Banco Santander Q1 2025 Earnings Report

Banco Santander EPS Results

• Actual EPS: $0.22
• Consensus EPS: $0.22
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Banco Santander Revenue Results

• Actual Revenue: $17.69 billion
• Expected Revenue: $15.94 billion
• Beat/Miss: Beat by +$1.75 billion
• YoY Revenue Growth: N/A

Banco Santander Announcement Details

• Quarter: Q1 2025
• Date: 4/30/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 4:00AM ET

Banco Santander (NYSE:SAN) provides various financial services worldwide. The company operates through Retail Banking, Santander Corporate & Investment Banking, Wealth Management & Insurance, and PagoNxt segments. It offers demand and time deposits, mutual funds, and current and savings accounts; mortgages, consumer finance, loans, and various financing solutions; and project finance, debt capital markets, global transaction banking, and corporate finance services. The company also provides asset management and private banking services; and insurance products. In addition, it offers corporate and investment banking services; and digital payment solutions. Further, it offers online banking and financial services to retail, business, institutional, corporate, private banking and university customers and clients. The company was formerly known as Banco Santander Central Hispano SA and changed its name to Banco Santander, S.A. in February 2007. Banco Santander, S.A. was founded in 1856 and is headquartered in Madrid, Spain.

Banco Santander Q1 2025 Earnings Call Transcript

Key Takeaways

• Record Q1 profit of €3.4 billion, up 19% year-on-year, with ROTE post-AT1 rising to 15.8% and revenue growth of 5% in constant euros.
• CET1 ratio reached an all-time high of 12.9%, enabling a €10 billion share buyback programme for 2025–26 and reflecting that 87% of RWAs are generating returns above cost of equity.
• “One Santander” transformation has delivered over 150 basis points of efficiency improvements to date, boosting both revenue and cost performance through platform integration and process simplification.
• All global businesses delivered growth: retail & consumer added 9 million customers and saw digital sales +23%, CIB revenue +8% to a record, wealth fees +16%, and payments revenue +15%.
• Credit quality remains robust with cost of risk improving to 1.14%, and full-year targets reiterated of lower absolute costs, net interest income slightly up in constant euros, cost of risk around 1.15% and a 2025 ROTE target of ~16.5%.

Presentation

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Good morning all and welcome to the Santander Q1 twenty twenty five Results Call. We are joined today by Hector Grisi, our CEO and Jose Garcia Cantera, our CFO. We will start with a brief presentation on our Q1 results and then open the floor for questions. Hector, over to you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thanks, Rahul. Good morning, everyone, and thank you for joining Santander's results presentation. Today's presentation will follow the usual structure. Number one, first, I will talk about our results with a special focus on the performance of our global businesses. Jose, our CFO will then give a deep dive on the financials and I will conclude with some final remarks before opening up for Q and A.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We have entered the last year of our strategic cycle well ahead of our plan, focused on disciplined capital allocation, which is further improving our profitability to 15.8% post AT1s and our CET1 ratio to 12.9% with 87% of RWA generating returns above our cost of equity. Given our solid progress building capital, our diversified earnings and improving profitability, we reiterate our target to distribute up to €10,000,000,000 to our shareholders through share buybacks for twenty twenty fivetwenty twenty six subject to regulatory approvals. Remember that we no longer set a maximum price for our buybacks reflecting our confidence on the group's potential in terms of profitability and value creation. Q1 was another record quarter for Santander, demonstrating the strength of our strategy and the resilience of our business model. Profit reached a new record of Ps.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

3,400,000,000.0, 19 percent higher than Q1 twenty twenty four with all our businesses growing. On the back of our solid franchise of 175,000,000 customers that continues to grow as we improve our customer experience leveraging our global platforms. We achieved this as we continue to invest for the future through one transformation and making excellent progress towards a simpler and more integrated model. This has helped us to improve our efficiency by around one point and increase our rate Rote post AT1 by almost two points to 15.8%. Our balance sheet remains solid with a strong CET1 capital ratio, which ended the quarter with another all time high of 12.9% towards the top end of our 12% to 13% operating range.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

All these contributed to the strong shareholder value creation with TINA plus dividend per share growing 14.5% despite the depreciation of sub currencies across our footprint. Going into more detail in our income statement, our P and L remained very solid. Number one, we delivered strong top line growth with revenue up 5% in constant euros supported by NII, which increased 4% excluding Argentina, which as Jose will explain later is causing some distortions and also by record fees, up almost double digits supported by significant growth of our 9,000,000 customers and the network benefits that we are capturing through our global businesses. Number two, expenses grew below revenue and inflation, showcasing the positive effects from a transformation. We reiterate our target of lower cost in current euros in 2025.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Third, we are once again demonstrating the sustainability of our results with 7% growth in net operating income. Fourth, our prudent approach to risk is also evident in our robust credit quality trends with cost of risk that is consistently improving quarter after quarter. Fifth, finally, we have the impact from the different treatment of the Spanish banking tax that this year were accruing quarterly through taxes. Even excluding this favorable impact, profit rose double digits year on year. All in all, as we have shown over time, our results are sustainable and less volatile than peers.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

This is because we are mainly a retail consumer bank with a business model that combines businesses and geographical diversification with a prudent approach to risk. We are ahead of our plan in executing our transformation, which continues to boost our operational leverage, structurally improving both revenue and cost performances. Simplifying and automating processes and our active spread management have already contributed two fifty three basis points of efficiencies since we started, surpassing the levels which we expected to reach by the end of twenty twenty five. Our proprietary and global tech capabilities have generated 79 basis points in efficiencies so far. As we said last quarter, there is still more upside over the medium term for our strategy for both revenue and cost.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Retail and consumers, which represent more than 70% of our revenue, have significant upside as we progress on the implementation of our common platforms. The rest of our revenue comes from wealth, CIB and payments, which are more fleet driven and play to our network strengths. This has delivered 75 basis points of efficiency improvements, which more upside to our original target of 100 to 150 basis points. Our common operating model supports value creation as reflected in the strong performance of our businesses with all of them delivering both revenue and profit growth. Retail's performance reflects our scale and the benefits of our transformation, which significantly improved efficiency.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

In CIB, we are building a world class business, leveraging on an areas of expertise to grow our U. S. Franchise without changing the risk profile. Revenue grew 8% to another quarterly record supported by the good performance in The U. S.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

And client flows demonstrating the benefits of our strategy. Wealth continued to grow strongly, improving in both efficiency and profitability And in payments, we are seeing good activity trends as reflected in double digit revenue growth both in Pagonext and cards. The combination of our global businesses and our geographical diversification puts us in a unique position to face the challenges for 2025. Higher interest rates benefit some of our retail franchises, while other parts of our business such as CIB, consumer and some emerging markets performed better with lower rates. It is this diversification that allows us to deliver recurrent strong results, consistent profitable growth and value creation even under very different environments.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Overall, the greatest start of the year, the execution of our strategy and our diversification puts us on track to achieve our profitability targets for full year 2025. In retail, which is at the heart of our banking business, we are progressing in our aim to become the number one bank for our customers. As we progress in this simplification, process automation and customer experience, we gain their principality. Today, we have 3,500,000 more active customers than a year ago. We have reduced the numbers of products by 40% in the last year and 51% since we started the process back in 2023, with a special focus on the front book.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

