2010 Annual Report
1 2010 Annual Report Santander Organisational Profile Our Essence
Our Mission To be a team capable to generate good ideas that satisfy our customers, are profitable to our shareholders and consolidate us as an international financial leader that contributes to the sustainable development of society.
Our Commitment We provide financial services and believe that trust is the base for all our relationships.
We will create strong bonds among us, employees, and with our customers, suppliers and shareholders, so we can, together, develop innovative ideas of management, products and services that respond to the challenges of our time.
Consequently, we will be leaders in our segment and reference to Santander Group, to our country and to the overall market.
Our Model Proximity with the client: confidence is the Our Essence basis of our business model Index
4. Main indicators 8. Message from the Chairman of the Board of Directors of Santander Brasil 10. Message from the CEO of Santander Brasil 12. Organizational profile 18. Santander in the world 24. Strategy and management
28. Corporate governance 46. Risk management 66. Consolidated economic-financial information (IFRS) 84. Scenario of operation 86. Performance of the businesses 108. Intangible assets
124. Social and cultural investment 130. Environmental management 138. About the Report 139. GRI remittance indices
GRI index – the information which provides the basis for the GRI indices are highlighted at the end of the respected paragraph. Main indicators
4 Main indicators The financial information presented in this Annual Report is in accordance with International Accounting Rules, prepared in accordance with International Financial Reporting Standards (IFRS), which differ in material aspects from the Accounting Practices Adopted in Brazil (BR GAAP). We believe that the IFRS standard is the most appropriate set of criteria to represent the equity and earnings situation of Banco Santander (Brasil) S.A. Furthermore, the adherence to Level 2 of BM&FBovespa’s Corporate Governance for the IPO in October 2009, and the listing of the Units in the form of ADSs, on the New York Stock Exchange, require the publication of the bank’s results in accordance with this international standard. As requested by the Brazilian regulatory bodies, individual financial statements also continue to be prepared in accordance with BR GAAP. For analysis purposes, all the comparable data, which includes the year 2008, are shown as if the consolidation with Banco Real S.A took place on January 1, 2008 . The complete financial statements in IFRS and BR GAAP for 2010, are available on website link: www.santander.com.br/ir.
5 2010 Annual Report Santander Main indicators
Net interest income Net fees Administrative and personnel (R$ Million) (R$ Million) expenses (R$ Million)
8.7% 2.6%
9.6% 24,095 11,230 10,947 22,167 6,834 6,238
2009 2010 2009 2010 2009 2010
NET Profit Efficiency Ratio (%) ROAE(1) (R$ Million) (%)
-2.4 p.p.(2) -1.5 p.p.(2) 34.0% 19.3 7,382 36.3 34.8 16.9 5,508
2009 2010 2009 2010 2009 2010
Loan Portfolio Breakdown 2010 Profit before tax by segment 2010
Individuals 32%
Commercial Bank 64%
Asset Management and Insurance 8%
SMEs 24% Corporate 27%
Global Wholesale Banking 28%
Consumer Finance 17%
(1) Net profit divided by average total equity, excluding goodwill. (2) Percentage points.
6 Principais Indicadores
MANAGEMENT ANALYSIS 2010 2009 Var. 2010 x 2009 RESULTS (R$ million) Net interest income 24,095 22,167 8.7% Net fees 6,834 6,238 9.6% Allowance for loan losses (8,233) (9,983) -17.5% Administrative and personnel expenses (11,230) (10,947) 2.6% Net profit 7,382 5,508 34.0%
BALANCE SHEET (R$ million) Total assets 374,663 315,972 18.6% Securities 89,823 80,616 11.4% Loan portfolio(1) 160,558 138,394 16.0% Individuals 50,981 43,200 18.0% Consumer financing 26,969 25,101 7.4% SMEs 38,306 31,448 21.8% Corporate 44,302 38,645 14.6% Expanded Credit Portfolio(2) 168,232 141,624 18.8% Funding from Clients(3) 153,243 141,090 8.6% Total equity 73,364 69,266 5.9% Total average equity excluding goodwill(4) 43,563 28,496 52.9%
PERFORMANCE INDICATORS (%) Return on shareholders’ average equity – annualized 10.3% 9.8% 0.5 p.p. Return on shareholders’ average equity excluding goodwill(4) – annualized 16.9% 19.3% -2.4 p.p. Return on average asset – annualized 2.2% 1.8% 0.4 p.p. Efficiency Ratio(5) 34.8% 36.3% -1.5 p.p. Recurrence(6) 60.9% 57.0% 3.9 p.p. BIS ratio excluding goodwill(7) 22.1% 25.6% -3.5 p.p.
PORTFOLIO QUALITY INDICATORS (%) Delinquency(7) – IFRS 5.8% 7.2% -1.4 p.p. Delinquency(8) (more than 90 days) – BR GAAP 3.9% 5.9% -2.0 p.p. Delinquency(9) (more than 60 days) – BR GAAP 4.7% 6.8% -2.1 p.p. Coverage ratio(10) 98.3% 101.7% -3.4 p.p.
OTHER DATA Assets under management - AUM (R$ million) 111,338 98,407 13.1% Numbers of credit and debit cards (thousand) 37,294 33,337 11.9% Branches 2,201 2,091 5.3% PABs (mini branches) 1,495 1,502 -0.5% ATMs 18,312 18,132 1.0% Total Customers (thousand) 24,757 22,412 10.5% Total active crrent account(11) (thousand) 10,901 10,240 6.5% Employees(12) 54,406 51,241 6.2%
(1)Management information. (2)Includes others Credit Risk Transactions with clients (Debenture, FIDC, CRI, Floating Rate Notes and Promissory Notes). (3)Include savings, demand deposits, time deposit, debenture, LCA and LCI. (4)Goodwill from the acquisition of Banco Real and Real Seguros Vida e Previdência. (5)General expenses/total income . (6)Net fees / General expenses. (7)Portfolio overdue by more than 90 days plus loans with high default risk / credit portfolio. (8) Portfolio overdue by more than 90 days / credit portfolio in BR GAAP. (9)Portfolio overdue by more than 60 days / credit portfolio in BR GAAP. (10)Allowance for loan losses / portfolio overdue by more than 90 days plus loans with high default risk. (11)Active accounts during a 30-day period, according to the Brazilian Central Bank. (12)Considering Banco Santander (Brasil) S.A. and its subsidiaries consolidated in the balance sheet.
7 2010 Annual Report Santander Message from the Chairman of the Board of Directors of Santander Brasil
8 Message from the Chairman of the Board of Directors of Santander Brasil
In 2010 Brazil reached a very prominent position on the world stage. Alongside China and India, it emerged as being one of the levers for a resumption in global economic growth. Driven by the solid fundamentals of its economy, and the strength of its consumer market, the Country achieved a vigorous rate of expansion, particularly in the first half of the year, and began a cycle of development which is certain to be a determining factor in the future of all Brazilians.
For Santander, the rise of the Brazilian economy is a certainty which we have been counting on for many years. And for this reason, we are proud that our operations in Brazil have gained increasing importance for the Group as a whole, now contributing approximately 25% of total earnings. The year 2010 also brought about two important developments:
• The unification of all our operations under the Santander brand-name, which gives us more strength to operate in the competitive local market. • The investment of US$ 2.7 billion by Qatar Holding in the acquisition of securities convertible to shares which represent 5% of the capital of Banco Santander Brasil - a clear demonstration of the attractiveness of the Brazilian economy for global investors.
The next few years will see still more achievements for Santander in Brazil. After the intense and successful integration process, we are now ready to increase our share of the Brazilian financial market, offering the required local presence together with the capacity to help Brazilian companies insert themselves in the global economy.
As a result of the quality of our employees and the confidence of our shareholders, customers and society as a whole, we are already one of the top three private-sector banks in Brazil. Now we are ready to reach our aspirations of being the best and most efficient financial institution, contributing to making Brazil an economy of opportunities and achievements for those who believe in it.
Marcial Angel Portela Alvarez Chairman of the Board of Directors of Santander Brasil
São Paulo, 31 January 2011
9 2010 Annual Report Santander Message from the CEO of Santander Brasil
Message from the CEO of Santander Brasil
The year 2010 was extremely favourable for Brazil and None of this would have been possible without the efforts of our witnessed a change in the level of our financial system. employees building these results. We believe that only with The total volume of credit, which was around R$ 400 satisfied and committed employees will we be able to continue billion in 2002, had increased to R$ 1.7 trillion by the to improve the level of satisfaction among our customers, who end of the year. The growth in economic activity exceeded are increasingly exigent and well-informed. estimates and the financial sector fulfilled its role of smoothing and speeding up this particular moment of In the global network in which we live, building an image development. As a result of this dynamism, Brazil showed serves little purpose if it not fully backed up by day-to-day the rest of the world that it is an outstanding country, activities. Our dedication to the integration of the with innumerable business opportunities and it worth sustainability of our businesses goes back over many years investing in. and is well recognised, while being also in line with our persuit for creating long-lasting bonds. We desire to get The stable economy, backed by sound fundamentals, to know our customers better, and consolidate our puts Brazil in a situation to benefit from the so-called relationships. In this manner, our advantages are better “demographic bonus”, a moment when the majority perceived and valued. of the population is economically active and therefore in a situation to consume, build savings and generate In 2011, we will demonstrate that we are indeed better wealth. The challenge now is to make it possible to carry equipped to serve our clients. We wish to reap the benefit out the necessary investment in infrastructure, which will of investments made over the last few years, and grow at permit the economic rise of millions of Brazilians over the a faster rate than our competitors. Our competitive coming years. advantages will be perceived at the sharp end, whether it be by small, medium or large companies, or by individuals, Santander is well structured to operate in this scenario. Its both of high and low income. Our objective, of course, is to IPO at the end of 2009 enabled the bank to raise capital build an excellent bank; but more than this, we wish to and prepare itself to cope with the new domestic and contribute to the building of a Brazil that is an increasingly international regulations. We have the funding as well as better and worthy place to live. wide experience in the financing of infrastructure projects around the world, while being recognised as being a bank whose practices are among the best in terms of domestic Fábio Colletti Barbosa and international regulations. CEO of Santander Brasil In 2010, we dedicated a large portion of our efforts to integrating the activities of Banco Santander and Banco Real, São Paulo, 31 January 2011. which however did not stop us from achieving significant results. We expanded our base of current account holders by 661,000, opened 110 new branches, unified our operations under the Santander brand-name, improved the level of satisfaction among our employees, and reached a pace of business growth in line with our aspirations.
10 11 View of Santander’s Tower from the Parque do Povo in São Paulo. We wish to forge valuable bonds with people and meet the challenges of our age.
12 Organizational Profile
13 2010 Annual Report Santander Organizational Profile
A Stronger Bank
In the last two years, we have been working towards building a bank which combines the best practices of Santander and Real; now, we will persuit new achievements in the Brazilian market
Santander is now a different bank. It is a bank which has grown, innovated and transformed itself after its integration with Banco Real, in a process that began Santander’s figures in 2010: in August 2008, and which gained further momentum with the unification of the two brand names in 2010. The name is the same, but the bank has changed. It has changed, because it has brought together the best from these 54,406 employees two institutions in terms of experience, ideas, services, products, systems and processes. Employees are now at the center of the bank’s business model and value is placed on our most precious asset – the human capital. 3,696 branches and pabs (mini branches)
To be the best and most efficient bank in Brazil is the main objective of the million Organisation, which today is the third largest private-sector bank in the Country, 10.9 active current accounts(*) with a market share of 8.6% in asset terms, according to the figures released by Brazilian Central Bank on September 30, 2010. (*)According to the criteria published by Brazilian Central Bank
Through the unification of the two brand names in November 2010, we combined the best of two worlds into one single bank
14 Brazil is an important country for Santander. In the last 10 years, we have Employees and customers of the JK branch, invested more than US$ 27 billion in São Paulo, on the day of brand unification in the local economy.
Local strength
Present in all the sectors of the Brazilian financial market, foreign investors in Brazil. It also reflects Santander’s stance Santander operates in the Retail, Wholesale, Asset in the Brazilian market as always being firm, during the Management and Insurance Segments. Its objective is to be good as well as the bad times. It also demonstrates that the best and most efficient multiple bank in Brazil, in terms Brazil is the most important country to the bank, and that of generating value for its shareholders, client and our strategy of local growth has shown itself to be correct employee satisfaction, as well as the recognition and and efficient. admiration of its brand name among the Country’s banks. In 2010, the bank reported a net income of R$ 7.4 billion, Its operations are strategically concentrated in the South up 34% compared to 2009. Average Shareholders’ Equity and Southeast of Brazil, which together account for 73% totalled R$ 43.6 billion, excluding R$ 28.3 billion referring of Brazilian GDP. It has 54,406 employees, 2,201 branches, to the goodwill amortization of the acquisition of Banco 1,495 PABs (mini branches) and 18,312 Automated Teller Real and Real Seguros Vida e Previdência. The average Machines (ATMs) spread throughout Brazil, to serve more return on equity, adjusted for goodwill amortization, than 10.9 million active current accounts, 661,000 of these amounted to 16.9% in 2010, down 2.4 p.p. on the being newly opened in 2010. The bank is controlled by the previous year. Net interest margin increased by 8.7%, Santander Group, which has a major presence in 10 key basically due to the increase in the average credit volume, markets in Europe and the Americas, while being the up by 8.1% in the period. largest international financial conglomerate in Brazil. Indicators of management and financial strength also Having its ordinary shares, preferred shares and units listed showed an improvement. General expenses were up 2.6% on the BM&FBovespa under the respective ticker codes compared to the previous year. The bank’s efficiency ratio(1) SANB3, SANB4 and SANB11, and its American Depositary amounted to 34.8% in 2010, an improvement of 1.5 p.p. Receipts (ADRs) traded on the New York Stock Exchange compared to 2009, while recurrence ratio(2) amounted to under the ticker code BSBR, Santander celebrated 2010 as 60.9%, up 3.9 p.p. The bank’s BIS ratio, excluding goodwill its first year as a listed company. On October 7, 2009, our amortization, amounted to 22.1% in December 2010, IPO achieved a record R$ 13.2 billion, the world’s largest in down 3.5 p.p. compared to the previous year. the year. This raised capital was key in terms of stimulating the bank’s credit operations – today accounting for 11% of The bank’s loan portfolio showed an increase of 16% over the total Brazilian banking system – as well as expanding 12 months, of particular note being the small and medium the physical size of the bank, which in 2010 opened 110 enterprises segment, where lending increased by 21.8%, new branches. and individuals, up 18% during the same period. In terms of funding from clients, the most notable were Debentures/ Currently Brazil represents 25% of the operating profit of LCI/LCA, which showed an increase of 51.8% over 12 the Santander Group on a global basis ahead of the United months, followed by savings deposits which rose by 20.2% Kingdom (18%), Spain (15%) and other countries in Latin over the same period. America (18%). In the last 10 years, we invested more than US$ 27 billion in the Brazilian economy, proof of our long-term commitment, and making us one of the leading
(1) Efficiency: general expenses/total income. (2) Ratio of net commissions to general expenses.
15 2010 Annual Report Santander Organisational Profile
Santander’s branch in the Complexo do Alemão
employees la1 automated teller machines (ATMs) total active current accounts(1) (in ‘000) 18,312 10,901 18,132 53,408 18,120 53,408 51,241 10,240 9,831
2008 2009 2010 2008 2009 2010 2008 2009 2010
Branches and PABs (Mini Branches)
Average total shareholders’ equity amounted to 3,696 3,586 3,593 R$ 43.6 billion in 2010, excluding goodwill amortization(*)
Santander reported R$ 7.4 billion in net income in 2010, up 34% compared to 2009 (1) Goodwill from the acquisition of Banco Real and Real Seguros Vida e Previdência. 2008 2009 2010 (*) In accordance with Brazilian Central Bank criteria.
16 Branch of Santander in Madrid: across the world, we have more than 14,000 branches, which serve 100 million customers
Global capacity
Having been in existence for more than 150 years, the Santander Group is the world’s 9th largest bank in terms of market capitalisation, with US$ 102.5 billion, according to the ranking published by Bloomberg in December 2010. The Group has more than 178,000 employees, in approximately 14,000 branches, which serve its 100 million clients. It operates through the following divisions: Retail, Wholesale (Santander Global Banking & Markets), Asset Management (Asset The Santander Group has Management and Private Banking), Insurance and Means a market value of of Payment (Santander Cards).
US$ 102.5 billion, With global operations, the bank bases its business according to rankings from model on five key elements: focus on retail, capital bloomberg discipline, risk control and management, efficiency and geographical diversification. It strives to achieve a balance in its businesses in key markets – mature and emerging – enabling it to maximise revenue and earnings throughout the duration of the economic cycles.
The bank has a presence in 10 principal markets: Spain, Portugal, Germany, the United Kingdom, Brazil, Mexico,Chile, Argentina, the United States and Poland. It is the number-one bank in the Euro Zone in terms of market value and earnings, and the largest financial franchise in Latin America, while also having an important presence in the United States, with 721 branches, and approximately 3.9 million clients.
17 2010 Annual Report Santander Organisational Profile Santander in the World
18 Santander’s Santander busineSs in 2010 SANTANDER GROUP RESULTS
Santander’s net attributable profit in 2010 was revenues, pushed up net operating income by EUR 8,181 million. 3.9%. The efficiency ratio of 43.3% was one of in the World the best among international banks. The recurrence of profits, which for the fourth year in a row were more than EUR 8,000 million, Profit was 8.5% lower than in 2009 because of is based on a business model that focuses on the Bank’s decision to apply very prudently and retail banking, geographic diversification and the conservatively the Bank of Spain’s new strength of Santander’s balance sheet. These regulations on provisions, which absorbed EUR results enabled the Bank, for the second year 472 million of the third quarter’s net profit. The running, to provide total shareholder credit quality of the Group’s main units improved compensation of EUR 0.60 per share. in 2010, with falls in net entries of bad loans and in the risk premium. The NPL ratio rose from The Group’s results are increasingly more 3.24% in 2009 to 3.55%, a slower pace of geographically diversified: Continental Europe growth than in 2009 and 2008. The ratio was contributes 35% of profits (the commercial lower in Brazil, Sovereign and Santander networks in Spain 15%), Latin America 43% Consumer Finance. NPL coverage was 73% and (Brazil 25%), the UK 18% and Sovereign in the the Group’s generic provisions amounted to EUR US 4%. 5,846 million. The Group kept up intense activity in 2010. Santander has a comfortable liquidity position. In Deposits grew 22% and loans 6%. Gross 2010 it increased its deposits by EUR 109,000 income increased 6.8%, spurred by the most million, captured EUR 38,000 million in debt commercial revenues such as net interest issues and improved the main liquidity ratios. income, fee income and insurance, as well as the contribution of the new units. Costs remained Core capital, the main measure of a bank’s under firm control in almost all countries in solvency, was 8.8% and is expected to surpass which the Group operates. This, coupled with 9% in 2011.
19 2010 Annual Report Santander Santander in the World
GEOGRAPHIC DIVERSIFICATION Santander business model
USA – SOVEREIGN Banco Santander’s geographic position is balanced between mature and emerging markets, which contributed Customers (million) 1,7 57% and 43% of profits in 2010, Branches 721 respectively. Employees 8,647 Market share(8) 3% This enables the Bank to maximise revenues and profits throughout the economic cycle.
The Bank concentrates on 10 core markets: Spain, Portugal, Germany, the UK, Brazil, Mexico, Chile, Argentina, the US and, most recently, Poland.
The Bank also has global business MEXICO areas which develop activities in other countries as well as in the Customers (million) 9.1 main markets. Branches 1,100 Employees 12,500 Market share(1) 15% Ranking(1) 3rd
BRAzIL(*)
Customers (million) 24.7 Branches 3,702 Employees 53,900 Market share(1) 9% Ranking(1)(2) 3rd
(*) The data on Brazil appearing on this chart was drawn up in accordance with Santander Group corporate accounting criteria and may differ from the data published by Santander Brasil.
CHILE ARGENTINA
Customers (million) 3.1 Customers (million) 2.3 Branches 504 Branches 324 Employees 11,595 Employees 6,466 Market share(1) 19% Market share(1) 10% Ranking(1) 2nd Ranking(1)(2) 1st
20 UNITED KINGDOM Main countries. Other countries where Banco Santander has retail banking Customers (million) 25.6 businesses: Colombia, Peru, Puerto Branches 1,416 Rico, Uruguay, Norway, Sweden, Employees 23,649 Finland, Denmark, Netherlands, Market share(1) 11% Belgium, Austria, Switzerland and Italy. Ranking(1)(3) 2nd
GERMANY(9)
Customers (million) 6.2 Branches 142 Employees 3,483 Market share(4) 13% Ranking(5) 1st
POLAND(10)
Customers (million) 1.8 Branches 213 Employees 2,751 Market share(6) 10% Ranking(7) 2nd
SPAIN
Customers (million) 14.4 Branches 4,848 Employees 33,694 Market share(1) 15% Ranking(1) 1st
PORTUGAL ATTRIBUTABLE PROFIT BY GEOGRAPHIC AREAS % of total operating areas Continental Europe 35% Customers (million) 1.9 Rest of Latin America 6% Branches 759 Spain 15% Employees 6,214 Chile 6% (1) Market share 10% Mexico 6% Ranking(1)(2) 3rd Portugal 4%
Germany 4% (1) Loans, deposits and mutual funds. (2) Excluding state banks. Rest of retail Europe 3% (3) Loans and retail deposits. (4) Consumer credits. Europe global (5) business 9% Among independent finance companies. Brazil 25% (6) In new car sales of individuals. (7) In institutions specialised in consumer financing. US - Sovereign 4% (8) In its zone of influence. (9) In January 2011, 173 more retail banking branches in Germany were incorporated into the Group. United Kingdom 18% (10) On April 1st Santander’s takeover of Bank Zachodni WBK was completed. This will add 512 retail banking branches in Poland.
21 2010 Annual Report Santander Santander in the World
Santander distributed among its shareholders almost EUR 15,000 million in dividends in the last three years.
GROSS INCOME + 6.8% NET OPERATING INCOME + 3.9% ATTRIBUTABLE PROFIT - 8.5% (Million euros) 2009-2010 (Million euros) 2009-2010 (Million euros) 2009-2010 (*) 42,049 23,853 8,943 8,876 8,181 39,381 22,960 33,489 18,540
2008 2009 2010 2008 2009 2010 2008 2009 2010
TOTAL DIVIDEND PAYOUT + 1.6% EFFICIENCY +1.6 p.p. CORE CAPITAL + 0.2 p.p. (Million euros) 2009-2010 (%) 2009-2010 (%) 2009-2010 44.6 8.6 8.8 43.3 4,999 4,919 41.7 7.5 4,812
2008 2009 2010 2008 2009 2010 2008 2009 2010
(*) EUR 8,653 million before the impact of applying Bank of Spain circular 3/2010 (-3.2%).
22 BALANCE SHEET AND INCOME STATEMENT (Million euros) 2010 2009 % 2010/2009 2008 Total assets 1,217,501 1,110,529 9.6 1,049,632 Customer loans (net) 724,154 682,551 6.1 626,888 Customer deposits 616,376 506,976 21.6 420,229 Managed customer funds 985,269 900,057 9.5 826,567 Shareholders’ funds (after distribution of earnings) 75,273 70,006 7.5 63,768 Total managed funds 1,362,289 1,245,420 9.4 1,168,355 Net interest income 29,224 26,299 11.1 20,945 Gross income 42,049 39,381 6.8 33,489 Net operating income 23,853 22,960 3.9 18,540 Profit from continuing operations 9,129 9,427 (3.2) 9,030 Attributable profit to the Group 8,181 8,943 (8.5) 8,876
RATIOS (%) Efficiency (with amortization) 43.3 41.7 - 44.6 ROE 11.80 13.90 - 17.07 ROA 0.76 0.86 - 0.96 RoRWA 1.55 1.74 - 1.87 Core capital 8.8 8.6 - 7.5 Tier 1 10.0 10.1 - 9.1 BIS ratio 13.1 14.2 - 13.3 Tangible capital/tangible assets(1) 4.4 4.3 - 3.6 Ratio of basic financing(2) 79.6 76.0 - 75.1 Lending/deposit ratio 117 135 - 150 Non-performing loan (NPL) ratio 3.55 3.24 - 2.04 NPL coverage 73 75 - 91
THE SHARE AND CAPITALISATION Number of shares in circulation (million) 8,329 8,229 1.2 7,994 Share price (euros) 7.928 11.550 (31.4) 6.750 Market capitalisation (million euros) 66,033 95,043 (30.5) 53,960 Shareholders’ funds per share (euros)(3) 8.58 8.04 (9.9) 7.58 Share price/shareholders’ funds per share (times)(3) 0.92 1.44 (9.9) 0.89 PER (share price/attributable profit per share) (times)(3) 8.42 11.05 0.0 5.53 Attributable profit per share (euros)(3) 0.9418 1.0454 1.6 1.2207 Diluted attributable profit per share (euros)(3) 0.9356 1.0382 1.2 1.2133 Remuneration per share(3) 0.6000 0.6000 (31.4) 0.6325 Total shareholder return (million euros) 4,999 4,919 (30.5) 4,812
OTHER DATA Number of shareholders 3,202,324 3,062,633 4.6 3,034,816 Number of employees 178,869 169,460 5.6 170,961 Continental Europe 54,518 49,870 9.3 48,467 United Kingdom 23,649 22,949 3.1 24,379 Latin America 89,526 85,974 4.1 96,405 Sovereign 8,647 8,847 (2.3) - Corporate activities 2,529 1,820 39.0 1,710 Number of branches 14,082 13,660 3.1 13,390 Continental Europe 6,063 5,871 3.3 5,998 United Kingdom 1,416 1,322 7.1 1,303 Latin America 5,882 5,745 2.4 6,089 Sovereign 721 722 (0.1) -
(1)Capital+Reserves+Minority Interests+Profits-Treasury stock-Dividends-Valuation adjustments-Goodwill-Intangibles)/(Total assets-Goodwill-Intangibles). (2)(Deposits+Medium and long-term wholesale financing+capital)/Total assets (excluding dividends). (3)2008 adjusted to the capital increase with preferential right at the end of 2008.
23 2010 Annual Report Santander Organisational Profile
Strategy and Management
Santander wishes to be recognised for its relationship with its various stakeholders; to this end, it encourages sustainable business through a wide- ranging portfolio of products and services, in the Retail and Wholesale segments
24 Good for one, good for everybody
Our business model values initiatives which bring benefits to all our interested stakeholders, and help us to understand and cater to the continuing evolution in society
Santander aspires to be the best multiple bank in Brazil, By putting sustainability at the core of its business in terms of generating value for its shareholders, client model, Santander is investing in a more solid and employee satisfaction, as well as in terms of the relationship, both immediate and long-term, with its recognition and attractiveness of its brand-name. For customers, shareholders, investors and suppliers. In this this reason, we encourage sustainable business through way, we are preparing ourselves to enter new markets a wide-ranging portfolio of products and services, which and respond to new demands, in addition to meet the needs of customers with different profiles. accompanying the changes in the contemporary world.
We also wish to be recognised for our relationship with The main opportunity for advancement to be made our various stakeholders, both Retail as well as on issues related to sustainable development, is in the Wholesale, believing that trust must be the basis of our business area. Evaluation of socio-environmental risks and relationships. The strengthening of the links between the inclusion of criteria which take into account these the bank, its employees, customers and suppliers is aspects as part of our products, services and processes, capable of generating innovative ideas in terms of has brought positive results both for society as well as management, products and services. the bank. There is, however, a shortage of new business models in the financial markets that address social and To reach these aspirations, we rely on an outstanding environmental questions, while at the same time, position, achieved in Brazil and the rest of the world providing good economic performance. As a consequence, over a long period of time. Currently, we are the only in 2010 Santander began to concentrate its efforts global bank with significant scale in Brazil, which on strategic focuses which envisage the insertion of provides us with an important differential in the market, sustainability into the bank’s core businesses, such as Risk particularly at this time of a strong wave of and Sustainability, and the Low Carbon Economy. FS1 Strategy and internationalisation on the part of Brazilian companies. The encouragement of businesses which are good for Today, the world also requires a new way of doing all the parties concerned also contributes to reducing business, which is more collaborative and transparent, exposure to risk, retaining talent and improving the and which recognises the interdependence of social, efficiency of the business, generating value for environmental and economic dimensions. The shareholders, and having a positive impact on society. connection between these three aspects is an important In investing in and promoting initiatives which bring Management factor for the good performance of any business, and benefits to everyone, Santander strengthens its role as represents a competitive advantage for Santander. The an agent for development, while exercising its influence promotion of sustainability and insertion of the theme potential to encourage companies to adopt socially, in our business strategy, strengthens the trust of our economically and environmentally responsible stakeholders, and helps us to understand and cater to management. In this way, the bank contributes the continuing evolution in our society. effectively to Brazil’s growth. FS10
25 2010 Annual Report Santander Strategy and Management
Growth is the best business
The year 2010 was important for us in that it heralded The period also witnessed the improvement of the a major expansion in our physical size. We ended the “Presidency Panel”, a management tool launched in 2009 year having inaugurated 110 new branches. The year also with the aim of establishing indicators which translate the brought about some strengthening of the Organisation bank’s aspirations into targets. This instrument in 2010 had as a whole, enabling us to grow faster and in a more its name changed to the “Performance Panel” and was solid manner. used as the basis of decisions by the Executive Board. Briefly speaking, the Performance Panel ensures that strategic Santander believes it can achieve this target by adopting objectives are transformed into measurable indicators and the following strategies: targets, making sure that the Organisation moves in the direction agreed upon. • Expanding the range of products available and number As this tool uses variables in terms of control, targets of distribution channels in the Retail segment; and interpretations, executives can measure the advances • Capitalising on the bank’s strong market positioning in achieved on a monthly basis. With this, the management the Wholesale business; can evaluate the bank’s performance and identify, in a • Continuous development of a transparent and flexible manner, any possible deviations from the desired sustainable business platform; trajectory. To ensure that the mechanism functions in a full • Continuous growth in the bank’s insurance businesses. and efficient manner, the system is based on the evaluation of the various areas, and used on the program of variable The aspirations defined in the integration process with compensation for executives. Banco Real provide guidelines for the development of directives and the planning of initiatives at Santander. In 2010, the bank used these aspirations to define targets and indicators which enabled the Organisation to identify and direct itself towards achieving the desired results.
The activities of Santander’s planning department (GPS) are fundamental in ensuring that the bank is proceeding in the desired direction. Created in 2009, GPS is a collaborative network consisting of approximately 40 managers, which represent all the areas of the Institution providing a transverse vision, that is multidisciplinary while at the same time acting as an intermediate between top management and the operational areas of the company. Without making any conclusive decisions, this forum looks at scenarios and aligns the business plans of the commercial areas with the four key strategic aspirations of the bank. With this, information is exchanged, while concepts, projects and trends are disseminated. Sustainability applied to business
New markets bring with them new demands, which then lead to new business In 2010, GPS played a part in defining desirable attributes, models, which in turn generate new markets. And so the cycle starts over again, which indicate the perception that the bank wishes to also working in the opposite sense. achieve with its stakeholders, identifying the areas and practices which bring it closer to each of its stakeholders. New Markets
Our aspirations
1. To be the leading bank in Brazil in terms of
generating shareholders value New 2. To be the best bank in terms of customer satisfaction Business Models 3. To be the best bank to employees New 4. To create the most admired and renowned brand Demands name among brazilian banks.
26 A model which makes the difference
The key elements which support our strategy and our way of doing business: International bank, with the highest number of branches throughout the world Focus on Retail
High solvency and Capital Pioneering technology applied solid capital indices Discipline Efficiency to operational service efficiency
Control and Geographical Management Diversification of Risk A bank with a low risk Balanced position between mature and predictable profile and emerging markets
Indicators for the branches Santander’s global platform To ensure the application of institutional directives and quality in network processes, the Department of Operations and Services has developed a system called Remote Monitoring, • Global scale in terms which uses Operational Quality Evaluation (AQO), a tool of sourcing which measures and provides guidelines to the branch • Multi-national client base teams, indicating which have the best performance and • Efficient risk management highest levels of efficiency, thus rewarding good performance. • Capability of replicating global products AQO provides bonuses for initiatives carried out correctly • International and and indicates where all routines have not been fulfilled, thus differentiated IT platform contributing to ensuring the quality of the bank’s operations. In addition to having an influence on the variable compensation of all the Commercial and Service teams, the We achieved a cost synergy AQO system is of strategic importance for the entire bank, savings of encouraging the participation of branch employees, who respond for the day-to-day relationships with clients. R$ 1,862 million, exceeding our estimate This tool combines 74 indicators from various internal areas for the period, of and considers aspects related to the management of million clients, the formalisation of operations, processes and R$ 262 auditing, among others. In this way, it enables possible failures to be identified and corrected, minimising risks and the need for re-work.
