The Management Board Report on Santander Bank Polska Group Performance in 2021 contains the information required in both consolidated and separate Management Board reports on Santander Bank Polska S.A. performance.

Business environment

Similarly to the entire domestic and global economy, in 2021 the Polish banking sector struggled with the challenges posed by the Covid-19 pandemic which started at the beginning of 2020. While the impact of the pandemic on the Polish economy and the banking sector was less severe than initially expected, the economic shock of 2020 may have prolonged consequences for certain areas. The Polish economy rather quickly returned to the growth path, recording one of the highest GDP growth rates in Europe in 2021. However, further growth will depend on the evolution of the pandemic and effectiveness of the systemic response. Anti-inflationary measures and trends in the residential property market will be of key importance too.

Last year, we as a society were more aware and better prepared to cope with risks and live with restrictions and therefore more effectively responded to the challenges posed by the pandemic. As a result, the economic activity did not plummet as much as before, and some sectors were even thriving. Bank customers got used to modern technological solutions supporting operational processes. IT challenges connected with the continuation of remote work or implementation of a hybrid work model as well as increased use of remote distribution channels accelerated digital transformation, automation and robotisation of banks.

Performance of the banking sector

Relatively low profitability of the banking sector during 2021 (compared to pre-pandemic levels) was only partially attributed to the impact of Covid-19 on the macroeconomic environment, including monetary policy of the central bank, trends in the financial markets, financial position of some sectors and economic developments such as limited supplies of certain products or increased prices of commodities. The key factor however was an increase in legal risk connected with foreign currency mortgage loans.

This environment was reflected in financial results of banks, in particular in low interest rate margins amid the presure from close-to-zero interest rates (until October 2021), changes in the balance sheet structure (larger investments in bonds) and increased provisions and allowances in respect of legal risk associated with foreign currency home loans. At the same time, a decline was reported in expected credit loss allowances posted by banks. Due to high inflation, interest rates were increased three times in Q4, as a result of which the reference rate (1.75% p.a.) exceeded the pre-pandemic level and helped banks curb the downward trend in net interest income.

Performance of Santander Bank Polska Group

While the economy was recovering from the shock of 2020, Santander Bank Polska Group reported growth in its key business volumes, including an increase of 3.9% YoY in gross loans and advances to customers and a rise of 8.1% YoY in deposits from customers (in value terms). This was mainly attributed to the Group’s flexible and transparent offering available through a wide range of channels as well as extensive and steady improvement of customer experience. The growth in the core business was combined with a rise in popularity of the Group’s trade finance products, cross-border payments and investments solutions. The number of transactions made by customers and their activity in remote channels increased, too. Good and closely monitored credit risk profile of customers and improved macroeconomic prospects limited the value of expected credit loss allowances made by the Group.

The above conditions were reflected in the following changes in the income statement:

· rise in net interest income (+1.3% YoY);

· increase in net fee and commission income (+15.6% YoY);

· increase in dividend income (+393.2% YoY);

· improvement of net trading income and revaluation (+78.1% YoY);

· reduction in net expected credit loss allowances (-36.2% YoY);

· fall in gains on other financial instruments (-63.2% YoY) due to higher official interest rates, which cause debt securities yields to go up, reducing pricing and gains on sale.

The Group’s results for 2021 were strongly influenced by the ruling practice of courts adjudicating on cases regarding foreign currency mortgage loans, which encouraged a growing number of borrowers to file lawsuits. With the higher number of new court cases and changes in the estimated likelihood of negative rulings, total income statement provisions for legal claims, other assets and legal risk increased by PLN 989.3m YoY to PLN 1,468.6m (net).

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2. Key Achievements

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3. Key Financial and Business Data on Santander Bank Polska Group for Years 2017-2021

Key financial data of Santander Bank Polska Group for 5 previous years
Selected Income Statement data		2021	2020	2019	2018	2017		YoY Change (2021/2020)
Total income	PLN m	9 209,5	8 647,3	9 462,1	8 715,5	7 763,7	6,5%
Total costs	PLN m	(5 487,2)	(4 488,0)	(4 466,3)	(3 769,0)	(3 372,4)	22,3%
Impairment losses on loans and advances	PLN m	(1 124,2)	(1 762,8)	(1 219,4)	(1 085,1)	(690,5)	-36,2%
Profit before tax	PLN m	2 057,8	1 880,9	3 244,6	3 424,3	3 321,5	9,4%
Net profit attributable to Santander Bank Polska S.A.	PLN m	1 111,7	1 037,2	2 138,3	2 363,4	2 199,3	7,2%
Selected Balance Sheet data		31.12.2021	31.12.2020	31.12.2019	31.12.2018	31.12.2017	YoY Change (2021/2020)
Total assets	PLN m	244 876,3	229 311,3	209 476,2	206 656,3	157 194,6	6,8%
Total equity	PLN m	27 213,6	28 658,0	26 979,5	26 594,7	23 329,7	-5,0%
Net loans and advances to customers	PLN m	148 250,4	141 998,8	143 402,6	137 460,4	107 839,9	4,4%
Deposits from customers	PLN m	185 373,4	171 522,3	156 480,3	149 616,7	111 481,1	8,1%
Selected off-Balance Sheet data		31.12.2021	31.12.2020	31.12.2019	31.12.2018	31.12.2017	YoY Change (2021/2020)
Net assets under management in investment funds ¹⁾	PLN bn	17,6	16,2	16,9	15,1	16,0	1,4
Selected ratios ²⁾		2021	2020	2019	2018	2017	YoY Change (2021/2020)
Total costs/Total income	%	59,6%	51,9%	47,2%	43,2%	43,4%	7,7 p.p.
Total capital ratio	%	18,58%	20,42%	17,07%	15,98%	16,69%	-1,8 p.p.
ROE	%	4,7%	4,4%	9,7%	11,9%	12,1%	0,3 p.p
Basic earning per share	PLN	10,9	10,2	21,0	23,7	22,2	0,7
Book value per share	PLN	266,3	280,4	264,3	260,5	234,9	-14,1
NPL ratio ³⁾	%	5,0%	5,8%	5,2%	4,6%	5,8%	-0,8 p.p
Credit risk ratio	%	0,76%	1,21%	0,85%	0,86%	0,63%	-0,5 p.p
Customer net loans/customer deposits	%	80,0%	82,8%	91,6%	91,9%	96,7%	-2,8 p.p.
Key non-financial data of Santander Bank Polska Group for 5 previous years
Selected non-financial data		2021	2020	2019	2018	2017	YoY Change (2021/2020)
Number of shares	items	102 189 314	102 189 314	102 088 305	102 088 305	99 333 481	0
Dividend payout ⁴⁾	PLN	2,16	-	19,7	3,1	5,4	2,16
Electronic banking users ⁵⁾	m	5,7	5,4	4,4	4,0	3,4	0,3
Digital (active) customers ⁶⁾	m	3,2	2,9	2,5	2,3	2,1	0,3
Digital (active) mobile banking customers	m	2,4	2,0	1,6	1,3	1,1	0,4
Debit cards	m	4,4	4,3	4,2	4,0	3,6	0,1
Credit cards	m	1,1	1,2	1,3	1,3	1,3	-0,1
Customer base	m	7,2	7,1	7,2	7,0	6,5	0,1
Branches	locations	450	562	665	764	735	-112
Partner outlets	locations	435	380	317	293	262	55
Employment	FTEs	11 323	12 616	13 579	15 347	14 383	-1 293

1) Assets in investment funds managed by Santander Towarzystwo Funduszy Inwestycyjnych S.A.

2) For definitions of ratios presented in the table above, see “Selected Financial Ratios” of Chapter XI “Financial Performance in 2021”.

3) The NPL ratio for 2017 does not take into account POCI exposures.

4) In 2017, the bank paid a dividend from undistributed net profit for 2014 and 2015.

In 2018, the bank paid a dividend from undistributed net profit for 2016.

In 2019, the bank paid a dividend from net profit earned in 2018 and from undistributed profit for 2016 and 2017. For more information, please see Chapter VII “Investor Relations”.

In 2020, the bank did not pay a dividend in compliance with the guidance by the supervisory authority.

In 2021, the bank paid out an interim dividend for 2021. For more information, see Chapter VII “Investor Relations”.

5) Registered users of electronic banking. The stated numbers include electronic banking customers of Santander Consumer Bank S.A., starting from 2020.

6) Active users of electronic banking service of Santander Bank Polska S.A. and Santander Consumer Bank S.A. who at least once used the service in the last month of the reporting period.

4. Factors and Events Impacting Financial Results in 2021 Key macroeconomic factors impacting financial and business performance of Santander Bank Polska Group in 2021
Health situation	· Covid-19 restrictions at the start of 2021, gradually eased during the year.
Economic growth	· Robust economic recovery – in Poland and globally. · Rising commodity prices, problems with supply chains.
Labuor market	· Steady decline in unemployment and high wage growth.
Inflation	· Rise in inflation to the highest level in 20 years. · Further increase in housing prices.
Monetary policy	· End of the asset purchasing programme, start of a tightening cycle in October. Increase in reference rates from 0.10% in October to 1.75% in December.
Fiscal policy	· Major decline in economic stimulus and in public finance deficit.
Credit market	· Revival of demand for credit from consumers and businesses. Demand for mortgage loans at all-time high.
Financial markets	· Rise in market optimism together with vaccination rollout, but also rise in uncertainty as new coronavirus strains emerged. · Changes in investor sentiment toward international financial markets as a result of changes in the monetary policies of the main central banks (FED, ECB), new macroeconomic data, and the health situation. · Złoty at an elevated level, significant rise of government bond yields.

5. Corporate Events

Selected corporate events subject to disclosure that occurred before the release date of the annual report for 2021
KNF’s recommendations on dividend policy	· Receipt of a letter from the KNF (Polish Financial Supervision Authority) on 11 January 2021, including: ü a recommendation to suspend dividend payment in H1 2021 and refrain from taking any other measures going beyond the scope of the ordinary business and operational activity which could weaken the capital base, unless agreed with the supervisory authority; ü information that the KNF’s position on the policy of dividend payment by commercial banks will be presented in H2 2021 following an analysis of the situation of the banking sector in the first six months of 2021.
	· Receipt of a letter from the KNF (2 July 2021) informing the bank that: ü Stress Test (ST) add-on for Santander Bank Polska S.A. – measuring the bank’s sensitivity to an adverse macroeconomic scenario – is set at 1.73%, taking into account regulatory adjustments (the bank’s sensitivity is the same in the case of distribution of up to 75% and up to 100% of the net profit); ü as at 31 March 2021, the bank met the basic dividend policy criteria for distribution of up to 100% of the net profit earned in 2020 but, taking into consideration the additional criteria due to the bank’s portfolio of foreign currency home mortgages, the maximum dividend yield is 30%.
	· Receipt of an individual recommendation from the KNF (20 July 2021) regarding the dividend policy of Santander Bank Polska S.A., in which the supervisor: ü confirmed that the maximum dividend yield is 30% of the net profit for 2020; ü recommended that the bank should not take any other measures which could weaken the capital base unless such measures have been agreed with the supervisor.
Recommendations of the bank’s Management Board on profit distribution and dividend payment	· Adoption of a resolution by the bank’s Management Board (23 February 2021) recommending that the entire profit for 2020 totalling PLN 738.4m be retained, with 50% to be allocated to the capital reserve and 50% to be left undistributed. The resolution was passed in accordance with the KNF recommendation, taking into account the prevailing macroeconomic conditions.
	· Change (17 March 2021) of the Management Board’s recommendation of 23 February 2021 regarding the proposed profit distribution for 2020, setting aside a dividend reserve (i.e. capital reserve earmarked for payment of a dividend/ interim dividend), and allocating 50% of the net profit for 2020 (i.e. PLN 369.2m) to this dividend reserve (instead of leaving this portion undistributed as initially recommended). No changes were made to the recommended allocation of the remaining 50% of the net profit to the capital reserve.
Payment of an interim dividend	· Decision by the Management Board of Santander Bank Polska S.A. (1 September 2021) to pay out an interim dividend for 2021 and to allocate PLN 220.7m for that purpose from the dividend reserve set aside by virtue of the resolution of the Annual General Meeting of 22 March 2021. Approval of the interim dividend payment by the Supervisory Board. · Payment of the interim dividend of PLN 2.16 per share on 15 October 2021.

Selected corporate events subject to disclosure that occurred before the release date of the annual report for 2021 (cont.)
Personnel decisions	· Decision of the Chairman of the Supervisory Board of Santander Bank Polska S.A. Gerry Byrne (22 February 2021) to retire and resign from the bank’s Supervisory Board, effective as of adoption of a resolution by the Annual General Meeting (AGM) to approve the Report on activities of the Supervisory Board in 2020.
	· Nomination (8 March 2021) by a shareholder (Banco Santander S.A.) of Antonio Escámez Torres as a candidate for the position of the Chairman of the Supervisory Board.
	· Decision of the Vice President of the bank’s Management Board Michael McCarthy (18 March 2021) not to apply for a new term of office starting on 23 March 2021 and to act as an advisor to the President of the bank's Management Board for an interim period.
	· Appointment of the existing Management Board members for a new term of office by the Supervisory Board (22 March 2021), except for Michael McCarthy, who decided not to apply.
	· Adoption of a resolution by the Supervisory Board (26 May 2021) appointing Lech Gałkowski as the Management Board member in charge of the Business and Corporate Banking Division. Lech Gałkowski took up the position on 26 May 2021.
Annual General Meeting	· Publication of notice (23 February 2021) of the Annual General Meeting (AGM) of Santander Bank Polska S.A. to be convened on 22 March 2021, together with draft resolutions and documents to be considered by the AGM.
Annual General Meeting	· Annual General Meeting of Santander Bank Polska S.A. (22 March 2021), which adopted standard resolutions, appointed a new member and the Chairman of the Supervisory Board (Antonio Escámez Torres) and determined his remuneration, informed the shareholders of the KNF Chairman’s proposal regarding foreign currency mortgage loans and presented changes to the bank’s Statutes and to the Policy on the suitability assessment of the Supervisory Board members. For more information, please see Chapter XIII, Section 4 “Governing Bodies”.
Capital transactions	· Entering into a transaction (26 March 2021) involving the divestment of three Aviva Group companies from the bank’s portfolio of investment financial assets (Aviva Towarzystwo Ubezpieczeń na Życie S.A., Aviva Towarzystwo Ubezpieczeń Ogólnych S.A. and Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A.) and execution of agreements with Allianz Holding eins GMBH (Allianz) – the new majority shareholder of the bank’s associates (Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Santander Aviva Towarzystwo Ubezpieczeń S.A.). · The transaction was completed through the sale of 1,370 shares of Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A. for EUR 14,184.1k (29 November 2021) and 4,125 shares of Aviva Towarzystwo Ubezpieczeń na Życie S.A. and 2,968 shares of Aviva Towarzystwo Ubezpieczeń Ogólnych S.A. for EUR 223,317.5k in total (30 November 2021).
Issuance of certificates of deposit	· Resolution of the bank’s Management Board (24 November 2021) to issue certificates of deposit with the maximum total nominal value of PLN 500m to investors that are eligible counterparties or professional clients. · Increase by the Management Board (13 December 2021) of the maximum total nominal value of certificates of deposit to PLN 750m. · Issuance of certificates of deposits (22 December 2021) with the nominal value of PLN 750m, variable rate based on WIBOR, two-year maturity and nominal unit value of PLN 500k. The certificates of deposit are sustainability bank securities issued in accordance with the Sustainability Issuance Framework of Santander Bank Polska S.A. The proceeds from the issue will be used to finance or refinance Eligible Green Assets or Eligible Social Assets specified in the Sustainability Issuance Framework.

Selected corporate events subject to disclosure that occurred before the release date of the annual report for 2021 (cont.)
Contributions to the Bank Guarantee Fund	· Adoption of a resolution (16 April 2021) by the Bank Guarantee Fund Council, setting the amount of resolution fund contributions payable by Santander Bank Polska S.A. and Santander Consumer Bank S.A. in 2021 at PLN 135.1m and PLN 19.0m, respectively.
Impact of interest rate increases by the Monetary Policy Council on the financial performance	· Publication of information (10 December 2021) about a positive impact of the decisions taken by the Monetary Policy Council on 6 October, 3 November and 8 December 2021 to increase interest rates (by 165 b.p. in total in the case of the reference rate). The impact on the consolidated net interest income was estimated at PLN 1,100m–PLN 1,260m over the next 12 months (assuming a stable level of balance sheet items), including: PLN 1,000m–PLN 1,150m in the case of Santander Bank Polska S.A. and PLN 100m–PLN 110m in the case of Santander Consumer Bank S.A. · The impact will gradually materialise in the subsequent quarters and its actual scale will depend on delivery of the business objectives and potential changes in the balance sheet items.
KNF’s decision on an additional capital requirement	· Receipt of the KNF’s decision (26 November 2021) requiring that own funds be maintained at the level sufficient to cover an additional capital requirement of 0.029 p.p. (at Santander Bank Polska Group level) for the total capital ratio consisting of at least 75% of Tier 1 capital and at least 56% of Common Equity Tier 1 capital to mitigate the risk connected with foreign currency home mortgages and equity releases.
BFG’s decision on the minimum requirement for own funds and eligible liabilities	· Receipt of a letter from the Bank Guarantee Fund (BFG) (25 November 2021) regarding the minimum requirement for own funds and eligible liabilities (MREL) for Santander Bank Polska Group set at 15.42% of the total risk exposure amount (TREA) and 5.91% of the total exposure measure (TEM). · The MREL requirement was defined at a consolidated level and should be met by 31 December 2023 along with the minimum MREL subordination requirement of 11.42% of TREA and 5.91% of TEM. · The following mid-term targets were defined: ü to be met by 31 December 2021: 11.73% in relation to TREA, 9.73% for the subordination requirement in relation to TREA and 3% in relation to TEM. ü to be met by 31 December 2022: 13.58%, 10.57% and 4.46%, respectively. · To meet the minimum requirements, the bank was permitted to use the liabilities that do not meet the subordination condition up to 2.5% of TREA until 31 December 2021 and up to 3.5% of TREA after 1 January 2022. · Common Equity Tier 1 instruments maintained by the bank in accordance with the combined buffer requirement are not eligible for the MREL requirement expressed as a percentage of the total risk exposure.
Pillar 2 capital add-on imposed by KNF	· Receipt of the recommendation (11 February 2022) from the KNF that the bank should maintain, at both non-consolidated and consolidated level, own funds to cover a capital add-on at 0.31 p.p. above the total capital ratio in order to absorb potential losses that may arise from stress conditions. The add-on should consist in full of Common Equity Tier 1 capital.

II. Key Information on Santander Bank Polska S.A. and its Group

1. History, Structure and Profile

History of Santander Bank Polska S.A. (most important events)

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2. Majority Shareholder

Ownership structure

Share capital

Santander Bank Polska S.A. is a subsidiary of Banco Santander S.A. with its registered office in Madrid, which held 67.41% share in the bank’s registered capital and in the total number of votes at the bank’s General Meeting as at 31 December 2021.

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For more information about the share capital, see Chapter VII “Investor Relations” (Section 2 “Share Capital, Ownership Structure and Share Price”) and Chapter XIII “Statement on Corporate Governance in 2021” (Section 2 “Issuer’s Securities”).

Majority shareholder

Santander Bank Polska S.A. is a subsidiary of Banco Santander S.A. with its registered office in Madrid, which held 67.41% share in the bank’s registered capital and in the total number of votes at the bank’s General Meeting as at 30 June 2021. The remaining shares were held by the minority shareholders, of which only the following funds: Nationale-Nederlanden Otwarty Fundusz Emerytalny (OFE) and Nationale-Nederlanden Dobrowolny Fundusz Emerytalny (DFE) jointly exceeded the 5% threshold according to the information held by the bank’s Management Board. Both funds are managed by Nationale-Nederlanden Powszechne Towarzystwo Emerytalne (PTE).

According to the information held by the Management Board, the ownership structure did not change in the period from the end of H1 2021 until the release of the Report of Santander Bank Polska Group for H1 2021.

Santander Group in numbers (as at 31.12 2021)⁾

Business profile of Santander Bank Polska Group

Santander Bank Polska S.A. is a universal bank which provides a full range of services for personal customers, SMEs, large companies, corporates and public sector institutions. The bank’s offering is modern, comprehensive and satisfies diverse customer needs with regard to current/personal accounts, credit, savings, investment, settlement, insurance and card products. The financial services of Santander Bank Polska S.A. include cash management, payments, trade finance and transactions in the capital, money, FX and derivative markets, as well as underwriting and brokerage services.

The bank’s own product range is complemented by specialist products offered by its group of related companies, including: Santander Towarzystwo Funduszy Inwestycyjnych S.A., Santander Leasing S.A., Santander Factoring Sp. z o.o., Santander Aviva Towarzystwo Ubezpieczeń S.A. and Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. In cooperation with all these companies, the bank provides its customers with access to investment funds, asset portfolios, insurance, leasing and factoring products.

The bank continuously develops its product range to ensure that solutions offered to customers are transparent, simple, digital, flexible and available in self-service channels. It offers unique solutions which are developed within Santander Group based on its global presence, infrastructure and market potential. Customers are provided with comprehensive services in traditional sales channels and via remote channels.

Santander Consumer Bank S.A. and its subsidiaries form a separate business segment with its own customer base, offering and distribution channels. It provides credit facilities to households, mainly in the consumer finance and car finance sectors. It also offers financing to businesses, notably car dealers and importers. Santander Consumer Bank Group offers consumer loans, car finance through lease and factoring, credit facilities for car dealers, retail and business deposits and insurance products.

As at 31 December 2021, Santander Bank Polska Group provided services to 7.2m customers, including 1.7m customers of Santander Consumer Bank S.A.

Business model of Santander Bank Polska Group

Value creation by Santander Bank Polska Group

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Position of Santander Bank Polska S.A. and its Group in the Polish banking sector

Position in the banking sector

Santander Bank Polska S.A. is ranked among the top three banks in the Polish banking sector (together with PKO BP S.A. and Pekao S.A.) and is the largest private bank in Poland.

According to the financial statements for the quarter ended 30 September 2021, which at the date of approval of this Management Board report for publication (22 February 2021) were the most up-to-date source of comparable data on the performance of banks listed on the Warsaw Stock Exchange (WSE), Santander Bank Polska S.A. – including its subsidiaries and associates – was Poland’s second largest banking group in terms of total equity, and third largest one in terms of total asset, loans and deposit value.

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Share in key market segments

According to the NBP statistics, as at the end of September 2021 the market share of Santander Bank Polska Group was 11.7% for loans and 11.2% for deposits.

The Group operates in the factoring and leasing markets via its subsidiaries, holding a market share of 9.8% and 8.0%, respectively, as at 31 March 2021 (according to the Polish Factors Association and the Polish Leasing Association). At the same time, the Group’s share in the retail investment funds market was 10.2% (according to Analizy Online) while in the stock exchange equity market it held 4.6% (according to the Warsaw Stock Exchange).

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Competitive advantages

Santander Bank Polska Group has stable sources of funding, solid capital and liquidity position and a diversified asset portfolio. The Group’s competitive edge is built on a clear and consistent strategic vision focused on customer-centricity and effectiveness, steadily improved through process simplification, digitalisation and transformation of the bank into an Agile organisation. What also gives the bank an advantage is an effective and simple business model, an extensive and diversified business, options available to the bank as a member of Santander Group, use of emerging opportunities for non-organic growth and experience in mergers and acquisitions. The business scale, quality of products and services, pursuit of operational excellence and strong focus on building lasting relationships with customers allow the Group to compete successfully with the largest players in the Polish banking market. The Group’s engagement in the consolidation of the banking sector, a wide array of complementary services for respective customer segments, a large Poland-wide branch network, modern banking technologies, rapidly expanding functionality, integration of remote distribution channels and competent and flexible personnel give the Group good prospects for further market penetration.

STRENGTHS OF SANTANDER BANK POLSKA S.A. AND ITS GROUP STRENGTHS OF SANTANDER BANK POLSKA S.A. AND ITS GROUP

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3. Structure of Santander Bank Polska Group

Subsidiaries and associates of Santander Bank Polska S.A. as at 31 December 2021

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100%

1) Santander Leasing Poland Securitization 01 Designated Activity Company (DAC) with its registered office in Dublin is a special purpose entity (SPE) incorporated on 30 August 2018 for the sole purpose of securitisation of a lease and credit portfolio. The company does not have any capital connections with Santander Leasing S.A., which is its controlling entity in accordance with the conditions laid down in IFRS 10.7.

2) SCM Poland Auto 2019-1 Designated Activity Company with its registered office in Dublin was incorporated on 18 November 2019. Its shareholder is a legal person that is not connected with the Group. It is an SPE established to securitise a part of the lease portfolio of Santander Consumer Multirent Sp. z o.o., which is its controlling entity, in accordance with the conditions laid down in IFRS 10.7.

3) Santander Consumer Finanse Sp. z o.o. in liquidation was dissolved and put in liquidation as of 31 December 2020 by virtue of a resolution of the company’s Extraordinary General Meeting of 23 December 2020.

4) PSA Finance Polska Sp. z o.o. is an investment in a subsidiary for the purpose of consolidated financial statements due to the fact that it is controlled by Santander Consumer Bank S.A (directly) and Santander Bank Polska S.A. (indirectly).

5) SC Poland Consumer 16-1 is an SPE set up for the purpose of securitisation of part of SCB credit portfolio. The entity has no capital connections with Santander Consumer Bank S.A, which is its controlling entity in accordance with the conditions laid down in IFRS 10.7.

6) Both owners of Santander Towarzystwo Funduszy Inwestycyjnych S.A. (Santander TFI S.A.), i.e. Santander Bank Polska S.A. and Banco Santander S.A., are members of Santander Group and hold an equal stake of 50% in the company's share capital. In practice, Santander Bank Polska S.A. controls Santander Towarzystwo Funduszy Inwestycyjnych S.A., as the latter is it is the company through which Banco Santander S.A. pursues its policy in Poland.

Subsidiaries

As at 31 December 2021, Santander Bank Polska Group comprised Santander Bank Polska S.A. and the following subsidiaries:

1. Santander Consumer Bank S.A. (SCB S.A.)

2. Santander Consumer Finanse Sp. z o.o. in liquidation (subsidiary of SCB S.A.)

3. Santander Consumer Multirent Sp. z o.o. (SCM Sp. z o.o. – subsidiary of SCB S.A.)

4. Santander Consumer Financial Solutions Sp. z o.o. (subsidiary of SCM Sp. z o.o.)

5. SCM Poland Auto 2019-1 DAC (subsidiary of SCM Sp. z o.o.)

6. SC Poland Consumer 16-1 Sp. z o.o. (subsidiary of SCB S.A.)

7. PSA Finance Polska Sp. z o.o. (subsidiary of SCB S.A.)

8. PSA Consumer Finance Polska Sp. z o.o. (subsidiary of PSA Finance Polska Sp. z o.o.)

9. Santander Towarzystwo Funduszy Inwestycyjnych S.A.

10. Santander Finanse Sp. z o.o.

11. Santander Factoring Sp. z o.o. (subsidiary of Santander Finanse Sp. z o.o.)

12. Santander Leasing S.A. (subsidiary of Santander Finanse Sp. z o.o.)

13. Santander Leasing Poland Securitization 01 Designated Activity Company (subsidiary of Santander Leasing S.A.)

14. Santander F24 S.A. (subsidiary of Santander Finanse Sp. z o.o.)

15. Santander Inwestycje Sp. z o.o.

Compared to 31 December 2020, the list of members of Santander Bank Polska Group was reduced by one company: SC Poland Consumer 15-1 Sp. z o.o. Santander Consumer Bank S.A. ceased to control the entity after the latter had ended and settled its securitisation transaction on 17 June 2021.

As at 31 December 2021, all companies within Santander Bank Polska Group are consolidated with the bank in accordance with IFRS 10.

Associates

In the consolidated financial statements of Santander Bank Polska Group for the 12-month period ended 31 December 2021, the following companies are accounted for using the equity method in accordance with IAS 28:

1. Santander Aviva Towarzystwo Ubezpieczeń S.A. (Santander Aviva TU S.A.)

2. Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. (Santander Aviva TUnŻ S.A.)

3. POLFUND - Fundusz Poręczeń Kredytowych S.A.

Compared with 31 December 2020, the list of associates did not change.