As we deepen simplification, our digital sales and our cost to serve improves. Today, our digital sales are 23% higher than last year and our cost to serve has dropped by 5%. The implementation of our global platform progresses at pace. We have completed the integration of gravity in Chile, which improves the digital channel performance, reducing the response time and significantly enhances the overall customer experience. As a result, retail profit grew strongly year on year, driven by solid revenue, both NII and fees across most of our countries with cost improving reflecting our transformation efforts.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Going forward, we expect that our global platform rollout and improvements in the consumer and customer experience will drive additional customer growth and lower cost in euros. In consumer, we continue to advance in our priority to become the preferred choice of our partners and customers by delivering the best solutions and increasing our cost competitive advantage across all of our footprint. First, we are converging towards global platforms. This quarter we launched Openbank in Mexico with a full value proposition and we opened a branch in Germany. In The U.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

S, we have announced a multi year partnership with Verizon offering their customers saving accounts. These initiatives are part of our focus on deposit gathering to lower funding cost as reflected in our deposit increase of 12% year on year, while we continue to improve our customer experience. Second, we are working to grow and consolidate partnerships, offering global and best in class solutions integrated into our partners' processes. Xenia continued processing and progressing with strong partnerships. For example, we launched the Amazon co branded card in Austria.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Finally, we are promoting the network effect, aligning the businesses with the group's operating model and becoming more agile through the simplification and automation of processes. Profit grew 6% in consumer on the back of NII growth and LLP improvements mainly in The U. S. Growth grew in line with inflation even after our efforts on transformation, which are supporting double digit customer deposit growth. During the year, we expect NII to improve as interest rates continue to decline as we execute our strategy to lower funding cost and originate at attractive profitability levels.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

In CIB, we are building a world class business to better serve our corporate and institutional clients across our footprint, while maintaining the same low risk profile. Number one, we're deepening our client relationships by expanding our advisory capabilities in The U. S. Building on our areas of expertise to accelerate growth across

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

the group.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Revenue in CIB in The U. S. Rose 23% year on year and is expected to boost cross border revenue across the group as we originate businesses from The U. S. For the rest of the group and vice versa.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Second, we are strengthening our position in our core markets, leveraging our centers of expertise. A good example of this is a record quarter in global markets with revenue up 23% on the back of the investments we made and cross selling opportunities with global transactional banking and global banking. Third, fostering collaboration with other businesses is also key. CIB provides FX solutions to retail, product development and structuring to wealth and a full suite of products including capital markets and advisory to commercial and auto. CIB had solid results with revenue up 8% to a new record high with fees growing at double digits.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

All these while we maintain an efficiency ratio that is among the best in the sector and an ROTE of around 22% reflecting our focus on profitability and capital discipline. In Wealth, we are building the best wealth and insurance manager in Europe and The Americas. First, in Private Banking, we remain focused on expanding our fee business by promoting value added solutions, leveraging our best in class portfolio advisory capabilities. We have created a new global family office team and we have expanded our ultra high net worth global team offering world class specialized wealth management services. Second, in asset management, we progressed in the implementation of an advisory model for retail customers across countries, supported by a global investment platform that offers enhanced customer experience.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Third, in insurance, we are developing new business lines such as retirement, which we are offering an integrated value proposition while we expand high growth verticals such as health and motor. Fourth, in collaboration with other businesses is of the essence in wealth and it is a major driver for growth. Collaboration fees increased by 10% year on year. In summary, all this supports growth and high profitability levels. Profit rose double digits on the back of strong activity and double digit fee growth across all the three businesses.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Efficiency ratio improved close to 1.5 points year on year and Rote stands at close to 70%. Finally, payments, where we have a unique position on both sides of the value chain. In merchant acquiring, we are one of the largest acquirers in Latin America, Spain and Portugal, with the right balance between growth and profitability. GET Net total payments volume kept growing strongly, which is helping us to consolidate our presence in our core markets. At the same time, we remain focused on globalizing products and technology.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

PagonX Payments is leveraging the best technology to build its own proprietary solution to deliver account to account payments processing, foreign exchange, fraud detection and value added services. Our payments hub platform processed triple the volume compared with the same period last year. In cards, where we are one of the largest issuers globally with 106,000,000 active cards, we continue to deploy Plard, our global cards platform. In Brazil, we currently manage more than 16,000,000 debit cards through Plard. In Chile, we started issuing debit cards for new customers, and in Mexico, we already authorized more than 160,000,000 transactions per month.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Payment delivered a strong quarter with double digit revenue growth year on year both in cards and PagonEXT. And cost is under control, which drove 30% profit growth. Finally, Pagonex EBITDA margin improved to around 29% backed by GetNet with one of the best ratios among our competitors. We expect cost efficiency and CapEx optimization to continue to drive profitability in the coming quarters. Our strong operational and financial performance is improving profitability and driving double digit value creation for the eighth consecutive quarter.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

RoTE post-eighty '1 was 15.8, up close to two points year on year reflecting the high levels of new business profitability. Earnings per share rose to above €0.21 supported by strong profit generation and a lower number of shares following the ongoing buyback programs. As a result, we continue to grow our value creation, which in terms of TNAV plus cash DPS increased 14.5%, reflecting our disciplined capital allocation and again the impact of our share buybacks. Buybacks remain one of the most effective ways to generate shareholder value. Since 2021 and including in full the share buyback that is currently underway, we will have bought back 14% of our standing shares providing a return on investment of approximately 20% to our shareholders.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

I will leave you now with Jose, who will go we go into our financial performance in more detail.

[José García Cantera, CFO at Banco Santander]

Thank you, Hector, and good morning, everyone. Starting with income statement as we normally do, we present growth rates in both current and constant euros. This quarter, there was a difference of around four to five percentage points between both, mainly due to the depreciation of the Brazilian real and the Mexican peso towards the end of last year. As Hector has already mentioned, we are yet again reporting record results as our transformation continues to drive operational leverage. We had a strong top line performance with sound underlying trends as revenue grew 5% and reached a new record high for the fourth quarter in a row with good performance in cost towards our objective for 2025.

[José García Cantera, CFO at Banco Santander]

As you can see, Argentina introduces some distortions between different lines of the P and L, which are fully compensated in total revenue. In local currency, net interest income is affected by a sharp decrease in interest rates for around 600,000,000 year on year. And in other income, there is a benefit from lower hyperinflation adjustment for a similar amount. Cost of risk remained fairly stable in the quarter, supported by robust labor markets and prudent risk management. Last year, we charged the temporary levy on revenue earned in Spain in full in the first quarter through other results.

