Annual report 2009 - Santander

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148C. Distribution of credit riskThe charts below show the diversification of Santander’s loansby countries and customer segments and concentrated on itscore markets. The Group is geographically diversified andfocused on its core markets.Grupo Santander’s profile is essentially retail (86.3% retailbanking), and most portfolios are products with a real guarantee(e.g. mortgages).Distribution of credit risk, December 31, 2009By geographic area. TotalBy type of riskUnited States 5%Portugal 5%Others 7%Public sector 3%Global wholesale 14%Others 2%Latin America 15%Spain 37%Companiesand SMEs 26%Individuals 55%UK 31%The distribution by geographic area and product of lending inthe segment of standardised risks is set out below.Distribution of credit risk, December 31, 2009By geographic area. StandardisedBy product. StandardisedSantander Consumer Finance14%United States 4%Cards 3%SMEs and others 8%Latin America 13%UK 44%Consumer 21%Portugal 5%Mortgages 68%Spain 20%Annual Report 2009 Risk management
1493.3 Metrics and measurement toolsA. Rating toolsThe Group has been using since 1993 its own models forassigning solvency and internal ratings, which measure thedegree of risk of a client or transaction. Each rating correspondsto a certain probability of default or non-payment, the result ofthe Entity’s past experience, except for some termed “lowdefault portfolios”. The Group has around 200 internal ratingmodels for risk admission and monitoring.Global rating tools are used for the segments of Sovereign risk,financial institutions and global wholesale banking. Theirmanagement is centralised in the Group, both for determiningtheir rating as well monitoring the risk. These tools assign arating for each customer, based on balance sheet ratios ormacroeconomic variables, and supplemented by the expert viewof an analyst.In the case of companies and institutions under individualisedmanagement, the parent company of Grupo Santander hasdefined a single methodology for formulating a rating in eachcountry. The rating is determined by an automatic model whichreflects a first intervention by the analyst and which can or notbe later complemented. The automatic model determines therating in two phases, one quantitative and the other qualitativebased on a corrective questionnaire which enables the analystto modify the automatic scoring by a maximum of ±2 points ofrating. The quantitative rating is determined by analysing thecredit performance of a sample of customers and thecorrelation with their financial statements. The questionnairehas 24 questions divided into six areas of assessment. Theautomatic rating (quantitative +corrective questionnaire) can bechanged by an analyst by writing over it or by using a manualassessment model.The ratings accorded to customers are regularly reviewed,incorporating new financial information available and theexperience in the development of the banking relation. Theregularity of the reviews increases in the case of clients whoreach certain levels in the automatic warning systems and forthose classified as special watch. The rating tools are alsoreviewed so that their accuracy can be fine-tuned.In the case of standardised risks, both for transactions withcompanies as well as individuals, there are scoring tools whichautomatically assess the operations.These admission systems are complemented by performanceassessment models which enable the risk assumed to be betterpredicted. They are used for both preventative activities as wellas sales.B. Parameters of credit riskThe assessment of a customer or operation, through ratings orscorings, constitutes a judgement of the credit quality, which isquantified via probability of default (PD).As well as evaluating the customer, quantifying credit riskrequires other parameters to be estimated such as exposure atdefault (EaD) and the percentage of EaD that might not berecovered (loss given default or LGD). Other aspects are alsoincluded such as quantifying off-balance sheet exposures, whichdepend on the type of product, or analysis of expectedrecoveries, related to the guarantees existing.These factors comprise the main credit risk parameters. Theircombination enables the probable or expected loss (EL) to becalculated. This loss is considered as one more cost of theactivity as it reflects the risk premium and should beincorporated into the price of operations.The following charts show the distribution of failed consumerloans and mortgages since 2001 on the basis of the percentagerecovered after discounting all the costs –including the financialor of opportunity– of the recovery process.Spain-parent bank. MortgagesDistribution of operations by the percentage recovered9080706050403020100 10 & 20 & 30 & 40 & 50 & 60 & 70 & 10 & 20 & 30 & 40 & 50 & 60 & 70 & 80 &= 90%Risk management Annual Report 2009
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Annual report 2009
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Key figures 2Letter from the chairm
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Santander was the fourth bank inthe
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Letter from the chairmanEmilio Bot
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Just as important as being profitab
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The crisis has shown we are a solid
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Letter from thechief executive offi
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13Grupo Santander has shown it canp
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I believe we can be veryoptimistic
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17Board of directors meeting room,
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19Executive committeeRisk committee
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21Annual General Meeting, June 19th
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23Efficiencyis transforming cost sa
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25Main countries.Other countries wh
