Note: * The aforementioned approach is more conservative than
the one established by the Basel Committee on Banking Supervision in its document "Basel III: Global regulatory framework
for the reinforcement of banks and banking systems" published in June 2011.
20
|
Payment discretion
|
Mandatory
|
21
|
Interest increase clause
|
No
|
22
|
Yields/Dividends
|
Not Accruable
|
23
|
Convertibility of the instrument
|
N.A
|
24
|
Convertibility conditions
|
N.A
|
25
|
Degree of convertibility
|
N.A
|
26
|
Conversion rate
|
N.A
|
27
|
Instrument convertibility rate
|
N.A
|
28
|
Type of convertibility financial instrument
|
N.A
|
29
|
Instrument issuer
|
N.A
|
30
|
Write-down clause
|
No
|
31
|
Conditions for write-down
|
N.A
|
32
|
Degree of write-down
|
N.A
|
33
|
Temporality of write-down
|
N.A
|
34
|
Mechanism for temporary write down
|
N.A
|
35
|
Subordination position in the event of liquidation
|
Creditors in general
|
36
|
Breach characteristics
|
No
|
37
|
Description of breach characteristics
|
N.A
|
Table IV.1.3
|
Main characteristics of titles that are part of the Net Capital
|
Reference
|
Characteristic
|
Options
|
1
|
Issuer
|
Banco Santander (México), S. A.
|
2
|
ISIN, CUSIP or Bloomberg Identifier
|
Reg S: USP1507SAD91 / 144A: US05969BAB99
|
3
|
Legal frame
|
New York Law, in case that a "TRIGGER EVENT" takes to a "WRITE DOWN" or "Mexican Regulatory Event" which involves a suspension period and occurs based in mexican regulatory determination according to the Mexican law. The ranking and Subordinated Notes would be determined according to the Mexican law
|
4
|
Level of capital with transitory
|
N.A
|
5
|
Level of capital without transitory
|
Complementary
|
6
|
Instrument level
|
Credit Institution without consolidating
|
7
|
Instrument type
|
5.95% Tier 2 Subordinated Capital Notes due 2024
|
8
|
Amount acknowledge of regulatory capital
|
$27,278,383,100.87
|
9
|
Instrument's par value
|
$26,805,220,000.00
|
9A
|
Instrument's currency
|
USD
|
10
|
Accounting qualification
|
Subordinated credit notes
|
11
|
Date of issuance
|
27/12/2013
|
12
|
Instrument´s term
|
Maturity
|
13
|
Date of expiration
|
30/01/2024
|
14
|
Early payment clause
|
Yes ("Optional Redemption")
|
15
|
First date of early payment
|
30/01/2019 (única fecha de call)
|
15A
|
Regulatory or fiscal events
|
Yes ("Withholding Tax Redemption" y "Special Event Redemption" which includes: "Capital Event" y "Tax Event")
|
|
87
|
15B
|
Liquidation price of the early payment clause
|
accrued and unpaid interest
|
16
|
Subsequent early payment dates
|
N/A (only on the first date of early payment).
|
|
Yields / Dividends
|
|
17
|
Type of yield/dividend
|
Variable
|
18
|
Interest rate/dividend
|
5.95%
|
19
|
Cancellation of dividends clause
|
N.A
|
20
|
Payment discretion
|
Mandatory
|
21
|
Interest increase clause
|
No
|
22
|
Yields/Dividends
|
Not Accruable
|
23
|
Convertibility of the instrument
|
No Convertible
|
24
|
Convertibility conditions
|
N.A
|
25
|
Degree of convertibility
|
N.A
|
26
|
Conversion rate
|
N.A
|
27
|
Instrument convertibility rate
|
N.A
|
28
|
Type of convertibility financial instrument
|
N.A
|
29
|
Instrument issuer
|
N.A
|
30
|
Write-down clause
|
Yes
|
31
|
Conditions for write-down
|
Occurrence of a "Trigger Event": A “Trigger Event” will be deemed to have occurred if (i) the CNBV publishes a determination, in its official publication of capitalization levels for Mexican banks, that our Tier 1 Capital 1 Ratio (“Capital Básico 1”), as calculated pursuant to the applicable Mexican Capitalization Requirements, is equal to or below 4.5% (four point five percent), (ii) both (A) the CNBV notifies us that it has made a determination, pursuant to Article 29 Bis of the Mexican Banking Law, that a cause for revocation of our license has occurred resulting from (y) our non-compliance with corrective measures imposed by the CNBV pursuant to the Mexican Banking Law, or (z) our non-compliance with the capitalization requirements set forth in the Mexican Capitalization Requirements and (B) we have not cured such cause for revocation, by (a) complying with such corrective measures, or (b)(1) submitting a capital restoration plan to, and receiving approval of such plan by, the CNBV, (2) pledging to the Mexican governmental authorities, to secure performance of such capital restoration plan, seventy five percent (75%) of the Issuer’s aggregate issued and outstanding shares and (3) not being classified in Class III, IV, or V, or (c) remedying any capital deficiency, in the case of (a), (b) and (c), on or before the 15th business day in Mexico following the date on which the CNBV notifies us of such determination; or (iii) the Financial Stability Committee, which is a committee formed by the CNBV, the Ministry of Finance and Public Credit, the Mexican Central Bank and the Mexican Savings Protection Agency, determines pursuant to Article 122 Bis of the Mexican Banking Law that financial assistance is required by us to avoid
|
|
88
|
|
|
revocation of our license for our failure to comply with corrective measures, comply with capitalization requirements or to satisfy certain liabilities when due, as a means to maintain the solvency of the Mexican financial system or to avoid risks affecting the Mexican payments system and such determination is either made public or notified to us.
|
32
|
Degree of write-down
|
Partial, until restore adequate capital levels
|
33
|
Temporality of write-down
|
Permanent
|
34
|
Mechanism for temporary write down
|
“Write-Down Amount” means an (i) amount that would be sufficient, together with any concurrent pro rata write down of any other loss-absorbing instruments issued by us and then outstanding, to return our Capital Básico 1 to the levels of Capital Básico 1 required under Section IX, b), 2 of Annex 1-S of the General Rules Applicable to Mexican Banks
(currently 7% (seven percent)), or (ii) if any Write-Down of the Current Principal Amount, together with any concurrent pro rata write down of any other loss absorbing instruments issued by us and then outstanding, would be insufficient to return our Capital Básico 1 to the levels of Capital Básico 1 required under Section IX, b), 2 of Annex 1-S of the General
Rules Applicable to Mexican Banks (currently 7% (seven percent)), the amount necessary to reduce the Current Principal Amount of each outstanding Note to zero.
|
35
|
Subordination position in the event of liquidation
|
The Notes constitute subordinated indebtedness, and (i) will be subordinate and junior in right of payment and in liquidation to all of our present and future senior indebtedness, (ii) will rank pari passu with all
other unsecured subordinated preferred indebtedness and (iii) will be senior to subordinated non-preferred indebtedness and all classes of our equity or capital stock.
|
36
|
Breach characteristics
|
N.A
|
37
|
Description of breach characteristics
|
N.A
|
Table IV.1.4
|
Main characteristics of titles that are part of the Net Capital
|
Reference
|
Characteristic
|
Options
|
1
|
Issuer
|
Common Shares Series F
|
2
|
ISIN, CUSIP or Bloomberg Identifier
|
US40053CAA36
|
3
|
Legal frame
|
The Capital Instruments will be issued in accordance with the applicable laws of the State of New York, United States of America, provided that all provisions relating to the determination of interest payment cancellation, the conversion of Capital Instruments, if Has occurred any event that allows for an amortization or subordination of the Capital Instruments, among other relevant events will be governed by the laws of Mexico, in accordance with the provisions of the Issue Act
|
|
Regulation treatment
|
|
|
89
|
4
|
Level of capital with transitory
|
|
5
|
Level of capital without transitory
|
Non-Fundamental Capital.
|
6
|
Instrument level
|
Unconsolidated Credit Institution
|
7
|
Instrument type
|
8.500% perpetual subordinated non-preferred contingent convertible additional tier 1 capital notes
|
8
|
Amount acknowledge of regulatory capital
|
$10,297,374,225.00
|
9
|
Instrument's par value
|
$10,309,700,000.00
|
9A
|
Instrument's currency
|
USD
|
10
|
Accounting qualification
|
|
11
|
Date of issuance
|
29/12/2016
|
12
|
Instrument´s term
|
|
13
|
Date of expiration
|
Equity instruments are perpetual and, therefore, have no repayment term
|
14
|
Early payment clause
|
The Capital Instruments in the cases provided for in this letter and in the Issuance Act, and provided that (i) (a) Banco Santander México maintains, and once the amortization has been maintained, a capitalization index equal to or greater than Capitalization indexes required by the CNBV in accordance with section IV, subsection c), numeral 1 of Annex 1-R of the Single Bank Circular or any provisions that replace it, or b) Banco Santander México issues securities that replace the Instruments And (ii) Banco Santander México has obtained the authorization of Banco de México to amortize the Capital Instruments prior to the respective amortization date, in the understanding, without However, if at any time an Event of Update of the Conversion Event occurs, Banco Santander México will not be obliged to amortise any Capital Instruments in respect of which it has been agreed to carry out a redemption
|
15
|
First date of early payment
|
20/01/2022
|
15A
|
Regulatory or fiscal events
|
|
15B
|
Liquidation price of the early payment clause
|
Nominal value plus accrued and unpaid interest
|
16
|
Subsequent early payment dates
|
|
|
Yields / Dividends
|
|
17
|
Type of yield/dividend
|
Variable
|
18
|
Interest rate/dividend
|
8.50%
|
19
|
Cancellation of dividends clause
|
N.A
|
20
|
Payment discretion
|
Mandatory
|
21
|
Interest increase clause
|
no
|
22
|
Yields/Dividends
|
Differentiable cumulative
|
23
|
Convertibility of the instrument
|
YES
|
24
|
Convertibility conditions
|
A "Conversion Event Update Event" will occur and the Equity Instruments will be convertible into Common Shares of Banco Santander México when (i) the capital stock of Banco
|
|
90
|
|
|
Santander México is equal to or less than 5,125%, (ii) the CNBV notifies To Banco Santander México that has incurred in some cause of revocation of authorization and that Banco Santander Mexico has not remedied (or has not opted into the conditional operating regime), and (iii) the Banking Stability Committee determines that Banco Santander México Requires financial assistance to avoid revocation of your authorization
|
25
|
Degree of convertibility
|
|
26
|
Conversion rate
|
N.A
|
27
|
Instrument convertibility rate
|
|
28
|
Type of convertibility financial instrument
|
Common Shares Series F
|
29
|
Instrument issuer
|
Banco Santander México
|
30
|
Write-down clause
|
N.A
|
31
|
Conditions for write-down
|
N.A
|
32
|
Degree of write-down
|
Partial, until restore adequate capital levels
|
33
|
Temporality of write-down
|
Permanent
|
34
|
Mechanism for temporary write down
|
N.A
|
35
|
Subordination position in the event of liquidation
|
0
|
36
|
Breach characteristics
|
N.A
|
37
|
Description of breach characteristics
|
N.A
|
Table V.2
|
Assistance in filling in the information regarding the characteristics of the titles that are part of the Net Capital
|
Reference
|
Description
|
1
|
Credit institution that issues titles that are part of the Net Capital
|
2
|
Title identifier or code that is part of the Net Capital (ISIN, CUSIP or ID number of international value)
|
3
|
Legal framework with which the title must comply, as well as the laws to which it shall be subject.
|
4
|
Level of capital that corresponds to the title that shall be subject to transience established pursuant to Article Third Transitory, of Resolution 50th.
|
5
|
Level of capita that corresponds to the title that meets exhibit 1-Q, 1-R or 1-S hereof.
|
6
|
Level within the group to which the title is included.
|
7
|
Type of Capital Instrument or title representing the capital stock that is included as part of the Net Capital. In the event of titles subject to the transiency established pursuant to Article Third Transitory, established in Resolution 50th, refers to the subordinated obligations described on Article 64 of the Credit Institutions Act.
|
8
|
Amount of the Capital Instrument or title representing the capital stock, that is acknowledged in the Net Capital pursuant to Article 2 bis 6 hereof, in the event of reference 5 either Fundamental Capital or Non-Fundamental Capital; and pursuant to Article 2 bis 7 hereof in the event such reference is Ancillary. in any other event, it shall be the amount corresponding pursuant to the provisions of Article Third Transitory of Resolution 50th.
|
9
|
Title's par value in Mexican pesos.
|
9A
|
Currency used to express the title's par value in Mexican pesos pursuant to international standard ISO 4217
|
10
|
Accounting classification of the title that is part of the Net Capital.
|
11
|
Date of issuance of the title that is part of the Net Capital
|
12
|
Specify if the title has expiration or is at perpetuity
|
13
|
Expiration date of the title, without considering the dates of early payment.
