Rating action

Scope Ratings GmbH (Scope) has today affirmed the AA- issuer rating and AA- preferred senior unsecured debt rating of Banco Santander SA (Santander), both with Stable Outlooks. The ratings were previously only available to investors on a subscription basis. Scope has also assigned first-time ratings to Santander Consumer Bank AG.

The full list of rating actions and rated entities is provided at the end of this rating action release.

Key rating drivers

Business model assessment: Very resilient (Low). The issuer rating is anchored by the Very resilient (Low) business model assessment. Banco Santander benefits from a globally diversified retail and commercial banking franchise that generates around 50% of the group’s revenues, with leading market positions in Spain, Portugal, the UK, Mexico, Brazil, Chile and a strong presence in the US.

With total assets of around EUR 1.8trn and over 100m active customers across Europe, North America and South America, the group is focused on organic growth and expanding the customer base by deploying its strong digital capabilities and operational know-how across its markets.

The group also operates a leading consumer finance business in the EU, through its fully owned subsidiary Santander Consumer Finance and its Digital Consumer Bank which together represent 20% of the group’s revenues. It is also active across its global footprint in Corporate and Investment Banking (13% of the group’s revenues), Wealth Management and Insurance, and holds a very strong position in payment services (including merchant acquiring and international trade solutions).

Operating environment assessment: Supportive (Low). The assessment reflects Scope’s blended view of the different markets where Santander operates. The group’s main markets, Spain, the UK, as well as the US provide a relatively stable economic environment for banking activities, helping to offset the volatility primarily stemming from the group’s operations in Latin America. The stability and predictability of the institutional and regulatory frameworks in its main operating markets further support the development of the group’s strategic objectives and growth.

Spain (Supportive low) represents 22% of the group’s loan book as of September 2024. The county’s GDP per capita has grown steadily, reaching EUR 33k in 2023. Despite global economic challenges, Spain's economy has demonstrated resilience, achieving robust GDP growth of 2.5% in 2023, significantly outperforming the euro area's growth of 0.5%. Medium-term growth prospects are supported by structural improvements in the country’s economic structure and strong labour market dynamics, including significant contributions from positive net migration flows and labour market reforms. Furthermore, output and employment gains have been increasingly driven by emerging, higher value-added sectors, including telecommunications and advanced manufacturing.

The Spanish banking sector is highly concentrated, with the top four banks accounting for around 80% of the sector’s domestic assets as of YE 2023. The sector is characterised by strong cost efficiency, which has improved significantly in recent years following the last consolidation cycle. Profitability metrics have improved, in line with what has been observed in other European economies, allowing banks to strengthen their financial profile after years of weaker performance.

The UK (Supportive high) accounts for 22% of the group’s loan book as of September 2024. With a population of 68m and a GDP of USD 3.3trn, the UK is a large, wealthy and diversified economy. It benefits from strong institutions, including robust financial supervisory, economic and monetary governance frameworks. Scope expects moderate output growth of 1.5% for 2025 and 2026. Labor dynamics remain relatively solid, supporting the asset quality of banks.

Following the Great Financial Crisis, major UK banks have undergone substantial restructuring and de-risking efforts enabling them to generate more consistent earnings. The banking sector remains attractive due to its consolidated structure with six major players. Competition is high due to ring-fencing rules and regulatory efforts to promote competition and improve the quality of services. The loan market is dominated by residential mortgages (nearly 70%) which have a low credit loss history.

The United States (Supportive high) accounts for 11% of the group’s loan book as of September 2024. As the world’s largest economy by nominal GDP (USD 26.9trn in 2023), the US benefits from its high resilience, high wealth (GDP per capita of USD 80k, among the highest globally), and leadership in science, technology and innovation. The flexibility of labour markets, a dynamic entrepreneurial business culture, and a skilled labour force are further economic strengths. The US banking sector is backed by world-class financial-supervisory institutions and is one of the most advanced financial systems globally. Banks are soundly positioned on aggregate, with solid capitalisation and sound asset quality.

Santander’s adheres to a multiple point of entry resolution strategy with the primary operating group under the Spanish regulatory framework. Spain, as part of the European Banking Union, has benefitted from a significant strengthening and harmonisation of bank regulation and supervision under the ECB’s Single Supervisory Mechanism, which Scope considers to be supportive of financial stability. The European Central Bank also shares with national central banks the role of lender of last resort, which limits liquidity risks for banks.

Scope’s initial mapping of ‘a’ for Santander is based on a combined assessment of the issuer’s operating environment and business model.

Long-term sustainability assessment (ESG factor): Best in class (+1 notch). The assessment reflects Scope’s view that Santander is an early adopter of advanced industry standards and practices related to sustainability. This positions the group as best in class, reflecting its proactive approach to long-term sustainability, including target setting and commitment to delivery, which enhances its credit standing.

