Company: BCDRF
Filing Date: 2025-03-03
Form Type: 6-K
Source: 0000891478-25-000057
Chunk: 69

Company: Banco Santander, S.A.
Filing Date: 2025-03-03
Form: 6-K
Chunk 69
---
 at the time of default.

#### Past information
on portfolios is essential for estimating regulatory parameters, as established in EU regulations (Regulation No 575/2013). The minimum data periods to be used in estimates are between five and seven years, depending on the parameter and the portfolio. However, the period used in the estimate can be longer, depending on the historical information available. The Bank has an internal data model containing historical information on portfolios, which is

3 Regulation (EU) No 575/2013 of the European Parliament and Council of 26 June 2013 on prudential requirements for credit institutions and investment firms.

122 2024 Pillar 3 Disclosures Report

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

subject to review by the internal supervisory divisions (Validation and Audit) and by the supervisory authorities.

#### The methodology
used to estimate the credit risk parameters was updated under the new regulatory guidelines, mainly established in the “Guidelines on PD estimation, LGD estimation and the treatment of defaulted assets", to incorporate the requirements and interpretations deriving from these regulatory provisions.

For regulatory purposes, observations of frequency of default and associated losses has to be averaged out over an entire economic cycle in the case of the PD, or represent a downturn situation in the case of the LGD or EAD, or represent the current economic cycle in the case of the ELBE for non-performing transactions.

For this reason, recent observations are not directly comparable with the regulatory parameters and

#### backtesting exercises
should be treated with caution and placed in the context of the current economic environment. As explained in section 4.9, recent observed default frequencies (ODFs) are below the regulatory PDs in geographic locations with economic growth rates above the average for the cycle. Conversely, in regions where economic growth is below average, the ODFs may exceed the regulatory PDs.

The risk parameters must be estimated separately for each entity, country and segment and has to be reviewed at least once a year.

The parameters are then assigned to the transactions recorded on each unit’s balance sheet, in order to calculate the expected losses and capital requirements associated with the unit’s exposure.

In certain portfolios there is only a limited amount of default experience, that alternative approaches to parameter estimation have to be used. These are known as low default portfolios.

Low default portfolio: corporates; banks; non-bank financial institutions and central governments