|
14
|
Specify if the title includes an early payment clause by the issuer wherein the right to pay the title early is exercised with prior authorization from Banco de Mexico.
|
|
91
|
15
|
Date when the issuer may, for the first time, exercise the right to pay the title early prior authorization from Banco de Mexico.
|
15A
|
Specify if the early payment clause considers regulatory or fiscal events.
|
15B
|
Specify the liquidation price of the early payment clause.
|
16
|
Dates when the issuer may, subsequently to the one specified in reference 15, exercise the right of title early payment prior authorization from Banco de Mexico
|
17
|
Specify the type of yield/dividend that shall be held during the entire term of the title.
|
18
|
Interest rate or index referred to by the title's yield/dividend.
|
19
|
Specify if the title includes clauses that forbid payment of dividends to the holders of titles representing the capital stock when failing to perform payment of a coupon or dividend of any capital instrument.
|
20
|
issuer's discretionarily for payment of the title's interests or dividends. If the Institution at any time may cancel payment of yields or dividends it must be selected (entirely Optional); if it may only cancel in some situations (partially Optional) or if the credit institutions may not cancel payment (Mandatory)
|
21
|
Specify if in the title there is a clause that generates incentives that the issuer may early pay, as clauses of increase of interests known as "Step-Up".
|
22
|
Specify if yields or dividends of the title are accruable or not.
|
23
|
Specify if the title is convertible or not in ordinary shares of the multiple banking institutions or the Financial Group.
|
24
|
Conditions under which the title is convertible into ordinary shares of the multiple banking institution or Financial Group.
|
25
|
Specify if the title is wholly converted or only partially when it meets the contractual conditions to convert.
|
26
|
Amount per share considered for converting the title into ordinary shares of the multiple banking institution or the Financial Group into the currency on which such instrument was issued.
|
27
|
Specify if the conversion is mandatory or optional.
|
28
|
Type of shares into which the title is converted.
|
29
|
Issuer of the instrument into which the title is converted.
|
30
|
Specify if the title has the principal cancellation characteristics.
|
31
|
Conditions under which the title has a principal cancellation characteristics.
|
32
|
Specify if once the hypothesis of the value decrease clause occurs, the title decreases value in its aggregate or only partially.
|
33
|
Specify if once the hypothesis of the value decrease clause occurs, the instrument decreases value permanently or temporarily
|
34
|
Explain the temporary value decrease mechanism.
|
35
|
Most subordinated position to which the capital instrument is subordinated that corresponds to the type of instrument in liquidation.
|
36
|
Specify whether there is or not characteristics of the title that fails to meet with the conditions established in exhibits 1-Q, 1-R and 1-S hereof.
|
37
|
Specify the characteristics of the title that fail to meet the characteristics established in exhibits 1-Q, 1-R and 1-S hereof.
|
The information relating to Annex 1-O
Capitalization Ratio Santander Consumo and Santander Hipotecario is available on the website
www.santander.com.mx/ir
|
92
|
LEVERAGE RATIO
TABLE I.1
|
INTEGRATION OF THE MAIN SOURCES OF LEVERAGE
|
|
|
|
|
Item
|
Dec 2016
|
1
|
On-balance sheet items (excluding derivatives and SFTs, but including collateral)
|
1,136,996
|
2
|
(Asset amounts deducted in determining Basel III Tier 1 capital)
|
-35,700
|
3
|
Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of lines 1 and 2)
|
1,101,297
|
Derivative exposures
|
4
|
Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin)
|
55,502
|
5
|
Add-on amounts for PFE associated with all derivatives transactions
|
48,128
|
6
|
Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the operative accounting framework
|
0
|
7
|
(Deductions of receivables assets for cash variation margin provided in derivatives transactions)
|
0
|
8
|
(Exempted CCP leg of client-cleared trade exposures)
|
0
|
9
|
Adjusted effective notional amount of written credit derivatives
|
0
|
10
|
(Adjusted effective notional offsets and add-on deductions for written credit derivatives)
|
0
|
11
|
Total derivative exposures (sum of lines 4 to 10)
|
103,630
|
Securities financing transaction exposures
|
12
|
Gross SFT assets (with no recognition of netting), after adjusting for sale accounting transactions
|
41,073
|
13
|
(Netted amounts of cash payables and cash receivables of gross SFT assets)
|
-40,613
|
14
|
CCR exposure for SFT assets
|
643
|
15
|
Agent transaction exposures
|
0
|
16
|
Total securities financing transaction exposures (sum of lines 12 to 15)
|
1,103
|
Other off-balance sheet exposures
|
17
|
Off-balance sheet exposure at gross notional amount
|
123,654
|
18
|
(Adjustments for conversion to credit equivalent amounts)
|
-41,588
|
19
|
Off-balance sheet items (sum of lines 17 and 18)
|
82,066
|
Capital and total exposures
|
20
|
Tier 1 capital
|
81,785
|
21
|
Total exposures (sum of lines 3, 11, 16 and 19)
|
1,288,095
|
Leverage ratio
|
22
|
Basel III leverage ratio
|
6.35%
|
TABLE II.1
|
COMPARISON TOTAL ASSETS AND ASSETS ADJUSTED
|
|
|
|
|
Item
|
Dec-16
|
1
|
Total consolidated assets as per published financial statements
|
1,355,768
|
2
|
Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation
|
0
|
3
|
Adjustment for fiduciary assets recognised on the balance sheet pursuant to the operative accounting framework but excluded from the leverage ratio exposure measure
|
-35,700
|
4
|
Adjustments for derivative financial instruments
|
-111,451
|
5
|
Adjustment for securities financing transactions
|
-2,588
|
|
93
|
6
|
Adjustment for off-balance sheet items
|
82,066
|
7
|
Other adjustments
|
0
|
|
Leverage ratio exposure
|
1,288,095
|
TABLE III.1
|
CONCILIATION OF TOTAL ASSETS AND EXPOSURE IN THE BALANCE
|
|
|
|
|
Item
|
Dec-16
|
1
|
Total consolidated assets as per published financial statements
|
1,355,768
|
2
|
operative derivative financial instruments
|
-215,081
|
3
|
operative securities financing transactions
|
-3,691
|
4
|
Trust assets recognized in the balance sheet under the accounting framework, but excluded from the exposure measure of the leverage ratio
|
0
|
|
On-balance exposure
|
1,136,996
|
TABLE IV.1
|
Variation of the elements
|
|
|
|
|
|
Sep 2016
|
Dec 2016
|
|
CONCEPT / QUARTER
|
T-1
|
T
|
Variation (%)
|
Basic Capital
|
87,719
|
81,785
|
-7%
|
adjusted assets
|
1,135,991
|
1,288,095
|
13%
|
Leverage ratio
|
7.72%
|
6.35%
|
|
15. Risk Diversification
|
Pursuant to the general rules for risk diversification in the
performance of borrowing and lending transactions applicable to credit institutions, published in the Federal official Gazette
on April 30, 2003, the following information with respect to credit risk transactions as of December 31, 2016, is provided:
- At December 31, 2016 did not have financing granted to debtors
or groups of individuals representing single common risk is greater the amount of core capital (the month immediately preceding
the date that is reported) Bank.
- Loans granted to the three major debtors or groups of persons
representing a common risk for a total amount of Ps.73,072 million representing the 83.30% of the basic capital of the Bank.
|
|
16.
Internal and external Sources of Liquidity
Financial sources of liquidity in domestic
and foreign currency come from the different savings products that Banco Santander México offers to its clients; mainly
checking accounts and time deposits.
An additional internal source of liquidity
is the collection of fees, interests and principal amounts of the loans that the Bank grants to its clients.
With respect to external sources of liquidity,
the Bank has access to the local and foreign capital markets through different alternatives that range from the issuance of senior
and subordinated debt as well as the issuance of other debt
|
94
|
or equity instruments. Santander México
also obtains funding from other institutions including the Mexican Central Bank, development banks, commercial banks, and other
institutions.
Santander México may also obtain
liquidity via sale and repurchase agreements (short-term repos) over securities it holds in its investment portfolio. Additionally,
the Bank could obtain liquidity through the sale of assets.
17.
Dividends Policy
Santander México performs the payment
of dividends pursuant to the applicable legal, administrative, fiscal and accounting rules, based in the results obtained by Santander
México. The payment of dividends
is discussed in
the Ordinary
General Stockholders’ Meeting, which is the body that orders and approves the payment of dividends to the stockholders.
18.
Treasury Policies
The activities of Santander México’s treasury are
performed pursuant to the following:
|
a)
|
In compliance with the provisions issued by the different authorities of the financial system for
bank institutions, such as guidelines for lending and borrowing transactions, accounting rules, liquidity ratios, regulatory matching,
capacity of the payment systems, etc.
|
|
b)
|
Internal limits for market, liquidity and credit risks that are reviewed and approved by appropriate
committees, i.e., there are limits established and independent for treasury activities for the management of the assets and liabilities
of the bank with respect to the market and liquidity risk derived from such management, as well as the limits regarding counterparty
risk derived from the daily transactions. The treasury is responsible for their activities within the limits allowed to manage
their risk.
|
|
c)
|
Compliance with the guidelines stipulated by national and international standard agreements regarding
transactions performed in markets.
|
|
d)
|
Sound market practices.
|
|
e)
|
Strategies proposed in the banks internal committees.
|
|
f)
|
Compliance with the operation procedures of the institution.
|
19. Shareholding
|
|
|
Subsidiaries
|
|
% of interest
|
|
|
|
Banco Santander (México), S.A.
|
|
99.99
|
Casa de Bolsa Santander, S.A. de C.V.
|
|
99.97
|
20.
Internal Control
The activities of Santander México
are governed by a series of guidelines established by Banco Santander (España), the holding company of Santander México,
whose head offices are located in the city of Madrid, and the Mexican laws.
For the compliance of the rules in effect,
Santander México has developed and implemented an Internal Control Model (ICM) which includes the participation of the Board
of Directors, the statutory advisor, the Audit Committee, the Internal Audit Department, the General Direction, the Internal Control
Unit and the Regulatory Control Department.
The ICM is based in the identification and
documentation of the main risks and the periodic assessment of the controls that are created to mitigate such risks. ICM guarantees,
among other aspects, the design, establishment and updating of measures and controls that promote the compliance with the internal
and external rules and the proper operation of the data processing systems.
The internal control system includes:
The implementation of an organizational structure has allowed
the development and growth of the group. Such structure is constituted as follows:
CEO and General Direction
The following functions report to the CEO
and General Direction
:
Ø
Vice-president of Finance and Administration:
Ø
Deputy
General of intervention and Management Control
Ø
Deputy
General Direction of Technology, Operations and Human Resources
Ø
Deputy
General of Corporate Resources and Recoveries
Ø
Deputy
General Direction of Legal Affairs and Compliance
Ø
Deputy
General Direction of Finance
|
95
|
Ø
Vice-president
of Commercial Banking:
Ø
Deputy
General Direction of Channels and Distribution
Ø
Deputy
General Direction of Products
Ø
Deputy
General Direction of Clients
Ø
Deputy
General Direction of Commercial Planning
Ø
Deputy
General Direction of Chief Experience Officer
Ø
Executive
Director of Project Strategy, Retail and Payrolls
Ø
Deputy
General Director of Enterprises and Institutions
Ø
Deputy
General Director of Risk
Ø
Deputy
General Director of Global Corporate Banking
Ø
Deputy
General Director of Public Affairs and Strategy
Ø
Executive
Direction of Internal Audit
Ø
Executive
Direction of Innovation
The roles and responsibilities of each direction
have been stipulated in order to optimize the performance of the activities of Santander México.
The Organization area related to the Executive
Direction of Processes and Change Management, via manuals, circulars and bulletins, governs the activities of the group; likewise,
the Regulatory Control Department has established a general Code of Conduct that every employee of Santander México has
to follow.
The structure of Santander México
includes the constitution of a Board of Directors, which establishes the objectives, the policies and general procedures of Santander
México, the appointment of directors and the constitution of committees that are to supervise the development of the activities
of Santander México.
The committees that supervise the development
of the entities that constitute Santander México, created by the Board of Directors, are the following:
|
§
|
Corporate Practices, Nominating
and Compensation Committee
|
The registration, control and storage of
the daily activities of Santander México are carried out by systems mainly designed and focused on the banking and brokerage
activity. The common platform for such purposes is known as ALTAIR and it is applied by all the entities in Latin America that
are part of Banco Santander (España).
Loans portfolio and transactions of commercial
banking of the group are controlled and registered at ALTAIR. Treasury activities are controlled and registered in computer platforms
and the operations are centralized for its accounting registration in ALTAIR. Such platforms comply with the parameters stipulated
by the CNBV with respect to reliability and accuracy.
