Banking industry challenges in 2019 and Santander’s strategic actions

In 2019, the banking industry, mainly in Europe, continued to carry out its business in a difficult environment, driven both by exogenous factors and by factors endogenous to the sector itself.

A macroeconomic situation shaped by slower economic growth, a low interest rate environment (which is lasting longer than expected) and the challenges inherent to the banking business were discussed and debated in various economic fora.

The year was characterised by a slowdown in the global economy, which has reduced 2020 growth expectations for both global GDP and the most significant regions.

This slowdown is partly due to greater uncertainty generated by geopolitical and commercial tensions. The largest economies have responded by reviving expansionary monetary policies, reflecting to low levels of inflation.

In addition, other disruptions affected global GDP growth, including socioeconomic factors such as an ageing population in developed countries, lack of investment, a lack of stimulus for new companies and a lower yield on productive resources, among others.

However, in the last few months of the year, we received more positive news, including some easing of trade tensions following the rapprochement between the US and China. In addition to this is the improvement in some economic indicators, mainly related to confidence, which had dampened growth in countries such as Brazil and Mexico in the previous months.

This changing macroeconomic environment continues to have a direct effect on the performance of the financial industry. It is therefore necessary to focus on the specific issues that affect us as a sector.


“Main measures aimed at improving profitability:
  - improvement in efficiency
  - active management of the 
  least profitable portfolios
  - capital allocation optimisation
  - reduction of nonperforming 


1) The first is low profitability.

Our duty is to increase the appeal of the banking sector in order to improve share prices at European banks, which are valued lower than other regions. III At Santander we have developed and implemented a series of measures aimed at improving profitability, which will help us to lay the foundations for the future growth of the bank:

  • Firstly, an improvement in efficiency, thanks, on the one hand, to the unification of various technological platforms and the simplification of our business model, taking advantage of additional synergies from the ongoing integration processes. And, on the other hand, to greater generation of customer revenue, stemming from the increase in loyal and digital customers.

  • Secondly, active management of the least profitable portfolios through the sale of those activities considered to be non-core and stricter profitability requirements on new lending in all segments and countries.

  • Thirdly, via the optimisation of capital allocation with operations aimed at increasing funds in businesses with a high return on tangible equity.

  • Lastly, the reduction in nonperforming assets, through the strategic sale of foreclosed mortgage assets (especially in Spain), or one-off transactions, such as the agreement reached in 2018 with Blackstone for the sale of Banco Popular’s real estate business. In the last two years, we have managed to reduce foreclosed assets on the balance sheet by 60% (close to EUR 7 billion), which helps us to cut costs and use these funds in other, more productive activities.

"All companies are responsible for addressing the current global challenges"

2) The second challenge is to boost inclusive and sustainable growth. 

All companies are responsible for addressing the current global challenges. This is especially true of financial institutions. 

Our customers must perceive that, in addition to being financial service providers, we are also social welfare providers. Our objective is to continue being loyal to our stakeholders, meeting their needs and helping to overcome the challenges that will arise in the future, reinforcing the commitment to environmental sustainability and real equality between men and women. All of this must be reflected in our internal governance.

“In addition to sustainability, transparency is important. We are still the main institutions in whom savers and investors place their trust”

To give some more specific figures, by 2021 we have committed to supporting 200 thousand people through Santander Universities (with scholarships, internships and entrepreneurs programmes) and 4 million people through our community programmes. 

However, in addition to sustainability, I would like emphasise the importance of transparency. We must bear in mind that traditional banks, with a banking licence and years of experience, are still the main institutions in whom savers and investors place their trust. It is one thing to apply for a “Main measures aimed at improving profitability: - improvement in efficiency - active management of the least profitable portfolios - capital allocation optimisation - reduction of nonperforming assets” “All companies are responsible for addressing the current global challenges” IV consumer loan or open a secondary current account with a new entrant, but another to deposit retirement savings or apply for a mortgage for their home. 