In April 2010, 20 socio-environmental indicators were included in AQO, including aspects involving Diversity, Quality of Life, Personal Development, Use of Resources and Greenhouse Gas Emissions. With this, we aim to encourage efficient management in the use of natural resources, and reduction in greenhouse gas emissions, stimulating the financial economy, while having a low impact on environment. In addition to this, the indicators also encourage diversity, contributing to the competitiveness of the company and the building of an environment which is more inclusive and innovative. LA13 and EN26
27 2010 Annual Report Santander Organisational Profile
Corporate Governance
Executives of the bank at an event held in October 2010 to commemorate a year since the IPO: since the public share offering, Santander has evolved and consolidated its corporate governance model
28 Corporate Governance
29 2010 Annual Report Santander Corporate Governance
Strengthened Governance
The Year 2010 brought about some evolution and maturing in the differentiated corporate governance practices adopted by Santander
After the IPO in October 2009, Santander began an Another important initiative in the period was the creation of important process of consolidating its management, the Committee for Appointment and Compensation, whose with the aim of improving the mechanisms necessary to function is to advise the Board of Directors on issues guarantee the principles of transparency, equality, pertinent to compensation and incentive policy, and the accontability and corporate responsibility. company’s succession plan, among other things, described below, with the aim of contributing to the longevity of the Santander is increasingly better prepared and stronger to organisation. achieve its aspirations to become the best and most efficient bank in Brazil, combining and offering its The year 2010 also saw progress in terms of sustainability in stakeholders the best practices of both Santander and the businesses of Santander, with the reformulation of a Banco Real. In 2010, instruments such as the Performance non-statutory Council for sustainability and the definition of Panel were brought into being (see more on page 27), strategic focuses on which the Organisation will be placing committees were developed, new policies came into place more emphasis, such as Risk and Sustainability and the Low and directives began to be translated into actions. Carbon Economy.
To strengthen the relationship of confidence with its strategic This Council replaces the old Council for Directives and stakeholders, in 2010 the bank consolidated its Department Advice on Sustainability and has the function of ensuring for Shareholder Relationships, created in December 2009 the alignment of actions related to the scene, as well as to cater to private individuals and non-financial companies identifying opportunities for insertion and synergy in the who hold shares of Santander. This department operates in area of sustainability, as part of the various initiatives in an independent manner, but in alignment with the Investor the Organisation. Relations Department , which is responsible for the disclosure of information to regulatory bodies and the market, The Council is coordinated by the Department for Sustainable relationships with institutional investors, such as investment Governance, also created in 2010, under the management of and pension funds, as well as catering to market the Directorate for Sustainable Development, to guarantee professionals, such as analysts, brokers and investment integrated management on this theme within the banks. organisation, based on the following fronts of activity:
The segmentation of its services in accordance with the profiles • EmAccompaniment 2010, o Santander offez the internal sustainability forums reuniões públicas em nove of its investors and shareholders is one of Santander’s cidades(such brasileirasas the Committees for Social Action, Diversity and differentials. This model is used by the Santander Group in all Businesses and the Council for Microcredit ); the countries in which it has shares listed on the stock • Support, accompanying and evaluating the results of exchange market. As equity investment has a long-term the ongoing initiatives within the organisation; horizon, the differentiated services to individuals, through the • Accompaniment of the covenants assumed by the creation of the Shareholder’s Relations Department, emphasise Organisation and external forums related to the theme the determination of the bank to establish long-lasting bonds in which we participate; with its shareholders, creating an increasingly close relationship • The search for, and distribution of, information on with its target stakeholders in meeting their needs. competitors and the markets; • Support for the process of communicating the concept of sustainability.
30 Apimec of São Paulo brings together shareholders, investors, market professionals and other interested stakeholders
Differentiated practices
In 2010, the differentiated governance practices of These regulations establish, for example, that the holders of Santander were recognised by the consultancy Standard & ordinary shares must receive the same value paid to the Poors (S&P), the largest provider of information in the controlling shareholders in the event of transfer of control. global financial markets. The company conducted a study Holders of preferred shares are, in turn, guaranteed at least governance evaluating the level supplied by the bank and 80% of this figure. These rights to sell for the same price, or awarded it with a score of 7, which means that the proportion of the same price, are known as tag along rights. company has generally strong corporate governance In this case, Santander has gone beyond the requirements of processes and practices. Level 2 Corporate Governance, extending 100% tag along rights to its ordinary and preferred shareholders. The corporate governance policies and practices adopted by Santander are guided by respect for the right to The Units of Santander are also traded on the New York shareholders, with equitable treatment and transparency in Stock Exchange, and are subject to the regulations management, as well as in communications with its applicable in the United States – which includes stakeholders. The organisation follows the supervision by the Securities & Exchange Commission recommendations of the Code of Best Practices issued by (SEC) and application of the Sarbanes-Oxley Act (SOX), the Brazilian Institute for Corporate Governance (IBGC) and which aims to ensure the creation of reliable audits and has its shares and units listed under Level 2 BM&FBovespa security mechanisms within companies. These regulations Corporate Governance. This is the segment of the equity establish the creation of committees entrusted with market exclusively for companies that voluntarily meet the supervision of the activities and operations of the bank, in minimum requirements and submit themselves to order to mitigate business risks, avoid the occurrence of differentiated rules of corporate governance, including the fraud and ensure that there are the means to identify them disclosure of information that goes beyond that required when they do occur, ensuring the transparent presentation by the legislation in place. of accounts and transparent management.
31 2010 Annual Report Santander Corporate Governance
Transparency Policy: Executives of the bank disclose information to shareholders
Units: Right to vote and economic advantage
The Units are certified share deposits which consist of 55 ordinary shares and 50 preferred shares. In this way, Santander grants the shareholder a political right – the right to vote, being the characteristic of the ordinary shares, as well as an economic advantage – the right to a 10% higher dividend, granted to the holders of preferred shares.
In 2010, Santander became part of the BM&Fbovespa ISE, an index Recognised practices which brings together companies that are outstanding In November 2010, BM&FBovespa announced Santander as one of the in terms of sustainability companies forming part of the Corporate Sustainability Index (ISE) in 2011. practices This portfolio combines 47 shares of 38 companies, representing 18 sectors of industry amounting to a total of R$ 1.17 trillion in terms of market capital, and the equivalent of 46.1% of the total market capitalisation of the companies traded on BM&FBovespa. The objective of this index is to draw attention to those companies with a recognised commitment to social responsibility and business sustainability, as well as acting as promoters of good practices in the Brazilian business world.
Also in 2010, before completing one year of listing, the Units of Santander became part of the Ibovespa, the most important indicator of average share performance in the Brazilian stock market. In addition to this, Santander also became part of other indices of BM&FBovespa, such as the Efficient Carbon Index (ICO2), which consists of companies that adopt transparent practices on greenhouse gas emissions and differentiated tag along rights (Itag). Learn more about the indices which contain SANB11 (the ticket code for the Units on BM&FBovespa) in its portfolios on website www.santander.com.br. ec2
32 Left to right: José de Menezes Berenguer Neto, Celso Clemente Giacometti, José Antonio Álvarez, Viviane Senna Lalli, José Manuel Tejón Borrajo, Marcial Angel Portela Alvarez, José Roberto Mendonça de Barros, José de Paiva Ferreira and Fábio Colletti Barbosa.
Decision-making structures
The management and administration of Santander is websites of the bank, the CVM and BM&FBovespa. During exercised by a Board of Directors and Executive Board. 2010, the Board met 10 times. In addition to these two bodies, the Board of Directors is advised by Committees for Audit, Appointment and Decisions by the Board are based on a majority vote among Compensation. The Executive Board, in turn, has the members present, being written up in minutes, recorded in the support of 18 non-statutory committees, which cover registry book, in accordance with the appropriate legislation. a variety of subjects. Members must make efforts to ensure that the principles of Santander are respected, maintained and disseminated Board of Directors among the employees, becoming aware of all the activities of the bank, and using all the means at their disposal to arrive at This is the body for collective decision-making, under the terms good decisions. of Law 6.404/76(1) and the corporate bylaws, and is responsible for the general orientation of the businesses of the bank, its The Board must also serve Santander the other companies in subsidiaries, and entities that are part of Santander in Brazil. It the Organisation with loyalty, maintaining secrecy about its has the directive to promote the long-term prosperity of the businesses, with respect to information that has not been institution, taking an active stance, always supporting the disclosed in the market, obtained as a result of their position, interests of Santander and all its shareholders. and ensuring that subordinate and third parties within their trust maintain the confidentiality of information not disclosed The Board of Directors consists of nine members, of which in the market, in addition to keeping them up-to-date and three are independent, a number which is greater than that enforcing the terms of Santander’s Code of Ethics. determined by the regulations of Level 2 Corporate Governance. Board members have a mandate of two years, and meet on a Members of the Board of Directors may not participate in regular basis four times a year, and on an extraordinary basis decisions on subjects which their interests conflict with those whenever convened by the Chairman of the Board. of Santander, it being the duty of each member to inform the Board is such a conflict exists before any discussions begin on The meeting dates of the Board of Directors are published in a particular theme. the annual calendar and are available to shareholders on the
(1) Known as Brazilian Corporation Law and amended by Law 11.638/07, provides for characteristics and nature of companies by share.
33 2010 Annual Report Santander Corporate Governance
To learn more about the assignments and functioning of Name Position the Board of Directors of Santander, visit the websites Marcial Angel Portela Alvarez (*) Chairman www.santander.com.br/ir and www.santander.com.br/ Fábio Colletti Barbosa (*) Vice-Chairman acionistas – section “Corporate Governance ”. There the José Antonio Alvarez Member reader will find the corporate bylaws of Banco Santander and José Manuel Tejón Borrajo Member the internal regulations of the Board of Directors, approved at José de Menezes Berenguer Neto Member a meeting held on December 23, 2009. José de Paiva Ferreira Member Celso Clemente Giacometti Independent member As at December 31, 2010, the Board of Directors was José Roberto Mendonça de Barros Independent member made up as follows: Viviane Senna Lalli Independent member
(*) On January 28, 2011, the bank held a general shareholders meeting, with a view to appointing Mr. Fábio Colletti Barbosa in the role as Chairman of the Board Directors and Mr. Marcial Angel Portela Alvarez in the role of Vice President of the Board of Directors, both with a mandate until the Annual Shareholders Meeting held in 2011. On February 16, 2011, with the regulatory approval, Mr. Fábio Colletti Barbosa assumed the position of Chairman of the Board of Directors, after Mr. Marcial Angel Portela Alvarez took over the post of Chief Executive Officer.
Principal responsibilities of the Board of Directors
Definition of policies and Approval of Corporate Election of managers and strategies Operations Compensation Policy
The Board of Directors plays a The Board of Directors must declare It is the job of the Board of Directors fundamental role in the definition of its opinion on corporate operations to collect and dismiss members of the Santander’s business strategy in involving Santander, as well as Executive Board, and determine their Brazil. Under the terms of the Law authorising the sale of movable or assignments, as well as establishing and the Organisation’s Bylaws, the fixed assets, the provision of pledges their compensation, indirect benefits Board of Directors has the main and the providing of guarantees and and other incentives, observing the function of setting the main obligations or third parties, as well global limit for compensation guidelines for the businesses and as the acquisition or sale of approved at the Shareholders Meeting, operation of Santander, which must investments in equity stakes with as well as establishing the amount of be observed by the Executive Board the parties that exceed 5% of net profit sharing of the directors and in the carrying out of its activities. equity shown in the most recent employees of Santander and of balance sheets approved at the companies controlled by Santander. Approval of the financial AGM, as well as authorising statements and appropriation corporate associations for strategic It also falls to the Board of Directors of net income alliances with third parties. to approve the granting of share call options to the managers, employees Under the Law and the Bylaws, it is Changes to Capital Structure or or persons providing services to the job of the Board of Directors of Corporate Structure Santander for companies controlled Santander to approve and review by Santander, set out in the option the annual budget, the capital It falls to the Board of Directors to plans approved at Annual budget and business plan, comment propose any increase or reduction in Shareholders Meeting. on the annual, half-yearly and the issued capital of Santander, issue quarterly financial statements of of bonds, subscription, reverse share Audit Committee and Santander, propose the destination splits, bonus issues or share splits, Ombudsman Service for net earnings in the period, and trading of shares to be subsequently decide on the distribution of cancelled or held in treasury, as well It falls to the Board of Directors to dividends and/or interest on capital. any alterations to Santander’s by laws. appoint the members of the Audit Committee of the institution, as well as those of the Ombudsman Service.
34 During 2010, the Audit Committee met 75 times. It is comprised of Audit Committee four independent members, who meet at least once a month, There is only one Audit Committee for the economic- according to the new policy financial conglomerate of Santander. It operates through approved in September 2010, the Group’s leading institution, in other words the bank, establishing rules which always for all the companies which make up the conglomerate. consider the most relevant In accordance with its internal regulations, it provides aspects for the bank and its advice to the Board of Directors in evaluating the quality shareholders of the financial statements, in the fulfilment of legal and regulatory requirements, in the effectiveness and independence of the work carried out by internal and independent auditors, and in the effectiveness of the Currently, it comprises four independent members, elected internal systems for control and operational risk by the Board of Directors on March 22, 2010, with a management. It also recommends corrections or mandate of one year from the date of election, with the improvements policies, practices and procedures identified possibility of this mandate being renewed for four years within the area of its scope, whenever it judges to the running. The committee meets at least once a month, and necessary. These assignments are carried out primarily whenever subjects within its scope, or of corporate interest based on information received by the management, require it. During 2010, the committee met 75 times. As at auditors, internal and independent and the area is December 31, 2010, it was made up as follows: responsible for the corporate monitoring of internal controls and operational risks.
It also accompanies the processing of information or confidential Name Position or anonymous report by employees, shareholders, Maria Elena Cardoso Figueira Coordinator suppliers, clients, and other stakeholders, with respect to Celso Clemente Giacometti Member fraud, suspect accounting or matters audit. Paulo Roberto Simões da Cunha Member Sérgio Darcy da Silva Alves Member
35 2010 Annual Report Santander Corporate Governance
Committee for Appointment and Executive Board Compensation The Executive Directors of Santander are responsible for This committee was formed in May 2010, and has the main the management of the bank, and its representation. The task of providing the Board of Directors on matters related Executive Board, according to the bylaws, must be to the election and compensation of the managers, composed of the least two and a maximum of 75 succession plans, and the evaluation of management bodies. members, shareholders or otherwise, resident in Brazil, elected and dismissible at any time by the Board of Among the main task of the committee, of particular note are: Directors, with a unified mandate of two years, with the • Formulation and revision of strategy and the criteria election permitted. One of its members must be which must be observed the appointment and evaluation obligatorily designated as Chief Executive Officer, with the of members that make up the Board of Directors, others being designated as senior and executive Vice considering the time and dedication which the President, Investor Relations Director, executive director candidates must make available to satisfactorily perform and director without specific designation. their function, as well as for other management bodies; • Identification, analysis and proposal of candidates to The CEO, Senior Executive Vice-Presidents, and Executive make up the Board of Directors, the audit committee, Vice-Presidents are also part of the Executive Committee, and the positions of Chief Executive Officer and which participates on decisions referring to policies which Executive Vice Presidents; apply to the management of the businesses and • Evaluation and monitoring of the management operational support, including human resources and the succession plan; allocation of capital. It also makes decisions with regard to • Evaluate and propose to the Board of Directors policies the principal projects referring to technology, infrastructure for compensation, and incentive plans for the managers and services. Making up this committee are: of the company, equating these to the results as well as the company’s best interests; Name Position • Coordination of the evaluation process of the Board Fábio Colletti Barbosa (1) CEO of Directors; José de Menezes Berenguer Neto Senior Vice-President • Proposal of criteria for the evaluation of the performance José de Paiva Ferreira(2) Senior Vice-President of the managers, and Angel Oscar Agallano Executive Vice-President • Revision of the annual compensation of the managers Carlos Alberto López Galán Executive Vice-President and the budget proposal for their global compensation. Fernando Byington Egydio Martins Executive Vice-President Gustavo José Costa Roxo da Fonseca (3) Executive Vice-President The members of the Committee are appointment by the Ignácio Dominguez-Adame Bozzano Executive Vice-President Board of Directors, and have a mandate of two years, with João Roberto Gonçalves Teixeira (4) Executive Vice-President the possibility of being re-nominated. Meetings take place Lilian Guimarães Executive Vice-President on a regular basis twice a year, but can take place more Oscar Rodriguez Herrero Executive Vice-President often depending on the request of the coordinator. Pedro Paulo Longuini (5) Executive Vice-President As at December 31, 2010, the committee was made (1) On 16 February 2011, after regulatory approval, Mr. Fábio Colletti Barbosa up as follows: took over as Chairman of the Board of Directors after the induction of Mr. Marcial Angel Portela Alvarez as Chief Executive Officer, the latter Name Position having joined the Executive Committee. (2) Stepped down on 02 March 2011, remaining as a member of the board. Marcial Angel Portela Alvarez Coordinator (3) Stepped down on 29 March 2011. Fernando Carneiro Member (4) Stepped down on 01 February 2011. Viviane Senna Lalli Member (5) On 24 March 2011, Mr. Marco Antônio Martins de Araujo Filho replaced Mr. Pedro Paulo Longuini on the Company´s Executive Committee, the latter having taken a global position at the head offices in Madrid. General Secretariat
In 2010 the institution General Secretariat was formed, which among its responsibilities is tasked with taking care of legal formalities and the material for the carrying out of the activities of the Board of Directors and its committees, assisting the President of the Board of Directors in his assignments, always ensuring the observance of good corporate governance practices and the reputation and image of the organisation, producing and storing corporate documents, and issuing relevant certificates, when necessary.
36 1 2 3
4 5 6
7 8 9
10 11 12
(1) Fábio Colletti Barbosa (2) José de Menezes Berenguer Neto (3) José de Paiva Ferreira (4) Angel Oscar Agallano (5) Carlos Alberto López Galán (6) Fernando Byington Egydio Martins (7) Gustavo José Costa Roxo da Fonseca (8) Ignácio Dominguez-Adame Bozzano (9) João Roberto Gonçalves Teixeira (10) Lilian Guimarães (11) Oscar Rodriguez Herrero and (12) Pedro Paulo Longuini.
37 2010 Annual Report Santander Corporate Governance
Support committees
The Executive Committee has the Committee for assets and Committee for Diversity and support of 18 non-statutory liabilities (ALCO) – controls, Businesses – Reformulated in 2010, committees, which involve the evaluate and approves policies and this is a forum for discussion on all different areas of Santander, and the directives relating to the themes related to the Program for Council for Sustainability. The idea is management of capital and structural Valuing Diversity, which has been to guarantee that all decision-making risks in the balance sheet, which incorporated into the business meets the directives and aspirations of include risks referring to liquidity, strategy of Santander. the Organisation in a systematic and interest rates, exchange rates and transparent manner. And it is through investment in equities. Efficiency committee – Evaluates these support committees that and validates all administrative, recommendations made by employees Committee for the sale of operational and staff-related within the bank’s operations can be products – ensures that products expenditure. referred to top management. and services are in compliance with legal, regulatory and accounting Ombudsman committee – Social Action Committee – Defines standards, as well as Compliance Deliberates on investments, the strategy of social activity carried policy. The committee also insures priorities for the implementation of out by the bank, ensuring that it is in that products and services are improvement or correction measures harmony with sustainability practices, appropriate for the customers to for processes, products and services adding value to the different which they are offered, and that their indicated by the Ombudsman stakeholders with which the bank operational risks are duly evaluated. Service, with the aim of reducing the relates, and expressing a significant level of complaints from clients and differential to Brazilian society. Committee for the coordination of customer dissatisfaction. It is also the integration – responsible for the objective of this committee to make Wholesale Executive Committee – carrying out of the integration between its effective members aware of the accompanies financial performance, Banco Santander and Banco Real and proposals that will be put before the the budgeting of expense and making decisions on strategic subjects Board of Directors. investments, projects and other related to the definition of projects, strategic subjects referring to the alterations to business, products and segments of the wholesale bank. services, and plans for the management of change.
38 Executive Committee for the Committee for Brazil business risks – Committee for retail management – prevention of money laundering accompanies and evaluates the results discusses and deliberates on matters and compliance – deliberates on of the loan portfolios. related to strategy and business vision actions and subjects related to which impacts the Retail area, adopting obligations, risk of traditional or Executive committee for the measures necessary for this area to regulatory sanctions, material operational risks – aims to be managed in accordance with the financial loss or loss of reputation strengthen the system for the highest standards of corporate (Compliance Risk) that’s Santander management and control of excellence. could suffer as a result of the operational risks and the formation non-fulfilment of laws, regulations, of the corporate governance structure Legal committee – deliberates on norms and standards of self within Santander. strategic matters in the area of the regulatory Organisation and codes of law and compliance, approving and conduct applicable to its activities. Committee for technology supervising among other things, strategy – evaluates the technological policies for provision making, Committee for Human Resources – situation of Santander in Brazil, agreement policies, the drawing up institutional forum which evaluates, providing support for strategic of agreement, and the contracting director and approves proposals by decisions of major impact for the of significant amounts. human resources and areas invited, Organisation. which have an impact on all, or a large Council for Sustainability part of, the employees at the Santander Retail executive committee – Group in Brazil. indicates the strategy of the Reformulated in 2010, this has the businesses, the budget and the role of insuring the strategic alignment Executive committee for the execution plans of the Executive of the sustainability initiatives of the evaluation of Brazil risk – credit and Committee. It also strives to ensure Organisation, identifying opportunities market risk - deliberates on the that the operational performance and for inserting sustainability in the maximum limits for each loan portfolio. risks inherent in the retail area are initiatives that are proposed and/or duly and adequately controlled. ongoing. It comprises 11 executives Executive committee for Brazil risk – of the bank, and three external credit and market risk – deliberates on representatives, chosen because they the operation and portfolios of credit occupy a notable position in society and market for private individuals and act in the defence of aspects and companies. linked to sustainability.
39 2010 Annual Report Santander Corporate Governance
ShareholdER’S structure
In 2010, two events occurred which refer to Santander’s shareholder’s structure. In August, a stake was sold off in Santander Insurance Holding, S.L., with the conversion of 4,538,420.040 ordinary shares (ON) and 4,125,836,400 preferred shares (PN), consisting of 82,516,728 Units/ADR (which is the equivalent to an equity participation in Banco Santander Brasil of 2.17%). The sale was carried out in the form of American Depositary Shares (ADS), which is equivalent to one Unit in a proportion of one-to-one. The entry of Qatar Holding and the departure of In October, Qatar Holding Luxembourg II S.à r.l acquired securities issued by Santander Insurance altered Banco Santander S.A. for the amount of US$ 2,718,800,000.00. The securities the ownership structure are mandatory convertible into the equivalent in shares in the bank, in October of the organization. 2010, representing an equity stake of 5% in the bank’s issued capital. The securities have a term of three years, with a conversion price of R$ 23.75 per share. The securities has a compensation of 6.75% p.a. The investment reflects the incorporation of Qatar Holding as a strategic partner of the Santander Group in Brazil and the rest of Latin America. The operation will permit Santander to make progress in its commitment to reach a free-float level of 25% of its issued capital before the end of 2014, a requirement established under Level 2 of BM&FBovespa Corporate Governance, the listing segment in which Santander’s shares and units are listed (share receipts).
Quantity of ordinary and preferred shares held by shareholders of Santander, as at December 31, 2010:
Shareholders ON % PN % Total % Grupo Empresarial Santander S.L. 74,967,225,596 35.22% 63,531,985,888 34.12% 138,499,211,484 34.71% Sterrebeeck 99,527,083,105 46.76% 86,492,330,355 46.45% 186,019,413,460 46.62% Santander Insurance Holding S.L. 206,663,606 0.10% 22 0.00% 206,663,628 0.05% Minority shareholders 38,140,759,447 17.92% 36,178,068,886 19.43% 74,318,828,333 18.62% TOTAL 212,841,731,754 100.00% 186,202,385,151 100% 399,044,116,905 100.00%
Simplified Corporate Organizational Diagram
Banco Santander S.A. (Spain) 100% 100% 99.1%
Grupo Empresarial Santander Insurance Sterrebeeck B.V. Santander S.L. Offshore Holding S.L. (Netherlands) (Spain)
0.05% 34.7% 46.6% Brazil
Banco Santander (Brasil) S.A.
40 Shareholder’s Base Shareholder’s Meetings
Distribution of issued capital by type of shareholder at the In 2010, the shareholders of Santander met at three end of 2010 was as follows: Shareholder’s meetings. Below we show the main matters deliberated on at these meetings: ON PN Total Private Individuals 0.9% 1.6% 1.2% Special Shareholder’s Meeting of February 3, 2010 Institutional 16.8% 17.5% 17.1% • Election of three new members of the Board of Non-institutional 0.2% 0.3% 0.2% Directors – José de Paiva Ferreira, José de Menezes Santander Espanha 82.1% 80.6% 81.4% Berenguer Neto and Celso Clemente Giacometti, and Total 100.0% 100.0% 100.0% • Approval of the purchase option plan of Units of the Santander in Brazil has more than 201,000 shareholder’s, bank. of which approximately 183,000 are private individual investors. To conduct relationships with such a large Annual Shareholder’s Meeting and Special shareholder base is a major responsibility, and to meet Shareholder’s Meeting on April 27, 2010 shareholder’s expectations, the bank has adopted a policy • Approval of the financial statements of the institution of distribut consistent dividends. referring to the year ending December 31, 2009; • Deliberation on the use of the net income of the year Total Dividends and interest on capital declared in 2010 2009 and the payout of dividends; amounted to R$ 3.540 billion. The total net of taxes • The setting of the global annual compensation of the received by class of 1000 shares is shown in the table below: managers of the institution for the year 2010; • Approval of a capital increase at the Institution, through Dividends and Interest on capital (R$) the capitalisation of capital reserves and, Ordinary 7.84 • Approval of amendments to the Institution’s bylaws to Preferred 8.63 articles which deal with issued capital, the rules of Unit 862.8 nomination for managers, and meetings of the Board These payments of dividends and interest on capital have of Directors. resulted in the following dividends yields for the different classes of share: Special Shareholder’s Meeting of May 21, 2010 • Change in the due date for the payment of dividends Annualised Dividend Yield and/or interest on capital referring to the financial Ordinary 3.53% year 2010. Preferred 4.91% • Change of to Article 31, Paragraph III, of the Institutions Unit 4.13% Bylaws, with a view to meeting the terms of Resolution No. 3,849 of the National Monetary Council, so as to alter the maximum time limit for the institution to respond to complaints, from 30 to 15 days.
41 2010 Annual Report Santander Corporate Governance
A new policy approved in September 2010 established Apimec meeting in Brasilia rules to ensure the inclusion of the matters which are most relevant to the bank and its shareholders Shareholder’s Service FS5
Establishing reliable relationships with our stakeholders is didactic form. Contact can also be made via e-mail fundamental in meeting our aspirations and guaranteeing [email protected] or telephone 0800 286 8484. the good performance of the business. For this reason, we have segmented our shareholders services according to the This area is also responsible for the realisation of public different profiles of them, with a view to providing them meetings (APIMEC), meetings with shareholders, investors, with information in a flexible, transparent and precise market professionals and other interested parties who make manner. In this regard, in 2010, the bank divided this area up the Association of Capital Market Analysts and into two distinct parts, to deal with shareholders and Investment Professionals. In this first year as a listed investors: private individuals and non-financial companies company, Santander carried out 10 Apimec meetings, which being served by the Shareholder Relations Department, took place in the cities of Belo Horizonte, Brasília, Campinas, while analysts and market professionals, in turn, are served Curitiba, Porto Alegre, Recife, Rio de Janeiro and São Paulo. by the Investor Relations Department, also responsible for the disclosure of information in the financial markets. Investor Relations Santander also has a specific area for providing a Shareholder’s Relations personalised service to institutional investors, national or This structure follows the global model adopted by the foreign, and analysts and market professionals. By Santander Group and is characterised particularly for the maintaining a close relationship with the stakeholders, this defence of shareholders rights and transparency in the facilitates broad access to information on the bank, and management communication with strategic stakeholders. In strengthens the reliability of our connections in the market. Brazil, the Shareholder’s Relations Department provides a personalised service to private individuals and non-financial The main channel for access to this information is the companies, offering these two stakeholders different Investor Relations Site (www.santander.com.br/ir), a communications channels. One of these is the “Shareholder’s space which brings together information that is periodically Web Portal” (www.santander.com.br/acionistas), through published in the markets and filed with the regulatory which individual private shareholders and other interested bodies (CVM and SEC) and with the stock exchanges parties can access information on the bank in a simple and (BM&FBovespa and NYSE). It also contains information on shareholder’s structure, ratings and performance indicators.
42 Policies for Transparency and Disclosure of Information
Santander has an obligation and commitment to provide This norm is also in alignment with Law nº 6.404/76, the markets with all its information in a transparent manner, principally with regard to the duty of the manager to with equality of treatment, so that shareholders and ensure that the interests of the company are always put investors can make their investment decisions in the most above personal interest of decision makers. satisfactory manner. One of the fundamental principles of the Organisation is its policy of broad disclosure, believing The Policy for the Disclosure of Acts and Material Events, that transparency and the creation of long-term value are and the Trading of Securities disciplines the way in which two concepts which are directly related. acts or material events are disclosed, keeping such information secret, and governing the rules on trading on New policies securities issued by the bank.
In September 2010, the Board of Directors approved a This standard refers to the trading of securities issued by Policy for Transactions with Related Parties, whose object is Banco Santander Brasil on the part of direct or indirect to establish rules which ensure that all decisions, controlling shareholders, members of the board of directors particularly those involving potential conflicts of interest, and executive board, members of the Fiscal Council went always consider the most significant aspects for the bank they are constituted, or any other statutory body with and its shareholders, in detriment to personal interests. technical consultancy functions, as well as particular This standard forms part of the Policy for the Disclosure of employees of the bank that have access to material information. Acts and Material Events, and the Trading of Securities, which was reviewed in 2010, receiving alterations in terms In accordance with CVM Instruction 358 and the policy, of terminology, processes and coverage. any decision is deemed as relevant that could have a significant influence on the following aspects: The Policy for Transactions with Related Parties applies to all employees and managers of the bank and its • Quotation of securities issued by the company or related subsidiaries. Related parties are private individuals or to it; companies that the Organisation may contract under • Decisions by investors to purchase, sale or maintain such conditions which may not be in an independent manner, securities; thus having the characteristic of transactions with third • And decisions by investors to exercise any rights parties not connected with the bank. inherent in owning the securities issued by the company or related to (“Material Information”). The document establishes that, in the event of a conflict of interest, the member of management must communicate These documents are available in a full version on the the situation to the Board of Directors and remove himself company website www.santander.com.br. from discussions on the theme, as well as abstaining from voting, duly recording the existence of a conflict of interest and the voting abstention in the meeting minutes.
In line with the requirements of Level 2 of BM&FBovespa, Santander makes available information on this type of transaction and commits itself to revising policy on a regular basis, will with a view to ensuring the continuance of good practices which deal with this theme.
In 2010, we revised a policy which disciplines the way in which acts and material events are disclosed, maintaining the secrecy of such information and covering rules on trading in the bank’s securities
43 2010 Annual Report Santander Corporate Governance
Code of Ethics The Code of Ethics also provides guidelines on relationships with Establishes the principles which govern the activity and clients, suppliers, partners and the press, as well as establishing a relationship of all the employees that form part of the policy for Security of Information based on the principles of Organisation. The document sets out the practices which govern confidentiality, integrity and availability. PR1 values of civic duty, dignity, work, transparency, respect, loyalty, decorum, zeal, efficiency, sustainability practices, and it is There are various tools in place to detect violations of this code. complemented by the global manuals for the Prevention of Employees must learn the code and ensure that it is learnt by Money Laundering and the Conduct of Purchasing Management. others, observing and defending its fulfilment. They must also be aware that any violation may result in disciplinary action, In 2010, in this document we included concepts of sustainability, including the termination of their employment contract for as covered by the BM&FBovespa Corporate Sustainability Index fair dismissal. This document is available for consultation on (ISE). In this way, we strengthen our commitment to sustainable www.santander.com.br/acionistas. development and to good corporate responsibility practices, attributing value to environmental and social questions in our production chain.
44 Codes of Conduct Santander has a Code of Conduct which must be followed by managers and all employees of the bank. The ethical principles in the document assume non-discrimination and equality of opportunity, respect for people, compatibility of work with personal life, the prevention of occupational risk, the protection of a good working environment and collective rights.
We also have a specific code of conduct for the securities markets, which must also be followed by employees and managers, for the trading of shares or units issued by the bank. The document establishes, for example, that privileged information cannot be used – that is to say information that has not been released into the public domain by independent communication. This restriction applies to private individuals and companies who have a direct connection with employees and managers.
This document also states that employees and managers are not authorised to carry out trades a month before the announcement of the bank’s results (quarterly, half-yearly or annually), neither can short-term trading be carried out, buying or selling shares within a period of less than 30 days, with the aim of benefiting from speculative movement. The Code of Conduct or so establishes that, in no circumstances, can agreements be made with competitors which could affect the price of transactions or commercial policies and/or constitute unfair competition. It also prohibits the releasing of rumours which have the objective of benefiting from the reaction, as well as carrying out trades at rates or prices that are not in line with those prevailing in the market at that time. If it is indispensable that transactions are carried out at rates not in line with the markets, employees must obtain authorisation from the Compliance department which is responsible for the supervision of the fulfilment of the rules which comprise the Code of Conduct
In 2010, we included the concept of sustainability in our Code of Ethics, reinforcing our commitment to sustainable development and good corporate governance practices.
45 Risk Management
46 Combining the best practices in one single bank
Risk Santander’s risk management was further strengthened after the integration with Banco Real and already uses innovative Management processes on the global banking sector
Consolidating the best practices of Banco Santander and Banco Real into a single management model, the risk division was strengthened in 2010 with a reaffirmed commitment to protecting the bank’s businesses with prudence and knowledge of the market.
In the retail segment, a regionalised credit structure was created, in addition to a command structure for the sales force in the branches, regions and departments of the network, decentralising the decision process in the granting of loans, for certain amounts. The objective was to provide greater flexibility to whom know the client the most, and with a regionalised restructure, speed up the process without reducing control.