Santander México is regulated by
the CNBV, and therefore, the financial statements are prepared according to the accounting practices stipulated by such Commission
via the issue of accounting circulars, general official letters and particular official letters regarding the accounting registration
of transactions. For such purposes, the accounting system of Santander México has been structured with an accounts catalog
stipulated by the Commission, and all the reports come from such system and comply with the applicable provisions.
Within Santander México, there is
an independent area of Internal Audit, whose mission is to oversee the compliance, efficacy and efficiency of the internal control
systems of the Group, as well as the reliability and quality of the accounting information.
To achieve so, Internal Audit verifies that
the risks inherent to the activity of Santander México are properly covered and the policies stipulated by the Direction,
the applicable internal and external regulations and the procedures are observed.
The results of the activities of Internal
Audit are reported on regular basis to the General Direction, the Audit Committee and the Board of Directors. Among other issues,
the results of the audits performed to the different business units of the companies that constitute Santander México and
the follow up of the recommendations provided to the different areas and/ or entities are informed.
|
96
|
Internal Audit has a quality system oriented
to the client satisfaction focus on continuous process improvement, which has been subject to a successful Quality Assurance Review
(QAR) during 2014
In summary, Internal Control of Santander
México includes the continuous development, implementation and updating of an internal control model where all the areas
of the group have an active role.
During the quarter, there have been no changes
to the internal controls and internal audit guidelines.
21. Accounting differences between CNBV regulations in México and the Circular issued by Bank of Spain
|
|
|
|
Earnings of Grupo Financiero Santander under CNBV regulations in México
|
15,715
|
|
|
|
|
Temporary differences in classification of hedging instruments
|
385
|
(a)
|
|
|
|
Income and expenses from the Headquarter
|
(761)
|
(b)
|
|
|
|
Other differences
|
1,566
|
|
|
|
|
Earnings of Grupo Financiero Santander under the regulations set forth in the Circular issued by the Bank of Spain
|
16,905
|
|
|
|
|
(a)
Certain derivative financial instruments are reclassified from hedging instruments to trading instruments since they hedge an intercompany item that is not valid for global consolidation purposes.
|
(b)
Allocation of corporate income and expenses performed by the Corporate Head Office to its subsidiaries, pursuant to the rules and policies of Bank of Spain.
|
22. Transactions with related parties
|
|
|
|
Receivable
|
|
Funds available
|
209
|
Derivatives (asset)
|
92,772
|
Performing loan portfolio
|
2,848
|
Other receivables, (net)
|
1,475
|
|
|
Payable
|
|
Time deposits
|
1,801
|
Demand deposits
|
930
|
Credit instruments issued
|
1,044
|
Creditors under sale and repurchase agreements
|
106
|
Derivatives (liability)
|
60,261
|
Other payables
|
36,040
|
Creditors from settlement of transactions
|
3
|
Subordinated debentures
|
31,756
|
|
|
Revenues
|
|
Interest
|
59
|
Commissions and fee income
|
5,834
|
Net gain (loss) on financial assets and liabilities
|
23,887
|
|
|
Expenses
|
|
Interest
|
1,328
|
Administrative expenses
|
446
|
Technical assistance
|
2,110
|
23. Interests on loan portfolio
|
As of December
31, 2016, the consolidated statement of i includes in the item "Interest income
"
Ps.58,002 million that correspond to interests from the loan portfolio of Banco Santander (México), S.A., Santander Consumo,
S.A. de C.V. SOFOM E.R., Santander Hipotecario, S.A. de C.V. SOFOM E.R. and Santander Vivienda, S.A. de C.V. SOFOM E.R.
|
|
97
|
24. Integral Risk Management (unaudited)
|
Risk management is considered by Grupo Financiero
Santander as a competitive element of strategic nature with the purpose of maximizing the value for the stockholder. This management
is defined, from a conceptual and organizational sense, as a comprehensive management of the different risks (market risk, liquidity
risk, credit risk, counterparty risk, operative risk, legal risk and technological risk) assumed by Grupo Financiero Santander
for the development of its activities. The management of the risk inherent to transactions is essential for understanding and determining
the behavior of the financial condition of Grupo Financiero Santander and the creation of long-term value.
In order to comply with the provisions regarding
the Comprehensive Risk management applicable to credit institutions, issued by the National Banking and Exchange Commission, the
Board of Directors agreed to create the Comprehensive Risk Management Committee of Grupo Financiero Santander, to work pursuant
to the rules set by such regulations. This Committee gathers every month and verifies that the transactions are according to the
objectives, policies and procedures approved by the Board of Directors for the Comprehensive Risk Management.
The Comprehensive Risk management Committee
delegates in the Comprehensive Risk Management Unit the responsibility for the implementation of procedures for the measure, administration
and control of risks according to the applicable policies; such Unit has the faculty to authorize amounts greater than the stipulated
limits and in such cases, the Board of Directors shall be informed on such deviations.
Market Risk
The Market Risk Management department of
the Comprehensive Risk management Unit is responsible for recommending the policies on market risk management of Grupo Financiero
Santander, and to establish the parameters for risk measuring, and to provide reports, analysis and assessments to the senior management,
to the Comprehensive Risk management Committee and to the Board of Directors.
The market risk management is to identify
measure, monitor and control risks arising from fluctuations in interest rates, exchange rates, prices and other market risk factors
in currency, money, capital and derivative markets that are exposed the positions that belong to Grupo Financiero Santander.
The market risk measurement quantifies the
potential variation in the value of the positions as a consequence of changes in the market risk factors.
Depending on the nature of the activities
of each business unit, debt and capital instruments are registered as securities for trade, securities available for sale and or
securities held to maturity. The main characteristic that identifies securities available for sale is their permanent nature and
they are managed as an structural part of the balance sheet. Grupo Financiero Santander has established provisions that all securities
available for sale must fulfill, as well as adequate controls for the compliance of such provisions.
Whenever significant risks are identified,
they are measured and limits are allocated in order to assure an adequate control. Global measurement of risk is carried out via
a combination of the methodology applied to Portfolios for Trade and to the management of Assets and Liabilities.
Trading Books
In order to measure the risk in a global
approach, the methodology of Value at Risk (“VaR”) is used. VaR is defined as the statistical estimate of the potential
loss of value of a given position, during certain period and at certain confidence level. VaR provides a universal measure of the
level of exposure of the different risk portfolios; it allows the comparison of the risk level assumed in different securities
and markets and expresses the level of each portfolio through a unique figure in economic units.
VaR is calculated via historical simulation,
with a 521 working-days window (520 percentage changes) and a one-day horizon. The calculation is performed from a series of simulated
gains and losses with 1% percentile at constant pesos and with pesos decreasing on an exponential basis, with a decrease factor
that is reviewed on annual basis, the most conservative measure is the one to be reported. A confidence level of 99% is assumed.
Note that the historical simulation model
is limiting to assume that the recent past represent the near future.
|
98
|
The Value
at Risk as of the end of fourth quarter of 2016 (unaudited) amounted to:
|
Bank and Brokerage
|
|
VaR
(thousands of Mexican pesos)
|
%
|
Trading Desks
|
131,604.15
|
0.12%
|
Market Making
|
100,536.30
|
0.09%
|
Proprietary Trading
|
36,656.12
|
0.03%
|
|
|
|
Risk factor
|
131,604.15
|
0.12%
|
Interest rate
|
121,433.30
|
0.11%
|
Foreign exchange
|
31,412.41
|
0.03%
|
Equity
|
1,697.48
|
0.00%
|
* % of VaR with respect to Net Capital
|
|
|
|
|
The Value at Risk for the average the fourth
quarter of 2016 (unaudited) amounted to:
|
|
|
|
Bank and Brokerage
|
|
VaR
(thousands of Mexican pesos)
|
%
|
Trading Desks
|
107,713.99
|
0.10%
|
Market Making
|
60,425.42
|
0.05%
|
Proprietary Trading
|
57,687.20
|
0.05%
|
|
|
|
Risk factor
|
107,713.99
|
0.10%
|
Interest rate
|
107,661.96
|
0.10%
|
Foreign exchange
|
28,167.25
|
0.03%
|
Equity
|
1,838.98
|
0.00%
|
* % of VaR with respect to Net Capital
|
|
|
|
|
Likewise, monthly simulations of gains or
losses of portfolios are carried out by revaluating such portfolios under different scenarios (Stress Test). Such estimates are
generated using two different methods:
|
§
|
Applying to risk factors the percentage changes observed in certain
periods including relevant market turbulences.
|
|
§
|
Applying to risk factors changes that depend on the volatility of
each risk factor.
|
On a monthly basis “back testing”
is carried out to compare daily gains and losses that would have been observed is the same positions had been maintained, taking
into account only the change in value at risk in order to be able to fine tune the models. Even though these reports are prepared
on a monthly basis, they include daily tests.
Assets and Liabilities Management
Commercial banking activities of Grupo Financiero
Santander generate important balance sheet amounts. The Assets and Liabilities Committee (“ALCO”) is responsible for
determining the guidelines for the management of financial margin risk, net worth value and liquidity that must be followed by
the different commercial portfolios. Pursuant to this approach, the General Direction of Finances has the responsibility to execute
the strategies defined by the Assets and Liabilities Committee in order to modify the risk profile of the commercial portfolio
by following the corresponding policies. Compliance with information requirements for interest rate, Exchange rate and liquidity
risks is fundamental.
As part of the financial management of Grupo
Financiero Santander, sensitivity to Net Interest Income (“NIM”) and Market Value of Equity (“MVE”) of
the different balance sheet items is analyzed in comparison to variations in interest rates. This sensitivity is derived from the
difference between maturity dates of assets and liabilities and the dates interest rates are modified. The analysis is performed
from the classification of each item sensitive to interest rate throughout time, according to their repayment, maturity or contractual
modification of the applicable interest rate.
|
99
|
|
Sensitivity NIM
|
|
Sensitivity MVE
|
Bank and Brokerage
|
Oct-16
|
Nov-16
|
Dec-16
|
Average
|
|
Oct-16
|
Nov-16
|
Dec-16
|
Average
|
Balance MXN GAP
|
64%
|
68%
|
44%
|
59%
|
|
49%
|
46%
|
45%
|
47%
|
Scenario
|
(100) bp
|
(100) bp
|
(100) bp
|
N/A
|
|
+100 bp
|
+100 bp
|
+100 bp
|
N/A
|
Balance USD GAP
|
28%
|
14%
|
91%
|
45%
|
|
66%
|
32%
|
79%
|
59%
|
Scenario
|
(100) bp
|
(100) bp
|
(100) bp
|
N/A
|
|
(100) bp
|
(100) bp
|
(100) bp
|
N/A
|
Using simulation techniques, the predictable
change of the net interest income and the market value of equity are measured in different interest rate scenarios, and their sensitivity
under extreme movement of such scenarios, as of the end of the fourth quarter of 2016:
MM MXN
|
Sensitivity NIM
|
|
Sensitivity MVE
|
Bank and Brokerage
|
Scenario
|
Total
|
Derivatives
|
Non Derivatives
|
|
Scenario
|
Total
|
Derivatives
|
Non Derivatives
|
Balance MXN GAP
|
(100) bp
|
(670)
|
(534)
|
(136)
|
|
+100 bp
|
(2,377)
|
525
|
(2,902)
|
Balance USD GAP
|
(100) bp
|
(376)
|
326
|
(702)
|
|
(100) bp
|
(1,064)
|
795
|
(1,859)
|
The Assets and Liabilities Committee adopts
investment and hedging strategies in order to maintain such sensitivities within the target range.
Limits
Limits are used to control global risk of
the financial group derived from each portfolio and books. The structure of limits is used to control exposures and to establish
the total risk authorized to business units. These limits are established for VaR, Loss alert, maximum loss, equivalent volume
of interest rate, delta equivalent in equity, open foreign currency positions, sensitivity of net interest income and sensitivity
of market value of equity.
Liquidity Risk
Liquidity risk is related to the ability
of Grupo Financiero Santander to finance acquired commitments at reasonable market prices, as well as to fulfill business plans
with stable financing sources. Risk factors may be external (liquidity crisis) and internal due to excessive concentration of maturities.
Grupo Financiero Santander carries out a
coordinated management of maturities of assets and liabilities, and oversees the maximum timing difference profiles. This monitoring
is based in the analysis of maturities of assets and liabilities, both contractual and managerial. Grupo Financiero Santander realizes
a control for the maintenance of a sufficient quantity of liquid assets to guarantee a horizon of survival during a minimum of
days facing a scene of stress of liquidity without resorting to additional financing sources. The risk of Liquidity is limited
in terms of a minimal period of days established for local, foreign and consolidated currencies. It is necessary to indicate that
in the fourth quarter incidents have not been had in the metrics.
