Company: BCDRF
Filing Date: 2025-07-31
Form Type: 6-K
Source: 0000891478-25-000113
Chunk: 179

Company: Banco Santander, S.A.
Filing Date: 2025-07-31
Form: 6-K
Chunk 179
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 sensitivity to time frame used;

• Inability to capture plausible high-impact events if these do not occur during the time frame used.

• Valuation parameters with no market input (such as correlations, dividend and recovery rates).

• Slow adjustment to new volatility and correlation, as the weighting of the newest and oldest data is the same.

| 190 |     | January - June 2025 |

Using Stressed VaR and expected shortfall (ES) help overcome some of these limitations. We calculate VaR with exponential decay, apply conservative valuation adjustments, and regularly conduct analyses and backtesting to assess the accuracy of the VaR calculation model.

b) Stressed VaR (sVaR) and expected shortfall (ES)

We calculate sVaR daily for our main portfolios with the same methodology as for VaR, with these exceptions:

• We use a window of 260 observations (as opposed to 520 for VaR) over a continuous period of stress on a portfolio. For each portfolio, we review the history of a subset of selected market risk factors based on expert judgement and the most significant positions in the books.

• Unlike VaR, we obtain sVaR by using the percentile with uniform weighting, and not with the higher of the percentiles with exponential and uniform weightings.

To calculate the ES we estimate expected potential loss above the level obtained from VaR and assign uniform weights to all observations. Unlike VaR, ES has the advantage of capturing the risk of large losses with a low probability (tail risk) and being a sub-additive metric. According to the Basel Committee, an ES with a 97.5% confidence interval delivers a level of risk similar to VaR at a 99% confidence interval.

c) Scenario analysis

Santander's risk measures are based on normal market conditions, price stability, sufficient liquidity and other assumptions used in daily risk management and decision-making. However, it is possible that extreme movements and strong unforeseen changes will not be properly anticipated. Therefore, we run scenario analyses, which prove important to predict the outcome of a wide range of risks and estimate the capital needed to absorb any losses in case such unexpected events occur.

These stress scenarios are important to estimate future risk, overcome the limitations of models and historical data, support liquidity and capital plans, report on risk tolerance levels and develop risk reduction and contingency plans under stress conditions.

We regularly calculate and analyse stress scenarios for our subsidiaries with trading activities which include historical scenarios, hypothetical scenarios and reverse stress test scenarios.

d) Analysis of positions