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Banco Santander, S.A. Independent auditor´s report on the balance sheet as at June 30, 2020 pwc This version of our report is a free translation of the original, which was prepared in Spanish. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation Independent auditor’s report on the balance sheet To the shareholders of Banco Santander, S.A. at the request of management: Report on the Balance Sheet Opinion We have audited the Balance sheet of Banco Santander, S.A. (the Bank) as at June 30, 2020, and the related notes, which include a summary of significant accounting policies (together called “the Balance sheet”). In our opinion, the accompanying Balance sheet presents fairly, in all material respects, the equity and financial position of the Bank as at June 30, 2020, in accordance with the applicable financial reporting framework relevant to the preparation of such a financial statement (as identified in Note 1 of the accompanying notes), and in particular, with the accounting principles and criteria included therein. Basis for opinion We conducted our audit in accordance with legislation governing the audit practice in Spain. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the balance sheet section of our report. We are independent of the Bank in accordance with the ethical requirements, including those relating to independence, that are relevant to our audit of the balance sheet in Spain, in accordance with legislation governing the audit practice. In this regard, we have not rendered services other than those relating to the audit of the accounts, and situations or circumstances have not arisen that, in accordance with the provisions of the aforementioned legislation, have affected our necessary independence such that it has been compromised. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Balance sheet as at June 30, 2020. These matters were addressed in the context of our audit of the Balance sheet as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. .--------------------------------------------------------------------------------------------------------------------· . PricewaterhouseCoopers Auditores, S.L., Torre PwC, Pº de la Castellana 259 B, 28046 Madrid, Espaa Tel.: +34 915 684 400 / +34 902 021 111, Fax: +34 915 685 400, www.pwc.es 1 R. M. Madrid, hoja 87.250-1, folio 75, tomo 9.267, libro 8.054, seccin 3ª Inscrita en el R.O.A.C. con el número S0242 - CIF: B-79 031290 pwc Banco Santander, S.A. Key audit matter How our audit addressed the key audit matter Estimation of impairment of financial assets at amortised cost - loans and advances to customers – for credit risk The complexity of the expected loss impairment We have performed, together with our credit risk calculation models has increased due to their expert team, an understanding of management's adaptations made in the context of the COVID- process to estimate the impairment of financial 19 crisis by incorporating new estimates and assets at amortised cost - loans and advances to judgment elements such as the consideration of costumers - on a collective and individual basis certain flexibility measures in the application of the criteria for classification by phases (staging) In regards with the internal control, we performed an understanding and test of controls over the of the operations subject to moratoriums, the process, focusing on management’s review of the consideration of guarantees in operations with main assumptions used, estimation and approval of government endorsement or the consideration post models adjustments, moratoriums and of the adjustments to the models for their government guarantees processes derived from adaptation to the new environment. These COVID-19 crisis, if applicable. estimates imply a high judgment component by management and are one of the most significant In addition, we performed the following tests of and complex estimates in the preparation of the details: accompanying Balance sheet, which is why it • Tests of principal models focusing on: i) has been considered one of the key audit calculation and segmentation methods; ii) matters. methodology used for the estimation of the expected loss parameters; iii) data and main The main judgements and assumptions used by assumptions used, iv) staging criteria and v) management are the following: scenario information and assumptions. • Identification and classification criteria of • For a sample of loans subject to either the assets across different stages moratoriums or government guarantees, including criteria used in the analysis of assess the documentation used in the the operations covered by moratoriums origination process. • The estimation of the Probability of • Reperformance of collective impairment Default (PD) and Loss Given Default losses based on the expected credit loss (LGD) parameters. models parameters. • The definition and evaluation of post • Evaluation of the post model adjustments model adjustments to adapt the made by management. parameters estimated by the models to the current environment derived from the • On a sample basis, evaluating individual COVID-19 crisis. credit files to determine the adequacy of their accounting and classification, discounted The Bank’s business is focused on commercial cash flows and, where appropriate, banking products. In this context, the Bank uses corresponding impairment. internal models that allow it to estimate both the collective provisions and the provisions for risks We have not identified exceptions outside of a estimated individually. reasonable range in the procedures outlined above. Refer to notes 2, 5 and 9 of the related notes to the accompanying Balance sheet as at June 30, 2020. 2 pwc Banco Santander, S.A. Key audit matter How our audit addressed the key audit matter Recoverability of deferred tax assets Assessing the recoverability of deferred tax In collaboration with our tax experts, we have assets is an exercise that requires a high obtained an understanding of the estimation degree of judgement and estimation, therefore process undertaken by management and the it has been considered one of the key audit controls designed and implemented in the matters. following processes: Within the framework of a recoverability model • Process based in the generation of the defined by the Bank's management, in relation projections of future taxable profits used in to the Consolidated Tax Group, on an annual the estimation of the recoverability of basis, each business unit compiles the deferred tax assets. assumptions that support the business plans that are projected over the time horizon • Calculation of deductible temporary established for that business. As a result of difference, including the adequacy with the COVID-19, the changes in the macroeconomic current tax regulation. variables and the actual results as compared to budget derived, the Bank has evaluated the We also performed the following tests of details: ability to generate future taxable profits in assessing the recoverability of the deferred tax • Evaluated the accuracy of the calculations assets recorded as at June 30, 2020. and the reasonableness of the estimations made by management for deductible The process carried out during this period temporary differences. includes specific considerations that management considers in assessing the • Assessed the completeness and recoverability of deferred tax assets, placing appropriateness of the assumptions used by special attention to the environment and management in their calculation of the uncertainty resulting from the pandemic. The deductible temporary differences. most significant considerations made by the management in this respect are: • Analysis of the key assumptions used by management in their estimation and • Assuring that the tax regulations of each monitoring of the recoverability of deferred country are applied correctly and the tax assets, with special attention to the temporary differences that meet the COVID-19 impact, including: consideration as deductibles are duly recognised. - Obtaining and analysing the financial projections carried out by the Bank • Reviewing the projections that are part of and the assumptions used, including the recoverability model which is in turn the detail of the economic forecasts used to estimate the tax profits used to and indicators used in the analysis. assess the recoverability of the deferred tax assets in future periods in relation to - Analysis of the tax strategy planned deductible temporary differences and by the Bank for the recoverability of unused tax losses. the deferred tax assets. • Applying the model and validating the We have not identified exceptions outside of a calculations of these models to ensure reasonable range in the procedures outlined that the valuation of tax assets, and that above. the conclusions drawn regarding their recoverability are appropriate. Refer to notes 1, 2 and 23 of the related notes to the accompanying Balance sheet as at June 30, 2020. 3 pwc Banco Santander, S.A. Key audit matter

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