Millions of Pesos
|
|
Total
|
|
1D
|
1W
|
1M
|
3M
|
6M
|
9M
|
1Y
|
5Y
|
>5Y
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural GAP
|
|
136,313
|
|
216,715
|
104,445
|
(12,579)
|
(536)
|
44,214
|
22,242
|
6,983
|
(81,145)
|
(164,025)
|
Non Derivative
|
|
134,199
|
|
27,949
|
111,093
|
(11,030)
|
(4,977)
|
43,479
|
24,693
|
6,637
|
(85,772)
|
22,127
|
Derivatives
|
|
2,114
|
|
188,766
|
(6,648)
|
(1,549)
|
4,441
|
735
|
(2,451)
|
345
|
4,626
|
(186,151)
|
Credit Risk
Management of credit risk of Grupo Financiero
Santander is developed differently for the different segments of clients along the three phases of the credit process: acceptance,
follow-up and recovery.
From a global perspective, management of
credit risk in Grupo Financiero Santander is responsible for the identification, measurement, integration and assessment of the
aggregated risk and the profitability according to such risk; with the purpose of oversee the levels of risk concentration and
to adapt them to the limits and objectives previously established.
Risks receiving an individual treatment
(risks with companies, Grupo Financiero Santander and financial entities) are identified and taken apart from those other risk
that are managed in standardized manner (consumer and mortgages credits to individuals, loans to businesses and small enterprises).
|
100
|
Risks managed on individual basis are subject
to a solvency or rating system with a related probability of failure that allows the measuring of the risk for each client and
for each transaction from the beginning. The assessment of the client, after analyzing other relevant risk factors in different
areas, is adjusted according to the special characteristics of the transaction (guarantee, term, etc.)
Standardized risks require, due to their
special characteristics (great number of transactions for relatively low amounts), a different management that allows an efficient
process and effective use of resources, so automated decision tools are used (expert and credit scoring systems).
Management of loans to companies is complemented,
during the follow-up phase, with the so called “system of special monitoring” that determines the policy to be followed
in the management of the risks with companies or groups rated within such category. Different situations of levels of monitoring
are identified and generate different actions. A special monitoring grade is given in the case of alert signals, systematic reviews,
or specific initiatives promoted by the Risks Department or Internal Audit.
Recovery Units constitute a critical element
in the management of irregular risk, in order to minimize the final loss for Grupo Financiero Santander. These units are responsible
for a specialized management of the risk from the moment they are classified as irregular risk loans (defaulting payment).
Grupo Financiero Santander has carried out
a policy for the selective growth of risk and a strict treatment of late payments and the creation of the corresponding provisions,
based in the prudent criteria defined by the Group.
Probability of Default and Expected Losses
Pursuant to the provisions on Comprehensive
Risk Management included in the general regulations applicable to credit institutions, as part of the credit risk management, credit
institutions must determine the probability of default.
The system allows the calculation of the
probability for the different loans portfolios.
a. The
probability of failure is for “No Retail” portfolios. It is determined via the fine tune of the ratings of clients
in a given moment, based in the Monthly Default Rates observed during a period of five years. Such Default Rates are adjusted to
an economic cycle of ten years. For “Retail” portfolios, the standard default probabilities set by the Basilea Convention
are used.
b. Once
the probability of default is determined, the parameters of “severity of Loss” (“LGD”) and “Exposure
at Default” (“EAD”) stipulated in Basilea, are taken into consideration.
Once the abovementioned factors are obtained,
the Expected Loss (“PE”) is calculated as follows:
Expected Loss = Probability of Default
x Severity of Loss x Exposure at Default
i.e.:
PE = PD * LGD * EAD
Counterparty Risk
Included in the credit risk, there is a
concept that, due to its characteristics, it requires a special management: the Counterparty Risk.
Counterparty
Risk is the risk Grupo Financiero Santander assumes with governmental entities, financial institutions, corporations, companies
and individuals in their treasury activities and correspondent bank activities. The measurement and control of the Credit Risk
in Financial Instruments, Counterparty Risk, is carried out by a special unit with an organizational structure independent from
the business areas.
The control
of Counterparty Risk is performed daily via the
Interactive Risk Integrated System
(“IRIS”)
,
which informs the credit line available with any counterparty, in any product and any term.
For the
control of the counterparty lines, the Equivalent Credit Risk (“REC”) is used. REC is an estimate of the amount Grupo
Financiero Santander may lose in current transactions with certain counterparty, if such counterparty commits a default in any
moment until the maturity date of transactions. REC takes into account the Current Credit Exposure, which is defined as the cost
to substitute the transaction at market value provided that this value is positive for Grupo Financiero Santander, and it is measured
as the market value of the transaction (“MtM”). In addition, REC includes the Potential Credit Exposure or Potential
Additional Risk (“RPA”), which represents the possible evolution of the current credit exposure until maturity, given
the characteristics of the transaction and the possible variations in the market factors. The REC Gross considers definitions described
above, without considering mitigating by netting or by mitigating collateral.
|
101
|
For the
calculation of REC, mitigating factors of the counterparty credit risk are taken into consideration, such as collaterals, netting
agreements, among other. The methodology continues to be effective.
In addition
to the Counterparty Risk, there is the Settlement Risk, which is present in every transaction at its maturity date, when the possibility
that the counterparty does not comply with its payment obligations arises, once Grupo Financiero Santander has complied with its
obligations by issuing payment directions.
For the
process of control for this risk, the Deputy General Direction of Financial Risks oversees on a daily basis the compliance with
the limits on counterparty credit risks by product, term and other conditions stipulated in the authorization for financial markets.
Likewise, it is the responsible for communicating on a daily bases, the limits, consumptions and any incurred deviation or excess.
On a monthly
basis, a report is presented to the Comprehensive Risk Management Committee, with respect to the limits to Counterparty Risks,
Issuer Risks and current consumptions. In addition, on a monthly basis, a report is presented to the Global Banking Credit Committee
and Retail Credit Committee with respect to incurred excesses and transactions with non-authorized customers. In addition, it informs
to the Comprehensive Risk Management Committee the calculation of the Expected Loss for current transactions in financial markets
at the closing of every month and different scenarios of stress of Expected Loss. All of the above according to the methodologies
and assumptions approved by the Comprehensive Risk Management Committee.
Currently,
we have approved lines of Counterparty Risks in Grupo Financiero Santander for the following segments: Mexican Sovereign Risk and
Domestic Development Banking, Foreign Financial Institutions, Mexican Financial Institutions, Corporations, Companies Banking-SGC,
Institutional Banking, Large Enterprises Unit, Project Finance.
Equivalent
Net Credit Risk of the lines of Counterparty Risk and Issuer Risk of Grupo Financiero Santander for the fourth quarter of 2016:
|
Equivalent Net Credit Risk
(millions of American dollars)
|
Segment
|
Oct-16
|
Nov-16
|
Dec-16
|
Average
|
Sovereign Risk, Development Banking and Financial Institutions
|
16,073.33
|
16,036.84
|
17,847.66
|
16,652.61
|
Corporates
|
1,341.97
|
1,044.12
|
1,335.65
|
1,240.58
|
Companies
|
97.41
|
83.74
|
192.30
|
124.48
|
The equivalent
credit risk lines maximum gross counterparty risk of Grupo Financiero Santander as of the end of the fourth quarter of 2016, which
corresponds to derivative transactions, is distributed depending on the type of derivative:
|
Equivalent Gross Credit Risk
(millions of American dollars)
|
Type of Derivative
|
End of the fourth quarter of 2016
|
Interest Rate Derivatives
|
22,809
|
Exchange Rate Derivatives
|
47,790
|
Bonds Derivatives
|
-
|
Equity Derivatives
|
466
|
Total
|
71,064
|
The Expected
Loss of Grupo Financiero Santander at the end of the fourth quarter of 2016, and the quarterly average of the expected loss of
the lines of Counterparty risk and issuer risk of Grupo Financiero Santander, for the fourth quarter of 2016 are:
|
Expected Loss
(millions of American dollars)
|
Segment
|
Oct-16
|
Nov-16
|
Dec-16
|
Average
|
Sovereign Risk, Development Banking and Financial Institutions
|
11.29
|
10.50
|
16.77
|
12.85
|
Corporates
|
2.95
|
2.80
|
2.46
|
2.74
|
Companies
|
2.77
|
2.48
|
3.07
|
2.78
|
The segments
of Mexican Financial Institutions and Foreign Financial Institutions are very active counterparties with whom Grupo Financiero
Santander has current positions of financial instruments with Counterparty Credit Risk. It is important to mention that Equivalent
Credit Risk is mitigated by netting agreements (ISDA-CMOF) and, in some cases, by collateral agreements (CSA-CGAR) or revaluation
agreements with counterparties.
|
102
|
Respect
to total collateral received for derivatives transactions as of the end of the fourth quarter of 2016:
Cash collateral
|
90.71%
|
Collateral refer to bonds issued by the Mexican Federal Government
|
9.29%
|
In respect to collateral management in derivatives
transactions, counterparty’s positions are valuated according to the frequency established at each collateral agreement.
In addition, all credit risk parameters, established at each collateral agreement are considered to obtain the amount of collateral
to be delivered or to be received from the counterparty. These amounts, margin calls, will be requested from the counterparty
which has the right to receive the collateral, according to the frequency established at the collateral agreement.
The counterparty which receives the margin
call, has the right to analyze the valuation and it could result on discrepancies to solve.
In respect to the correlation between the
collateral and the counterparty in derivatives transactions, the Institution confirms that, at this time, the eligible collateral
consists on government bonds and cash collateral, so as a result, there are no adverse effects due to correlation between the counterparty
and the collateral.
In the hypothetical stressed scenario, assuming
that the Institution’s credit rating decreases and the impact of this credit rating decrease on the collateral that the Institution
would have to deliver, this stressed test confirms that there would not be significant impact; a few of the Thresholds established
on the Institution’s collateral agreements are dependent on the Institution’s credit rating.
Legal Risk
Legal Risk is defined as the potential loss
due to the failure to comply with the applicable legal and administrative regulations, the issue of administrative and judicial
resolutions against Grupo Financiero Santander and the application of fines, with respect to the transactions carried out by Grupo
Financiero Santander.
Pursuant to the provisions regarding the
Comprehensive Risk Management, the following activities are performed: a) Establishment of policies and procedures for analyzing
the legal validity and the proper execution of the legal acts. b) estimates of the amount of potential losses derived from judicial
or administrative orders against Grupo Financiero Santander and the possible application of fines c) Analysis of the legal acts
governed by a legal system different to the Mexican laws, d) communication to directors and employees on the legal and administrative
regulations applicable to transactions and e) the performance, at least on annual basis, of internal legal audits.
Operational Risk
Operational risk is defined as the risk
of loss resulting from inadequate or failed internal processes, people and systems or from external events.
The main objective is to avoid or reduce
the impact of Operational Risk, through the identification, monitoring and control of the factors that trigger the events of potential
loss. Therefore it also requires establishing policies and procedures to operate under the risk exposure that the Bank is willing
to accept.
The sound management of risk involves the
heads of each Business Unit on the management tools and results; as well as a continuous training to the staff. The pillars on
which the operational risks are managed are:
a) Strategic planning and budget: Required
activities to define the operational risk profile for Santander Mexico; this includes:
·
Risk
appetite, defined as the level of risk that the Bank is willing to accept
·
Loss
annual budget; ensuring the overview of real losses according to the budget and the deviations, challenging the controls and extenuation
measures.
b) Identify, measure and evaluation of the
Operational risk; identify risks and the factors that trigger them in the Bank, and estimate the qualitative or/and quantitative
impact.
c) Monitoring; The Overview and monitoring
of operational risk goal for periodic analysis of available information of risk (type and level) during the normal development
of the activities.
d) Extenuation (Mitigation); once the Operational
Risk has been assessed, it is required to establish actions to avoid the risk or to mitigate the impact for risk that materialize.
e) Reporting; the Operational Risk profile
and performance of the Operational Risk environment is presented on a regular basis in Bank Committees.
Santander Mexico had a monthly average loss
of Ps.35.4 million pesos for Operational Risk overall the quarter.
Since December 2016, Santander applies the
Alternate Standard Approach (ASA) for operational risk capital requirements.
|
103
|
Technological Risk
Technological risk is defined as the potential
loss due to damages, discontinuation, alterations or failures derived from the use or dependence on hardware, software, systems,
applications, networks and any other data channel distribution for the provision of banking services to the clients of Grupo Financiero
Santander.
Grupo Financiero Santander has adopted a
corporate model for the management of Technological Risks, integrated to the processes of service and support to computing areas
in order to identify, oversee, control, mitigate and report the Computing Technology Risks the transaction is exposed to, with
the aim of establishing control measures that decrease the probability of risks to occur.
Processes and levels of authorization
Pursuant
to internal regulations, all the products and services traded by Grupo Financiero Santander are approved by the “Comité
de Comercialización” and by the “Comité Corporativo de Comercialización”. Those products
or services that are modified or extended with respect to their original approval must be approved by the “Comité
de Comercialización” and, depending of their relevance, the “Comité Corporativo de Comercialización”
must approve them too.