The group has developed strong capabilities in digital banking, environmental and sustainable finance. Its Digital Consumer Bank division, which focuses on auto loans, (including Openbank and Open Digital Services) has grown steadily and represents now more than 20% of the group’s revenues. The group has demonstrated agility in the development of products across jurisdictions, adapting execution to regional and country-specific circumstances, which have resulted in the simplification of client onboarding and the ability to impact efficiency, from levels closer to 45% in 2022 to 42% as of September 2024. The vision of a ‘digital bank with branches’ for its retail and commercial banking division allows the group to offer all products and services via digital through its own global platform, while maintaining a network of 8,000 branches.

Furthermore, Santander‘s financial inclusion and socially responsible investments have been deployed across geographies and the positive impact on the group’s business model has translated into franchise strength and differentiation compared to peers. While the target for green finance loans and socially responsible investment in AuM still represent a limited portion of the portfolio, the fast growth observed in recent years and management’s strong commitment to execution positions the group as a leading player driving a differentiated value proposition.

The long-term sustainability assessment leads to an adjusted rating anchor of a+.

Earnings capacity and risk exposures assessment: Supportive (+1 notch). The assessment reflects Scope’s view that earnings capacity is stable through economic cycles providing a strong buffer against losses. Risks are well managed with losses highly unlikely to undermine the issuer’s viability.

The group’s ability to generate strong risk-adjusted earnings is supported by its business and geographic diversification. RoE has improved steadily as a result of the high-interest rate environment, achieving levels already at the upper range of the management target for 2025, between 15%-17%. Scope expects operating performance to remain robust, driven mostly by better performance in non-EU countries (UK, US and Latin America) as activity volumes pick up and asset quality stabilises. Santander’s focus on efficiency across geographies has translated into an outstanding cost containment culture, with a target cost-to-income ratio of 42% for 2024, further strengthening its earnings capacity generation.

Asset quality and risk exposures are adequately managed, reflecting the underlying economic performance of its diverse markets. With a cost of risk at around 120bps, while relatively high when compared to EU peers it reflects its significant focus on consumer lending, as well as the exposure to developing markets with an intrinsically higher risk-return profile.

Sector specific concentration is not material, as most of the commercial loan portfolio is skewed towards manufacturing and retail trade SMEs. Sovereign exposure via the bond portfolio (EUR 127bn) represents 7% of total assets as of September 2024, with the largest exposure being to the Spanish sovereign. This in our view is not considered a material source of risk as the securities are primarily for the ALCO portfolio, with the HTC portion representing 65% of the total. In line with Scope's Financial Institutions Rating Methodology, the issuer rating is not mechanically capped at the level of the sovereign.

Financial viability management assessment: Adequate. The assessment reflects Scope’s view that financial viability management provides some buffer and, under a base case scenario, should not imminently push any metric close to minimum requirements or jeopardise the issuer’s financial viability.

The group effectively manages capital, funding and liquidity, although at levels below EU peers. The capital position with a CET1 ratio at 12.5% as of Q3 2024, while lower than peers with similar business models, is in line with management’s target (>12% CET1). The EU resolution group has a TLAC position of 28.4%, with a buffer of 629bps above requirement as of September 2024, which Scope considers supportive and mitigates in part the relatively lower CET1 ratio compared to peers.

Due to the retail nature of its business, the group’s funding structure is highly reliant on customer deposits which account for 70% of the group’s liabilities. The group is also very active in international debt markets, leveraging its multiple-point-of entry resolution strategy, which allows each subsidiary to manage capital autonomously. Liquidity across jurisdictions is also adequate, with a LCR at group level of 161% and NSFR at 158% as of September 2024. This underlines the strength of the group’s franchise, both in deposits and as a debt issuer across jurisdictions.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s view that the risks to the current rating are balanced.

The upside scenarios for the ratings and Outlooks are (individually or collectively):

1. Strengthening of the capital base, exceeding management’s target and increasing buffers above current levels, which could result in a higher financial viability management assessment.
    
2. Significant improvement in the operating environment, particularly in markets historically characterised by higher volatility, leading to a stronger operating environment assessment.

The downside scenarios for the ratings and Outlooks are (individually or collectively):

1. Pressure on the group’s earnings due to a larger than expected and prolonged increase in cost of risk, weakening the earnings capacity and risk exposures assessment.
    
2. Deterioration in the group’s financial viability management profile, with a persistent reduction in capital or tighter liquidity.