The synergy between the two banks has provided more flexibility in the work of the analysts, without adversely affecting the quality and control that characterises Santander’s risk management in Brazil and the rest of the world. To this end, a dedicated area was created for the development of mechanisms and loan risk management systems in retail, whose function is to accompany the loan granting process and get the best deals for the bank.
The unification of the management model also permitted a fuller and more in-depth view of the clients, facilitating the relationship with our stakeholders.
In the retail segment, the buoyancy of the Brazilian economy in 2010 has stimulated the expansion of credit and has reversed the scenario of low liquidity and volatility in earlier periods, generated by the global crisis. With a strong and consolidated structure, we have reaped the results of the initiatives adopted in 2009, with growth in lending and a reduction in non-performing loan ratio.
These actions were important in reinforcing the work on loan recovery in an effective and consistent manner, which can be seen from the second quarter of 2010, later confirmed in subsequent quarters. In this way, we reversed
47 2010 Annual Report Santander Risk Management
the bad debt curve at the beginning of the year and Principles for differentiated risk achieved results in line with the market at the end of the management period, confirming forecasts of continuous accelerated growth in the loan portfolio, hand-in-hand with quality. 1. Independence of risk management with respect to the business; For 2011, the outlook is one of continuous growth in the 2. Involvement of top management in decision-making. markets in which we already operate and exploitation of 3. Consensus in decisions on loan operations between the new niches, such as the acquirer means sector, which risk and sales departments; represents a good opportunity for expanding our business 4. Collegiate decisions, including the branch network, with with clients through credit. the object of stimulating diversity of opinions and avoiding decisions assigned to one individual; In the Wholesale area, the period has been characterised 5. Use of statistical tools in the forecasting of bad debt by working closely with clients and the evolution in levels, such as internal rating, credit scoring and surroundings which are complex and constantly changing, behaviour scoring, RORAC (profitability adjusted for in addition to introducing innovations and improvements risk), VaR (Value at Risk), economic capital, analysis of to the tools for socio-environmental risks, which were scenarios, among others; extended to all the areas of the segment (GB&M, Corporate 6. Global focus, with integrated treatment of risk factors and small and median enterprises – SMEs). We have within the business units and the use of the concept of developed mechanisms for analysing ourselves and we have “economic capital” as a standard metric of risk assumed adopted totally differentiated practices in the banking sector. and for the evaluation of management; In Brazil, for example, the Unit for the Prevention of Money 7. Maintenance of a predictable profile of conservative risk Laundering carries out a check of companies at the time of (medium/low) and low volatility in relation to credit and opening their accounts, also taking into account socio- market risks. This is carried out through the diversification environmental criteria (see more on page 119). FS1 of the portfolio, limiting the concentration of clients, groups, sectors, products or geographical areas; reduction in the level of complexity of market operations; analysis of socio-environmental risks of the businesses and projects financed by the bank; and In 2010, we developed our continuous accompaniment for the prevention of own mechanisms for the deterioration in portfolios; FS2 analysis of socio- 8. Definition of Policies and Procedures, which make up environmental risk. We are the Corporate Risk Benchmark, by which risk-related the only bank in the world activities and processes are regulated. in which the unit for the prevention of money laundering carries out a check on companies at the time of opening an account.
48 Risk management
The structure of Santander’s risk committees is defined in accordance with corporate standards. The Risk Executive Committees have approval levels that are delegated by the Risk Committee of the Santander Group, and have the following main responsibilities:
• To approve proposals, operations and limits for clients and portfolios; • To guarantee that the operations of Santander are consistent with the level of risk tolerance previously approved by the Executive Committee and the Board, as well as being in alignment with the policies of the Santander Group; • To keep informed, evaluating and following any observations and recommendations periodically made by the supervisory authorities in the fulfilment of their functions; • To authorise the use of management tools and local risk models, and find out the result of their internal validation.
The Executive Vice-Presidency for Risk is divided into areas which have two types of focus: • Methodology and Control, which establishes the policies, methodologies and systems for risk control; • Structure of the business, centred on performance and the integration of the function of risk management of Santander in the businesses.
For 2011, the outlook is one for continuing growth in the markets in which we already operate, and exploit new niches, such as the acquirer’s sector, which represents a good opportunity for expanding our businesses.
49 2010 Annual Report Santander Risk Management
Executive Risk Committee in Brazil, in direct videoconference with Madrid
Risk management
The bank operates in accordance with the risk policies of committees - of the amount of risk in the portfolios, the Santander Group, in line with local and global sensitivity to interest rate fluctuations, exchange rate performance goals. It follows the instructions of the Board exposure, liquidity gaps, among others. This allows the of Directors, the regulations of Brazilian Central Bank and monitoring and control of the risks which can affect the good international practices, with the aim of protecting positions of the bank’s portfolios in the various markets in capital and ensuring the profitability of the businesses. In which it operates. its operations, Santander is exposed to the following principal risks: Operational risk: Possibility of losses due to the failure or lack of capability of staff, processes and systems or external Credit risk: Exposure to losses in the event of clients’ loans events. Management and control of operational risks seeks becoming partially or totally non-performing, or the to achieve efficiency in internal control systems, as well as counterparties in the fulfilment of their financial obligations the prevention and reduction of events and losses. to the bank. The management of credit risk seeks to define strategies, as well as establishing limits, covering the Compliance risk: Exposure to the suffering of sanctions by analysis of exposure and trends, as well as the efficiency of regulatory bodies, legal sanctions, material financial losses credit policy. The objective is to maintain a satisfactory for damage to the reputation of the bank as a result of minimum level of profitability, which compensates for the non-compliance to laws, regulations, principles and rules, risk of estimated bad debt levels on the part of clients and standards and codes of conduct applicable to its activities. within the portfolio. The management of compliance risk takes a pro-active stance with regard to compliance risk, through monitoring, Market risk: Exposure to risk factors, such as interest education and communication. rates, exchange rates, the price of commodities, prices in the stock market and other values, as a function of type of Reputation risk: Exposure due to negative public opinion, product, of the exposure, term, contractual conditions and independent of whether it is based on facts or mere public underlying volatility. In the management of market risks perception. The management of reputation risk is dealt practices are used that include the measurement and with by responsible involvement in the right business, with monitoring - using limits previously defined by internal the right clients.
50 Credit risks
The function of the Credit and Market Risk Area is to CLIENT LOAN PORTFOLIO develop policies and strategies for the management of (IN MILLIONS OF REAIS) credit risk in accordance with the strategy defined by the Executive Commission. In addition to this, the area is responsible for the bank’s systems of risk control and monitoring used. These systems and processes are applied in the identification, measurement, control and reduction 160,558 138,394 of exposure to risk in individual operations, with operations 136,039 grouped together by similarity.
The adjoining chart represents the client credit portfolio, in millions of Reais, which in 2010 grew by 16%, particularly in the most profitable segments: small and medium enterprises – SMEs and private individuals.
The management of risks specialise in accordance with the 2008 2009 2010 characteristics of the clients:
Clients with individualised management: Clients of the Wholesale Segment, financial institutions and several companies. This type of client is monitored by an analyst PARTICIPATION IN THE CLIENT LOAN who prepares reports which are sent to the Committee and PORTFOLIO monitors the development of the client; BY TYPE
Clients with standardised management: Private Companies individuals and companies that do not fall under the scope 54% of individualised clients. The management of risk in this area is carried out using automated models for decision- making and the evaluation of internal risk, complemented by a sales command structure and specialist analyst teams to deal with exceptions.
Participation in the client loan Private individual portfolio FS6 46%
The adjacent chart shows a breakdown of the client credit portfolio, by type of person and business segment, illustrating the diversification of Santander’s portfolio.
BY SEGMENT The client loan portfolio grew 16% in 2010, with particular emphasis on small and medium Large companies Private individuals enterprises – SMEs. 27% 32%
small and medium enterprises – SMEs Consumer financing 24% 17%
51 2010 Annual Report Santander Risk Management
So that loan operations are carried out with security and in a) Rating models accordance with the standards in place, Santander collects Santander uses its own internal rating models to measure documents and information which determine the risk involved, the credit quality of a client or an operation. Each rating is as well as the amount of guarantees and provisions related to the probability of bad debt for non-payment, necessary, identifying the loan-taker and the counterpart. determined based on the historical experience of the bank. Policies, systems and procedures used are re-evaluated at At Santander, the ratings are used in the process of least once a year to ensure that they are always in alignment approval and monitoring of risk. with the needs of the bank and market scenarios. The classification of credit operations into different The loan risk profile assumed by Santander is characterised categories is carried out based on the analysis of the by diversification of clients, and the large volume of economic-financial situation of the client, and other operations in the Retail segment. Macroeconomic aspects, frequently updated registered information, in addition market conditions, sector and geographical concentration, to the fulfilment of the financial obligations of the terms client profile and economic prospects, are all evaluated. agreed. New types of operation are submitted for credit risk evaluation and adaptation to the controls adopted by the bank.
The classifications assigned to the clients are revised periodically and incorporate new financial information available and the experience developed in the banking relationship.
Our analysis policies, The regularity of these new evaluations is high for clients systems and procedures are who have reached a certain level in our automated alert evaluated annually to make systems, as well as those classified as a case for special sure that they are always in monitoring. The rating tools are also revised so that alignment with the needs of qualifications attributed by them are progressively perfected. the bank and market scenarios.
MASTER RATING SCALE Equivalence with Internal Rating Probability Default Standard & Poor’s Moody’s 9.3 0.017% AAA Aaa 9.2 0.018% AA+ Aa1 9.0 0.022% AA Aa2 8.5 0.035% AA- Aa3 8.0 0.060% A+ A1 7.5 0.090% A A2 7.0 0.140% A- A3 6.5 0.230% BBB+ Baa1 6.0 0.360% BBB Baa2 5.5 0.570% BBB- Baa3 5.0 0.920% BB+ Ba1 4.5 1.460% BB Ba2 4.0 2.330% BB/BB- Ba2/Ba3 3.5 3.710% BB-/B+ Ba3/B1 3.0 5.920% B+/B B1/B2 2.5 9.440% B B2 2.0 15.050% B- B3 1.5 24.000% CCC Caa1 1.0 38.260% CC/C Caa1/Caa2
52 b) Losses and cost of credit c) Cycle of credit risk The bank periodically estimates losses related to credit risk Santander has a global view of the bank’s loan portfolio over and compares the effective losses with the value previously various phases of the risk cycle, with a level of detail which estimated. Periodic analyses are carried out to control permits the evaluation of the current risk situation and any credit risk, and whenever necessary, it is possible that an movements. This mapping operation is monitored by the increase in the level of guarantee will be demanded. Board of Directors and the Executive Commission of the bank, which establishes risks policies and procedures, the limits and To complement the use of the admission and rating delegation of jurisdiction, as well as approving and supervising models, Santander uses other measures that provide the operations of the area. support for prudent and efficient management of credit risk, based on the actual loss. The cost of credit is The process of management consists of the identification, measured principally by the performance of indicators measuring, analysis, control, negotiations and decisions on such as the variation in the provision for loan losses, the risks incurred in the bank’s operations. The cycle of risk non-performing loans undergoing the recovery process, is composed of three distinct phases: and net loans written off. PRE-SALE SALE POST-SALE Reports on the management of risk are presented to the Planning processes, Decision taken for Processes of management to verify the alignment of risk with the setting of targets, pre-classified and monitoring, policies and strategies of the bank. assessment of the specific operations. measuring and interest in terms control, as well To evaluate the need for the revision of policies and of risk for the bank, as the management particular limits, simulations of risk situations are carried approval of new of the recovery out previously. products, analysis process. of risk and credit All information about the structure and procedures of rating process, Santander’s risk management is at the disposal of Central and the definition Bank and the other regulatory bodies. In addition to this, in of limits. meeting the criteria of transparency, information on the management of credit risk is also made available to the public, on a quarterly basis in the financial statements.
Below, we show the evolution in bad debt provisions, net of recovered loans written-off, in millions of Reais.
Allowance for LOAN LOSS(*) (IN MILLIONS OF REAIS) 9,983 8,233
2009 2010
(*) Pro forma
53 2010 Annual Report Santander Risk Management
• Planning and limits of risk • Decision-making on operations This is the process which identifies the interest of the bank The decision-making process on operations has the aim through the evaluation of business proposals and risk of analysing them and adopting resolutions, taking into position. It is defined in the global plan for risk limits, account the interest per risk and any important elements a document previously agreed with the management of the operation in order to counterbalance risk and return. forming an integral part of the management of the The bank uses, among other things, RORAC methodology balance sheet and the inherent risk. The limits are based (return on risk adjusted capital) for analysis and pricing in on two key elements: clients/segments and products. the decision-making process on operations and businesses.
In the case of individualised risks, the most basic level • Monitoring and control of risk is the client, for whom is established individual limits In addition to the functions performed by the Internal (pre-classification). For the large economic groups a Audit Division, the Executive Vice-Presidency of Risks has a pre-classification model is used, as a function of economic specific area for the monitoring of risks for the control of capital allocated. For the other groups of companies, credit quality, made up of teams with specific resources a simplified pre-classification model is used, in nominal and persons responsible. This area is based on a process of maximum credit values, for each period. permanent observation, which permits the advanced detection of incidents which could result in evolution in the Concerning risks for standardised clients, the limits of the risk of the operations, the clients and their environments, portfolio are planned using a credit management program in such a way as to be able to take preventative action. (PGC), a document previously agreed by the business and This area is specialised by customer segment. risk areas, and approved by the Executive Committee. This document contains the results expected for the business in For this, a system known as “Firms Under Special terms of risk and return, in addition to the limits to which Surveillance” (FEVE) is used, which differentiates four the activity is subject, and the management of risks. This categories based on the level of concern generated by the group of clients received automated treatment and the circumstances observed (extinguish, guarantee, reduce and calculation and approval of the limits are based on scoring monitor). The inclusion of a company within the FEVE and behavioural models. system does not mean that its debts have become past- due, but rather that in this case closer monitoring is • Analysis of risk advisable, with the aim of taking opportune measures for Analysis of risk is a pre-requisite for the approval of client correction and prevention, delegating a person to be loans and consists of examining the capacity of the clients to responsible and defining a schedule for the implementation meet his contractual commitments with Santander, which of the actions. includes the analysis of the quality of the client’s credit, his risk operations, solvency and the sustainability of his The clients classified under FEVE are revised every half-year businesses and intended return, in light of the risk assumed. or every quarter, in the case of the more severe categories. The classification of a company under FEVE takes place as a This analysis is carried out on a pre-established regular result of the monitoring itself, the revision carried out by basis or every time there is a new client or new operation. the internal audit department, a decision by the manager In addition to this, ratings are also analysed whenever the responsible for the company or the triggering of the alert system is triggered, or there is an event which affects automated alert system. The rating attributed is revised the counterparty/operations. and least once a year.
With regard to the risks of clients with similar characteristics, key indicators are monitored with the objective of detecting variations in the performance of the loan portfolio, in relation to the forecasts made within the credit management programs.
Santander’s credit risk profile is characterised by diversification of clients and a large volume of Retail operations
54 Below we show the charts with the The non-performing loan ratio showed a downward trend in 2010, reflecting an quarterly historic evolution of the improvement in Santander’s portfolio quality. non-performing loan ratio in accordance with the IFRS standard, which represents a percentage of COVERAGE Ratio operations in the loan portfolio which RATIO BETWEEN THE balance of LOAN LOSS PROVISION AND THE OPERATIONS PAST-DUE FOR MORE THAN 90 DAYS are past-due for more than 90 days, or for which loan repayment is (million R$) (million R$) doubtful. 101.7% 10,070 9,900 98.3% 9,192 9,349
NON-PERFORMING LOAN Ratio (in %) 9.3% 8.8% 8.2% 7.9% 7.6%Individuals 7.2% 7.0% 6.6% 6.1% 5.8%Total 5.3% 5.3% 5.1% 4.5% 4.3% Corporate
4T09 1T10 2T10 3T10 4T10 2009 2010 2009 2010 2009 2010 Loans past-due for more than 90 days, and other Coverage Ratio Balance of Provision Operations past-due for more than 90 days operations whose repayment is doubtful d) Risk control e) Loan Recovery The function of this area is to obtain a Utilizing tools such as behavioural scoring clients past-due. For lower amounts or for global view of the bank’s loan to study the collection performance of longer past-due dates, recovery is carried portfolio during the various phases of certain groups, in an attempt to reduce out through the use of outsourced collection the credit cycle, with a level of detail costs and increase the level of recoveries. services, either administrative or legal, which allows the evaluation of the Clients with the probability of making in accordance with internal criteria, current risk situation, and possible payment are classified as low risk, and who receive commission on any movements. more attention is given to maintaining a amounts recovered. healthy relationship with these clients. The changes in the exposure of the Below, we show the total amount of loans Clients with a low probability of making bank to loan risks are controlled in a written-off recovered in 2010, in millions payment, are internally classified as being continuous and systematic manner. of Reais. high risk, and are monitored in a closer The impact of these changes on manner. All the clients with amounts certain future situations, of an past-due or rescheduled loans, are subject exogenous nature, and those due to to internal restrictions. strategic decisions are evaluated with the purpose of establishing measures The strategies and the channels of that restore the profile and value of collection activities are defined in RECOVERY OF LOANS WRITTEN OFF the credit portfolio to parameters accordance with the analyses which show (IN MILLIONS OF REAIS) established by the bank’s Executive the greatest level of efficiency in recovery. Committee. In the first few days of loans falling past-due, a mechanism with more In the charts below, we can see the
intensified contact is adopted, which 818 bad debt coverage ratio, which takes into account the segmentation of represents the value provisioned for the client, his behavioural model and with respect to the non-performing past-due bracket - this aimed at achieving loan balance. 538 the recovery of the loan and consequent retention of the client. In cases where loans are past-due for more than 60 days for larger amounts, internal teams are tasked that specialise in the restructuring and recovery of loans with direct action being taken with the 2009 2010
55 2010 Annual Report Santander Risk Management
Innovation in socio-environmental risk analyses
Santander believes that the evaluation of socio- Another significant aspect in 2010 is the dissemination environmental risk is fundamental to the performance of of socio-environmental risk practices to other areas of the bank’s businesses. The non-observance of this type the bank, culminating with the training and of risk could result in a reduction in potential cash flow, qualification of more than 600 employees. During the in the loss of assets and risk to its image. In addition to period, socio-environmental risk was also defined as minimising the business risk, the analysis of socio- one of the strategic focuses for the initiatives of the environmental risk avoids the bank being held jointly bank in the area of sustainability. The next step is to responsible for financing activities which put at risk implement the new practices developed in 2010 – some public health and natural eco-systems, essential for the of them being unprecedented in the global banking survival of all species. sector – and train still further teams to be involved in this work. FS4 Our experience shows that socio-environmental problems and financial questions frequently coincide. The company The granting of credit to companies with credit limits of which looks after the well-being of its employees and the R$ 1 million or more and present in the capital markets environment in which it operates normally has a more are also subject to a report by the socio-environmental responsible and efficient management, with more risk department. Every 12 months, a re-evaluation of chances of honouring its commitments and generating the client is carried out to renew his credit limit. For good business. the analysis, financing or advice on new projects with the value of US$ 10 million or more, all in the Project In August 2010, Socio-environmental Risk practice was Finance segment, Santander applies the socio- introduced into the Wholesale bank. The bank had environmental criteria of the Ecuador Principles. Private already enforced the existing environmental and labour individuals who require a loan of R$ 1 million or more legislation as a condition of accepting new clients, while also undergo socio-environmental analysis, with the also introducing an innovation by observing socio- exception of filling in the socio-environmental environmental criteria at the time of corporate clients questionnaire. fs2 opening an account. The organisation has developed mechanisms for its own analysis, created by the Socio- environmental Risk area for the analysis of 14 economic sectors considered to be requiring the greatest attention – in other words, which have a potential impact on environment and people’s quality of life. The evaluation takes into account the entire value chain of the company. fs2 Private individuals who require a loan of R$ 1 million or more also undergo socio- environmental analysis
56 Management of Market Risks
General Aspects Statistical tools for the calculation and management of market risk Santander is exposed to market risk resulting, above all, from the following activities: VaR model • Trading of financial instruments, which involve the Santander locally uses various mathematical and statistical risk of interest rates, exchange rates, share prices models, among which are VaR models (Value at Risk), and volatility. historic simulations and stress testing, for the monitoring • Activities of the commercial bank, which involve interest and management of market risk. rate risk, seeing that alterations in this index affect interest revenues and expenses and the behaviour VaR, in the way it is calculated by the bank, is an estimate of of the client. the maximum loss, in one day, which the bank would suffer • Investment in assets (including subsidiaries) in a given portfolio during 99% of the time, observing denominated in currencies other than the Brazilian Real certain pressures and limitations which we discuss further (exchange-rate risk). on. On the other hand, it is an estimate of loss which • Investments which subject the bank to share price risk. Santander would expect to undergo during only 1% of the time in other words approximately 3 days a year. Structure of limits for market risks Santander’s standard methodology is based on historic The structure for limits of market risk represents the simulation (520 days). To reflect the recent market volatility Executive Commission’s disposition to risk and is in the model, a factor of exponential decline is applied, determined by management policies with the object of: which attributes a low weighting to observations of further distant they are in time. • Identifying the main types of risk incurred in a consistent manner within the business strategy; The VaR limits are used for the control of the exposure of • Quantifying and relating to the various business segments each one of the portfolios, with its estimates being a source and higher management areas of the bank the level and of warning, for senior management, with respect to existing profile of risk considered appropriate, with the aim of exposures. avoiding the business segments assuming undesired risk; • Providing flexibility to the business segments in the Pressures and limitations opportune and efficient definition of positions, always within levels of risk acceptable to the Santander Group; Santander’s VaR methodology should be interpreted in • Defining the underlying range of products and activities light of the following limitations: (1) the period of time of in which the treasury department may operate, taking into one day may not fully reflect the market risk of the account the bank’s risk evaluation models and system. positions which may not be liquidated or protected by hedge within one day; and (2) currently VaR is measured at the close of business, and the positions held for trading may vary substantially during the trading day.
Analysis of scenarios and calibration measurements Due to these limitations of VaR methodology, Santander uses stress testing to analyse the impact of extreme market fluctuations and adopt policies and procedures in an attempt to protect its capital and earnings. In order to verify and measure the precision of the models used for the calculation of VaR, the bank uses backtesting, which is a comparative analysis between estimates of VaR and the daily result adopting the premises of daily variation in marked to market of the portfolio, and considering only the fluctuation of market variables.
57 2010 Annual Report Santander Risk Management
Management of the balance sheet
Interest rate risk Santander analyses the sensitivity of net interest margin and the market value of shares, as well as the alterations in interest rates. This sensitivity results in inconsistencies between expiry dates and interest rates in the various asset and liability accounts. In the case of products without a contractual due-date certain re-pricing hypotheses are used as well as internal models, based on the economic environment (financial and commercial).
The measures used for the control of interest rate risks are the analysis of the difference between the interest rates, the sensitivity of net interest margin, the sensitivity of market equity, the VaR in the Balance Sheet, and the analysis of scenarios.
Inconsistencies between interest rates for assets and liabilities The analysis of inconsistencies between interest rates refers to the mismatching or discrepancies between the alterations in the value of assets items and liability items, and not declared in the balance sheet. The analysis of that inconsistency allows the detection of interest rate risk in terms of the concentration of due dates. It is also a useful tool for estimating the impact of future interest rate fluctuations on net interest margin or net worth.
Sensitivity of net interest margin The sensitivity of net interest margin measures the alteration, over the short and medium-term, of gains expected over a period of 12 months in response to a change in the yield curve. A simulation of net interest margin is calculated, both under a scenario of change in the yield curve, as well as the current scenario, with the sensitivity representing the difference between the two margins calculated.
Market value of sensitivity of shareholders’ equity The sensitivity of shareholders equity measures the interest risk implicit in shareholders’ equity over the entire period of the operation, based on the effect of an alteration in interest rates on the current values of financial assets and liabilities. This is an additional measure of the sensitivity of net interest margin.
Value at risk The VaR of the activities accounted for in the balance sheet and in the investment portfolios is calculated using the same standard adopted for the simulation of activities maintained for trading, in other words, and historical simulations, with a confidence interval of 99% and a time horizon of one day.
58 Quantitative analysis of trading activities
Quantitative analysis of daily VaR in 2010 The chart below shows the performance of the bank in relation to risk referring to activities maintained for trading in the financial markets in 2010, measured by daily VaR.
VAR FOR TRADING ACTIVITIES – 99% 70
60
50
40
30
20
10
- 1/4/2010 2/4/2010 3/4/2010 4/4/2010 5/4/2010 6/4/2010 7/4/2010 8/4/2010 9/4/2010 10/4/2010 11/4/2010 12/4/2010
In 2010, VaR fluctuated within a range from R$ 6 million to R$ 64 million. The fluctuation, shown in the previous chart, was basically due to the changes in the positions of trading activity during the year.
VaR stayed between a range of R$ 15 million and R$ 35 million for 68% of the days during the year. The average VaR for 2010 was R$ 27.2 million, a lower figure than in 2009, basically due to a reduction in positions during the second half of the year, caused by market uncertainties.
The table below shows the daily VaR of Santander as at December 31 2009 and December 31 2010.
On 31 December 2010 (in R$ million) 2009 2010 Minimum Average Maximum End of period Trading activity 20.85 6.79 27.19 63.88 20.60
Quantitative analysis of interest rate risk in 2010
Sensitivities At the end of 2010, the sensitivity of net interest margin in one year to a parallel increase of 100 basis points in the yield curve in local currency was a negative R$ 255 million.
For the same period, the sensitivity of shareholders’ equity two parallel increases of 100 basis points in the interest-rate curves was a negative R$ 1,249 million, which represents 2.39% in relation to shareholders equity without goodwill premium, which is a Proxy for Equity Duration.
59 2010 Annual Report Santander Risk Management
Operational and Technological Risks and the Management of Business Continuity
Santander has a model for management and defined This model also contributes to the dissemination of control, which guarantees its adoption by managers on a operational risk culture within the various hierarchical levels day-to-day basis, the alignment of global guidelines and the of the bank, having the effective support and involvement of fulfilment of the requirements under the New Basle top management on subjects related to the area. In this way, Agreement – BIS II, the requirements of BACEN, of the the preventative treatment of these events at Santander CVM and SUSEP. Brasil has become a reference model. Aligned to the standards and regulations of these bodies, Operational risks (OR): Comprises the areas of for operational risk events Santander adopts those that information security, special occurrences, intelligence, result from failures or deficiencies in internal controls, by prevention of fraud, and operational and technological risks staff and systems, or those resulting from exposure to (which include business continuity). Among their external events, which may or may not cause financial responsibilities, these areas have a commitment to losses, affect the continuity of the businesses, or negatively disseminate the culture, defining methodologies, standards, affect the stakeholders with which the bank relates. policies, tools, training and procedures, appropriate and required, for the efficient management and control of To meet its challenges, Santander has developed and operational risks. implemented a model which considers different aspects, represented on the following page. The operational risk area uses to the standards, The year 2010 was marked by the consolidation of the methodologies and internal model based on the best integration of the Operational Risk Teams of Santander and market practices, for the identification, evaluation, Real, generating gains in synergy for the area and making monitoring, measuring and control of operational risks, the processes more flexible and robust. The current which are in keeping with the requirements of CMN structure aims to guarantee a satisfactory environment of Resolution 3380, of June 29, 2006 – BACEN. internal controls for managers responsible for day-to-day Information security area: Responsible for the definition operations. and dissemination of security policies, standards and projects, with the aim of protecting the information assets
60 of the bank, based on the best global Information Security Operation of the area for operational practices as well as adhering to the definitions of the and technological risks Santander Group. It carries out security analyses and participates in technology projects under the scope of Santander uses centralised and decentralised approaches in system security, and defines the models for access control the management of Operational Risks. The qualitative and the implementation of controls to mitigate security focus aims to identify and foresee operational risk and risks in the business areas. This department also implements define the risk profile of the areas, processes and products, awareness programs directed at the staff and employees of seeking to strengthen the internal control environment and the Group on questions of information security. PR1 monitor the key qualitative operational risk indicators (KRIs).
Special Occurrences Department: Responsible for It has two focuses: qualitative and quantitative. The preventing detecting and verifying internal and external quantitative focus is correlated to the qualitative focus, fraud, dealing with cases of deviations in behaviour and helping to detect, correct and act in the prevention of standards, providing guidelines to managers on procedures, operational risk, as well as providing mechanisms for creating specific processes for the identification of analysis and strategic or operational decision-making. anomalies and recommending solutions and proposals for improvements in internal controls. The department also Both focuses are responsible for providing methodologies, interacts with other areas in the drawing up of preventative tools and systems for helping managers in the alert systems for the branch network and centralised areas, identification and evaluation of risks and controls and with the aim of preparing employees in the combating of defining the operational risk profile for each area, as well fraud and avoiding losses for the bank. as processes and products. Additionally these focuses permit and contribute to the implementation of policies, Centre for intelligence and fraud prevention: standards, procedures and tools for the maintenance of the Responsible for preventing, analysing and controlling flow for the capture of risk events, operational losses and external fraud, reducing losses for the bank and increasing key indicators for operational risks for the bank, consolidating the security of relationship channels. It carries out them into a single base. The objective is to permit the monitoring actions, reaction, identification of trends and analysis of risks, the identification of their main causes and new attacks and the creation and implementation of the coordination, with the managers responsible, of the antifraud strategy, proposing and facilitating the development effective implementation of action plans established to of solutions for the prevention and combat of frauds. mitigate and reduce risks, and operational losses.
Area for Operational and Technological Risks: Responsible for the implementation of the best practices in the management and control of Operational and Technological Risks, and in the management of Business Continuity, assisting in the managers in the fulfilment of their strategic objectives, in Santander’s decision-making process, in the conducting of activities, the compliance to obligatory requirements, and the maintenance of the bank’s solidity, reliability and reputation.
Management model FRAMEWORK FOR OPERATIONAL AND TECHNOLOGICAL RISKS Results Conceptual aspects
Transparency Framework adopted for Organizational structure the management and control of operational and technological risks, Stages of as well as internal controls and the Methodological focus evolution management of business continuity at Santander.
Staff Cultural challenge
Technology Perimeter and systems
61 2010 Annual Report Santander Risk Management
OPERATIONAL RISK MODEL Identification and Monitoring of Identification Action Plans for the Mitigation of of risks* Operational Risk Events and Significant Occurrences: Process developed and implemented to control and monitor the Assessment implementation of action plans of risks identified based on events registered in the operational risks database and Monitoring Measurement in the timely capturing of significant and report of risks failures and occurrences that have materialised.
Key Operational Risk Indicators: Tool developed for the bank which Control Response permits the identification of trends activities to risks and deviations, on a relative basis and in absolute values, considering internal and external volumetric *New processes, areas, products and systems variables, and thus constructing a panel of key operational risk indicators st 1 Cycle customised to the needs of Santander.
Reassessment Their use in combination with the qualitative focus and the timely Main methodology tools used for both focuses: capturing of operational risk events and losses as a result of operational Matrix of Operational and Technological Risks: Customised tool used in the risk, as well as the identification and identification and formalisation of operational risks, their causes and control analysis of the causes, and their procedures identified in activities and processes. The methodology of work corresponding impact, will permit the meetings and self-evaluation is used. adopting of backtesting techniques during the implementation of Summary Matrix of Operational and Technological Risks for New preventative and corrective action Products: Tool developed and used for the identification and formalisation of plans for the events captured. operational risks and existing internal controls before the launching of new banking products and services. Additionally, this combinations helps obtaining of synergy and optimisation Questionnaires for Self-evaluation (generic and specific): Corporate tool through the convergence of the adopted for the identification and perception of the managers with respect to management of operational and the control environment within which they operate, from the point of view of technological risk, and business the management and control of operational risk, permitting the definition of continuity, with direct repercussions in criticality in the operational environment. the determination of economic and regulatory capital. Internal Historical Database of Loss Events Due to Operational Risks: Contributes in the defining of priorities of the action plans for the prevention and reduction of operational risks and losses as a consequence of operational risks.
Drawing up and Monitoring of Forecasts and Loss Limits for Operational Risks: Process which ensures the commitments of the main areas with respect to forecasts and limits for operational risk losses in each financial year, with periodic monitoring and analysis of fluctuations observed, anticipating the recommendation of ROT action plans for the correction of deviations, when necessary.
Analysis and treatment of significant failures and occurrences: Process developed and implemented for the timely capturing of failures and occurrences which materialise, with the aim of taking corrective action and appropriate preventative treatment, with the aim of minimising the impact on the stakeholders with which the bank relates.
62 Management and Control of Business Continuity Risks
The main objective of GCN is the evaluation of the necessity for the development and implementation of the Business Continuity Plan, formalising the procedures and alternative infrastructure to protect the people, the reputation, the values and the commitments to the stakeholders with which the bank relates. These Outcomes plans are developed based on the evaluation of the impacts of a possible Percentage distribution of the frequency and severity of the losses as a result of disruption in activities resulting from operational risks captured in 2010, in accordance with the Category of Loss Events. extreme events, such as strikes, electricity blackouts, pandemics, civil ACCUMULATED BASE 2010 disturbances, natural and physical disasters, on the company. Frequency Severity BIA (analysis of impact on the businesses): Tool used as part of the
57% GCN methodology for the 45% identification of the impacts and recovery needs which, perchance, are caused as a result of an extreme 27% 25%
24% operational risk event which implies
13% interruption in the functions of the
3% business of the Organisation’s areas. 2% 2% 1% 1% 0% 0% 0%
I II III IV V VI VII PCN (business continuity plan): Source of information for the area to preserve the teams and the I. Internal fraud businesses, formalising an emergency II. External fraud response strategy and the resumption III. Unsatisfactory labour and occupational safety practices of the vital functions of the bank at an IV. Unsatisfactory client, product and service practices alternative location, within a maximum V. Damage to physical assets time limit defined by the areas. VI. Failures or interruptions in systems/businesses VII. Failures in execution, delivery, process and management of activity and Tests: Annually, or whenever processes significant changes occur in the business environment PCN tests are carried out. The GCN has the commitment to control the results, Management and Control of Technological Risks with a view to improving the procedures adopted. Assists managers in the identification and evaluation of technological risks and respective internal controls, specific to processes and activities related to technology. It defines the methodologies and the tools and the systems for the corporate management of technological risks and coordinates, with the persons responsible, actions for the prevention and reduction of the frequency and severity of technological risk events.