All areas
taking part in the operation of the product or service, depending on the nature of such product or service, as well as the areas
responsible for their accounting registration, legal formalization, fiscal treatment, risk assessment, etc. are present in the
Committee. All approvals shall be unanimous as there are no authorizations approved by majority of votes. In addition to the Committee’s
approval, there are products that require authorizations from local authorities, and therefore, the Committee’s approvals
are subject to the authorizations issued by the competent authorities in each case.
Finally,
all the approvals shall be authorized by the Comprehensive Risk Management Committee.
Independent Reviews
Grupo Financiero Santander is subject to
the monitoring and supervision of the National Bank and Exchange Commission, the Central Bank of Mexico and the Bank of Spain,
and such monitoring and supervision is exercised via follow-up processes, inspection visits, information requests, delivery of
documents and reports.
Likewise, periodic reviews are performed
by Internal and External Auditors.
General description of the valuation
techniques
Derivative financial securities are valued
at reasonable value, according to the accounting rules established in the Circular Letter for Credit Institutions issued by the
National Banking and Exchange Commission, in Principle B-5 “Derivative Financial Instruments and hedging Transactions”
and the provisions in Principle A-2 “Application of specific rules”, and the provisions in the specific rule included
in Bulletin C-10 of the Financial Information Rules.
|
A.
|
Methodology of Valuation
|
Valuation
is made at the corresponding closing market price. Prices are provided by the supplier of prices.
|
b)
|
Over-the-Counter Markets
|
i) Derivative
financial instruments with optionality.
In the majority of the cases,
a general form of the Black & Scholes model is used. Such model assumes that the underlying product follows a lognormal distribution.
For exotic products or when payment depends on the trajectory of any market variable, MonteCarlo simulations are used. In this
case, it is assumed that logarithms of the different variables follow a multi-varied normal distribution.
ii) Derivative
financial instruments with no optionality.
The valuation technique is to
obtain the present value of the estimated future flows.
In all cases, Grupo Financiero Santander
carries out the valuation of its positions and registers the corresponding value. In some cases, a different calculation agent
is designated, and such calculation agent may be the counterparty or a fourth party.
|
104
|
In the performance of its commercial banking
activities, Grupo Financiero Santander has tried to cover the evolution of the financial margin of structured portfolios that are
exposed to adverse movements in interest rates. The ALCO, the body responsible for the management of long-term assets and liabilities,
has constituted the portfolio via which the Grupo Financiero Santander achieves such hedge.
An accounting hedge is defined as a transaction
that complies with the following conditions:
|
a.
|
A hedge relationship is designated and documented from
the beginning in an individual file, where its objective and strategy is established.
|
|
b.
|
The hedge is effective for the compensation of variations
in the reasonable value or in the cash flows attributed to such risk, according to the risk management documented at the beginning.
|
The Management of Grupo Financiero Santander
performs derivative transactions for hedging purposes with swaps.
Derivatives for hedging purposes are valued
at market value, and the effect is recognized depending on the type of accounting hedge, pursuant to the following:
|
a.
|
In the case of fair value hedges, they are valued at
market value for the risk covered, the primary position and the hedging derivative instrument, and the net effect is registered
in the statement of income of the corresponding period.
|
|
b.
|
In the case of cash flow hedges, the hedging derivative
instrument is valued at market value. The effective portion of the hedge is registered in the comprehensive income account, within
the stockholders’ equity, and the ineffective portion is registered in the statement of income.
|
Grupo Financiero Santander ceases the recording
of hedges at the maturity date of the derivative, or when such derivative is sold, cancelled or exercised; when the derivative
does not reach a high efficiency in compensating the changes in the reasonable value or the cash flows of the covered item, or
when Grupo Financiero Santander decides to cancel the hedge.
It shall be fully evidenced that the hedge
fulfills the objective for which derivatives were contracted for. This effectiveness requirement assumes that the hedge must comply
with a maximum range of deviation with respect to the initial objective of 80% to 125%.
In order to demonstrate the efficacy of
hedges, two tests are to be carried out:
|
a)
|
Forward-looking Test: it is demonstrated that, in the
future, the hedge will be within the aforementioned range of deviation.
|
|
b)
|
Retrospective Test: This test reviews if, in the past,
from its initial date to now, the hedge has been maintained within the allowed range of deviation.
|
In the cases of Fair Value Hedges and the
Cash Flow Hedges, they are retrospective and forward-looking efficient and within the allowed maximum range of deviation.
The most relevant reference variables are:
Exchange Rates
Interest Rates
Equity
Baskets of equities
and stock indexes.
|
C.
|
Frequency of valuation
|
Derivative financial instruments for trading
and hedging purposes are valued on a daily basis.
Management of internal and external sources
of liquidity that may be used for the compliance of requirements related to derivative financial instruments.
Resources are obtained via the National and International Treasury
departments.
|
105
|
Changes in exposure to identified risks,
contingencies and events, known or expected, in derivative financial instruments.
At the end of the fourth quarter of 2016,
Grupo Financiero Santander has no situation or contingency such as changes in the value of the underlying asset or the reference
variables, that may cause the use of the derivative financial instruments to be different to their original intended use, a significant
change in their scheme or the total or partial loss of the hedge, requiring the Issuer to assume new obligations, commitments or
variations in its cash flow or affecting its liquidity (day trade calls), nor contingencies or events known or expected by the
Management that may affect future reports.
Grupo Financiero Santander México
|
|
Summary of Derivative Financial Instruments
|
|
(Millions of Mexican pesos as of December 31, 2016)
|
|
|
|
|
|
|
|
|
Derivatives
|
Underlying Asset
|
Purposes trading or hedging
|
Notional
|
Fair Value
|
|
|
Current Quarter
|
Previous Quarter
|
|
|
|
|
|
|
|
|
|
Forwards
|
Interest Rate
|
Trading
|
0
|
0
|
(34)
|
|
Forwards
|
Foreign Currency
|
Trading
|
261,220
|
482
|
724
|
|
Forwards
|
Equity
|
Trading
|
709
|
(1)
|
18
|
|
|
|
|
|
|
|
|
Futures
|
Foreign Currency
|
Trading
|
1,608
|
50
|
142
|
|
Futures
|
Market Index
|
Trading
|
566
|
10
|
(39)
|
|
Futures
|
Interest Rate
|
Trading
|
53,224
|
(9)
|
(111)
|
|
|
|
|
|
|
|
|
Options
|
Equity
|
Trading
|
275
|
(160)
|
(167)
|
|
Options
|
Foreign Currency
|
Trading
|
32,664
|
(214)
|
(218)
|
|
Options
|
Market Index
|
Trading
|
110,866
|
286
|
162
|
|
Options
|
Interest Rate
|
Trading
|
283,100
|
(423)
|
(416)
|
|
|
|
|
|
|
|
|
Swaps
|
Cross Currency
|
Trading
|
945,083
|
(5,884)
|
(6,740)
|
|
Swaps
|
Interest Rate
|
Trading
|
3,762,661
|
(871)
|
(418)
|
|
|
|
|
|
|
|
|
Forwards
|
Foreign Currency
|
Hedging
|
24,433
|
(6,318)
|
(7,295)
|
|
|
|
|
|
|
|
|
Swaps
|
Cross Currency
|
Hedging
|
62,908
|
7,106
|
5,392
|
|
Swaps
|
Interest Rate
|
Hedging
|
6,531
|
(49)
|
(60)
|
|
Santander México, at the execution
of transactions of OTC derivative financial instruments, has Collateral formalized agreements with many of its counterparties,
which function as market value guarantee of the derivative transactions, and it is determined based on the exposure of the net
position on risk with each opposing party. The managed Collateral consists mainly in cash deposits, whereat there is not a deterioration
situation.
During the fourth quarter, there have been
no derivatives which underlying assets are investments in proprietary shares or stock certificates that represent them.
During the fourth quarter of 2016, the number
or expired derivative financial instruments and closed positions was as follows (unaudited):
Description
|
Maturities
|
Closed Positions
|
Caps and Floors
|
486
|
26
|
Equity Forward
|
14
|
4
|
OTCEquity
|
670
|
0
|
OTCFx
|
2,777
|
0
|
Swaptions
|
4
|
0
|
Fx Forward
|
2,019
|
21
|
IRS
|
1,669
|
1,285
|
CCS
|
187
|
136
|
|
106
|
The amount of day trade calls performed
during the quarter was the necessary for covering contributions to organized markets and the requirements in collateral agreements.
During the fourth quarter of 2016, there
were no defaults by counterparties.
Sensitivity Analysis
Identification of Risks
Sensitivity measures of market risk associated
with securities and derivative financial instruments are those that measure the change (sensitivity) of the market value of the
financial instrument concerned, when changes in each of the risk factors associated with same occur.
The sensitivity of the value of a financial
instrument when changes in market factors occur and is determined by the full instrument revaluation.
The sensitivities are detailed
below according to each risk factor and associated historical consumption of the trading book.
The management strategy
of the organization is integrated with security positions and derivatives. The latter are used largely to mitigate the market risk
of the first. In view of the above, the sensitivities or exposures as described below are both types of instruments considered
as a whole.
1. Sensitivity to risk factor “E
quity (“Delta
EQ”)”
The EQ Delta shows the change
in the portfolio's value in relation to changes in the prices of equities.
The EQ Delta calculated
for the case of derivative financial instruments considered the relative change of 1% in the prices of the underlying assets in
equities, in the case of equities, this considers the relative variation of 1% of market price title.
2. Sensitivity to risk factor “F
oreign
Exchange”, (“Delta FX”)
The FX Delta
shows the change in the portfolio's value in relation to changes in asset prices exchange rate
.
The FX Delta calculated
for the case of derivative financial instruments considered the relative change of 1% in the prices of the underlying assets of
the exchange rate, In the case of currency positions, this considers the relative variation of 1% of the corresponding exchange
rate.
3. Sensitivity to risk factor “Volatility”
(“Vega”)
Vega sensitivity is the
measure resulting from changes in the volatility of the underlying asset (the reference asset). Vega risk is the risk that a change
in the volatility of the underlying asset value, that results in a change in the market value of the derivative.
The calculation of Vega
sensitivity, considers the absolute change of 1% in the volatility of the underlying asset value.
4. Sensitivity to risk factors “Interest
Rate” (“Rho”)
This sensitivity quantifies
the change in value of financial instruments for the trading portfolio in the face of a parallel increase in the interest rate
curves of a basis point.
The table below
presents the sensitivities described above corresponding to the position of the trading portfolio,
as of the end of the
fourth quarter of 2016:
Sensitivity Analysis
|
(Millions of Mexican pesos)
|
Total rate sensitivity
|
|
|
|
Mexican Pesos
|
Other Currencies
|
|
Sens. a 1 Bp
|
0.60
|
2.09
|
|
Vega Risk factor
|
|
|
|
EQ
|
FX
|
IR
|
Total
|
0.45
|
0.10
|
0.22
|
Delta Risk Factor (EQ and FX)
|
|
|
|
107
|
It is considered that the
above sensitivity table reflects prudent management of the trading portfolio of Grupo Financiero Santander with respect to risk
factors.
Stress Test for Derivative Financial
Instruments
The following are various
stress test scenarios considering various scenarios calculated for the trading portfolio of Grupo Financiero Santander.
This scenario was defined based in the movements
derived from a standard deviation, with respect to risk factors that have an influence over the valuation of financial instruments.
Specifically:
|
o
|
Risk factors of Interest Rate (“IR”), volatility
(“Vol”) and rate of Exchange (“FX”) were incremented in a standard deviation.
|
|
o
|
Risk factors with respect to stock market (“EQ”)
were decreased in a standard deviation.
|
Under this scenario, as requested in the
official letter, risk factors were modified in 25%. Specifically:
|
o
|
Risk factors: IR, Vol and FX were multiplied by 1.25
that means, they were incremented in 25%.
|
|
o
|
Risk factor EQ was multiplied by 0.75 that means, it
was decreased in 25%.
|
Under this scenario, as requested in the
official letter, risk factors were modified in 50%. Specifically:
|
o
|
Risk factors IR, Vol and FX are multiplied by 1.50, that
is, they were incremented in 50%.
|
|
o
|
Risk factor EQ was multiplied by 0.5, that is, it was
decreased a 50%.
|
Effect in the Income Statement
The following table shows the possible
income (loss) for the trading portfolio of Grupo Financiero Santander, in millions of Mexican pesos for each stress scenario,
as
of the end of the fourth quarter of 2016
:
Summary of Stress Test
|
(Millions of Mexican pesos)
|
|
|
Risk Profile
|
Stress all factors
|
Probable scenario
|
(15)
|
Remote scenario
|
1,984
|
Possible scenario
|
779
|
|
108
|
25. Disclosure of the
Liquidity Coverage Ratio
On December 31, 2014, the Commission and
the Central Bank of Mexico published in the Federal Official Gazette, the General Provisions on Liquidity Requirements for multiple
banking institutions, which establish liquidity requirements that credit institutions must comply at all times in accordance with
the guidelines established by the Committee on Regulation of Bank Liquidity at its meeting held on October 17, 2014.