III. Macreconomic Situation in 2021

Economic growth

Since the start of the year, the Polish economy witnessed a strong rebound after the pandemic-ridden 2020. In Q1 2021, the economy was still operating under restrictions introduced in response to another coronavirus wave, so the GDP was still lower than the year before (-0.8% YoY). In Q2 2021 most restrictions were lifted and the low statistical base effect allowed very high annual growth rates to be achieved in the remainder of the year. Lower restrictions were especially supported by vaccination rollout, which was dynamic, although the vaccination rate in Poland stalled well below levels reached in other European countries. Eventually, GDP growth for the entire year was 5.7%. Economic revival was visible in numerous sectors, but occurred in an environment troubled by supply chain disruption and low labour availability. This had a negative impact on some industries, like car manufacturing. Despite that, the industrial output advanced by about 15%. Higher domestic demand and rising commodity prices translated into a major acceleration of imports. As a result, the high current account surplus recorded in 2020 (+2.9% of the GDP) turned to a deficit (-0.8% of the GDP).

Labour market

The economic rebound was supportive for higher labour demand, which again triggered the difficulties seen before the pandemic, i.e. problems with finding qualified staff and rising wage pressure. The unemployment rate was declining steadily and reached pre-pandemic levels at the year-end: LFS seasonally adjusted rate was at 2.9% in December, exactly the same as in March 2020. Wages rose by 9% YoY in nominal terms on average, but in real terms, after the marked acceleration in H1 2021, they saw a significant slowdown due to a pronounced rise in inflation.

Inflation

Inflation accelerated since the start of the year: from 2.6% YoY in January to 8.6% YoY in December, reaching the highest level in 20 years. Most considerable growth rates were observes in food (8.6% YoY in December), fuels (32.9% YoY) and energy (14.1% YoY), which resulted from global market tendencies, but price increases were widespread, and core inflation accelerated from 3.9% YoY in January to 5.3% YoY in December. PPI inflation jumped from 1.0% YoY in January to 14.2% YoY in December, reflecting rising costs for businesses.

Monetary policy

The rise of inflation amid strong economic rebound encouraged the MPC to hike interest rates at meetings in October, November and December from 0.1% before the cycle started to 1.75% at the end of 2021. The NBP also halted its asset purchases programme initiated during the pandemic.

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Loans and deposits

The economic revival supported demand for loans, but the rebound on this market was not very strong. At the end of the year, the total loan volume was by 4.5% higher than the year before (after adjusting for FX changes). Loans for households advanced by about 5%, with mortgage loans recording a high two-digit growth rate throughout the year. Consumer loans also rebounded and were by 2% higher than in December 2020. Corporate loan volumes were flat in H1 2021, but started to go up in H2 2021, ending the year 4% above the level reported in December 2020. Current loans recorded the most considerable rebound (+14.3% YoY in December). Deposits expanded by 8.8% YoY, with retail deposits growing by 6.1% YoY and business deposits by 10.4% YoY. Current deposits increased by 14.1% YoY and term deposits declined by 12.0% YoY. However, the latter recorded a reversal in the downward trend since October 2021.

Financial market situation

While in 2021 the pandemic continued to exert a significant impact on the markets, inflation came to the fore. It was rising globally and faster than expected. Monetary policies at the start of 2021 were still extremely loose, focused on supporting economies weakened by the consecutive waves of the pandemic. The markets moved to pricing in significant interest rate hikes before central banks shook off the inflation shock, stopped calling the elevated inflation transitory or explaining that their tools could do little against supply shocks. Central banks in emerging markets started to fight off the accelerating inflation much earlier than central banks of key developed economies. The only steps that Fed and ECB took was to decrease their QE purchases during 2021. At the same time, on the fiscal policy side there were continued attempts to make the economies more resilient to the pandemic crisis and to facilitate a rebound. In the United States, a USD 900bn stimulus programme was signed by president Donald Trump at the start of the year. In March, his successor Joe Biden announced another fiscal package of USD 1.9tn. The EU launched the EUR

750bn Recovery Fund and almost all member states received some support from it already in 2021. Apart from the inflation surprise, 2021 was also marked by higher-than-expected economic rebound in real terms. US and Eurozone GDP growth was forecasted at approx. .4% at the start of the year, but eventually, according to preliminary estimates, exceeded 5% in both cases.

In 2021, government bond yields in Poland and on core markets soared, buoyed by accelerating inflation and solid economic rebound. Later on, they were also helped by the tightening of monetary policies (NBP raised rates by a total of 165 b.p. in Q4). The rise in yields was much faster than one could imagine. Throughout 2021, Polish 10Y bond yield moved from 1.2% to 4.0%, 5Y from 0.4% to 4.0% and 2Y from 0.1% to 3.5%. The yield curve steepened until May (2Y–10Y spread rose from +115 b.p. to +175 b.p.) but in the final months of the year it got completely flat (slope of around +30 b.p.) as new risks to economic growth emerged, including the impact of the already delivered rate hikes. 10Y Bund spread widened in 2021 from less than 200 b.p. to around 400 b.p. When the bond sell-off intensified, the NBP became more active on the market, buying PLN 15bn worth of bonds in May while average purchases in other months were in the order of PLN 2bn. While the NBP QE program was not formally closed, in H2 2021 the central bank was clearly less interested in using this tool. In total, the value of bonds held by the NBP rose in 2021 from PLN 113bn to PLN149bn. The value of 7-day NBP bills used for market liquidity control rose from PLN 170bn at the start of 2021 to PLN 260bn in November, falling to below PLN 200bn at the end of the year.

In 2021, the US dollar ruled the foreign exchange market. Its strengthening was creating unsupportive environment for emerging market currencies, including the zloty, which lost more than 7% vs USD. The EUR/PLN rate was at 4.60 at the end of December, remaining practically unchanged year-on-year, but throughout 2021 the Polish currency was under negative pressure from the more and more negative real interest rates, NBP tolerance for weaker PLN, the delayed launch of monetary tightening compared to regional peers and the growing Poland–EU rule-of-law conflict. In 2021, like in 2020, the swings in the value of the zloty were correlated with the pandemic waves – the EUR/PLN rate went above 4.65 only during the March and November peaks of new Covid-19 cases.

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Stock market

For the greater part of 2021, prices of stocks listed on the Warsaw Stock Exchange were rebounding after the decline caused by the pandemic. While the scale and rate of growth differed from sector to sector, the main indices performed relatively well (until autumn) on account of improving economic conditions, both locally and globally. The upturn came to a halt along with the change in the monetary policy of the NBP which, after a period of rather dovish rhetoric in view of accelerating inflation, decided to tighten the policy starting from October. Late action by the Monetary Policy Council did not help the Polish zloty, which depreciated most severely between September and November. Still, the US dollar gained mainly on account of the planned monetary policy tightening in 2022 announced by the Federal Reserve at the end of 2021. In 2021, the pandemic had a fairly limited negative impact on the economy and, subsequently, stock exchange indices which yielded impressive rates of return despite the autumn downturn. WIG, a broad-based index, gained 21.5% in 2021. Small and medium cap indices, i.e. sWIG80 and mWIG40, fared even better, closing the year up 33.1% YoY and 24.6% YoY respectively. WIG20, a blue chip index, performed worst, as it increased by 14.3% and did not manage to exceed its all-time highs.

Legal environment of the banking sector

The table below shows the selected legislation which came into effect in 2021 and has impact on the financial sector in Poland

Act or regulation	Effective date	Selected regulations affecting the financial sector
Act of 27 November 2020 amending the VAT Act (Slim VAT) and certain other acts	1 January 2021	· The act extends the scope of entities whose settlement accounts must be reported to STIR. They include the entities which used to be exempt from the reporting obligation under the General Tax Code, i.e. cooperative banks, banks run by other banks, credit unions, State Treasury, National Health Fund (NFZ), Social Insurance Institution (ZUS), Bank Guarantee Fund (BFG). · Banks were required to start reporting via STIR on 1 June 2021 at the latest.
Act of 18 November 2020 on electronic delivery Act of 15 June 2021 amending the Act on electronic delivery	5 October 2021 (5 July 2022 for all requirements)	· Banks will be required to register an electronic address and indicate it in agreements with customers as an address relevant for making complaints or statements on withdrawal from the agreement, among other things. · Electronic address will be obligatory as of 1 October 2022.
Act of 6 December 2018 on the National Debtors Register	1 December 2021 (with exceptions)	· The Insolvent Debtors Register has been replaced by the National Debtors Register, which is publicly available online. It includes data on individuals and businesses that are or are likely to become insolvent. · This solution facilitates digitalisation of bankruptcy and restructuring proceedings as businesses are required to file their motions electronically and electronic deliveries are used as a rule.
Act of 25 February 2021 amending the Banking Law Act and certain other acts	28 April 2021 (majority of provisions)	· The main objective of the act is to transpose the following EU regulations on capital requirements for financial institutions: ü Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures (CRD V); ü Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012 (CRR II).
Regulation 2019/2088 of 27 November 2019 on sustainability-related disclosures in the financial services sector (SFDR)	10 March 2021 (majority of provisions)	· The SFDR applies to investment products, advisory services and portfolio management services. It sets out information obligations of financial market entities and financial advisors. ü Pursuant to the SFDR, they are required to disclose information on strategies for integration of sustainability risks and investment decision processes regarding consideration of adverse sustainability impacts. ü The regulation sets out information obligations related to offering ESG-linked products to customers who intend to make responsible and sustainable investments.
Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088	1 January 2022 (part of provisions) and 1 January 2023 (all provisions)	· The regulation introduces the EU taxonomy of environmentally sustainable economic activities and sets out reporting obligations for financial market entities as well as obligations directly applicable to companies publishing non-financial reports and indirectly to all other companies. · The major part of the provisions will apply to annual reports for 2021 prepared starting from 1 January 2022.

Act or regulation (cont.)	Effective date	Selected regulations affecting the financial sector
Act of 30 March 2021 amending the Act on the prevention of money laundering and terrorist financing and certain other acts	15 May 2021 (majority of provisions)	· The Act transposes Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 whose purpose is to modify the EU legal framework for the prevention of money laundering and terrorist financing in order to increase transparency of financial flows in the financial system. · It supplements Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.
Regulation of the Minister of Finance, Funds and Regional Policy of 8 June 2021 on the risk management system, the internal control system and remuneration policy at banks	11 June 2021	· The regulation defines the risk management system and the internal control system at banks and sets out the scope of the remuneration policy and the rules for its determination.
Commission Delegated Regulation (EU) 2021/923 of 25 March 2021 supplementing Directive 2013/36/EU of the European Parliament and of the Council	14 June 2021	· The regulation defines the criteria to identify staff members or categories of staff members classified as Material Risk Takers (i.e. staff members whose professional activities have a material impact on an institution’s risk profile). · The regulation also sets out the criteria to define managerial responsibility, control functions, material business units and a significant impact on a material business unit’s risk profile.
Act of 11 August 2021 amending the Code of Civil Proceedings and certain other acts	24 September 2021	· The following amendments were introduced: ü a possibility for parties to and participants of court proceedings to send statements of case to the court at Polish post offices of all postal service providers; ü three different time limits for making appeals as part of payment order proceedings, i.e. two weeks, a month and three months. · The condition precedent to issuing a payment order based on a promissory note in the proceedings against a consumer is for the claimant to attach to a lawsuit the agreement under which the claim is secured by the promissory note, together with the promissory note declaration and attachments. · Also, it is no longer possible to endorse a promissory note issued to a business owner in order to pay or secure receivables arising from an agreement with a consumer. Promissory notes issued before the effective date of the above act are governed by existing laws.
Act of 31 July 2019 amending certain acts to reduce regulatory burdens – amendment of Act of 23 April 1964 – the Civil Code	January 2021 (regarding new Article 385 of the Civil Code)	· Pursuant to the amended act, sole proprietors have been afforded protection as consumers but only with respect to the use of abusive clauses, warranties and cancellation of agreements made remotely or outside the business premises if the agreement is not of a professional nature for them.
Act of 11 August 2021 amending the VAT Act and the Banking Law Act	1 October 2021 (majority of provisions)	· The purpose of the act is to further simplify VAT settlements and adjust Polish law to account for the implications of Brexit. · Changes to the Banking Law concern crediting and debiting VAT accounts as well as enforcement and preservation of funds in technical accounts used for identification of VAT account holders.
Act of 14 October 2021 amending the Accounting Act and certain other acts	8 December 2021 (majority of provisions)	· Pursuant to the act, issuers are required to prepare financial statements and management reports in a uniform electronic format (XHTML) and mark consolidated financial statements using Inline XBRL. · Financial statements may now be signed by only one member of a governing body provided that other members declare that the documents meet the relevant requirements.
Act of 14 April 2021 amending the Identity Cards Act and certain other acts	2 August 2021	· The act aligns the Identity Cards Act with Regulation (EU) 2019/1157 of the European Parliament and of the Council. It provides for the following, among other things: ü integration of biometric data (fingerprints) in an electronic layer of the identity card; ü extension of the data printed on the identity card to include a signature of the holder.

Regulatory recommendations and guidelines	Effective date	Selected guidelines affecting the financial sector
New Recommendation S on best practice in the management of mortgage-backed credit exposures	30 June 2021	· The scope of the Recommendation has been extended to include provisions aimed to reduce risk incurred by consumers and financial institutions: ü Repayment capacity may now be calculated for the maximum period of 25 years even if the lending period is longer. ü Financial institutions are required to offer a loan with a fixed interest rate for the minimum period of five years (effective as of 1 July 2021). ü The origin of funds used as a mortgage deposit must be verified (to check if they are not borrowed). A borrower must make a mortgage deposit by the date of loan disbursement or proportionally to an amount of individual tranches. ü Financial institutions must assume 50% depreciation in the case of foreign currency income. · Provisions on the “key-for-debt” option have been introduced, stipulating that the borrower’s obligations will be considered discharged if the title to the financed property is transferred to the bank.
Recommendation Z on corporate governance in banks	9 October 2020	· The regulation incorporates the guidelines issued by EBA and ESMA as well as conclusions from inspections carried out by the KNF at banks. · It includes recommendations on suitability assessment of supervisory and management board members and key function holders, term of office of supervisory and management board members, remuneration rules and an obligation to apply specific HR policies, incorporation of corporate governance practices in onboarding and training processes for the above-mentioned groups. · The recommendation specifies the roles and positions that should be verified in terms of a potential conflict of interest as part of relationship, agreement or transaction with the bank. It also requires banks to manage conflicts of interest and defines key control mechanisms.
Best Practice for GPW Listed Companies 2021	1 July 2021	· Best Practice for GPW Listed Companies 2021 supersedes the existing Best Practice for GPW Listed Companies 2016. · The matters regulated by law have been excluded. The structure of the document has been changed (the recommendations and rules have been replaced with the general and specific rules) and ESG aspects have been included. · One of the key changes is the general obligation for the listed companies to inform relevant parties about the scope of application of best practice instead of informing them which rules do not apply.

IV. Development Strategy of the Bank and Santander Bank Polska Group

1. Mission, Vision, Values and Strategic Objectives for 2021–2023

The strategy of Santander Bank Polska Group for 2021–2023 is a continuation of the previous course of action and is based on the same values and assumptions as applied before. The Group’s purpose, aim and values have not changed for years:

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Key strategic levels for 2021-2023

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The strategy of Santander Bank Polska Group reflects a customer-centric approach to business management through continuous improvement of service quality and product range. A special focus is placed on digitalisation and simplification of processes from the customer’s perspective, which results in improved customer experience, increased operational efficiency, simple solutions, and transparency of the offer. The delivery of the Group’s strategy is underpinned by innovative solutions and the corporate culture which is focused on increasing engagement and motivation of employees and social responsibility of the organisation.

Six strategic directions for 2021–2023: “FOCUS TO ACCELERATE”

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As part of the strategy for 2021–2023, the following six strategic directions have been defined: customer obsession, employee focus, simplification, smart omnichannel, innovate to open platform, safety and trust. They are the key focus areas of the Group’s transformation. The strategic directions set by the Group:

· consolidate specific objectives set to increase loyalty of individual stakeholder groups: employees (employee focus), customers (customer obsession), communities and shareholders (safety and trust);

· assign the highest transformational value to the objectives related to development of the Group’s operating model: simplification and smart omnichannel;

· fully comply with the aim of Santander Group’s regional strategic plan One Europe, emphasising the foundations for the Group’s development (safety and trust), with a particular focus on responsible banking (CSR/Corporate Social Responsibility);

· indicate the Group’s ambition to build competitive advantages through innovation to open platform.

Strategic objectives for 2021–2023

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The activities undertaken as part of six strategic directions are based on strategic initiatives, such as strategic programmes, hot spots (initiatives focused on customers and employees), bets (initiatives in the Agile model) and group programmes. They are regularly monitored and their results are reviewed on the basis of qualitative and quantitative metrics. The following are measures defining the Group’s financial ambitions.

Ambitions of santander bank polska group (financial measures) under strategy for 2021-2023

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In view of dynamic and complex changes in the macroeconomic environment, the strategy of Santander Bank Polska S.A. is regularly verified, which helps take prompt action in response to market trends and other changes in the dynamic environment.

2. Ambitions for 2021–2023 and Delivery of the Strategy

Strategic directions

When setting strategic directions, the Group also defines strategic objectives and key success measures that let it track the progress in delivery of the strategy.

Strategic direction: Employee focus Strategic objective: Engaged employees
*Our achievements:*	*Key success measure:*	*Our ambition:*
· Ensured safety and supported wellbeing of our employees during the Covid-19 pandemic · Optimised many HR processes · Continued development of a work model in accordance with the Agile methodology · Promoted diversity, equal treatment and inclusion · Supported talent development	· Leading employer of choice in the banking sector (Top Employer Poland 2021 certificate) · Implementation of a remote work culture and design of a hybrid work model · Development of wellbeing programmes and promotion of healthy and sustainable lifestyle (BeHealthy, SantanderGO) · High level of Agile maturity (ceremonies and tools)	· Foster the corporate culture based on the Simple, Personal and Fair values · Increase employee engagement and retain the employer of choice title · Attract and retain best talents · Continue to develop key competencies (including leadership skills)

Strategic direction: Simplification Strategic objective: Simpler, faster and lean organisation
*Our achievements:*		*Key success measure:*		*Our ambition:*
· Simplified the product range and a number of key customer service and post-sales processes · Significantly reduced paper consumption in processes		· Reduction of paper consumption (by 23.1m sheets by the end of October 2021) · Increase in the number of customers using e-communication channels · Reduction in the number of products · Introduction and gradual expansion of SMS-based authentication of payments and cash transactions at branches and electronic signature of documents · Simplification of the complaint process for SME customers · Implementation of a new consolidation loan application process in internet and mobile banking		· Further reduce paper documents and promote electronic communication · Continue to simplify processes and products and optimise the organisational structure
Strategic direction: Customer obsession Strategic objective: Customers with long-term relationships with Santander
*Our achievements:*	*Key success measure:*		*Our ambition:*
· Accelerated process digitalisation and optimisation · Supported our customers during the Covid-19 pandemic · Introduced a plain language in communication with our customers	· Increase in mass NPS vs 2019 (steady upward trend since the beginning of 2020)		· Build long-term customer relationships thanks to products created using service design competencies and feedback from customers from individual segments · Increase localisation of our products and digitalisation of our customers · Increase the customer satisfaction level (NPS)
Strategic direction: Smart omnichannel Strategic objective: Bank offering self-service and remote solutions
*Our achievements:*	*Key success measure:*		*Our ambition:*
· Accelerated process digitalisation · Increased the availability of processes in remote channels · Reduced the number of processes requiring a visit to a branch · Aligned the customer experience standard across all channels	· 3m digital customers of Santander Bank Polska S.A. · Increase in the number of transactions made in remote channels · Growth of product sales through self-service channels · Increase in the number of paperless transactions and transactions without a traditional hand-written signature		· Maximise the use of self-service and remote channels in key sales and post-sales processes · Increase the number of digital customers · Improve customer experience in remote contact channels

Strategic direction: Innovate to open platform Strategic objective: Best financial services platform
*Our achievements:*	*Key success measure:*			*Our ambition:*
· Supported further evolution to an open platform in cooperation with Santander Group and external partners · Developed open banking solutions via Santander Open	· Launch of GTS platform offering new digital services for corporate customers · Extension of cooperation with external partners · Growing number of customers using Santander Open (PSD2 aggregator)			· Further develop and improve the open financial services platform
Strategic direction: Safety and trust Strategic objective: Safe and trustworthy bank
*Our achievements:*		*Key success measure:*	*Our ambition:*
· Developed and strengthened the responsible banking agenda based on ESG metrics · Took further steps to meet the objectives of the Group’s Net Zero strategy · Implemented the new Environmental, Social and Climate Change Risk Management Policy · Introduced a new model for managing the responsible banking agenda · Established the ESG Forum and appointed 11 ESG Leads representing each division of the bank · Were implementing the corporate Sustainable Finance Classification System · Expanded the scope of our green products and services and helped customers in their green transformation and transition to a low- and zero-emission operating model · Supported creation of a diverse and friendly working environment · Made the second largest issuance of green bonds for a non-financial company with a total value of EUR 311m · Provided EUR 109m for renewable energy projects · Provided EUR 372m for green finance in 2021 · Issued first sustainability bonds of Santander Bank Polska S.A. with a total value of PLN 750m		· First card made of biodegradable plastic · ECO Loan on offer · Support for green transformation of corporate and investment banking customers · 35% of women in managerial positions · Minimisation of the EPG (Equal Pay Gap)	· Extend the range of green products and services · Continue to support transition to a low- or zero-emission economy · Adapt our measures to meet the requirements of the TCDF (Task Force on Climate-related Financial Disclosures) · Continue to develop leadership skills, focus on employees and promote diversity, equal treatment and inclusion in the workplace · Build the awareness of fraud risk among the bank’s customers and employees as part of promotion of cybersecurity culture · Ensure high stability and security of our systems and take measures to significantly reduce the number of system failures

Financial and non-financial measures of santander Bank Polska Group performance under strategy for 2021-2023 (as at 31 December 2021)

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* Pertains to Santander Bank Polska S.A. only (the number of branches include off-site locations and Santander Zones)

Key activities planned for 2022

In 2022, the Group will continue the course of action set out in the current strategy. Simplification and development of digital solutions and processes will be still the main priority so as to enable effective banking in remote channels, while ensuring positive experience for customers and employees alike.

In accordance with this approach, Santander Bank Polska S.A. steadily develops solutions related to daily transactional banking as well as credit and insurance products. This is to increase the number of satisfied customers that use the bank’s solutions and processes anytime and anywhere.

As part of simplification, the bank continues to streamline processes, products and system infrastructure, reduce paper documents and promote electronic communication as well as optimise the organisational structure.

As the issues related to climate change and social development are high on the bank’s agenda, it will continue to deliver the initiatives in this respect, with a particular focus on green products and services as well as an increase in the scope of green finance.

3. Corporate Culture

The corporate culture of Santander Bank Polska Group is based on the values and ethical standards which help build trust and earn lasting loyalty of employees, customers, shareholders and local communities.

· The corporate culture of Santander Bank Polska Group and Banco Santander Group is underpinned by the General Code of Conduct and Simple | Personal | Fair values and behaviours.

· The Simple | Personal | Fair values reflect the Group’s philosophy, including rules it follows when taking decisions and interacting with customers, shareholders and other stakeholders. In line with these values, the Group strives not only to fulfil its business commitments and comply with laws, regulations and best practice, but also to exceed expectations of its stakeholders, particularly customers. Particular focus is placed on the areas where the Group may significantly help customers achieve financial success and sustainable growth.

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· The Group promotes eight corporate behaviours among its employees, which are additionally used as a performance review criterion:

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· Apart from the corporate behaviours which apply to all employees of the Group, all managers (leaders) are also expected to act in line with the leadership commitments summarised below.

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· The risk culture promoted by Santander Bank Polska S.A. is called Risk Pro and consists of five principles: accountability, resilience, simplicity, challenge and customer focus. Activities implemented within this culture include: education of the bank's employees; awareness-raising activities among employees relating to risks encountered in day-to-day work; providing channels for anonymous reporting of issues of concern; and features of the incentive system encouraging employees to adhere to the risk culture values.

· Diversity and inclusion in the workplace, product offering, customer service and relationships with other stakeholders are seen by the Group as the sources of its strength and competitive advantage.

· The Group conducts its activity in line with the principles of responsible banking, understanding the role and importance of banks to customers, the economy and the community. It focuses on developing fair and transparent relationships with customers and making a positive contribution to communities and the environment.

4. Forecast of Economic and Financial Market Situation in 2021

Economic growth

At the turn of 2021 and 2022, the economic activity was still high and 2022 is likely to open with a high GDP growth (possibly close to 7% in Q1 2022). However, negative factors begin to dominate in the risk balance and thus economic slowdown in the following quarters is probable, with average GDP lower than 5%. The domestic GDP growth will be undermined by weaker global sentiments, monetary tightening and delays in access to the EU fund, which can be especially negative for investment. The quick rise in inflation can be also have a negative impact on real consumption in the short term. Low vaccination levels mean that there is still a risk of renewed epidemic restrictions and rise in the number of people who are unable to work if new virus strains and infection waves appear.

Labour market

In 2022, the labour market situation is rather unlikely to deteriorate, and the unemployment rate is likely to stabilise. Demand for labour should remain elevated, which – given low unemployment and high price growth – will be translating into pressure for higher wages.

Inflation

Inflation is expected to remain elevated in 2022, additionally driven by higher energy and gas tariffs in January. Temporarily it will be limited by cuts in taxes on food, energy and fuels (which will take about 2 p.p. off the average inflation), but changes in the PIT will act in the opposite direction. CPI inflation should remain close to the highest levels in 20 years and above 8% in average. Core inflation is likely to accelerate further and can climb to 7% YoY in mid-2022.

Monetary policy

In H1 2022, most MPC members will be replaced, which adds to the uncertainty about further moves in the monetary policy, but it seems that the persistently elevated inflation will encourage the MPC to continue the hiking cycle. The reference rate can rise to 4.0%. In H2 2022, the MPC is likely to abandon the hiking cycle due to possible weakening in the business climate.

Loans and deposits

Slower economic growth and rising financing costs (especially in the case of long-term loans) could be negative for the loan market. On the other hand, higher loan volumes will be supported by rising price levels in the economy and revival in business lending after it was replaced by government support. Thus, loan growth is likely to accelerate somewhat. However, the growth could slightly decelerate in the case of loans for households, especially mortgage loans. Deposits should rise at a pace similar to that observed in 2021, while the rising attractiveness of term deposits should be an upward impulse in this segment.

Situation on financial markets

The factors that may positively affect the exchange rate of the Polish zloty in 2022 include: Poland remaining among the EU countries with the highest GDP growth, the decrease in overall Covid-19 threat and fading economic impact of any subsequent pandemic waves. At the same time, the possible appreciation of the zloty may be limited by substantial interest rate increases in the United States, generating demand for USD. The Russia–Ukraine conflict remains a risk factor at the beginning of the year.

In 2022, we expect yields of Polish bonds to be much less volatile than in 2020–2021. Markets have already priced in virtually all the monetary tightening that we believe may take place in this cycle. It is still possible that yields will attempt to go even higher, but the room for such move is already limited. In our opinion the 10Y and 2Y bond yields may approach 4.20% and 4%, respectively. Even though the inflation rate is expected to stay well above the 2.5% official target throughout the year, in H2 2022 signals of looming economic slowdown may show up, pointing to expectations of future rate cuts.

V. Relations with Employees

1. Human Resources Management

Human capital

As at 31 December 2021, the number of FTEs in Santander Bank Polska Group was 11,323 (12,616 as at 31 December 2020), including 9,281 FTEs of Santander Bank Polska S.A. (10,170 as at 31 December 2020) and 1,587 FTEs of Santander Consumer Bank Group (1,976 as at 31 December 2020).

In 2021, the employment in Santander Bank Polska Group decreased by 10.2% as a result of ongoing transformation of the business models of both banks from the Group through digitalisation, optimisation of the branch network, continued migration of products and services to remote distribution channels and gradual implementation of technological and organisational solutions increasing operational efficiency of the organisation. The objective is to allocate the maximum resources to strengthen customer relationships, grow business and build skills matching the target profile for the organisation.

The HR processes take into account both present operational needs as well as market conditions, such as economic slowdown and other macroeconomic effects of the pandemic. They are based on natural employee attrition as well as collective redundancies launched in Santander Bank Polska S.A. and Santander Consumer Bank S.A. The banks signed memoranda of understanding on collective redundancies with trade unions, setting out, among other things, the staff selection criteria, terms and conditions of severance pay and additional compensation, and the scope of the support programme for employees to be made redundant.