[José García Cantera, CFO at Banco Santander]

This year, it is charged in the tax line on an accrual basis. This is the main reason that explains the significant jump in other results line. Even if we exclude this impact and calculate year on year growth on a like for like basis, profit grew double digits, not only at the group level, but also in almost all the global businesses. Finally, on the right hand side of the slide, you can see the upward trend in profit, which grew 4% this quarter on the back of positive customer activity, lower cost and better provisions. Please also remember that the last quarter, we had the full positive impact from the FX accounting of the Argentine peso.

[José García Cantera, CFO at Banco Santander]

This also produces some distortions quarter on quarter that I will comment on during the presentation only where relevant. Total revenue increased 5%, which puts us on track to meet the target for the year we provided last quarter. This was underpinned by growth in customer activity across businesses and reflects the benefits of our model. All of our global businesses contributed to revenue growth, which was mainly supported by another record quarter in CIB, up 8%, driven especially by global markets and our growth initiatives in The U. S.

[José García Cantera, CFO at Banco Santander]

We grew 14% in wealth with record assets under management and strong commercial trends. Payments was up 15% with double digit growth in net interest income and fees, both in Pagonext and cards on the back of higher activity. Retail and consumer also showed very good figures, in retail particularly due to a strong net fee income across most countries and in consumer on the back of net interest income growth mainly in the U. S. Group's NII increased 4% year on year excluding Argentina, even in a less favorable interest rate environment.

[José García Cantera, CFO at Banco Santander]

More than 80% of group's net interest income comes from retail and consumer businesses, and the positive evolution was supported by our active assets and liability pricing management in retail, most evident in The U. K. And Mexico and consumer, both in Europe and in The U. S. It was also supported by continued profitable growth across most businesses and countries, mainly consumer, and finally, also by our focus on adapting the sensitivity of our balance sheets to the new cycle of interest rates.

[José García Cantera, CFO at Banco Santander]

A good example of this is retail NII, which increased across most countries and remained flat in Spain and Brazil in a context of unfavorable interest rates. Net interest income was resilient also quarter on quarter, flat when we exclude Argentina for similar reasons, which also explained the performance of net interest margin, which fell only seven basis points year on year without Argentina and was flat in the quarter. This performance is slightly better than our guidance of NII going slightly up in 2025 in constant euros, excluding Argentina, and slightly down in current euros. However, as forward rate curves remain very volatile in all jurisdictions, we reiterate our guidance for the year at this stage. We generated another record period of net fee income, reflecting our transformation efforts to promote connectivity across the group, deploy high value added products and services and provide the best customer experience.

[José García Cantera, CFO at Banco Santander]

Net fee income grew close to double digits on the back of a strong activity in general, consumer growth and in a change in mix with a higher share of more value added services. Retail showed good performance across the footprint. CIB grew even further up from record levels last year as we continue executing our growth initiatives, particularly in Global Banking in The U. S. And GTV globally.

[José García Cantera, CFO at Banco Santander]

We had a 16% increase in wealth with a strong growth in all business lines, backed by record assets under management. We had double digit growth in payments, both in Pagonext and cards, supported by high activity levels as GetNet's total payments volume increased 14% and cards spending rose 7% year on year. As we guided in last quarter results presentation, this year, consumer is affected by the impact of a new insurance regulation in Germany, which has been offset by strong free growth in DCB U. S. As Sector elaborated, one transformation is key to understanding why we can continue to get better in every single market, leveraging our global businesses.

[José García Cantera, CFO at Banco Santander]

As a result, we expect sustainable improvements in operational leverage as we further implement the structural changes to our model. These improvements are already very evident as demonstrated by the trends in our efficiency ratio, which is consistently getting better quarter after quarter and remains one of the best in the sector, but more importantly, by the evolution of cost in absolute terms. Retail and consumer are leading our transformation, which is delivering structural efficiency gains with revenue improving and costs flat. These two businesses represent 70% of our cost base, and we expect them to reflect further the benefits of One Transformation going forward. CIB, Wealth and Payments are more fee driven.

[José García Cantera, CFO at Banco Santander]

Costs grew 6%, showing positive operating jaws with double digit fee increase, as I have just explained. As a result, our efficiency ratio closed at 14.8% in the quarter, amongst the best we have reported in the past fifteen years. As Hector said, we reiterate our guidance for lower absolute cost in current euros for 2025. The risk profile of our balance sheet remains low with robust credit quality across our footprint on the back of low employment and easing monetary policies in general. Loan loss provisions increased 7% year on year, mainly due to our efforts to reduce NPLs and some deterioration in Brazil in the context of higher rates and inflation.

[José García Cantera, CFO at Banco Santander]

Credit quality continued to improve year on year as reflected both in the P and L ratio, which fell to under 3%, and cost of risk, which improved to 1.14% despite proactive management actions, as I just explained. Remember that much of our NPL portfolio has collateral guarantees and provisions that account for more than 80% of total exposure. Cost of risk dropped year on year to 1.14% and was fairly stable in the quarter. Retail and consumer represent 80% of the group's long loss provisions. In retail, it improved year on year across all our main countries and was flat in the quarter, with significant improvement in Mexico compensating the weaker performance in Brazil.

[José García Cantera, CFO at Banco Santander]

In consumer, cost of risk was relatively stable both year on year and quarter on quarter, with notable improvements in The U. S, where we are seeing favorable payment rates, higher car prices and an improved labor market year on year. As of today, we are not seeing any significant deterioration in employment rates, and our credit quality remains stable. Moreover, it is in periods of high instability when diversification becomes more important. For instance, in the current context, we benefit from the fact that tariffs do not equal affect all countries, and Brazil is a good example of it.

[José García Cantera, CFO at Banco Santander]

Nevertheless, it is too early to make conclusions regarding the new geopolitical environment, but as long as labor markets are not significantly affected, we wouldn't expect material impact to our cost of risk target. Moving on to capital. As you know, we have been working on improving our capital productivity and accelerating our capital generation for some time. This quarter, we delivered exceptional growth again, generating 10 basis points to 12.9% at the top end of the operating range we disclosed during last results presentation and already very close to our 13% guidance for 2025. We generated 33 basis points of net organic capital after having absorbed 24 basis points of profitable risk weighted asset growth, while we had a positive impact from securities portfolios and DTAs.

[José García Cantera, CFO at Banco Santander]

This enabled us to compensate shareholder remuneration accrual, some regulatory charges, as well as to accumulate capital. As we have already mentioned in the past, there was no impact from Basel III implementation on day one. We continue to deploy capital to the most profitable opportunities and leverage our global asset mobilization capabilities to maximize capital productivity. Our disciplined capital allocation produced a new book return on risk weighted assets of 2.8% in the quarter, equivalent to a return on tangible equity of 22%, well above that of our back book. All these actions explain the increasing profitability and great capital performance.