To resolve one of the weaknesses in the public’s perception of banks, work must be done in terms of transparency, not only in the wording and drafting of contracts, but also in communications with the public and in advertising. 

Our responsibility is to evaluate the suitability and appropriateness of all the products and services we offer to customers, with an honest and transparent design, marketing and application processes. 

At Santander, we will continue to work on improving the planning, monitoring and control of these values, reinforcing internal processes and teams, as ultimately they are responsible for safeguarding the ethical behaviours and those responsible for the Organisation. With all these, we will contribute to improve the sector’s reputation.


“In order to foster banking consolidation, to create stronger and more solvent panEuropean banks, it is necessary to expand our horizons and become more self-demanding”

3) Another key point is to progress in integration of Europe, the Banking Union and the Single Market. 

The outbreak of the crisis in 2007 strengthened without a doubt the initial goal of the European project: greater political and economic integration in Europe. Seeing the consequences of this approach, national banks, regulators and governments concluded that there was a need to strengthen the common framework for banking supervision and resolution and to advance toward a European system to safeguard depositors’ savings. 

With the entry into force of the Single Supervisory Mechanism in 2013 and the Single Resolution Mechanism in 2014, all that is left is to lay the foundations for the third pillar; a European deposit guarantee scheme which is essential to increase citizens’ trust in the area’s banking system. But we should not stop there. To foster banking consolidation, to create stronger, more solvent and profitable pan-European banks, able to compete with other large international banks, it is necessary to expand their horizons and demand more of ourselves. 

Of particular importance is the removal of the barriers that limit, and in some cases prevent, liquidity and capital movements between countries, not only because it would diversify the risks in the event of a potential disruption and reduce the link between sovereign risk and that of the banks themselves, but also because it would allow a more efficient allocation of financial resources. 

Promoting a single regulatory framework for insolvency or for crucial elements, such as the prevention of money laundering “In addition to sustainability, transparency is important. We are still the main institutions in whom savers and investors place their trust” “In order to foster banking consolidation, to create stronger and more solvent panEuropean banks, it is necessary to expand our horizons and become more self-demanding” V and terrorist financing or consumer protection, is essential to remove obstacles and provide greater legal certainty. This must be accompanied by structural reforms in the field of taxation and the labour market. 

We still have a long way to go, but the challenge is undoubtedly exciting. I am optimistic that we will all work together towards common goals, and achieve a strong, integrated banking market.


“With initiatives such as Work Café, SmartRed or Súper Ágil, we have managed to expand the available technology and accessibility, with an innovative and functional design”

4) Understand what factors influence consumers, successfully taking on the new digital age. 

Commercial experience, both in physical channels and in the digital world, are two examples of this. 

With regard to the former, and as part of the ongoing commercial transformation process, we are renovating a large part of our branch network. With initiatives such as Work Café in several Group countries, Smart Red and Súper Ágil, we have managed to expand the available technology and accessibility in these establishments, with an innovative and functional design that makes them more comfortable, thereby progressing in a new customer relationship model. 

And with regard to the latter, I would like to point out that one of the most important challenges we face as a sector in the coming years is digital disruption

“Analysing customer data will allow us to leap forwards in satisfaction indices”

Not only must we be able to offer our services in the most agile and simplest way possible, with personalised (and customisable) products, but we must also understand the consumption patterns of the younger generations, anticipate their needs, which change faster and are more dynamic than those of the rest, and predict this segment’s trends. Opening communication channels, listening to their opinions and ideas, accelerating response times and, above all, analysing data that define these behaviour patterns or models will allow us to leap forward in brand positioning and satisfaction indices. For example, and with regard to the latter, we reiterated our medium-term objective of positioning ourselves in the Top 3 in Net Promoter Score (NPS) in our main markets. 