Pursuant to the resolution of the Management Board of Santander Bank Polska S.A. dated 29 October 2020, collective redundancies will cover up to two thousand employees of the bank’s Business Support Centre and distribution network by the end of December 2022. In 2021, 719 employees were made redundant.

The collective redundancy process at Santander Consumer Bank S.A. was started in Q2 2020 and was to cover around 430 people by mid-2021. In December 2020, Santander Consumer Bank S.A. decided to launch another collective redundancy process, which covered around 340 employees by 31 December 2021.

EMPLOYMENT AT SANTANDER BANK POLSKA GROUP

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Human and intellectual capital of Santander Bank Polska Group is created by highly-qualified employees who constantly develop their competencies as part of day-to-day activities and top-quality development programmes. Comprehensive development programmes for managers and employees and continuous focus on knowledge sharing and self-education contribute to the growth of the intellectual potential as well as efficiency and stability of the Group’s human capital.

EMPLOYEE STRUCTURE OF SANTANDER BANK POLSKA GROUP

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Support programme for employees selected for collective redundancies

Santander Bank Polska S.A. prepared a comprehensive support programme for employees to be made redundant (reStart). It is focused on activities aimed at helping employees re-enter the labour market and develop their competencies. The programme ensures support for groups and individuals and access to self-study materials. It offers a range of training courses, including on how to analyse own aptitudes, improve existing skills and build new competencies required to find a new job. The programme also envisages psychological support and sessions with experts for employees who are to be made redundant. Comprehensive information about collective redundancies and details about the support programme are available on a dedicated intranet site.

Human resources management during the Covid-19 pandemic

As the risk of SARS-Cov2 infection continued, the bank’s Management Board decided that employees of the Business Support Centre would keep working from home. At the same time, preparations for the launch of a target hybrid work model across the organisation were continued. The switch to the target model will depend on the development of the epidemic situation in Poland.

Measures were still in place to prevent the spread of the pandemic, including basic safety rules (distance, disinfection and face masks), monitoring of employee traffic in office buildings, registration of Covid-19 cases and associated procedures (such as testing employees who had contact in the workplace with a person who tested positive for coronavirus, disinfection of offices and branches in the case of confirmed infections).

The bank managed the Covid-19 situation in accordance with the Procedure for managing suspected and confirmed cases of SARS-CoV-2 in the workplace and applicable law.

A workplace vaccination programme was organised in 11 locations across Poland for employees of Santander Bank Polska S.A., its subsidiaries and their relatives in partnership with a medical services provider.

In cooperation with healthcare companies, the bank offered its employees an opportunity to purchase tests for the coronavirus on preferential terms.

Selected HR initiatives

The Business Partnership Division actively contributes to business transformation in a volatile and challenging environment. It ensures continuous development of competencies of the future and leadership skills, enabling reorganisation of the bank as part of digital transformation of the business.

The HR strategy for 2021 and the next years focuses particularly on:

· creating an employee-focused corporate culture;

· improving employee experience by modelling the corporate culture;

· ensuring employee wellbeing;

· digitalising processes and ensuring flexible work environment.

HR development directions	Activities delivered in 2021
Creation of an employee-focused corporate culture	· As part of building the corporate culture, actions were taken to increase employees' readiness to report irregularities in the workplace and foster their openness to dialogue on difficult topics (making available films from the series "Whistleblowing - is there anything to be afraid of?", animations promoting whistleblowing channels and webinars serving educational and prevention purposes). · In 2021, the bank continued to deliver development initiatives, including: ü Santander YOUniversity: a mentoring and tutoring programme designed to facilitate best practice sharing across the bank and create a self-learning organisation; ü Futuro: a programme for all bank’s managers (excluding senior executives) focusing on development of soft skills such as empathy; ü Development Elixir: inspirational online sessions with internal and external experts about recognition, stress management, emotional intelligence, etc. ü BRIDGE: an internal internship programme, enabling employees to take active part in project work delivered by other organisational units and develop their skills; ü “IT from female perspective” and Santander Women: initiatives promoting women’s development and equal opportunities in accordance with the strategic HR direction: Diversity and Inclusion.
Building positive employee experience	· In pursuance of the strategy designed to enhance employee experience, in 2021 the bank identified the key areas for improvement and launched new initiatives to: ü foster the culture of recognition at work and develop a perception of employees that their contribution is valued; ü build and recommend the Santander brand through an active use of the bank’s products and services. · The bank launched an employer branding campaign under the slogan: “You are like...”. It presents information about the development opportunities offered by the bank and the candidate profiles (e.g. IT, risk, data analysis and sales specialists). The campaign shows employees as superheroes to recognise their everyday hard work, attitude and challenges they face during the pandemic. The concept of the campaign and its delivery is intended to make the bank stand out as an employer of choice and build positive associations with the brand.
Wellbeing & Mental Health	· As part of the Wellbeing & Mental Health strategy based on four pillars (physical health, mental health, good relationships, financial education), periodical activities and WELLbinars were held depending on the current needs. The periodical events concerned various topics, e.g. each month was dedicated to a different theme.

HR development directions	Activities delivered in 2021
Digitalising processes and ensuring flexible work environment	· On 19 October 2021, the OneHR (Workday) platform was luanched across Santander Group, which is an important element of the OneSantander strategy, facilitating achievement of such strategic priorities as simplification and employee focus. It helps deliver data-driven employee experience, promotes responsible leadership and supports micro and macro analytics. · The bank run a pilot of an app for employee budget management by teams (a tool accompanying OneHR Workday) as well as MyBenefits, an internal platform which presents information about the benefits received and available to employees in a clear and personalised manner. · A GDPR module was implemented in the SAP HR and payroll system for management of personal data lifecycle in accordance with applicable laws. · A range of enhancements were deployed in relation to HR and payroll processes, reducing their lead times. Another stage of e-HR (paperless) strategy was started to optimise paper-based solutions.
Major awards	· Top Employers 2021 – Top Employers Poland and Europe 2021, an accolade awarded to companies that create the best working conditions, invest in talent development and improve recruitment processes. · Diversity IN Check – recognition given to most advanced employers in Poland in terms of managing diversity and inclusion.It was granted based on the Diversity IN Check survey carried out by the Responsible Business Forum. · CSR Golden Leaf from Polityka magazine – an accolade granted to companies for which compliance with the ISO 26000 standard is a strategic element of doing business and building relations with stakeholders, including employees. · “Equal Company 2021” certificate from Forbes Women granted by the Forbes Women magazine as part of efforts to promote the Equal Company Code of Best Practice and support equality and diversity in business.
Differently-abled Project	· In 2021, the bank continued to build an inclusive and diverse work environment where people with disabilities can succeed: ü As part of the Differently-abed Project (“Różnosprawni”), a range of educational campaigns were run for employees and managers to increase the awareness of challenges faced by people with disabilities: “Listen to the deaf”, “Seeing means... Look at the world from the perspective of blind people”, “Sign up and learn – sign language workshops for beginners”. The aim of the above initiatives was to raise awareness of the rights and needs of people with disabilities, overcome any potential barriers against hiring such people, and encourage employees to share information about their disabilities with the employer. ü Since 2020, employees with disabilities can apply for an allowance for health-related purposes. ü The bank takes measures to build an image of an employer open to hiring people with disabilities. They include discussion panels, podcasts with the representatives of organisations supporting people with disabilities entering the labour market, and partnership in events organised by universities (e.g. “Letter Writing Night” at the Wrocław University of Technology).

2. HR Policy

Recruitment policy

Santander Bank Polska S.A. recruits new employees both internally and externally using methods and sources which are relevant to existing vacancies. They include specialist recruitment portals, the Referrals Programme, recruitment agencies, PR campaigns and targeted recruitment campaigns in social media, practical training and internships and cooperation with Santander Universidades.

The bank’s employees have precedence over other candidates in the internal recruitment processes at Santander Bank Polska S.A. and the companies from Santander Consumer Bank Group, which increases their development opportunities and helps build individual career paths.

The candidate profiles are checked to see if they meet the required job criteria in terms of their competencies, experience, knowledge, motivation, personality and compatibility with the organisational culture. All persons involved in the recruitment process must comply with the business ethics principles arising from the Labour Code and internal policies, in particular with the confidentiality and non-discrimination regulations.

The Referrals Programme of Santander Bank Polska S.A. engages employees in the recruitment process as it provides an opportunity to recommend candidates for vacant job roles in the bank. The system helps to reach a wider group of prospective employees who have relevant skills, aptitude and motivation, and are interested in taking up a job at the bank.

The recruitment process is supported by the Practical Training and Internship Programme run in cooperation with universities across Poland, which is designed to recruit talented individuals who have key competencies defined in the global development strategy (Software Engineering, Cyber Security, Big Data and User Experience).

In 2021, Santander Bank Polska S.A. recruited talents with a new profile that are better prepared to deal with such market challenges as volatility, digitalisation and robotisation. It also focused on initiatives designed to enhance positive experience of job candidates and promote the bank as a modern and responsible employer.

Due to the Covid-19 pandemic, all job interviews (both in the case of internal and external processes) were held online (via MS Teams). They were organised in accordance with the top standards and measures were taken to ensure that they are as close to in-person interviews as possible.

Performance management

Santander Bank Polska S.A. has an objectives management process in place which supports delivery of strategic objectives and staff development and promotes attitudes in accordance with the Simple | Personal | Fair values and eight corporate behaviours. The process allows for flexibility (as the objectives can be modified along the way) and for communication efficiency (as it facilitates communication between employees and their line managers due to more frequent meetings, regular feedback, and support of the HRup! system). In the existing model, individual performance (assessed in two dimensions: WHAT and HOW, and in terms of delivery of risk management objectives) is closely related to the bonus level.

Remuneration policy and bonus schemes

The rules for remunerating employees are set out in the Remuneration Policy of Santander Bank Polska Group, which covers employees of the bank and its subsidiaries, including identified employees (known as Material Risk Takers, i.e. employees whose professional activity has a significant impact on the risk profile of the organisation) excluding members of the Management and Supervisory Boards. The remuneration for members of the management and supervisory bodies is governed by separate policies described in Chapter XIII “Statement on Corporate Governance in 2021”, Section 4 “Governing Bodies”.

The Group’s Remuneration Policy covers a wide range of topics. It defines the rules for determining fixed and variable remuneration, awarding bonuses for the sales force, identifying and awarding bonuses to material risk takers in the Group, determining remuneration of control function employees and applying malus clauses.

The purpose of the policy is to ensure long-term sustainable growth of the Group by ensuring that employees are adequately remunerated and effectively motivated to deliver best results and to achieve the strategic goals. The remuneration system is consistent with the interests of key stakeholder groups (shareholders, employees, customers and communities) and supports long-term value creation, while taking into account such aspects as risk management, strategy, interests of the organisation, capital requirements and corporate culture. The practices related to the Remuneration Policy are gender neutral. They allow the Group to recruit and retain top talent using a competitive remuneration package including base salary, bonus schemes and attractive benefits.

The Remuneration Policy of Santander Bank Polska Group was updated in 2021. The new version was adopted in accordance with the bank’s Management Board resolution of 21 July 2021, which was approved by the Supervisory Board on 27 July.

The document was amended to ensure compliance with new regulations: EU legislation (including the CRD V/ CRR II package, ESG Regulation, Regulation supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards), amended Banking Law Act and its implementing legislation on the risk management system, the internal control system and remuneration policy at banks, the latest version of Best Practice for GPW Listed Companies 2021, and principles of corporate governance in banks specified in the KNF’s Recommendation Z.

The key changes to the Remuneration Policy are summarised below:

· introduction of a new definition of senior management;

· introduction of the rule that the Remuneration Policy and related practices are gender neutral;

· emphasising the rule that remuneration should be adequate to employees’ skills, knowledge, experience, responsibilities and performance, enabling the organisation to recruit, retain and motivate employees, in particular senior managers;

· ensuring consistency of the Remuneration Policy with the bank’s strategy on integrating sustainability risks;

· setting the maximum value of the total average gross remuneration of Management Board members per year to the total average gross remuneration of other bank’s employees per year;

· changes to deferral periods for variable remuneration payable to identified employees (Material Risk Takers, MRTs);

· adjusting the conditions for limited application of the Remuneration Policy to MRTs;

· adapting the procedure and process of identifying MRTs to Commission Delegated Regulation (EU) 2021/923 of 25 March 2021.

Fixed remuneration

The key component of remuneration at Santander Bank Polska S.A. is the base salary, which is determined on the basis of the role performed, scope of responsibility, qualifications and experience. In its approach to job valuation, the Group uses best market practice to ensure competitiveness of remuneration. For each grade, remuneration brackets are determined based on an annual pay report prepared by renowned consulting companies, and data published by Statistics Poland (GUS). In response to dynamic changes in the labour market, the Group’s remuneration system is periodically revised.

The last comprehensive review of base salaries took place in Q3 2021, leading to pay increases at the bank. The main purpose of the process is to increase the salaries across all structures of the bank to the market rates, reward employees engaged in the bank’s digital transformation and strategic projects and initiatives as well as top performers and employees acting in line with corporate values, and to ensure equal pay for women and men performing the same roles.

Variable components of remuneration

The employees of Santander Bank Polska Group are subject to bonus schemes defining the variable component of their remuneration. The bonus schemes enhance staff motivation and support the delivery of strategic objectives set by the organisation. The awarding criteria and bonus levels are strictly linked to business and qualitative results of the Group and individual employees whose performance, delivery of objectives, behaviours and engagement are reviewed on a regular basis.

The Group’s employees are set individual objectives that correspond to the activities of a given organisational unit. The objectives of the employees within the control units (internal audit, compliance area, risk management units and HR units) arise from the roles they perform and their remuneration does not depend on the financial performance of business areas they control. In the case of the sales staff, in addition to quantitative and qualitative objectives the performance review also covers the indicators related to customer service, risk management and compliance with the applicable regulations.

Variable remuneration depends on a bonus scheme relevant to a given employee (including bonus regulations for front-office staff, back-office staff and employees of control units). Individual bonus schemes differ in terms of eligibility criteria, bonus amount and payment frequency. Bonus payment is conditioned upon the delivery of specific quantitative objectives (e.g. a stated gross or net profit growth rate or amount, credit cost, NPL, RWA) and satisfaction of qualitative criteria (e.g. customer satisfaction). Due to the Covid-19 pandemic, the bank adjusts its bonus schemes to the current circumstances. It also has an option of awarding individual discretionary awards pursuant to the internal regulations.

The rules for determination and payment of variable remuneration for Material Risk Takers are presented in Chapter XIII “Statement on Corporate Governance in 2021”, Section 5 “Remuneration Policy”.

The overall variable remuneration cannot exceed 100% of fixed remuneration even in the case of an exceptionally outstanding performance. However, in an exceptional case, this limit might be increased to maximum 200% of fixed remuneration subject to the approval by the AGM.

Variable remuneration components also include long-term (three-year) incentive programmes addressed to key employees of the bank. There is no active incentive programme in place at the moment.

The Group also offers additional benefits that suit employees’ needs such as: health care packages or the cafeteria system which provides a wide range of cultural, sports and tourist benefits.

As the criteria stipulated in the bonus regulations were not met, in 2021 the bank’s employees were not paid an annual bonus for 2020. However, pursuant to the Remuneration Policy of Santander Bank Polska Group, the discretionary awards were granted to top performers to:

· give recognition to the employees who contributed most to rebuilding the bank’s value;

· appreciate the exceptional engagement in ensuring business and operational continuity of the organisation;

· reward the employees who actively engaged in development and delivery of strategic projects and initiatives.

The awards were paid in March 2021.

Social and employee benefits

The bank offers a broad range of employee benefits which help make it a more attractive workplace. Employees can use benefits which:

· encourage them to lead a healthy lifestyle (e.g. Multisport card);

· enhance their comfort and security (e.g. reimbursement of costs related to purchase of prescription glasses, financial aid for employees in a difficult life situation, group life insurance);

· help achieve work-life balance (e.g. a cafeteria system offering a variety of hotel, tourist, cultural, sports and shopping options, which can be paid for using points awarded to each employee, including hotel vouchers with a deferred expiry date due to the pandemic).

The bank offers a wide array of free ancillary medical services with one of Poland’s largest healthcare providers including access to doctors of all specialties, laboratory testing, outpatient services, home visits and rehabilitation. Moreover, employees may purchase dental packages, medical packages for family members, as well as hospital packages (for them and their families) on attractive terms.

In 2021, the number of free consultations with a psychologist/ psychiatrist and a physiotherapist was increased. Once the limit is used, employees may continue their therapy/ treatment on preferential terms negotiated by the bank.

As a responsible employer, the bank participated in the state Covid-19 vaccination programme for employees and their relatives. It also offered discounts for Covid-19 tests with two healthcare companies. In partnership with a medical service provider, the bank undertakes initiatives related to preventive healthcare (seminars, webinars, on-call support, educational materials).

The bank supports families with children, sponsoring the costs of starter kits and reimbursing the costs of care over children in nurseries, kindergartens and children’s clubs, as well as summer, winter or day camps for children. The parental support policy also includes an additional paid leave, reduced working hours and an induction period after the parental leave.

Each employee could also use additional time off during working hours (“Two hours for the family”).

Training and development

Santander Bank Polska S.A. manages human potential at all stages of the employee’s lifecycle, taking into account a variety of aspects. It offers a wide array of training and development opportunities. The bank uses the 70-20-10 approach, which combines learning through experience (70), through others (20) and through structured courses (10).

The bank provides its employees with a range of obligatory training courses to develop the skills required to perform a given role in the organisation as well as optional training courses/ workshops/ programmes that help enhance technical and social skills. It also runs programmes supporting development of specific target groups and specific competencies.

Training and workshops are delivered by both external companies and experienced internal trainers.

The bank continues to build a self-learning organisation. There is an active group of tutors and mentors at the bank who share their knowledge and experience. The bank’s training and development processes place a strong focus on self-development. The bank provides access to development ideas, modern e-learning solutions and external training platform. Employees can also take part in internal internship programmes that support knowledge sharing across the organisation.

Managers at Santander Bank Polska S.A. steadily enhance their skills in terms of how to support development of employees. In 2021, a focus was placed on human-to-human leadership development where the leader plays a key role in building employee experience by engaging staff in the change process and developing relationships based on trust and mutual understanding. Development initiatives for senior managers were concentrated on competencies that are key to effective staff management in the face of current business and management challenges (remote and hybrid work).

As part of employee focus, a priority was given last year to maintaining open and effective communication. A culture of feedback and recognition was promoted, as were the development initiatives supporting the dialogue with employees. Work was also underway to address the issue of trust in the workplace as a foundation for building successful and effective teams.

Leaders were engaged in developing their personal brand along with the bank’s brand (based on the Employee Advocacy approach) to create a friendly workplace that will attract and develop talent. They could also join a variety of initiatives promoting inclusion at the bank.

Training in 2021 in numbers

133 tys. h

Total number of training hours

23,2 h

Average number of trainings per employee

VI. Relations with Customers

1. Customer Service Quality and Customer Experience Management

Customer experience (CX) management

Dynamic progress measured by the NPS

In 2021, Santander Bank Polska S.A. was among the top three banks in Poland in terms of customer experience management. The bank kept its place on the podium for three NPS survey editions in a row, reducing its distance to the winner to 5 pts.

Over the last three years, the bank achieved the highest NPS growth rate in the market, climbing from sixth position at the end of 2018 (shortly after the rebranding) to a position in the top 3 in December 2021 with NPS of 47, despite a declining trend (-7 pts.) in the peer group observed last year.

In 2021, the bank built strong systemic foundations to compete with the best market players. It will continue the transformation process based on strengthening and improving relations with customers.

Methodological foundations of customer-centric transformation

Steady improvement of customer experience is an effect of customer-centric transformation that covers customer-facing areas and service design teams. The bank is delivering this process using the FORRESTER model. It consistently develops skills, tools and processes that support the areas which are key to customer experience.

Customer experience management at the strategic level

One of the directions set out in the strategy pursued by Santander Bank Polska S.A. is “Customer Obsession”, meaning that each initiative and decision made in relation to delivery of the bank’s goals takes into account the quality and strength of customer relationship. Customer experience is a key success factor and the main competitive advantage, particularly in the banking sector where services are easily comparable due to regulations and technology. Alongside extensive changes in the market caused by pandemic-driven innovations and fintech solutions, customers compare their experience from different sectors and their expectations are constantly growing.

Simplicity, convenience, self-service and remote access are now the basic features of all services. But a key distinctive quality for higher-end customers is a good relationship with their dedicated customer advisor.

In 2021, the bank undertook the following strategic initiatives as part of “Customer Obsession”:

CX Strategy:

· Continuously monitoring and reviewing the market and consumer trends (needs, competition, regulations, finance, complaints and sector trends);

· Focusing on emphatic, simple, accessible, effective and inclusive external and internal communication;

· Enhancing CX and EX synergies through internal programmes.

Skills and tools:

· Implementing the Compass (Kompas) methodology to deliver customer-centric solutions in the key areas of the bank’s operations;

· Developing a scalable operational ecosystem for design and research (including relevant service design skills and tools);

· Mapping and measuring end-to-end experience to improve customer satisfaction;

Monitoring effectiveness:

· Ensuring that business decisions are taken on the basis of feedback from customer surveys;

· Reducing negative impact of regulatory changes;

· Ongoing monitoring of:

ü strategic indicators, including the bank’s overall NPS, NPS for customer segments and digital NPS;

ü auxiliary indicators, i.e. additional indicators that help measure customer satisfaction, such as NPS for complaints, plain language index, NPS for specific types of experience.

The importance of the NPS objectives is reflected in the bonus scheme, which incorporates the bank’s NPS in the bonus pool for the bank’s head office.

Management and monitoring of activities impacting customer experience at the operational level

As part of the quarterly planning process at the bank (QBR), customer expectations are identified together with initiatives to be undertaken to meet them. The initiatives are subject to regular reporting. For each initiative, the impact on NPS is estimated and customer impact measures are defined and monitored.

NPS results for all segments are monitored each month at the Management Board level. In addition, the results for the mass customer segment are subject to thorough review.

Once a month, the #aconatoklient Forum is convened to discuss NPS results for individual business segments and identify key underlying initiatives. The Forum is also a platform for sharing experience and ideas on how to build customer experience.

Management of collection, analysis and use of voice of the customer

In 2021, the bank developed a complete decentralised customer survey system for the key segments. For each segment, there are standardised tools which are necessary to understand the customer’s perspective and assess the competitiveness of services provided by the bank (in comparison to peers, if possible). Based on the survey results and in accordance with the Agile way of working, a customer report is published before the start of each quarter presenting key information that may help plan new initiatives.

Each segment also has an NPS simulator for assessing the potential impact of the solutions on customer experience measured by NPS.

Building and improving customer experience standards

Service standards

In 2021, the bank took measures to improve the new customer service standards defined in 2020. Due to the Covid-19 pandemic, remote customer service standards were implemented for individual customer segments, terms of cooperation between segments were defined and the Santa Fan of Digitalisation programme was launched. Particularly important were the commitments adopted as the foundation of good customer service:

· We help customers resolve their issues here and now (irrespective of the segment)

· We encourage customers to extend the scope of banking, also into other segments

· We support customers in the use of remote and omnichannel services

· We give recognition to each other and collaborate to serve customers’ interests.

10k people (including all front-line staff) were trained in service standards (40k training hours). The new emphatic service standard covers seven out of eight customer contact points.

Emphatic communication standards – plain language

In 2021, the bank continued the “Rzecz Jasna” plain language project whose objective is threefold:

· To implement a single communication standard across the bank, which will be characteristic for the brand and will make the bank stand out from its competitors. Last year, the bank focused on changing its style of communication into more emphatic and reader-friendly one, in particular in the complaints and restructuring area.

· To develop skills across the organisation related to the preparation of plain language messages. 2.1k employees were trained in the rules of plain language, 2.4k employees took part in an e-learning session: “How to write so people can understand you”, 20 more people were certified as plain language consultants.

· To simplify documents based on the plain language standard (clear language, no banking jargon, no officialese).

Product and service design and development standard

In 2021, a standardised, customer-centric product and service design process called Compass (Kompas) was developed and implemented in the selected areas of the organisation. This Agile-based process specific to Santander Bank Polska S.A. supports the delivery of business objectives by focusing on customers’ needs and verifying hypotheses with customers. Compass is about the practical use of design and research methods in the complex and strictly regulated business environment of the large bank.

The implementation of Compass involved development of internal competencies and adjustment to existing processes and procedures. Compass is used on a day-to-day basis to check if the products and services that are planned to be implemented meet customers’ needs and ensure positive customer experience, while supporting delivery of business objectives of the bank.

Complaints management

Customers of Santander Bank Polska S.A. may file complaints at their convenience: in branch, by phone, via electronic banking or by traditional mail.

· 63% of complaints were filed in remote channels (by phone or via electronic banking, including through a video conversation and text chat).

Responses to complaints are provided in the customer’s preferred form: by letter, text message or via online and mobile banking. Text messages are used to acknowledge receipt of the complaint, close the case and communicate the form of providing response. If the case takes more than 5 (and subsequently 10) days to process, a text message is also sent to communicate that fact to the customer.

· 81% of our responses were provided electronically.

In 2021, emphasis was placed on increasing the quality of responses and shortening the turnaround time. Responses are clear and comprehensive. Banking jargon and complicated language are avoided. Robotisation is employed in complaint-handling, which greatly increases routine tasks:

Ø 98% of cases covered by the simplified process were resolved within one business day.

Ø 60% of cases were resolved within three business days.

Ø 24% of cases were resolved at first contact by authorised bank employees who had received the complaint. The decision was communicated to the customer immediately after filing the complaint.

The quality and speed of complaint handling and customer satisfaction (measured by surveys) are verified on a regular basis. The complaint handling process also meets regulatory requirements. All conclusions and results of analyses and surveys are implemented across the organisation and used to enhance the entire complaint handling process (from the moment of filing the complaint to its resolution). Customers who are not satisfied with the resolution may appeal to the Customer Care Officer, who provides the relevant support.

Barrier-free branches and digital solutions

For more than 10 years now, Santander Bank Polska S.A. has been running and developing the “Barrier-Free Banking” (“Obsługa bez Barier”) programme, designed to ensure access to the bank’s services and products for customers with special needs (the disabled, the elderly, pregnant women). The bank continuously increases its accessibility, using advanced methods and providing appropriate conditions to people choosing traditional branches. To find out more about this programme, please see Chapter XIV “Statement on Non-Financial Information for 2021”.

2. CRM Solutions

In 2021, CRM activities focused on increasing the efficiency of communication and sales in digital channels. An SMS gateway was implemented enabling two-way communication with customers using a tool for creation of e-mails.

The CRM environment was integrated with internet and mobile banking mailboxes, thanks to which all messages sent to customers were fully automated. New communication opportunities were used in Santander internet and mobile to reach a wider group of customers.

An engine (CEP 2.0) was implemented to detect business events related to the customer in different banking systems, making it possible to develop advanced business rules as well as real-time and event-based campaigns.

Behavioural segmentation was introduced along with a display model – an engine for personalisation of offering and messages in Santander internet and mobile, resulting in an increase in the number of clicks and the value of cash loan sales in these channels. Thanks to these changes, it will be possible to test and optimise the use of ad placements and messages.

An onboarding process was launched, with dedicated activation paths for the acquired customers who communicate with the bank mainly via the mobile app.

The machine learning models and algorithms developed as part of Business Intelligence enable the bank to convert the data gathered into the information that is used to offer customers products in accordance with their needs and expectations, understand how to improve the processes and services to increase customer satisfaction, help customers in a difficult financial situation, or protect customers and the bank against cybercrime

VII. Investor Relations

1. Investor Relations at Santander Bank Polska S.A.

The ambition of the investor relations function of Santander Bank Polska S.A. is to maintain best-in-class standards of communication with capital market participants in Poland and abroad. Fundamental to this dialogue are the following elements: accurate information, transparency and equal treatment of all stakeholders.

As a listed company and the second bank in Poland in terms of market capitalisation (as at 31 December 2021), Santander Bank Polska S.A. actively communicates with its stakeholders in order to satisfy their information needs in accordance with the highest market standards, applicable law and best practice.

Particularly important to the bank is the communication with shareholders, investors and analysts. Santander Bank Polska S.A. makes best efforts to provide the above market participants with regular and timely access to high quality and clear information in order to facilitate the accurate assessment of the bank’s and the Group’s financial standing, market position and effectiveness of the strategy and business model.

The bank’s investor relations unit engages in a dialogue with institutional investors and stock market analysts, informing them about the bank’s development and performance and other relevant aspects which may affect their decisions. It also responds to questions about the current situation of the company. The above activities are aimed to ensure adequate transparency, build stakeholders’ trust and promote the bank’s image in capital markets.

