 9 information, choice and power. This means every company has to adapt its business model, and how its team operates. The nature of work is changing, creating new opportunities but also new challenges. In banking, this is especially so: how people bank, and use technology, is undergoing a rapid transformation – requiring us to innovate quickly, while safeguarding personal data and the security of our systems.

By delivering on our purpose, and helping people and businesses prosper, we grow as a business and we can help society address its challenges too. The value created by our business is shared – to the benefit of all.

Communities are best served by corporations that have aligned their goals to serve the long term goals of society.

The third challenge is inclusive growth. How we ensure more people share in the benefits of growth, and fewer people get left behind as the digital revolution continues, is a matter of debate across the world. As banks oil the wheels of the world’s economy, financing multinationals and entrepreneurs, obviously we have a part to play in the debate about how best to tackle financial and social exclusion. Two billion people currently do not have a bank account. Without access to the financial system, it’s difficult for them to share in prosperity. A bank account brings with it peace of mind that a day’s wages are kept safe, the opportunity to get a loan to buy a car, go to college or buy a home.

Meanwhile, 600 million jobs need to be created over the next 15 years to match the growth in the global workforce. Many of these jobs will be created by small businesses, which are the engine of economic growth. Some will be in regions where digital technology is giving small businessmen the first opportunity to open a bank account. Others will be created by businesses which export; here too digital technology can play a part, connecting firms on one continent with firms in another with ease and speed.

The fourth challenge is the need for sustainable growth. Climate change, the growth in the world’s population and scarce natural resources to meet their needs, pose significant social, environmental and economic risks but also opportunities. $1 trillion in clean energy investments is needed each year if we are to limit global warming to below 2˚C. Tackling those risks requires innovation, enterprise and finance. People rightly expect businesses to play a role in fostering sustainable growth, and a transition to the green economy in a way that is responsible towards society. All of this is why communities are best served by corporations that have aligned their goals to serve the long term goals of society.

People rightly expect businesses to play a role in fostering sustainable growth, and a transition to the green economy in a way that is responsible towards society

Santander’s strong foundations

I believe Santander is well placed to face up to these challenges. The proof is there to see in our annual results.

Growth: Last year, I said we would increase our number of loyal customers by a further 1.8 million to 17 million, and invest in technology to raise the number of digital customers to 25 million. We have achieved these targets, with loyal customer growth of 13% compared to last year to 17.3 million, and digital customer growth of 21% to 25.4 million. This had positive impacts on our revenues – in particular the net fees line grew by 14% to €11.597 millions.

Profitability: Santander is one of the most profitable banks in the world (10.4% underlying RoTE ), and as I set out last year we maintained a broadly stable cost to income ratio making Santander one of the most efficient banks in the world (47% cost to income ratio). This allows us to lend more to customers; increase dividends (11% cash dividend per share increase) and generate capital through organic growth (53 bps increase) all at the same time.

Strength: I said that in 2017 our aim was to increase our earnings and dividend per share; and that we would do this while continuing to grow our capital towards our target of reaching more than 11% Fully Loaded Common Equity Tier 1 by 2018. How have we done? We have grown our attributable profit per share by 1% compared to last year, and we have increased our FL CET 1 by 29 basis points to 10.84%, on track to achieve our 2018 target.

We have achieved this because we have a clear and simple approach to business.

We have a clear purpose: to help people and business prosper.

To fulfil that purpose, we have a clear aim: to be the best retail and commercial bank by earning the lasting loyalty of our people, customers, shareholders and communities.

And to achieve that, we strive to act responsibly, by being simple, personal and fair in all we do.

We now need to build on this success, focusing more on how we confront the four challenges I set out above – and turning those words “responsible banking” into action.

It’s work in progress, but the building blocks are there to see, and are set out in the following pages.

As to ethics and conduct, our overriding imperative is to ensure our operations are simple, personal, fair. To make those words reality, we have taken steps to ensure that our commitments to act in a responsible way are properly understood by our teams; that they are implemented; and that performance and progress is measured in a meaningful way. Governance is key.

We also continue to simplify our processes, so they are easy to understand and quick to implement. As well as this, we need to ensure that people are encouraged to behave in a responsible way. Starting in 2017, under our newly created performance management system My Contribution, 40% of variable remuneration is linked to how well employees live our behaviours.

To meet the challenge of the digital revolution, we are using our scale and expertise to capture new opportunities in an agile, innovative way, seizing new opportunities by being agile and flexible while ensuring reliability of the more establishes business. In Spain, we re-launched Openbank with its own, new IT structure and new team. It now serves 1 million customers, offering a full range of services – from stocks to mortgages, but only has one branch and just 70 fulltime employees, some of whom have never worked for a bank before. In Brazil, SuperDigital – which allows customers to carry out transactions on their phones - is growing at around half a million customers a year (many of whom are opening a bank account for the very first time).

To innovate well we need to share best practice and collaborate effectively – which is a strategic target for us this year. Each of our businesses is independently managed and locally-responsive, but we want to maximize the value from being part of a group, so we continue to create the best possible products for our customers.

Digital technology and innovative business solutions are also helping us generate inclusive growth, by tackling financial and social exclusion. Through our financing inclusion initiatives, in 2017 we have helped more than 250,000 micro entrepreneurs with credits and more than 800,000 people with financial education.

And by providing green finance, and applying social and environmental policies, we are addressing the challenge of sustainable growth. This year in Mexico, Santander led the financing of the largest wind farm in Latin America, in USA we have been recognized as the leading Renewables Lender by Euromoney and we launched the first range of sustainable investment funds in Spain.

Our approach is underpinned by Santander Universities, a unique network of 1,100 universities in Europe and Latin America that has been created over decades. Today, Santander is the world’s largest corporate contributor to education – proof of our commitment to helping spread opportunity and prosperity. We are now going to use this platform not only to support students at university, but also to harness universities’ research and wisdom to tackle the challenges above. In doing so, we contribute towards the UN Sustainable Development Goals.

We now need to build on our success, focusing more on how we confront the four challenges we face – and turning those words “responsible banking” into action.

A Responsible, Digital Santander

This is a bold, ambitious agenda that we are setting ourselves. But I am confident that we can deliver it, thanks to the strength of our business model. Our scale, diversification, and predictable growth means we will continue to deliver stable returns for our shareholders while benefiting society. Our targets for this year are:

Growth: We aim to have 18.6 million loyal customers (an 8% increase) and 30 million digital customers (an 18% increase) for 2018.

Profitability: We are targeting a RoTE of more than 11.5%.

Strength: We are aiming for FL CET 1 above 11%, double digit growth in earnings per share and cash per share dividend growth.

We will achieve this by following age old lessons.

Our business depends on lasting loyalty.

To earn that loyalty, we will strive to act responsibly in everything we do, acting in a way that is Simple, Personal and Fair.

And we will do all we can to fulfil our purpose – to help people and businesses prosper.

This approach, which reflects the responsibilities we have to all those we serve, will be the bedrock on which we build our new digital future.

Strategic Targets 2018
  • TOP 3
    of the best banks to work for in the main markets, according to respected local rankings.
  • 30 million
    of digital customers (+18%)
  • ROTE of more than
  • Reach
    5 million
    people helped in the period 2016-2018

We have a bold, ambitious agenda. But I am confidentthat we can deliver it, thanks the strength of our business model.

Firma Ana Botín

Ana Botín
Group Executive Chairman