These regulations came into force on January
1, 2015.
During the fourth quarter of 2016 the weighted
average CCL for the Bank is 153.31%, complying with the Bank´s desired Risk Profile and well above the regulatory minimum
established in the regulations.
(Figures
in millions of MXN)
|
Amount
unweighted (average)
|
Weighted
Amount (average)
|
|
|
LIQUIDITY
ASSETS
|
|
1
|
Total
high-quality liquid assets
|
not
applicable
|
168,451
|
|
CASH
OUTFLOWS
|
|
|
|
2
|
Unsecured
retail financing
|
173,636
|
11,087
|
|
3
|
Stable
funding
|
125,540
|
6,277
|
|
4
|
Less
stable funding
|
48,096
|
4,810
|
|
5
|
Unsecured
wholesale funding
|
376,887
|
141,241
|
|
6
|
Operational
deposits
|
242,853
|
56,854
|
|
7
|
Non-operational
deposits
|
112,904
|
63,258
|
|
8
|
Unsecured
debt
|
21,130
|
21,130
|
|
9
|
Secured
wholesale funding
|
not
applicable
|
453
|
|
10
|
Additional
requirements:
|
211,701
|
88,416
|
|
11
|
Outflows
related to derivatives exposures and other collateral requirements
|
79,758
|
79,758
|
|
12
|
Outflows
related to loss of funding on debt products
|
-
|
-
|
|
13
|
Credit
and liquidity facilities
|
131,943
|
8,659
|
|
14
|
Other
contractual funding obligations
|
1,689
|
1,689
|
|
15
|
Other
contingent funding obligations
|
823
|
823
|
|
16
|
TOTAL
CASH OUT
|
not
applicable
|
243,709
|
|
CASH
INFLOWS
|
|
|
|
17
|
Cash
inflows secured transactions
|
68,601
|
3,637
|
|
18
|
Cash
inflows from operations unsecured
|
75,249
|
53,851
|
|
19
|
Other
cash inflows
|
75,081
|
75,081
|
|
20
|
TOTAL
CASH INFLOWS
|
218,930
|
132,568
|
|
TOTAL
ADJUSTED VALUE
|
|
21
|
TOTAL
OF ELIGIBLE LIQUID ASSETS
|
not
applicable
|
168,451
|
|
22
|
TOTAL
NET CASH OUT
|
not
applicable
|
111,140
|
|
23
|
LIQUIDITY
COVERAGE RATIO
|
not
applicable
|
153.31%
|
|
The presented
numbers are subject to review and therefore they might suffer changes.
|
109
|
Notes relating to the Liquidity Coverage
Ratio
|
a)
|
Natural days contemplated in the quarterly report.
|
|
b)
|
Main causes of the results of the Liquidity Coverage
Ratio and the evolution of its main components;
|
|
·
|
During the quarter there was an increase in deposits, leading to an increase in the level of liquid
assets.
|
|
c)
|
Changes of major components within the quarter report.
|
|
·
|
During the quarter there was an increase in deposits, leading to an increase in the level of liquid
assets.
|
|
d)
|
Evolution of the composition of the Eligible and Computable Liquid Assets.
|
|
·
|
The Bank has a significant proportion of liquid assets comprised by government debt, deposits in
Bank of Mexico and cash.
|
|
e)
|
Concentration of funding sources.
|
|
·
|
The main sources of funding are diversified by its own nature as: (i) demand deposits; (ii) term
deposits, which include retail deposits and the money market (promissory notes with interest payable at maturity), and (iii) repurchase
agreements.
|
|
·
|
In addition the Bank has registered programs for local market´s debt issuances and has experience
issuing in international markets.
|
|
f)
|
Exposures in financial derivative instruments and possible
margin calls.
|
|
·
|
Performed analyses don’t show any significant vulnerabilities
coming from financial derivative instruments.
|
|
·
|
Performed analyses don’t show any significant vulnerability
in Currency mismatch.
|
|
h)
|
Description of the level of centralization of liquidity
management and interaction between the units of the group.
|
|
·
|
Banco Santander Mexico is autonomous in terms of liquidity and capital; it develops its financial
plans, liquidity forecast, and analyzes funding requirements for all its subsidiaries. The Bank is responsible for its own "ratings",
its issuance program, "road shows", any other activities to keep its ability to access capital markets. The issuance
activity is performed without having the guarantee of the parent company.
|
|
·
|
The liquidity management of all Bank subsidiaries is
centralized.
|
|
i)
|
Cash flows and Inflows, if any, that are not captured
in this framework, but the institution considers relevant to the liquidity profile.
|
|
·
|
The Liquidity Coverage Ratio considers only the inflows and outflows up to 30 days, however the
flows that are not contained in the metric are well managed and controlled by the Group.
|
Additional notes for the previous quarter
|
I.
|
Quantitative information:
|
|
a)
|
The concentration limits for different groups of guarantees
received and major sources of financing.
|
|
·
|
The Bank has no concentration limits under guarantees received by market operations, as they are
mainly composed of government securities and cash.
|
|
b)
|
Exposure to liquidity risk and funding needs of the institution, taking into account the legal,
regulatory and operational constraints on liquidity transfers.
|
|
·
|
Liquidity risk is associated with our capacity to finance the commitments we undertake at reasonable
prices, as well as maintaining our ability to carry out our business plans using stable financing sources. Factors that influence
liquidity risk may be external, such as a liquidity crisis, or internal, such as an excessive concentration of maturities.
|
|
·
|
The measures used to control liquidity risk in balance sheet management are the liquidity gap,
liquidity ratios, stress scenarios and liquidity horizons.
|
|
·
|
The liquidity horizons metric has been defined to ensure that the Group has sufficient liquid assets
to comply with its requirements during a certain period of time, given different stress scenarios. The Group set a 90-day survival
horizon for local currency and consolidated balance and a 30-day survival
horizon for foreign currency. During the 3Q16, the balance remained above the established limits, and therefore we maintained
a sufficient liquidity buffer.
|
|
110
|
30/09/2016
|
Term
|
Amount
|
|
(Millions
of pesos)
|
Consolidated
|
90 days
|
Ps.87,996
|
Local Currency
|
90 days
|
31,328
|
Foreign Currency
|
30 days
|
31,753
|
|
c)
|
Balance sheet maturity liquidity gap including off balance
sheet accounts.
|
|
·
|
The table below shows the liquidity gap of our assets and liabilities using maturity dates as of
September 30, 2016. The reported amounts include cash flows from interest on fixed and variable rate instruments. The interest
on variable rate instruments is determined using the forward interest rates for each period presented.
|
|
|
Total
|
|
0-1 months
|
|
1-3 months
|
|
3-6 months
|
|
6-12 months
|
|
1-3 years
|
|
3-5 years
|
|
>5 years
|
|
Not Sensitive
|
|
|
(Millions of pesos)
|
Money Market
|
|
|
133,639
|
|
|
|
110,414
|
|
|
|
146
|
|
|
|
-
|
|
|
|
11
|
|
|
|
42
|
|
|
|
41
|
|
|
|
-
|
|
|
|
22,987
|
|
Loans
|
|
|
709,355
|
|
|
|
102,275
|
|
|
|
74,246
|
|
|
|
57,038
|
|
|
|
84,636
|
|
|
|
202,939
|
|
|
|
82,165
|
|
|
|
125,636
|
|
|
|
(19,581
|
)
|
Trade Finance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Intragroup
|
|
|
147
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
147
|
|
Securities
|
|
|
307,415
|
|
|
|
266,983
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
14,026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,403
|
|
Permanent
|
|
|
5,213
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,213
|
|
Other Balance Sheet Assets
|
|
|
64,026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,026
|
|
Total Balance Sheet Assets
|
|
|
1,219,795
|
|
|
|
479,671
|
|
|
|
74,393
|
|
|
|
57,039
|
|
|
|
84,648
|
|
|
|
217,007
|
|
|
|
82,205
|
|
|
|
125,636
|
|
|
|
99,196
|
|
Money Market
|
|
|
(234,138
|
)
|
|
|
(200,897
|
)
|
|
|
(7,080
|
)
|
|
|
(4,567
|
)
|
|
|
(11,178
|
)
|
|
|
(2,313
|
)
|
|
|
(3,758
|
)
|
|
|
-
|
|
|
|
(4,346
|
)
|
Deposits
|
|
|
(498,703
|
)
|
|
|
(143,168
|
)
|
|
|
(57,963
|
)
|
|
|
(46
|
)
|
|
|
(20,901
|
)
|
|
|
(276,625
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Trade Finance
|
|
|
(320
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(320
|
)
|
Intragroup
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Long-Term Funding
|
|
|
(167,736
|
)
|
|
|
(18,183
|
)
|
|
|
(6,008
|
)
|
|
|
(11,631
|
)
|
|
|
(23,872
|
)
|
|
|
(65,077
|
)
|
|
|
(13,572
|
)
|
|
|
(29,392
|
)
|
|
|
-
|
|
Equity
|
|
|
(106,484
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(106,484
|
)
|
Other Balance Sheet Liabilities
|
|
|
(95,324
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(95,324
|
)
|
Total Balance Sheet Liabilities
|
|
|
(1,102,705
|
)
|
|
|
(362,248
|
)
|
|
|
(71,051
|
)
|
|
|
(16,245
|
)
|
|
|
(55,951
|
)
|
|
|
(344,016
|
)
|
|
|
(17,330
|
)
|
|
|
(29,392
|
)
|
|
|
(206,474
|
)
|
Total Balance Sheet Gap
|
|
|
117,090
|
|
|
|
117,423
|
|
|
|
3,342
|
|
|
|
40,794
|
|
|
|
28,697
|
|
|
|
(127,009
|
)
|
|
|
64,875
|
|
|
|
96,244
|
|
|
|
(107,278
|
)
|
Total Off-Balance Sheet Gap
|
|
|
(5,960
|
)
|
|
|
(12,426
|
)
|
|
|
1,024
|
|
|
|
(7,914
|
)
|
|
|
(4,128
|
)
|
|
|
14,959
|
|
|
|
3,390
|
|
|
|
14,672
|
|
|
|
(15,538
|
)
|
Total Structural Gap
|
|
|
|
|
|
|
104,997
|
|
|
|
4,366
|
|
|
|
32,880
|
|
|
|
24,570
|
|
|
|
(112,050
|
)
|
|
|
68,266
|
|
|
|
110,916
|
|
|
|
(122,815
|
)
|
Accumulated Gap
|
|
|
|
|
|
|
104,997
|
|
|
|
109,363
|
|
|
|
142,244
|
|
|
|
166,813
|
|
|
|
54,763
|
|
|
|
123,029
|
|
|
|
233,945
|
|
|
|
111,130
|
|
II. Qualitative
information:
|
a)
|
The way in which liquidity risk is managed within the institution, considering the risk tolerance,
the structure and responsibilities for managing liquidity risk, internal liquidity reports, the liquidity risk strategy, policies
and practices across business lines and with the board of directors.
|
|
·
|
Our general policy regarding liquidity management seeks to ensure that even under adverse conditions,
we have enough liquidity to fulfill client needs, maturing liabilities and working capital requirements. The Bank ´s liquidity
management is based on analyses of asset and liability maturities, using contractual and management models.
|
|
111
|
|
·
|
The Financial Management Area is responsible for executing the strategies and policies established
by ALCO in order to modify the risk profile of the Bank, within the limits established by the CAIR who reports to the Board.
|
|
b)
|
Financing strategy, including diversification policies, and whether the funding strategy is centralized
or decentralized.
|
|
·
|
Annually the Financial Plan for the Bank is prepared considering: the projected business growth,
the debt maturity profile, risk appetite, expected market conditions, the implementation of diversification policies and regulatory
metrics and the analysis of the liquidity buffer. The Financial Plan is the guide used to issue debt or contract term liabilities
and aims to maintain adequate liquidity profile.
|
|
·
|
The funding strategy of all subsidiaries is centralized.
|
|
c)
|
Mitigation techniques of liquidity risk used by the institution.
|
|
·
|
The risk mitigation techniques in the Group have a proactive nature. The Financial Plan in addition
to the projection exercises and stress test scenarios allows us to anticipate risks and implement measures to ensure that the liquidity
profile is adequate.
|
|
d)
|
Explanation of how the stress tests are used.
|
|
·
|
The Liquidity Stress Test is a Risk Management tool designed to warn the governing committees and
areas responsible for making decisions in this area about the potential adverse effects of the liquidity risk the Institution is
exposed to.
|
|
·
|
The results of these stress tests aim to identify the impacts prospectively in order to improve
planning processes, and help align and calibrate Risk Appetite, Exposure Limits and Levels of Liquidity Risk tolerance.
|
|
e)
|
Description of contingent financing plans.