In 2021, the following initiatives were undertaken as part of standard investor relations activities:

· The representatives of the bank’s Management Board and the Investor Relations Office organised regular meetings with investors and stock market analysts (around 150 ones held in 2021 in the form of conference calls and virtual meetings due to the pandemic).

· The bank’s representatives took part in ten conferences organised by various Polish and foreign brokerage offices. Due to the Covid-19 pandemic, these events were held online, still making it possible to meet existing and prospective investors.

· Four conferences were held to present market analysts with the bank’s quarterly performance. In line with best market practice, they were open to everyone interested and were broadcast online in Polish and English. The recordings are available on the bank’s website (https://bank.santander.pl/relacje-inwestorskie/serwis-relacjiinwestorskich.html.).

At the end of 2021, 15 analysts from Polish and foreign financial institutions prepared and published reports and recommendations concerning the bank’s equities.

All information published by the bank (concerning both current and past years) is available on the Investor Relations website: https://www.santander.pl/en/investor-relations.

In late July 2021, the above website was redesigned and the “Best practice” tab was added. It includes information on the application by the bank of the principles contained in Best Practice for GPW Listed Companies 2021 (https://www.santander.pl/en/investor-relations/best-practice).

2. Share Capital, Ownership Structure and Share Price

Ownership structure in 2021 and the majority shareholder

As at 31 December 2021, the share capital of Santander Bank Polska S.A. totalled PLN 1,021,893,140, divided into 102,189,314 ordinary bearer shares with a nominal value of PLN 10 each.

The number of shares and votes held by individual shareholders as at the end of 2020 and 2021 is presented in the table included in Chapter XIII “Statement on Corporate Governance in 2021”, Section 2 “Issuer’s Securities”.

Majority shareholder

The profile of Banco Santander S.A. and its Group is presented in Chapter II “Key Information on Santander Bank Polska and its Group”, Section 1 “History, Ownership Structure and Profile”.

3. Share Price of Santander Bank Polska S.A. vs the Market

SHARE PRICE OF SANTANDER BANK POLSKA S.A. AND TRADING VOLUME IN 2021

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Key data on shares of Santander Bank Polska S.A.	Unit	2021	2020
Total number of shares at the year end	item	102 189 314	102 189 314
Nominal value per share	PLN	10,00	10,00
Closing share price at the year end	PLN	348,50	185,70
YoY difference in share price	%	87,7%	-39,6%
Highest closing share price during the year	PLN	382,30	315,00
Date of the highest closing share price	-	05.11.2021	07.02.2020
Lowest closing share price during the year	PLN	181,40	123,00
Date of the lowest closing share price	-	29.01.2021	30.10.2020
P/E at the year end (bank)	PLN	38,88	25,70
P/E at the year end (Group)	PLN	32,04	18,30
Basic earnings per share at the year end (bank)	PLN	8,96	7,23
Basic earnings per share at the year end (Group)	PLN	10,88	10,16
Capitalisation at the year end	PLN m	35 612,98	18 976,56
Dividend per share paid ¹⁾	PLN	2,16	-
Record date	-	08.10.2021	-
Dividend payment date	-	15.10.2021	-

1) For more information, see “Dividend per share” section below.

2021 was a very successful year for companies from the banking sector. Due to the low base effect, WIG-Banks, an industry index, gained as much as 67.0% and was one of the driving forces behind the growth of the whole market. Following 2020, when banks’ shares were among the worst performing stocks in the market, 2021 saw a reversal of the trend. Stock indices were increasing for the most part of the year amid hopes for interest rate rise brought by post-pandemic recovery and growth of the economy. Banks’ stocks also benefited from the publication of financial results, which in the majority of cases exceeded the market consensus. The shares of Santander Bank Polska S.A. outperformed the sector index during the year and gained nearly 87.7%, returning to market capitalisation levels of 2019. The highest closing share price was PLN 382.30 on 5 November 2021 and the lowest was PLN 181.40 on 29 January 2021.

Due to strong liquidity and high market capitalisation, the shares of Santander Bank Polska S.A. are traded in a number of stock market indices. Apart from WIG-Banks (an industry index), WIG (a broad-based index) and WIG20 (a blue chip index), the bank is included in such index portfolios as: RESPECT, WIG-Poland, WIG30, WIG30TR and WIG20TR.

The charts below show the share price of Santander Bank Polska S.A. against the main stock exchange indices in 2020 and 2021 and after the acquisition of a controlling stake by Banco Santander S.A. on 1 April 2011.

share price of Santander Bank Polska S.A. vs key indices

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Dividend per share

Retention of the profit for 2020

On 23 February 2021, the Management Board of Santander Bank Polska S.A. adopted a resolution recommending that the entire profit for 2020 totalling PLN 738.4m be retained, with 50% to be allocated to the capital reserve and 50% to be left undistributed. The resolution was passed in accordance with the KNF recommendation, taking into account the prevailing macroeconomic conditions. It was partially adjusted by virtue of the Management Board’s decision of 17 March 2021 approved by the Supervisory Board.

Pursuant to the amended recommendation of the Management Board, the bank’s Annual General Meeting decided on the distribution of the bank’s profit for 2020, allocating PLN 369.2m to the capital reserve and setting aside the same amount as a dividend reserve (capital reserve earmarked for payment of a dividend, including an interim dividend). The Annual General Meeting authorised the Management Board to use the dividend reserve to pay an interim dividend pursuant to Article 349(2) of the Commercial Companies Code.

Satisfaction of the dividend policy criteria for commercial banks

On 2 July 2021, the bank received a letter from the KNF concerning a dividend policy of commercial banks in H2 2021. The letter set out the conditions to be met by the bank in order to distribute 50%, 75% and 100% of the net profit, respectively.

The bank was informed that the individual Stress Test (ST) add-on measuring the bank’s sensitivity to an adverse macroeconomic scenario was set at 1.73%, taking into account regulatory adjustments (applicable to the distribution of both up to 75% and up to 100% of the net profit).

As at 31 March 2021, the bank met the basic dividend policy criteria for commercial banks to distribute up to 100% of the net profit earned in 2020. However, taking into consideration the additional criteria due to the bank’s portfolio of foreign currency home mortgages, the maximum dividend yield is 30% of the profit earned in 2020.

In its individual recommendation of 20 July 2021, the KNF confirmed that the maximum dividend yield is 30% of the net profit for 2020 and recommended that the bank should not take any other measures which could weaken the capital base unless such measures have been agreed with the supervisor.

Payment of an interim dividend

On 1 September 2021, the Management Board of Santander Bank Polska S.A. decided to pay out an interim dividend for 2021 and allocate PLN 220.7m for that purpose from the capital reserve set aside for payment of a dividend/ interim dividend pursuant to Resolution no. 6 of the bank’s Annual General Meeting of 22 March 2021. Under that resolution, 50% of the bank’s net profit for 2020 (i.e. PLN 369.2m) was allocated to the dividend reserve.

On 1 September 2021, the bank’s Management Board received the Supervisory Board’s approval for paying out an interim dividend.

Shares giving entitlement to the interim dividend were 102,189,314 series A, B, C, D, E, F, G, H, I, J, K, L, M, N, O shares. The interim dividend per share was PLN 2.16. The record date for the interim dividend was 8 October 2021 and the payment date was 15 October 2021.

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* Santander Bank Polska S.A. pays dividends in accordance with the dividend policy in place, taking into account individual recommendations of the KNF in this respect.

4. Rating of Santander Bank Polska S.A.

Santander Bank Polska S.A. has bilateral credit rating agreements with Fitch Ratings and Moody’s Investors Service.

Ratings by Fitch Ratings

The table below shows the latest rating actions taken by Fitch Ratings in relation to Santander Bank Polska S.A.

Rating Category of Fitch Ratings	Ratings changed/affirmed on 11.06.2021 and 23.09.2021¹⁾	Ratings affirmed on 29.09.2020 and 16.03.2021²⁾
Long-term Issuer Default Rating (long-term IDR)	BBB+	BBB+
Outlook for the long-term IDR rating	stable	negative
Short-term Issuer Default Rating (short-term IDR)	F2	F2
Viability rating (VR)	bbb+	bbb+
Support rating	2	2
National long-term rating	AA(pol)	AA(pol)
Outlook for the national long-term rating	stable	negative
National short-term rating	F1+(pol)	F1+(pol)
Long-term senior unsecured debt rating (EMTN Programme)	BBB+	BBB+
Short-term senior unsecured debt rating (EMTN Programme)	F2	F2

1) Ratings of Santander Bank Polska S.A. applicable as at 31 December 2021

2) Ratings of Santander Bank Polska S.A. applicable as at 31 December 2020

In its announcement of 23 September 2021, Fitch Ratings affirmed the international, national and support ratings of Santander Bank Polska S.A. The affirmation of the ratings reflects the balanced credit risk profile of the bank and no changes to the assessment of support available to the bank from its parent, Banco Santander S.A. The stable outlook results from the review and assessment of risks connected with the operating environment of Polish banks. In the agency’s view they were stable due to the limited impact of the pandemic on banks' credit profiles, sound economic recovery prospects and low likelihood of material contagion effect of banks’ exposure to foreign currency mortgage loans for the broader sector.

The international ratings (IDR and VR) and senior debt rating are driven by the bank’s intrinsic strength and potential parental support. The national ratings reflect the bank's creditworthiness relative to peers.

The bank’s individual rating is substantiated by the established domestic franchise, conservative risk appetite, and solid capital and liquidity position. The bank's asset quality has remained resilient to the effects of the pandemic, as confirmed by average payment arrears and solid payment discipline among borrowers that have exited moratoria. However, the bank’s profitability is still under pressure due to the slowdown caused by the pandemic, which affects both margins and lending growth. The bank’s financial performance is also weighed down by the provisions for the legal risk connected with foreign currency mortgage loans. Their share in the credit portfolio is moderately high at 6% (as at 30 June 2021).

The support rating (SR) reflects high probability of support from Banco Santander S.A., if needed, given the strategic importance of the Polish market for the parent, the role of Santander Bank Polska S.A. in Santander Group (synergies, delivery of common objectives) and an immaterial size of the potential support relative to the Group’s ability to provide it and its credit profile.

Ratings by Moody’s Investors Service

The table below sums up the ratings assigned by Moody's Investors Service to Santander Bank Polska S.A., which were applicable on 31 December 2021 and 31 December 2020.

Category of Moody's Ratings	Ratings upgraded as at 3.06.2019
Long-term/Short-term Counterparty Risk Rating	A1/P-1
Long-term/Short-term Bank Deposits	A2/P-1
Outlook for Long-term Deposit Rating	stable
Baseline Credit Assessment	baa2
Adjusted Baseline Credit Assessment	baa1
Long-term/Short-term Counterparty Risk Assessment	A1 (cr)/P-1 (cr)
Rating Assigned to Senior Unsecured EURO MTN Program	(P) A3

In its announcement of 3 June 2019, Moody’s Investors Service upgraded the ratings of Santander Bank Polska S.A. The ratings were kept unchanged until 31 December 2021.

On 14 September 2021, the agency published the results of the last periodic review of ratings of Santander Bank Polska S.A., which was not a rating action. It was conducted in the form of a portfolio review and took into account the underlying methodology, recent internal and external developments, and a comparison of the financial and operating profile to similarly rated peers. The bank's baa2 BCA reflects a moderate quality of the credit portfolio, with the NPL ratio somewhat higher than the sector average and moderate exposure to CHF mortgage loans with higher legal risk. The bank has strong capital buffers (significantly above the regulatory minimum) and generally strong profitability, although the latter remains under pressure because of elevated cost of credit and weakened net interest margin. The BCA also reflects a good liquidity buffer and a moderate level of wholesale funding.

VIII. Relations with External Environment

1. Responsible Banking

Pillars of Responsible Banking at Santander Bank Polska S.A.

The objective of sustainable and socially responsible development at Santander Bank Polska Group is to build a long-term value for all stakeholders.

The Group’s approach to corporate social responsibility and sustainable development is defined in the Responsible Banking Strategy, which is an integral part of the Group’s overall business strategy and takes into account ESG factors in addition to the Principles for Responsible Banking.

The Responsible Banking Strategy is based on two pillars, namely the corporate culture and sustainable finance.

As part of sustainable finance the Group pursues goals related to protection of the environment and prevention of climate change, which have become increasingly important nowadays.

The above mentioned subjects are thoroughly discussed in Chapter XIV “Statement on Non-Financial Information for 2021”.

2. Social Resposibility

The bank participates in long-term social projects which are not only aimed at responding to the needs of local communities but also at making a positive contribution to society. It embarks on sponsorship, corporate giving and corporate volunteering activities which are presented in Chapter XIV “Statement on Non-Financial Information for 2021”.

3. Communication with Stakeholders

Corporate Social Responsibility Report

The bank informs its stakeholders about its CSR activities by means of an annual report and ESG webpage. In 2021, the eight report was prepared summarising the bank’s social, economic and environmental impact. The ESG report was made available online in Polish and English.

It was prepared in accordance with the Global Reporting Initiative (GRI) standards (Core option), international guidelines (issued by the European Commission, Warsaw Stock Exchange, the European Bank for Reconstruction and Development, the Task Force on Climate-related Financial Disclosures) as well as Principles for Responsible Banking. Before publication, the key indicators were reviewed by an independent auditor.

Relations with stakeholders

The Group identifies the key groups of stakeholders and analyses their needs and mutual impact. It regularly communicates with the stakeholders using various channels, such as sessions with the representatives of social and business partners organised in accordance with the AA1000SES standard. Since 2014, ten sessions have been held.

The last session was held in April 2021 and was devoted to the role of Santander Bank Polska S.A. in green transformation. It was attended by representatives of NGOs, expert organisations and the bank’s customers.

The Group analyses recommendations issued by the stakeholders and incorporates them into its processes. Special attention is paid to the voice of customers, who are provided with products and services developed in accordance with the customer-centric model.

Marketing communication

Brand promise

Santander is a strong brand that is primarily associated with its global market presence and, then, with sports sponsorship. The bank is viewed as a responsible and respectable institution.

In 2021, the bank’s brand metrics ranked high. In H2 2021, the Total Spontaneous Brand Awareness continued an upward trend and was ranked second.

All the bank’s advertising campaigns were among those assessed best (above the benchmark) in terms of persuasiveness, appeal and understandability.

PR communication

In 2021, the bank’s marketing communication was reviewed in order to even better support the delivery of accelerated digitalisation goals, notably in the retail banking area. Qualitative and quantitative customer surveys were carried out and banking communication in Poland and abroad was reviewed together with market and consumer trends. As a consequence, a new communication concept was developed, focusing on the bank as an institution which makes life easier and responds to a strong consumer need for a modern and innovative bank which is also solid and safe. These attributes are also of key importance for enhancing customer-centric strategy and improving the bank’s NPS. The first campaign based on the concept of the bank that makes life easier was run in Q3 2021 and will be continued in 2022.

Marketing campaigns

Due to the pandemic, in 2021 the bank focused on digitalisation of customers, extensively promoting mobile app features. A strong emphasis was also put on messages concerning cybersecurity.

Since mid-2021, the bank has been promoting a new concept developed as part of the retail banking digitalisation programme, namely “the bank that makes life easier”. The objective is to increase NPS and the number of Accounts As I Want It.

The communication activities were delivered using the existing platform with Marcin Dorociński as the brand ambassador and well-recognised and distinctive tune.

In 2021, three Poland-wide ATL campaigns featuring the brand ambassador were run on TV, internet, in social media and branches. They were addressed to personal customers and promoted:

· Account As I Want It (Konto Jakie Chcę) for the young and the mobile app;

· open banking/ PSD2 with the free of charge Cyber Rescue service providing online security 24/7;

· “My Goals” service in the mobile application.

The bank also run a cybersecurity campaign (“Fairy tales for adults”) and product campaigns (internet, branch windows) to promote:

· Account As I Want It (and Santander mobile app);

· business account for SMEs with e-services;

· Locum home insurance;

· Visa credit cards (Visa 800).

The bank organised the “We Will Double Your Impact” (“Podwójna Moc Pomagania”) fundraiser, doubling the donations made by customers.

Social media

The bank has built a large virtual user community. As at December 2021, it had more than 301.5k Facebook fans, 19.8k Twitter fans and 5.3k Instagram fans. The Facebook fanpage was rated second among Polish banks. The messages posted by the bank reached 4m users per month, 550k of which interacted with the fanpage, which means that the content was interesting and relevant.

In addition, the bank has the highest sentiment ratio due to positive opinions posted on the fanpage.

In 2021, Santander Bank Polska S.A. was awarded in the Golden Paperclips competition, receiving a silver accolade in the “Finance” category as a recognition of its “Cyberproverbs” (“Cyberprzysłowia”) social media campaign.

In addition to the above-mentioned social media campaigns, the bank undertook the following initiatives:

· for personal customers: My Goals, Autopay, CyberRescue, Telemedico, Account As I Want It for the young, Eco-friendly card, Visa card campaigns, Summer promotions package (ATM package, toll reimbursement with Autopay, travel insurance discount), Black Friday (cashback on credit card payments, special deal on the currency exchange platform, CyberRescue promotion), Holidays with currency exchange platform;

· for SME customers: campaigns promoting e-Services, webinars

· education and information campaigns: campaigns promoting cybersecurity (Cyberproverbs, Fairy tales for adults), campaigns targeted at the elderly #LogInTheSenior (#ZalogujSeniora);

· CSR activities: “Green Ribbon #ForThePlanet” (“Zielona Wstążka #DlaPlanety”), CSR Fair, promotion of the CSR Report, International Day of Sign Languages, Day of the Deaf;

· campaigns supporting Santander Universidades: Santander Universidades Academy (promotion of a series of lectures), communication of global and local programmes;

· Other campaigns: Golden Banker, Work Café, grants awarded by Santander Foundation, Santander Foundation Scholarship, Women’s Day with #womanontour, UEFA Champions League, Santander Orchestra.

Content management

Online marketing activities were focused on content management. Procedures were implemented to enhance delivery of educational finance objectives and support online sale of Account As I Want It (Konto Jakie Chcę) and currency exchange platform (Kantor Santander). The content marketing process also covered image-building and NPS activities connected with Christmas-related communication.

To attract young internet users, the bank launched cooperation with influencers.

In recognition of the above measures, the bank received a silver accolade in the Power of Content Marketing Awards.

IX. Business Development in 2021

1. Group’s Business Management Structure

Operational structure

Santander Bank Polska S.A., together with its non-banking subsidiaries, conducts its operations through the following central units: Retail Banking Division, Business and Corporate Banking Division, and Corporate and Investment Banking Division.

Santander Consumer Bank Group (SCB Group), which specialises in consumer finance, forms a separate business segment with its own customer base, product range and distribution channels.

Segment reporting

The business management structure presented above corresponds to business segments identified as part of segment reporting (Note 3 to the Consolidated Financial Statements of Santander Bank Polska Group for 2021). They are complemented by the ALM and Central Operations segment, which covers funding, management of strategic investments and transactions which generate expenses/ revenues that cannot be allocated to individual segments.

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Profit before tax generated by business segments of Santander Bank Polska S.A. in 2021 (excluding ALM and Central Operations)

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The year-on-year change in the segment structure of the profit before tax for 2021 is due to the high charge to the Retail Banking Segment from provisions made for disputed liabilities and legal risks in relation to foreign currency mortgages (for more information see Chapter XI “Financial Performance in 2021”).

Loans and advances to customers and deposits from customers by business segments as at 31 December 2020 and

31 December 2021 (excluding ALM and Central Operations)

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The table below presents the business segments of Santander Bank Polska Group in three dimensions: customer profile, key product lines and service model.

Segment	Area	Operating model
Retail Banking	· Customer profile	· Personal customers (divided into Standard, Premium, Select and Private Banking customer segments based on their diverse needs and expectations). · Small and medium-sized companies (with annual turnover up to PLN 8m).
	· Key product lines	· Current and business accounts, savings products, consumer and mortgage loans, credit and debit cards, insurance and investment products, clearing services, brokerage services, mobile phone top-ups, foreign payments, Western Union money transfers and services for high-net-worth customers, open banking services. · Business loans, business deposits, cash management, leasing facilities, factoring, payment orders, letters of credit, collections and guarantees, payment terminals, additional services. · Asset management services as part of investment funds.
	· Service model	· Relationship-building, sales and after-sales contacts with retail customers through the network of branches and partner outlets, phone banking (Multichannel Communication Centre) and electronic banking (Santander internet, Santander mobile in a mobile browser and Santander mobile application). · Premium customers are serviced by dedicated advisors as part of their individual portfolios, based on a personalised approach and regular contacts aimed at strengthening relationships and customer loyalty. · Private Banking and Select customers benefit from a personalised service model under which they can use the support of a specialised advisor and the Select Line operating as part of the Multichannel Communication Centre, which offers support via telephone. Private Banking customers have several dozens dedicated private bankers operating from 26 locations around Poland, including 4 Private Banking Centres. · Firms with relatively low turnover are handled by SME advisors in branches and partner outlets. They can also use the services of the Multichannel Communication Centre and electronic channels (Santander mobile and dedicated services: Mini Firma, Moja Firma Plus and iBiznes24). · Customers of Santander Brokerage Poland may invest via the Inwestor online system, Inwestor mobile application, the Multichannel Communication Centre and at the bank’s branches providing brokerage services.

Segment	Area	Operating model
Business and Corporate Banking	· Customer profile	· Businesses and corporations with turnover of PLN 8m–PLN 1.2bn, local authorities and the public sector.
	· Key product lines	· Payment transactions, loans, deposits, cash management, leasing facilities, factoring, letters of credit and guarantees. · Services to customers of other banks and financial institutions provided under agreements with those institutions.
	· Service model	· Business customers are managed by the Business Client Department and the Corporate Client Department. These units encompass six regional centres (three Business Banking Centres and three Corporate Banking Centres) divided into 29 offices located across Poland. · The specialised Business and Corporate Banking Department – Premium provides services to the bank’s largest customers, the public sector, and universities. It is also responsible for financing commercial properties. · Customers have dedicated advisors who are responsible for the overall relationship. They are supported by units specialised in transaction structuring, lending and product development. · Customers are provided with access to the bank’s products and services via remote channels, including internet and mobile iBiznes24 platform (featuring such modules as currency exchange and trade finance) as well as call centres which handle a wide range of operating processes (Business Service Centre, SME Service Centre and Trade Finance Service Centre).
Corporate and Investment Banking	· Customer profile	· Largest corporate customers allocated to that segment based on their turnover (nearly 250 of the largest companies and groups). · Corporations serviced within the international Santander Corporate and Investment Banking structures. · Treasury, syndicated lending and advisory services for customers of other Divisions.
	· Key product lines	· Transactional banking (including cash management), deposits, w/c finance, mid- and long-term finance, leasing facilities, factoring, letters of credit, guarantees and trade finance. · Project finance, syndicated loans, arranging and financing of securities issues, financial advisory services (including those related to mergers and acquisitions) and brokerage services for financial institutions. · FX and interest rate risk hedging products (offered to all customers of the bank).
	· Service model	· Customers of the Corporate and Investment Banking Segment have dedicated product specialists and managers who are responsible for the overall relationship. · They are provided with access to the bank’s products and services via remote channels, including internet and mobile iBiznes24 platform, as well as dedicated call centres (Business Service Centre and Trade Finance Service Centre).
Santander Consumer	· Customer profile	· Personal and business customers.
	· Key product lines	· Hire purchase loans, cash loans (including consolidation loans), credit cards, online renewable limits, special-purpose loans, car finance (refinance solutions, leasing facilities and lease loans), business loans, factoring and bank guarantees. · Term deposits and insurance products (mainly related to credit facilities).
	· Service model	· The bank sells its products through: ü a network of own branches and franchise outlets, which offer cash loans, credit cards and retail deposits; ü a structure for mobile sales of car loans and leasing facilities; ü a structure for mobile sales of corporate deposits; ü a structure for mobile sales of hire purchase loans; ü remote channels, i.e. a call centre and internet and mobile banking used to sell cash loans, credit cards and hire purchase loans; ü a network of partners offering the bank’s car loans and leasing facilities (car dealers, second-hand car dealers and intermediaries) as well as hire purchase loans and credit cards (retail chains and stores); · a remote channel for car loans.

2. Business Development of Santander Bank Polska S.A. and Non-Banking Subsidiaries

2.1. Retail Banking Division

Main development directions

The Retail Banking Division took measures to increase customers’ satisfaction with the bank’s products and services in accordance with the following strategic priorities:

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Other focus areas:

· Further optimisation of the brick-and-mortar distribution network.

· Improving profitability of products.

Key achievements:

· Improved NPS and rank among top 3 banks in this category. Improved NPS for SMEs and second rank in this category.

· Implementation of new features to accelerate customer digitalisation and simplification of products and processes.

· Development of remote and electronic banking processes for businesses.

· Simplification of the credit process from the perspective of advisors and business customers.

· Implementation and processing of applications for government aid under the PFR Financial Shield 2.0.

· Increase in net customer acquisition and the volume of key product sales compared to 2020. All-time high levels in mortgage sales and premiums written.

Strategic retail banking programmes:

In 2021, Santander Bank Polska S.A. continued its strategic project of accelerated digitalisation of retail banking that is designed to provide customers with end-to-end digital solutions. As part of the project, the product range is steadily expanded to include innovative solutions, and processes are changed, as are the organisation of work and rules for cooperation. The bank strives to ensure that the processes and products are more customer- and employee-friendly and intuitive. With the changes implemented, the organisation will be able to respond to market developments and customers’ expectations.

Concurrently, the bank continued the related programme aimed to increase the number of customers satisfied with the bank’s digital processes.

The ultimate goal is for customers to have the “bank in their pocket” that is available anytime and anywhere by providing them with useful and expected services right on time. The programme also covers brand-building initiatives which emphasise innovation and convenience of digital solutions.

The tables below present the performance of product and business lines of the Retail Banking segments.

Personal customers

Product line

for personal customers

Activities of the Retail Banking Division in 2021

Cash loans

· In 2021, measures were taken to grow cash loan sales:

ü the availability of loans was increased by changing the calculation of the maximum non-interest borrowing costs, extending the lending period and increasing the loan amount threshold for submitting confirmation of separate property regime or separation;

ü a new process was implemented to apply for a consolidation loan in internet and mobile banking and for increasing its amount up to PLN 150k;

ü ECO cash loan for consumer purposes was introduced along with a possibility to claim fee reimbursement in the case of purchase of eco-friendly products.

· In 2021, cash loan sales of Santander Bank Polska S.A. totalled PLN 7.4bn, up 21.3% YoY. Sales generated via remote channels accounted for 43.7% vs 35.9% in 2020. The acceleration of sales resulted from an increased demand for consumer loans resulting from the improved economic situation in Poland and further growth prospects.

· The cash loan portfolio of Santander Bank Polska S.A. totalled PLN 14.7bn at the end of December 2021, up 1.4% YoY.

Mortgage loans

· In 2021, the bank modified its pricing of variable and adjustable fixed rate mortgages for customers and non-customers in line with market developments.

· Other significant changes in mortgage offering and management:

ü Increasing the availability of mortgage loans with an LTV of up to 90% for non-customers buying houses or apartments in voivodship cities or satellite towns (previously the facilities were offered to the bank’s customers only).

ü Modifying the rules of financing properties purchased from developers and increasing the possibility of financing properties at an early development stage.

ü Implementing the KNF Recommendation S (June 2021) with respect to modification of creditworthiness assessment rules, provision of information about the interest rate type of the loan offered, changing the PLN loan interest rate to temporarily fixed for five years, and extending the fixed rate for another period.

ü Further development of remote after-sales service of mortgage loans.

· Mortgage sales were supported by marketing and CRM initiatives, including a social media campaign encouraging customers to get to know the bank’s offer, and a campaign motivating customers to use electronic and phone banking.

· In 2021, mortgage sales steadily accelerated, hitting all-time highs. The value of new mortgage loans was PLN 9.6bn, up 85.1% YoY. The gross mortgage portfolio of Santander Bank Polska S.A. grew by 6.4% YoY to PLN 54.3bn as at 31 December 2021, with the PLN mortgage portfolio increasing by 9.4% YoY to PLN 45.5bn.

· The bank reported the most dynamic growth of new mortgage lending among all banks and aquired a share in the mortgage and equity release market of 11.5% and 10.6% in terms of the value of the mortgage portfolio.

· Strong performance was also recorded in terms of cross-selling of products bundled with mortgage loans, such as personal accounts, Worry-Free Mortgage (Spokojna Hipoteka) life insurance and Locum Comfort home insurance.