To this end, we created the Data Management and Data Science function at the end of 2018. Our daily activity generates a huge amount of data. A detailed and prudent analysis of these data is key to achieving success in today’s business world, even more so in digital platforms. Seeking solutions based on tools such as machine learning, artificial intelligence and big data will help us to provide tailored offerings, gaining a unique competitive advantage through an instant user experience, in order to achieve excellence and generate the maximum added value.

“We are treating the flood of fintechs and bigtechs in the financial sector as a change of collaboration and learning”

We must do all of this while coexisting with fintechs and bigtechs. The strong evolution of technological innovations in the financial sector has allowed the entry of new competitors, such as large tech companies and those known generically as fintechs. The payments business is generally at the forefront for most of these companies when it comes to competing with traditional banks. This is why we consider the development and growth of Santander Global Platform to be essential in our strategic agenda, especially as it is a catalyst for attracting  and  engaging  customers, and it becomes a fundamental pillar for generating Group revenue.

At Santander, we are treating the flood of new entrants in the financial sector as a chance for collaboration and learning rather than as a threat. Some examples are:

“Combining traditional banking with new businesses, associating ourselves with these companies enables us to improve the services our retail banks offer and compete in the best possible conditions”

  • the announced acquisition of 50.1% of Ebury,
  • the Santander Consumer USA partnership with Autofi, a company that provides a point of sale solution for financing a vehicle online in the U.S.,

  • the agreement with eBay in the UK, to provide eBay’s SME customers access to financial services which are simple, seamless and easy to manage on-the-go,

  • or Santander InnoVentures’ investment in Trulioo, a Vancouver-based global identity verification provider.

In short, combining traditional banking with new businesses, investing and associating ourselves with these companies enables us to improve the services our retail banks offer and, consequently, to compete in the best possible conditions.

In addition, our size and greater access to funding in wholesale markets highlight the significant gap between fintechs and neobanks regarding capacity to invest in technology (at the last Investor Day we announced EUR 20 billion over the next four years), as Santander is a benchmark amongst the large global banks.

Therefore, to conclude, taking into account the rapid progress made by the industry and the challenges we expect (summed up in these four key points), I would like to highlight the robustness of our results and our future strategy to face those challenges.

The Group’s performance in 2019

The Group’s good performance, has consistently and sustainably been reflected in the achievement of the key performance indicators we set for 2019.

In terms of efficiency, we are the industry leader, with a ratio of 47%, thanks to revenue growth and efforts to contain costs.

As for credit quality, the NPL ratio improved once again, by 41 basis points during the year, to 3.32%, while maintaining the cost of credit at a record low of 1%. Coverage was 68%.

The Group’s profitability is still one of the best among our peers, with an underlying RoTE of 11.8% and an underlying RoRWA of 1.61%, above the 2018 figure.

Tangible net asset value (TNAV) per share at year-end was EUR 4.36. In terms of shareholder value creation, the recording of dividend remuneration should be taken into account. Including that, the TNAV per share increased 8% year-on-year.

Banco Santander continues to be a global reference in banking, with a solid presence focused on ten core markets in Europe and the Americas, with 4 million shareholders and nearly 200,000 employees that serve 145 million customers.

As a result, the underlying attributable profit was EUR 8,252 million in the year, up 2% on 2018, or up 3% in constant euros. By line and without taking into account the impact of exchange rates, the earnings performance is as follows:

  • Revenue increased 3% in the year, driven by net interest income, which was 4% greater (on the back of improved volumes and management of spreads) and fees, which rose by 5% due to greater activity and customer loyalty.

  • Our cost control efforts are reflected in a 0.4% drop in expenses in real terms, consistent with the investment and digital transformation plans.

  • Loans-loss provisions increased by 5%, in line with growth in volumes and maintaining high credit quality, with an improvement in the NPL ratio and coverage ratio mentioned earlier.