63 2010 Annual Report Santander Risk Management
Crisis Response Group (GRC): Specific operational group • The creation of management mechanisms to promote to deal with significant crises which affect the Organisation, cultural change and dissemination of accountability. so as to protect staff, preserve image, minimise business • Development and application of training, online and losses and operational damage, and assist in the resumption classroom based, with a view to disseminating the of normal operations. culture of Operational and Technological Risk, and GCN. • Diffusion of the culture of management and control of Coverage Operational Risks by means of internal communication (intranet, printed material and other means).
The coverage of the management and control of Operational and Technological risks, as well as the Differential factor management of Business Continuity at Santander, exceeds the identification of allocation and the calculation of The professional staff of the Operational Risk area are kept regulatory capital. This control has resulted in important up to date and trained to deal with the changes identified achievements for the bank, such as: in the business environment, with training also being made available for the other professionals in the Group through • An improvement in the operational efficiency and intranet and classroom-based courses. productivity of the activities and processes and the optimisation of the allocation of Economic and Among activities carried out of particular note were: Regulatory Capital. • Adaptation to existing regulations: BACEN, CVM, SUSEP • The annual holding of Prevention and Control of and BIS-II. PR6 Operational and Technological Risks Week. • Strengthening of reputation and improvement in risk • Maintenance of the program for the integration of New return ratio for the stakeholders with which the bank Employees – “One Voice”, with seminars and has relations. presentation based lessons which provide guidelines on • Timely adaptation to the new requirements of responsibility and actions in the management of regulatory bodies. operational risks. • Maintenance and preservation of the quality and • Training on procedures necessary for the evaluation of reliability of the products and services available, as well the Internal Control Environment. as related parties. • Creation, publication and maintenance of instruction • Identifying and addressing, on a timely basis, corrections manuals, permitting corporate dissemination for the to vulnerabilities identified in processes. commitment of all. • Monitoring of the service with regard to requests from • Coordination of the annual process of drawing up regulatory bodies. forecasts for operational risk losses, the definition of
64 action plans to reduce these losses and accountability. Regulatory capital allocated by • Development of Key Risk Indicators, with the objective operational risk for each business of extracting absolute and relative analyses based on line of Santander volume metrics and the analysis of competition. • Integration with the other areas of the bank, electing Consumption Business Line 2010 representatives for the most important, including that LN1 Corporate Finance 3.9% of technology. LN2 Trading and Sales 18.6% Allocation of Capital by Operational LN3 Retail Bank 17.6% Risk LN4 Commercial Bank 33.6% LN5 Payment and Settlement 9.9% LN6 Branch Services 8.4% As a function of the methodology implemented, Santander LN7 Asset Management 7.2% meets the requirements of Resolution 3.380, issued by LN8 Retail Broking 0.9% Central Bank which governs the implementation of Total 100.0% operational risk management structure within financial institutions, and since December 31, 2008, has adopted Consumption of regulatory capital calculated as at base date 12.31.2010. the Standardised Alternative Approach for the calculation of the Tranche of Capital for Operational Risks (POPR). Future prospects
With the structure, methodologies and models adopted Santander expects to strengthen its position, both in the The year 2010 was marked by the local as well as the international scenario. While the consolidation of the integration consolidation of this strategy should ensure that it of the operational risks teams of continues to be recognised as a pioneering institution in Banco Santander and Banco the process of the management and control of operational Real, making the processes more and technological risks, and business continuity, borne out flexible and robust by the implementation of an efficient environment of internal controls and the identification to risk exposure.
The main results obtained, among them being the creation The current structure aims to and operation of the Executive Committee for Operational guarantee an appropriate Risks, are to be found in the social and annual reports internal control environment published since 2006, and in the consolidated financial for the managers’ day-to-day balance sheets from December 31, 2008. operations
Committee of the Executive Vice-Presidency for Risk: Collegiate decisions to stimulate diversity of opinion
65 Casa 1
Consolidated economic-financial information IFRS
KEY CONSOLIDATED DATA
The following information is based on the consolidated results of Banco Santander (Brasil) S.A., prepared according to the International Financial Reporting Standards (IFRS).
The following information, regarding results and performance indicators, is managerial as it is adjusted for the fiscal hedge of the investment in the Cayman branch. This adjustment, which impacts the income tax and gains (losses) on financial assets and liabilities + exchange rate differences, does not change the net profit. The reconciliation between the unaudited accounting result and the managerial result is available on page 72 of this report.
66 MANAGEMENT ANALYSIS 2010 2009 Var. 2010 x 2009 RESULTS (R$ million) Net interest income 24,095 22,167 8.7% Net fees 6,834 6,238 9.6% Allowance for loan losses (8,233) (9,983) -17.5% Administrative and personnel expenses (11,230) (10,947) 2.6% Net profit 7,382 5,508 34.0%
BALANCE SHEET (R$ million) Total assets 374,663 315,972 18.6% Securities 89,823 80,616 11.4% Loan portfolio(1) 160,558 138,394 16.0% Individuals 50,981 43,200 18.0% Consumer financing 26,969 25,101 7.4% SMEs 38,306 31,448 21.8% Corporate 44,302 38,645 14.6% Expanded Credit Portfolio(2) 168,232 141,624 18.8% Funding from Clients(3) 153,243 141,090 8.6% Total equity 73,364 69,266 5.9% Total average equity excluding goodwill(4) 43,563 28,496 52.9%
PERFORMANCE INDICATORS (%) Return on shareholders’ average equity – annualized 10.3% 9.8% 0.5 p.p. Return on shareholders’ average equity excluding goodwill(4) – annualized 16.9% 19.3% -2.4 p.p. Return on average asset – annualized 2.2% 1.8% 0.4 p.p. Efficiency Ratio(5) 34.8% 36.3% -1.5 p.p. Recurrence Ratio(6) 60.9% 57.0% 3.9 p.p. BIS ratio excluding goodwill(7) 22.1% 25.6% -3.5 p.p.
PORTFOLIO QUALITY INDICATORS (%) Delinquency(7) – IFRS 5.8% 7.2% -1.4 p.p. Delinquency(8) (more than 90 days) – BR GAAP 3.9% 5.9% -2.0 p.p. Delinquency(9) (more than 60 days) – BR GAAP 4.7% 6.8% -2.1 p.p. Coverage ratio(10) 98.3% 101.7% -3.4 p.p.
OTHER DATA Assets under management - AUM (R$ million) 111,338 98,407 13.1% Numbers of credit and debit cards (thousand) 37,294 33,337 11.9% Branches 2,201 2,091 5.3% PABs (mini branches) 1,495 1,502 -0.5% ATMs 18,312 18,132 1.0% Total Customers (thousand) 24,757 22,412 10.5% Total active current account(11) (thousand) 10,901 10,240 6.5% Employees(12) 54,406 51,241 6.2%
(1)Managerial information. (2)Includes others Credit Risk Transactions with clients (Debenture, FIDC, CRI, Floating Rate Notes and Promissory Notes). (3)Include savings, demand deposits, time deposit, debenture, LCA and LCI. (4)Goodwill from the acquisition of Banco Real and Real Seguros Vida e Previdência. (5)General expenses/total revenues . (6)Net commissions / General expenses. (7)Portfolio overdue by more than 90 days plus loans with high default risk / credit portfolio. (8) Portfolio overdue by more than 90 days / credit portfolio in BR GAAP. (9)Portfolio overdue by more than 60 days / credit portfolio in BR GAAP. (10)Allowance for loan losses / portfolio overdue by more than 90 days plus loans with high default risk. (11)Active accounts during a 30-day period, according to the Brazilian Central Bank. (12)Considering Banco Santander (Brasil) S.A. and its subsidiaries consolidated in the balance sheet.
67 2010 Annual Report Santander Consolidated economic-financial information IFRS
Highlights of the period Net interest income (R$ million)
Results 8.7% • Profit before Taxes was R$ 9,724 million, an increase of
39.1% compared to the same period of 2009. 24,095
• Net Profit was R$ 7,382 million in 2010, an increase of 22,167 34.0% (R$ 1,874 million) compared to the R$ 5,508 million in the same period of 2009.
Indicators • Evolution of performance indicators in twelve months (2010/2009): »» Efficiency ratio1: 34.8% in 2010, improvement of 1.5 p.p. »» Recurrence ratio2: 60.9% in 2010, up 3.9 p.p. »» ROAE3: 16.9% annualized in 2010, decrease of 2.4 p.p. 2009 2010 • Soundness indicators: »» BIS Ratio4: 22.1% in December 2010, decrease 3.5 p.p. in twelve months Administrative and personnel »» Coverage ratio: 98.3% in December 2010, decrease expenses (R$ million) of 3.4 p.p. in twelve months
2.6% Balance sheet • Total Assets of R$ 374,663 million, an increase of 11,230
18.6% in twelve months 10,947 • Loan portfolio summed R$ 160,558 million, up 16.0% in twelve months. Expanded Credit portfolio5 up 18.8% in the same period, totaling R$168,232. • Savings deposits totaled R$ 30,304 million, a jump of 20.2% in twelve months • Shareholders’ Equity reached R$ 43,563 million (excluding goodwill4 of R$ 28,312 million)
Santander shares – BOVESPA: SANB11 (UNIT), SANB3 (ON), SANB4 (PN) AND NYSE (BSBR)
• Market Capitalization6 on 12/30/2010: R$ 86.4 billion 2009 2010 or US$ 52.0 billion • Total shares (thousand): 399,044,117 • Net Profit7 per share in 2010: Efficiency Ratio (%) »»1,000 Shares - R$ 18.50 »»10 Units - R$ 19.43 -1.5 p.p.
(1)General expenses / total revenues (2)Net Fees / general expenses (3) 36.3
Net profit / average total equity. Excluding the goodwill from the acquisition 34.8 of Banco Real and Real Seguros Vida e Previdência (4)Excluding the goodwill related to the acquisition of Banco Real and Real Seguros Vida e Previdência (5)Includes other credit risk transactions with clients (Debenture, FIDC, CRI, Floating Rate Notes and Promissory Notes). (6)Market capitalization: total shares (ON + PN)/105 (Unit = 50 PN + 55 ON) x Unit´s closing price and exchange rate of R$/US$ of 1.6597 (7)12M10 net profit. Calculation does not consider the difference in the dividend payout between common and preferred shares.
2009 2010
68 Net fees Profit before tax ROAE(1) (R$ million) (R$ million) (%) -2.4 p.p.
34.0% 9.6% 19.3 7,382 6,834 16.9 6,238 5,508
2009 2010 2009 2010 2009 2010
Loan Portfolio Breakdown 2010 Profit before tax by segment 2010
Individuals 32%
Commercial Bank 64% Asset Management and Insurance 8%
SMEs 24% Corporate 27%
Global Wholesale Banking 28% Consumer Finance 17%
(1) Net profit divided by average total equity, excluding goodwill.
RATINGS Santander is rated by the main international agencies and the ratings assigned in the table below reflect its operating performance and the quality of its management.
LONG term SHORT term RATING AGENCY Ratings Outlook Ratings Outlook
Fitch Ratings National Scale AAA (bra) Stable F1+ (bra) Stable Local Currency BBB+ Positive F2 Positive Foreign Currency BBB Positive F2 Positive
Standard & Poor’s National Scale brAAA Stable brA-1 Stable Local Currency BBB- Stable A-3 Stable Foreign Currency BBB- Stable A-3 Stable
Moody’s National Scale Aaa.br Stable Br-1 Stable Local Currency A2 Stable P-1 Stable Foreign Currency Baa3 Stable P-3 Stable
69 2010 Annual Report Santander Consolidated economic-financial information IFRS
Recent Events Subsequent events
Agreement for incorporation of strategic partner in Launch of the Esso Santander credit card Brazil On January 17, 2011, Banco Santander announced to Qatar Holding Luxembourg II S.à r.l (“QHL”) subscribed to the market that, in partnership with Cosan Combustíveis and paid the bonds issued by Banco Santander, S.A. e Lubrificantes, a subsidiary of Cosan S.A. Indústria (Spain), mandatorily exchangeable for the shares of Banco e Comércio and which owns the Esso and Mobil brands Santander Brasil, in the amount of US$2,718,800,000.00. in Brazil, it will launch the Esso Santander credit card in All stages of the operation were announced to the market the first quarter of 2011 to leverage its credit card business through two material fact notices, on October 18 and 29, through alliances. and a notice to the market on November 1, 2010. Chairman of the board of directors and chief Buyback of units issued by banco Santander Brasil executive officer of banco Santander (Brasil) S.A. On November 9, 2010, the Board of Directors approved On January 28, 2011, Banco Santander held an the program for the buyback of units issued by Banco Extraordinary General Meeting in order to appoint Mr. Santander Brasil. The objective is to manage the risks Fabio Colletti Barbosa for Chairman of the Board of arising from market making activities by Banco Santander Directors and Mr. Marcial Angel Portela Alvarez to the Brasil involving index funds, whenever the units are position of Vice-Chairman of Board of Directors, both with included in the theoretical portfolio of the benchmark term office until the Annual Shareholders’ Meeting to be index of such funds. The repurchased units will be used by held in 2011. Banco Santander exclusively for hedging purpose against oscillations in the prices of securities making up the On February 16, 2011, with the regulatory approval, benchmark index, and will be bought and sold in line with Mr. Fábio Colletti Barbosa assumed the position of Banco Santander’s risk management policy. The units will President of the Board of Directors, after Mr. Marcial Angel be acquired in the stock exchange using the balance Portela Alvarez took over the post of Chief Executive available in the Capital Reserve and Profit Reserve of Banco Officer. Santander Brasil.
Announcement of interest on own capital and interim dividend On December 22, 2010, the Board of Directors of Banco Santander Brasil approved the Executive Board’s proposal, ad referendum the Annual Shareholders’ Meeting to be held in 2011, to pay interest on own capital in the gross amount of four hundred thirty million reais (R$ 430,000,000.00) which, after deducting the Withholding Income Tax (“IRRF”) in accordance with legislation, results in a net amount of three hundred sixty-five million, five hundred thousand reais (R$ 365,500,000.00) and interim dividend amounting to one billion two hundred eighty million reais (R$ 1,280,000,000.00).
The interest on own capital and dividend will be fully imputed to the mandatory dividends to be distributed by the Bank for the fiscal year 2010 and will be paid starting from February 25, 2011, without any monetary restatement.
70 Executive summary
Santander reported net profit of R$ 7,382 million in 2010, Sound Balance Sheet: the BIS ratio was 22.1% in a 34.0% growth over the same period in 2009. December, a 3.5 p.p. decrease in twelve months. Coverage ratio reached 98.3% in December 2010. Shareholders’ equity in December 2010 totaled R$ 43,563 million, excluding R$ 28,312 million related to the goodwill Santander’s credit growth strategy for 2010 was based on on the acquisition of Banco Real and Real Seguros Vida the higher profitable segments: Individual and SMEs. e Previdência. Consequently, the total portfolio reached R$ 160,558 million, growing 16.0% in twelve months or R$ 22,164 The return on average equity adjusted for goodwill reached million. Of this amount 66% came from these segments, 16.9%, 2.4 p.p. down year-on-year, due to the equity 35% Individuals and 31% SMEs. The Expanded Credit increase, that resulted from funds raised from the Global Portfolio(2) grew by 18.8% in twelve months. Share Offering in October 2009. Loans to individuals grew by 18.0% in twelve months, The efficiency ratio came to 34.8% in 2010, a 1.5 p.p. reaching R$ 50,981 million. The products with higher improvement year-on-year, resulting from the increase in growth were payroll loans, mortgages and credit cards. net interest income and commissions, of 8.7% and 9.6%, respectively, and the cost control with capture of synergies, Loans to small and medium companies totaled R$ 38,306 thereby maintaining the increase in expenses lower than million in December 2010, 21.8% up in twelve months. the inflation rate. Deposits from clients(3) and assets under management Administrative expenses decreased by 2.4% in twelve reached R$ 264,581 million in December 2010, 10.5% months, reflecting cost control and capture of synergies higher over the same period in 2009. from the acquisition of Banco Real, which totaled R$ 1,862(1) million. The personnel expenses had shown a growth of 7.5% in the same period.
(1) Does not considers expenses of R$ 58MM of branch network expansion (2) Includes others Credit Risk Transactions with clients (Debenture, FIDC, CRI, Floating Rate Notes and Promissory Notes). (3) Include savings, demand deposits, time deposit, debenture, LCA and LCI.
71 2010 Annual Report Santander Consolidated economic-financial information IFRS
Unaudited accounting and managerial results reconciliation
In order to provide a better understanding of results in IFRS, we present, in this report, the managerial income statement. The main difference from the Reported (Accounting) Income Statement is the adjustment of the fiscal hedge over the investment in the Cayman branch. The impact of the fiscal hedge in the income tax line was adjusted to the gain (losses) on financial assets and liabilities plus exchange rates differences. All the information and comments regarding the Income Statement in this report are based on the managerial income statement, except when quoted otherwise.
Under the Brazilian income tax rules, gains (losses) resulting from the impact of changes in the R$_USD exchange rate on our investment - dollar denominated - in the Cayman branch are not taxable (tax deductible). This tax treatment leads to foreign exchange rate exposure in the tax line. A hedging portfolio, comprised of derivatives, is set up in such a way that the net profit is protected from this tax related foreign exchange exposure. Thus, our effective tax rate and revenues from gain (losses) on financial assets and liabilities plus exchange rates differences are still impacted by foreign exchange movements.
INCOME STATEMENT 2010 Fiscal 2010 2009 Fiscal 2009 (R$ Million) Reported Hedge Managerial Reported Hedge Managerial Net Interest Income 24,095 24,095 22,167 22,167 Income from equity instruments 52 52 30 30 Share of results of entities accounted for using the equity method 44 44 295 295 Net fees 6,834 6,834 6,238 6,238 Fee and commission income 7,833 7,833 7,148 7,148 Fee and commision expense (999) (999) (910) (910) Gains (losses) on financial assets and liabilities (net) + exchange rate differences (net) 1,875 272 1,603 2,665 1,146 1,519 Other operating income (expenses) (348) (348) (116) (116) Total income 32,552 272 32,280 31,279 1,146 30,133 General expenses (11,230) (11,230) (10,947) (10,947) Administrative expenses (5,304) (5,304) (5,436) (5,436) Personnel expenses (5,926) (5,926) (5,511) (5,511) Depreciation and amortization (1,237) (1,237) (1,249) (1,249) Provisions (net)(1) (1,974) (1,974) (3,481) (3,481) Losses on assets (net) (8,255) (8,255) (10,868) (10,868) Allowance for loan losses(2) (8,233) (8,233) (9,983) (9,983) Losses on other assets (net) (22) (22) (885) (885) Net gains on disposal of assets 140 140 3,403 3,403 Net profit before tax 9,996 272 9,724 8,137 1,146 6,991 Income tax (2,614) (272) (2,342) (2,629) (1,146) (1,483) Net profit 7,382 - 7,382 5,508 - 5,508
(1) Includes provisions for civil, labor and others litigations. (2) Includes recoveries of loans previously written off.
72 MANAGERIAL INCOME STATEMENT(1) 2010 2009 Var. (R$ Million) 2010 x 2009 Net Interest Income 24,095 22,167 8.7% Income from equity instruments 52 30 73.3% Share of results of entities accounted for using the equity method 44 295 -85.1% Net fees 6,834 6,238 9.6% Fee and commission income 7,833 7,148 9.6% Fee and commision expense (999) (910) 9.8% Gains (losses) on financial assets and liabilities (net) + exchange rate differences (net) 1,603 1,519 5.5% Other operating income (expenses) (348) (116) n.a. Total income 32,280 30,133 7.1% General expenses (11,230) (10,947) 2.6% Administrative expenses (5,304) (5,436) -2.4% Personnel expenses (5,926) (5,511) 7.5% Depreciation and amortization (1,237) (1,249) -1.0% Provisions (net)(2) (1,974) (3,481) -43.3% Losses on assets (net) (8,255) (10,868) -24.0% Allowance for loan losses(3) (8,233) (9,983) -17.5% Losses on other assets (net) (22) (885) n.a. Net gains on disposal of assets 140 3,403 -95.9% Net profit before tax 9,724 6,991 39.1% Income tax (2,342) (1,483) 57.9% Net profit 7,382 5,508 34.0%
(1) Includes the Cayman tax reclassification. Net interest income (2) Includes provisions for civil, labor and others litigations. (3) Includes recoveries of loans previously written off. (R$ million)
Net interest income in 2010 totaled R$ 24,095 million, 8.7% 8.7% up over the same period in 2009. 24,095
Revenues from credit operations climbed by 2.9% in twelve 22,167 months, due to the growth in the average portfolio volume, which offset the decline in spreads. Revenues from deposits grew 0.6% in twelve months.
The year-on-year increase in non-interest bearing liabilities and others was mainly the result of revenues from the proceeds of the IPO, the incorporation of the insurance business and the structural interest rate mismatch of the balance sheet, among other factors.
2009 2010
NET INTEREST INCOME 2010 2009 Var. (R$ Million)(1) 2010 x 2009 Credit 17,655 17,156 2.9% Average Volume 143,382 132,633 8.1% Spread (Annualized) 12.3% 12.9% -0.6 p.p. Deposits 952 946 0.6% Average Volume(2) 104,533 113,057 -7.5% Spread (Annualized) 0.9% 0.8% 0.1 p.p. Non-interest bearing liabilities and others 5,488 4,065 35.0% Total net interest income 24,095 22,167 8.7%
(1) Loans and revenues for the year 2009 have been reclassified for comparison purposes with the current period, due to re-segmentation of clients occurred in 2010. (2) Includes demand deposits, saving deposits and time deposits.
73 2010 Annual Report Santander Consolidated economic-financial information IFRS
Gains (losses) on financial assets and liabilities (net) + exchange rate differences Gains (losses) on financial assets and liabilities (net) plus exchange differences totaled R$ 1,603 million in 2010, a 5.5% increase from the R$ 1,519 million in the same period of 2009, excluding the effect of the tax hedge of the investment at the Cayman branch.
GAINS (LOSSES) ON FINANCIAL ASSETS AND LIABILITIES (NET) 2010 2009 Var. (R$ Million) 2010 x 2009 Total 1,875 2,665 -29.6% Cayman Fiscal Hedge 272 1,146 -76.2% Total excluding Cayman Hedge 1,603 1,519 5.5%
Net Fees Net fees amounted to R$ 6,834 million in 2010, up 9.6% Revenues from credit and debit cards totaled R$ 969 over the same period in 2009, due to the higher volume of million in 2010, up 23.6% in twelve months, thanks to business in the insurance and pension plans, cards and the strategy of innovation and focusing on customer capital market operations. needs, which resulted in card base growth and higher product penetration. Commissions from insurance, pension funds and capitalization (also called savings bonds) climbed 27.0% Asset management fees were R$ 865 million in 2010, year on year, reaching R$ 1,497 million, being responsible a 16.6% increase year on year, due to the growth in the for 53% of the increase in total commission in the period. volume of assets under management. This increase is largely due to the launch of new loan protection insurance products and the growth in residential and personal accident insurance sales, driven by the distribution of these products in the former Real Network.
NET FEES 2010 2009 Var. (R$ Million) 2010x2009 Banking fees 2,369 2,467 -3.9% Insurance, pension plans and Capitalization 1,497 1,179 27.0% Asset management 865 742 16.6% Credit and Debit Cards 969 785 23.6% Receiving services 506 503 0.6% Collection 398 390 2.1% Bills, taxes and fees 108 114 -4.7% Capital markets 502 393 27.8% Foreign trade 456 397 15.0% Others(1) (330) (228) 44.9% Total 6,834 6,238 9.6%
(1) Includes taxes and others.
General expenses (administrative + personnel)
General expenses (administrative + personnel) totaled R$ 11,230 million in 2010, up 2.6% compared to same period of 2009. Cost control efforts and the capture of synergies ensured that these expenses grew below the inflation rate in the period.
Administrative expenses amounted to R$ 5,304 million in 2010, decrease 2.4% year on year.
74 Personnel expenses reached R$ 5,926 million in 2010, up Efficiency Ratio (%) 7.5% year on year. The growth in personnel expenses can be explained by the expansion of the branch network and the effort to expand commercial teams distribution of the -1.5 p.p. Small and Medium Enterprises.
As a result, the efficiency ratio in the quarter, obtained by 36.3 34.8 dividing general expenses by total revenue, came to 34.8%, a 1.5 percentage point improved compared with the same period of 2009.
2009 2010
EXPENSES 2010 2009 Var. (R$ Million) 2010 x 2009 ADMINISTRATIVE EXPENSES Specialized third-party technical services 1,504 1,449 3.8% Asset maintenance and conservation 966 1,043 -7.4% Data processing 889 898 -1.0% Advertising, promotions and publicity 422 497 -15.1% Communications 555 613 -9.5% Transport and travel 151 168 -10.1% Security and surveillance 513 469 9.4% Others 304 299 1.7% Total 5,304 5,436 -2.4%
PERSONNEL EXPENSES Salaries 3,731 3,364 10.9% Social security and pension plans 994 971 2.4% Benefits 792 749 5.7% Training 93 88 5.7% Others 316 339 -6.8% Total 5,926 5,511 7.5%
ADMINISTRATIVE EXPENSES + PERSONNEL EXPENSES 11,230 10,947 2.6%
DEPRECIATION AND AMORTIZATION 1,237 1,249 -1.0%
TOTAL GENERAL EXPENSES AND AMORTIZATION 12,467 12,196 2.2%
Allowance for loan losses Allowance for loan losses, including the income from recoveries, totaled R$ 8,233 million in 2010, 17.5% down year-on- year, as a result of the improvement cycle in the delinquency rate in recent quarters.
RESULT OF ALLOWANCE FOR LOAN LOSSES 2010 2009 Var. (R$ Million) 2010x2009 Expense for allowance for loan losses (9,051) (10,520) -14.0% Income from recovery of credit written off as loss 818 538 52.1% Total (8,233) (9,983) -17.5%
75 2010 Annual Report Santander Consolidated economic-financial information IFRS
Delinquency ratio (IFRS) Delinquency(1) – IFRS The delinquency ratio (credits overdue more than 90 days, 9.3% plus performing loans with high delinquency risk) stood at 8.8% 8.2% 5.8% in the fourth quarter of 2010, 1.4 p.p. down from 7.9% 7.6% Individual the same period in 2009. The ratio in the quarter fell by 7.2% 7.0% 6.6% 0.3 p.p. The evolution of the ratio shows that the quality of 6.1% the portfolio continues to improve as noticed in previous 5.8% Total 5.3% 5.3% 5.1% quarters. 4.5% 4.3% Corporate In the individuals segment, the decline was steeper in the 4T09 1T10 2T10 3T10 4T10 twelve-month comparison, from 9.3% to 7.6%, 1.7 p.p. down. The improvement in credit quality reflects the (1) Portfolio overdue by more than 90 days plus loans with high progress in the economic indicators. In December 2010, default risk / credit portfolio. unemployment rate was 5.3%, the lowest since the beginning of the historical series in March 2002.
Note that the delinquency ratio is more conservative under IFRS than in BR GAAP and hence they are not comparable. Delinquency ratio in BRGAAP (over 90 days) Credits overdue more than 90 days amounted to 3.9% of Coverage ratio (IFRS) the total portfolio in December 2010, a 2.0 p.p. decrease The coverage ratio is obtained by dividing the allowance year on year. Delinquency levels improved, both for the for loan losses by loans overdue more than 90 days plus corporate segment and for the individual segment, with performing loans with high delinquency risk. In fourth a reduction of the 2.0 p.p. over the same period in 2009. quarter of 2010, the ratio reached 98.3%, declining 3.4 p.p. in twelve months.
Delinquency(1) – BR GAAP (over 90)
7.8% 7.2% 6.7% 6.2% 5.9% 5.8% Individual Coverage – IFRS 5.4% 4.7% 4.2% 4.2% 3.7% 3.9% Total 3.0%
101.7% 102.8% 101.7% 2.5% 101.4% 2.2% Corporate 98.35%
4T09 1T10 2T10 3T10 4T10
(1) Portfolio overdue by more than 90 days / Credit Portfolio BR GAAP.
Non-performing loans (over 60 days) Non-performing loans overdue more than 60 days reached 4T09 1T10 2T10 3T10 4T10 4.7% in December 2010, decrease 2.1 p.p. year on year.
NPL(1) – Delinquency - BR GAAP (over 60))
9.2% 8.7% 8.0% 7.4% 6.8% 6.9% Individual 6.4% 5.6% 4.7% 5.0% 4.4% 4.7% Total 3.6% 2.9% 2.7% Corporate
4T09 1T10 2T10 3T10 4T10
(1) Portfolio overdue by more than 60 days / Credit Portfolio BR GAAP.
76 Contigencies provisions (net) Provisions (net) totaled R$ 1,974 million in 2010, 43.3% down year-on-year, mainly due to the reduction in sundry contingencies.
PROVISIONS 2010 2009 Var. (R$ Million) 2010 x 2009 Provisions for civil, labor, fiscal and other contingencies -1,974 -3,481 -43.3% Balance Sheet (1)
ASSETS Dec/10 Dec/09 Var. (R$ Million) Dec10 x Dec09 Cash and balances with the Brazilian Central Bank 56,800 27,269 108.3% Financial assets held for trading 24,821 20,116 23.4% Other financial assets at fair value through profit or loss 17,939 16,294 10.1% Loans and advances to credit institutions 292 1,907 -84.7% Loans and advances to customers - 389 n.a. Debt Instruments 224 211 6.2% Equity Instruments 17,423 13,787 26.4% Available-for-sale financial assets 47,206 46,406 1.7% Loans and receivables 174,107 152,163 14.4% Loans and advances to credit institutions 22,659 24,228 -6.5% Loans and advances to customers 160,559 138,005 16.3% Debt Instruments 81 - n.a. Allowances for credit losses (9,192) (10,070) -8.7% Tangible assets 4,518 3,702 22.0% Intangible assets 31,962 31,618 1.1% Goodwill 28,312 28,312 0.0% Others 3,650 3,306 10.4% Tax assets 14,842 15,779 -5.9% Other assets 2,468 2,625 -6.0% Hedging derivatives 116 163 -28.8% Non-current assets held for sale 67 171 -60.8% Investment in associates 371 419 -11.5% Other 1,914 1,872 2.2% Total assets 374,663 315,972 18.6%
LIABILITIES Dec/10 Dec/09 Var. (R$ Million) Dec10 x Dec09 Financial liabilities held for trading 4,785 4,435 7.9% Financial liabilities at amortized cost 253,341 203,567 24.5% Deposits from the Brazilian Central Bank - 240 n.a. Deposits from credit institutions 42,392 20,956 102.3% Customer deposits(2) 167,949 149,440 12.4% Marketable debt securities 20,087 11,439 75.6% Subordinated liabilities 9,695 11,304 -14.2% Other financial liabilities 13,218 10,188 29.7% Insurance contracts 19,643 15,527 26.5% Provisions(3) 9,395 9,480 -0.9% Tax liabilities 10,530 9,457 11.3% Other liabilities 3,605 4,240 -15.0% Hedging derivatives - 10 n.a. Other liabilities 3,605 4,228 -14.7% Other financial Liabilities at fair value through profit or loss - 2 n.a. Total liabilities 301,299 246,706 22.1% Total Equity(4) 73,364 69,266 5.9% Total liabilities and equity 374,663 315,972 18.6%
(1) Unaudited balance sheet accountant (2) Includes repo. (3) Provisions for pensions and contingent liabilities. 77 (4) Includes minority interest and adjustment to market value. 2010 Annual Report Santander Consolidated economic-financial information IFRS
Income taxes In 2010, income taxes totaled R$ 2,342 million, 57.9% more than in the same period of 2009. Note that the tax line includes income tax, social contribution, PIS, COFINS, and excludes the Cayman hedge effect.
In December 2010, total assets came to R$ 374,663 million, a 18.6% increase year on year, chiefly due to the growth of the credit portfolio and of the cash and balances with the Brazilian Central Bank.
Securities The securities portfolio totaled R$ 89,823 million in December 2010, up 11.4% in twelve months.
SECURITIES Dec/10 Dec/09 Var. (R$ Million) Dec10 x Dec09 Public securities 55,823 53,987 3.4% Private securities, funds quotas / others 11,443 7,729 48.1% PGBL / VGBL fund quotas 17,423 13,787 26.4% Financial instruments 5,134 5,113 0.4% Total 89,823 80,616 11.4%
Credit portfolio Total credit portfolio came to R$ 160,558 million in the Dollar, the year-on-year credit growth (without the December 2010, a 16.0% growth in twelve months. foreign exchange effect) would be 17.9%. Excluding the effect of the appreciation of the Real against the Dollar, credit would have grown by 16.8% over The expanded credit portfolio, that includes others credit December 2009. risk transactions with clients, increased 18.8% in twelve months. Noted that a significant portion of other loans Moreover, the credit portfolio under IFRS standard does not were originated in the Corporate Segment. include the acquisition of portfolio from other banks with co-obligation. Including the acquisition of portfolio and The credit portfolio increased 19.1% in twelve months in excluding the effect of the appreciation of the Real against BR GAAP, which came to R$ 173,053 million.
