Business context and reporting period
Banco Santander, S.A. filed this Form 20-F for the fiscal year ended 31 December 2022, not for Q4 alone. The Group operates across Europe, North America and South America, alongside its Digital Consumer Bank and global businesses. Financial statements use IFRS as issued by the IASB. Management also presents underlying and other alternative performance measures (APMs), which are supplemental and not audited or reviewed.
Key financial metrics
| Metric | FY 2022 | Prior comparable period |
|---|---|---|
| Total income | €52.1bn | €46.4bn; +12.3% reported, +5.8% in constant euros |
| Net interest income | €38.6bn | €33.4bn; +15.7% reported, +9.0% in constant euros |
| Net fee income | €11.8bn | €10.5bn; +12.3% reported, +6.7% in constant euros |
| Operating expenses | €23.9bn | €21.4bn; +11.6% reported, +7.0% in constant euros |
| Net operating income | €28.2bn | €25.0bn; +12.9% reported |
| Profit before tax | €15.3bn | €14.5bn; +4.8% reported, -3.9% in constant euros |
| Profit attributable to parent | €9.6bn | €8.1bn reported; underlying profit was €8.7bn in 2021. FY 2022 reported profit was +18.2% reported and +8.5% in constant euros |
| EPS / profitability | EPS €0.539; RoTE 13.37%; RoE 10.67%; RoRWA 1.77% | EPS €0.438; RoTE 11.96%; RoE 9.66%; RoRWA 1.69% |
| Efficiency / credit quality | Efficiency ratio 45.8%; cost of risk 0.99%; NPL ratio 3.08%; coverage 68% | Efficiency 46.2%; cost of risk 0.77%; NPL ratio 3.16%; coverage 71% |
| Balance sheet | Assets €1,734.7bn; loans to customers €1,036.0bn; customer deposits €1,025.4bn; total equity €97.6bn | Assets €1,595.8bn; loans €972.7bn; deposits €918.3bn; equity €97.1bn |
| Capital | Fully loaded CET1 12.04%; phased-in CET1 12.18%; fully loaded leverage ratio 4.70% | Fully loaded CET1 12.12%; phased-in CET1 12.51%; leverage ratio 5.21% |
| Cash flow | Operating cash flow €27.7bn; investing cash flow -€3.9bn; financing cash flow -€10.0bn; cash and cash equivalents increased €12.4bn, including -€1.5bn FX impact | Net increase in cash and cash equivalents €56.9bn |
Customer funds, including deposits, mutual funds, pension funds and managed portfolios, were €1,255.7bn, up 8.8%. Total liabilities were €1,637.1bn. Financial liabilities at amortized cost were €1,423.9bn, including €280.3bn of marketable debt securities. The Group issued €57.2bn in medium- and long-term funding and securitizations during 2022. Liquidity ratios remained above requirements: LCR 152% and NSFR 121%; the loan-to-deposit ratio was 101%.
Material changes versus prior period
- Higher interest rates and loan growth lifted net interest income; total income grew 5.8% in constant euros.
- Costs rose 7.0% in constant euros amid inflation and technology investment, but the efficiency ratio improved 0.4 percentage points to 45.8%.
- Net impairment charges on financial assets increased to €10.9bn from €7.4bn. Cost of risk rose to 0.99%, close to management’s below-1% objective.
- Loans and deposits grew, while fully loaded CET1 eased 8 basis points to 12.04%. The NPL ratio improved 8 basis points, but coverage declined 3 percentage points.
- Underlying and reported attributable profit were both €9.6bn in 2022; 2021 underlying profit excluded €530m of restructuring costs.
Outlook, commentary, risks and unusual items
Management said the Group was well positioned for profitable growth in 2023, citing customer growth, geographic diversification, disciplined capital allocation and a strong balance sheet. The filing discusses 2023 financial targets, but the extracted filing text does not provide a clear set of numerical targets. For 2023 results, the board approved a shareholder remuneration policy of approximately 50% of reported profit, excluding specified non-cash and non-capital-ratio-impact items, split approximately equally between cash dividends and buybacks; implementation remains subject to corporate and regulatory approvals.
For 2022, the board’s policy targeted approximately 40% of underlying profit for shareholder remuneration. A final cash dividend of €0.0595 per eligible share and a €921m second buyback were submitted or announced after year-end and are subject to the stated approvals and execution. The 2022 shareholder remuneration estimate is €3.842bn, split approximately equally between cash dividends and buybacks.
- Key risks include inflation, higher rates, slower growth or recession, the war in Ukraine, market and foreign-exchange volatility, credit deterioration, changes in regulation or tax, funding conditions, cybersecurity and operational risk, and climate-related physical and transition risks.
- The Group reported €3.432bn in provisions for taxes and other legal contingencies, including other provisions. Critical audit matters included expected credit loss estimation, goodwill impairment assessment and litigation provisions. The auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
- A Spanish temporary levy on credit institutions was enacted after year-end; Santander recorded an estimated €225m charge on 1 January 2023. The filing also describes mortgage-payment measures in Poland and CHF-loan litigation exposure.
- There were no material goodwill impairments in 2022. The 2020 goodwill impairment was €10.1bn, and deferred tax assets were written down by €2.5bn that year.
Important facts for investors to verify
- Reconcile reported IFRS results with underlying measures and review the filing’s definitions of APMs and constant-euro growth.
- Review the assumptions, overlays and sensitivity of expected credit losses, particularly in Brazil, the US, Poland and mortgage portfolios.
- Confirm the final dividend approval, completion and cancellation of shares under buyback programmes, and resulting capital ratios and share count.
- Assess liquidity and funding after TLTRO repayments, wholesale funding activity and changes in interest rates.
- Track the impact and accounting treatment of the Spanish bank levy and developments in CHF mortgage litigation and other contingencies.