Company: BCDRF
Filing Date: 2025-02-28
Form Type: 20-F
Source: 0000891478-25-000054
Chunk: 558

Company: Banco Santander, S.A.
Filing Date: 2025-02-28
Form: 20-F
Chunk 558
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 risk and option risk (e.g. behavioural or automatic).

Interest rate positions on the balance sheet and market conditions and outlooks could necessitate certain financial measures to achieve the Group’s risk profile target.

Metrics for checking IRRBB include NII and EVE sensitivity to interest rate movements.

• Net interest income (NII) and sensitivity: NII is the difference between interest income from assets and the interest cost of liabilities in the banking book over a typical one- to three-year horizon (one year being standard in Santander). It enables us to see short-term risks and supplement economic value of equity (EVE) sensitivity.

• Economic value of equity (EVE) and sensitivity: EVE is the difference between the present value of all assets minus the present value of all liabilities in the banking book. It does not include shareholder equity and non-interest-bearing instruments. It enables us to see long-term risks and supplement NII sensitivity.

b) Credit spread risk

The metrics we use to monitor credit spread risk in the banking book (CSRBB) includes NII and EVE sensitivity to changes in spread curves as well as the impact of stress scenarios on positions that have been identified as affecting CSRBB.

In 2024, we embedded the CSRBB monitoring framework in our units and added limits and metrics to track the impact of adverse movements in credit spreads on market value, EVE, and NII.

c) Interest rate models

Interest rate risk metrics consider the behaviour of financial products under stress scenarios in which uncertainty is common and the failure to meet contractual obligations is possible. We have methodologies that help explain how such products will behave. These are our key interest rate risk models:

• Treatment of liabilities without stated maturity. The Group’s model shows balances of all accounts without maturity using stable and unstable volumes, settlement speed over time, customer and market types, and other variables.

• Prepayment treatment for certain assets. Prepayment risk mainly affects fixed-rate mortgages in subsidiaries where contractual rates are below market rates and customers have the incentive to pay off all or part of their mortgage early.

d) Structural exchange rate risk/hedging of results

We measure FX positions, VaR and P&L every day.

In 2024, we introduced new limits to FX positions in the banking book to complement the structural FX metrics and monitor exchange rate risk in full.

e) Structural equity risk

We measure equity positions, VaR and P&L.

3.5 Key structural balance sheet risk metrics

In line with previous years, the market risk profile of the Group