MANAGERIAL BREAKDOWN OF CREDIT TO CLIENTS Dec/10 Dec/09 Var. (R$ Million) Dec10 x Dec09 Individuals 50,981 43,200 18.0% Consumer finance 26,969 25,101 7.4% SMEs 38,306 31,448 21.8% Corporate 44,302 38,645 14.6% Total 160,558 138,394 16.0% Other credit risk transactions - Commercial Portfolio 7,674 3,230 137.6% Total expanded credit portfolio(1) 168,232 141,624 18.8% Total guarantees 22,563 20,967 7.6% Total credit with guarantees 190,795 162,591 17.3%
Total expanded(1) credit portfolio - BR GAAP (excluding guarantees) 173,053 145,249 19.1%
(1) Includes Debenture, FIDC, CRI , Floating Rate Notes and Promissory Notes.
78 Loans to individuals Individuals (R$ billion) In December 2010, loans to individuals totaled R$ 50,981
million, up 18.0% in twelve months. This growth was mainly 51.0 48.3 45.9 44.0 driven by payroll lending, credit cards and mortgages. 43.2
The payroll loan portfolio grew from R$ 10,084 million in December 2009 to R$ 13,800 million, a 36.9% increase, including portfolio acquired.
Mortgages for individuals totaled R$ 6,698 million, up 28.2% in twelve mouths. 4T09 1T10 2T10 3T10 4T10 The volume of credit cards portfolio grew by 27.0% in twelve months reaching R$ 10,760 million in December 2010.
Consumer finance The consumer finance portfolio reached R$ 26,969 million in December 2010, a 7.4% increase in twelve months. In Consumer Finance (R$ billion) this segment the focus of activities has been centered on improving profitability. 26.5 Corporate and SMEs loans 27.0 26.1 25.1 25.5 Corporate loans came to R$ 82,608 million in December 2010, up 17.9% year on year.
Loans to large companies stood at R$ 44,302 million, up 14.6% year on year. As a significant part of the other credit risk transactions(1) with clients was carried out with large companies, the growth rate on a yearly basis in this segment would be materially higher in case these transactions 4T09 1T10 2T10 3T10 4T10 are included.
Loans to small and medium companies totaled R$ 38,306 million in December 2010, a 21.8% upturn year on year. This performance is the result of the reorganization of commercial activities and operational procedures to ensure greater speed and efficiency in granting loans in this segment. Corporate and SMEs Loans (R$ billion) 82.6 79.2 74.5 70.4 70.1 (1) Includes Debenture, FIDC, CRI , Floating Rate Notes and Promissory Notes. 38.3 35.8 32.3 30.8 31.4 38.6 39.6 42.2 43.5 44.3
4T09 1T10 2T10 3T10 4T10
SMEs Corporate
79 2010 Annual Report Santander Consolidated economic-financial information IFRS
Individual and corporate loans portfolio by product The following table provides the breakdown of the credit The leading performers in corporate loans were mortgages portfolio by product. As mentioned before, products for and trade finance, which grew 39.7% and 38.7%, individuals that presented better evolution in twelve months respectively, in twelve months. were payroll loans, credit cards and mortgages.
BREAKDOWN OF MANAGERIAL CREDIT PORTFOLIO BY PRODUCT Dec/10 Dec/09 Var. (R$ Million) Dec10 x Dec09 Individuals Leasing / Auto Loans(1) 2,471 2,121 16.5% Credit card 10,760 8,472 27.0% Payroll Loans(2) 13,800 10,084 36.9% Mortgages 6,698 5,226 28.2% Agricultural Loans 2,817 3,073 -8.3% Personal Loans / Others 18,635 16,445 13.3% Total Individuals including acquired portfolio 55,181 45,420 21.5% Total Individuals 50,981 43,200 18.0%
Consumer Finance 26,969 25,101 7.4%
Corporate and SMEs Leasing / Auto Loans 3,051 2,932 4.0% Construction Loans 5,392 3,860 39.7% Trade Finance 19,820 14,293 38.7% On-lending 8,077 12,835 -37.1% Agricultural Loans 2,063 2,016 2.3% Working capital / Others 44,206 34,157 29.4% Total Corporate and SMEs 82,608 70,093 17.9%
Total Credit 160,558 138,394 16.0% Other Credit Risk Transactions with clients(3) 7,674 3,230 137.6%
Total Expanded(3) Credit Portfolio 168,232 141,624 18.8%
Acquired portfolio 4,200 2,220 89.2% Total Expanded(3) Credit Portfolio including acquired portfolio 172,432 143,844 19.9%
(1) Including the loans to individual in the consumer finance segment, auto loan portfolio totaled R$ 24,173 million in 4Q10, R$ 23,691 million in 3Q10 and R$ 22.575 million in 4Q09. (2) Includes Payroll Loan acquired portfolio. (3) Includes Debentures, FIDC, CRI, Floating Rate Notes and Promissory Notes. Funding
Deposits from clients and asset under management Funding from clients totaled R$ 153,243 million in reached R$ 264,581 million in December 2010, up by December 2010, growing by 8.6% from December of 10.5% in twelve months, led by savings deposits (+20.2% 2009. yoy) and Debenture/LCI/LCA (+51.8% yoy).
FUNDING Dec/10 Dec/09 Var. (R$ Million) Dec10 x Dec09 Demand deposits 16,131 15,140 6.5% Savings deposits 30,304 25,217 20.2% Time deposits 68,916 75,771 -9.0% Debenture/LCI/LCA(1) 37,892 24,962 51.8% Funding from Clients 153,243 141,090 8.6% Assets under management 111,338 98,407 13.1% Total 264,581 239,497 10.5%
(1) Debentures repurchase agreement, Real Estate Credit Notes (LCI) and Agribusiness Credit Notes (LCA).
80 Credit/funding ratio The following table shows the sources of funds used in The ratio of credit portfolio to total funding in December credit operations, which includes deposits from clients, net 2010 was 104%. The increase in this ratio occurred due of reserve requirements, offshore and domestic funding, as the rise in the reserve requirements on account of the well as securities issued abroad. change in regulation. The bank has a comfortable liquidity position and has stable and adequate funding sources for each type of credit line.
FUNDING VS. CREDIT Dec/10 Dec/09 Var. (R$ Million) Dec10 x Dec09
Funding from Clients 153,243 141,090 8.6% (-) Compulsory Deposits (53,642) (23,638) 126.9% Funding from Clients Net of Compulsory 99,601 117,452 -15.2% Borrowing and Onlendings 26,152 19,409 34.7% Subordinated Debts 9,695 11,304 -14.2% Funding Offshore 11,567 4,223 173.9% Letras Financeiras(1) 6,639 n.a n.a Total Funding (A) 153,654 152,388 0.8% Total Credit (B) 160,558 138,394 16.0% B / A (%) 104% 91% 13.7 p.p.
(1) Bonds issued by Financial Institution on the domestic market
BIS ratio – BR GAAP BIS Ratio (%) The BIS ratio reached 22.1% in December 2010, decrease 3.5 p.p. than in the same period of 2009. Note that, 25.6 according to Brazilian regulations, the minimum ratio is 11%. 22.1 4.9 In twelve months, the regulatory capital tier II decrease 1.8 p.p., 3.1 basically due to the early redemption of the subordinated debt in the amount of R$1.5 billion in January 2010 and US$ 0.5 billion of perpetual securities in September 2010. The plan to carry out early redemption has been signaled 20.7 19.0 at the Public Offering of shares process. Dec/09 Dec/10
The calculated BIS ratio excludes the amount of unamortized goodwill from the capital base. Tier II Tier I
SHAREHOLDERS EQUITY and BIS Dec/10 Dec/09 Var. (in R$ million) Dec10 x Dec09
Adjusted benchmark equity level I(1) 44,884 42,353 6.0% Benchmark equity level II 7,433 9,973 -25.5% Benchmark equity levels I and II(1) 52,317 52,326 0.0% Benchmark equity required 26,020 22,483 15.7% Risk weighted assets 236,545 204,391 15.7% Basel Index II 22.1% 25.6% -3.5 p.p.
Amounts calculated based on consolidated information from the financial institutions (financial conglomerate). (1) Disregards the effect of goodwill related to the incorporation of Banco Real and AAB Dois Par, in accordance with international rules.
81 2010 Annual Report Santander Consolidated economic-financial information IFRS
Profit by segment
The bank has three business segments: Commercial Bank, Profit(1) Before Tax Commercial Wholesale Banking and Asset Management / Insurance. Banking (R$ Million) Commercial Bank includes products and services for retail, consumer financing, small and medium companies and 29.7% corporate clients, except those served by Global Wholesale Banking (GB&M). GB&M comprises products and services 6,347 for global corporate clients, treasury and investment banking activities. The Asset Management / Insurance 4,895 segment encompasses asset management, pension funds, capitalization and insurance.
In 2010, Commercial Bank accounted for 64% of total profit1 before tax according to IFRS. GB&M represented 28% and Asset Management and Insurance responded for 8%.
Commercial Bank’s profit(1) before tax in 2010 totaled R$ 6,347 million, R$ 1,452 million or 29.7% more than in 2009 2010 the same period of 2009, maintaining its share of the results (64%), thanks to the growth of the credit portfolio, combined with the decrease in delinquency and increase Profit(1) Before Tax Global in net interest income. Wholesale Banking (R$ Million) Global Wholesale banking reported profit(1) before tax of R$ 2,818 million in 2010, up 6.3% in twelve months or 6.3% R$ 167 million over the same period the previous year. 2,818 (1) Asset Management and Insurance posted profit before 2,651 tax of R$ 832 million in 2010, an increase of 40.6% or R$ 240 million over the same period the previous year, as a result of the implementation of new credit life products and increased sales of home insurance and personal accident insurance to the customer base.
2009 2010
Profit(1) before tax by segment Profit(1) Before Tax Asset Management and Insurance (R$ Million)
Commercial Bank 40.6% 64%
Asset Management
and Insurance 832 8% 592
Global Wholesale Banking 28%
(1) Does not consider the Cayman hedge adjustment . 2009 2010
82 Cards Number of credit cards transactions (Million)
Number of transactions and turnover 192.0 173.3
In 2010, the number of transactions of credit cards grew 158.9 148.6 by 38.2% over 4Q09 and 10.8% compared to previous 138.9 quarter, totaling 192 million. Total turnover reached R$ 33.9 billion, an increase of 19.8% in twelve months.
Credit portfolio The credit card portfolio rose by 27.0% in twelve months reaching R$ 11.1 billion in December 2010. Of this total, 4T09 1T10 2T10 3T10 4T10 27% was financed portfolio and 73% was non-financed portfolio. Turnover Total Financed portfolio grew 20% in 12 months, strongly driven (R$ billion) 33.9 by the strategy of offering installment payment of bills as a 29.2
sustainable credit product through all channels of the bank. 28.3 26.9 26.3
Card base Our growth strategy is based on increasing our market share and profitability by launching innovative products and focusing on acquiring customers. Since 2006, we have launched credit card products tailored to the needs of diverse customer profiles and directed at stimulating demand for our products. Continuing this innovation 4T09 1T10 2T10 3T10 4T10 strategy, in 2010 we launched the Santander Elite Platinum, Santander Style Platinum and the Ferrari Cards, Credit Card Portfólio thanks to Santander’s global partnership. (R$ billion)
These differentiated credit cards, combined with our focus on growing the client base, enabled us to expand our card base by 18.3% in 2010. Credit cards base totaled 11.5 million in December 2010, 1.8 million new cards in twelve months. 6.6 8.0 6.2 5.8 6.2 Debit cards totaled 25.8 million in December 2010,
up 9.3% in one year. 2.5 2.9 3.0 3.1 3.1
4T09 1T10 2T10 3T10 4T10
Non-financed Financed
Card Base (in Million) 37.3 36.4 35.3 34.0 33.3 25.8 25.3 24.6 24.0 23.6 9.7 10.0 10.7 11.1 11.5
4T09 1T10 2T10 3T10 4T10
Credit Card Debit Card
83 Operational Scenario
84 MACRO-ECONOMIC ENVIRONMENT
Economic indicators continued to show a buoyant The current account deficit, which amounted to 2.5% of economy, particularly from the perspective of demand, GDP compared to 1.5% the previous year, was comfortably due to the significant growth in incomes, jobs and credit financed with the entry of capital, which was sufficient to availability. In 2010 GDP grew by 7.5%, compared to keep the exchange rate practically unchanged compared to 2009, of particular note being the services sector on the the previous year, at R$ 1.67 / US$ at the end of December supply side, and consumption and investment on the 2010. demand side. The total volume of credit in the National Financial System Inflation increased in the last quarter largely as a result maintained firm growth in 2010, registering an increase of of the acceleration in food prices. In the 12 months to 20.5%, still sustained by directed loans, particularly from December, the IPCA, the main consumer price indicator, the BNDES. In the 12 months to December, the tranche of accumulated a variation of 5.9%, above the target of earmarked loans increased by 27.5%, while the stock of 4.5% established by the Brazilian monetary authorities. loans with nonearmarked increased by 17.1%, with In the same period, agricultural prices in the wholesale particular emphasis on the loans divided individuals, which segment increased by 25%, significantly higher than the saw an increase of 18.8%, higher than the expansion in prices in industry which rose by 10%, reflecting corporate loans, which rose by 15.4% over the same commodity price dynamics in the international market. period. With this, the ratio of lending to GDP reached an In response to the acceleration in prices, at the historic level of 46.6%. beginning of December Brazilian Central Bank announced an increase in the compulsory deposit The increase in family indebtedness has not significantly requirement, while maintaining the basic interest rate at altered the commitment of monthly incomes to the paying 10.75% a year. However, in its first meeting in 2011, down of debt and interest, because of the simultaneous with the objective of continuing the process of adjusting increase in incomes, the lengthening of debt terms and the the economy, Copom decided to increase the base rate drop in the level of interest rates charged to the end- by 50 basis points, from 10.75% to 11.25% a year. consumer. With this, the rate of bad debts continue fall. At the end of December, the level of bad debts in the In 2010, the trade balance performed positively, ending company segment amounted to 3.6%, while for private the year with a surplus of US$ 19.5 billion. Exports and individuals it was at its lowest rate for eight years, at 5.7%. imports grew, respectively, by 32% and 43% compared to 2009. Although imports grew more strongly, what In general, the strength of domestic demand and the sustained the trade surplus was the increase in average financial system continued to play a fundamental role in export prices, strongly influenced by the rise in sustaining Brazil’s economic growth, despite the commodity prices. uncertainties about the recovery in the global economy. The maintenance of good macroeconomic fundamentals in Brazil will play an important part in ensuring the sustainability of this cycle of economic growth.
ECONOMIC-FINANCIAL INDICES 4T10 3T10 4T09 COUNTRY RISK (EMBI) 189 206 197 EXCHANGE RATE (R$/US$ final) 1.666 1.694 1.741 IPCA (over 12 months) 5.91% 4.70% 4.31% Selic - target (P.a.) 10.75% 10.75% 8.75% CDI(1) 2.57% 2.61% 2.09% Ibovespa (in points/close) 69,305 69,430 68,588
(1)Effective rate for the quarter
85 20102010 AnnualAnnual ReportReport SantanderSantander OrganisationalAtivos Intangíveis Profile
The year 2010 consolidated the expansion of the retail network and saw a significant increase in the customer base.
86 Performance of the businesses
87 2010 Annual Report Santander Performance of the businesses
The year of recovery
The favorable economic environment and investment in new processes and products have boosted the performance of our business.
In 2010, the volume of business in credit, deposits and rose 22% to R$ 38.3 billion. Large corporate loans customer funds, including investment funds, reached R$ increased 14.6% to R$ 44.3 billion. 425.1 billion, an increase of 12.5% over the year. Santander´s total loan portfolio amounted to R$ 160.5 Funding from clients, including investment funds, totaled billion at the end of the period, a 16% increase over the R$ 264.5 billion, an increase of 10.5%. One of the previous financial year. highlights of the period was the savings accounts, which increased by 20.2% to R$ 30.3 billion. Investment funds Loans to individuals totaled R$ 50.9 billion, an increase of registered an increase of 13.1% compared to 2009. Time 18% over the previous year. The small and medium deposits recorded a variation of -9%. enterprise portfolio, one of the bank´s priorities in 2010,
88 A differentiated strategy
Segmentation
Business Units
Third Party Asset Global Wholesale Commercial Bank Management and Bank Insurance
Business Focus
Individual and Corporate Global Corporate Third Party Asset Customers (except global Customers and Treasury Management and corporate customers) Activities Insurance
Individual Customers Corporate Customers Private: customers with assets of above R$ 1 Global Corporate Customers million Corporate: Gross annual income greater Van Gogh: customers with monthly than R$ 250 million income of R$ 4,000 or more Companies:Gross annual income Especial: customers with monthly between R$ 30 and R$ 250 million income of R$ 1,200 – R$ 4,000 Small and medium enterprises: Clássico: customers with Gross annual income up to monthly income of less R$ 30 million than R$ 1,200
Retail
At Santander, business is divided into three major segments The year 2010 consolidated the expansion of the retail - commercial banking, wholesale banking and third party segment and marked a significant growth in the bank´s asset management and insurance. This model is based on individual and corporate client base. We opened 661,000 a differentiated customer service, one of the highlights of new accounts over the year, bringing the total to over our operations in Brazil. Operations are reinforced by 10.9 million, concluded important stages in the integration increasing synergies among the teams, enabling us to offer process and launched new products, services and the best solutions and to promote the customization of functions, always aiming to improve the quality of our products and services in accordance with the different customer service and to strengthen customer relations. profiles and needs of our customers. Today, Santander is a structured bank eager to face new challenges. We are present in 863 Brazilian towns and Santander had cities and return significant results in all areas of retail banking. We ended 2010 with 11.5 million credit cards million 10.9 sold and R$ 12.1 billion in housing loan operations. The active account holders in 2010 asset management sector raised R$ 9.3 billion net in funds and a further R$ 5.2 billion were captured in pension funds. The total amount of Santander´s credit portfolio The growth of the bank´s business was boosted by stood at R$ 160.5 billion at the important initiatives put into practice over the period. New end of 2010. funding fro products were launched, many of which were new to the clients, including investment market, such as Santander Conta Integrada (details on funds, totaled R$ 264.5 billion Page 93) and the Capital de Giro campaign, which rewards customers that effect their installament payments on time.
89 2010 Annual Report Santander Performance of the businesses
Biger and better: we opened 110 new branches in 2010 and invested in staff training activities
We also invested in professional staff training programs and strengthened the bank´s business by expanding the product portfolio, focusing on the profile of each customer and the segmentation of customer service. Furthermore, we created and restructured certain areas and improved internal processes, as a means of ensuring the best opportunities for our stakeholders.
Network’s Expansion Individual’s loans Santander opened 110 branches at Brazil in 2010, a result of a well-planned and successful network expansion plan, put Individual’s loans rose 18% in 2010 and ended the period into motion in April of the same year. This process was an accounting for 32% of Santander´s credit portfolio, with important part of Santander´s strategy, in that it managed to a total of R$ 50.9 billion. Our best-performing products set up an independent structure parallel to the integration were payroll loans, housing loans and credit cards. process, dedicated to the new branches. The individual loan default rate also improved significantly. Around 1,000 people were hired to work for the network. All This behavior is a result of activities we promoted in the the managerial positions were filled by employees promoted area of financial education and of the wide range of internally. In all, these associates were given 64,000 hours of products on offer, carried out in accordance with the training via programs targeting the quality of customer profile and the needs of the customer. FS16 service to the profitability of operations, meaning an average of 64 hours of training per employee. LA10 The segment also boasts a wide range of products from revolving credit lines, the most noteworthy of which are Santander Master and pre-approved personal credit lines, which are easy to hire and may be applied for via the various customer service channels.
90 Cards Conta Integrada (Integrated The credit card segment registered a growth in turn over of Account): innovation for small 17.5% and reached the amount of R$ 116.3 billion. and medium enterprises Revenue from commissions rose by around 24%. Another important aspect of 2010 was the launch The total volume of the credit card portfolio for the period of Santander Conta Integrada, an innovative financial increased by 27% and amounted to R$ 11.1 billion. solution for small and medium enterprises and which marked the arrival of the bank in the acquiring This growth was boosted by the notable achievements market. In partnership with GetNet, the bank began made over the year, highlighted by the technological to accredit commercial establishments and capture integration that enabled all Santander and Banco Real and process transactions involving cards of the Visa cards to be processed under the same platform. At the and Mastercard brands, in addition to enabling time, the incorporation of 4.6 million Banco Real cards was customers to centralize sales credits in a corporate one of the biggest operations of its kind ever carried out in account. The bank thereby became the only financial Brazil and the biggest undertaken by Santander Group. institution in the country to unite credit card This resulted in the bank attaining higher levels of transaction processing services with financial services. customer service and cost efficiency, as the use of Another differentiating factor is that the new product a third-party platform became unnecessary. features transmission equipment which can be connected both on a dialed line and on broadband, The performance of the card business was also anchored generating savings and agility for customers. on the strategy of the segmentation and strengthening of customer relations, in a way that the products on offer fully Santander Conta Integrada will be a key factor in meet the different profiles and needs of this customers. the expansion and structure of our customer base. Non-account holder customers were also offered a more 104,202 establishments were accredited in the first segmented model of approach, focused on consumer year of operations alone, generating R$ 1,989.6 behavior. A better understanding of what leads people to million in turn over. choose a certain card enabled us to increase our customer base by 18.3%.
Payroll loans
The payroll loan portfolio totaled R$ 13.8 billion for the year, a growth of 36.9% compared to 2009. R$ 9.6 billion of this amount was generated from our own portfolio and R$ 4.2 billion from portfolios assigned by other banks. The segment serves account holders and non-account holders from all sectors beneficiaries (worker from the public and private sectors and social security retired). The payroll loan portfolio comprised 1.4 million agreements by the close of 2010. The growth in this area is a reflection of our wide-ranging customer service and of an aggressive business strategy, put into practice over the year in a responsible and efficient manner.
The credit card portfolio amounted to R$ 11.1 billion in 2010, 27% up on 2009
91 2010 Annual Report Santander Performance of the businesses
Housing Loans
Santander is active throughout the value chain of this sector, financing commercial Growth of individual customers and residential projects drawn up by construction companies and developers, (in R$ billion) participating in more structured construction operations or in the acquisition of businesses and offering housing loans to customers looking for credit to purchase 63% or build their own residence at our branch network. Furthermore, we have a sales team working directly with realtors and real estate agencies, and a site dedicated 2.7 to the purchase and sale of property, Webcasas (www.webcasas.com.br).
The bank´s loan portfolio stands at R$ 12.1 billion. Of the total disbursed, R$ 6.7
billion was loaned to individual customers and R$ 5.4 billion to corporate 1.7 customers. A further R$ 7.5 billion has been dealt and will be disburse in accordance with the construction’s schedule. We have a portfolio of 70,000 individual customers and 750 enterprises.
According to data released by the Central Bank in November, Santander accounts for around 8% of the Brazilian market in this sector.
2009 2010 The performance in 2010 was also positively influenced by a combination of factors that kept the housing loan market healthy. These include the favorable economic scenario, improvements to legal regulations (chattel mortgage) – bringing the banks back to the sector -, the extension of collection periods for Growth on the origination financial institutions, a young population and the enormous housing deficit of through corporate customers almost 5.5 million residences. Added to this is the federal government program to (in R$ billion) promote affordable housing (Minha Casa, Minha Vida), which helped capitalize all 44% these factors.
In light of this scenario, the biggest challenge posed by the sector was to equate 6.4 the vertiginous growth of the market with its capacity for delivery and execution to individual and corporate customers. 4.4
This positive performance is also due to our strategy of giving preference to long-term relations and the association of customers. We work together with several areas of the bank to further improve our internal processes and to be able to offer our customers more agile and efficient services. We also provide frequent training activities for our sales teams on our products, which, due to the growth of the Brazilian middle class over the past few years, have become more accessible to a large number of families dreaming of owning their own house. 2009 2010
Composition of the portfolio Composition of the portfolio in numbers of individual and corporate contracts (Individuals and Companies)
Individual Corporate Customer Customer 55% 1%
Individual Customer Corporate 99% Customer 45%
92 Consumer finance We may say we were the first bank in the country to offer housing loans with rates set in advance; the first to offer Consumer finance posted a growth of 7% and ended credit lines with 30 year payback periods; and the first to the period with a balance of R$ 26.9 billion as of deal with home-equity. Furthermore, we have created December 2010. The result confirms the upward trend Webcasas, a site dedicated to the purchase, sale and seen in the last quarter of 2009 and reflects the financing of properties, and which features around 80,000 review of the portfolio business model, which began offers, 500 partner realtors and a public that is growing to prioritize profitability over market share and paved every day and bringing more business to the bank. the way for safe and steady growth in 2010.
We hold a considerable market share in the corporate sector, Under the management of Aymoré Financiamentos, as we created an efficient model of hiring and assessing the which was renamed Santander Financiamentos in progress of works and projects, the purpose of which is to December 2010, the segment invested in the grant the greatest possible number of individual investor technological development of products and solutions, housing loans at the time the venture is delivered. in end customer service and in cost control over the course of the year. Composed of 2.3 million active Housing loan platforms were also strategically distributed clients and 25,000 intermediate customers, most of around the branch network, as a means of helping which are vehicle dealerships, the consumer finance managers to sell the product. An incentive campaign aimed operation accounts for 17% of the bank´s total at these professionals and entitled “Fez, Levou” (Do and loan portfolio. taked) was launched in 2010, whereby the managers are rewarded for business volume generated. The result was a Operations continue to be focused on vehicle greater number of managers involved in the housing loan financing, an area which accounts for 84% of business. business, but Santander has also excelled in sectors including tourism and furniture loans for classes A and In addition, we created the program “Mudança de Patamar” B. Furthermore, an important part of the consumer (Changing the level), in partnership with the risk, technology, finance operation is WebMotors, the leading site in operations and legal departments, among others, whereby a the automobile sector with a monthly average of 9 schedule of activities was planned and executed jointly, million individual users. aiming to modernize and speed up production and to eliminate red tape. The objective for 2011 is to proceed with Other changes put into effect in 2010 were the the program and to achieve the target of concluding a new geographical distribution of the sales team, concession process in seven working days. the modernization of the credit admission, collection and recovery service, the handling and auction of With regard to new products, the bank launched a line of assets and the creation of a specific credit committee housing credit for individual customers called “Construção for dealerships. Fácil” (Simple Construction), aimed at the construction or conclusion of residences. The loan covers up to 100% of the Plans for 2011 include an increase in the offer of cost of the construction, limited to 75% of the value of the differentiated products and services by means of finished property. cross-sale activities. The idea is to work together with the commercial bank and to offer integrated packages An outside channel also contributed to the generation of and solutions to customers. new business. This is a sales force made up of 30 specialists dedicated to speeding up the hiring process within the real estate agencies and thereby facilitating the work of the realtor. The objective for 2011 is to expand this channel, currently based in São Paulo and Campinas, to the major Brazilian cities.
Consumer financing amounted to R$ 26.9 billion in 2010, a 7% increase in relation to 2009. The consumer finance operation corresponds to 41% of the individual credit portfolio and 17% of the bank´s total credit portfolio
93 2010 Annual Report Santander Performance of the businesses
Business
The Santander business area, a segment dedicated to which covers businesses with revenue of up to R$ 1 dealing with small and medium enterprises with annual million. In addition to the implementation of this new revenue of up to R$ 30 million, ended the year with a strategy, there was also greater interaction with the risk, significant increase in the volume of assets, which reached business management and marketing teams, and with the R$ 25.2 billion. The number of customers also rose business comercial team in particular. considerably, from 479,000 to 533,000. One of the most noteworthy achievements in the area in This performance reflects the good portfolio management 2010 was the launch of Santander Conta Integrada, a and the comfortable levels of liquidity and default present service which is totally new to the market and which marks in the Brazilian economy, which favored the expansion of the arrival of the bank in the acquiring market. This is a credit. With regard to management, the ever-present solution aimed at corporate customers composed of strategy of focusing on customer relations led to the hiring financial products and services offered by the bank, in of new commercial managers, the promotion of new addition to services involving the affiliation and products and improved results. accreditation of commercial establishments for the acceptance of credit and/or debit cards. The launch of the Capital de Giro (Working Capital) campaign in July 2010 also boosted the growth of the Santander Conta Integrada gives the establishment a segment in the second semester. The product rewards corporate checking account with a centralized address for customers that pay their loan installments on the due date, the Visa and MasterCard brands, a P.O.S. to receive making the portfolio healthier in terms of default. transactions involving the two brands and a wide range of regional cards and other benefits, such as a reduction of In 2010, the business area structured the customer service up to 100% in the current account services package and teams with the aim of dealing with small and medium the possibility of advance receivables at the P.O.S. enterprises in a segmented manner. Three sub segments were created and customers began to be dealt with Over 100,000 establishments have been accredited since it exclusively. B2+, which covers businesses with revenue of was launched in March 2010. The relationship with these R$ 6 million to R$ 30 million per year; B2, those with merchants generates potential for an expressive amount of revenue of between 1 million and R$ 6 million; and B1, loan and financing operations in coming years.
Santander´s business area is composed of 533,000 customers from small and medium enterprises with revenue of up to R$ 30 million a year
94 Government & Institutions
This segment has a specialized team to deal with two types Activity in the private sector was highlighted by our universes: governments (federal, state and municipal) and operations in the field of health, involving payrolls, services, private institutions, notably service providers from the health loans, among others. The arrival of health institutions in and education sectors and large non-profit entities. the capitals market, in addition to the ongoing consolidation process has resulted in this segment In addition to the dedicated business team, the Governemts undergoing important transformations in governance, and & Institutions segment is backed by other areas of the in light of this scenario, we have positioned ourselves as a bank, striving for the best customer service and an integral specialized, institution for attracting new business. approach to these customers, among which are the credit, legal, payroll, asset management and GB&M departments In addition to maintaining close relations with health and an important partnership with the retail network. institutions, the bank maps the opportunities of the entire value chain, employing an approach which targets suppliers, Due to the need for a specific regulatory framework, both doctors and other service providers from the sector. for governments and for health, education and non-profit making entities, this specialized customer service structure The plan for 2011 is to continue the consolidation of our is a market differential and a key factor for the position with governments and the health sector, with a identification of new business opportunities and for view to new opportunities including PPPs (Private Public attracting loyal customers. With this in mind, the bank is Partnerships), in which Santander has experience in Spain, also investing in staff training for the segment. in addition to promoting closer relationships with teaching and educational institutions, particularly high schools, With regard to governmental institutions in 2010, we taking advantage of synergies and the knowledge we have strengthened our market position, principally with regard gained from the experience with Santander Universidades to the payroll, tax collection and pension fund institutes to offer new products and services. asset management services. With regard to the latter, we can point to the positive returns on our funds in the past and the special relationship we have in the sector.
Large-scale operations
In 2010, we began certain operations that were developed and approved at the end of 2009, in partnership with GB&M, with Santander participating as one of the financers of two important projects involving the Brazilian Armed Forces: the acquistion of five French submarines involving a global bank financing consortium of 4.3 billion euros, and 50 EC-725 military helicopters, also from France, at a cost of around 1.7 billion euros. Both projects involved the constitution of syndicates to finance the purchase, and the two transactions involved four main banks, one of which was Santander.