However, this sound performance across the main P&L lines is not reflected in attributable profit, which fell 17% (down 16% in constant euros) to EUR 6,515 million. This decrease is mainly due to the adjustment of the goodwill ascribed to the United Kingdom of EUR 1,491 million in September 2019. Excluding this impact, the other non-recurring charges total a negative net figure of EUR 246 million, similar to that recorded 2018.

With regard to the Group’s balance sheet, loans to customers were up in eight of the 10 main geographies, with a balanced structure between individuals (64%), SMEs and companies (24%) and large corporates (12%). Customer funds increased in nine of the 10 main units: Deposits were up 4% while mutual funds grew faster, up 15%, against a backdrop of falling interest rates in most  countries.

And in terms of capital adequacy, the Group’s  fully-loaded CET1 ratio closed 2019 at 11.65%, having increased 35 basis points in the year despite the strong  regulatory impacts, such as the entry into force of IFRS 16 or the review of internal  capital  models.  These impacts were able to have been absorbed thanks to the strong 79 basis points of organic capital generation.

This organic growth is due to underlying profit, proactive management of risk weighted assets and improved resource allocation to the most profitable regions and segments.

Moreover, according to the latest communication from the European Central Bank on prudential minimum capital requirements as at 1 January 2020, at the consolidated level and with year- end data, our fully-loaded CET1 ratio is 196 basis points above the regulatory requirement, which again highlights the strength of our subsidiary model, prudence in risk management and distribution capacity for dividends throughout the cycle.

Evolution of the Group in 2019: growth: underlying attributable profit +3%, total income 3%. Profitability: underlying RoTE -29pb, underlying RoRWA +2pb. Strength: CET1 fully loaded +35pb, TNAV EUR +0,17.

Performance by segment and management priorities in 2020

The Group’s size and presence in mature and in other high-growth markets is a key element that differentiates Santander from its competitors. By geographical area, Europe accounted for 47% of attributable profit, South America for 37% and North America for 16%. 

In Europe we are working on our franchises to simplify our business model and structures in order to operate in a more integrated way in the medium term. Underlying profit stood at EUR 4,878 million, down 3% on the previous year due to weak revenue, mainly in the UK which was affected by competitive pressure on mortgage spreads and the steady decline in Standard Variable Rate (SVR) volumes.

The other units increased their profits, offsetting the impact on net interest income of low interest rates in Spain and Portugal by reducing operating expenses and the cost of credit to a record low. Overall, costs fell 2.4% in Europe excluding inflation, as a result of the cost optimisation measures underway.

In 2020, in an environment of low demand for credit and low interest rates, we expect limited revenue growth and a minimal cost of credit. We will focus our efforts on Evolution of the business units in 2019 Europe Spain Underlying profit EUR 1,585 Mn (+2%) SCF Underlying profit EUR 1,314 Mn (+2%) United Kingdom Underlying profit EUR 1,077 Mn (-16%) Portugal Underlying profit EUR 525 Mn (+10%) Poland Underlying profit EUR 349 Mn (+19%) IX defending financial margins and improving efficiency, through cost reduction.


Evolution of the business units in 2019: Spain +2%, SCF +2%, United Kingdom -16%, Portugal +10%, Poland +19%.

In North America, underlying profit was EUR 1,667 million, 21% more than in 2018, with double-digit growth in both the US and Mexico, due to good revenue performance (supported by volumes that offset interest rate cuts) and the improvement in the cost of credit in both countries. 

In an attractive and large market, in 2020 we will continue to develop cross-border initiatives that bring value to companies that operate in both countries, such as the USMX commercial corridor.

In the United States, we will focus on cutting costs and boosting the growth of originations at Santander Consumer USA. In Mexico, we will take advantage of the strong growth in the customer base, a result of the effort put in over the last few years, to increase revenue and improve efficiency. 

In South America, the region’s units have continued business expansion, which is reflected in the strong increase in profits. 