[José García Cantera, CFO at Banco Santander]

That's all from my side. Hector, over to you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thanks, Jose. As you have seen, this is a great start of the year. We are well on track to achieve our 25 targets, targets that we reiterate. Good business dynamics supported by revenue increase backed by all our businesses with fees growing high single digits at the same time that will reduce the cost in euro terms. Cost of risk improved and is also in line with our target of around 1.15% at the end of the year.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We increased the CET1 ratio by 10 basis points as we profitably grew our business organically, accrued shareholder distribution and absorbed some regulatory impacts. In a Q1 that is normally lower affected by day count and seasonality in consumer and South America, our RoTE grew year on year to 15.8% on track to reach our target of around 16.5% in 2025. In summary, very positive trends which we expect to consolidate in the coming quarters even in an environment of high uncertainty. As Jose has mentioned, it is precisely in periods of hiring instability when our diversification becomes more evident acting as a stabilizer. This is key and represents one of our competitive advantages that differentiates us from some others.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

And now we are happy to take your questions.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Thanks, Hector. Operator, could we have the first question please?

[Operator]

Thank you.

[Operator]

We already have the first question from the line of Sophie Petersons from JPMorgan. Please go ahead.

[Sophie Peterson, Analyst at JP Morgan]

Yes. Thanks a lot for taking my questions. So my first question would be on net interest income. How should we think about net interest income going forward? We have seen quite a lot of changes in net rate expectations across your core markets.

[Sophie Peterson, Analyst at JP Morgan]

So if you could talk about the NII outlook going forward. And my second question would be if you could just discuss how you got to think about any M and A and asset disposal opportunities? Are there any businesses where you would like to grow a little bit more inorganically? And equally, how do you think about kind of your business areas? Anything that you would want to reduce your exposure to?

[Sophie Peterson, Analyst at JP Morgan]

Clearly, we have seen headlines around Poland, but anything you could kind of say around asset disposals and M and A? Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thank you. Okay, Sophie. Good morning. First of all, I think it's important to say that we have a lot of confidence that we can achieve what we have said in terms of the ROTE target of 16.5% under the new economic scenario, okay, I mean given to the NII.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Our business model, first of all, is important for you to know, has a high degree of earnings predictability despite the macro volatility we have seen. For example, and as you were asking, I'm reiterating the NII guidance despite the outlook for rates being lower than we previously anticipated. Q1 twenty twenty five ROTAP was 81, so 15.8% adjust for a day count that would be 16.3% normalized. So in that sense, we believe that we will continue in that regard. Excluding Argentina, we reiterate the NII.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We believe this is going to be slightly up in constant euros and slightly down in year to year and year on year current euros. We're assuming end rates at around 1.5% by the end of twenty twenty five. The current outlook is around 0.169. So I believe we are able to get it. It's important to acknowledge that the ALCO portfolio has grown to EUR 152,000,000,000 in the whole group, that's around EUR 7,500,000,000.0 more quarter on quarter.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Most of the group's sensitivity to rates is concentrated on retail, 60% of the loan book, but we have drivers that offset each other. So in that regard, believe that we have a control over it. It's important to understand as you know very well that Europe has positive sensitivity to higher rates, retail Spain, Portugal and Poland. UK retail NII is positive even with the decline of the NIM, thanks to the hedging strategy that we have performed in that country. And in Brazil, we are very well positioned to lower rates.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Outlook is improving for 25%. We expected a peak of around 16% and now it's around 15%. And our sensitivity remains at 100 basis points, that's 120,000,000 So we continue to proactively manage and we believe that we're going to deliver what we have said. In that regard in terms of assets disposal, I think I'm going to be very clear about it since the beginning for you, okay? I know we acknowledge a recent speculation about the regarding a potential transaction involving Santander Polska.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

I can tell you that this great bank has a great 22% rotten and we have interest from several parties and we are currently in discussions with Erste for the potential sale of the 49% stake. At this point, I must say there is no certainty that the discussions will lead to an agreement with them. And in any event, completion of any transaction will be subject to closing conditions and different things and regulatory approvals, etcetera. So if required, we will make a further announcement. But at this point, I would like to discuss any asset disposals or anything like that.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We have a fiduciary duty to review anything that comes, and this is exactly what we're doing. I don't know, Jose, if you'd like to comment anything else.

[José García Cantera, CFO at Banco Santander]

JOSE

[José García Cantera, CFO at Banco Santander]

sensitivity. We've continued to with the strategy that we started last year. So right now, we have less than half the NII sensitivity we have in euros and in the Brazilian real that we had a year ago, for instance. So very little sensitivity. And as Hector said, we feel comfortable reiterating our NII guidance even if rates in Europe go as low as 1.5% by year end.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Thanks very much, Sophie. We have the next question please, operator.

[Operator]

The next question comes from the line of Ignacio Ulargi from BNP Paribas. Please go ahead.

[Ignacio Ulargui, Analyst at BNP Paribas]

Thanks very much for the presentation and for taking my questions. I have two questions. I mean, first one is if you could give us a bit more color on how we think should we think about group cost evolution throughout the year. So is this the run rate that we should expect or incremental efficiency should that further decline to the cost line? And the second thing the second question is related to DCB Europe.

[Ignacio Ulargui, Analyst at BNP Paribas]

So performance in the quarter has been a bit more difficult than what consensus was going for. How should we think about the performance of the unit in the year? How much is recurrent or would be seen as a one off in the net profit of Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thank you, Ignacio. In terms of cost, it's very important to understand what we're doing. Cost is a result of the strategy we have and the change of the model that we are executing right now, okay? It's important to tell you that we reiterate our guidance to deliver the lower cost in current euros versus 2025 versus 2024 despite the potential inflation headwinds and the FX pressure in the current macro environment. Costs were 2% higher year on year in Q1 in constant euros, but they declined 1% in current euros.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

You have lower cost in retail is as I said, lower by one transformation. It's very important for you to understand the operating leverage that we're generating, in which the model is allowing us to generate actually more revenue while we maintain costs flat or down. And that basically is helping us out to have much better results. It is important also to say, and it's important that you acknowledge that we are a consumer and a retail bank. And in that regard, that's exactly what we're working on to lower the cost of the operation.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We're investing a lot in the platforms, and that also will allow us to basically have lower cost in the future. And we are you are only seeing the beginning of what we're doing. If you look in detail at retail and consumer, as I was saying, 70% of the group cost, cost is flattish and revenue grew by 2%. That's exactly what I was explaining you in terms of the operational leverage that we're getting. CIB wealth and payments is around 30% of the group cost, increased 6%, but well below the revenues, which are at 11%.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

So very positive jaws in terms of everything that we're doing. And we see sustainable fee income of around 13% year on year and we continue to aim for positive operating leverage across all the groups. So in that sense, I do believe that we will continue to increment efficiencies in the years to come. And much more while the model is being implemented and where we are basically deploying all the platforms, which right now I could tell you is probably I would call it a transition year because we are actually changing the engine at the same time we're flying the plane due to the fact that we have still some of the old platforms working. And this is going to take probably the next eighteen to twenty four months.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

On DCB Europe, okay, it's important to tell you the facts. It's important to tell you, first of all, that NII continues to do very well and is track to benefit from the lower rates in the future. Also important to say that market share is growing with the current OEMs that we represent. Fee income was impacted because of regulatory change in Germany, which we indicated last quarter, if you remember, and this has now been rebased by the regulatory changes. Impairments were higher, driven by partly by a mix of the items including Germany, but we are not concerned about the credit quality of our portfolio.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

New origination is meeting the returns hurdles and returns will improve with lower rates. Remember that in the past, part of the stock is at lower rates than we are originating today. So that basically is helping us out. And the cost of risk normalization and the potential macro model adjustments, especially in Germany, should peak in '25, all right? So I don't know if you want anything else or Jose, anything to add?