95 2010 Annual Report Santander Performance of the businesses
Soybeans and cattle raising: two pressing issues
Santander is a member of the board of directors of the Round Table on Responsible Soy Association (RTRS), an international entity comprising the key stakeholders of the soy value chain to promote the responsible production of soybeans. They include industries, wholesalers, retailers, financial institutions and NGOs, all of whom meet up to discuss and divulge the best farming practices and the impacts on the environment, particulary in connection with controversial issues such as the deforestation of the rain forest on the Amazon region. SO5
The association developed a standard to guide and Agribusiness promote the sustainable farming of soybeans, tested throughout 2010 and implemented in 2011. This is a The agribusiness loan portfolio, a segment in which we process for the certification of producers that meet rank among the market leaders, ended the year with a responsible farming requirements, including issues volume of R$ 4.8 billion in funds, distributed among more related to plantations and forced and child labor. In than 45,000 customers. 2011, the first shipments of soybeans bearing the RTRS Green Seal will arrive in Europe. HR6 and HR7 Santander possesses complete lines to meet the needs of rural producers, from farming costs, Cédula de Produto Santander is also part of the Grupo de Trabalho Rural (CPR) and Fun Café funds, to products designed for da Pecuária Sustentável (GTPS), a forum composed investments and which guarantee the transfer of all the of representatives from the industry, cattle-raising BNDES (the National Bank for Economic and Social associations, retailers, banks, NGOs, research centers Development) farming lines. The bank´s commitment and universities. Inspired by the soy group, the mission to this market is also reflected in the offer of insurance of the association is to engage and mobilize cattle against risks of a climatic nature, including Colheita raisers to adopt the good practices in connection Protegida (protected crop), Canavial Incêndio (sugarcane with the activity. SO5 plantation fire protection) and Granizo Frutas (hail on fruit production). EC2
96 Chinese university students took part in Top Brasil: over 600 people have benefitted from the international mobility program
Univerisities SO1
Santander Universidades is a global division whose main University) and Guia de Estudante (Studant guide) prizes. operations include supporting public and private 5,271 academic projects were enrolled over the year, an universities by means of partnerships in academic projects increase of 130% compared to 2009, and 516 participating and offering specialized products and services. The universities compared to 241 the previous year. This result is segment also offers scholarships for university associates the perfect response to Santander´s efforts at promoting (professors, students and administrative staff), in addition entrepreneurship in the country. to sharing the management of 355 branches located on Brazilian university facilities. Santander Universidades has granted over 20,200 scholarships since 2005. The results achieved from the We renewed 50 covenants in 2010, among them the investment in the graduation of university students shows Universidade de São Paulo (USP) and the Universidade that education can also generate good business. This Estadual de Campinas (UNICAMP) until 2015, we created audience forms the bank´s most qualifed customer base five international mobility programs – Top España, Top UK, and comprises a group which is characterized by high Top USA, Top China and Top Brasil –, besides conducting loyalty capacity. Of all the university students that open an the Luso-Brazilian Scholarship Program. account with Santander at 18 years of age, 40% become Van Gogh customers 10 years later and enjoy a complete Another important achievement in the period was the delivery and differentiated offer of products and services. of 100 scholarships from the Programa Fórmula Santander, to the amount of 5,000 euros each. A further 200 scholarships Santander Brasil ended the year 2010 with 1.8 million are due to be delivered in 2011. The program was launched in account holders among university students and professors, Bahrein in 2010 and will benefit 300 university students from and holds over 400 of the 933 global covenants executed Brazil, Spain and the United Kingdom. Each country may grant by the program. 100 scholarships and the students selected choose from 900 universities on five continents. Which together beneficiated Over 700 international mobility programs, 620 domestic more than 600 universities students, teachers and dean. scholarships and 50,000 licenses for private Spanish, English and Mandarin Chinese courses have been The international mobility scholarships have been extended earmarked for 2011. to other institutions other than the state universities, including the São Paulo State Military Police, which was Apart from the scholarships, we have also made presented with 30 scholarships for the benefit of its investments in the technological upgrading of the officers. The employees went to Salamanca for a three- universities in order to enable them to operate with TUI week immersion course in the Spanish language, with the (Intelligent University Card). This is a safe and agile aim of preparing for the 2014 World Cup. In return they management tool with the capacity to integrate academic will be committed to working as multiplying agents on and financial functions by means of chip technology that their return to Brazil. Another 30 scholarships were given enables the storage, exchange and processing of to the Army, the Navy and the Air Force. Each branch of information. the Armed Forces received 10 scholarships at the University of Salamanca (Spain). The Universidades segment plans to invest 600 million euros over the next five years. Brazil will account for 120 The segment also reformulated the Santander Universidades’s million of this amount. Prizes, incorporating the Universidade Solidária (Solidary
97 2010 Annual Report Santander Performance of the businesses
Microcredit
Santander is a leading player in the microcredit segment in financial health of the venture and an assessment of the Brazil. In terms of business volume, the bank ranks first best proposals for the renegotiation of the debt with the among private banks and second among all Brazilian bank. The meeting also serves to reinforce the concepts of banking institutions. In 2010, the area registered its best financial education and business management.FS13 and FS16 performance since 2002, the year of its creation at Banco Real, on closing 150,000 agreements and disbursing R$ 280 The Santander microcredit program is active in 11 states and million in loans and generating around R$ 850 million. This over 600 Brazilian towns and cities. Over 200,000 amount was channeled into productive and guided entrepreneurs have participated in the program since it was microcredit lines aimed at supporting entrepreneurship and created and the portfolio currently comprises 93,000 active the generation of income and employment. FS13 customers. The purpose of operating in deprived areas is to offer credit to communities that are not served by the bank, The 2010 performance is the result of the organization´s opening new opportunities and prospects for those who efforts at promoting social mobility in Brazil, in addition to have never had access to credit. The idea is to promote a macroeconomic scenario that enabled millions of closer elations with these communities by conducting concrete Brazilians to climb the social pyramid. Another activities aimed at the development of all involved. FS13 fundamental factor for the outstanding results in the period were the various successful entrepreneurship A practical example of these activities can be observed in the initiatives, which were directly mirrored in the volume and Complexo do Alemão in Rio de Janeiro, where Santander quality of the portfolio. Around 97% of Santander opened in 2010 the first banking branch ever on this microcredit customers make their installment payments on community. The branch is specifically designed to deal with time, a factor that corroborates the bank´s strategy of microcredit customers and currently has 600 entrepreneurs expanding the segment and looking to the future in an registered with the program. FS13 increasingly optimistic manner. The bank launched a brochure on financial education, In order to maintain the quality of the portfolio and the citizenship and the environment, and created a new line of and the low default rate, the area of microcredit developed credit called “Investimento Fixo” (Fixed Asset Investments), specific activities in 2010, the most noteworthy of which which aims to meet the parallel needs of the customer´s were the initiatives on financial education and customer venture, such as the purchase of equipment such as relations. One example is the “Café de Recuperação” refrigerators and microwave ovens. In 2011, the segment Breakfast recovery), whereby a bank team composed of the intends to expand its relationship with entrepreneurs with manager, a credit agent and a market analyst convene with the offer and development of new products, such as the non-performing customer to discuss the most suitable micro-insurance. alternatives for leveraging the business and honoring its commitments. The meeting involves an analysis of the
98 Private Banking
The private banking segment offers financial consulting and This integrated vision is based on guidelines for the asset management services to customers with more than R$ domestic and international macro-economic scenario, 3 million in net assets/liabilities invested in the bank. produced by the strategic area of the market, which Santander has a complete line of products and services for transforms the economic trends into investment this type of clients, strengthened by the global scale of the opportunities. Furthermore, the executives began to enjoy organization, and segments its customers in accordance the support of an area specializing in asset allocation, with the amount invested and the needs of each profile. which analyzes the investments of each customer and Given the characteristics of its customers, the private recommends the best strategy, always taking into account banking segment has become a key player in the leverage the risk profile of each investor. Another differential made of new business in the other segments of the bank. available to customers in 2010 was the equity advisory service, which offers legal solutions to assist customers in The scenario of growth and economic stability of the the organization, generation and transmission of their Brazilian market has resulted in a high number of liquidity equity. transactions (IPOs and mergers and acquisitions), injecting funds into the private individual investor market. This These activities enabled the private banking segment to positive scenario is expected to continue in 2011, leading achieve a 23% growth in volume of assets, well above the the bank to focus on investments in the private banking 15% market average for the period. segment, aimed at growth and increased market share. Thus, in 2010 customers began to be segmented in three The private banking segment currently has offices in five different bands: from R$ 3 million to R$ 10 million, from state capitals (São Paulo, Rio de Janeiro, Belo Horizonte, R$ 10 million to R$ 50 million and above R$ 50 million. Curitiba and Porto Alegre), in addition to employees assigned to Santander operations in Salvador, São José dos The year 2010 also marked the structuring of the team to Campos, Recife, São José do Rio Preto and Campinas. ensure a guided and more dynamic customer service, with a focus on customer relations and not on the product. The executives that manage these accounts are more than mere asset managers and operate with an integrated and specialized vision of the business to guarantee the best strategies and services.
Private banking assets grew 23% in 2010
Employees from the Complexo do Alemão branch: new opportunities
99 2010 Annual Report Santander Performance of the businesses
Third Party Asset Management and Insurance
Asset Management
Santander Asset Management, as the global entity The infrastructure activity fund was another important responsible for third party asset management, ended the launch in the area during the period. Inspired by the year 2010 with assets under management of 130 billion increase in internal demand and investments in euros. The business operates in nine countries (Brazil, infrastructure – partly due to the PAC – Programa de Argentina, Chile, Colombia, Mexico, Puerto Rico, Portugal, Aceleração do Crescimento (Growth aceleration Program) England and Spain). and to the announcement that Brazil is to host the 2014 World Cup and the 2016 Olympic Games – we believe this We are the fifth largest asset manager in Brazil, with assets fund has great potential. under management of R$ 109.8 billion(1), which accounts for 36% of the volume managed by Santander Asset Another initiative was the creation of the Fundo de Renda Management in the world. Fixa Grande Prêmio. This launch is directly linked to the bank´s investments in sports marketing and is highlighted The Asset Management business has a portfolio of by the awarding of prizes associated with Formula 1 and 725,000 customers and handles 470 investment funds. teams sponsored by the institution, such as tickets to Excellence in asset management, principles of good Grand Prixs all over the world. governance and risk and compliance control led the risk classification agency Standard & Poor’s to reaffirm the The funds generated by the asset management business maximum classification of AMP-1 to Santander Brasil Asset were acknowledged several times in 2010, awarded by Management. According to the agency, this grading is also magazines including Guia Exame, Valor Investe and a result of the healthy business profile, of the positive Investidor Institucional. competitive status and of the balanced mix of products we offer our customers, among other attributes. Santander Brasil Asset Management is the market leader in protected capital funds in Brazil. An example is the creation of the first metals commodities fund in the country, called Fundo Capital Protegido FI Commodities Metálicas, a commodities basket (copper, nickel and zinc), providing our customers with a (1) Source: Anbima. Data from Decemeber 2010. In accordance with accounting diversification of assets. criteria, the total of assets under management is R$ 111.3 billion.
Social and environmental factors
In July 2010, Santander Asset Management adopted a pioneering policy in the area of investments. The fund manager began using social and environmental criteria in the composition of fixed income and headge fund portfolios in Brazil. The idea is the same as that used to set up the Ethical Fund, the first shares fund in Brazil to reward companies that adopt sustainable practices - launched by Banco Real in 2001. In this way, the same criteria used previously in the purchase of shares are now used for the allocation of corporate debt securities such as debentures and other private credit assets. FS11
100 Insurance, Pension Funds and Capitalização(*)
Revenue from insurance increased 25% in 2010(1), well above Together, insurance and pension funds rank 4th on the the market average of 14.6%(1) for the period. This has been the Vida e Previdência (Life and Pension) market and featured trend for the last five years and was fundamental in improving in Valor 1000 in 2010, a magazine which reports on the the position of the business in the market. In 2005, the biggest companies in the sector in Brazil. Santander insurance business ranked 22nd in the country and had risen to 10th by 2010(1). At the end of the year this business Santander lost market share in the area of capitalização was considered to be one of the biggest insurance companies in (Saving Bonds). The contribution of this propduct to the Brazil, reflecting the organic growth achieved through the sale portfolio fell 3.44%(1), whereas the product as a whole of insurances policies. grew 16.6%(1). In order to reverse this scenario, the area altered its strategy in 2010 and began selling products on The business is the market leader in the sale of Seguro a monthly payback scheme, thereby generating more Prestamista, but the other modes (life insurance, financial profitability and offering smaller tikets saving bonds to protection, personal accident, residential housing) the customers. contributed to the good performance of the bank. 6.7 million insurance policies were sold in 2010. Revenue from insurance, pension funds and capitalização (Saving Bonds) in 2010 totaled R$ 7.6 billion. Capitalização Pension fund business also registered impressive results accounted for R$ 881 million, followed by R$ 1.8 billion in over the past few years (2008-2010), a period in which insurance premiums and R$ 4.9 billion in pension revenue rose 175%. In 2010, the volume of reserves grew fund contributions. 26.1%, whilst the market increased by 22.5%(2). Among the news for 2011 is that Santander Financiamentos will begin selling insurance. This department is expected to play a leading role in the growth of the business in Brazil. (*)Capitalização: long-term savings with prizes. (1) Accumulated result up until December 2010, source Susep. (2) Accumulated result up until December 2010, source Fenaprevi.
101 2010 Annual Report Santander Performance of the businesses
The entire wholesale area returned positive results in 2010
Wholesale
In 2010, Santander strengthened its position among Companies wholesale banks in Brazil and continued to invest in the creation of an increasingly healthy institution focused on The companies segment serves local and multinational improved customer relations. The recovery of the economy businesses with annual revenue ranging from R$ 30 million in the period helped us to achieve positive results in all to R$ 250 million. The favorable economic scenario and areas of the segment (business, corporate and global improved credit facilities for this market helped the area banking and markets), despite the increase in competition, end the year with significant growth, reaching R$ principally due to the return of the foreign banks. 12 billion in assets.
This scenario led to a reduction in spreads and caused The performance of the portfolio is also due to the certain activities to become less profitable, such as treasury activation of a significant number of customers, reflecting business and GTB (Global Transaction Banking), but the the recovery of businesses´ investment plans and an credit portfolio remained steady and registered a growth of increase in the demand for products such as working 13% compared to 2009. capital credit lines with a 12-month collection period. The segment had 5,100 active customers at the end of The default rate in the wholesale area also improved 2010, compared to 4,090 in 2009. significantly. Greater competitiveness among banks led customers to seek out lower market rates and to attempt The period also marked the strengthening of our teams to extend their debts in order to ease pressure on cash and the risk and provision management processes, in flow. In light of the same, Santander maintained an addition to the partnership with the risk department to aggressive stance in relation to the concession of credit, guarantee sustainable growth in coming years. We expect always considering the risk factor whilst making the most to continue to attract customers in 2011 by offering a of a complete portfolio of products and the advantage of range of increasingly specialized products. being a bank with global capabilities and a well-established presence in the Brazilian market.
102 Promoting sustainable business FS1 and FS8
In 2010, Santander created the area of Sustainable Business Development with a view to identifying, supporting and promoting projects that include sustainability in their operations. This new area serves the wholesale segment and the Santander Financiamentos, Private Banking and Asset Management departments.
In addition to making the financing of projects feasible, the aim of the work carried out by the team is to boost the bank´s ability to articulate, promoting the connecting of people and ideas that add value to the entire business production chain. An example of this is the partnership Santander have with Tecverde, a Corporate business based in Curitiba that imported technology from Germany in connection with ecological buildings The Santander corporate segment, a portfolio composed - the so-called wood-frame houses. of businesses with annual revenue greater than R$ 250 million, ended the year with R$ 11.5 billion in assets. These houses can be built in just 90 days and feature certain differentiating characteristics compared to This portfolio comprises around 700 economic groups, conventional buildings, such as energy saving in the and the segment combines the hiring of loans and financing, heating of water and the generation of 80% less principally lines of working capital, foreign trade and waste. Thus, we became the first bank to offer a structured operations in the capitals market, such as the issue differentiated line of credit for sustainable wood-frame of debentures, shares, bonuses abroad and fixed income buildings. operations. Furthermore, the corporate segment operates with investment bank products such as mergers and Santander also acted as a partner in the implementation acquisitions, and banking services such as cash management. of a project designed for the operating and energy efficiency of the Hotel Windsor Copacabana, the In 2010, the area was involved in specialized and one-off former Le Méridien, in Rio de Janeiro. With the support operations which brought a significant volume of business of the bank, the building is being renovated using to the bank, highlighted by capitals market issues and sustainable methods, and all the electrical, hydraulic, structured foreign trade operations. telecommunications, climate control and security systems have been interconnected and attached The area is expected to expand in 2011, the result of an to a technological system. increased demand for specialized products in the capitals market. In addition to these projects, the area has been working on the development of initiatives aimed at low carbon economy, retrofit and the treatment of waste and effluents. As far as Santander is concerned, backing sustainable business means less risks for the customer and the institution, as it improves the efficiency of the organization, besides generating a positve impact on society and the environment.
Santander created the site www.conexoesdeideias.com.br to divulge the group´s commitment to sustainable entrepreneurship. The proposal is to discuss and reflect upon the value of the ideas and the way in which the same might make a difference, besides sharing inspirational projects and promoting a chain of new business opportunities.
103 2010 Annual Report Santander Performance of the businesses
Santander Global Banking & Markets (GB&M)
The foreign banks that underwent a restructuring process in As a leading international bank with a well-established 2010 after the international financial crisis strengthened their presence in the Brazilian market, Santander is able to offer position in Brazil, generating a highly competitive scenario. companies the best business and a wide range of solutions, The healthy economic environment also led companies to as it possesses a complete portfolio of specialized products - require more capital and to bolster their cash flow by means a huge advantage in a highly competitive market. of sales and loans, reducing investments. In 2010, GB&M participated in the most important and This fall in the demand for investments may also be explained profitable structured transactions, another factor that by the available and idle manufacturing capacity of many of enhanced the positive performance during the period. We these businesses, which restructured, but were forced to expect 2011 to be a better year in term of investments, due contain production due to the 2008 financial downturn. to the productive capacity of many businesses having reached Moreover, the general elections held in 2010 contributed to their limit. Economic growth should also make a healthy this more cautious behavior on the part of investors, which contribution in this sense, with the expansion of the middle preferred not to invest heavily before the establishment class and the consequent increase in the demand for products. of the new government. Investments in infrastructure should recover in 2011 as a In light of the above, banking activity in the Santander Global result of the country´s needs, particularly in light of the 2014 Banking & Markets (GB&M) segment, an area that serves World Cup and the 2016 Olympic Games. global businesses with revenue greater than R$ 250 million, was limited, despite the positive results. From the point of view of the market, GB&M performed well. At the end of 2010, the segment registered growth of 5.2% and over R$ 30 billion in assets.
104 Equities
In an environment marked by lower market volatility, the history of BM&FBovespa. Santander acted as exclusive Santander´s strategy was to use its expertise in the financial advisor to Brisa Auto-Estradas, the biggest assessment of the potential of the allocation of sectorial Portuguese highway operator, in the sale of its stake in the stock to better position the broker´s customers. Brazilian company.
From the capitals market point of view, investors showed Another highlight in the area in 2010 was the restructuring greater selectivity and sensitivity to the price of stocks. of the Brokerage, involving new investments in technology Activitity involving the sale of shares was only intensified with a view to greater proactivity and differentiated after the landmark Petrobras Public Offering of September positioning with the customer, in addition to enhancing 2010. The bank thereby increased sales operations and relations with the private banking and retail areas. ended the year top of the Bloomberg’s shares issuers Santander also hired associates with a distinguished ranking (for the second consecutive year), which covers the reputation in the market to strengthen the bank´s performance of Latin American issuers. coverage of equity research.
Among the most noteworthy operations is the participation The performance of the bank was also marked by the of Santander as one of the global coordinators of the persuit for greater synergies among businesses including Petrobras Public Offers and the two block trades cash equities, equity derivatives, commodities and listed (BM&FBOVESPA auctions) of Companhia de Concessões derivatives, providing customers with better investment Rodoviárias (CCR) – the biggest transactions of their kind in alternatives.
The megacapitalization of Petrobras
Santander took part in the biggest Public Offer in the The considerable demand enabled the company to issue history of the global financial market in September 2,369 billion new ordinary shares (PETR3-ON) at a unit 2010. Together with five other banks, the institution price of R$ 29.65, and 1,901 billion new preferential coordinated the issue of Petrobras stocks in an shares (PETR4) at R$ 26.30 each. operation involving R$ 120.2 billion. Petrobras used the other part of the assets to raise funds The bank played a key role in the development of the for the continuation of its strategic investment plan. complex structure of the offer and in the execution of the business, selling and conducting all the financial As far as Santander is concerned, the experience in consulting services. participating in the biggest Public Offer ever held reinforces its postioning and boosts the growth of its activities in the variable income market.
105 2010 Annual Report Santander Performance of the businesses
Credit Markets Global Transaction Banking
Business in local and international capitals markets Trade finance operations in Brazil recovered in 2010, recorded a growth of 137% in revenue compared to 2009. boosted by the volume of the offer and by extended On the international market, GB&M led the main collection periods for credit lines, recovering part of the operations over the year, such as the issue of bonuses for liquidity the market had lost after the 2008 financial crisis. Telemar, Vale, JBS and Odebrecht, consolidating its position The performance of Santander was once again in the ranking of the corporate Brazilian issuers abroad acknowledged by the market, which for the third year published by Bond Radar. Santander also ranked first in running awarded us the prize for “The Best International international corporate issues, the most noteworthy of Trade Finance Bank in Brazil” and “The Deal of the Year”, which were the issues for Banco Bom Sucesso. both granted by the Trade Finance Magazine.
On the domestic market, the significant growth in revenue Local lending operations followed suit, performing was a reflection of the operations involving the structuring proficiently in terms of the offer of credit lines. However, and allocation of Credit Rights Investment Funds (FIDCs) the activities of trade finance and local lending registered a and the issue of debentures. dip in the demand for credit on the part of companies, generating greater competition among the banks. In the area of project finance, GB&M posted a growth of 54% in revenue compared to the previous year, a result of With regard to local lending, the performace of the bank in the participation in important structured operations and of the grant of housing loans to corporate investors is worthy the diversification of the project portfolio, including sectors of note. Operations grew 27.5% compared to 2009 and such as oil, gas and mining, infrastructure, logistics and reached R$ 10 billion(1). Santander also continued its transport and electrical power. important participation in rural credit, recording an increase of 22% in relation to the previous year and a volume of Important projects were developed, including the around R$ 2 billion. refinancing of a wind park for SIIF Energias do Brasil, the provision of consulting services to Triunfo Participações e Other relevant operations carried out during the period Investimentos at an auction at the Garibaldi hydroelectric included new BNDES on lending, which totaled around R$ plant and to Renova Energia at wind energy auctions. The 3.7 billion. The highlight were the Exim portfolios (Program bank also provided consulting services to the Odebrecht for the Support and Financing of Exports), which group in the operation to finance the payment of the São accounted for R$ 2.2 billion, and Exim Pós-Embarque, with Paulo government for the right of concession to the Rota around R$ 415 million in disbursements. In the case of the das Bandeiras. This was the first financing of an latter, the bank once again performed as well as in infrastructure project on the Brazilian capitals market. FS8 previous years in terms of volume and spread, taking its place among the three biggest players on the market in The year was also extremely positive for the syndicated this type of transaction. lending sector, with the recovery of syndicated lending operations on the international market. Highlights In 2010, the purchase of payroll portfolios involved around included an export financing operation for Embraer R$ 3.7 billion, and activities involving local and and the financing of a guaranteed line for Odebrecht. international lending (trade finance) totaled R$ 59.4 billion in assets.
Cash management activities fared well in service volumes such as collection and settlements. The increased capillarity of the network provided Santander with the characteristics needed for the provision of services to other banking institutions, resulting in the collection portfolio expanding by 163%.
(1) The R$ 10 billion refer to contracted operations, including portfolio balance and amounts payable.
106 Rates Equity Investments
The Rates team provides customers with advisory services This area is responsible for investing Santander funds in on local and international interest risk management, businesses that are registered on or have the potential to currency and inflation. The work also involves accounting be registered on the bank´s customer base. The area for the operations and the impacts on the balance sheet, identifies, reviews and structures investment opportunities taxation in accordance with the product and market in search of attractive returns while offering bank equivalents for the assets in question. customers alternative financial and strategic support.
The business segment responsible for the development and Since the area was created in 2008, over 100 opportunities distribution of treasury products (foreign exchange, fixed in various sectors have been analyzed, resulting in income, onshore and offshore loans and derivatives) ended contributions of R$ 1.15 billion in 2010 and total assets 2010 with a growth of 60% in volume of derivatives sealed under management of R$ 115 billion at the end of the with customers. period. Highlights of operations concluded in 2010 include: participation in the Renova Energia S/A Public Offer The good performance in the area during the period is a involving an investment of R$ 58.6 million; the acquisition reflection of the greater penetration of Rates products in of ownership in Enesa Participações S/A, together with the customer base, of the customization of products in other private equity funds; and the sale of shares issued by accordance with their needs and of a global structure, Kepler Weber S.A., which generated a return of 30% enabling the area to offer differentiated derivatives per year. solutions. The year 2010 saw us head banking syndicates in international interest rate hedge operations for large- scale projects based abroad.
The bank also performed extremely well in operations involving the issue of local debentures and international bonds, in addition to structured issues such as the allocation of Credit Rights Investment Funds.
107 2010 Annual Report Santander Ativos Intangíveis
108 Guilherme Nycholas Carvalho do Vale and Neyvaldo Almeida Santos, employee and client Santander: focus on long-term relationships
Intangible Assets
109 2010 Annual Report Santander Intangible Assets
the BEST OF BOTH WORLDS
ENGAGEMENT OF EMPLOYEES AND THE ENRICHING OF Organizational CULTURE HAS ALREADY BEGUN TO BRING SANTANDER CLOSER TO ITS ASPIRATIONS
The unification of the Santander and Real brands, The formation of Organizational culture evolved in 2010 completed in November 2010, mobilised various areas of and also contributed to strengthening Santander in the the bank from the beginning of integration. During this Brazilian market. The integration with Banco Real brought process, we allocated staff and resources in such a way as with it new prospects and introduced the possibility of the to not alter the routine in the branches, while heavily conception of something genuinely rich for everybody. In investing in the building of an identity which would attributing worth to ideas and respecting differences, in enshrine the values and needs of our various stakeholders searching for the best practices and experiences of both with which we relate. worlds to create a third model, which is stronger, more robust and consistent, Santander believes that it has found On this journey, the concept of “Togetherness” can be seen the best balance between theory and practice, between in practice. With the support and contribution of thousands what is said and what is actually done. The bank also of employees and partners, we show that the way we are believes that this is the way of reaching its aspirations. and the way we do business brings us increasingly closer to our customers, shareholders, suppliers and other partners On this path however, what we do is as important as how and makes us even more equipped to meet their needs. It we do it. Santander wishes to be perceived as a bank with is this that determines and strengthens our brand name, an a close relationship with its customers, shareholders and intangible and strategic asset, capable of generating value employees, a bank with a more human face, made by for all interested parties. people who act in a true and transparent manner, focused on long-term relationships and the practice of its beliefs.
110 A new bank: Fábio Barbosa and Emilio Botín at the event for the unification of the brand names, in November 2010 at the Santander’s Tower
These are the values which should inspire and guide the daily actions of our employees and service providers, translating our mission, commitments and management model of the Organisation.
This is all reflected in how the integration is being conducted since the start of the process: in a conscious and planned manner, with respect for people. Little by little the results are appearing. After the unification of the brands , the name “Real” ceased to exist, but continues to be alive day-to-day at Santander – whether it be in products, services, ideas or sustainability practices. Many of IN 2010, THE INTEGRATION these initiatives have been maintained or incorporated, others improved, and WITH REAL pUT THE CONCEPT some merged with similar products that already existed at Santander. OF “TOGETHERNESS” INTO PRACTICE, INTRODUCING NEW Examples of this are in all areas of the bank, in the Wholesale and Retail PROSPECTS AND POSSIBILITIES segments, and have been disseminated in a consistent manner in 2010. FOR ALL OUR Stakeholders Gradually, all the points of contact with clients have gained the colours and logo of Santander, and our employees had been specially trained to minimise the impact of this and guarantee a good standard of service.
111 2010 Annual Report Santander Intangible Assets
Leadership in 2012 A new way of carrying out The vision of the Santander brand, guided principally by campaigns the link with people and the generation of value for stakeholders, also gained momentum in 2010 with the Various publicity campaigns brought the name of development of dynamics which studies the value triggers Santander to millions of readers, listeners and television of the bank, instruments which improve the understanding viewers in 2010. In March, we launched the platform of our intangible value and permit the efficient management “Let’s Do It Together?”, a concept which was present of various related resources, such as human capital (people, in all the bank’s communications and which proposes a individual knowledge, creativity and skills), relationship new attitude for the way business is done and how we capital (client base and suppliers, for example) Organizational relate to our stakeholders. In addition to insertions on capital (management model, technology, the processes and television and in newspapers and large circulation the systems of production and distribution, among others). magazines, the campaign introduced original solutions into the advertising market. One example of this was To this end, we carried out a diagnosis of our current the day on which the subscribers of Folha de S.Paulo position and defined how we want the institution to be in received a free copy of the Estado de S. Paulo, while 2012. A group of indicators and management tools was the subscribers of Estado de S. Paulo received a free drawn up, and key projects to leverage market value and copy of the Folha de S.Paulo – the same occurred brand value were mapped out. In this regard, the between rival newspapers in other states. confidence of our clients and the excellence of our service feature as essential aspects. In November, the unification of the brands also gave In practical terms, this means that Santander wishes to take rise to a campaign to inform stakeholders about the care of its businesses and be in harmony with the advances visual changes that had been happening at the in the market and society, respecting people and the branches, strengthening our culture and values. To this environment. In 2010, the bank worked to identify the real end, the films “Confidence”, three minutes long and, necessities of its different groups of clients, to then create “Change”, lasting 30 seconds, were produced, both and offer products and services more appropriate to the for television, as well as announcements in newspapers profile of each one. In making a delivery from the and large circulation magazines, and publicity spots on perspective of who receives it, the bank is preparing itself radio stations. to leverage its brand value and make the perception that its stakeholders have of the bank, more tangible. Other campaigns included initiatives such as “Practices in Sustainability” and “Friend of Value”, showing the For the low-income segment, for example, it was perceived public products and services such as the Ferrari Card necessary to change and simplify the language at the and Van Gogh. The Santander Universities program, ATMs, Call Centers and Internet Banking, with the aim of among others, gave rise to the publicity campaign in facilitating the understanding of this group with regard to which motto “the world of university students needs banking services. And this was also carried out with the to turn” was developed based on the images of the bank’s product portfolio. While the high-income segment artist Alex Flemming. FS5 and SO1 has a personalised service, with products created in accordance with what this type of client requires.
R$ 92.8 million IS THE TOTAL THAT SANTANDER HAS SPENT ON TRAINING AND EDUCATION INITIATIVES OF THIS FIGURE, R$ 28.4 million WAS SPENT ON INTEGRATION TRAINING AND R$ 643,000, ON TRAINING IN SUSTAINABILITY MORE THAN 22,700 EMPLOYEES OF THE BANK UNDERWENT THIS TRAINING LA10
112 Global sponsorship
Santander was present at a number of major sporting events that took place in 2010. The Organisation began the sponsorship of Escuderia Ferrari, which has among its drivers the spaniard Fernando Alonso and the Brazilian Felipe Massa, and has continued to be the main sponsor of Copa Santander Libertadores, the most important football competition in Latin America. In this way, the bank has ensured the exposure of its brand names to millions of people in Brazil and the rest of the world, reinforcing its presence at sporting events of great significance. Also in 2010, Santander launched the Ferrari Card, a product which represents a new business opportunity. Another initiative associated the image of the bank with celebrities in the sporting world, such as the partnership with Pelé, the ambassador of Copa Santander Libertadores, who brought the message of Santander to millions of people during the year.
Felipe Massa’s Ferrari took the name of Santander to millions of people round the world
Diversity, a strategic theme
In the year 2010, the theme of Diversity gained momentum To strengthen this commitment, in 2010 Santander in the strategies of the Organisation’s businesses. re-formulated the Committee for Diversity, which now has 24 representatives from various areas of the bank (see This evolution emphasised the importance of the subject for chapter on “Corporate Governance”). For 2011, the object the bank, strengthening Santander’s operational model, is to create instruments which encourage managers to which places the individual at the centre of its business model multiply the theme in their strategies, and from that draw with the objective of inserting the human factor into up a platform of businesses based on the issue of diversity. everything we do. The intention is that questions related to diversity increasingly permeate initiatives, and the products Other initiatives adopted in 2010 also contribute to the offered by the bank, so that they cater to the needs of Organisation’s continued progress on the subject. The different groups of clients, and strengthen links with a society. bank hired 728 disabled people and developed specific programs to teach and train them. Over a three-month Diversity favours the creation of an environment rich in period, they learn the basic notions of banking knowledge, ideas and stimulates innovation, as well as bringing information technology and behaviour questions. As a economic benefits for everyone. To know how to look at result of these new hirings, Santander reached its target of differences and transform them into business opportunities 5% of its staff consisting of disabled persons. In 2010, the is a differential for us to share values and win new clients. number of disabled staff totalled 2579, compared to 2048 in 2009. LA13
113 2010 Annual Report Santander Intangible Assets
EMPLOYEES
Communion of Ideas la11
The need to engage people and align them with the The learning process includes workshops, coaching and bank’s objectives was the guiding force behind a wide- seminars, with the objective of preparing the leaders of reaching plan created in 2010. Santander’s Engagement today and tomorrow to inspire and engage teams, Program was drawn up based on the conclusion of the achieved business objectives, guaranteeing consistency Research on Climate and Engagement, carried out at the between theory and practice. end of 2009, and based on the following premises: focus on leadership, employee participation and the exchange of The result of all these initiatives can already be perceived good practices. This gave rise to more than 400 initiatives on a day-to-day basis. The Research on Climate and throughout the Organisation, and involves people from Engagement, carried out at the end of 2010, revealed an diverse areas of the bank. improvement of nine points in the satisfaction level of employees compared to 2009, rising from 56% to 65%. In this context, various initiatives arose. One of these was The target in 2012 is to reach 73%, which is equivalent to Dialogue on Participation, through which employs meet the current average in the financial markets. voluntarily to talk and share ideas on the theme, sharing experiences and discussing what can be done to insert the In addition to all the institutional moves, the Human question of engagement into everyday actions and Resources area also focused its energies on looking at itself decisions. These dialogue sessions are open to all from within and building an area which is constantly at the employees and already have the participation of more than forefront and aligned with the current global context. The 32,000 professionals, from different areas and different development of the Human Resources Vision was a process hierarchical levels. which began in 2009 “co-created” by more than 700 people. As a result of this Future Vision of Human The initiative also promotes staff development and Resources, whose main emphasis is on appreciating encourages involvement of thousands of employees and individual worth. The operational model is innovative in student trainees with values and principles. To strengthen various aspects. One of these is in the way it was launched this theme in the governance of the bank, the to the people who work in the area of human resources. Engagement Committee was created in May 2010; on a In addition to co-creating the New Model, all the monthly basis representatives from all the areas of the employees and student trainees in the Vice-Presidency bank share good practices and exchange experiences. Also could choose where they would like to work within this at the institutional level, there were numerous new configurations. management teaching and training initiatives – more than 3000 managers were trained in 2010. Before making their choices, during a two-month period, human resources personnel were dedicated to various The year 2010 also saw the formation of the first intake of activities reflecting on their careers and life purpose. After Ser Líder (to be a leader), a leadership development this stage they indicated the three areas in which they program created with the help of the employees would most like to work. Of the total employees in the themselves, and offered to 300 professionals of Santander. human resources Vice-Presidency, 87% were given their first option.