Underlying attributable profit increased by 18% year-on-year in constant euro terms to EUR 3,924 million, with all countries posting double-digit growth, except Chile, impacted by the country’s situation in the latter part of the year. 

Customer revenue in the region continued to show healthy momentum, supported by the increase in volumes, coupled with a decline in the cost of credit thanks to our selective and prudent business volume growth. 

Profitability continues to be high, with RoTEs between 18% and 22% in the main regions. Brazil, which continues to be the country that contributes the most to Group profit (28%), performed better than the financial system, with an effective and profitable model that has enabled us to continue growing sustainably and reach levels of profitability comparable to market leaders.

In a region with high and growing profitability, we will continue to take advantage of the strong position in all the markets in which we operate. 

The strategy in 2020 is aimed at improving the branch network, expanding our customer base and supporting the financial inclusion of unbanked sectors, which should translate into significant increases in volumes and customer revenue.

“In 2019, SCIB achieved a clear leadership position in Latin America and in our traditional markets in Europe”

Regarding global businesses:

Santander Corporate & Investment Banking (SCIB) includes income from global corporate banking, investment banking and markets businesses worldwide.

Earnings were buoyant in the year, better than its competitors, resulting in attributable profit of EUR 1,761 million, up 10% on 2018 (in constant euros), mainly on the back of increased commercial revenue and a significant reduction in provisions.

In 2019, SCIB achieved a clear leadership position in Latin America and in our traditional markets in Europe.

In 2020, we want to strengthen the international business between Latin America and Iberia and the rest of Europe, the United States and the United Kingdom. Our targets also involve increasing the volume of institutional clients and continuing to execute our capital efficient model and increasing returns. This should enable us to grow revenue at a good pace during the year.

“Our objective is to be the best and most responsible Wealth Manager in Europe and the Americas”

Wealth Management & Insurance has operations in more than 10 countries. Its main objective is to make Santander the best and most responsible Wealth Manager in Europe and the Americas. Underlying attributable profit in 2019 was EUR 960 million, up 11% on 2018 in constant euros, accounting for 30% of the Group’s fee income.

The insurance business has high growth potential and we think that we can double our business in the long term. To achieve that, we want to be the first choice insurer of our clients in our markets.

In Private Banking, we launched the All Access platform which allows us to service our customers globally, and we increased shared business between countries 36%.

Finally in Asset Management, where we achieved for the first time assets under management of over EUR 200 billion, we will focus on products and markets in which we have a competitive advantage and we will choose specialist portfolio managers for the remaining products.

Evolution of the business units in 2019: North America: USA +24%, Mexico +19%. South America: Brazil +16%, Chile +7%, Argentina +224%. Global business: SCIB +10%, WM&I +11%.


With all of this, in 2020 we are confident that we will be able to continue with growth across all businesses.

Santander Global Platform includes our digital bank Openbank and Open Digital Services (ODS), Global Payment Services and Digital Assets. Since its creation, it has focused on extending the benefits of the Group’s scale and talent to the fastest-growing payments and digital businesses, in order to offer better services to our customers.

Our aim in 2020 is to continue working and progressing on strengthening and expanding Openbank and our GTS, GMS and Superdigital platforms.


My most sincere thanks goes to our teams for their dedication and to our shareholders for the trust placed in the Bank’s management.

“We are in a more global phase of development and committed to delivering on the issues that most concern our main stakeholders”

2020 is going to be another year full of challenges and opportunities. A year in which we will continue to make progress towards achieving our medium-term objectives, which will require the involvement of our professionals in a project that will drive Santander into the new digital era. We are in a more global phase of development and committed to delivering on the issues that most concern our main stakeholders

I believe that the Santander’s share price does not currently reflect our results, capability and mediumterm growth potential. I am sure that, with the efforts of everyone who works for the Group, we will be able to offer our shareholders the profitability that they deserve

José Antonio Álvarez 
Vice chairman and Chief executive officer