Product line

for personal customers

Activities of the Retail Banking Division in 2021

Personal accounts and bundled products, including:

· The bank took a range of measures to optimise and simplify its processes and to develop remote services to facilitate banking during the pandemic and to respond to accelerated digitalisation:

ü In January 2021, a simplified and more friendly sales process for the Account As I Want It (Konto Jakie Chcę) was launched at branches and partner outlets.

ü The account offering was further simplified taking account of customers’ preferences.

ü Biometric payment confirmation was enabled for mobile authorisations.

ü New services were implemented, including:

ü contactless BLIK payments (without the need to generate and enter PIN) at POS terminals supporting BLIK or Mastercard payments in Poland and abroad;

ü Autopay, i.e. remote toll payment services for mobile app users who can have motorway tolls automatically debited from their current accounts once they enter the car registration details in the app. As at 31 December 2021, around 31 thousand users availed of this service.

ü Cybersecurity Package for personal account holders ensuring comprehensive support upon detection of cyberthreats such as cyberattacks, identity theft in social media, virtual money theft and frauds in online stores (available free of charge during the first 12 months as part of promotion).

· Due to strong demand for remote medical consultations, holders of selected personal accounts with Santander Bank Polska S.A. were offered an additional, paid medical consultation service Telemedi.co. At the beginning of September, the Telemedi.co package was offered to all Santander internet users along with a three-month period of free medical consultations.

· The bank continued its initiatives supporting sales of personal accounts including the next editions of the referrals programme “I recommend my Bank” (“Polecam mój Bank”), awarding both the person who recommended a personal account with Santander Bank Polska S.A. and the person who opened it, as well as special deals with prizes for customers who opened an account or made a stated number of operations.

· Together with business partners, the bank offered a range of discounts available on the bankujzrabatami.pl platform.

· Customers could also avail of other special deals such as waiver of a fee for the ATM package with the Customised Card, double cashback (2% instead of 1%) for payment of bills from the Account As I Want It, 1% cashback on all transactions made with the bank’s credit cards during Black Week, a Christmas bonus for customers using My Goals (Moje Cele) service and a debit card. The above special offers covered more than 2m customers in 2021.

· The number of PLN personal accounts grew by 4.7% YoY and reached 4.1m as at 31 December 2021. The number of Accounts As I Want It (the main acquisition product for a wide group of customers) was 2.5m, up 15.3% YoY. Together with FX accounts, the personal accounts base exceeded 5.1m (+5.2% YoY).

Ø Payment cards

· In 2021, the bank started to issue eco-friendly cards made in 85% of upcycled plastic. Thanks to the use of sustainable materials, the carbon footprint was reduced to 75%.

· As at 31 December 2021, the volumes of payment cards offered by Santander Bank Polska S.A. were as follows:

ü The personal debit card portfolio comprised nearly 4.0m cards and increased by 1.8% YoY. With 14.0% higher turnover YoY, the bank had a 10% market share (measured by the volume of POS transactions). Including business cards, the total number of debit cards was 4.4m, up 2.7% YoY.

ü The credit card portfolio comprised 756.1k instruments, a decrease of 7.2% YoY. The bank generated 12.5% higher credit card turnover YoY.

· As at 31 December 2021, the debt in respect of credit cards of Santander Bank Polska S.A. totalled PLN 1.7bn, up 8.1% YoY.

Product line for personal customers	Activities of the Retail Banking Division in 2021 (cont.)
Deposit and investment products, including:	· As deposit balances grew dynamically over a long run and the official interest rates continued slightly above 0% for the greater part of the year (until October 2021), the bank’s priority in terms of management of deposit and investment products was to offer and support sales of investment solutions. · The bank’s investment proposition mainly comprised brokerage services and investment funds, including funds managed by the bank’s subsidiary Santander Towarzystwo Funduszy Inwestycyjnych S.A. (Santander TFI S.A.) and 14 selected Polish and foreign funds.
Ø *Deposits*	· As a result of optimisations implemented in 2020, in 2021 the bank’s deposit offering was more transparent and comprised: PLN savings accounts, negotiable term deposits for some Select and Private Banking customers (available depending on the length of relationship with the bank), the mobile deposit (offered to new mobile banking customers), the e-Deposit (available in Santander internet and mobile), and a promotional 3-month deposit for buyers of investment products (promotion of the Investor Deposit (Lokata dla Inwestora), and Deposit with a fund (Lokata z funduszem)). · In 2021, the bank offered three special deals on the Deposit with a fund paying 1% (2% in December edition) and a special offer of the Mobile Deposit with an interest rate of 0.5% (1% in Q4 2021). · In response to the series of interest rate hikes started in October 2021, the bank modified its pricing policy with respect to negotiated deposits offered to Private Banking and Select customers and increased interest rate on selected term deposits (to 1% in the case of the Mobile Deposit, and to 2% in the case of the Investor Deposit). · The bank invited customers with USD savings to subscribe for a Range Accrual structured deposit with an interest rate linked to USD/PLN rate and 100% capital protection at maturity. This way, the bank raised PLN 241m. · The mobile app users were offered a new service that makes it easier to save money in accordance with their personal preferences. · In the reporting period, retail deposit balances continued to grow due to inflow of funds to personal accounts. · As at 31 December 2021, retail deposits went up by 9.5% YoY to PLN 101.1bn, with personal account balances growing by 24.3% YoY to PLN 59.6bn, and savings account balances by 1.4% YoY to PLN 32.1bn. Term deposit balances fell by 26.2% YoY to PLN 9.4bn.
Ø *Investment funds*	· Net sales of investment funds managed by Santander Towarzystwo Funduszy Inwestycyjnych S.A. (Santander TFI S.A.) were positive until September 2021, but in Q4 redemptions exceeded sales by PLN 1.3bn. The decrease in net sales was attributed to weaker performance of debt funds resulting from materialisation of interest rate risk following the Monetary Policy Council’s decisions to increase interest rates. · Total net sales in 2021 were positive at PLN 1.1bn, which was one of the best results in the market. Highest net sales in the reporting period were generated by mixed funds, equity funds and corporate bond funds. · As at the end of 2021, net value of assets in investment funds of Santander TFI S.A. was PLN 17.6bn, up 8.6% YoY. · In 2021, experts from Santander TFI S.A. offered support to employees of the distribution network (product and process training for sales staff of all segments) and customers (regular webinars for individuals and businesses).

Product line for personal customers		Activities of the Retail Banking Division in 2021 (cont.)
Ø *Brokerage services*	· Retail customers holding accounts with Santander Brokerage Poland obtained direct access to the Inwestor online system from the bank’s Santander internet platform, with no extra logging in required. Those bank’s customers who have no brokerage account yet can open it there in a fully remote process. · As of May 2021, customers can use a new information system underpinned by the latest UX technologies and trends, and as of August 2021 – a new version of the Inwestor mobile app. The changes in the mobile app were aimed at improving user experience and included: ü easy access to the financial history, instruments, orders and transactions; ü quicker way to add new instruments to own tabs; ü a possibility to place an order directly as part of an offer to buy or sell; ü a more user-friendly layout of the “Quotations” and “Portfolio” tabs. · In 2021, the number of newly opened retail brokerage accounts remained high. This is owed to the growing demand for brokerage services amid the global situation in capital markets, low attractiveness of deposits due to the record low interest rates, easy access to brokerage services (a possibility to open a brokerage account via internet banking) and recovery in the IPO market. · Given the lower volatility of the capital markets, customers were encouraged to invest in structured certificates (14 issues throughout the year). The range of structured products was expanded to include Santander International Products plc. instruments, increasing the diversity of solutions offered to customers. · The participation in five IPOs of Vercom S.A., Pepco N.V., Onde S.A., Murapol S.A., Grupa Pracuj S.A. (amid the growth of IPOs in H2 2020) increased the popularity of brokerage services and the potential for acquisition of new retail customers. · In March 2021, a new service was launched by Santander Brokerage Poland: a register of shareholders, which must be maintained by all non-public joint stock companies, limited joint-stock partnerships and their shareholders. The register of Santander Brokerage Poland was used by about 467 companies and 20k of their shareholders. · In 2021, Santander Brokerage Poland estimated its share in the retail segment of the WSE main floor at 12,1%. Customers generated PLN 22.8 bn worth of turnover vs PLN 25,6bn in 2020 (-11% YoY), with the share of foreign markets increasing from 9% to 12% in 2021.
Bancassurance	· In 2021, the bank modified its insurance offering: ü Launched the Life and health (Życie i zdrowie) insurance (the first product in the market offering such an extensive cover), distributed via partner outlets and the mobile app. ü Extended the scope of cover of the Locum Comfort home insurance and harmonised the sales process across all distribution channels. ü Optimised the sale of the Worry-Free Loan (Spokojny Kredyt) insurance in Santander internet. · In 2021, insurance premiums increased by 32.9% YoY, including by 35.3% YoY for related products. A YoY increase in sales of key related products, i.e. Worry-Free Loan (Spokojny Kredyt) cash loan insurance and Worry-Free Mortgage (Spokojna Hipoteka) mortgage loan insurance is attributed to more dynamic growth in sales of cash and mortgage loans as well as improved YoY cross-sell rates. · Income from bancassurance was generated mainly on the basis of individual life and unemployment insurance packages for cash loan borrowers (Life, Life+ and Work/Życie, Życie+ and Praca), life insurance for mortgage borrowers (Worry-Free Mortgage/Spokojna Hipoteka) and business loan borrowers (Business Guarantor/Biznes Gwarant), as well as non-related life and health insurance (Life and Health/Życie i zdrowie) and home insurance (Locum Comfort). · In Q1 2021, Santander Aviva Towarzystwo Ubezpieczeń S.A. received first award as a Friendly Insurance Company 2020 in the category of life and property insurance (except motor insurance). This recognition is testament to high customer service standards and confirms that the insurer was attentive to customers during the pandemic.

SMEs

Product line for SMEs	Activities of the Retail Banking Division in 2021
Business accounts and bundled products	· The bank launched next editions of the special offer of the Business Account Worth Recommending (Konto Firmowe Godne Polecenia), which customers could open online. · A new identity check method was introduced for customers opening business accounts – a photo-based account opening process. · Additional services were made available via Mini Firma internet, including: ü eWadia, i.e. bid bonds (one of the possible forms of a bid security required in a tender process); ü eLeasing (possibility of a leaseback up to PLN 20k); ü eZdrowie (LUX MED private healthcare packages); ü a possibility to update business details via the Mini Firma internet banking mailbox (an option available to all entities irrespective of their legal form). · Customers were offered the Autopay service – toll payment via a mobile app. · The complaint process in Mini Firma and Moja Firma plus was simplified. · Customers were provided with a possibility to authorise cash deposits at branches using an SMS code. · A promotional campaign called “Set up your business and get a prize” (“Załóż firmę z nagrodami”) was launched for customers planning to start their own business.
Loans	· To increase customer satisfaction with products and services, in 2021 the bank introduced a number of new functionalities in SME processes: ü Enabled remote exchange of customer documentation with the bank, offered business loans available via the mobile application, and ensured an omnichannel credit process (subject to compliance with specified parameters). ü Streamlined the sale of loans by providing customers with access to mailbox in the Mini Firma internet banking without the need to meet any additional formal or legal requirements. ü Simplified the process of issuing de minimis guarantees. ü Enabled sale of business loans by the Multichannel Communication Centre in the Smart Loans application. · As part of the SME offer, the bank: ü Expanded its product range to include a portfolio guarantee from Polfund. ü Expanded a prelimit offer for existing customers of the bank and the leasing company. · The SME loans portfolio grew on account of term loans and leasing facilities. Overdrafts were used to a limited extent due to the overliquidity of customers. · In 2021, SME loan sales grew by 7.3% YoY, translating into 5.9% YoY increase in the value of the credit portfolio to PLN 16.0bn.
Leasing	· In 2021, Santander Leasing S.A. continued development of its offering and remote service processes: ü A new product was launched – Leasing24 for sole traders and users of the business account and the Mini Firma electronic banking with Santander Bank Polska S.A. This micro-finance facility can be used to purchase low-value assets (up to PLN 20k), and is available in the remote channel only (a fully digital process from application to disbursement). ü The range of products for consumers was expanded to include a loan to finance vehicles (passenger cars, motorcycles and mopeds), and photovoltaic installations. ü Customers were provided with an option to take out a lease or credit facility secured with BGK guarantee. ü Employees of Santander Bank Polska Group were offered Eco-Loan (Ekopożyczka) to purchase photovoltaic panels. ü New features were made available in the eBOK24 portal: eInvoice (providing customers with 24/7 access to invoices and reducing cyber risk) and online payments (whereby lease obligations can be paid directly in the portal without having to specify additional data for the transfer). ü In February 2021, companies from the sectors indicated in Moratorium 2.0 were offered a possibility to apply for deferral of principal payments for three or six months on specific conditions via eBOK24 (a fully automated application process). ü Customers intending to sign a lease contract were offered a service of qualified electronic signature issuance and a possibility to execute a contract using this solution in eBOK24. An additional authentication method was introduced in relation to issuance of a qualified electronic signature (eID Santander). ü The company began offering its financing solutions to manufacturers of farming machines: a leader in the sale of agricultural trailers in Poland and one of the world’s leading manufacturers of slurry tankers and fertiliser spreaders. · In 2021, Santander Leasing S.A. financed assets of PLN 6,875.3m, up 28.3% YoY, driven by balanced sales growth in the vehicles and machinery and equipment segments (+28% YoY). · This strong performance was achieved despite very difficult market conditions resulting from the Covid-19 pandemic, notably disrupted supply chains and limited access to assets.

2.2. Bussiness and Carporate Banking Devision

Main development directions

The Business and Corporate Banking (BCB) Division pursues the strategic goal of Santander Bank Polska S.A. which is to become the best business bank and to be among the top three banks in terms of the market share. The bank strives to ensure best-in-class customer experience (confirmed by outstanding NPS survey results) by investing in new CRM platforms and processes. Its ambition is to become both the bank of choice and the employer of choice.

This strategic goal is measured using a range of indicators which cover all stakeholder groups. The market position is assessed on the basis of NPS as well as employee engagement and motivation.

The priorities of the Business and Corporate Banking Division for 2021 were set in accordance with its strategy, observations and lessons learned from the last year.

ImageAlt43 The bank steadily expands the range of products and services for BCB customers. Its ambition is to become the best bank for corporate customers in terms of treasury services. It was Poland’s first bank to offer an innovative solution for interest rate risk management: CAP SPREAD. In 2022, a focus will be placed on further improvement of NPS, which increased by 12 points in 2021.

Business highlights of 2021:

· Over 25k customers serviced in traditional and digital channels	+4% YoY
· Increase in the number of e-commerce transactions	+23% YoY
· Increase in FX income from eFX platform	+38% YoY
· Utilisation of trade finance limits	+25% YoY
· Increase in FX volumes (excluding the property sector)	+11% YoY

Development of selected business areas

The relationship-building and acquisition activities contributed to the continued growth in the majority of business lines along with a satisfactory quality of the credit portfolio. The table below presents the activities of the Business and Corporate Banking Division in 2021 in particular areas.

Direction	Activities of the Business and Corporate Banking Division in 2021
Business trends	· Strong business growth in 2021, including an increase in income from trade finance (+25% YoY), treasury products (+22% YoY), leasing (+9% YoY) and transactional banking (+38% YoY). · Sound sales performance, notably in terms of credit limits (+32% YoY), trade finance limits (+25% YoY), factoring (+47% YoY) and leasing (+60% YoY). · Increase in volumes, including lending volumes (+4% YoY, and +11% YoY excluding the property sector) and factoring volumes (+34% YoY). · Growing sales in digital channels, particularly in terms of currency exchange (+38% YoY) and e-guarantees. · 16% YoY increase in the number of transactions made by customers. · High quality of the corporate credit portfolio coupled with a low and stable cost of credit. · Santander Bank Polska S.A. hailed as the “Financing Provider of the Year” by the leading industry portal Eurobuild (one of the two most prestigious awards in the CEE commercial properties sector). The jury considered the number, size, range and type of financing deals completed, as well as the bank’s reputation on the market.
Business transformation	· Continuation of digitalisation and development projects aimed to ensure best-in-class services. Further development of customer centricity by increasing the quality of customer contact, developing iBiznes24, and simplifying the credit process, procedures, product range and the language of communication with customers. · Implementation of CLP/ credit workflow, with fast credit decisions up to PLN 2m to be taken by a banker based on automatically assigned prelimits, without the need to engage a credit partner. · Implementation of #4US – a new transformation programme focused on improving the work environment and increasing the income potential of the Business and Corporate Banking Division.
Other transformation measures (Agile)	· Launch of a new version of iBiznes24 electronic banking platform featuring a new FX module. · Measures improving the NPS: ü start of periodic customer surveys on FCR (First Contact Resolution) and satisfaction with services relating to non-credit instructions; ü implementation of customer contact standards in the unit handling non-credit instructions; ü launch of an electronic banking helpline for users of Salesforce – non-credit instructions are now processed by all operational units using a single tool. · Increase in the number of customers’ operations in remote channels, including in the self-service zone of iBiznes24 electronic banking.
New products and services	· Implementation of GTS (One Trade) – an end-to-end tool for cross-border payments and one of the drivers of the digital transformation of Santander Group. The new service supports delivery of the Group’s One Europe strategy, enabling further growth in line with the common objective. Key benefits of the platform: ü integration – global view of all current accounts in all currencies; information from different countries available in one place; ü access to information – monitoring of all cross-border transactions with full transparency; ü easy-to-manage tool – a possibility to consolidate the account and control international payments and cash flows. · Open postal payments – a new service for public sector customers enabling the bank to provide a comprehensive solution in terms of services to local authorities and increase the share in this segment.

Direction	Activities of the Business and Corporate Banking Division in 2021 (cont.)
Strategic customers area	· Continuation of the strategy of the sectoral approach in business segments by sharing knowledge and insights about the market, trends and prospects with employees and customers through dedicated reports and presentations. · Activities aimed at internal recipients: ü organisation of webinars (e.g. on the furniture and cosmetics markets); ü release of internal sector reports every two weeks (e.g. on the agri, e-commerce, automotive, cosmetics, bakery and furniture industries) and a consumer survey accompanied by a report with latest sector news; ü PR activities, including strong presence in the traditional media (press releases with comments on the latest developments in different sectors) as well as social media and online; ü active knowledge sharing through sector reviews and webinars, where bankers and credit partners receive guidance regarding various sectors. · Activities aimed at customers: ü sector knowledge sharing during online seminars and on-site conferences (23 in 2021) concerning such sectors as food and agri, packaging, furniture, automotive, TSL, cosmetics and e-commerce; ü publication of periodical analyses of selected sectors: quarterly information on challenges and prospects of manufacturers and distributors of car parts in cooperation with SDCM (three “Moto Barometer” issues) and monthly information about developments in the food and agri sector (10 “Agroscope” issues); ü preparation of sector reports with detailed information about challenges and prospects of selected sectors in which the bank’s customers operate (automotive, household appliances, e-commerce B2B from the perspective of the food and cosmetics industries).
Activities of the Treasury Services Department	· Positive trends in treasury transactions made by business customers, translating into a 22% YoY increase in income attributed mainly to FX business performance in H2 2021 and improved investment line results. · Relatively high yet marginally lower YoY share of interest rate hedging business resulting from a decrease in the value of long-term loans and a growing pressure on the interest rate margin. · Ensuring positive experience of customers transacting with the Treasury Services Department.
International Banking and Development Office	· Further support for foreign expansion of Polish exporters and companies with foreign capital doing business in Poland (leveraging the global footprint of Santander Group). ü Providing the above companies with a range of opportunities to share their knowledge and experience and establish relationships with new business partners during B2B meetings. ü Organisation of/ participation in online events to reach out to foreign investors planning to enter the Polish market and representatives of Polish companies with foreign capital. · In 2021, the International Banking and Development Office organised/ co-organised or participated in the following events: ü International webinar: “Bringing One Europe closer to China” organised by all Santander Group banks in Europe together with the Bank of Shanghai. ü Conferences: “Poland and Greater Poland in the eyes of foreign investors”, “Automotive industry – and what’s next?” and “Christmas Business Mixer” organised by the Polish-German Chamber of Commerce (AHK) and sponsored by Santander Bank Polska S.A. ü Webinar for Polish food exporters trading with the UK-based partners on regulatory changes connected with Brexit, organised in cooperation with the British-Polish Chamber of Commerce and industry analysts. ü Networking sessions with international customers from Germany, the UK, the Netherlands, Spain, Portugal and Scandinavia, offering numerous business opportunities and organised in cooperation with strategic partners (e.g. Octoberfest in Wrocław, meetings of the British-Polish Chamber of Commerce in Warsaw and Kraków, meetings organised by the Netherlands-Polish Chamber of Commerce and the Scandinavian-Polish Chamber of Commerce). ü Co-organisation of a four-day Global Food Forum, including presentation of global trends to the F&D community from around the world (Asia, Europe, Middle East, North and South Americas); and a three-day World Manufacturing Industry Week, during which key challenges for manufacturers were discussed. ü A series of networking sessions for customers: “Vamos a” and “Doing Business” focusing on Portugal, Spain, Brazil, Argentina, Uruguay, Chile, Mexico, Cuba, the Dominican Republic, Panama and Honduras, organised by the Regional Pomeranian Chamber of Commerce, Polish–Latin American Business Council, Polish–Spanish Chamber of Commerce and Polish–Portuguese Chamber of Commerce.

Direction

Activities of the Business and Corporate Banking Division in 2021 (cont.)

International Banking and Development Office (cont.)

· The business results of the foregoing initiatives were as follows:

ü In 2021, international business customers with foreign capital generated 6% YoY higher income.

ü Good performance of strategic corridors: with Germany (+12% YoY), Spain (+9% YoY), the UK (+22% YoY), the USA (+19% YoY).

· In the international business area, the income from transactions with new customers was PLN 10.6m over 12 months of 2021, up 55% YoY.

Public sector

· A significant increase in day-to-day bankings services provided to local authorities, with a 40% market share at the province level.

· Growth of structured finance for local authorities combined with optimisation of RWA levels.

· Active support for new solutions related to energy transformation and emission-free public transport.

· Launch of a new service for local authorities: cash withdrawals at post offices.

Direction

Activities of Santander Factoring Sp. z o.o. in 2021

as part of Business and Corporate Banking segment

Factoring business conducted via Santander

Factoring Sp. z o.o.

· Activities of Santander Factoring Sp. z o.o. in 2021 included:

ü Continuation of cooperation with Bank Gospodarstwa Krajowego (BGK) in terms of liquidity guarantees for factoring customers. Conclusion of new agreements with customers availing of BGK guarantees, with a leadership position in terms of the value of guarantees issued.

ü Contribution to development of services for SME customers, including eFaktoring – fully digital factoring for micro companies which are the bank’s customers (Santander Factoring Sp. z o.o. acting as a competence centre).

ü Work on new features of the operating system, automation and digitalisation of processes and their adaptation to the regulations introduced in the factoring sector.

· An increase of 18.4% YoY in receivables purchased by Santander Factoring Sp. z o.o. in 2021 to PLN 35.6bn, giving the company the fourth position in the ranking of members of the Polish Association of Factoring Companies, with a market share of 10.0%.

· Growth of 23.0% YoY in the value of the company’s credit portfolio to PLN 7.6bn as at 31 December 2021.

2.3. Corporate and Investment Banking Segment

Main directions

The ambition of Santander Bank Polska S.A. is to become a bank of choice for the largest corporate customers. To that end, the Corporate and Investment Banking Division (CIB) puts customers at the heart of its business, trying to suit their needs and enhance their positive experience, while focusing on service quality, market position and staff development.

ImageAlt44

In 2021, the CIB Division continued to provide end-to-end services to the largest corporate customers of Santander Bank Polska S.A. As at 31 December 2021, the active CIB customer base included nearly 250 of the largest companies and groups in Poland (allocated to that segment based on the turnover) representing all economic sectors.

Leveraging the opportunities arising from the global presence of Santander Group, the CIB Division rendered services to corporations within international structures of Santander Corporate and Investment Banking and cooperated with several Santander Group units.

Owing to top quality of services rendered in 2021, the Division strengthened its market position and achieved the following results:

· Third and fourth position in the mergers and acquisitions (M&A) market in Poland in terms of the volume and value of transactions, respectively;

· Second position in the equity capital market (ECM) in terms of the value of transactions completed in Poland;

· Second position in the debt capital market (DCM) in terms of bonds issued.

· Fiber Deal of the Year – a prestigious award granted by PFI (Project Finance International) for the transaction involving transfer of a part of the infrastructure of a telecom company, including acquisition of an investor. Santander Bank Polska S.A. acted as a financial advisor, underwriter and one of the main lenders.

Furthermore, the Division optimised the structure of the income statement and the balance sheet by growing the fee-generating business and selling selected credit exposures.

Performance of selected areas

In 2021, individual units of the Corporate and Investment Banking Division focused on the following initiatives:

Unit

Key activities in 2021

Credit Markets Department

· Funding (loans and corporate bonds issues) towards medium- and long-term investments of CIB customers provided by the Division single-handedly and in cooperation with other units.

· Execution of deals in the sectors which are relatively resilient to the crisis (such as renewable energy, telecommunications), notably as part of project finance and syndicated lending, including:

ü Performing a leading role in major financing deals related to fibre optic cable infrastructure, including financial advisory services and active participation in arrangement of syndicated lending of several billion PLN.

ü Co-financing of a data centre.

ü Syndicated lending for customers from the manufacturing and distribution, pharmaceutical, retail, IT, logistic and office property sectors.

· Supporting key customers in acquisitions, including active participation in syndicated lending of PLN 5.5bn and other transactions (e.g. as a security provider in relation to the tender offer for shares of a public company).

· Successful year in terms of asset turnover and underwriting, with the total volume of this type of transactions exceeding PLN 1.5bn in 2021. Participation in the two largest deals in the telecommunications sector with a several billion volume. Strong activity on the bank debt market despite the variable impact of the pandemic.

· Active cooperation with bank’s customers as part of debt-related and rating advisory services, notably with companies from the telecommunications and renewable energy sectors.

Unit

Key activities in 2021

Credit Markets Department

(cont.)

· Strengthening the position of the bank as the leading arranger of bonds and eurobonds issues in Poland, including some of the major transactions presented below:

ü Acting as a joint bookrunner in the issue of:

§ PLN 1bn worth of 3-year eurobonds and PLN 600m worth of 5-year eurobonds for the international development bank (SSA);

§ the issue of 10-year eurobonds of EUR 500m for the Polish development bank and the issue of 7-year EUR 500m worth of eurobonds;

§ in relation to the issue of 7-year eurobonds of EUR 600m for a chemical company.

ü Acting as a co-manager in the issue of EUR 500m worth of 5-year green euro bonds for a company from the property development sector.

ü Acting as a coordinator and a joint bookrunner in the issues of mid-term bonds for lease companies totalling PLN 980m.

ü Acting as a coordinator and a joint bookrunner in the issue of PLN 400m worth of green bonds for a company from the machine industry.

ü Acting as the sole bookrunner in connection with the Poland’s first issue of 2-year PLN 750m worth of sustainability bonds and the issue of two-year bonds of PLN 100m for entities from the banking sector.

ü Acting as the sole arranger and bookrunner in relation to the first issue of PLN 115m worth of bonds for a company from the property development sector with maturity of two and a half years.

· Acting as the sole arranger of issue of short-term bonds for financial sector entities totalling nearly PLN 5bn.

Capital Markets Department

· In 2021, Santander Bank Polska S.A. was ranked third and fourth in the mergers and acquisitions market in Poland in terms of the volume and value of transactions, respectively. It also took second position in the equity capital market in terms of the value of transactions completed in Poland. The largest transactions included:

ü Acting as a joint bookrunner in PLN 4.6bn worth of IPO of one of the leading companies from the non-food retail sector, the largest transaction on the WSE in 2021.

ü Acting as an intermediary and security provider in PLN 653m worth of tender offer for shares of a leading company from the Polish renewable energy sector.

