Company: BCDRF
Filing Date: 2025-03-03
Form Type: 6-K
Source: 0000891478-25-000057
Chunk: 123

Company: Banco Santander, S.A.
Filing Date: 2025-03-03
Form: 6-K
Chunk 123
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 overshootings The confidence level for the VaR calculation is also an indicative measure of the number of days that can be expected to elapse between two successive overshootings. For instance, if the daily VaR is calculated at 99% confidence (1st and 99th percentiles), we may expect an average time of approximately 50 days between overshootings. Similarly to the frequency of overshootings, hypothesis-testing can be done based on the time between overshootings, as a means of validating the VaR model. Distance between overshootings Whereas the VaR predicts the risk that is assumed with a certain probability, average overshooting (expected shortfall) is a predictor for that probability of the average loss once VaR is exceeded. This testing should be included when analysing the backtesting report to obtain the size of the potential losses that exceed the VaR level. Daily VaR/P&L relationship To validate the VaR model it is not sufficient to analyse the number and type of overshootings that occur in a time window. Other indicators must be observed to ensure the model's consistency. One such indicator is the daily VaR/P&L relationship. This relationship is defined as: • The P&L figure, as a percentage of VaR, on all the days on which there are no overshootings (losses or gains). • Calculation of its arithmetic mean. The percentage should be close to a value determined by the VaR confidence level. The higher the chosen confidence level, the higher the VaR estimate (and the smaller the P&L results as a percentage of that estimate).

If the percentage observed is above the expectation, the risk is being underestimated and the model should be reviewed. Conversely, if the percentage is significantly smaller, then the risk is being overestimated and the VaR model should be adjusted. The latter outcome may, however, be desirable if the target is to maintain conservative risk estimates. The following diagram shows the annual backtest (MR4) at the end of December 2024 for each unit with internal model approval (see table 80).

| Access the Pillar 3 2024 file available on Grupo Santander's web site |

The number of overshootings at 31 December 2024 for the units with internal model approval are shown below.

| Table 83.Exceptions at units with internal model |     |            |     |   |              |     |      |
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