Subsidiaries and affiliates: ratings and Outlooks

Santander Consumer Finance SA: A+/Stable. The issuer rating on Santander Consumer Finance SA (SCF) is one notch below the issuer rating of the parent, Banco Santander SA, reflecting Scope’s view that the subsidiary would likely receive high support from its parent under exceptional circumstances. The Stable Outlook is aligned to the Outlook of the parent.

SCF is directly owned by Banco Santander S.A. and is responsible for most of the consumer finance operations of the group. Scope views SCF as highly integrated with the Santander group. However, SCF operates with a level of independence and manages its capital and funding with some autonomy, as seen with most of the group’s subsidiaries. Considering this level of autonomy and SCF’s focused business on consumer finance and auto loans via joint ventures and partnerships with automakers, Scope maintains a one notch difference between its issuer rating and that of its parent.

Scope could review the rating in case of a change in the assumption of support from the parent.

Santander Consumer Bank AG: A+/Stable. The issuer rating on Santander Consumer Bank AG (SCB) is aligned with the issuer rating and Outlook of the parent, Santander Consumer Finance SA, reflecting Scope’s view that the subsidiary would likely receive full support from its parent under exceptional circumstances. The Stable Outlook is aligned to the Outlook of the parent.

SCB is owned by Santander Consumer Finance S.A. and is responsible for the consumer and car financing operations of Santander Consumer Finance in Germany. With a portfolio of loans of around EUR 35bn as of end-2023, via its parent, SCB contributes to the group’s Digital Consumer Bank segment of Banco Santander SA.

Scope could downgrade SCB’s rating in case of a change in the assumption of full support from its direct parent SCF.

Debt ratings

Preferred senior unsecured debt: AA-/Stable. The rating is aligned with the issuer rating and applies to senior unsecured debt ranking above other classes of senior unsecured debt.

Non-preferred senior unsecured debt: A+/Stable. The rating is one notch lower than the issuer rating, reflecting statutory subordination.

Short-term debt: S-1+/Stable. The short-term credit rating is derived from the long-term issuer credit rating. The rating is consistent with Scope’s long-term/short-term rating correspondence table. The choice of the highest possible short-term rating (S-1+ given the AA- issuer rating) reflects the strength of the group’s liquidity profile and access to central bank funding.

Environmental, social and governance (ESG) factors

Please refer to the ‘long-term sustainability assessment’ under the ‘key rating drivers’ section above for the ESG analysis.

All rating actions and rated entities

Banco Santander SA

Issuer rating: AA-/Stable, affirmed

Preferred senior unsecured debt rating: AA-/Stable, affirmed

Non-preferred senior unsecured debt rating: A+/Stable, affirmed

Short-term debt rating: S-1+/Stable, affirmed

Santander Consumer Finance SA

Issuer rating: A+/Stable, affirmed

Preferred senior unsecured debt rating: A+/Stable, affirmed

Non-preferred senior unsecured debt rating: A/Stable, affirmed

Santander Consumer Bank AG

Issuer rating: A+/Stable, new

Preferred senior unsecured debt rating: A+/Stable, new

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Financial Institutions Rating Methodology, 6 February 2024), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation    NO
With access to internal documents                                  NO
With access to management                                           NO
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Carola Saldias, Senior Director
Person responsible for approval of the Credit Ratings: Pauline Lambert, Executive Director
Banco Santander SA issuer Credit Rating/Outlook was first released by Scope Ratings on 2 April 2014. The Credit Rating/Outlook was last updated on 10 April 2024.
Banco Santander SA short-term Credit Rating/Outlook was first released by Scope Ratings on 22 May 2014. The Credit Rating/Outlook was last updated on 10 April 2024.
Banco Santander SA preferred senior unsecured debt Credit Rating/Outlook was first released by Scope Ratings on 2 April 2014. The Credit Rating/Outlook was last updated on 10 April 2024.
Banco Santander SA non-preferred senior unsecured debt Credit Rating/Outlook was first released by Scope Ratings on 25 July 2017. The Credit Rating/Outlook was last updated on 10 April 2024.
Santander Consumer Finance SA issuer and the preferred senior unsecured debt Credit Ratings/Outlooks were first released by Scope Ratings on 12 December 2018. The Credit Ratings/Outlooks were last updated on 10 April 2024.
Santander Consumer Finance SA non-preferred senior unsecured debt Credit Rating/Outlook was first released by Scope Ratings on 21 January 2022. The Credit Rating/Outlook was last updated on 10 April 2024.
Santander Consumer Bank AG issuer Credit Rating/Outlook was first released by Scope Ratings on 13 December 2024.
Santander Consumer Bank AG preferred senior unsecured debt Credit Rating/Outlook was first released by Scope Ratings on 13 December 2024. 

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab GmbH and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin.