Company: BCDRF
Filing Date: 2025-03-03
Form Type: 6-K
Source: 0000891478-25-000057
Chunk: 80

Company: Banco Santander, S.A.
Filing Date: 2025-03-03
Form: 6-K
Chunk 80
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 assessing the effects of future external events and strategic decisions, to establish measures that ensure the risk profile and volume are within the established parameters and aligned with the appetite established by the group. The main metric used to measure and control the credit risk at the Group is the cost of credit. This ratio quantifies loan-loss provisions arising from credit risk over a defined period of time for a given loan portfolio. As such, it acts as an indicator of the group's credit quality. The loan-loss provisions are calculated under the IFRS 9 standards. The basic structure for the impairment recognition phases is as follows, from lower to higher credit quality impairment (Stage 1 to 3): • Stage 1: expected credit losses over the next twelve months. • Stage 2: forecasting of expected credit losses over the life of the instrument. • Stage 3: materialization of expected credit losses over the entire life of the instrument. In this stage, the calculation considers that the loss events have already occurred and therefore, the only possible scenario is materialization in losses. A significant increase in credit risk determines the transition from the first phase to the second phase. For further details on the key credit risk figures, see the Risk management and control chapter of the 2024 Annual report.

| Access 2024 Annual Report available on the Santander Group website |

4.9. Backtesting of IRB parameters 4.9.1. Backtesting of PD The backtesting of the PD accesses the suitability of regulatory the PDs by comparing them with the Observed Default Frequencies (ODFs) during the most recent period. This comparison complies with the quantitative approach required by the European Banking Authority (EBA) in its Guidelines on disclosure requirements under part eight of the capital requirements regulation (EU) No 575/2013, of August 2017. This proposes reporting information for backtesting the PD in accordance with Template 24: - Internal ratings-based approach (IRB) - Back-testing of PD per exposure class. For further details on PD backtesting (in accordance with the format of table CR9), see tables 53 to 56. A summary of the conclusions from the results obtained can be found below: Regulatory PDs are consistent with observed historical default rates, although the following relevant facts can be highlighted: • In general, the PDs are higher than observed default rates, both in the last year and from a historical perspective. This is a reflection of: 1) the conservatism adopted in the estimation of the parameters and