|
|
·
|
The plan includes the following elements: type and business model as the starting point. Early
Warning Indicators to identify in a timely manner the increase in liquidity risk and the elements that define the crisis scenarios
used. Additionally we measure the liquidity shortages that stress scenarios could produce and the available actions considered
by the plan to restore liquidity conditions. Actions are prioritized in order to preserve the value of the entity and the stability
of the markets. A key aspect of the Plan is the governance process, stating the areas responsible for the different stages involved:
activation, execution, communication and maintenance of the Plan.
|
|
112
|
Item 2
4Q and Full - Year 2016 Earnings Presentation
2 Earnings Presentation 4Q and Full - Year 2016 Safe Harbor Statement Grupo Financiero Santander México cautions that this presentation may contain forward - looking statements within the meaning of the U . S . Private Securities Litigation Reform Act of 1995 . These forward - looking statements could be found in various places throughout this presentation and include, without limitation, statements regarding our intent, belief, targets or current expectations in connection with : asset growth and sources of funding ; growth of our fee - based business ; expansion of our distribution network ; our focus on strategic businesses ; our compound annual growth rate ; our risk, efficiency and profitability targets ; financing plans ; competition ; impact of regulation ; exposure to market risks including interest rate risk, foreign exchange risk and equity price risk ; exposure to credit risks including credit default risk and settlement risk ; projected capital expenditures ; capitalization requirements and level of reserves ; liquidity ; trends affecting the economy generally ; and trends affecting our financial condition and our results of operations . While these forward - looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations . These factors include, but are not limited to : changes in capital markets in general that may affect policies or attitudes towards lending to Mexico or Mexican companies ; changes in economic conditions, in Mexico in particular, in the United States or globally ; the monetary, foreign exchange and interest rate policies of the Mexican Central Bank ( Banco de México ) ; inflation ; deflation ; unemployment ; unanticipated turbulence in interest rates ; movements in foreign exchange rates ; movements in equity prices or other rates or prices ; changes in Mexican and foreign policies, legislation and regulations ; changes in requirements to make contributions to, for the receipt of support from programs organized by or requiring deposits to be made or assessments observed or imposed by, the Mexican government ; changes in taxes ; competition, changes in competition and pricing environments ; our inability to hedge certain risks economically ; economic conditions that affect consumer spending and the ability of customers to comply with obligations ; the adequacy of allowances for loans and other losses ; increased default by borrowers ; technological changes ; changes in consumer spending and saving habits ; increased costs ; unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms ; changes in, or failure to comply with, banking regulations ; and certain other risk factors included in our annual report on Form 20 - F . The risk factors and other key factors that we have indicated in our past and future filings and reports, including those with the U . S . Securities and Exchange Commission, could adversely affect our business and financial performance . Note : The information contained in this presentation is not audited . Nevertheless, the consolidated accounts are prepared on the basis of the accounting principles and regulations prescribed by the Mexican National Banking and Securities Commission ( Comisión Nacional Bancaria y de Valores ) for credit institutions, as amended (Mexican Banking GAAP) . All figures presented are in millions of nominal Mexican pesos, unless otherwise indicated . Historical figures are not adjusted by inflation .
3 Earnings Presentation 4Q and Full - Year 2016 Successful Strategy Execution Delivers Profitable Growth Gaining traction in profitability ▪ Efficiency ratio 1 40.4% +80 bps 41.7% - 30 bps ▪ ROAE 2 16.3% +90 bps 14.1% +120 bps Total loans up 8 % with focus on profitability Improvement in risk metrics ▪ NPL ratio 2.48% - 85 bps ▪ Cost of risk 3.35% - 14 bps 3.31% - 9 bps Deposit growth of 15% ▪ Individual demand deposits +20% Source : Company filings CNBV GAAP Notes: 1) Annualized opex (4Q16x4) divided by Annualized income before opex and allowances (4Q16x4) 2) Annualized net income (4Q16x4) divided by average equity (4Q15;4Q16) Optimized regulatory capital structure Making headway on implementation of strategic projects 4Q’16 YoY Var 2016 FY Var
4 Earnings Presentation 4Q and Full - Year 2016 ▪ Santander Plus ▪ Aeroméxico ▪ New Initiatives ▪ Auto Loans ▪ Financial Inclusion ▪ Mid - mkt Insurance ▪ Operating Leasing ▪ Branch Network Upgrade ▪ Full Function ATMs ▪ CRM Upgrade ▪ Processes Digitalization Committing Ps.15 Billion over Next 3 - Years to Drive Growth and Innovation Distribution Network Transformation Strategic Projects Broaden Business Scope Client Attraction & Loyalty 5 3% 33% 14%
5 Earnings Presentation 4Q and Full - Year 2016 Crucial Progress on Key Initiatives 1 Thousands of customers San Plus Customers 1 Aeromexico Customers 1 Total Demand Deposits New Payroll Customers 1 (net) 1,107 49% 4Q16 +72% 51% 50% 50% 2Q16 3Q16 643 133 2015 229 +41% 2016 324 69% 31% 294 3Q16 432 26% 4Q16 +47% 74% 21% 1Q16 79% 159 2Q16 43 +17% 406,863 4Q15 347,786 4Q16 Individuals Other +20% New New
6 Earnings Presentation 4Q and Full - Year 2016 Making Headway in Customer Acquisition , Loyalty and Digitalization Thousands of customers 1 From May to November of each year / Thousands of customers Digital Customers Net New Customers 1 1,370 1,203 1,064 951 855 +60% 4Q16 3Q16 2Q16 1Q16 4Q15 +89% 2016 645 2015 342 Loyal Customers 1,390 +20% 1,421 1Q16 4Q15 1,551 1,485 3Q16 2Q16 1,661 4Q16 +6% 2016 1,771 2015 1,679 - 16% 2016 1,126 2015 1,337 Customers Outflow 1 Customers Inflow 1
7 Earnings Presentation 4Q and Full - Year 2016 System Loans and Deposits in November Do Not Yet Reflect the Changing Environment Total Loans Total Deposits 4,100 4,020 3,969 3,809 3,710 15.3% 3Q16 13.7% 2Q16 12.3% 4Q15 13.4% 15.0% 1Q16 Nov’16 4,279 4,168 4,045 3,881 3,843 Nov’16 14.6% 3Q16 13.7% 2Q16 15.2% 1Q16 13.9% 4Q15 14.8% YoY Growth YoY Growth Consumer 1 ( YoY Growth ) 3Q16 13.1% 2Q16 13.1% 1Q16 13.3% 4Q15 11.8% Nov’16 13.1% Source: CNBV Banks as of November 2016 – Billions of Pesos Notes: 1) Includes credit cards, payroll, personal and auto loans Demand Deposits 2Q16 14.3% Nov’16 16.6% 3Q16 17.4% 1Q16 14.8% 4Q15 14.0%
8 Earnings Presentation 4Q and Full - Year 2016 Santander México Delivers 8% YoY Loan Growth Total Loans +1% 591,428 - 1% +8% 3Q16 598,829 2Q16 571,685 1Q16 543,252 4Q15 547,745 4Q16 4Q15 Source : Company filings CNBV GAAP , in millions of nominal Mexican pesos Notes: 1) Retail loans include : mortgages , credit cards , consumer , SME’s and mid - market loans Corporate&Gov Retail 1 +11% Loan Portfolio Breakdown Middle - Market 24% Corporates 14% Gov&FinEnt 12% SMEs 11% Mortgages 22% Credit Cards 9% Consumer 8%
9 Earnings Presentation 4Q and Full - Year 2016 Individual Loans Up Amid Stiff Competition; Payroll & Credit Card Loan Expansion 228,901 212,170 Consumer 1 Credit Cards Mortgages Individual Loans 51,537 50,702 49,307 48,062 47,775 4Q15 +2% +8% 4Q16 3Q16 2Q16 1Q16 3Q16 126,728 2Q16 124,641 +7% 128,836 +2% 4Q16 1Q16 122,161 4Q15 120,477 4Q15 4Q16 +8% +10% 48,528 +2% 4Q16 3Q16 47,578 2Q16 46,537 1Q16 45,209 4Q15 43,918 Payroll Personal » Continued penetration of Aeromexico co - branded card reaching + 430,000 clients; 31% new customers » Ongoing focus on loyalty programs » 2 nd largest market player » Increased market competition » Mortgage rates still behind higher rate environment » Strong focus on payroll loans up 18% » Improving onboarding processes Source: Company filings CNBV GAAP, in millions of nominal Mexican pesos Market shares calculated with CNBV Banks as of November 2016 Notes: 1) Includes personal, payroll and auto loans
10 Earnings Presentation 4Q and Full - Year 2016 Momentum in SMEs and Middle - Market, Profitability Prioritization Impacts Corporate & Government Loans SMEs Middle - Market Corporates 124,346 4Q15 125,271 +15% 144,290 +4% 4Q16 3Q16 138,192 2Q16 135,030 1Q16 67,640 66,843 63,934 62,248 61,203 3Q16 2Q16 1Q16 4Q15 +1% +11% 4Q16 80,788 73,656 70,655 79,387 1Q16 4Q15 +2% - 19% 4Q16 3Q16 100,216 2Q16 Commercial Loans 362,527 335,575 4Q15 4Q16 +8% Government & Fin Entities 69,809 68,570 78,580 70,571 69,714 +2% 4Q16 3Q16 2Q16 1Q16 4Q15 0% Source : Company filings CNBV GAAP, in millions of nominal Mexican pesos
11 Earnings Presentation 4Q and Full - Year 2016 Focus on Individuals and SMEs Drive Demand Deposits Total Deposits +17% 4Q16 406,863 4Q15 347,786 168,646 +11% 4Q16 186,622 4Q15 Demand Term * 4Q16 69% 31% 3Q16 542,191 70% 593,485 +9% +15% Demand Term 518,832 70% 30% 4Q15 516,432 67% 33% 30% 2Q16 543,685 71% 29% 1Q16 » Total Individuals & SMEs – up 23% and 26%, respectively » Continue to expand Select and Payroll client base » Santander Plus launch in May’16 contributes to boost individual demand deposits through payroll accounts » Higher interest rates favor lower - risk term deposits +20% Individuals Other +16% Source : Company filings CNBV GAAP , in millions of nominal Mexican pesos Notes: * Includes money market
12 Earnings Presentation 4Q and Full - Year 2016 Strong Liquidity, Healthy Debt Profile, Continued Funding Diversification Debt Maturity 4Q16 96.3% 3Q16 106.7% 2Q16 101.6% 1Q16 101.0% 4Q15 102.2% » Senior notes issuances diversify funding sources while refinancing short - term maturities » Well positioned for additional interest rate increase » Strong net loan to deposit ratio supports future growth opportunities » LCR* = 153.31%, well above 60% Banxico regulatory requirements Debt Maturity Net Loans to Deposits 1 Source: Company filings CNBV GAAP, in millions of nominal Mexican pesos Notes: 1) Loans net of allowances divided by total deposits (Demand + Term ) 2) Including Additional Tier 1 Capital Notes issued in December 2016 * LCR = Liquidity Coverage Ratio 3,000 26,805 20,619 6,350 2,282 911 11,286 3,657 10,310 2 2026 2024 2022 2021 2020 2019 2018 2017 2027+