ü Advisory services for:

§ one of the largest telecommunications operators in Poland in relation to sale of towers for PLN 7.1bn;

§ a company from the construction and assembly sector in connection with the sale of its subsidiary (one of the largest housing development companies in Poland) for PLN 1.5bn;

§ a Dutch company from the food and agri sector and intermediation in PLN 510m worth of tender offer for shares of a manufacturer of vegetable fats;

§ Polish private equity fund in relation to the sale of a wind and solar farm operator to one of the biggest European energy groups for PLN 440m;

§ a Dutch private equity fund in connection with PLN 425m worth of tender offer for shares of a software company

§ US company from the food sector in relation to the acquisition of a Slovakian food manufacturer – the first M&A transaction executed by Santander Bank Polska S.A. abroad as part of the CEE Coverage initiative aimed to support Banco Santander S.A. customers that operate in the CEE region;

§ a Polish network of outpatient clinics and hospitals with respect to PLN 94m worth of secondary offering. Santander Bank Polska S.A. acted as the global coordinator and bookrunner for the Polish private equity fund in relation to the tender offer for shares of a manufacturer of heat transfer structures for the total amount of PLN 40m.

· The Capital Markets Department observes a growing popularity of M&A and ECM transactions due to access to capital in the global markets and positive economic outlook as part of post-pandemic recovery.

Unit

Key activities in 2021

Global Transactional Banking Department

· Business trends in transactional banking:

ü In 2021, the bank’s liabilities were largely shaped by trends in the interest rate market. Despite market volatility, the level of business deposits was stable, with a growing trend observed later in the year. The structure of liabilities changed more dynamically though. At the beginning of the year, customers transferred funds from term deposits to current accounts, but this trend started to reverse in the last quarter. A positive aspect of changes in the interest rate market is popularity of substitute and complementary products among corporate customers.

ü While the importance of deposits declined, record growth was reported in income from transactions made by business customers. CIB won a record high number of tenders, the majority of which concerned customers with a large number of accounts and transactions.

· Business trends in trade finance:

ü Stable use of supply chain finance and receivable finance in 2021. In the first half of the year, the use of limits was lower mainly due to strong liquidity position of customers. A significant increase in volumes was reported from July (followed by a seasonal decline in August) and continued in Q4 due to seasonality and the need to increase volumes of purchase to secure deliveries in 2022 because of logistic problems. A substantial rise in commodity prices was another factor contributing to an increase in the use of factoring lines in 2021.

ü The bank successfully implemented solutions for distribution of working capital finance risk, which made it possible to increase credit limits for customers. The use of BGK guarantees securing factoring limits was also increased as part of support programmes related to new transactions and extension of existing ones.

ü In 2021, an upward trend was reported in the use of documentary letters of credit and collections to secure imports/ exports, with regard to risk associated with both corporate customers and financial institutions.

ü The bank implemented a range of export financing solutions for CIB customers, with the support from export credit agencies – KUKE and foreign institutions (Euler Hermes, Eksport Kredit Fonded (EKF)).

· Business trends in other areas:

ü Relatively low use of credit limits in 2021, indicating a good liquidity position of CIB customers. Increased drawdowns were mainly observed in the agri, pharmaceutical and manufacturing sectors, which was due to seasonality.

ü Far fewer customers used guarantees offered by BGK as part of an aid programme to secure new transactions, which was a positive development. However, a great many of those who had availed of the programme renewed the guarantees.

ü Growing popularity of guarantees and working capital finance, mainly among customers from the energy, automotive and manufacturing sectors, coupled with lower demand for investment loans and lease facilities. In 2021, banks were more active in providing new loans or refinancing and used more aggressive pricing strategies with respect to all credit facilities.

Financial Markets Area

· In accordance with its strategy, the Financial Markets Area focused on process effectiveness, automation, digitalisation, new technologies and innovations, ecosystems and 24/7 access.

· The main initiatives designed to increase process effectiveness, automation and digitalisation included:

ü A new feature of the Kantor Santander currency exchange platform: presentation of customers’ and dealers’ transactions.

ü A new sales process for SME loans with the interest rate cap functionality.

ü Tools based on the credit workflow for treasury transactions (FX limit).

ü New solutions to support management of currency risk (Window Forward).

ü Pilot sale of fixed-rate loans for SME customers.

ü Implementation of tools for corporate customers based on the credit workflow related to treasury limits (IR limit).

ü Design of currency exchange solutions for a new mobile app.

ü Implementation of improvements with respect to regulatory processes, including the IBOR reform.

ü Ensuring pre-trade transparency for liquid interest rate hedging instruments as part of obligations of systematic internalisers.

Unit

Key activities in 2021 (cont.)

Financial Markets Area (cont.)

· Main activities in the equity research area:

ü Third position of the Stock Market Analysis Team of Santander Brokerage Poland in an annual ranking of stock market analysts organised by Parkiet daily.

ü Publication of more than 280 analyst recommendations regarding CEE listed companies.

ü Increasing the scope of equity research to include a new company and relaunching recommendations for a computer game company.

ü Providing institutional investors with an opportunity to participate in several dozen conferences.

ü Organisation of an unprecedented event: “Santander Video Gaming Night”, bringing together 11 Polish computer game companies and 50 institutional investors.

ü Partnership with Santander Group units to launch a new single-platform portal for the bank’s analytical products, providing business customers with access to products of all regions in which Santander Group operates.

· Business trends observed:

ü Distribution of PLN and EUR bonds for international financial institutions.

ü Increased volatility caused by dynamic changes in the macroeconomic environment, resulting in considerably higher volumes of transactions.

3. Business Development of Santander Consumer Bank Group

Strategic priorities

The key strategic goal of Santander Consumer Bank S.A. for 2020–2022 is to strengthen the position and image of the bank as an innovative, secure and customer-friendly financial institution with a strong capital base, an effective structure and a uniform management culture. The bank aspires to be the leader in the consumer finance market in brick-and-mortar and remote channels, both in terms of traditional sales and e-commerce.

Santander Consumer Bank S.A. has defined five strategic priorities to increase its competitive advantage in terms of product range, notably in electronic channels.

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Priority	Objective	Action	Outcome
Customer focus	· To strengthen relationships with customers and increase their satisfaction.	· To gather customer feedback about new products and processes. · To improve products and processes to provide seamless customer experience. · To use advanced customer analytics tools.	· NPS=56% (one of the highest levels in the market)
Leader of e-commerce	· To develop and implement solutions which will position the bank as a strategic provider of financing in the electronic channel. · To grow the share of sales via the electronic channel.	· To develop processes and financial products aligned to e-commerce requirements. · To build partnerships with entities from the e-commerce sector.	· All credit products available in remote channels. · Share of the remote channel in the sale of installment loans in 2021: 30.8% (+8.3 p.p. YoY) · Share of the remote channel in the sale of cash loans in 2021: 21.7% (+9.1 p.p. YoY) · 165k active mobile app users
Leader of growth	· To increase the share in the consumer finance market (to maintain at least the existing customer acquisition levels in the credit area).	· To launch new products. · To develop sales tools. · To establish and strengthen relationships with business partners.	· New products aligned to changing customers’ expectations and market conditions: Online Revolving Limit, Online Savings Account · Leader of the consumer finance market
Data management expert	· To improve the bank’s technological and data management capabilities.	· To raise employees’ knowledge about the latest analytical methods. · To automate processes. · To improve existing and implement new technological solutions.	· Increasing process automation level.
Employer of choice	· To develop talent and corporate culture, and attract highly-qualified staff.	· To improve working conditions. · To foster the corporate culture. · To build the employer brand and support upskilling.	· Change of the bank’s organisational structure and implementation of the Agile way of working. · Strengthening of the bank’s image as an attractive employer.

As the macroeconomic environment changed significantly, in March 2021 the bank revised the financial management objectives for 2021–2022.

Key business development directions

In 2021, Santander Consumer Bank Group focused on:

· Maintaining the leadership position in the hire purchase market through stable share in traditional sales, continued cooperation with large retailers, further growth of online sales as well as identification of new sales opportunities and maintenance of profitability of collaboration with trade partners;

· Further acquisition of customers based on consumer finance products and co-branded credit cards and maximisation of sales opportunities through cross-selling and up-selling;

· Maximising the potential of customer contact and product range. Dynamic digitalisation and growth of sales in remote channels, including online.

· Focus on SMEs due to the impact of the Covid-19 pandemic on the automotive sector. Focus on establishing new partnerships and developing second-hand car finance for both businesses and individuals due to the limited supply of new cars.

· Changing the organisational structure as a result of implementation of the agile methodology, modifying the organisational structure and continuing the process of transforming own branches into partner outlets.

Development of selected business areas

Area

Business Development of Santander Consumer Bank Group in 2021

Lending

· As at 31 December 2021, net loans and advances granted by SCB Group amounted to PLN 15.5bn and were 2.5% lower YoY as a combined effect of the pandemic and the related economic restrictions imposed in 2020 and 2021. Consumer loans and lease facilities started to grow in Q3 2021. A decrease was reported in the value of the mortgage loans portfolio, which is being phased out. The value of working capital loans portfolio declined too, as a direct result of supply chain disruptions in the automotive market.

· In 2021, the bank increased the maximum available amount of a cash loan (up to PLN 100k) and extended the maximum lending period (up to 96 months). It also offered variable-rate cash loans and joined the “Clean air” (“Czyste powietrze”) programme.

· To increase sales of new products supporting online transactions and to strengthen its position in the electronic channel (eCommerce), the bank expanded its product range to include a special-purpose loan and an open online limit.

· In 2021, Santander Consumer Bank S.A. extended cooperation with four key partners from the household appliances sector, maintaining its leadership position in the consumer finance market. Furthermore, SCB Group established partnership with two payment integrators (PayU in terms of the special-purpose loan, and Przelewy24 in terms of the open online limit).

· Additional 3D Secure authentication was implemented for e-commerce transactions. Measures were taken to sign annexes to the agreements (due to the change in the interest rate formula) and special deals were launched to increase the volume of sales (acquire new customers) and the value of the portfolio (encourage existing customer to make more transactions). The bank increased the maximum available credit card limit and launched sales of credit cards to new (unknown) customers at branches.

Deposits

· As at the end of December 2021, deposits from customers of SCB Group totalled PLN 9.3bn and decreased by 2.6% YoY, as term deposits became less and less attractive in a close-to-zero interest rate environment prevailing over the first three quarters of the year.

· The balance of deposits acquired online increased significantly as a result of the pandemic and a growing percentage of operations made by customers in remote channels. At the same time, customers chose shorter deposit tenors and were increasingly interested in savings accounts.

· The objective of the bank’s deposit policy is to promote online products, including savings accounts, and long-term deposits. In 2021, SCB S.A. focused on savings account campaigns aimed to activate existing customers and acquire new ones.

Area	Business Development of Santander Consumer Bank Group in 2021
Debt sale	· In 2021, SCB S.A. sold the written-off portfolio of cash loans, hire purchase loans and mortgage loans of PLN 451.5m, with a P&L impact of PLN 79.0m gross (PLN 64.2m net).
Organisation and risk management	· The implementation of the agile methodology involved changes in the organisational structure of Santander Consumer Bank S.A., which included liquidation of divisions and setting up units with comprehensive skills and expertise (centres of excellence) to deliver development projects relating to products, processes, and technology. · To improve efficiency and increase access to the products and services offered by the bank, its subsidiaries and partners, changes were introduced to the retail and partnership network by outsourcing a range of tasks previously carried out by a dedicated in-house team. · The Risk Processes Development Centre was set up to manage development of admission processes (including scoring), risk reporting, implementation and administration of IFRS models, and development of new technologies. · In H1 2021, the bank completed the transformation of own branches into partner outlets to optimise the cost structure. 32 branches were migrated to the network of partner outlets, which totalled 271 at the end of 2021.
Other	· In 2021, the range of insurance not related to banking products was expanded to include “Photovoltaic” insurance against theft or damage of photovoltaic panels, including reimbursement of costs arising from energy losses.

X. Organisational and Infrastructure Development

1. Organisational Changes in the Business Support Centre

Continuation of the remote work model

In 2021, as in the previous year, the vast majority of employees of the Business Support Centre of Santander Bank Polska S.A. worked from home. Only critical employees and persons who requested so and got a formal consent could work at the office. As the risk of SARS-Cov2 infection continued, the bank’s Management Board decided that employees of the Business Support Centre would work from home. At the same time, preparations for the launch of a target hybrid work model across the organisation were continued. The switch to the target model will depend on the development of the epidemic situation in Poland.

Optimisation of the organisational structure of Santander Bank Polska S.A.

In 2021, a number of optimisation changes were introduced in the bank's organisational structure. The most important ones are presented below:

Retail Banking Division and Branch Network	· The Sales and Support Area in the Retail Banking Division was liquidated. The Area’s units (Santander Universidades Office, the Partner Outlets Development Office, and the Indirect Distribution Department) were transferred to the Bank's Branch Network. Additionally, a standalone position was established in the Retail Banking Division: Santander Digital-Retail & SME Director reporting directly to the Head of the Division. The holder of this position is in charge of the Omnichannel Area, the Multichannel Communication Centre and the e-Commerce and Online Acquisition Office. · One macroregion of the bank’s Branch Network was liquidated. A standalone position of Distribution Director was also established. The holder of this position reports directly to the Head of the Division, and is in charge of three macroregions and the Select Customer Relations Office (which previously reported to the Head of the Division). · These actions resulted from the bank’s entering the next phase of the retail transformation strategy for 2021–2023, which is designed to increase the share of sales in remote channels.

Business and Corporate Banking Division	· A number of changes were made in the Business and Corporate Banking Division to increase operational efficiency and scope of management and to improve the overall functioning of all units. · The main change was the establishment of the Business and Corporate Clients Area and the Business and Corporate Client Products and Services Area. They were created as a result of the division of the Area comprising bankers and units responsible for product development and sales. · Other newly established units include the Business and Corporate Banking Strategy Department and the Business Development and Service Department (reporting directly to the Head of the Division) as well as the Corporate Finance Department established within the Business and Corporate Client Products and Services Area.

Digital Transformation Division	· In the Digital Transformation Division, the IT Areas dedicated to retail business were consolidated within the CIO (Chief Information Officer) area after they had been transferred from the CTO (Chief Technology Officer) area and the Retail Banking Division. · At the same time, the Daily Banking IT Area, the Effective Distribution IT Area and the Savings and Investments IT Area were merged into one unit: the Everyday Banking & Effective Distribution IT Area. · Two additional chapters were established in the Omnichannel IT Area, consisting of developers of mobile application on the iOS and Android platforms. In addition, the functions of manual and automatic tests were centralised by creating two dedicated centres of excellence within the Implementation and IT Quality Assurance Department.

Risk Management Division	· In the Risk Management Division, the organisational structure of credit risk was adapted to the new portfolio approach and the division of risks by creating the Large Exposures Credit Area to replace the Wholesale Risk Department and the Corporate Credit Department – Premium. Thus the new unit consolidates risk management of the global portfolio, property portfolio and premium portfolio. · The Credit Area was renamed as the Standardised Credit Area. As part of the Area, the One and Core Corporate Credit Departments were created in place of the North and South Corporate Credit Departments.

Legal and Compliance Division	· The Group Legal Standards Department in the Legal and Compliance Division was liquidated, and most of its tasks were transferred to the Corporate Governance Department (formerly the Corporate Governance Office). · The following units were transferred to the Risk Management Division: ü The Anti-Money Laundering Department – to leverage the target design of AML processes and their optimal adjustment to regulatory and group requirements. After the transfer, the Department was renamed as the Money Laundering and Terrorist Financing Risk Management Department. ü The Data Protection Officer Office – in accordance with the GDPR requirement to ensure a direct line of reporting by the Data Protection Officer to the Member of the bank's Management Board.

Other changes

· The three Departments responsible for Cost Management, Work Environment Management and Contract and Procurement Management were transferred from the Strategy and Business Model Transformation Area to the Financial Accounting and Control Division.

· The Customer Excellence Centre, which focuses on building a customer-centric organisational culture, was moved to the Strategy and Business Model Transformation Area, renamed as the Strategy and Transformation Area.

Organisational units of the business support centre of santader bank polska S.A.

Implementation of the Agile methodology

Santander Bank Polska S.A. has been steadily increasing the use of the Agile methodology and culture to achieve lasting success in a dynamically developing environment. One of the objectives of the Agile way of working is to move away from complex hierarchical structures towards small interdisciplinary teams that are capable of quick and effective implementation of new solutions in accordance with customer needs.

Currently, the Agile concept is used by 18 tribes established at Santander Bank Polska S.A. and covers the majority of service and software development processes. Around 1,500 people work in tribe structures.

In 2021, the bank extended the scope of use of Design Thinking, improving the quality of the implemented solutions. Dashboards which measure tribe performance were extended based on the EazyBI application. A lot of focus was placed on more effective management by objectives, using such methods as Objectives & Key Results and Impact Mapping. At the same time, Agile values and principles were being gradually implemented in the bank’s units which do not generally work in accordance with this methodology.

In 2022, the bank intends to continue to extend the use of Design Thinking, Lean and Kanban in order to further improve the quality of solutions and increase effectiveness of bank processes. To improve the cooperation between the teams, the bank will use Scrum scaling methods to a wider extent.

2. Optimisation of the Organisational Structure of Santander Consumer Bank S.A.

In April 2021, a new organisational structure was announced at Santander Consumer Bank S.A. as aresult of implementation of an agile model in the entire organisation. Organisational divisions were liquidated, and agile Tribes (Development Centres) were set up. Below a structure of units has been provided based on the areas of the responsibilities of their heads who report directly to the President of the Management Board.

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3. Changes in the Structure of Santander Bank Polska Group

Compared to 31 December 2020, the list of members of Santander Bank Polska Group was reduced by one company: SC Poland Consumer 15-1 Sp. z o.o., a company directly controlled by Santander Consumer Bank S.A., which ceased to control the entity after the latter had completed and settled its securitisation transaction on 17 June 2021.

The members of Santander Bank Polska Group are presented in Chapter II, Section 2 “Structure of Santander Bank Polska Group”.

4. Changes in the Equity Investment Portfolio

As at 31 December 2021 and 31 December 2020, Santander Bank Polska Group owned at least 5% of share capital or voting power in the following companies:

No.	Company	% in the share capital	% of the total votes at AGM	% in the share capital	% of the total votes at AGM
No.	Company	31.12.2021	31.12.2021	31.12.2020	31.12.2020
1.	Krynicki Recycling S.A. ¹⁾	19,19%	19,19%	19,19%	19,19%
2.	Polski Standard Płatności Sp. z o.o.	14,29%	14,29%	14,29%	14,29%
3.	Krajowa Izba Rozliczeniowa S.A.	14,23%	14,23%	14,23%	14,23%
4.	Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A.	-	-	10,00%	10,00%
5.	Aviva Towarzystwo Ubezpieczeń Ogólnych S.A.	-	-	10,00%	10,00%
6.	Aviva Towarzystwo Ubezpieczeń na Życie S.A.	-	-	10,00%	10,00%
7.	Hortico S.A.¹⁾	6,18%	6,18%	6,39%	6,39%
8.	Biuro Informacji Kredytowej S.A.	7,72%	9,22%	7,72%	9,22%
9.	Gorzowski Rynek Hurtowy S.A.¹⁾	-	-	2,69%	5,62%

1. Companies from the portfolio of equity investments of Santander Inwestycje Sp. z o.o.

5. Transactions in Equities

Transaction concerning Aviva Group companies from the portfolio of investment financial assets and the portfolio of investments in associates

In relation to Aviva Group’s decision to exit the Polish market through the sale of its companies to Allianz Holding eins GmbH (Allianz), on 26 March 2021 Santander Bank Polska S.A. took steps to complete the transaction concerning Aviva Group companies. The transaction was finalised on 29 and 30 November 2021 following the receipt of all consents from the relevant bodies as required by law, including the decisions of the Polish Financial Supervision Authority (KNF) and the European Commission, and fulfillment of other terms and conditions agreed by the parties to the transaction.

The transaction involved the following measures taken by the bank:

1) Sale (29 November 2021) of 1,370 shares in Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A. representing approx. 10% of the company’s share capital to Aviva Towarzystwo Ubezpieczeń na Życie S.A. for EUR 14.2m.

2) Sale (30 November 2021) of the following shareholdings to Allianz:

· 4,125 shares in Aviva Towarzystwo Ubezpieczeń na Życie S.A. representing approx. 10% of the company’s share capital;

· 2,968 shares in Aviva Towarzystwo Ubezpieczeń Ogólnych S.A. representing approx. 10% of the company’s share capital;

for the total sale price of EUR 223.3m.

3) Termination of the cooperation agreements with Aviva International Holdings Limited relating to Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Santander Aviva Towarzystwo Ubezpieczeń S.A. (including shareholder agreements), effective as of the completion of the transaction.

4) Execution of shareholder agreements with Allianz, i.e. a new partner of the bank in Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Santander Aviva Towarzystwo Ubezpieczeń S.A. holding approx. 51% of the share capital of each of the companies.

5) Execution of new bancassurance agreements with Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Santander Aviva Towarzystwo Ubezpieczeń S.A.

Notwithstanding the above transaction and payments, between June and November 2021 Santander Bank Polska S.A. was paid PLN 95.6m worth of dividends by Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A., Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Aviva Towarzystwo Ubezpieczeń Ogólnych S.A. The bank was also entitled to a payment of EUR 10m from Aviva Group, which after conversion to PLN totalled PLN 46.8m and was recognised under other operating income.

Sale of series A preference shares of Visa Inc.

As a result of the settlement of acquisition of Visa Europe Limited by Visa Inc. on 21 June 2016 and acquisition of assets of Deutsche Bank Polska S.A., Santander Bank Polska S.A. received 21,032 series C preference shares of Visa Inc. entitling it to acquire series A ordinary shares during the next 12 years starting from the fourth year.

On 24 September 2020, i.e. four years after the foregoing acquisition, series C preference shares of Visa Inc. were partially converted. As a result of the above, the bank still holds 21,032 series C shares whose value decreased as the ratio of conversion of series C shares into series A ordinary shares was reduced from 13.722 to 6.861. The bank’s portfolio also includes 1,443 series A preference shares (convertible to 144,300 series A ordinary shares).

Between April and June 2021, the bank completed five conversions of 1,443 series A preference shares into 144,300 series A ordinary shares, which were subsequently sold at a net profit of PLN 8.1m.

As a consequence, the portfolio of Santander Bank Polska S.A. now includes 21,032 series C preference shares.

6. Development of Distribution Channels of Santander Bank Polska S.A.

Development of distribution channels of Santander Bank Polska S.A.

Santander Bank Polska S.A. pursues an omnichannel strategy based on a network of branches, customer service points and best-in-class digital banking solutions. In 2021, the bank took measures to strengthen its position as an omnichannel bank, focusing on relationships with customers and their experience and on business growth, with a particular emphasis on digital channels.

Basic statistics on distribution channels

Santander Bank Polska S.A.	31.12.2021	31.12.2020
Branches (locations)	383	456
Off-site locations	2	2
Santander Zones (stands at shopping centres)	11	10
Partner outlets	164	138
Business and Corporate Banking Centres	6	19
Single-function ATMs	610	731
Dual-function machines	914	930
Registered mobile and internet banking customers ¹⁾ (thousand)	4 492	4 179
Digital (active) mobile and internet banking customers ²⁾ (thousand)	2 998	2 757
Digital (active) mobile banking customers ³⁾ (thousand)	2 194	1 865
iBiznes24 – registered companies ⁴⁾(thousand)	25	21
1) The number of customers who signed an electronic banking agreement under which they can use the available products and services.
2) The number of active internet and mobile banking users (digital customers) who at least once logged into internet or mobile banking or checked their balance without logging in the last month of the reporting period.
3) The number of active mobile banking customers who at least once logged into the mobile application or its light version or checked their balance without logging in in the last month of the reporting period.
4) Only customers using iBiznes24 – an electronic platform for business customers (the customers having access to Moja Firma plus and Mini Firma platforms are not included).

Traditional distribution channels

Branch network

In 2021, Santander Bank Polska S.A. continued optimisation of its traditional distribution network by ensuring effective layout of branches, reducing their post-sale and cash handling activities, and upgrading their standard.

As part of the optimisation process, 41 branches were liquidated and 32 branches were transformed into partner outlets.

Another 25 branches were remodelled, which increased the number of branches with more modern, spacious and comfortable premises to 184 at the end of 2021.

The branch modernisation process was continued, with three transformations standing out by their scale, location and solutions:

· completing the largest-ever upgrade of a banking outlet, namely Branch 1 in Wrocław;

· opening a hub outlet – Branch 4 in Lublin, with two Lublin-based branches migrated to a new location (integration of business by providing space shared by Branch Banking and the Business Support Centre).

· relocating and opening a modern outlet in the heart of Kraków, namely Branch 3 with a Private Banking zone.

As at 31 December 2021, Santander Bank Polska S.A. had 383 branches, 2 off-site locations, 11 Santander Zones and 146 partner outlets. During the year, the number of bank outlets (branches, off-site locations and Santander Zones) decreased by 75, and the number of partner outlets increased by 26.

BRANCHES (INCL. OFF-SITE LOCATIONS AND ACQUISITION STANDS) AND PARTNER OUTLETS OF SANTANDER BANK POLSKA S.A. IN CONSECUTIVE QUARTERS OF 2020–2021 AND AT THE END OF YEARS 2017–2021

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SAntander Bank polska Branches and partner outlets as at 31 December 2021

(EXcl. off-site locations and acquisition stands)

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Intermediaries network

Indirect distribution channels, whose main role is to acquire new customers, include agents, intermediaries, brokers and Santander Zones.

· In 2021, the external network employed 250 people as the bank’s tied agents on average per month. The bank used their services to offer cash loans, mortgage loans, SME loans, loan insurance, personal and business accounts, and leasing facilities.

· Cooperation with financial and real estate brokers (network agents) generated a significant YoY increase in sales.

· The network of Santander Zones in shopping centres increased by one stand located in Poznań (11 in total at the end of December 2021).

As part of the Private Banking model, customers were served by 59 Private Bankers based in 26 outlets across Poland (four Private Banking Centres and 22 other locations).

Services to businesses and corporations were provided by two departments: the Business Clients Department and the Corporate Clients Department with their six Banking Centres (three Business Banking Centres and three Corporate Banking Centres) operating within three regional structures through 29 offices located Poland-wide.

Services to the bank’s largest customers, the public sector and universities were rendered by the specialised Corporate Clients Department – Premium, which is also responsible for financing commercial properties.

ATMs

At the beginning of 2021, the bank started the process of optimising its off-site machines, removing and relocating economically unviable, low-transaction ATMs. The number of active ATMs was reduced by 121 and the number of dual-chamber devices by 30. At the same time, the number of recyclers increased by 14.

As at 31 December 2021, the network of self-service devices of Santander Bank Polska S.A. comprised 1,524 units, including 610 ATMs and 914 dual function machines (440 recyclers).

The bank’s network was ranked second in the Polish banking sector in terms of the number of CDMs and third in terms of the number of ATMs.

Remote channels

In 2021, the bank continued to improve the functionality and capacity of digital contact channels in line with its long-term strategy which is to increase the share of such channels in customer acquisition and sales. The Group’s activity in this area accelerated in response to the Covid-19 pandemic, as customers preferred to communicate and transact with the bank remotely.

The changes were intended to improve the user-friendliness of existing features and processes, and add new ones, while enhancing security of operations. Furthermore, channel integration was continued, harmonising customer service across the bank.

Electronic channel	Selected solutions and improvements introduced in 2021
Development of digital acquisition and sales	· Mass roll-out (after a successful pilot in Warsaw) of an innovative service: execution of agreements with new customers using a biometric tablet in the courier process. · Optimisation changes in the online account application, including solutions reducing the rejection rate due to errors in NIP and REGON numbers, and increasing correctness of contact details. · Launch of a new identity check method for customers opening business accounts – a photo-based account opening process. · A possibility to contact the branch advisor online (chat, video call) to get information about a mortgage loan. · Introduction of an online consolidation loan request.
Internet banking	· A possibility for users of Mini Firma, Moja Firma plus and iBiznes24 to apply for a subsidy under PFR Financial Shield 2.0. · Partners’ services available in Mini Firma internet – eWadia, eZdrowie and eLeasing. · A possibility to update the company’s details via the Mini Firma internet banking mailbox. · Implementation (1 February 2021) of a request for the 500+ child benefit for the next settlement period. · Launch of new versions of Santander internet (in February, April, June and September 2021), with the following features: ü new layout of requests for a business account for sole traders and for a salary transfer; ü a possibility to make a claim on an insurance policy; ü a new “Brokerage account” tab (customers can go from their internet banking account to the Inwestor online service without the need to log in again); ü improved navigation and functionality (e.g. of the tax transfer form, page with accounts and cards); ü a new tile for Private Banking customers in the “Your activities” tab (where they can arrange a meeting or connect with the advisor for a scheduled meeting); ü an option to set up a trusted profile for children above 13; · Providing a possibility to enable and use a card temporarily blocked due to suspicious transactions. · Simplification of the complaint process in Mini Firma and Moja Firma plus.
Santander mobile	· Launch of new versions of Santander mobile (in March, May, June, July and September 2021), with the following features: ü a possibility to order payments from accounts with other banks and make changes in personal details and correspondence delivery methods; ü biometric mobile authorisation (customers can confirm online transactions up to PLN 10k with a fingerprint; Face ID can be used for devices with iOS system); ü changes in the presentation of transaction history; ü refreshed look of the tabs (modified in accordance with users’ suggestions); ü a business loan request. · Change to the presentation of the transaction history (instant visibility), blocked cards, declined payments, inflows and outflows. · Introduction of the Autopay toll payment service. · Availability of BLIK contactless payments (without the need to enter PIN at POS terminal);
Santander.pl	· Launch of a new Santander TFI portal (migrated to the bank’s domain), a new Investor Relations portal (easier-to-navigate and intuitive layout and presentation of content and documents), a Career portal and a new Santander Factoring service at www.santander.pl/factoring. · Change in the method of marking closed branches in the branch, ATM and CDM finder. · Personalisation of the main message at www.santander.pl/klient-indywidualny – rather than seeing one main banner, customers can see one of several banners displayed depending on their behaviour on the bank’s website. · Adding a new filter (category of expenses) to the list of payers and payees in the transaction history and a new transaction status for card transfers.