[José García Cantera, CFO at Banco Santander]

No. I think the NII was up year on year, which I think it's a great performance. Our brands are doing very well relative to others. We're gaining market share. So I think and obviously, the impact on fees from Germany is a one off.

[José García Cantera, CFO at Banco Santander]

So it's a rebase of the fee line going forward. So I think the return on tangible equity in the year was double digits. We feel comfortable that we can keep improve the returns going forward.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Thanks very much, Nacho. Operator, could we have the next question, please?

[Operator]

Next question from Andrea Filtri from Mediobanca. Please go ahead.

[Andrea Filtri, Managing Director at Mediobanca]

Thanks for taking my question. You confirmed you are negotiating the sale of stake in your Polish bank. Can you please share with us the rationale for exiting Poland and how you would intend to redeploy the proceeds? Why selling only 49%? And could the buyer eventually receive exemption from a mandatory bid on minorities?

[Andrea Filtri, Managing Director at Mediobanca]

Second question on your digital transformation, which is proceeding ahead of targets. At what percentage of full delivery do you feel you are right now? And when will you be able to right size staff for the new business model? And finally, can you elaborate on the high other provisions in UK and on the outlook for Brazilian cost of risk? Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thank you, Andreas. So I will take the number one, then I ask Jose to help me with the percentage of the full delivery. And then we'll comment also on The UK and in Brazil. Okay. So in Poland, there is not much I can say at this point.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

As you know, we have a fiduciary duty, as I said, to basically review any offer that comes, and we're exactly doing that. So as of today, there is not much I can tell you about what's going on. Once the transaction, if it evaluates or not, we'll basically give you all the details as soon as we have something, all right? So regarding that, that's all I can say at this point. I don't know, Jose, if you would like to

[José García Cantera, CFO at Banco Santander]

No, no. Andrea, I don't think we can talk give you a percentage of completion of the transformation program. The transformation program is a continuum. What I can say is that by the end of this year, 80% of our customer base will run-in gravity, which is the back end banking system that we are developing everywhere. And we are increasing the speed at which global platforms are being deployed across the group, like the credit card platform Hector referred to.

[José García Cantera, CFO at Banco Santander]

The point is that we should continue seeing the benefits of this transformation for years to come. And this should accelerate as we get the synergies and continue adding more customers with lower costs. This is a virtuous circle.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Yes. Just to complement what Jose was saying, it's important what I said just before, Andreas. We are not at the transition part, probably the most difficult two years transformation given that we are running the old platforms together with deploying the new platforms. And that basically doesn't help a lot in the cost. And even with this or despite this, we are basically being able to control cost and even lower it in some cases.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

That basically is also because we're gaining market share and we're gaining customers. Just we gained 9,000,000 customers in a year. So that basically tells you that the model is working and clients are liking what we're doing, all right? In terms of what we're doing or what's going on in the Brazilian cost of risk, I'll be very brief. First of all, okay, it's important to understand that we are taking actions to strengthen the balance sheet.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

First of all, as I explained last quarter, we're changing the mix to our lower risk portfolio. It's less payroll and unsecured lending, it's down 10% year on year, and we're also increasing collateralized products, which basically are much better in terms of cost of risk, but doesn't have those high margins that we have. Also, we have tightened quite a lot underwriting criteria. In a scale of one to 10, we moved from a six, seven up to eight and higher. So it's exactly what I was telling you about.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

So what you're going to see is that over time, the Brazilian cost of risk is going to get better. Probably today, I would say, if you allow me, it's at its worst. Provisions nevertheless increased 7% quarter on quarter because of also the challenging macro environment. I mean the higher inflation and look at the rates, the rates went all the way from 2% and we're almost going to get to 15%. So that affects a little bit of the portfolios in that sense.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

And also the calendar effect in DCB, lower working days in the quarter that impacted the loan renegotiations. Whatever, at the end, we see better performance in retail, though to the cautious approach I was explaining you about. And we also remain very vigilant as I was discussing in terms of credit quality, all right. So in that sense in Brazil I believe that we have seen the worst in terms of the cost of risk at this point. In terms of you were asking as well about The UK.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

So in terms of The UK, give me one second. Okay. So in terms of The UK, the business is actually performing much better. We have done some hedging on the portfolio. That hedging basically in the portfolio has allowed us to have a much better outlook on NII.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We are planning to increase a little bit of volumes because we have seen a very good resistance of the cost of risk in the portfolio. And I believe that we could have a much better outlook in the next quarter as well. So The UK is performing quite well. And also at the same time, we are performing what I would say much better management of the business and we're already mentioning what we're doing there. And we have seen a very good behavior in terms of all in all, the operations on the bank and the portfolio.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Thanks very much, Andrea. Operator, could we have the next question, please?

[Operator]

Next question from Francisco Riquel from Alantra. Please go ahead.

[Francisco Riquel, Head of Equity Research at Alantra]

Yes. Thank you. So I want to ask about The U. S, which has surprised positively this first quarter. So several questions to assess the quality of the bid, if you allow me.

[Francisco Riquel, Head of Equity Research at Alantra]

So cost of funding is falling. So how much is because of open bank deposit gathering? Or how much is because of the lower Fed rates? The loan yield is also going up despite the lower rates. So and I thought you were shifting out of subprime in car lending.

[Francisco Riquel, Head of Equity Research at Alantra]

So if you can elaborate. The cost of risk is falling, but the economic expectations have worsened in The U. S. So shall we expect any model adjustments related to IFRS nine in coming quarters? And then the tax rate, if the first quarter could be extrapolated for the year?

[Francisco Riquel, Head of Equity Research at Alantra]

And overall, the net profit contribution above €400,000,000 is a big deviation versus consensus forecasts. How sustainable is this quarterly run rate for the rest of the year? Thank

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thank you, Francisco. Okay. First of all, it's important to understand there is always seasonality in The U. S. And we have always a much better first part of the year towards the second part of the year.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

And that's mainly because what happens is you get the tax refunds and the tax backs to the people and basically have people basically have more money. And so we have a lot less in terms of the cost of risk. So that basically always helps out. But nevertheless, this was a pretty good year. It is important to say that I'm going give you all the details of what you have asked.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

First of all, I could tell you that we have we're going to have a pretty good year in terms of what we see in The U. S. We reiterate the adjusted ROTE target of pre eighty one percent of 15%, okay? We believe the outlook of The U. S.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Business has not fundamentally changed. The new tariff scheme from the imported vehicles should result in higher auto prices, but Mannheim index is up 4% year on year and 1.3% up year to date. This is very supportive of the consumer business that we have, that is 60% of The U. S. We are focused on the business that as I can tell you that we have competitive advantage and can deliver profitable worth.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

It's important to acknowledge in the terms of the particular things is the cost of funding, yes, is getting better. Just to tell you that we have EUR 3,500,000,000.0 more in deposits with 90,000 new customers in Openbank, so it's working quite well, much better than we expected in the beginning. And now that we launched the Verizon account, I think it's going to do much better. That account basically is really starting to work starting this week. So that basically is helping out.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Also it's important to tell you that the behavior of the portfolio after ninety days delinquency is actually still much better than expected at around 60% in terms of delinquencies after ninety days. So that basically is helping us out and it's the same exactly what I've been telling you all along this past year and a half that is much better than we expected. It was all the way to 90%. It's still at around 60% to 65%, all right. It's also important to tell

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

you

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

that CIB build out continues to be a significant driver for fee growth. It's talking we're talking about 47% growth year on year. And also wealth is doing quite well in the Latam offshore high net worth clients with very good returns. And the multifamily business that we have in commercial is also performing quite well. So we have a pretty good outlook for The U.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

S. And to be able to get to the numbers that we have discussed.

[José García Cantera, CFO at Banco Santander]

JOSE If I may add, sorry, Paco, very quickly. The drop in so the increase in the yield of loans, which year on year is 21 basis points, is coming because of the drop in low yield loans in Commercial Banking and in Corporate Investment Banking. In fact, volumes in auto finance are up year on year. So the strategy in auto finance continues as we discussed. But the improvement in pricing is due to the decrease in low pricing in other parts of the business.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Yes. And I forgot to tell you your question in terms of are we doing more subprime? No, we are not. We're exactly at the same level of subprime that we had. And I was even looking at the numbers, it was around 40% in terms of what we still have in prime and near prime.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

And so prime total for the year is not going to go further than €15,000,000,000 that has been exactly the same number since five years ago, okay? So no changes from there.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Thanks very much, Paco. Operator, could we have the next question please?

[Operator]

Next question from Alvaro Serrano from Morgan Stanley. Please go ahead.

[Alvaro Serrano, Managing Director at Morgan Stanley]

Hi, good morning. I've got two questions, one on strategic growth priorities and second on capital. You just discussed U. S. And I wonder if that's a strategic growth priority market for you.

[Alvaro Serrano, Managing Director at Morgan Stanley]

And where I'm coming from is, obviously, I realize Poland is up in the air. But if it does go ahead, you're going be well above 13% CET1. And from a strategic point of view, I just want to understand what are the growth priorities? Would you prioritize U. S, prioritize Europe to redeploy that capital, product gaps?

[Alvaro Serrano, Managing Director at Morgan Stanley]

How do you think about sort of the medium term sort of growth priorities by markets considering the discussions we're having? And the second question on capital. There was eight basis points model headwinds in the quarter. I guess this might be for Jose, but is the 60 basis points still what you expect for the full year? And how many SRT's or capital efficiencies, RWA savings have you done in the quarter?

[Alvaro Serrano, Managing Director at Morgan Stanley]

Considering the wobbles in the credit market, do you still see SRT's and selling of RWAs? You seeing the market there? Are you still able to do these operations? Thank you.

[José García Cantera, CFO at Banco Santander]

Okay. Thanks, Alvaro. I will start with capital. Yes, we still think the base case scenario for regulatory and supervisory headwinds is around 60 basis points for the year. But let me remind you that we the technical notes that the EVA needs to publish interpreting the CRR are still pending.

[José García Cantera, CFO at Banco Santander]

So this is a central scenario with obviously some uncertainties still going on. In terms of SRTs, the market has not really been very much affected. The private credit market has not very much affected. In fact, we've just closed a few transactions at prices which are a little bit better than the prices we had in the first quarter of last year. So demand continues to be very strong.

[José García Cantera, CFO at Banco Santander]

And to be honest, we are not seeing any widening or increasing in the cost for Santander. In the first quarter, total asset mobilization was around EUR 2,800,000,000.0. So obviously, it was significantly lower than risk weighted asset growth. Net risk weighted asset growth was around CHF 12,000,000,000. And we obviously, there is seasonality in SRTs and asset mobilization because it takes time to prepare the different assets to be sold.

[José García Cantera, CFO at Banco Santander]

We should see a substantial acceleration of asset mobilization in the second quarter already and towards the end of the year. And we would expect to see net risk weighted asset growth

[José García Cantera, CFO at Banco Santander]

much closer to zero every quarter from now

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

IGNACIO Thank you, Jose. So Alvaro, going back to your questions in terms of capital deployment, what we see. First, it's very important to understand that The U. S. Is a really important growth market for us.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We are still, as I said, very much concentrated on delivering that 15% ROTE. And we will continue to deploy capital into The U. S. As long as it's profitable. It's very important, and I'm going to give you the hierarchy in terms of where do we deploy capital.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

First of all, we're concentrating on organic growth, okay, because organic growth we've been having is above 20%. So we will continue to do that, and we will concentrate again on organic growth. It's very important also that we are deploying money to the buybacks. As you have seen the returns that we have done, though, I said, I mean, we have repurchased over 14% of the capital and will be returns at around 20%, so quite good. And we're going to be very much concentrated on running the businesses we are doing it today.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

I think that's the most important thing is concentrate and focus on continuing the growth of our own businesses and continue with the transformation. That's the best way to deploy our capital and to get the best returns to our shareholders, which I believe we're delivering in a quite strong way.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Thanks very much, Alvaro. Operator, could we have the next question, please?

[Operator]

Next question from Marta Sanchez Romero from Citi. Please go ahead.

[Marta Romero, Director, Equity Research Analyst at Citi]

Thank you very much. My first question is on The UK. What is the rationale of a potential spin off of your motor finance business? We read some headlines a few days ago. And then my second question is on Mexico.

[Marta Romero, Director, Equity Research Analyst at Citi]

Could you please provide an update on how the business is going there? You've been rolling out Openbank. So how many deposits have you been gaining under that franchise? Just what you're seeing generally in terms of loan demand, potential impact from a U. S.

[Marta Romero, Director, Equity Research Analyst at Citi]

Recession, etcetera? And if you were to deploy capital for nonorganic opportunities in Mexico, do you think you have the political cloud and just the right size to buy anything without obstacles? Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thank you, Marta. I mean, what we're doing in the motor finance business is exactly what we're doing in the rest of the world. I mean we are actually doing that in every single one of our units due to the fact that it's very important to have them separate from the rest and funded in a different way. That's why we call it the consumer bank and that's why Openbank is together with the consumer bank because that's a model that we would like to follow. So it's not a particular thing of The UK, it's a particular thing of many of the different markets we operate.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

And you're going to see us continuously doing it in that trend, okay? So it's part of the strategy there. And I believe it's the right strategy given what is going on in Europe. We have been as you know, DCB Europe has been independent all along and we have been able to grow it very well. Also, it's interesting to know that we have been able to find out that this business can be parachuted anywhere we want.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

I mean we have done it, for example, in Peru. And now we have a very successful auto business in Peru without having a retail bank. And the same thing we're doing in Colombia without having the retail bank doing this combination. So and we have been able to really grow in an important way in these countries with just this business. So we believe that managing it independently makes a lot of sense and allow us to go into further countries.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

As you know, we are in 28 countries right now with the auto business. We continue to be a big auto lender. We really believe in that business and we will continue to do so in that regard. In terms of Mexico, the Mexican business, as you know, Mexico is actually the one that is most more affected not by the tariffs, but by what happens to The U. S, okay?

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

So Mexico is very dependent on The U. S. Economy. And if The U. S.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Basically has a hard time, Mexico has a harder time because a third of the economy is U. S. Exports. You're talking about about $500,000,000,000 in terms exports that Mexico does to The U. S.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

With a GDP of $1,800,000,000,000 So that basically gives you a perspective on the size of it and how dependent is Mexico on that. Nevertheless, the Mexican economy is doing quite well, is at a very good level of unemployment and we have seen a very good behavior for our credit portfolio. The cost of risk is actually behaving much better than we expected. And also we have not seen the local economy done bad the other way around. We have seen consumption and everything going very well.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

So we are positive on Mexico, positive on growth and positive on the long term in Mexico. Now going back to your question, we are very much concentrated on the organic growth that we have there. We will continue to invest in such things as Openbank. Openbank is doing quite well. It's just starting, as you know, and it's actually getting very good momentum.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

We're growing customers every single week. And actually, I must tell you that we are doing a little better than our competitors in terms of clients coming in week per week. So and also deposits coming in at a good way. We are giving a better treatment in terms of the we are paying a lot a little bit more on deposits of what we pay in Santander. And that basically is enabling us to increase the client base there, but we are normalizing it as we speak.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

So in that sense, what I could tell you, Mexico, we will continue pushing on organic growth and continue managing our bank the way we have been, and we believe that we have really good room for growth in that market.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Thanks very much, Marta. Operator, could we have the next question please?

[Operator]

Next question from Carlos Peixoto from Caixabank. Please go ahead.

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

Hi, good morning. Thank you for taking my questions. Some of them have already been answered, but I would probably focus on discussion on

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

where do you see

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

NII in Spain evolving from here? Previously, you had guided to around the mid single digit decline, if I recall correctly. First Q seemed to perform quite strongly. Do you think that their scope to surprise positively on that front? And then perhaps still in Spain, a bit of a view as well on the expected evolution of cost of risk throughout the year.

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

And if I might extrapolate a bit into the rest of the bank, the ongoing uncertainties caused by tariffs and then potential downgrades of macroeconomic expectations could lead to revision of provisioning models inputs? And could that trigger some sort of additional provisioning over the coming quarters? Thank you very much.

[José García Cantera, CFO at Banco Santander]

Thanks, Carlos. I'll take both questions. NII in Spain. Remember that at the end of the year, we said NII might go down mid single digits, 67%. At that time, we thought rates could the terminal rate in 2024 sorry, 5% could be around 2%.

[José García Cantera, CFO at Banco Santander]

As I just mentioned, we've been working very hard to decrease interest rate sensitivity, lengthening the duration of the ALCO portfolio. Right now, in Spain, we have EUR 44,000,000,000 of government bonds, yielding 3.3 at an average maturity of seven years. On top of that, in the Eurozone, we have a total of 61,000,000,000 in government securities. So the interest rate sensitivity in euros is very much reduced. So even if rates were to go down and as low as 1.5 by the year end, we still keep our NII estimate where we had it at the beginning of the year.

[José García Cantera, CFO at Banco Santander]

In terms of cost of risk in Spain, we expect cost of risk to be below 50 basis points in 2025. For the rest of for the group as a whole, as I mentioned during my presentation, the key variable is unemployment, is the labor markets. Obviously, GDP needs to be updated in the models, but the impact of a downgrade or a slower GDP growth, it's very, very is very small compared to the impact of unemployment. So as long as labor markets remain where they are and they are very strong everywhere, we don't see any risk to our guidance of 1.15% cost of risk for the year. Again, that this 1.15% comprises different behaviors.

[José García Cantera, CFO at Banco Santander]

Countries where cost of risk is going to be very much flat, like in Mexico. Countries where cost of risk could be a bit better, like in The US or Spain. Countries that are normalizing from negative cost of risk to very low, but still positive cost of risk, like The UK. And countries where we expect a slight deterioration in cost of risk, as Hector mentioned, in Brazil. So but net net, euros 115,000,000 is still our central scenario.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Thanks very much, Carlos. Could we please have the next question, operator?

[Operator]

Next question from Britta Smith from Autonomous. Please go ahead.

[Britta Schmidt, Senior Analyst at Autonomous Research]

Yes. Thanks for taking my questions. On in Brazil, I'd be quite interested in your thoughts on what you think about the new product payable initiative through apps, which has received some pickup. Are you intending to participate in this? And how do you think this will impact competition and margins for Personal Lending business overall?

[Britta Schmidt, Senior Analyst at Autonomous Research]

And then secondly, maybe you can give us a view on what your outlook now is for this year with regards to Polish FX mortgage charges and also whether you've got any updates on The U. K. Motor finance case or the numbers that you indicated in previous calls? Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Britta in terms of The UK motor, mean we believe that we're at the right place. We haven't seen any reason basically to increase it and we believe that that's going to be around the number that we need to have. And we're not we don't have any plans basically to modify it at this point.

[José García Cantera, CFO at Banco Santander]

Yes. I'll take the other two questions. UK, the mortgage market. Well, in terms of volumes, year on year, we've seen volumes up 3% and actually a substantial increase in net interest margin in The U. K.

[José García Cantera, CFO at Banco Santander]

The yield on loans, in our case, is mostly mortgages, as you know. It was 3.83% in the first quarter of last year and is 4.19% in the first quarter of this year. So substantial improvement in pricing and also better outlook for volumes. So we are quite constructive on the outlook for activity in The U. K.