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27New visitors’ centre “El Faro
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29Grupo Santander resultsGrupo Sant
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31Santander Branch NetworkThe busin
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33Santander Consumer Financecontrib
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35Business dynamismThe good revenue
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37Grupo Santander Brazil obtainedat
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39Santander’s contact centre in Q
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41Sovereign’s integration into Gr
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43Treasury room, Grupo Santander Ci
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45InsuranceSantander Insurance focu
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47• Corporate sponsorship continu
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49Banco Santander has a unique andl
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51Thousand year-old olive trees in
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53El consejo propondrá a la junta
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551. Ownership structure1. Number o
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574. Resolutions in effect regardin
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59Mr Luis Alberto Salazar-Simpson B
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612. Powers and dutiesThe basic res
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Main activities of the board in 200
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654. Executive chairman and chief e
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6712. Appointment, re-election and
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6915. Committees of the boardGenera
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71Attendance at meetings of the boa
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73• Separate voting on matters su
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754. Banco Santander’s senior man
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774. WebsiteSince 2004, the Group
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79Finally, the board believes it is
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Consolidated Financial Report 82Inf
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83Summary of 2009 for Grupo Santand
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85- The UK: the Group remained focu
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87• Both in 2008 and 2009 the ext
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89Gross income and expenses% variat
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91Balance sheetMillion eurosAssetsV
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93Credit risk management*Million eu
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95Customer funds under managementBi
Page 99 and 100: 97Total equity and capital with the
Page 101 and 102: 991. Principal segments or geograph
Page 103 and 104: 101Continental Europe• Revenue gr
Page 105 and 106: 103Santander Branch Network• Grow
Page 107 and 108: 105Gains on financial transactions,
Page 109 and 110: 107Better evolution of Nordic count
Page 111 and 112: 109ActivityAgainst a backdrop of a
Page 113 and 114: 111United Kingdom• Double digit g
Page 115 and 116: Latin AmericaMillion eurosIncome st
Page 117 and 118: 115In the countries where Santander
Page 119 and 120: Latin America. Main unitsMillion eu
Page 121 and 122: 119- Banco Real’s customers have
Page 123 and 124: 121As a result of this strategy, th
Page 125 and 126: 123The pace of growth in savings in
Page 127 and 128: 125• Creation of a solid structur
Page 129 and 130: 127Corporate Activities• Reduced
Page 131 and 132: 129Retail Banking. Income statement
Page 133 and 134: 1312) Corporate FinanceThis area (i
Page 135 and 136: 133Asset Management and Insurance
Page 137 and 138: 135Continental Europe, which contri
Page 139 and 140: Executive Summary 138Corporate prin
Page 141 and 142: 139Credit risk exposure in Spain(pa
Page 143 and 144: 141• Limiting risks. The aim is t
Page 145 and 146: 143• Ensure that the Group’s ac
Page 147 and 148: 1453. Credit riskMain advances in 2
Page 149: 147B. Evolution of the magnitudes i
Page 153 and 154: 151D. Distribution of EaD and expec
Page 155 and 156: 1533.5 Credit risk cycleRisk manage
Page 157 and 158: 155Analysis of the mortgage portfol
Page 159 and 160: 157Acquisition of property assets (
Page 161 and 162: 159In the case of Spain (Santander
Page 163 and 164: 161This model operates in all phase
Page 165 and 166: 163B. Credit risk by activities in
Page 167 and 168: 165Notional OTC derivative products
Page 169 and 170: 167The decline was largely due to B
Page 171 and 172: 169They include analysis of scenari
Page 173 and 174: 171C. Structural exchange-rate risk
Page 175 and 176: 173Histogram of VaR by risk factor
Page 177 and 178: 175Backtesting of business portfoli
Page 179 and 180: 177b) Latin America(1) Quantitative
Page 181 and 182: 179B3. Management of financing and
Page 183 and 184: 181All of this enables the Group to
Page 185 and 186: 183E. Exposures related to complex
Page 187 and 188: 185The different phases of the tech
Page 189 and 190: 187In addition to this risk profile
Page 191 and 192: 189The global committee of new prod
Page 193 and 194: 191Internal validation of internal
Page 195 and 196: 193Continental Europe and Latin Ame
Page 197 and 198: Annual Report 2009195
Page 199 and 200: The compliance function 196Historic
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199Code of conduct in the securitie
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201are analysed on a centralised ba
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203without IFRS2004 2003 2002 2001
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Annual report 2009 - Santander

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