Company: BCDRF
Filing Date: 2025-03-03
Form Type: 6-K
Source: 0000891478-25-000057
Chunk: 81

Company: Banco Santander, S.A.
Filing Date: 2025-03-03
Form: 6-K
Chunk 81
---
 2) the progressive reflection of a better economic situation once the recession in 2008 has been overcome. These combined tend to reduce the observed default frequencies. There are only a few exceptions which are generally due to idiosyncratic factors of the portfolios, not dependent on the economic environment, such as the integration processes of acquired entities. • Noteworthy is the good performance of the retail portfolios of non-SME mortgages and cards, where the differences between the model's PDs and levels of NPLs are more notable. • In the case of the portfolios of Large Corporates and Financial Institutions, where point (f) of article 180 (1) of the CRR is being applied for the estimation of PD, it is also noted a good performance with regulatory PDs higher than the observed default rates, except in some ranges where low volumes affect the observed values. For more information on PD backtesting results, see table 53, table 54, table 55 and table 56.

2024 Pillar 3 Disclosures Report 133

| Index |     | Introduction |     | Capital |     | Risks |     | Risk taker's remunerations |     | Appendices |

#### 4.9.2. Backtesting of EAD
In order to compare the suitability of the estimated credit conversion factors (CCFs), the estimated parameters are compared with the actual CCFs in the most recent period. Given the downturn nature of the regulatory parameter, the estimated conversion factors are expected to exceed those observed. For this reason, the comparison has to be made in the context of the economic circumstances in which the contrast is made, although EAD is not a parameter that is particularly sensitive to the economic cycle.

Additionally, calculations of the so-called “coverage ratios” are performed, where the assigned EAD is compared with the default balance or observed EAD. Values above 100% are indicative of a suitable degree conservatism.

#### 4.9.3. Backtesting of LGD
As for the rest of the parameters, the LGD estimates are compared with the LGD realised in the most recent period. Given the downturn nature of the regulatory parameter, the estimated LGDs are expected to exceed those observed. For this reason, the comparison has to be placed in the context of the economic circumstances in which the contrast is made, particularly taking into account the typical sensitivity to the cycle of the parameter, especially in portfolios where the collateral is sensitive to the economic cycle.

| Table 53.CR9