[José García Cantera, CFO at Banco Santander]

On the liability side, at the same time, yield on deposits is down from 2.23% last year to 1.99% this year. And that is what explains the very good evolution of net interest margin in The U. K. And in Brazil, the new legislation on payroll lending. Well, this will clearly widen the possibilities.

[José García Cantera, CFO at Banco Santander]

I think this is going make the market more attractive. It's extending the possibility to many customers that before didn't have that possibility, but we still don't have the details. And I think, like always, the devil is in the details. So I think we need to wait for the details to really have a good assessment of what this could mean for the country as a whole, for the banking system and for Santander. But generally speaking, it's a good move for activity.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Thanks very much, Britta. Operator, could we get the next question, please?

[Operator]

Next question from Cecilia Romero from Barclays. Please go ahead.

[Cecilia Romero, Director & Research Analyst at Barclays]

Thank you for taking my questions. Just a follow-up on Marco's question on Mexico. Novo Nordisk just gained an approval for a banking license in Mexico this past month. Do you see any impact in the competitive landscape from this especially for your digital bank in the country? Thank you very much.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Thank you, Cecilia. What I would say is as I think that is pretty good news for us that these guys basically turned themselves into a fully licensed bank because then they have to comply with the same rules as we do as a bank. So in that regard, we are happy that they turned themselves into a fully fledged bank. The competition right now in the market is very tough, very competitive. And we believe that we have all the tools needed to be able to compete at a head to head against any competitor in the market.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Thanks, Cecilia. Next question, please, operator.

[Operator]

Next question from Ignacio Ferreto from UBS. Please go ahead.

[ignacio cerezo, Equity Research Analyst at UBS Group]

Hi, good morning. Thank you for taking my questions. I've got three. The first one is if you can give us some information on when we should be expecting you to take the decision on extraordinary capital distribution between 2025 and 2026, how that extraordinary distribution is going to be split between both years? Second one is if you can share the fully loaded capital number in the quarter, not just the phased in.

[ignacio cerezo, Equity Research Analyst at UBS Group]

And third, if you can provide an update in terms of the hedging per unit you do in terms of FX for the P and L. Thank you.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Okay. In terms of the extraordinary capital distributions, we'll do as we see fit. We see it much more towards the year 2026. The important fact that we are doing now is basically very much concentrated in delivering the capital numbers. As Jose explained you last quarter, basically what we need to absorb in terms of the regulatory items, etcetera.

[Héctor Grisi Checa, CEO & Executive Director at Banco Santander]

Once that basically that's having covered, we will continue to build up, and we will tell you exactly when the extraordinary capital distributions will happen, okay?

[José García Cantera, CFO at Banco Santander]

IGNACIO The fully loaded number. Again, the I have to give you a range because the technical notes that the EVA will publish can have a substantial impact long term. We're talking 02/1930 to 02/1933. And I'm referring to the credit conversion factors and the uncommitted credit lines, which we are still pending a final note on that. So the fully loaded could range somewhere between 25 to forty, forty five basis points.

[José García Cantera, CFO at Banco Santander]

Today, we see more sort of towards the low end of that range, around 25 to 30 basis points. In our case, most of that impact will come in the next three to five years at most. So we would expect and this is related to the operational risk. So our central scenario again is that we could have from moving from phasing to fully loaded, something around five basis points per year for the next five years. And then longer term, depending on everything related to credit, which is mostly 2029 to 02/1933, there could be an additional factor.

[José García Cantera, CFO at Banco Santander]

But for us, that should be very small compared to what the industry could see.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Sorry, Nacho. I think we missed your hedging question. Would you mind repeating that?

[ignacio cerezo, Equity Research Analyst at UBS Group]

That's an update on how much of the different units P and L you're hedging for the next two months.

[José García Cantera, CFO at Banco Santander]

No. Right now, for 2025, is hedged. So the expected profits from all countries, with exception of Argentina, we cannot hedge Argentina. But for most for all other countries, the P and L is hedging. And as you know, we always fully hedge the capital ratio.

[José García Cantera, CFO at Banco Santander]

That's it. It means the excess capital using European capital rules in each country above the group's capital level. In this case, 12.9%.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Very much, Nacho. Operator, could we have the last question, I believe?

[Operator]

Last question from Pablo de la Torre from RBC.

[Pablo de la Torre Cuevas, Assistant Vice President at RBC Capital Markets]

Thanks for taking my questions. I had two more on The UK. I think the first one was Santander UK was a signatory to a letter to the chancellor requesting the abolition of their ring fencing regime here in The UK. Could you please provide more color on what the actual financial impact you would expect from the ring fencing regime being discontinued? And then more on the trends in The UK in the quarter and a follow-up.

[Pablo de la Torre Cuevas, Assistant Vice President at RBC Capital Markets]

I guess, you just update us on the structural hedge and the shape of NII for the rest of the year that you see in The U. K? Okay.

[José García Cantera, CFO at Banco Santander]

So let me take the second question first. Structural hedge is EUR 110,000,000,000 at a yield of 2.47% or 2.5%, to round it up. We would expect NII to go up in The UK low single digits, in line with volumes up also low single digits. So generally, same guidance that we gave at the end of the first quarter. The ring fencing.

[José García Cantera, CFO at Banco Santander]

Well, we are convinced, not only in The U. K, but in Europe, that banks can contribute a lot more to improving competitiveness in Europe and in The U. K. And contributing to growth. And we think that having a simpler framework to operate will help.

[José García Cantera, CFO at Banco Santander]

But that applies to The UK and that applies to Europe as well. In terms of what impact this could have on us is negligible. So this is not a question of an impact in the near term. It's just that a simpler operating framework in Europe and in The U. K.

[José García Cantera, CFO at Banco Santander]

Should help banks contribute more to improving productivity and growth in The U. K. And in Europe.

[Raul Sinha, Global Head of Shareholder & Investor Relations at Banco Santander]

Thanks very much, Jose, for that. Thank you, everybody, for all your questions. The whole IR team is available if you've got any follow ups. We thank you for your time and wish you a very good day.

Participants

Executives

• Raul Sinha, Global Head of Shareholder & Investor Relations
• Héctor Grisi Checa, CEO & Executive Director
• José García Cantera, CFO

Analysts

• Sophie Peterson, Analyst at JP Morgan
• Ignacio Ulargui, Analyst at BNP Paribas
• Andrea Filtri, Managing Director at Mediobanca
• Francisco Riquel, Head of Equity Research at Alantra
• Alvaro Serrano, Managing Director at Morgan Stanley
• Marta Romero, Director, Equity Research Analyst at Citi
• Carlos Peixoto, Equity Research Analyst at CaixaBank
• Britta Schmidt, Senior Analyst at Autonomous Research
• Cecilia Romero, Director & Research Analyst at Barclays
• ignacio cerezo, Equity Research Analyst at UBS Group
• Pablo de la Torre Cuevas, Assistant Vice President at RBC Capital Markets