Electronic channel

Selected solutions and improvements introduced in 2021

Multichannel Communication Centre

· Channel integration and expansion of the scope of service process and tools.

· Delivery of projects that facilitate advisors’ work and harmonise customer service across the bank (multi-dimensional/ cross-product standardisation of processes; identification of processes for migration to self-service, etc.).

· Example processes introduced in the Multichannel Communication Centre in 2021:

ü Modification of an agreement to enable customers to process orders on their own and buy banking products.

ü Provision of services to potential customers who tried to open an account in remote channels.

ü Optimisation of processes, including contact with customers in the Multichannel Communication Centre, account conversion, and execution of loan agreements (for a credit card, overdraft or cash loan).

ü Assignment of new discretions to the manager for dealing with complaints in the fast-track process.

ü Introduction of the Ratio 0% offer for credit cards (a new retention offer).

ü Expansion of the process of obtaining consents for contact via e-channels and consents for sending marketing communications via those channels.

ü Simplification of the process of opening a personal/ savings account for Select customers.

ü Implementation of an authentication code as a customer identification tool.

ü Change of the SME account type.

ü New tool for agreement encryption.

ü Optimisation of the fraud reporting process.

ü Pilot of ScreenSharing with a customer.

ü Assistance for the photo-based account opening process.

· Increased availability of E2E credit processes over phone for personal customers (a possibility to conclude an agreement via phone for a cash loan up to PLN 100k, a credit card and an overdraft).

· Continuation of the IVR Project for Senior Customers – by choosing an appropriate option, seniors connect directly with a consultant who provides them with the required information.

· Introduction of ongoing changes in the IVR to optimise call routing to relevant advisor groups.

· A YoY increase in the number of calls (notably video and audio), as well as email and chat communication, indicative of a change in customers’ preferences towards remote channels.

The new features of iBiznes24 are described in Chapter IX “Business Development in 2021”, section on Business and Corporate Banking and Corporate and Investment Banking.

E-commerce

Santander Bank Polska S.A. develops an e-commerce channel to sell strategic products online. The bank offers personal accounts, business accounts and cash loans in partnership with affiliate networks in Poland, i.e. the largest online platforms.

Digital customers

As at 31 December 2021, the number of digital customers (i.e. electronic banking customers who used electronic banking at least at least once a month) went up by 8.7% YoY to nearly 3m, accounting for 66.7% of customers with access to electronic banking services. The number of mobile application users increased by 17.6% YoY to 2.2m (including 967k customers who used Santander mobile only). Last year, mobile application users made 173.9m transactions (up 42.9% YoY). The number of online transactions increased by 5.3% to 211.7m.

7. Development of Distribution Channels of Santander Consumer Bank S.A.

Basic statistics on distribution channels
Santander Consumer Bank S.A.	31.12.2021	31.12.2020
Branches	54	94
Partner outlets	271	242
Car finance partners	1 161	754
Hire purchase partners	7 028	7 113
Registered mobile and internet banking customers ¹⁾ (thousand)	1 257	1 269
Digital (active) mobile and internet banking customers ²⁾ (thousand)	237	177
Digital (active) mobile banking customers ³⁾ (thousand)	165	102

1)	The number of customers who signed an electronic banking agreement and used the electronic banking system in the reporting period.
2)	The number of active internet and mobile banking users (digital customers) who at least once logged into internet or mobile banking in the last month of the reporting period or checked their balance without logging in.
3)	The number of active mobile banking users who at least once logged in to the mobile application in the last month of the reporting period or checked their balance without logging in.

8. IT Development

Main IT development directions

Santander Bank Polska S.A. is focused on building competitive edge based on state-of-the-art technologies, digital processes and simple rules.

The bank continues to implement the DevOps culture, which ensures undisturbed implementation of changes in production systems responding to customer needs while significantly reducing the time-to-market. This process is the key element of the bank’s digital transformation.

In 2021, the bank took further measures as part of the 4P strategic programme designed to boost organisational, process and cost efficiencies. Many paper-based registers were removed and processes related to document management and cash and vault operations at branches were simplified. Work was started to develop a new post-sale model for retail customers (process centralisation).

In accordance with the long-term plan of redesigning the organisation’s IT architecture (APO – Application Portfolio Optimisations), work is under way to streamline, upgrade, reduce the total cost of ownership and enhance security of the applications portfolio. In 2021, several dozen applications were decommissioned. At the same time, technological changes are being implemented smoothly to eliminate technological debt.

The scope of the project is gradually expanded to reduce the number of incidents in the live environment and accelerate the implementation of changes. Quality assurance at early stages of software development and its automation are of key importance.

In response to the changing environment, particularly market conditions and customer expectations, intensive efforts are being made to increase accessibility of products and services in electronic channels. This is expected to ensure that customers receive end-to-end solutions and can enjoy improved service processes (e.g. related to credit and insurance products). As part of accelerated digitalisation of retail banking, more customer- and employee-friendly and intuitive processes and products are being implemented. With these measures, the bank aspires to become the bank of choice for digital customers.

Achievements in innovation and research and development

The Digital Innovation Office – in partnership with Accelpoint – runs the AccelUp acceleration programme to facilitate cooperation with Polish startups. In 2021, new entities were selected as part of the 4th and 5th (additional) round of the programme. The entities invited to participate develop solutions for the bank’s units and are engaged in the projects that focus on technological capabilities in the context of customers’ needs. The initiatives are delivered as part of the “proof of concept” and are consistent with the strategic objectives of the bank and the Group. For example, they support the activities of Santander Brokerage Poland through development of an investment and educational platform that will help investors better understand stock exchange products and get a more convenient access to relevant information and educational materials. In 2021, the bank completed six “proof of concept” projects with fintechs, each of which took six months.

Furthermore, in October 2021 Santander Bank Polska S.A. signed a new cooperation agreement with Industry Lab (DGA Group), pursuant to which two projects with new startups were launched in January 2022. The solutions will be used by Santander Brokerage Poland. They will include a tool for automation of control of risk attached to structured products and a module for handling innovative products and services.

The business is becoming increasingly interested in cooperation with fintechs whose solutions are becoming more and more in demand. The bank is expected to get proactive measures in this area, placing a particular focus on the needs of customers of Santander Brokerage Poland.

Digital transformation

The table below presents the selected IT projects delivered by Santander Bank Polska Group in 2021.

Initiative	Selected projects delivered in 2021
Improvement of availability, reliability and performance of the bank’s systems	· The first stage of Data Centre migration was completed: the servers and network infrastructure were relocated to new premises. An agreement was signed with the supplier of the second DC location. · The availability and stability of services for customers was significantly improved by reducing the number of IT incidents (by 23% YoY) thanks to proactive measures and stabilisation projects. · A new tool was implemented for distribution of events in the bank’s central system for the purpose of development of the New Business Domains. · A new version of SAS CRM was implemented, enhancing advertising campaign generation capabilities · The key internet and mobile banking and card authorisation systems were migrated to a new platform (IBM Power 9) ensuring high efficiency and scalability of services.
Participation in global optimisation initiatives of Santander Group	· The bank analysed the potential to develop robotic solutions for other geographies as part of RPA & Automation Center of Excellence for OneEurope. · The first features of GTS One Trade were implemented for Polish customers (customer onboarding, Payments Tracker, account balances with Open API). Thanks to API, customers can view current accounts in real time (including current balance and history) in any Santander Group bank which implemented GTS. This way, information about a number of accounts is presented in one place irrespective of the country.
Enhancement of security of the bank’s systems	· The bank implemented SAS Fraud Management, a system which enables 24/7/365 monitoring of online transactions in real time and automatic monitoring of transactions in remote channels. · The security of card systems and transactions was enhanced due to implementation of Key Block – a solution improving the security of storage and use of cryptographic keys in compliance with security procedures of payment and audit organisations. · A project was started to increase the security of ATMs – the software of 550 machines was upgraded. · The bank continues to promote the cybersecurity culture among customers and employees. The social media campaign “Cyberproverbs” (“Cyberprzysłowia”) was awarded in Poland’s largest PR competition – Golden Clips. In October, the bank launched a new cybersecurity campaign: “Don't believe in fairy tales for adults”. To reach the widest possible audience, the materials are posted in social media, aired on the radio, published on a dedicated website and made available in the bank’s branches. The campaign has received very positive feedback and reached a large number of recipients. The bank also publishes warnings about emerging cyberthreats, e.g. in IVR messages in the Multichannel Communication Centre and on the bank’s website. · The bank continued to promote the CyberRescue service which includes cyberthreat alerts and expert support. The purpose of those measures was to reach the highest possible number of customers that actively use internet and mobile banking services.

Initiative		Selected projects delivered in 2021
Implementation of regulatory requirements	· As part of the IBOR regulatory programme, changes were implemented as a result of discontinuation of LIBOR with regard to conclusion of new transactions and migration of LIBOR-based products. Furthermore, a central module was developed and deployed in the Financial Markets Platform to support management of market rates by the bank. · Changes arising from 5th AML Directive and new control requirements were incorporated in the new AML Policy for Trade Finance and Payments in line with the Santander Group Protocol. · The bank started reporting data to STIR in accordance with the Act of 27 November 2020 amending the VAT Act and certain other acts.
Automation and optimisation of operational processes	· The bank introduced a new simplified loan consolidation process for retail customers in remote channels. In addition, a credit card limit increase process was implemented as one of the mobile and electronic banking modules. · The Smart Loans application supporting loan sales for SMEs was launched in the mobile channel. eLeasing was deployed too. · A revamped UX and UI version of the currency exchange platform (Kantor Santander) was made available to Santander internet and Santander mobile users. · A new architecture of back-end IT systems was designed. The first domains are being implemented. · The Restructuring Portal was implemented in Santander internet and Santander mobile to enable customers to manage their debt remotely. · Mobile banking users were provided with an MVP (Minimum Viable Product) of the My Goals (Moje Cele) service that helps to create and achieve savings goals based on three methods. · In partnership with the Business Intelligence Tribe, a modern risk model was implemented based on machine learning technology – it is the first application model at the bank that processes loan applications in real time using data obtained “on the fly” from the BIK credit reference agency. · The PROROK platform was further developed in terms of banking solutions and customer segments to support the sale and post-sale of daily banking products. · The product offering of the Multichannel Communication Centre and partner outlets was expanded to include life and health insurance (“Życie i zdrowie”), as part of the programme aimed to design modern insurance processes based on a new architecture in individual distribution channels. At the same time, Locum home insurance was transferred from an old architecture and made available in Santander internet and Santander mobile along with revised documents. · The OpenShift platform was upgraded, increasing the level of automation of development, implementation and launch of new banking applications. · In 2021, 15 RPA bots were implemented, along with a range of other automation solutions. The main areas which are being automated are credit processes (including mortgage lending), complaints and inquiries, bank references, account closing and the bank’s legal obligations. · Strategic customers were offered new solutions: a distributed signature, dual services for third party banks. New customers were added, including Visa and new accounts of customers from Eurocash Group.

9. Capital Expenditures

In 2021, Santander Bank Polska Group incurred PLN 424.4 m worth of capital expenditure compared with PLN 389.8m in 2020. The expenditure primarily included projects related to the development of IT systems, infrastructure and equipment, which are described above. The bank continued to invest in the development of online, mobile and telephone banking for retail customers, improved the iBiznes24 electronic banking platform, CRM systems and credit processes for business customers, and carried out optimisation and transformation processes in the branch network. For more information, see Section 6 of this Chapter “Development of Distribution Channels of Santander Bank Polska S.A.” and Chapter IX “Business Development in 2021”.

XI. Financial Performance in 2021

1. Income Statement of Santander Bank Polska Group

Structure of Santander Bank Polska Group’s profit before tax

Condensed Consolidated Income Statement of Santander Bank Polska Group in PLN m (for analytical purposes)	2021	2020	Zmiana r/r
Total income	9 209,5	8 647,3	6,5%
- Net interest income	5 962,4	5 888,1	1,3%
- Net fee and commission income	2 487,1	2 152,1	15,6%
- Other income ¹⁾	760,0	607,1	25,2%
Total costs	(5 487,2)	(4 488,0)	22,3%
- Staff, general and administrative expenses	(3 172,1)	(3 262,5)	-2,8%
- Depreciation/amortisation ²⁾	(579,0)	(593,6)	-2,5%
- Other operating expenses	(1 736,1)	(631,9)	174,7%
Net expected credit loss allowances	(1 124,2)	(1 762,8)	-36,2%
Profit/loss attributable to the entities accounted for using the equity method	74,1	86,4	-14,2%
Tax on financial institutions	(614,4)	(602,0)	2,1%
Consolidated profit before tax	2 057,8	1 880,9	9,4%
Tax charges	(805,4)	(643,7)	25,1%
Net profit for the period	1 252,4	1 237,2	1,2%
- Net profit attributable to the shareholders of Santander Bank Polska S.A.	1 111,7	1 037,2	7,2%
- Net profit attributable to the non-controlling shareholders	140,7	200,0	-29,7%

1)

Other income includes total non-interest and non-fee income of the Group. It comprises in particular the following items of the full income statement: dividend income, net trading income and revaluation, gain/ loss on other financial instruments and other operating income.

2)

Depreciation/ amortisation includes depreciation of property, plant and equipment, amortisation of intangible assets and depreciation of the right-of-use asset.

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The profit before tax of Santander Bank Polska Group for the 12-month period ended 31 December 2021 was PLN 2,057.8m, up 9.4% YoY. The profit attributable to the bank’s shareholders increased by 7.2% YoY to PLN 1,111.7m.

The table presented in the “Comparability of periods” section below contains the selected items of the income statement of Santander Bank Polska Group which affect the comparability of the analysed periods. After the relevant adjustments,

· the underlying profit before tax increased by 23.9% YoY and

· the underlying profit attributable to the shareholders of Santander Bank Polska S.A. went up by 36.0% YoY.

Comparability of periods

Selected items of the income statement affecting the comparability of periods	2021	2020
· Provisions and additional expected credit loss allowances
Top-ups of provisions for legal claims and other assets (other operating expenses)	· PLN 1,005.6m, including PLN 894.4m with respect to claims related to foreign currency mortgage loans of Santander Bank Polska S.A. and Santander Consumer Bank S.A.	· PLN 322.1m, including PLN 233.1m with respect to claims related to foreign currency mortgage loans
Releases of provisions for legal claims and other assets (other operating income)	· PLN 65.7m released and recognised under other operating income, including PLN 46.6m with respect to foreign currency mortgage loans	· PLN 44.0m released and recognised under other operating income, including PLN 16.3m with respect to foreign currency mortgage loans
Top-ups of provisions for legal risk (other operating expenses)	· PLN 550.0m for legal risk connected with the portfolio of foreign currency mortgage loans of Santander Bank Polska S.A. and Santander Consumer Bank S.A.	· PLN 201.2m, including PLN 85.3m for legal risk connected with the portfolio of foreign currency mortgage loans of Santander Bank Polska S.A. and Santander Consumer Bank S.A., and PLN 115.9m for legal risk related to consumer loans
Releases of provisions for legal risk (other operating income)	· PLN 21.4m released and recognised under other operating income	· No corresponding releases

Selected items of the income statement affecting the comparability of periods (cont.)	2021	2020
Additional expected credit loss allowance connected with the Covid-19 pandemic (post-model adjustment) (net expected credit loss allowances)	· Reversal of PLN 121.4m worth of allowance made in connection with Covid-19 following the review of the models taking into account the latest macroeconomic forecasts	· PLN 121.4m – an additional allowance made in connection with Covid-19 in excess of the values arising from the models
· Expenses
Contributions to the Bank Guarantee Fund made by Santander Bank Polska Group (general and administrative expenses)	· PLN 262.6m, including a contribution of PLN 108.5m to the bank guarantee fund and PLN 154.1m to the bank resolution fund	· PLN 410.9m, including a contribution of PLN 163.8m to the bank guarantee fund and PLN 247.2m to the bank resolution fund
Provision for employment restructuring (staff expenses)	· PLN 12.8m for employment restructuring at Santander Consumer Bank S.A.	· PLN 153.6m, including PLN 121.0m and PLN 32.6m for severance pay for employees selected for collective redundancies at Santander Bank Polska S.A. and Santander Consumer Bank S.A., respectively
· Income and income adjustments
Dividend income	· PLN 112.8m, including PLN 95.6m from Aviva Group (Aviva Towarzystwo Ubezpieczeń na Życie S.A., Aviva Towarzystwo Ubezpieczeń Ogólnych S.A. and Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A.)	· PLN 22.9m, including PLN 11.0m from Aviva Group (Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A.)
Additional payment related to the equity market transaction (other operating income)	· PLN 46.8m – an additional payment in connection with the completed divestment of the foregoing three Aviva Group companies under separate contractual arrangements	· No corresponding transaction in the capital market
One-off item resulting from revision of the model for calculation of provisions for insurance premium refunds (mainly net interest income)	· No corresponding one-off items	· PLN 103m – income of Santander Consumer Bank S.A. from revision of the model for calculation of provisions for insurance premium refunds, including PLN 90m recognised in interest income and PLN 13m in fee and commission income

Determinants of the Group’s profit for 2021

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In 2021, the following components of Santander Bank Polska Group’s profit before tax improved significantly year-on-year:

· Net expected credit loss allowances were down 36.2% YoY, reflecting a stable or lower cost of credit related to individual credit portfolios and reversal of a management allowance in respect of Covid-19 (above the values arising from the models) as the impact of the majority of existing adjustments had been reflected in the current parameter values. In the comparative period, the above additional allowance totalled PLN 121.4m.

· Net fee and commission income increased by 15.6% YoY on account of higher net income from the majority of product lines, including currency exchange, account maintenance and cash transactions, debit cards, electronic and payment services, distribution and asset management and credit services. This growth is a sign of economic recovery and improved outlook, translating into increased business activity and a higher number of banking operations made by customers. It was also supported by an upturn in the financial markets observed for the greater part of the year, notably in the equity and debt securities markets, as well as flexible pricing management in line with market developments.

· Other income went up by 25.2% YoY on account of higher dividend income from the portfolio of equity investment financial assets, including PLN 89m worth of dividends from the insurance companies, which did not distribute profits to shareholders in the previous year due to the supervisory restrictions connected with Covid-19. The Group’s activities in the capital market also generated one-off income in respect of PLN 46.8m worth of payment from Aviva Group in connection with the completed divestment of companies from that Group. While the Group generated higher net trading income and revaluation (+78.1% YoY) amid favourable conditions in the financial markets, it posted lower gains on other financial instruments (-63.2% YoY) resulting from recognition of a lower gain on the sale of bonds (-59.9% YoY) and a lower positive change in the fair value of Visa Inc. shares (-93.5% YoY).

· Staff and general expenses fell by 2.8% YoY to PLN 3,172.1m as an effect of high base in the comparative period including a higher provision for severance pay for employees selected for collective redundancies in Santander Bank Polska S.A. and Santander Consumer Bank S.A. (PLN 153.6m in 2020 vs PLN 12.8m in 2021) and higher contributions to the BFG resolution and guarantee funds (PLN 411.0m in 2020 vs PLN 262.6m in 2021). The underlying staff and general expenses increased by 6.4% YoY, reflecting a rise in cost of salaries and in individual categories of general and administrative expenses, e.g. cost of marketing, IT usage, maintenance of premises and purchase of equipment.

· Net interest income increased by 1.3% YoY as an effect of changes in the structure of deposits (a steady decrease in term deposits in favour of current deposits), higher loan sales growth rate in H2 2021, three NBP interest rate hikes in Q4 2021 (up 1.65 p.p. in total) and higher profitability of the securities portfolio resulting from the monetary policy tightening started by the NBP.

At the same time, the Group’s consolidated profit before tax was under a strong pressure from:

· Other operating expenses went up by 174.7% YoY to PLN 1,736.1m on account of significant increases in provisions for legal claims and other assets and for legal risk totalling PLN 1,555.6m in 2021 (+197.3% YoY), of which 96% concerned foreign currency mortgage loans.

Profit before tax of Santander Bank Polska Group by contributing entities

Components of Santander Bank Polska Group’s profit before tax in PLN m (by contributing entities)	2021	2020	YoY change
Santander Bank Polska S.A.	1 548,8	1 227,7	26,2%
Subsidiaries:	606,4	653,4	-7,2%
Santander Consumer Bank S.A. and its subsidiaries¹⁾	299,6	424,6	-29,4%
Santander Towarzystwo Funduszy Inwestycyjnych S.A.	144,6	142,5	1,5%
Santander Finanse Sp. z o.o. and its subsidiaries²⁾ (Santander Leasing S.A., Santander Leasing Poland Securitization 01 Designated Activity Company, Santander Factoring Sp. z o.o., Santander F24 S.A.)	156,1	85,5	82,6%
Santander Inwestycje Sp. z o.o.	6,1	0,8	662,5%
Equity method accounting	74,1	86,4	-14,2%
Exclusion of dividends received by Santander Bank Polska S.A. and consolidation adjustments	(171,5)	(86,6)	98,0%
Profit before tax	2 057,8	1 880,9	9,4%

1)

In both periods under review, SCB Group comprised Santander Consumer Bank S.A. and the following entities: Santander Consumer Multirent Sp. z o.o., Santander Consumer Finanse Sp. z o.o. w likwidacji (a company in liquidation), SC Poland Consumer 16-1 Sp. z o.o., PSA Finance Polska Sp. z o.o. and PSA Consumer Finance Polska Sp. z o.o. In Q3 2020, two new companies joined the Group: Santander Consumer Financial Solutions Sp. z o.o. and SCM Poland Auto 2019-1 DAC. In Q2 2021, SCB S.A. lost the control over SC Poland Consumer 15-1 Sp. z o.o. due to settlement of the securitisation transaction and start of liquidation of that company. The amounts provided above represent profit before tax (after intercompany transactions and consolidation adjustments) of SCB Group for the periods indicated.

Santander Bank Polska S.A. (parent entity of Santander Bank Polska Group)

The profit before tax of Santander Bank Polska S.A. was PLN 1,548.8m, up 26.2% YoY.

Changes in the main components of the standalone profit reflect the trends relating to the consolidated profit. Similarly to the Group, the bank’s profit before tax was positively affected by net interest income, net fee and commission income, net trading income and revaluation, dividend income, staff and general expenses and net expected credit loss allowances. The increase attributed to the above line items was partially offset by higher provisions for financial risk connected with foreign currency mortgage loans (recognised under other operating expenses).

The components of the profit earned by the bank are presented in the section on the financial performance of Santander Bank Polska S.A. in 2021.

Subsidiaries

The subsidiaries consolidated by Santander Bank Polska S.A. reported a decline of 7.2% YoY in their total profit before tax.

SCB Group

The contribution of Santander Consumer Bank Group to the consolidated profit before tax of Santander Bank Polska Group for the 12 months of 2021 was PLN 299.6m (excluding intercompany transactions and consolidation adjustments) and decreased by 29.4% YoY as a combined effect of the following:

· A decline of 9.1% YoY in net interest income to PLN 1,187.6m, reflecting an impact of the Covid-19 pandemic, including close-to-zero market interest rates prevailing over the greater part of the year and deceleration of lending in H1 2021 with a change in the structure of credit sales. The negative YoY change was additionally affected by one-off income of PLN 90m from the update of parameters as part of revision of the model for calculation of provisions for insurance premium refunds.

· A decrease of 18.2% YoY in net fee and commission income to PLN 130.6m, reflecting a decline in income from insurance and other products caused by decelerated sales resulting from the Covid-19 pandemic, which was only partially offset by lower costs of settlements with retail network partners of Santander Consumer Bank S.A.

· A drop of 33.7% YoY in net expected credit loss allowances to PLN 215.7m, resulting from a lower value and good quality of the loan book as well as a higher gross profit on sales of overdue receivables (PLN 79.0m vs PLN 45.4m in the corresponding period of the previous year).

· An decrease of 12.7% YoY in other non-interest and non-fee income to PLN 59.0m, reflecting a decrease of 42.9% YoY in the total net trading income and gain on financial instruments resulting from lower gains on the sale of securities, partially offset by a positive impact of revaluation of a part of the credit cards portfolio measured at fair value.

· A growth of 12.0% YoY in operating expenses to PLN 831.2m resulting from PLN 292.7m (PLN 169.1m in 2020) worth of provisions raised for individual court cases, other liabilities and legal risk in view of a growing number of legal disputes connected with the portfolio of foreign currency mortgage loans. The above provisions were recognised in other operating expenses. At the same time, a drop of 10.1% YoY was reported in staff and general expenses thanks to a lower value of the restructuring provision (PLN 12.8m in 2021 vs PLN 32.6m in 2020) and effects of a savings plan implemented in connection with the Covid-19 pandemic.

Other subsidiaries

Profit before tax of Santander TFI S.A. for 2021 increased by 1.5% YoY to PLN 144.6m, as a result of a 1.8% YoY rise in net fee and commission income driven by income from management fees and performance fees (introduced in early 2021), partially offset by higher costs associated with distributor services (a mechanism launched in H2 2020).

The income from management fees grew along with a rise in the average value of assets, yet it was capped by a lower margin arising from a change in the structure of assets and another cut in the maximum management fee.

Total profit before tax posted by companies controlled by Santander Finanse Sp. z o.o. increased by 82.6% YoY to PLN 156.1m.

· Total profit before tax of Santander Leasing S.A., Santander Finanse Sp. z o.o., Santander Leasing Poland Securitization 01 Designated Activity Company and Santander F24 S.A. grew by 83.1% YoY to PLN 94.3m. Record high sales generated in the reporting period triggered an increase of 11% YoY in the lease portfolio, a growth of 18% YoY in net interest income and a rise of 27% YoY in net insurance income. The quality of the lease portfolio remained good, with the NPL ratio of 3.32% (+0.85 p.p.).

· The profit before tax posted by Santander Factoring Sp. z o.o. was up 79.5% YoY and totalled PLN 61.8m. It resulted from an increase of 36.5% YoY and 17.9% YoY in net interest income and net fee and commission income, respectively, and a positive change in the balance of expected credit loss allowances in respect of the factoring portfolio.

Structure of Santander Bank Polska Group’s profit before tax

Total income

Total income of Santander Bank Polska Group for the 12-month period ended 31 December 2021 was PLN 9,209.5m, up 6.5% YoY. Excluding the income items presented in the table “Selected items of the income statement affecting the comparability of periods”, which are used to adjust net interest income, net fee and commission income, dividend income and other operating income, the underlying total income was up 5.7% YoY on account of an increase in net interest income, net fee and commission income and net trading income and revaluation.

Net interest income

In 2021, net interest income totalled PLN 5,962.4m and increased by 1.3% YoY.

Excluding the adjustment for one-off item related to the revision of model parameters, the underlying net interest income was up 2.8% YoY as a combined effect of the following:

· Three NBP interest rate hikes in Q4 2021 (1.65 p.p. in total) following a prolonged period of a negative pressure on net interest margin from historically low NBP interest rates prevailing since May 2020, caused by a series of cuts reducing the reference rate to 0.1%.

· Flexible pricing management through gradual adjustments in line with the market conditions and the Group’s objectives, such as support for credit delivery and optimisation of asset funding costs.

· Growth in lending (notably mortgage loans and receivables from business customers, including lease and factoring facilities) with a relatively stable YoY balance of total credit receivables.