114 STAFF TURNOVER BY REGION LA02 Virtuous Circle
Region Turnover (%) The Collaborative Circle, Santander’s large social network, 2010 is more than an important internal communication Mid-West 14.0 channel. Created in 2009 and open to all employees, it Northeast 10.0 has established itself as a “space” for the convergency for North 14.0 thousands of professional staff of the bank to share Southeast 11.0 personal and professional information. In 2010, the Circle South 12.0 increased by an average of 2000 new users a month. In Total Turnover 12.0 December, 100% of all employees were registered, approximately 54,000 people, of which 30,100 are active. TRAINING OF EMPLOYEES, PER YEAR LA10 The main idea is to collectively construct a common space Work area Average number Average number accessible to professionals of the bank for collaboration of remote training of classroom and achieving closer relationships. People can hold hours training hours debates, make suggestions and comments, learn and 2009 2010 2009 2010 teach, all in a transparent manner. Operational 25.2 14.6 67.9 43.9 Administrative 31.1 19.4 56.4 38.0 The Collaborative Circle also includes Fábio’s Blog, on which Specialist 16.1 8.9 67.8 48.8 the bank CEO Fábio Barbosa publishes important facts and Managerial 7.9 0.7 82.9 55.5 information with regard to the bank. In 2010, there were Board of Directors 4.2 0.2 65.9 46.4 more than 216,000 accesses to this blog.
TEDx Santander, held at the bank’s headquarters in São Paulo Ideas for sharing Created in the United States more than 25 years ago to brought together 200 people and had the participation of promote seminars and presents “ideas that should be 20 speakers – 16 of them being professionals of the bank, spread”, as the slogan says, TED became famous for its who talked on themes such as integration, innovative and original approach in telling stories and entrepreneurialism, collaboration, ethics and innovation. publishing life transforming projects. The presentations, For many, it was also a moment of inspiration and change which are up to 18 minutes in length, are published freely in in attitude. Employee Caio Henrique Silva, for example, videos to the Internet, and watched by millions of people. attended the seminar of Mauro Sérgio Gomes, also an employee, on the Brazil’s School Project (see more on this In 2009, Santander invested in the project and sponsored project on page 125). During the interval, he spoke to TEDx São Paulo, which brings together specialists and Gomes and decided to replicate the experience at a school thinkers from Brazil and other countries on the same in Tupã, in São Paulo, where he lives and works. stage, to discuss various subjects and matters of collective interest. With the success of the event, the bank decided Also in 2010, this initiative was continued with the to organise its own edition in 2010, focused on its sponsorship of TEDx Amazônia, which attracted specialists internal public audience, to reflect on the ongoing in sustainability and the environment from various integration process at the Organisation. countries, being accompanied in the location by an audience of 500 people. Following the success of these In this way TEDx Santander came about, the first events, the bank intends to hold a second edition of TEDx corporate TEDx for more than 100 people, held at the Santander in 2011. Santander’s Tower in São Paulo. The series of seminars
115 2010 Annual Report Santander Intangible Assets
Clients
The basis is trust PR5
Santander wishes to increasingly strengthen its links of trust with its clients, Santander is a signatory of the a task which has become even more challenging for a company undergoing banking self-regulations Defined by integration. During 2010, the bank invested time and money training and the Brazilian Banking Federation qualifying its employees with the aim of minimising the impact of the (Febraban), which aims to raise the changes on the lives of individuals. In this way, the bank expects to maintain standards of service and increased its trajectory and continue in its quest to be the best bank in terms of client levels of transparency, for the benefit satisfaction. of the consumers. It is important to emphasise that the bank did not have A number of important steps have been made in this direction. The to adapt itself to the standards of this management policy of Consumer Support Services – SAC and the Ombudsman document, because its practices were Service, two important points of contact for the client, were reformulated in already in compliance with the 2010. The object is to permit these channels to contribute in a more effective requirements of this body. manner to the solving of problems indicated by clients and helped to identify opportunities for improvement in the bank’s processes and services. All this care taken to provide an increasingly better service, is already Based on a new methodology, registrations began to be classified in terms being perceived by clients. During of high incidence and high criticality, which allows them to be dealt with in a 2010, we carried out four polls to differentiated manner more flexibly and more assertively. The focus also measure the perception of the quality changed. The level of importance was also measured, and not just the of our service channels, such as quantity of complaints. electronic cash machines, call centres, Internet, branches, credit cards and Every month, an assessment of these questions is taken to the Ombudsman customer support service. Every Committee, which discusses proposals for improvement with the Executive quarter, more than 6000 people were Committee, according to each area responsible. One of the examples of the approached, and the results showed application of this policy was in the card division. Up to the end of April, an improvement in customer Santander will be investing R$ 11.3 million in card systems, in view of the satisfaction levels in the year from high level of complaints about this product – a direct reflection of the high 27% to 37%, basically driven by number of transactions carried out daily. aspects related to the preparation of employees, personal service and In 2010, the number of complaints through the Customer Support Services interest in the client. and Ombudsman channels of Santander remained stable. This result fell short of the bank’s target, but given the ongoing integration and expansion of the bank, this number can be considered satisfactory. During the year, the bank occupied 28 position in the ranking of the 30 companies that received most complaints, in the Consumer Defence Information Systems (Sindec-2009), ahead of its main rivals – and 7th in the banking segment(1).
Customer Support Service numbers PR5 Type of Call Quantity
2009 2010 Complaints 1,165,492 1,191,595 Suggestions 6,342 6,401 Praise 13,462 13,820
(1) On the date of finalising this report, the ranking figures for 2010 had not yet been disclosed.
116 Cybelle Young, customer of Santander: complaint rate remained stable in 2010, despite the integration process Presence in social networks
Santander commemorated its first year on Twitter with 10,000 interactions with clients, and in December 2010, it had 18,854 followers. Active since December 2009, the microblog is used by the bank to improve its relationship with society and create increasingly strong links of confidence with its clients, offering content and information on themes such as sustainability, financial guidance, entrepreneurialism and culture. The innovation is in the way that Santander has prepared itself to interact with users through the network. Instead of waiting for the client to formalise his complaint through the Customer Support Service , a team trained to provide a service in real time was especially provided to monitor and resolve problems or related on the microblog. There are some 70 daily interactions, which seek to provide answers within two hours – many of them anticipating the client’s wishes, seeing that the comments may not necessarily be directed at the profile of Santander. In October 2010, the bank joined the world’s largest social network, Facebook. This is more of a dialogue with society, created to open the way for various questions about the Organisation.
117 2010 Annual Report Santander Intangible Assets
Career Paths & Choices: this platform is open to anyone seeking information on careers and employment
SOCIETY
Network of talent
In 2010 Santander launched a pioneering initiative in the them outside the Organisation, and immediately showed sector to attract young people interested in working in the itself to be an ideal in creating a closer relationship with this banking sector, and to interact with them. The platform public audience. This was a resounding success since its Santander Career Paths & Choices is a virtual environment that launch, in May 2010 with the social network having more is open and free to anyone who wishes to learn, exchange than 1,300 users two months after its launch, with this ideas and clarify queries about careers and employment number gradually increasing in subsequent months. possibilities with Santander and even other organisations. Santander Career Paths & Choices ended 2010 with 34,000 people registered. In this forum there are neither teachers nor pupils. The platform is a channel that is completely collaborative in that The platform also functions as an efficient bank of uses exchange experiences and knowledge in a light and curriculae, seeing that people can subscribe to compete for interactive manner, to articles, forums, chats, microblogs and job vacancies at Santander. This has been changing the way interviews on various subjects related to their professional in which the Organisation recruits its young professionals. future. The platform Santander Career Paths & Choices is Now the focus is on the individual. In attributing worth to an innovative initiative. The concept of the platform was people and identifying that which really interests them, the conceived and jointly created by young people, students and bank has the ability to make more assertive assessments, former trainees, student trainees and teachers, many of and improve the process of selection of its new employees.
118 Sustainability in practice
Santander believes that sustainability is a strategic part Other examples applied to the relationship without of its businesses and essential for building long-term different stakeholders, such as the insertion of the relationships. In addition to generating economic benefits, theme into training for the network and leadership (as and at the same time contributing to the development in the case of the Ser Líder program). Suppliers also of society and environment, sustainability adds an participate at events which aimed to insert the theme inestimable intangible value to the Santander brand. into our value chain, such as the Forum on the Low Carbon Economy, held in October 2010 – the first step The theme is formalised in our business model and is a in the engagement of 24 companies who can commitment that materialises in business initiatives, collaborate in the reduction of our greenhouse gases. engagement and education actions, and processes in LA10 and FS5 various areas of the bank. We revise our daily practices constantly, as well as our policies, products and services, An innovative initiative, and already well-known to this so that sustainability increasingly permeates throughout public audience, is the Space for Sustainability Practices, the Organisation. focused on the engagement of society through the exchange of experiences and online and classroom- Examples of this are in various areas of the bank. In based training sessions. We spread our knowledge in a 2010 we defined the strategic focuses that concentrate systemised manner throughout Brazil and in this way the these actions, in addition to maintaining initiatives that organisations have access to information which allows already exist. We have made advances at the them to revise their existing practices. management level, inviting three external representatives to make up the Sustainability, as well as The Practices program was created in 2007 by Banco reformulating the Diversity Committee, and creating an Real and is still today an outstanding initiative both in area for Sustainable Business Development (read more Brazil and the rest of the world. In 2010, the classroom- about this in the chapter entitled “Businesses”). based course, “Sustainability in Practice: Ways and Challenges”, offered on an exclusive basis to our We have also made progress in the analysis of socio- corporate clients and suppliers, has brought together environmental risks, through disseminating and more than 900 leaders from 600 organisations. Since introducing the theme in all the areas of the Wholesale 2007, the training has had the participation of 3568 banking division. The initiative included the training of leaders and 2082 organisations. The Practices site 94 analysts in the Risk area of the bank, and involves the (www.santander.com.br/sustentabilidade) is also assessment of 431 companies during the period. FS4 another reference for the success of the project: in 2010 having registered more than 1 million accesses. FS5 Socio-environmental criteria are also now applied by the Unit for the Prevention of Money Laundering in the In 2010, the Space for Sustainability Practices was acceptance of new clients, which now checked aspects winner of the ECO prize, in the category of Processes. such as illegal deforestation and slave labour at the time Awarded by by Amcham (American Chamber of applications are made to open corporate accounts. Commerce) and the newspaper Valor Econômico, this Today 100% of our corporate clients pass through represents important recognition of sustainable business a filter which identifies their line of activity, and the practices in Brazil. companies in the sector is considered to be associated with a high socio-environmental risk are admitted to a more detailed analysis. fs2
34,000 people have registered Ways and Challenges, course for more on Career Paths & Choices than 900 leaders from 600 organisations.
119 2010 Annual Report Santander Intangible Assets
TECHNOLOGY
Years ahead Technological integration
Technology is fundamental for any bank with a strong The systemic integration between Santander and Banco Real presence in the Retail segment. It is this resource which continued to dominate IT operations during 2010. The provides efficiency, flexibility organisation and control of challenge was to minimise the impact which the system the processes of all its operations. It is for this reason that switchover would have on the life of the client. To this end, a Santander operates the most modern and advanced number of simulations were carried out, experimenting in a technological program in the Brazilian banking sector, test environment what would happen on the day of the developed in a little more than five years based on the switchover. In October 2010, Santander switched over a bank’s global intelligence in systems technology. significant part of its clients from Banco Real to its current technological platform. This switchover involved approximately This provides an enormous capacity to absorb and support 100,000 clients in the regions of Piracicaba and Limeira, in the bank’s growth over the next few years and also the interior of São Paulo, chosen principally because of their provides much greater flexibility in the execution of importance and the large volume and diversity of transactions technological projects, leveraged by the experiences and services carried out. of the bank in other countries. This gives Santander a major competitive advantage. Also in 2010, the switchover of 4.3 million credit cards from Banco Real was made to the new card platform, used The client is at the centre of the bank’s information globally by Santander, which represents the world’s largest technology model. While conventional platforms are transfer of a card database ever carried out by a bank – as focused on products, requiring multiple registrations which well, obviously, being the largest in Brazil. In this period, the make it difficult to identify the client and his needs, insurance platform was also switched over. Santander’s platform maintains a single registration for its customers, in which products and services take their Another area of consistent work was the automation of the guidelines based on the information on each account bank’s processes, and the consequent organisations of the holder. This platform provides support for Santander’s flows and digitisation of documents. This specially business model and permits the Organisation to get to strengthened the capturing of synergies between the banks know the real needs of its clients, facilitating the and endowed the Organisation with greater efficiency. A visualisation and understanding of the relationships good example of this was the optimisation of the complex maintained with the bank. process of taking out real-estate credit which put Santander at the forefront of the market in terms of flexibility. In October, the bank began a pilot project which resulted in a reduction in the time for the formalisation of the credit contract, from 30 to five working days. In this process, we reduced much of the paper traffic. The objective now is to expand the project to the whole network, and increase its scope to include other non-financial documents, as well as cheques.
A New Data Processing Centre (CPD)
In 2010 Santander began a cycle of investment of The new CPD will be installed in an area of 660,000 m2 approximately R$ 40 million in infrastructure works and and will follow sustainable concepts of construction. the acquisition of new equipment for the Data Thus, the buildings will occupy only 20% of the land, Processing Centre (CPD) of CASA1, one of the bank’s while a portion of its floors will be built below ground. administrative buildings, in São Paulo. In this period, the The project also involves the reconstitution of native bank also invested heavily in a large medium to long- forest. Completion is scheduled for the end of the first term project, which will prepare it to meet the needs of half of 2012. EN13 all its stakeholders. This involves the construction of a modern Data Processing Centre in the town of Campinas, in the interior of São Paulo, which will use the world’s most advanced technology.
120 SUPPLIERS
Partners of Value
The relationship between Santander and its suppliers is Decentralised Printing, which altered the management of guided by a document called Partnership of Value, which printers and resulted in a significant economy in the use of establishes directives and guidelines for the bank’s paper at the Organisation (see more on page 137); and relationship with this audience so as to achieve a good Mundoquelê Santander, an initiative which led to the performance in its operations. An important tool in creation of a library in an call centre outsourced company, reinforcing the link with the various companies which promoting events for the encouragement of reading in collaborate with our organisation is the Supplier Channel, a that location. space where it is possible to register, leave suggestions and criticisms, report any irregularities and keep up to date with initiatives of the bank. Quality indicators FS2 and ec6
During 2010, Santander continued to hold its sector To ensure that the services it receives are of the highest forums bringing together those suppliers responsible for quality, in 2010 Santander implemented an important the largest quantity of greenhouse gases into the method of assessing various suppliers that have a high atmosphere because of the services that they provide to impact on its operations (such as technology, security, the bank, with the aim of disseminating good practices logistics and call centres among others). The Supplier and raising awareness about the importance of carrying Qualification Index is a system of scoring which is drawn up out an inventory of greenhouse gas emissions. With this, based on the analysis of documents, technical visits and the Organisation expects to monitor their emissions in a reports, through which the bank defines three qualification more effective manner, and encourage partner companies brackets. The evaluation is focused on the management of to adopt sustainable practices in their businesses, with all companies and divided into five areas (governance, their clients - and not just with Santander. fs5 technical-operational, administrative-financial, social and environmental). In this way, Santander can recommend The initiative follows the steps in the sector forum for the improvements and work with suppliers who have the best furniture industry, held in 2006 by Banco Real, which practices, establishing new selection criteria. opened the way for four companies to receive certification from the Forest Stewardship Council (FSC) in 2009, a seal Also in 2010, 34 brokers that deal with the Organisation which attests to good forestry management. Recognition also underwent a process of requalification, and will now by Santander was made official at an event held in 2010 be working on a rotating system. The objective is to and shows that, with good ideas and partners, it is possible minimise fraud and increase the level of transparency in the to build a solid and reliable relationship. fs5 transactions carried out, so that the brokers with the highest Supplier Qualification Index will be those that work Also in 2010, the Award for Sustainability and Innovation is the most with the bank. was applied to Partnerships with Suppliers, for which two projects were of particular note of the period:
121 2010 Annual Report Santander Intangible Assets
LEADING-EDGE SOLUTION
THE DATACENTER WHICH IS BEING BUILT IN CAMPINAS, SÃO PAULO, IS LOCATED ON LAND CLOSE TO UNICAMP AND SHOULD BE COMPLETED IN 2012. ITS PROJECTS INCLUDES THE MOST MODERN IN TERMS OF TECHNOLOGY AND VARIOUS SOLUTIONS IN SUSTAINABLE CONSTRUCTION.
The datacenter has the highest classification possible (TIER IV) for this type of construction. It operates using two energy systems, two refrigeration systems and and two security systems, which function simultaneously and guaranteed service if there is an external problem. It will be able to function on a self-contained basis Modern air-conditioning equipment, built for up to 96 hours without external interference. with compressors which “fluctuate ” Its availability during the year is 99.9%. magnetically and avoid damage to bearings, The works conform to the standards necessary to allow the lower consumption of water and receive Leed certification (Leadership in Energy power. This technology, used for the first time and Environmental Design), granted by the NGO, in Brazil, also requires less maintenance. en7 Green Building Council for sustainable constructions. en7
Uninterruptible power supplies store kinetic energy and are more efficient than the conventional type, which use batteries that emit hydrogen and use lead, later discarded. This equipment triggers generators in the absence of electricity and will supply power to the CPD.
The refrigeration was planned for the future use of freecooling. This technology makes use of external air to cool equipment, and will be used whenever IT operations can The entire complex is work at temperatures higher than at the equipped to capture, moment economising on power in store and reuse refrigeration. en7 rainwater. en10
122 Latest generation and equipment and automated processes will reduce power consumption by 30%, compared to the data centres of the previous generation. en7
The use of glass in the finishing of the operational building will allow greater use of sunlight, economising on power used on illumination. This glass is treated with a technology which avoids internal heating, reducing the need for air-conditioning.
Part of the datacenter is below ground, which reduces the effect of heating from sunlight and helps to keep the temperature lower, also reducing the need for air-conditioning refrigeration. en7
The constructed area will occupy every 20% of the land, which totals 600,000 m². More than 9000 trees of 116 native The elimination of the car species will be planted, which will contribute parking facilities will use to keeping soil permeability high. wind and solar power which should provide a saving of approximately 11,000 kWh/year. en7
123 Social and Cultural Investment
EDUCATION IS ALSO PART OF THE BUSINESS
THE EFFORTS OF OUR EMPLOYEES AND THE PLANNED AND SYSTEMATIC INVESTMENT IN SOCIAL AND CULTURAL PROJECTS HELP TRANSFORM THE REALITY OF THOUSANDS OF BRAZILIAN CITIZENS
Santander strives to play its part in social change by means of mobilization programs to meet the needs of the community. The bank invests in different projects in a planned, monitored and systematic manner, making available the diverse resources and assets at its disposal – financial, material, managerial capacity, results-based culture, technology and, above all, the people that make up the employees. GRI SO1
We also work toward reinforcing the culture of participation and shared responsibility, stimulating and promoting the involvement of employees, customers, suppliers, governments and civil organizations, with the aim of potentializing the results of the initiatives and strengthening public policies. The main purpose of the investments is to improve the quality of education in the country, a crucial requirement in overcoming the major challenges faced by the world today. We also make available to society the experience we have accumulated in terms of entrepreneurship, generation of income, environment and diversity. We believe these factors contribute in a roundabout way to the improvement of education in the country, as well as being central to our mission.
Project supported by the Amigo de Valor program
124 The promotion of primary education SO1
Created by a group of employees in 1998, the Projeto Escola Brasil (PEB) is a Santander corporate volunteer program. The aim of the project is to help improve education in public schools by means of the voluntary participation of bank employees, their families and friends, as well as customers, suppliers and other interested parties, composing a network of dynamic, creative and productive relations. The PEB is thought to have benefitted around 190,000 students around the country.
The role of the employee as a PEB volunteer aids the development of the teams in the workplace and promotes the exercise of citizenship. 2,057 employees are currently active in the program, organized in 242 groups of volunteers working in partnership with 194 public schools throughout the country.
The PEB activities may be related to infrastructure, management and to the pedagogical dimensions of the partner school, and are divided into the following thematic groups: sport and recreation, art and culture, environment, appreciation of diversity and entrepreneurship and the generation of income.
In 2010, Santander conducted six continued teacher training programs in the areas of school management, the pedagogic coordination of literacy teachers, arts, reading, physical education and the promotion of ethno-racial equality at school. In all, these programs offered 308 teachers continued education, 238 (77%) of which were awarded certificates in these disciplines. Thirty five partner schools underwent participative assessment via the Education Quality Indicators (IQE/Indique), representing an increase of 25% over 2009. The same year, three new thematic programs for schools were launched: Programa Biblioteca Ativa, Programa Gincana Empreendedora e Programa Escola de Todos.
The PEB provided continued training for 218 teachers, teaching coordinators and school managers over the year.
THE PEB IN NUMBERS 242 GROUPS OF VOLUNTEERS 2,057 EMPLOYEES INVOLVED IN VOLUNTEER WORK 194 PARTNER PUBLIC SCHOOLS 218 TEACHERS TRAINED
125 2010 Annual Report Santander Social and Cultural Investment
A priceless initiative SO1 Generation of income SO1
The aim of the Amigo de Valor program is to promote The Prêmio Santander Universidades (Santander Universities improvements to the rights of children and adolescents in Award) underlines the bank´s commitment to higher towns and cities in which social indicators have fallen to education and the development of teaching in the country. critical levels. Based on the Estatuto da Criança e do It is way of encouraging students, teachers, researchers and Adolescente (Child and Youth Protection Act), the initiative higher eduction institutions to execute their projects and involves part of the income tax owed by employees, help turn society more balanced and sustainable. Each year, customers and suppliers being funneled into the Fund for the selected projects are given funds for the implementation the Rights of Children and Adolescents. These funds are or expansion of the same, in addition to technical support invested in initiatives and priorities established by the to ensure development and continuity. Committees for the Rights of Children and Adolescents. In 2010, the scope of the award was expanded to impact The participation and involvement of Santander employees the whole value chain of the university universe and to also boosts the performance of Amigo de Valor and liaisons support the strategic cornerstones of academic management with the Rights Committees. The bank employees involved (teaching, research and expansion). In all, four awards were in the work group are trained on themes such as public offered: the Santander Science and Innovation Award, the policies, the violation of rights, social indicators and, above Santander Entrepreneurism Award, the Santander all, legal mechanisms set forth in the Estatuto da Criança University Solidarity Award and the Student Guide Award e do Adolescente. – Highlights 2010. The total prize money for the year was R$ 1 million for the winners and scholarships at Babson The program also helps strengthen the local committees via College for coordinators of projects awarded the the training of the teams involved. During the funding Entrepreneurism prize. period, the committee and other local entities responsible for the system ensuring the rights of children and youth New initiatives included the Student Guide Award, which take part in workshops that provide a systemic vision of the recognizes activities and work of excellence carried out by management of the project under development and of the higher education institutions in four different areas, and perspectives of the town or city with regard to its juvenile the Santander University Solidarity Award, which supported population. social expansion projects involving teachers, students and local communities. The theme of the eight projects selected In 2010, 4,143 customers registered with the Amigo de was “sustainable development with an emphasis on the Valor project (3,083 individual and 1,060 corporate), and generation of income” and the same received financial together injected around R$ 520,000 into the Funds for the backing and technical support to ensure implementation Rights of Children and Adolescents. Around 26,500 and expansion. Depending on the results, the support may employees, approximately 50% of the employees, signed be renewed for a further year. up for the scheme, generating R$ 3,820,216.07.
Santander also participated, generating R$ 1,378,250.00. We also began to systemize the program, enabling us to share what we have experienced and learned with other organizations, striving to encourage the same to adopt similar practices.
For further information, access: www.santander.com.br/amigodevalor
126 Talentos da Maturidade Awards Event
Social inclusion SO1
Created in 1999 in honor of the International Year of Older Persons, the Mature Talent Contest (Concurso Talentos da Maturidade) encourages the participation of people over the age of 60 and aims to change the manner in which society views senior citizens. By affirming the value of the talent or the past experience of this audience, the bank is promoting the social inclusion of these people via the creation of relationship networks.
The contest comprises the categories of plastic arts, vocal music, literature, photography and exemplary programs. The last is intended exclusively for corporate entities and aims to support non-profit making projects for the benefit of senior citizens or business initiatives developed by this audience.
In 2010, the Exemplary Programs category selected five social projects focused on the health of senior citizens and the suppression and prevention of violence. As in all the social programs we develop, in addition to financial backing we offer technical support to help develop the project and train those in charge. The state of Pernambuco Attorney General´s Office, executor of one of the social projects backed by Exemplary Programs in 2010, declared that the partnership results for the year were positive and led to the creation of local senior citizen committees in around 50% of the towns and cities in the state.
127 2010 Annual Report Santander Social and Cultural Investment
Promoting culture SO1
In 2010, we restructured the area of cultural initiatives. Inventions and Inventory) and exhibits works by renowned Based on our belief in the economic potential of the artists including Candido Portinari, Emiliano Di Cavalcanti creative industry, we concentrated our efforts on three and Manabu Mabe. The Recife Cultural Center, previously main sectors – cultural centers, collections and heavily focused on local culture, staged “Novos Mundos sponsorships. Based on four cornerstones of operations – Novos” (New, New Worlds) in 2010, an exposition including education, citizenship, interactivity and entrepreneurship -, works from several countries, underlining the local we supported and implemented hundreds of institutional commitment to global strength. Far from Recife, musicians activities, programs and projects in several Brazilian cities, from the Porto Alegre Cultural Center joined musicians as well as in the Santander Cultural Centers in Porto from the state of Pernambuco to introduce musical tones of Alegre and Recife. In addition to promoting the the northeastern state to the capital of the state of Rio development of local communities and culture, the Grande do Sul. initiatives were premised on the respect for local requirements and repertoires. Other initiatives included the urban culture exposition “Transfer” in the year of the opening of the Pavilhão das We invested R$ 30 million in different cultural projects and Culturas Brasileiras, in the Parque do Ibirapuera, and the took part in debates and initiatives aimed at integrating exposition “Anywhere is my land”, at the São Paulo goverments and national and international organizations Pinoteca, displaying works by Brazilian Antônio Dias. such as NGOs and universities. The bank has received many national and international awards for this In 2010, we began the sponsorship process for the partnership model. In 2010, the organization received an restoration of the Arcos da Lapa in Rio de Janeiro, a project honorary mention from the Brazilian Association of Art involving the renovation, cleaning, inspection and Critics for its work in the area of culture and for its strengthening of this historic monument. The work site was innovative policy. opened to the public for educational and cultural activities. We thereby helped to revitalize the surrounding area, to One of the main institutional projects of the year was afford value to the location and to spark a sense of “Convivendo com a arte, arte por toda parte” (Living belonging in the population. The project site with art – art all around), which exhibits works from (www.arcosdagente.com.br) enables the public to our collection around Santander’s Tower, the bank´s accompany the progress of the work and interact with the administrative headquarters. The idea is to promote local team. a differentiated relationship with art in the workplace through paintings representing Brazilian modernism. The works are divided into four themes (the Nature of Art, the Brazilian Imaginary, the Kaleidoscope of Cities and
128 The knowledge network EC8 Universia in Brazil... Created to support and develop joint projects in the 2,601,132 students academic sphere, Universia is the biggest Ibero-American professors university participation network and encompasses 1,323 266,637 institutions of higher education. It is also intended to 270 universities create new opportunities for students and professors, in addition to offering free services to all users, such as scientific articles, papers and other relevant material for ... and in the world this audience. 13.5 milhões students The network reaches a total of 13.5 million students and professors from Latin America and the Iberian Peninsula, 9.7 milhões and its main relationship channel is the Universia site single users (www.universia.com.br), which provides a series of universities information and services for users. 1,323
Universia operates in accordance with four strategic cornerstones: employment, training, observatory and development in Ibero-America. The meeting was attended social networks. The first helps universities to increase by representatives from teaching institutions, businesses employment opportunities for new graduates and and government sectors, who put forward a series of collaborates with companies on candidate selection proposals and recommendations to make the scientific and processes. The second is aimed at identifying the training technological development of universities more dynamic, by needs of businesses, divulging the same to the academic means of alliances between the public and private sectors. environment and disclosing the activities and courses the institutions offer. At the Unesp/Universia seminar, professors, coordinators and post-graduate students discussed the role of the Within the observatory line, the Universia network creates university in the improvement of secondary education. At large physical and virtual spaces to debate and reflect on the 1st European Union meeting held in Brasilia, a the trends of all levels of education, involving the entire document was drawn up for the 4th National Conference range of stakeholders (businesses, institutions, universities on Science, Technology and Innovation, pinpointing the and governments). challenges and bottlenecks present in the sector and possible solutions for the same. The aim of the fourth category, social networks, is to create platforms on leisure themes of interest to university The social networks line saw the creation of the Obra students, besides organizing musical and sporting events Sustentável Santander (Sustainable Construction) and debates for this audience. community, an area dedicated to the exchange of knowledge and experiences on sustainability in civil Several initiatives were developed and supported by the construction, which ended the year with 8,333 people network in 2010 following the operational lines of these enrolled and generated business between the participants four themes. For example, the Feira Virtual de Estágios and the bank. offered over 8,000 vacancies via a site created specifically to cover the event. Over 73,000 single visitors and This category also produced musical and photographic 886,000 page views were registered. contests involving participants from several Brazilian and foreign universities. Numerous seminars and events were also held over the year to debate the quality of education in Brazil and In 2010, the Universia social networks recorded an Ibero-America. The 2nd International meeting of Universia exponential increase in the number of users. Twitter ended Rectors in Guadalajara (Mexico), discussed the paths open the period with 17,876 followers, an increase of 318% in to higher education and the challenges facing university relation to 2009. Orkut registered an increase of 179%, education in a transforming world. The event is held every totaling 4,166 members in December 2010. five years and in 2010 brought together 957 rectors from 32 countries, in addition to representatives from 1,029 Universia also promotes the dissemination of academic universities from the Universia network. knowledge via OpenCourseWare (OCW), a virtual space that provides higher education classroom material free of The topic of the Segib forum held in April 2010 was the charge and to which 22 Brazilian universities have already role of the university in scientific and technological signed up.
129 20102010 AnnualAnnual ReportReport SantanderSantander OrganisationalAtivos Intangíveis Profile Environmental Management
Vicenza Feiten Rodrigues from the Milk & Mellow agency in São Paulo, one of the new customer service outlets built in accordance with sustainable practices
130
Environmental A MATTER OF respect SANTANDER INVESTS IN A RANGE OF ACTIVITIES DESIGNED TO Management PRESERVE THE ENVIRONMENT AND THE WELL BEING OF THE PUBLIC; FOR EXAMPLE, THE 110 BRANCHES OPENED IN 2010 WERE BUILT BASED ON CIVIL CONSTRUCTION BEST PRACTICES
Santander works on a full-time basis to reduce the social The expertise accumulated by the engineering team in this and environmental impacts of its operations. The bank type of work led to the publication of a manual containing continuously invests in activities aimed at reducing the the parameters and specifications for works procedures consumption of raw materials and other resources, in and the use of materials. The document serves as a guide addition to striving for solutions that preserve the well for directing project managers and suppliers and aims to being of employees and other stakeholders. This occurs guarantee the adoption of the best civil construction on several fronts: in the construction of new branches, in practices. All work and maintenance carried out in the the waste generation policy, in the control of greenhouse bank´s buildings follow these guidelines. gas emissions and in the various initiatives aimed at encouraging employees to adopt healthy habits. EN26 Santander has been following a construction waste management policy since 2008, consisting of 3 main A practical example of this management model can be points: to reduce the generation of waste, optimizing the observed in the engineering sector, which works in the use of materials; to reuse or recycle the waste generated; development and implementation of the concepts of and to dispose of waste in an appropriate manner. ecoefficiency in bank projects and construction works. Of waste considered to be class A (concrete, masonry, Civil construction in Brazil currently consumes 42% of all ceramics and earth, among others), 7.5% of the total is the energy produced in the country, according to surveys reused or recycled. In the case of class B waste (wood, conducted by the Construction Energy Efficiency steel, plastic and paper, for example) the figure rises to Laboratory of the Federal University of Santa Catarina, and 43.1%. 70% of all wood extracted from the Amazon rainforest, according to WWF Brasil data. Santander possesses 2,201 branches, 1,495 service centers and 26 administrative buildings around the country and is seeking out solutions to diminish the direct and indirect consumption of natural resources. The bank works in partnership with its chain of suppliers as a means of multiplying and sharing improvements with society as a whole.