13 Earnings Presentation 4Q and Full - Year 2016 NII up 13% YoY Underpinned by Higher Interest Rates and Profitable Loan Mix Net Interest Income and NIM 1 12,950 12,411 11,817 11,700 11,431 4.74 +13.3% +4.3% 4Q16 3Q16 5.01 2Q16 1Q16 4Q15 4.86 5.12 4.86 » NII up 4.3% sequentially » NII grew 13.3% YoY , principally due to: ▪ Strong interest income from: Loan portfolio: +24.2% Investment in securities: +3.9% ▪ Positive impact from interest rate increases since December ’15 » NIM improved 38 bps YoY to 5.12% Source : Company filings CNBV GAAP , in millions of nominal Mexican pesos Notes: 1) Quarterly ratio = Annualized net interest income (4Q16x4) divided by daily average interest earnings assets (4Q16) As to date ratio = Annualized net interest income (12M16/4x4) divided by daily average interest earnings assets (12M16) +14.7% 2016 48,878 2015 42,632 4.89 4.97
14 Earnings Presentation 4Q and Full - Year 2016 Cash Management, Financial Advisory and Investment Funds Net Fees Offset by Credit Cards and Insurance Net Commissions and Fees 3,917 3,739 3,982 3,609 3,777 +4.8% +3.7% 4Q16 3Q16 2Q16 1Q16 4Q15 Source : Company filings CNBV GAAP , in millions of nominal Mexican pesos Notes: * Includes fees from : collections and payments , account management , cheques, foreign trade and others +3.2% 2016 15,247 2015 14,772 26% 29% 19% 11% 11% 4% Insurance Cash Mangmt* Credit Cards Investment Funds Financial advisory services Purchase-sale of securities and money market transactions Var YoY Var YoY 4Q15 3Q16 4Q16 $$ % 2015 2016 $$ % Insurance 1,029 1,023 1,009 - 20 - 2% 4,088 4,197 109 3% Cash Mangmt* 949 1,050 1,114 165 17% 3,834 4,314 480 13% Credit Cards 986 790 747 - 239 - 24% 3,301 3,133 - 168 - 5% Investment Funds 348 449 437 89 26% 1,338 1,642 304 23% Financial advisory services 352 232 444 92 26% 1,699 1,195 - 504 - 30% Purchase - sale of securities and money market transactions 113 195 166 53 47% 512 766 254 50% Net commisions and fees 3,777 3,739 3,917 140 4% 14,772 15,247 475 3%
15 Earnings Presentation 4Q and Full - Year 2016 Gross Operating Income Up 16% YoY Supported by NII and Trading Gains 17,976 16,871 16,401 16,004 15,555 +15.6% +6.5% 4Q16 3Q16 2Q16 1Q16 4Q15 Source : Company filings CNBV GAAP , in millions of nominal Mexican pesos Notes: * Gross Operating Income does not include Other Income +12.7% 67,252 59,669 2015 2016 Gross Operating Income* 72% 22% 6% Net Interest Income Net Commissions and Fees Market related revenue Var YoY Var YoY 4Q15 3Q16 4Q16 Var $$ Var % 2015 2016 Var $$ Var % Net Interest Income 11,431 12,411 12,950 1,519 13% 42,632 48,878 6,246 15% Net Commissions and Fees 3,777 3,739 3,917 140 4% 14,772 15,247 475 3% Market related revenue 347 721 1,109 762 220% 2,265 3,127 862 38% Gross Operating Income* 15,555 16,871 17,976 2,421 16% 59,669 67,252 7,583 13%
16 Earnings Presentation 4Q and Full - Year 2016 Cost of Risk 1 Loan Loss Reserves (LLR) - 6bps - 14 bps 4Q16 3.35% 3Q16 3.41% 2Q16 3.22% 1Q16 3.45% 4Q15 3.49% 4,768 4,889 4,511 4,709 4,424 - 2.5% +7.8% 4Q16 3Q16 2Q16 1Q16 4Q15 Source : Company filings CNBV GAAP , in millions of nominal Mexican pesos Notes: 1) Quarterly ratio = Annualized loan loss reserves (4Q16x4) divided by average loans (4Q15,4Q16) As to date ratio = Annualized loan loss reserves (12M16/4x4) divided by average loans (4Q15,4Q16) * Commercial loans include : mid - market , smes , corporates , financial institutions and government * Commercial NPLs reflect the exposure to homebuilders Healthy Asset Quality: NPLs Down 85 bps YoY and Lower Cost of Risk PENDIENT E PENDIENT E - 9 bps 2016 3.31% 2015 3.40% 2016 +9.5% 18,877 2015 17,244 NPLs 4Q15 3Q16 4Q16 Var YoY (bps) Var QoQ (bps) Consumer 4.00% 3.92% 3.98% - 2 6 Credit Card 4.36% 4.13% 4.22% - 15 9 Mortgages 4.97% 4.27% 4.19% - 78 - 8 Commercial* 2.56% 2.04% 1.46% - 110 - 58 SMEs 2.59% 2.50% 2.10% - 49 - 40 Total Loans 3.33% 2.82% 2.48% - 85 - 34
17 Earnings Presentation 4Q and Full - Year 2016 Growing Profitability Supports Efficiency Gains; Offsets Strategic Initiative Costs Expenses Breakdown & Performance Administrative & Promotional Expenses 7,283 7,048 7,015 6,889 6,437 1Q16 3Q16 4Q16 +13.1% +3.3% 4Q15 2Q16 Efficiency 1 40.4% - 90bps +80bps 3Q16 4Q16 41.3% 2Q16 42.8% 1Q16 42.4% 4Q15 39.6% Source: Company filings CNBV GAAP , in millions of nominal Mexican pesos Notes: 1) Quarterly ratio = Annualized opex (4Q16x4) divided by annualized income before opex (net of allowances) (4Q16x4) As to date ratio = Annualized opex (12M16/4x4) divided by annualized income before opex (net of allowances) (12M16/4x4) 41.7% - 30bps 2016 42.0% 2015 +10.1% 28,235 2016 25,643 2015 Var YoY Var YoY 4Q15 3Q16 4Q16 $$ % 2015 2016 $$ % Personnel 2,807 3,178 3,075 268 9.5% 11,709 12,616 907 7.7% Admin expenses 2,611 2,698 3,014 403 15.4% 9,832 10,930 1,098 11.2% IPAB 590 672 713 123 20.8% 2,238 2,631 393 17.6% Dep and amort. 429 500 481 52 12.1% 1,864 2,058 194 10.4% Admin & prom expenses 6,437 7,048 7,283 846 13.1% 25,643 28,235 2,592 10.1% Admin & prom expenses (ex IPAB) 5,847 6,376 6,570 723 12.4% 23,405 25,604 2,199 9.4%
18 Earnings Presentation 4Q and Full - Year 2016 Solid Performance Achieving 11% Net Income Growth in FY2016 Effective Tax Rate Net Income 4Q16 3Q16 23.2% 2Q16 24.0% 1Q16 23.7% 4Q15 22.2% 24.2% +100bps +200bps Profit before Taxes Source : Company filings CNBV GAAP , in millions of nominal Mexican pesos 5,991 5,111 4,880 4,642 5,428 +10.4% +17.2% 4Q16 3Q16 2Q16 1Q16 4Q15 +130bps 2016 23.8% 2015 22.5% 2015 20,624 2016 18,242 +13.1% 4,542 3,926 3,708 3,539 4,224 +7.5% +15.7% 4Q16 3Q16 2Q16 1Q16 4Q15 +11.1% 2016 15,715 2015 14,141
19 Earnings Presentation 4Q and Full - Year 2016 Successful Capital Optimization Strategy ▪ Paid Ps.13.6 billion cash dividend from 2016 retained earnings ▪ Issued US$500 million of Perpetual Subordinated Non - Preferred Contingent Convertible Additional Tier1 Capital Notes ( AT1 Notes) CET1 and Capitalization ROAE 1 ▪ Optimize regulatory capital structure ▪ Improve profitability metrics ▪ ROE up 60 bps in FY16 ▪ Maintain capitalization levels above regulatory requirements to take advantage of potential growth opportunities Initiatives Objectives Achieved +90bps 4Q16 16.3% +220 bps +70 bps 3Q16 13.4% 2Q16 12.8% 1Q16 12.3% 4Q15 15.4% +120bps 2016 14.1% +60 bps +60 bps 2015 12.9% 12.1 12.1 12.4 11.7 10.3 1.5 CET1 Tier 2 4Q16 ** 15.7% 3Q16 16.0% AT1 15.1% 1Q16 15.4% 4Q15 15.6% 2Q16 Optimization capital structure Business as usual Source : Company filings CNBV GAAP , in millions of nominal Mexican pesos Notes: 1) Quarterly ratio = Annualized net income (4Q16x4) divided by average equity (4Q15,4Q16) As to date ratio = Annualized net income (12M16/4x4) divided by average equity (4Q15,4Q16)
20 Earnings Presentation 4Q and Full - Year 2016 Santander Mexico Delivers on Profitable Growth Metrics 2016 Guidance Target * Does not include the deposit insurance fee (or IPAB) ▪ Total Loans Δ 10% - 12% Δ 8% ▪ Total Deposits Δ 10% - 12% Δ 15% ▪ Pre - tax Earnings Growth Δ 8% - 12% Δ 13% ▪ Cost of Risk 3.3% - 3.5% 3.3% ▪ Expenses Δ 6% - 8%* Δ 9.4%* ▪ Tax Rate 25% - 26% 24% 2016 Results
21 Earnings Presentation 4Q and Full - Year 2016 2017 Guidance Metrics 2017 Target * Does not include the deposit insurance fee (or IPAB) ▪ Total Loans Δ 7% - 9% ▪ Total Deposits Δ 9% - 11% ▪ Cost of Risk 3.3% - 3.5% ▪ Expenses Δ 10% - 12%* ▪ Tax Rate 24% - 25% ▪ Net Income Δ 8% - 11%
22 Earnings Presentation 4Q and Full - Year 2016 Questions and Answers
23 Earnings Presentation 4Q and Full - Year 2016 Annexes
24 Earnings Presentation 4Q and Full - Year 2016 Economic Growth Has Slowed Down Due to Increased Global Uncertainties GDP (% Growth ) Central Bank monetary policy ( %, end of year ) Inflation (% Annual ) 2.2 2.6 1.5 1.8 * 2016E 2015 2018E 2017E 7.25 3.25 2016 5.75 2015 2018E 2017E 6.75 * 4.4 3.4 2.1 2015 2018E 2017E 4.8 * 2016 Source : INEGI, Banxico and Santander * Revised from previous quarter 2.3 Average exchange rate ( MxP /USD ) 18.7 15.9 21.6 2015 2017E 21.7 * 2016 2018E 18.6 3.3 5.25
25 Earnings Presentation 4Q and Full - Year 2016 Consolidated Income Statement 4Q16 3Q16 4Q15 % Change QoQ YoY Interest income 21,337 19,597 17,296 8.9 23.4 Interest expense (8,387) (7,186) (5,865) 16.7 43.0 Financial margin 12,950 12,411 11,431 4.3 13.3 Allowance for loan losses (4,768) (4,889) (4,424) (2.5) 7.8 Financial margin after allowance for loan losses 8,182 7,522 7,007 8.8 16.8 Commision and fee income 5,343 4,955 4,603 7.8 16.1 Commision and fee expense (1,426) (1,216) (826) 17.3 72.6 Net commisions and fees 3,917 3,739 3,777 4.8 3.7 Net gain /(loss) on financial assets and liabilities 1,109 721 347 53.8 219.6 Othe operating income / (loss) 66 177 706 (62.7) (90.7) Administrative and promotional expenses (7,283) (7,048) (6,437) 3.3 13.1 Total operating income 5,991 5,111 5,400 17.2 10.9 Equity in results of subsidiaries and associated companies 0 0 28 n.a. (100.0) Income from continuing operations before income taxes 5,991 5,111 5,428 17.2 10.4 Income taxes (1,450) (1,185) (1,204) 22.4 20.4 Income from continuing operations 4,541 3,926 4,224 15.7 7.5 Discontinued operations 0 0 0 Consolidated net income 4,541 3,926 4,224 15.7 7.5 Non - controlling interest 1 0 0 Net income 4,542 3,926 4,224 15.7 7.5
26 Earnings Presentation 4Q and Full - Year 2016 Consolidated Balance Sheet 4Q16 3Q16 4Q15 % Change QoQ YoY Cash and due from banks 151,249 78,892 99,838 91.7 51.5 Margin accounts 3,182 2,150 1,943 48.0 63.8 Investment in securities 309,361 283,680 329,345 9.1 (6.1) Debtors under sale and repurchase agreements 4,291 4,505 5,758 (4.8) (25.5) Securities loans 0 0 1 n.a. n.a. Derivatives 215,080 184,999 128,789 16.3 67.0 Valuation adjustment for hedged financial assets (9) 36 104 (125.0) (108.7) Total loan portafolio 591,428 598,829 547,745 (1.2) 8.0 Allowance for loan losses (19,912) (20,142) (19,743) (1.1) 0.9 Loan portafolio (net) 571,516 578,687 528,002 (1.2) 8.2 Accrued income receivable from securitization transactions 116 112 73 3.6 58.9 Other receivables (net) 86,019 79,125 61,083 8.7 40.8 Foreclosed assets (net) 475 462 557 2.8 (14.7) Property, furniture and fixtures (net) 5,700 5,417 5,556 5.2 2.6 Long - term investment in shares 125 124 182 0.8 (31.3) Deferred taxes (net) 20,361 17,532 18,097 16.1 12.5 Deferred charges, advance payments and intangibles 6,398 6,326 5,328 1.1 20.1 Other assets 215 211 201 1.9 7.0 Total assets 1,374,079 1,242,258 1,184,857 10.6 16.0 Deposits 641,288 589,803 556,555 8.7 15.2 Bank and other loans 68,906 76,120 62,455 (9.5) 10.3 Creditors under sale and repurchase agreements 123,385 111,218 194,224 10.9 (36.5) Collateral sold or pledged as guarantee 23,606 28,910 24,623 (18.3) (4.1) Derivatives 221,075 194,058 134,357 13.9 64.5 Other payables 148,333 95,197 75,955 55.8 95.3 Subordinated debentures 37,525 25,251 22,788 48.6 64.7 Deferred revenues 623 593 351 5.1 77.5 Total liabilities 1,264,741 1,121,151 1,071,308 12.8 18.1 Total stockholders ´ equity 109,338 121,107 113,549 (9.7) (3.7)
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