We opened 110 branches in 2010. They are all subject to certification and are based on the same principles as the 3 Granja Vianna branch, built and opened in 2007 and the 30,000 m first to be awarded the Leed certification (Leadership in OF RUBBLE WERE GENERATED Energy and Environmental Design) in Latin America, in DURING THE CONSTRUCTION addition to becoming a benchmark for all Santander´s OF NEW BRANCHES IN 2010 major construction works. EN7 ACCORDING TO AN INTERNAL SURVEY. THIS MATERIAL IS EQUAL TO THREE WHOLE FLOORS OF THE Santander’s Tower, THE ADMINISTRATIVE HEADQUARTERS OF THE BANK
131 2010 Annual Report Santander Environmental Management
Sustainable constructions
How Santander applies best practices to its projects and buildings.
A reduction in the consumption of energy: EN5 • Projects making better use of natural light;
• The thermal insulation of ceilings using new rooves with sandwich type metallic tiles, painted white to reduce the effects of sunlight and helping to combat global warming. Each 100 m² of white-
painted roof offsets the emission of 10 tons of CO2, according to a study conducted by the Lawrence Berkeley National Laboratory; • Automatic startup and shutdown of air- conditioning, ATMs and external visual communication (signs, totems, etc) using timers; • High-performace lamps that consume less energy and yield 10% more light than common bulbs.
A reduction in the consumption of water: EN9 • The use of faucets with aerators and automatic shutoff; • Dual flow flush system; • A rainwater harvesting system, when viable. Buildings featuring this resource reduce the consumption of potable water from supply networks by 40% to 50%, according to a study conducted by the bank.
The choice of eco-friendly products: • The use of forest certified wood in construction, for furniture, doors and other fixtures, with the aim of reducing the use of the same and reuse; • The use of materials with recycled content, such as cement with blast furnace slag, recycled pet piping, tactile floor with recycled rubber and interlocking floors with molding sand, which diverts around 50 tons of casting from the disposal process; • The use of water-based paints and enamels.
132 Solutions with an impact
Santander’s Tower, the administrative headquarters of the bank in Brazil, also features some of the best examples of environmental management practiced by the organization. Located by the River Pinheiros in São Paulo, the building was designed based on sustainable civil construction concepts and incorporated techniques which foster the rational use of resources and materials. It also adopted intelligent lighting systems and advanced solutions for economizing water and electrical power (see the infographic on page 136).
Also worthy of note were the alternatives used for reducing the impact on local traffic. The building houses 6,500 employees and service providers in a popular commercial district thousands of people converge on every day. Thus, the first initiative was to ensure the Santander employees did not arrive at and leave the building at the same time, which would mean the displacement of around 1,500 vehicles in the space of an hour. The solution to this problem was the establishment of a staggered work schedule with arrival set between 07:00 and 10:00 and departure between 16:00 and 19:00 hours. We thereby reduced the volume of people and cars around the building, making access easier and relieving traffic congestion during rush hour. EN29
The second initiative was to encourage employees to leave their cars at home. The bank lays on 85 free daily chartered buses between subway stations and the organization´s administrative buildings. The service is used by 1,662 employees, 1,000 of which work at Santander’s Tower. We also created the Carona Amiga (Ride with a Friend) program, which benefits 808 people using 303 registered cars. In addition to contributing to a reduction in the emission of greenhouse gases, Carona Amiga helps bring together people working in different sectors of the bank. EN29, EN17 and EN18
Santander also provides bicycle parks and changing rooms with showers, towels and shampoo for employees and visitors using this means of transport. There are 50 spaces at Santander’s Tower and 23 at the CASA1 and CASA3 administrative buildings.
Together, all these initiatives translate to around a thousand vehicles a day less on the streets.
133 2010 Annual Report Santander Environmental Management
Where the river bends emissions, and by promoting the creation of a regulatory framework for a low carbon economy in Brazil. EC2 and en18 Prior to settling in Santander’s Tower, the organization was asked by the Associação Águas Claras do Rio Pinheiros The strategy for reducing GHG emissions has been (AACRP) to lend support to the recovery of the river, an included in several of our activities. Our engineering important body of water that, like the River Tietê, crosses a department follows parameters and specifications in works large expanse of the city and suffers from pollution. The involving the construction or maintenace of branches to bank joined the organization as a maintainer member and reduce the use of natural resources and raw materials that participates in the management of the entity. Santander contribute to the bank´s direct and indirect GHG emissions. has a seat on the fiscal council and on the institutional Part of the materials comes from reuse and recycling, communication board. The Santander press office also which requires less energy and raw material for its supports the cause. manufacture. Devices ensure less electrical energy is consumed by lighting and air conditioning systems. The association´s main operational objectives were established over the year, prioritizing the recovery and Responsibility for indirect emissions in connection with the preservation of the River Pinheiros by means of activities transportation of goods, plane trips and logistics is shared developed with the prefecture, businesses, third sector with our suppliers. In October 2010, a process for the entities and civil society. The projects to receive support in engagement of this audience was implemented in the form 2011 will be selected based on these definitions. of the Sectoral Forum for the Management of GHG Emissions – Engagement of Suppliers. The objective is to persuade partners to adopt a systematic inventory process, Low carbon economy establishing activities for mitigating and offsetting emissions. EN17 and en7 In a world increasingly in favor of the transition to an economic model favoring activities of low greenhouse and Santander also compensates its emissions through the pollutant gas emissions, Santander plays a vital role in the Projeto Floresta Real. 2010 emissions will be offset by March promotion of this change, both in the reduction and 2011 by planting 60,000 native forest trees in degraded compensation of emissions and through its business areas with low Human Development Index (HDI) levels. The strategy, influencing customers, partners and society. organization also works to generate income for the communities it is active in. In 2010, we forged a partnership In 2010, we elected a low carbon economy as one of the with the company Fibria Celulose to participate in the four strategic focal points in relation to sustainability, to be Projeto Corredor Ecológico, which, with the planting of worked on over the next few years to create products, seedlings by both individuals and corporations, operates in services and opportunities involving environmental and the recovery and preservation of biodiversity in the Vale do social issues as factors which are paramount to the success Paraíba region in the state of São Paulo. en13 and fs8 of business. The first initiatives in connection with the strategic focal points will be launched throughout 2011.
We have been filing a greenhouse gas (GHG) inventory– responsible for global warming and climate change, since 2006 –, enabling us to manage and reduce the impact of our operations. Readings are based on the Greenhouse Gas Protocol Brazil (GHG Protocol Brazil), developed in partnership with FGV (Fundação Getulio Vargas), an initiative of which the bank is a founding member. The Greenhouse Gas Inventory EN16, EN17 and EN29 main purpose of this progam is to standardize the CO emissions (t) in 2010 Total preparation of greenhouse gas inventories in Brazil, 2 creating an environment for public and voluntary records of Scope 1 (refrigerating gases, generators and the information collected. Furthermore, the program vehicle fleet) 5,542 proposes to train companies and other organizations to Scope 2 ( purchase of electrical energy) 14,021 draw up their inventories. Scope 3 (aircraft trips, third party organic Santander is also part of the EPC - Empresas pelo Clima waste, battery collection points, third party (Companies for the Climate) initiative, promoted by the electrical energy consumption and Fundação Getulio Vargas with the aim of operating as a transportation of goods and freight) 82,283 business platform for the mitigation of and adaptation to climate change. This is achieved by supporting strategies, policies and management systems in relation to GHG
134 Reduction of gas emissions Investment and costs of environmental protection(*) EN30 Amount (R$ thousand) We are improving our inventory and striving to include new Battery collection program 1,305 relevant sources of emissions, with the aim of expanding ISO 14001 and Leed certifrications 321 the bank´s business vision in the environment. Within Disposal of organic and non-recyclable waste 220 scopes 1 and 2, which include emissions from operations in administrative buildings or through the purchase of energy, we have achieved a CO2 inventory 177 consideable drop per employee over the last few years. Monthly environmental awards(*) 72 en4 TOTAL (**) 2,095 Emissions fell 76% between 2005 and 2010. (*)Amount includes 20% income tax (**) Other activities in connection with the issue, such as the recycling of light 50 million euros bulbs in administrative buildings and branches were not included.
In 2011, Santander will launch a line for the purchase of carbon credits for Santander customers in Brazil and in other countries. The idea is to accumulate enough of these credits to be sold to the bank´s European corporate customers, and particularly in the sector of energy generation. The new product reflects our commitment to a new low emission economy.
2004 Consumption of energy (in Gj) EN4 2009 2010 Branches, service centers 700,660(*) 624,751 Administrative buildings 302,502 142,262 (concessionaires)
Consumption of energy EN4 and EN7 Consumo específico (Gj/func) 2009 2010 Branches and service centers 21.5(*) 17.4 Administrative buildings 15.2 8.0
(*) not considering PAEs.
The Mayor of Santander’s Tower
Taking care of the environment includes taking care of cleaning and the elevators – to ensure the working day the places in which people work and live. It was with gets off to a perfect start. This work reduced the this in mind that the bankcreated the Santander number of maintenance calls from 250 to 115 in 2010. Prefecture, the mission of which is to interact with the Of this total, 113 were filed by the prefecture itself – in users of the facilities to improve working conditions in other words the problems were identified before the Santander’s Tower and the administrative buildings. users noticed.
he prefecture is headed by Edmar Cioletti, from The area headed by Cioletti is also responsible for Vice-Presidency of Means. Today he is a type of mayor representing the bank in neighborhood and residential operating as an ombudsman, or in other words, the compound associations. “Subprefectures” exist to take person that receives the complaints and suggestions of care of the other administrative buildings in São Paulo, Rio the associates and that is responsible for ensuring the de Janeiro, Belo Horizonte, Curitiba, Porto Alegre and quality of all services in relation to the infrastructure and Recife. These subprefectures are teams authorized to maintenance of the building. replicate the management model used in Santander’s Tower. The daily routine of the mayor and his team begins early. In the morning, they check the services are This model has already been implemented in our rio de working on all 28 floors, two mezzanines and six janeiro, espírito santo and rio grande do sul branches and basement floors of the administrative headquarters – will make maintenance more efficient and increase the including the lighting and air conditioning systems, comfort and well being of the users.
135 2010 Annual Report Santander Environmental Management
INSIDE Santander’s Tower
SANTANDER´S ADMINISTRATIVE HEADQUARTERS FEATURES DIVERSE RESOURCES AND INITIATIVES THAT HELP PRESERVE THE ENVIRONMENT, THE WELL BEING OF ITS EMPLOYEES AND VISITORS AND IMPROVEMENTS TO SOCIETY AND THE NEIGHBORHOOD.
Harvesting of rainwater Rainwater is captured and used to water flower beds and flush toilets. Hydrometers are being fitted to measure the economy achieved through this initiative. The toilets use a vacuum flush, which reduces consumption by at least 70% in comparison with conventional flush systems.E N9 and en10
Smart lighting An automatic startup and shutdown lighting system enables us to economize energy during off-peak times. Smart sensors. en7
Elevator: energy efficiency The entire internal elevator lighting system was replaced with LED bulbs (made with semiconducters which last longer and consume less energy), which generated savings of 70% compared to conventional fluorescent bulbs. An opening in the elevator floor provides natural ventilation. en5 and en7
Use of chartered buses 41 chartered buses ferry around 1,000 employees between strategic points around the city such as subway stations and the bank´s administrative buildings. Each bus replaces 40 private cars. Santander also runs minibuses to a shopping mall and other administrative centers. en18 and en29
136 Decentralized printing The use of printers at Santander’s Tower is • 130,620.25 m² of built • 13,367 medical managed by a supplier which is also area; consultations in 2010; responsible for the maintenance and control • 28 floors, a ground floor, • 121 mothers a month used of this equipment. The system requires users two mezzanines and six the breastfeeding room in to identify themselves, thereby eliminating basement floors; 2010; unnecessary use and economizing cartridges. • 2,586 parking places, some • Dental consultancy; en1 of which are allocated to • A convention center with the “Carona Amiga” 206 meeting rooms, three Economy of paper project, which encourages telepresence rooms, 24 In addition to the safe printing employees to sign up to the videoconference rooms and management, our printers are programmed carpool system; a 253-seat auditorium; to print two pages per sheet. This measure • A bicycle park, exercise • A lounge with a hot drinks reduces the use of paper, energy and the room and changing rooms machine, snacks, water generation of waste. en1 with shampoo, soap and purifier, snack baskets, Disposal of waste towels; newspapers, magazines Around 51% of the waste generated at the • 6,500 employees and and an internally Santander’s Tower facilities is composed of service providers; programmed TV on every organic material from the four restaurants. • Four restaurants serving floor; A composting program is under over 46,000 meals (lunch) a • A convenience center with development for 2011, a biological process month; a travel agency, laundrette, that transforms food waste into fertilizer. • A snack bar and over 50 tailor, shoe repair, car rental, The non-organic waste is dispatched to food vending machines concierge, beauty salon, cooperatives and associations for recycling. around the building; magazine store, bookshop, en22 • A 787 m² gymnasium with library and three pop-up 1,513 registered users in stores; Staggering of working hours December 2010; • An exposition area on the Employees work in accordance with • A companie clinic with ground floor open to the staggered timetables, arriving between specialists in general public. 07:00 and 10:00 and leaving between 16:00 medicine, orthopedics, and 19:00 hours. The reduced flow of gynecology, cardiology, people helps alleviate local traffic, improves ophthalmology and access to the building and surrounding nutrition; streets and increases the quality of life of our employees.
The River Pinheiros It´s better by bicycle Santander is a maintainer of the Associação Águas Claras do A bicycle park in the garage of the building Rio Pinheiros, an entity dedicated to the recovery of the river. provides 50 spaces for those choosing to The bank has a seat on the NGO´s fiscal council and use this means of transport. Cyclists institutional communications board, in addition to lending working at Santander enjoy the use of the entity the services of its press office. changing rooms with towels and disposable hygiene products. en18
Parque do Povo This park is located in front of the building. Santander participates in the creation of an Oscip (Organização da Sociedade Civil de Interesse Público) to take care of the park and contribute to the safety of visitors in the form of a private vehicle patrolling the area.
137 2010 Annual Report Santander About the Report
ABOUT THE REPORT
The Santander Annual Report presents the bank´s • Risk and Sustainability: we are aware that risk analysis economic, social and environmental performance for is a vital part of the bank´s core business. The thorough 2010, a year in which we made positive progress in the examination of social and environmental criteria in these integration process with Banco Real and consolidated analyses enables us to better manage loan portfolios, to several processes put into motion shortly after the merger anticipate risks that have not been identified in of the two institutions. traditional analyses and to identify business opportunities in all sectors, resulting in positive impacts This publication follows the guidelines of the Brazilian on both society and the environment. Association of Publicly Traded Companies (ABRASCA) and of the Global Reporting Initiative (GRI), an international • Low carbon economy: we believe we can promote the entity that has become a global benchmark for transition to a low carbon economy in the country, not sustainability reports. We used the GRI G3 guidelines and merely by means of the reduction and compensation of the GRI supplement for the financial sector, and are of the emissions, but above all through our business. This vision opinion that the report complies with application level A+. is a part of our current operations model, which is based The report also includes the initiatives in connection with on innovation, sustainability and harmony with society. the principles of the UN Global Compact, to which the bank has been a signatory since 2007. The process for the definition of strategic focal points reflects the material issues Santander is concerned with The information and results contained in this publication and helped to specify the content of the report. External cover companies that belonged to Santander up to 2010. stakeholders were not involved, as no consultations were The quantitative data refers to the period between 01 held. The process, however, was based on a study January and 31 December, however later relevant conducted by DOM Cabral mapping the main challenges information has also been included. Alterations to to sustainability in Brazil. indicators and metrics for the gathering of information, where applicable, are explained in footnotes to the External stakeholders were involved in the creation of plans respective answer tables. This is the second report of action in relation to these issues and these plans were published by the bank in Brazil based on the GRI format. developed by work groups composed of executives from the bank and endorsed by the Sustainability Committee As part of the ongoing process involving the review of our practices, the Sustainability Council (see composition on Deloitte Touche Tomatsu reviewed the accuracy of the page 41) conducted an analysis of the trends and forces report with regard to GRI G3 indicators and their letter of that are shaping society, in addition to critical sustainability limited social and environmental assurance can be found issues. This analysis resulted in the definition of strategic on pages 138 and 139. focal points which reflect material themes for the bank and represent essential challenges to the financial system, including: Should you require any additional information or to submit suggestions, please contact relacoes.institucionais@ santander.com.br.
138 GRI INDEX Santander’s Annual Report meets the requirements for Level A+ of GRI application.
Profile Page/ Reason for Indicator Description Reported PDF Online omission Page/ Current policy and PDF Reason for 3.13 practices related to the Indicator Description Reported Online(*) omission seeking of external Complete 140 _ verification for the 1. Estratégia e Análise report . 1.1 Message from the Complete 9,10 _ 4. Governance, Commitments and Engagement President. 4.1 Governance structure of 1.2 Description of principle the organisation, impacts, risks and Complete 30 _ including committees of Complete 30, 33, 34 _ opportunities. the top governance body 2. Organizational Profile 4.2 Presidency of the 2.1 Name of organisation. Complete 40 _ highest governance Complete 34 _ body. 2.2 Principal brand-names, Complete 15 _ products and/or services 4.3 Independent or non-executive members Complete 33, 34 _ 2.3 Operational structure of Complete 40 _ of the highest organisation governance body 2.4 Location of organisation Espanha 4.4 Mechanisms by which headquarters. Complete (Madri), _ shareholders and Complete 38 _ Brazil employees make (São Paulo) recommendations 2.5 Countries in which the 4.5 Relationship between organisation operates Complete 20 _ staff compensation and and in which its main the performance within Complete 36 _ operations are located the organisation (including social and 2.6 Type and legal nature of Complete 40 _ environmental). property. 4.6 Processes to ensure that 2.7 Markets served Complete 20 _ conflicts of interest are Complete 33, 43 _ avoided . 2.8 Size of organisation. Complete 20 _ 4.7 Qualifications of the 2.9 Principal changes during members of the highest Complete 30 _ the period covered by Complete 30 _ governance body the report 4.8 Declarations of mission 2.10 Awards received in the 100,106, and values, codes of Complete Cover side, _ period covered by the Complete 119 _ conduct and relevant 33, 44, 48 report. internal principles 3. Parameters for the Report 4.9 Responsibilities for the implementation of 3.1 Period covered by the economic, Complete 38, 39 _ report for the Complete 140 _ environmental and information presented social policies 3.2 Date of the most recent Complete 2009 _ 4.10 Processes for the previous report self-evaluation of the Complete 33, 43 _ highest governance 3.3 Frequency of report Complete 140 _ body publication 4.11 Explanation of this and 3.4 Contact data in case of how the organisation Complete 43, 44, 48 _ questions related to the Complete 140 _ applies the principle of report or its content precaution. 3.5 Process for the 4.12 Letters, principles or definition of the content Complete 140 _ other initiatives Complete - / 46 _ of the report. developed externally 3.6 Limit of the report Complete 140 _ 4.13 Participation in association and/or Complete 5, 96 _ 3.7 Declaration of any national/international specific limits with Complete 140 _ organisms regard to the scope or limit of the report . 4.14 Relationship of groups of stakeholders engaged Complete - / 7 _ 3.8 Basis for the drawing up Complete 140 _ by the organisation . of the report 4.15 Basis for the 3.9 Techniques of data identification and measurement and Complete 140 _ selection of stakeholders Complete - / 7 _ calculation bases . with which the company engages. 3.10 Reformulation of Information information provided in Complete in the _ 4.16 Approach for the previous reports indicator engagement of Complete - / 7 _ stakeholders 3.11 Significant changes in Information scope and limit for Complete in the _ 4.17 Principal themes and methods of measuring indicator concerns raised through Complete 140 / 7 _ applied in the report . the engagement of stakeholders 3.12 Table that identifies the location of the Complete 141 _ information in the report . (*) O PDF Online do Carderno de Indicadores de Sustentabilidade 2010 está disponível no site www.santander.com.br/ir.
139 2010 Annual Report Santander GRI index
Management Approach Performance Indicators Page/ Reason for Page/ Indicator Description Reported PDF Online omission PDF Reason for Global Indicator Description Reported Online omission Compact EC Economic performance Complete _ Economic Performance Market presence Complete 89 / 2 _ EC1 DFs BR Indirect economic impacts Complete _ Essential Direct economic value Complete GAAP _ _ generated and distributed 4T10 (page 22) EN Materials Complete _ EC2 Financial implications and 32, 96, Energy Complete _ Essential other risks and Complete 134 / 2, _ 7 opportunities due to 3 Water Complete _ climactic changes . Biodiversity Complete _ EC3 Coverage of the Essential obligations in the Complete - / 21 _ _ Emissions, effluents and Complete 131 / 48 _ employee pension plan. residues EC4 Significant financial help Products and services Complete _ Essential received by the Partial - / 32 _ _ government. Compliance Complete _ Presence in the market Transport Complete _ EC5 Variation in the proportion General Complete _ Additional of the lowest salary, Complete - / 20 _ 1 compared to the local LA Employments Complete _ minimum salary. Relationship between Complete _ EC6 Policies, practices and 121 / 28, workers and governance Essential proportion of expenditure Complete 29, 30 _ _ on local suppliers. Occupational health and Complete 114 / 18 _ safety EC7 Local hiring of employees Complete - / 18 _ 6 Essential Training and education Complete _ Indirect Economic Benefits Diversity and equality of Complete _ opportunity EC8 Impact of investments in 129 / 32, Essential infrastructure offered for Complete 34, 35 _ _ HR Buying process Complete _ the public benefit. Non-discrimination Complete _ EC9 Description of indirect Additional significant economic No _ _ _ Freedom of Association Complete _ impacts. Child labour Complete 121 / 28 _ Environmental Performance Indicators Forced/slave labour Complete _ Materials Safety practices Complete _ EN1 Materials used by weight Complete 137 / 50 _ 8 Essential or volume Indigenous rights Complete _ EN2 Percentage of materials SO Community Complete _ Essential used are originating from Complete 137 / 50 _ 8 and 9 recycling. Corruption Complete _ Energy Public policies Complete 118 / 32 _ EN3 Direct energy Unfair competition Complete _ Essential consumption segregated Complete 135 / 51 _ 8 by primary energy source. Compliance Complete _ EN4 Indirect energy PR Customer health and Complete _ Essential consumption segregated Complete 135 / 50 _ 8 and 9 safety by primary energy source. Labelling of products and Complete _ EN5 Energy saved due to services Additional improvements in Complete 132, 136 _ 8 116 / 14 conservation and / 50 Communication and Complete _ efficiency. marketing EN6 Initiatives for the supply of Client privacy Complete _ Additional products and services with Complete - / 50 _ _ low energy consumption. Compliance Complete _ EN7 Initiatives for the 122, 131, Additional reduction of indirect Complete 134, 135, _ _ energy consumption and 136 / 48, reductions obtained. 52 Water EN8 Total amount of water Complete - / 49 _ 8 and 9 Essential withdrawn by source. EN9 Water sources significantly 132, 136 Additional affected by water Complete / 49 _ 8 withdrawal. EN10 Percentage and total 122, 123 Not Additional volume of water recycled Partial / 49 monitored 8 and reused. Biodiversity EN11 Location and size of area Complete - / 48 Not 8 Essential owned. material EN12 Significant impacts on the Not Essential biodiversity of activities, Complete - / 48 material 8 products and services . EN13 Protected or restored Complete 120, 134 Not _ Additional habitats. / 48 material
140 Strategies for the Page/ Page/ management of impacts PDF Reason for Global PDF Reason for Global Indicator on biodiversity. Reported Online omission Compact Indicator Description Reported Online omission Compact EN14 Strategies for the Not Occupational health and safety Additional management of impacts Complete - / 48 material _ on biodiversity. LA6 Percentage of employees Additional represented on formal Complete - / 23, 24 _ 1, 2 EN15 Number of species on the Not health and safety and 3 Additional red list of the IUCN and No _ material _ committees . other conservation lists. LA7 Rate of lesions, Emissions, Effluents and Residues Essential occupational diseases and Partial - / 24 Not 1 days lost by employees monitored EN16 and outsource staff . Essential Total direct and indirect Complete 134 / 52 _ 8 greenhouse gas emissions. LA8 Programs for education Essential on risk prevention and Complete - / 21, 24 _ 1 EN17 133, 134 control . Essential Other significant indirect Complete / 52 _ 8 greenhouse gas emissions. LA9 Themes related to health Additional and safety covered by Complete - / 24 _ 1 EN18 Initiatives for the 133, formal agreements with Additional reduction of greenhouse Complete 134, _ 7, 8 unions . gas emissions and the 136, 137 and 9 reductions obtained. / 52 Training and Education EN19 Emission of substances LA10 Average hours of training 90, 112, Essential that are destructive to the Complete - / 52 _ 8 Essential per year Complete 115, 119 _ 6 ozone layer. / 25,26 EN20 NOx, SOx, and other LA11 Programs for the Essential significant atmospheric Complete - / 52 _ 8 Additional management of skills and Partial 114 / 25, Data not _ emissions. continuous learning, as 26 monitored well as retirement . EN21 Essential Total water disposed of, Complete - / 49 _ 8 LA12 Percentage of employees by quality and destination. Additional who receive performance Complete - / 26 _ _ analysis. EN22 Total weight of residues, Essential by type and method of Complete 137/ 53 _ 8 Diversity and Equality of Opportunities disposal. LA13 Makeup of top 27, 113 / EN23 Essential management and boards, Complete 18, 19, _ 1 and 3 Essential Number and total volume None - / 51 _ 8 and proportion by groups 22, 23 of significant spillages. and gender. EN24 Weight of residues LA14 Proportion of salary base Additional transported, considered Complete - / 53 _ _ Essential between men and Complete - / 20 _ 1, 2 dangerous. women, by functional and 3 category. EN25 Description of protection Not Additional and biodiversity index of No - / 49 material/ _ Human rights water bodies and habitats. significant Buying process Products and Services HR1 Description and EN26 Initiatives for the 27, 131 / 7, 8 Essential percentage of policies and Essential mitigation of Complete 48 _ and 9 directives for the Complete - / 31 _ _ environmental impacts. management of all aspects of human rights in EN27 Percentage of products investments Essential and packaging recovered, No - / 50 _ 8 and 9 by product category. HR2 Companies hired 1, 2, 3 Essential submitted to evaluations Complete - / 29, 30 _ and 4 Compliance referring to human rights. EN28 Amount of fines and total HR3 Policies for the evaluation Essential number of sanctions Additional and treatment of human Complete - / 26 _ _ resulting from Complete - / 48 _ 8 rights performance. non-compliance to environmental laws. Non-discrimination Transport HR4 Total number of cases of Essential discrimination, and Complete - / 23, 28 _ 1, 2, 3 EN29 Environmental impacts 133, 134 measures taken. Additional referring to the transport Complete / 51, 52 _ 8 of products and workers. Freedom of Association General HR5 Freedom of Association Essential policy, and degree of Complete - / 27 _ 1, 2, 3 EN30 Total investment in, and 7, 8 application. Additional expenditure on, Complete 135 / 48 _ and 9 environmental protection. Child Labour Performance indicators - Labour and Decent Work Practices HR6 Measures taken to Essential contribute to the abolition Complete 96 / 29 _ 1, 2, 3 Employment of child labour. LA1 Total number of workers, Forced/Slave Labour Essential by type of employment, Complete 16 / 18, _ _ work contract and region 19 HR7 Measures taken for the . Essential contribution to the Complete 96 / 29 _ 1, 2, 3 eradication of forced LA2 Total number and rate of labour. Essential turnover of employees, by Complete 115 / 20 _ 6 age, gender and region Security practices LA3 Comparison between the HR8 Training policies related to Additional benefits of full-time Complete - / 21 _ _ Additional aspects of human rights No – _ _ employees and temporary with respect to safety . employees. Indigenous rights Relationship between work and governance HR9 Total number of cases of LA4 Percentage of employees 1, 2 Additional rights violations of No – _ _ Essential covered by collective Complete - / 27 _ and 3 indigenous people and wage negotiations. measures taken. LA5 Description of Essential notifications (time limits Complete - / 27 _ _ and procedures).
141 2010 Annual Report Santander GRI index
Page/ SECTOR FINANCIAL INDICATORS PDF Reason for Global Indicator Description Reported Online omission Compact Page/ PDF Reason for Global Society Indicator Description Reported Online omission Compact Community FS1 Policies with specific 25, 48, Essential environmental and social Complete 100, 103 _ _ SO1 Programs and practices 97, 112, components applied to / 3, 4, 6 Essential for the evaluation and 124 to business lines. management of impacts Complete 128 / 33, _ 10 of operations on 34, 35, FS2 Procedures for evaluation 48, 56, communities. 36, 37 Essential and classification of Complete 119, 121 _ _ environmental and social / 3, 4, 5, Corruption 10 risks, in business lines. 6 SO2 Units submitted to FS3 Processes for the Essential evaluation of risks related Complete - / 47 _ 10 Essential monitoring of to corruption. implementation by the client of the fulfilment of Complete - / 4, 6 _ _ SO3 Percentage of employees environmental and social Essential trained in anticorruption Complete - / 47 _ 10 requirements, included in policies and procedures. contracts or as part of transactions. SO4 Measures taken in Essential response to cases of Complete - / 47 _ 10 FS4 Processes to improve the corruption. Essential competency of staff in the implementation of Complete 56, 119 / _ _ Public Policies environmental and social 26 procedures applied to SO5 business lines. Essential Positions with regard to Complete 96 / 46 _ 10 public policies. FS5 Interactions with clients/ Essential investing parties and 30, 42, SO6 Policy of financial commercial partners, with Complete 112, 119 _ _ Additional contributions to political Complete - / 46 Public _ regard to environmental / 7, 8, 9, parties, politicians or information and social risks and 28 institutions. opportunities . SO7 Number of legal cases FS6 Percentage of the 51 / - Additional related to unfair Complete - / 47 _ _ Essential portfolio of business lines DFs BR Percentage competition. by specific region, by size Partial GAAP not _ (e,g. micro/small and 4T10 monitored Compliance medium/large), and by (page. 2, sector 37) SO8 Description of significant Essential fines and total number of Complete - / 47 _ _ FS7 Monetary value of non-monetary sanctions. Essential Luddites and services Percentage created to provide a Partial - / 10 not _ Responsibility for Products specific social benefits, monitored by business line, listed Client health and safety by purpose. PR1 Policy for the preservation FS8 Monetary value of Essential of the health and safety of Complete 44, 61 / _ _ Essential products and services 103, Percentage the consumer during the 14, 15 created to provide a Partial 106, 134 not _ use of the product specific environmental / 3, 9 monitored benefits for each business PR2 Non-compliance related to line, listed by purpose. Additional impacts caused by No – _ _ products and services. FS9 Coverage and frequency Essential of audits to be of value Labelling of products and services the implementation of Complete - / 6 _ _ social and environmental PR3 Type of information on policies, and procedures Essential products and services Complete - / 17 _ _ of risk evaluation. required by labelling procedures . FS10 Percentage and number Essential of companies in the Percentage PR4 Non-compliance related to institution's portfolio with Partial 25 / 7, not _ Additional the labelling of products Complete - / 17 _ _ which the organisation 8, 9 monitored and services . interacts on environmental and social questions . PR5 Practices related to client 116 / 16, Additional satisfaction, including poll Complete 17 _ _ FS11 Percentage of assets Percentage results. Essential subject to environmental Partial 100 / 9, not _ or social screening, 10 monitored Marketing and Communication positive and negative. PR6 Programs for adherence FS12 Voting policies applied to Essential to laws, standards and Partial 64 / 17 _ _ Essential social and environmental voluntary codes. questions for participation in what the declaring Complete - / 10 _ _ PR7 Cases of non-compliance organisation has the right Additional related to the Complete - / 17 _ _ to vote, or provide voting communication of products advice. and services. FS13 Access points in thinly PR8 Proven complaints related Essential populated areas, or areas Complete 98 / 11, _ _ Additional to the violation of client Partial - / 17 _ _ at an economic 12 privacy disadvantage, by type . Compliance FS14 Initiatives to improve Essential access to financial Complete - / 22 _ _ PR9 Fines for non-compliance services, for the disabled. Essential in the supply of products Complete - / 17 _ _ and services FS15 Policies for the good Essential performance and sale of Complete - / 9 _ _ financial products and services. FS16 Initiatives to improve 90, 98 / Essential financial education, by Complete 13 _ _ type of beneficiary.
142 Investors Services Credits [email protected] General Coordination Shareholders Services Santander [email protected] Text Get in contact with us Report text: Report Comunicação If you require information or wish to inquire about your Translation: Communication account and/or products, call the Santander customer service center: Graphics Project 4004 3535 (state capitals and other metropolitan areas) fmcom 0800 702 3535 (other locations) 24 hours a day, 7 days a week. (Special line for those with hearing and speech impairments) Photos Cover: Ricardo de Sá If you wish to make a complaint, pay a compliment or need Photographic Production: Pisco Del Gaiso; to effect a cancellation, you can also talk to us via the Marcelo Soubhia (page 15), Iñigo Plaza Consumer Support Service – SAC: Cano (page 17), Bruno Spada (page 32), 0800 762 7777 Paulo Uras (pages 33 and 115), Léo Freitas 24 hours a day, 7 days a week. (page 97), André Arruda (page 103), Ferrari (Special line for those with hearing and speech impairments) (page 113), Ricardo Hara (pages 119 and 121), Marcos Soares Pereira (Arcos da If you are not satisfied with the solution provided by the Lapa, page 128), Denise Andrade (Transfer, bank, call the ombudsman department: page 128) and Shutterstock (pages 96 and 105) 0800 726 0322 Infographic: Jean Pierre Forrer Filho Mondays to Fridays from 09:00 to 18:00 hours, except public (pages 122, 123, 136 and 137). holidays. (Special line for those with hearing and speech impairments)
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