· Continuing changes in the balance sheet structure observed since 2020, i.e. a decrease in term deposit balances and a growing share of debt investment financial assets offering higher returns since Q3 2021 in connection with the monetary policy tightening started by the NBP.

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Interest income for 2021 totalled PLN 6,362.6m and was down 7.2% YoY, mainly due to pressure from loans and advances to personal and business customers.

Interest expenses declined by 58.7% YoY to PLN 400.1m, i.e. eight times faster than interest income, as customers were transferring funds from term deposit accounts to personal accounts and investment products. This trend (observed in both analysed periods) was supported by changes to the pricing and product range, as well as positive developments in the stock and investment funds markets observed for the better part of the year.

In 2021, loans to customers brought a yearly average nominal interest income of 3.6% compared with 4.0% in 2020. Customer deposits carried a yearly average nominal interest expense of 0.1% compared with 0.4% the year before.

The cumulated net interest margin (annualised on a year-to-date basis) went down to 2.71% in 2021 from 2.87% in 2020 due to historically low interest rates prevailing from May 2020 to October 2021, when the NBP started a series of interest rate hikes whose impact will be visible to a larger extent in 2022. The decrease in the margin annualised on a year-to-date basis is also an effect of a growing share of investments in debt instruments in the Group’s assets due to continuing overliquidity of the Polish banking sector. Given the relatively low yields of debt securities (until Q3 2021), this portfolio weighed down on the cumulated net interest margin.

Net interest margin (annualised on a quarterly basis) totalled 3.07% in Q4 2021 and increased by 43 b.p. QoQ and by 41 b.p. YoY in line with movements in interest rates. It was combined with accelerated mortgage and business loan sales, resulting in a QoQ increase in the corresponding credit portfolios. The value of investments in debt securities went up too, which positively affected the net interest margin given higher returns on these instruments.

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1) Net interest margin in consecutive quarters, annualised on a quarterly and year-to-date basis.

2) The calculation of the net interest margin of Santander Bank Polska S.A. takes account of swap points allocation from derivative instruments used for the purpose of liquidity management but excludes interest income from the portfolio of debt securities held for trading and other exposures connected with trading.

Net fee and commission income

Net fee and commission income (PLN m)	2021	2020	YoY change
FX fees	572,6	468,8	22,1%
Account maintenance and cash transactions ¹⁾	392,9	309,2	27,1%
Credit fees ²⁾	332,1	321,7	3,2%
Distribution and asset management	276,4	231,3	19,5%
Debit cards	253,6	214,6	18,2%
Insurance fees	209,6	203,0	3,3%
Electronic and payment services ³⁾	188,9	168,0	12,4%
Credit cards	130,1	130,0	0,1%
Brokerage activities	112,3	112,5	-0,2%
Guaranties and sureties ⁴⁾	52,8	36,4	45,1%
Other fees ⁵⁾	(34,2)	(43,4)	-21,2%
Total	2 487,1	2 152,1	15,6%

1)	Fee and commission income from account maintenance and cash transactions has been reduced by the corresponding expenses which in Note 7 to the Consolidated Financial Statements of Santander Bank Polska Group for the 12-month period ended 31 December 2021 are included in the line item “Other” (PLN 6.5m for 2021 and PLN 3.5m for 2020).
2)	Fee income from lending, factoring and lease activities which is not amortised to net interest income. This line item includes inter alia the cost of credit agency fees.
3)	Fees for payments (foreign and mass payments, Western Union transfers), trade finance, services for third party institutions as well as other electronic and telecommunications services.
4)	Fee income from guarantees and sureties has been reduced by the corresponding expenses which in Note 7 to the Consolidated Financial Statements of Santander Bank Polska Group for the 12-month period ended 31 December 2021 are included in the line item “Other” (PLN 58.7m for 2021 vs PLN 55.6m for 2020).
5)	Issue arrangement fees and other fees.

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Net fee and commission income for the 12-month period ended 31 December 2021 was PLN 2,487.1m and increased by 15.6% YoY, driven by the performance of individual business lines of Santander Bank Polska S.A. and its subsidiaries. The key changes were as follows:

· FX fee income rose by 22.1% YoY on account of higher FX turnover, accompanied by a slight drop in average quotations. The growth in the above-mentioned income was driven by transactions in electronic currency exchange platforms, i.e. e-FX (iBiznes24 module) and Kantor Santander (available in Santander online and Santander mobile). The share of traditional channels has been decreasing.

· Net fee and commission income from account maintenance and cash transactions increased by 27.1% YoY on account of a YoY growth in the portfolio of Accounts As I Want It (a flagship personal account of Santander Bank Polska S.A.) and introduction of a conditional maintenance fee for that account which can be avoided if the customer makes a defined number of transactions in the account. The number of FX accounts went up too. Furthermore, a YoY rise in income from cash management fees was reported in the business segment due to high liquidity of some of the companies (resulting from government support programmes, among other things).

· An increase of 3.2% YoY in net credit fee and commission income was attributed to a rise of 8.4% YoY in credit-related income, notably from services connected with financing transactions made with business and corporate customers. This change was partially offset by higher costs of credit agency incurred by Santander Bank Polska S.A. due to a growing share of this channel in the distribution of the bank’s products, including mortgage loans. Santander Consumer Bank S.A. paid lower charges in respect of settlements with retail partners.

· Net fee and commission income from distribution and asset management grew by 19.5% YoY on account of higher income from management fees reflecting an increase in the average value of assets managed by Santander TFI S.A., and performance fees introduced at the start of the year in relation to selected sub-funds. For more information, please see section about Santander TFI S.A. in “Profit before tax of Santander Bank Polska Group by contributing entities”.

· An increase of 18.2% YoY in net income from debit cards is a combined effect of many factors, including a growing number of cards, a higher value of non-cash transactions with such cards (+23% YoY) and higher income from currency exchange transactions made in the summer. Discounts for card issuance and processing offered by payment organisations cooperating with Santander Bank Polska S.A. were another contributing factor. In the period under review, discounts for 2020 were settled in March and April 2021 along with discounts for 2021 settled on an ongoing basis.

· A rise of 12.4% YoY in net fee and commission income disclosed under the Group’s electronic and payment services is attributed to turnover from cross-border payments and trade finance transactions, as well as a more active use of existing electronic channels.

· Fees from brokerage activities were stable amid relatively lower volatility of the stock exchange market compared with 2020. Santander Brokerage Poland acquired new customers and arranged issues of structured products to retain the popularity of investment solutions among customers. Another factor that contributed to the income growth was participation in several public offerings.

· Net fee and commission income from issuance and management of a combined portfolio of credit cards of Santander Bank Polska S.A. and Santander Consumer Bank S.A. was broadly stable YoY as a combined effect of a lower size of the portfolio, higher volume of non-cash transactions, card transfers and currency conversion, a lower number of cash transactions and changes in the terms and conditions for selected cards (calculation of cashback, etc.).

· A 45.1% YoY increase in net fee and commission income from guarantees and sureties was attributed to higher income from guarantee services provided to customers using trade finance solutions.

Non-interest and non-fee income

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Non-interest and non-fee income of Santander Bank Polska Group presented above totalled PLN 760.0m and was up 25.2% YoY on account of an increase in the following components:

· Net trading income and revaluation grew by 78.1% YoY to PLN 268.0m due to the development of the financial markets. This line item was affected by the following developments:

ü Total gain of PLN 234.9m on derivatives, interbank FX transactions and FX trading transactions, up 50.0% YoY.

ü A positive change of PLN 5.7m in the fair value of credit card receivables measured through profit or loss for 12 months of 2021 vs a negative change of PLN 15.3m the year before.

ü Total gain of PLN 27.4m on trading in equity and debt financial instruments measured at fair value through profit or loss, up PLN 18.1m YoY.

· Dividend income totalled PLN 112.8m and increased by PLN 89.9m YoY due to recognition of PLN 89m worth of dividends from two insurance companies (Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Aviva Towarzystwo Ubezpieczeń Ogólnych S.A.), which did not pay a dividend in 2020 in accordance with the regulatory recommendation to strengthen the capital base. In the comparative period, only one Aviva Group company – Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A. – paid a dividend of PLN 11m to Santander Bank Polska S.A.

· Other operating income went up by 61.5% YoY to PLN 284.3m, mainly as a result of recognition of an additional payment of PLN 46.8m received from Aviva Group (not included in the sale price) in connection with the completed divestment of three companies from that Group (Aviva Towarzystwo Ubezpieczeń na Życie S.A., Aviva Towarzystwo Ubezpieczeń Ogólnych S.A. and Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A.).

The financial result of the above increases was offset by a decrease of 63.2% YoY in gains on other financial instruments to PLN 94.9m due to a lower gain on sale of bonds (-PLN 137.0m YoY), a lower positive change of the fair value of Visa Inc. shares (PLN 2.2m vs PLN 33.2m in 2020, excluding FX differences) and a loss on hedging and hedged instruments (-PLN 3.1m) vs a profit of PLN 4.4m in 2020.

The above line item also includes a profit of PLN 8.1m from five transactions involving conversion and sale of series A convertible preference shares of Visa Inc.

Expected credit loss allowances

Expected credit loss allowances on loans and advances measured at amortised cost (PLN m)	Stage 1			Stage 2			Stage 3			POCI		Total	Total
	2021	2020	2021		2020	2021		2020	2021		2020	2021		2020
Allowance on loans and advances to customers	(150,3)	(114,1)	(108,8)		(604,6)	(920,2)		(1 069,7)	47,4		27,7	(1 131,9)		(1 760,7)
Recoveries of loans previously written off	-	-	-		-	3,9		(4,4)	-		-	3,9		(4,4)
Allowance on off-balance sheet credit liabilities	(10,7)	4,8	3,7		(3,7)	10,8		1,2	-		-	3,8		2,3
Total	(161,0)	(109,3)	(105,1)		(608,3)	(905,5)		(1 072,9)	47,4		27,7	(1 124,2)		(1 762,8)

In 2021, the charge made by Santander Bank Polska Group to the income statement on account of expected credit loss allowances was PLN 1,124.2m, down 36.2% YoY. This figure includes net allowances of Santander Consumer Bank Group, which totalled PLN 215.7m and decreased by 33.7% YoY.

The YoY decrease in allowances on loans and advances to the Group’s customers (from PLN 1,760.7m in 2020 to PLN 1,131.9m in 2021) is attributed to:

· Update of model parameters and macroeconomic scenarios as part of a half-yearly review (taking into account amendments to Recommendation R and the latest economic forecasts in accordance with IFRS 9).

· Decision to reverse the management allowance for expected credit losses due to Covid-19 (post-model adjustment) as a consequence of the update of the parameters and models taking into account pandemic-related risks. The Group reversed the total balance of additional management allowances in respect of Covid-19 amounting to PLN 121.4m. In 2020, the additional allowance in respect of Covid-19 was 121.4m.

· Stable or lower level of credit risk coupled with a stable low level of payment arrears, particularly in the portfolio of personal and SME loans. Return of the cost of credit to the pre-pandemic level observed since Q2 2021.

· Close monitoring of the corporate loans portfolio, with changes in risk reflected in credit ratings and classification of exposures to individual stages (taking into account the risk connected with Covid-19). In the analysed period, single allowances were made for non-performing credit exposures of individual customers, but there were also significant repayments in the NPL portfolio.

· Sale of credit receivables from personal and business customers of Santander Bank Polska S.A. and Santander Consumer Bank S.A. totalling PLN 2,474.0m at a profit before tax of PLN 120.9m (in 2020, receivables of PLN 1,664.7m were sold at a profit before tax of PLN 30.8m).

During 12 months of 2021, there were a few downgrades to NPLs in the case of corporate customers. The scale of downgrades of selected mortgage and cash loan borrowers applying for state aid under the Anti-Crisis Shield 4.0 was reduced.

During the reporting period, the cost of credit of Santander Bank Polska Group was 0.76% vs 1.21% in 2020, with a higher value of the credit portfolio measured at amortised cost (+4.1% YoY).

Total costs

Total costs (PLN m)	2021	2020	YoY change
Staff, general and administrative expenses, of which:	(3 172,1)	(3 262,5)	-2,8%
- Staff expenses	(1 694,2)	(1 744,1)	-2,9%
- General and administrative expenses	(1 477,9)	(1 518,4)	-2,7%
Depreciation/amortisation	(579,0)	(593,6)	-2,5%
- Depreciation/amortisation of PP&E and intangible assets	(411,4)	(405,3)	1,5%
- Depreciation of right-of-use asset	(167,6)	(188,3)	-11,0%
Other operating expenses	(1 736,1)	(631,9)	174,7%
Total costs	(5 487,2)	(4 488,0)	22,3%

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In 2021, total operating expenses of Santander Bank Polska Group increased by 22.3% YoY to PLN 5,487.2m due to other operating expenses, which went up by 174.7% YoY on account of provisions for legal claims and other assets (i.e. individual court cases) and provisions for legal risk (expected claims estimated under a collective approach). The total value of the above provisions was PLN 1,555.6m (+197.3% YoY), 96% of which concerned foreign currency mortgage loans. The balance of provisions for foreign currency mortgage loans results from update of model parameters in view of new legal claims and continued uncertainty in the Polish legal environment.

The increase in total cost base was offset in part by reduction of 2.7% YoY in the Group’s general and administrative expenses resulting from lower contributions to the BFG resolution and guarantee funds (-31.7% YoY to PLN 262.6m).

On a comparative basis, i.e. excluding the impact of fees payable to the Bank Guarantee Fund, the restructuring provision and the provisions for legal risk and legal claims, the underlying total operating expenses were up 6.7% YoY, reflecting an increase in the selected categories of general and administrative expenses and cost of salaries.

Given the significant rise in provisions for legal claims, other assets and legal risk, the cost to income ratio grew from 51.9% in 2020 to 59.6% in 2021. Adjusting for the above-mentioned cost and income items, the underlying cost to income ratio was 45.4% in 2021 vs 45.0% in 2020.

Staff expenses

Staff expenses fell by 2.9% YoY to PLN 1,694.2m as an effect of high base in the comparative period including a provision of PLN 153.6m for severance pay for employees selected for collective redundancies in Santander Bank Polska S.A. and Santander Consumer Bank S.A. vs a corresponding provision of PLN 12.8m in 2021 concerning the latter bank only. The main components of staff expenses, i.e. salaries and bonuses and statutory deductions from salaries increased by 5.6% to PLN 1,621.6m due to the launch of all bonus schemes in 2021 (vs bonus schemes for sales staff only in 2020). In addition to that, staff salaries were reviewed in relation to market rates. Cost of training increased by 30.8% YoY to PLN 9.3m along with a number of initiatives, the majority of which were delivered on a remote basis.

General and administrative expenses

General and administrative expenses of Santander Bank Polska Group went down by 2.7% YoY to PLN 1,477.9m. The largest constituent items were fees payable to the Bank Guarantee Fund (BFG), the Polish Financial Supervision Authority (KNF) and the Central Securities Depository of Poland (KDPW), which totalled PLN 293.7m and decreased by 32.6% YoY because of lower contributions paid by banks to the BFG in 2021 due to an unprecedented economic situation. During 12 months of 2021, the charge to the Group’s income statement on account of these contributions declined by 36.1% YoY to PLN 262.6m (an annual contribution to the bank resolution fund was down 37.7% YoY to PLN 154.1m and a quarterly contribution to the bank guarantee fund was down 33.8% YoY to PLN 108.5m). If the above-mentioned contributions had not changed compared to the previous year, the Group’s general and administrative expenses would have increased by 7.1% YoY. It is largely an effect of a low base in 2020 caused by the pandemic outbreak and a lower scale of activity due to numerous restrictions imposed during that period.

A significant increase was reported under marketing and entertainment (+39.8% YoY) as a result of a slowdown in 2020 and a range of promotional and advertising campaigns delivered in the reporting period in connection with the project of accelerated digitalisation of retail customer services, including promotion of mobile banking. The revival of business activity also translated into higher settlement costs (+10.5% YoY).

The cost of IT usage went up by 15.5% YoY in connection with delivery of various IT projects within Santander Group (e.g. implementation of a group platform – Office 365, a common RPA platform, an HR platform, a global transactional system, the first functionalities of GTS One Trade portal, initiatives related to cyber security and digitalisation of retail services) and locally (e.g. migration of existing Data Centres) as well as support and maintenance of the infrastructure used for day-to-day operations.

As a result of gradual branch remodelling and measures taken in the Business Support Centre to launch a hybrid work model, equipment purchase costs went up, causing a 80.7% YoY increase in costs of repairs.

Due to ongoing optimisation of the branch network, the cost of maintenance of premises went up (+10.8% YoY) as a result of early termination of leases in the selected locations. At the same time, the cost of short-term leases and leases of low-value assets was down 13.1% YoY.

The optimisation of employment and introduction of the remote work and customer service model caused a decline in the cost of consumables and a reduction in car fleet, as reflected in the following line items: consumables, printouts, cheques and cards (-2.6% YoY) and cars, transport and CIT (-2.9% YoY).

A significant decrease was also reported in consultancy and advisory fees (-8.5% YoY), which was primarily attributed to a larger scale of consultations with third parties made in 2020 in connection with the project of retail banking digitalisation and transfer of services to remote channels.

Taxes

Tax on financial institutions totalled PLN 614.4m and was up 2.1% YoY, reflecting an increase in loans and advances to customers.

Corporate income tax was PLN 805.4m and effectively higher compared to the previous year (the effective tax rate increased from 34.2% for 2020 to 39.1% for 2021), mainly on account of higher provisions for claims related to foreign currency mortgage loans.

2. Statement of Financial Position of Santander Bank Polska Group

Consolidated assets

As at 31 December 2021, the total assets of Santander Bank Polska Group were PLN 244 876.3m and increased by 6.8% YoY on account of loans and advances to customers, investment securities and balances with central banks. The value and structure of the Group’s financial position is determined by the parent entity, which held 89.1% of the consolidated total assets vs 88.6% as at the end of December 2020.

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Structure of consolidated assets

Assets in PLN m (for analytical purposes)	31.12.2021	Structure 31.12.2021	31.12.2020	Structure 31.12.2020	YoY change
Assets in PLN m (for analytical purposes)	1	2	3	4	1/3
Loans and advances to customers ¹⁾	148 250,4	60,5%	141 998,8	61,9%	4,4%
Investment securities ²⁾	71 866,3	29,3%	66 783,4	29,1%	7,6%
Cash and balances with central banks	8 438,3	3,5%	5 489,3	2,4%	53,7%
Financial assets held for trading and hedging derivatives	4 183,3	1,7%	3 190,4	1,4%	31,1%
Property, plant and equipment, intangible assets, goodwill and right-of-use assets	3 654,9	1,5%	3 934,5	1,7%	-7,1%
Loans and advances to banks	2 690,2	1,1%	2 926,5	1,3%	-8,1%
Assets under buy-sell-back transactions and assets held as collateral	987,8	0,4%	951,2	0,4%	3,8%
Other assets ³⁾	4 805,1	2,0%	4 037,2	1,8%	19,0%
Total	244 876,3	100,0%	229 311,3	100,0%	6,8%

1)	Net loans and advances to customers include a portfolio measured at amortised cost and portfolios measured at fair value through other comprehensive income and through profit or loss.
2)	Investment securities include debt and equity investment securities measured at fair value through other comprehensive income, debt and equity investment securities measured at fair value through profit or loss and debt investment securities measured at amortised cost.
3)	Other assets include the following items of the full version of financial statements: investments in associates; current income tax assets; net deferred tax assets; property, plant and equipment classified as held for sale and other assets.

In the above condensed statement of financial position as at 31 December 2021, net loans and advances to customers were the key item of the consolidated assets (60.5%). They totalled PLN 148,250.4m and increased by 4.4% YoY along with a rise in the key portfolios of the Group: loans for personal customers, loans for business customers and the public sector and lease receivables.

As part of the ongoing management of liquidity, the Group increased the value of current accounts at central banks (+53.7% YoY), and decreased the value of loans and advances to banks (-8.1% YoY), mainly current account balances. At the same time, a rise of 31.1% YoY was reported in financial assets held for trading and hedging derivatives on account of transactions in interest rate hedging instruments and government bonds.

The balance of investment securities grew less dynamically than in 2020 (+7.6% YoY), driven mainly by purchases of bonds issued or guaranteed by the State Treasury as well as NBP bills classified to the portfolio of debt investment securities measured at fair value through other comprehensive income. In accordance with the strategy started the year before, the liquidity surplus continued to be invested in government bonds amid the constant inflow of deposit funds and limited demand for credit, notably in H1 2021.

Credit portfolio

Loans and advances to customers in PLN m	31.12.2021	31.12.2020	YoY change
Loans and advances to personal customers	84 898,3	81 387,9	4,3%
Loans and advances to enterprises and the public sector	58 216,2	57 121,1	1,9%
Finance lease receivables	10 937,9	9 783,4	11,8%
Other	58,4	33,6	73,8%
Total	154 110,8	148 326,0	3,9%

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As at 31 December 2021, consolidated gross loans and advances to customers were PLN 154,110.8m and increased by 3.9% vs 31 December 2020. The portfolio includes loans and advances to customers measured at amortised cost totalling PLN 151,824.0m (+4.1% YoY), loans and advances to customers measured at fair value through other comprehensive income amounting to PLN 1,732.9m (+7.7% YoY) and loans and advances to customers measured at fair value through profit or loss at PLN 553.8m (-37.9% YoY).

The section below presents the Group’s credit exposures by key portfolios:

· Loans and advances to individuals increased by 4.3% in 2021 to PLN 84,898.3m. Housing loans, which were the main contributor to this figure, totalled PLN 56,600.0m (+7.3% YoY), hitting all-time high in 2021. The second largest constituent item was cash loans which totalled PLN 20,802.0m and were relatively stable compared to the end of 2020 (-0.2% YoY) despite accelerated YoY growth of sales.

· Loans and advances to enterprises and the public sector (including factoring receivables) went up by 1.9% to PLN 58,216.2m as a result of higher utilisation of overdrafts by customers from the Business and Corporate Banking segment and the term loans portfolio of the Corporate and higher exposure of the Corporate and Investment Banking segment in respect of factoring and term loans connected with large corporate finance transactions with companies from sectors which are relatively resilient to the crisis.

· Finance lease receivables of subsidiaries of Santander Bank Polska S.A. rose by 11.8% YoY to PLN 10,937.9m, supported by dynamic sales of machines and equipment and of vehicles.

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The NPL ratio was 5.0% as at 31 December 2021 compared with 5.8% twelve months before. The provision coverage ratio for impaired loans was 60.4% compared with 57.9% as at 31 December 2020.

Structure of consolidated equity and liabilities

Equity and liabilities in PLN m (for analytical purposes)	31.12.2021	Structure 31.12.2021	31.12.2020	Structure 31.12.2020	YoY change
	1	2	3	4	1/3
Deposits from customers	185 373,4	75,7%	171 522,3	74,8%	8,1%
Subordinated liabilities and debt securities in issue	15 555,9	6,4%	13 995,9	6,1%	11,1%
Deposits from banks	4 400,1	1,8%	5 373,3	2,3%	-18,1%
Financial liabilities held for trading and hedging derivatives	5 640,4	2,3%	4 805,4	2,1%	17,4%
Liabilities under buy-sell-back transactions	510,3	0,2%	653,7	0,3%	-21,9%
Other liabilities ¹⁾	6 182,6	2,5%	4 302,7	1,9%	43,7%
Total equity	27 213,6	11,1%	28 658,0	12,5%	-5,0%
Total	244 876,3	100,0%	229 311,3	100,0%	6,8%

1)	Other liabilities include lease liabilities, current income tax, provisions for off-balance sheet liabilities bearing credit risk, other provisions and other liabilities

As at 31 December 2021, deposits from customers totalled PLN 185,373.4m and were the largest constituent item of the Group’s total equity and liabilities (75.7%) disclosed in its consolidated statement of financial position and the main source of funding and growth of the Group’s assets (+8.1% YoY).

Subordinated liabilities and debt securities in issue went up by 11.1% YoY on account of the issue of debt instruments with a total nominal value of PLN 11,363.7m and redemption of PLN 9,706.6m worth of securities on their maturity date. Subordinated liabilities totalled PLN 2,750.4m and included the same portfolio of bonds qualified as Tier 2 instruments pursuant to the relevant decision of the KNF as in the previous year. In 2021, the Group completed the following issues of debt securities:

· The bank issued senior notes with a nominal value of EUR 750m as part of the EMTN Programme, and PLN 750m worth of certificates of deposit classified as sustainability bank securities in accordance with the Sustainability Issuance Framework of Santander Bank Polska S.A.

· Santander Factoring Sp. z o.o. issued three series of six-month variable-rate bonds (based on 1M WIBOR) with a total nominal value of PLN 1,740m, and two series of three-month fixed-rate bonds with a total nominal value of PLN 2,000m and a put option.

· Santander Leasing S.A. issued two series of variable-rate bonds (based on 3M WIBOR) with a total nominal value of PLN 1,950.0m, a maturity of up to one year and a put option.

· Santander Consumer Bank S.A. and Santander Consumer Multirent S.A. made seven issues of bonds as part of a revised issuance programme, with the total nominal value of PLN 1,400m.

At the same time, increases were reported in deposits from banks (+6.8% YoY) as well as financial liabilities held for trading and hedging derivatives (+68.5% YoY) on account of interest rate hedging transactions.

Compared to 31 December 2020, total equity increased by 1.2% to PLN 27,213.6m as a combined effect of the following: retention of the current period profit, negative impact of other net comprehensive income (-PLN 2,379.0m), which was under pressure from valuation of debt securities measured at fair value through other comprehensive income, and the amount of PLN 220.7m for an interim dividend payment pursuant to the decision of the Management Board and the Supervisory Board of 1 September 2021. As part of equity, the revalued equity financial assets measured at fair value through other comprehensive income were transferred from revaluation reserve to retained earnings, of which PLN 840.9m concerned the divestment of Aviva Group companies (for more details, please see Chapter X “Organisational and Infrastructure Development”).

Deposit base

Deposits by entities

Deposits from customers in PLN m	31.12.2021	31.12.2020	Change
Deposits from individuals	106 267,8	98 213,4	8,2%
Deposits from enterprises and the public sector	79 105,6	73 308,9	7,9%
Total	185 373,4	171 522,3	8,1%

As at 31 December 2021, consolidated deposits from customers totalled PLN 185,373.4m and increased by 8.1% YoY as an effect of high base comprising funds received by customers in 2020 under state aid programmes aimed to contain the economic impact of the Covid-19 pandemic.

· The retail deposit base was up 8.2% YoY at PLN 106,267.8m, driven by an increase of 15.6% YoY in current deposits. This included savings account balances, which grew by 2.5% to PLN 32.4bn. Inflows to current accounts included new funds and funds transferred from term deposits and investment funds, which became less attractive for investors at the year end, notably solutions based on debt securities.

Deposits from enterprises and the public sector rose by 7.9% YoY to PLN 79,105.6m as a consequence of an increase of 5.9% YoY in current account balances and a rise of 36.9% YoY in term deposits

Deposits by tenors

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The Group’s total term deposits from customers amounted to PLN 24,588.7m and fell by 5.9%. Current account balances rose by 11.4% to PLN 157,480.2m, and other liabilities were PLN 3,304.6m, down 17.9%.

Loans and advances from financial institutions (PLN 1,403.4m vs PLN 3,013.7m as at 31 December 2020) were the largest component of other liabilities and were disclosed under deposits from enterprises, which included loans granted by international financial organisations (the European Investment Bank/ EIB, the European Bank for Reconstruction and Development/ EBRD and the Council of Europe Development Bank/ CEB) to finance the lending activity of the bank and its subsidiaries. The decrease in the value of these liabilities is attributed to, among other things, the repayment of four loans taken out by Santander Bank Polska S.A. with the EIB. At the same time, the second tranche of EUR 30m was disbursed under an agreement signed in December 2019 by Santander Leasing S.A. and the EBRD providing for EUR 80m worth of lending.

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* including savings accounts

Diversification of funding sources

Cooperation with international institutions

In 2021, Santander Bank Polska Group continued cooperation with international financial institutions in terms of diversification of funding sources and agreements signed to optimise the Group’s risk weighted assets, including through securitisation and guarantees. This also includes effective allocation of funds raised and/or equity released to support customers from the SME and Midcap segment (as defined by the EU), less developed regions, and to finance environmental and social projects.

In 2021, the European Investment Bank Group (EIB Group), formed by the European Investment Bank (EIB) and the European Investment Fund (EIF), signed an agreement with Santander Bank Polska Group providing for the fourth synthetic securitisation transaction (the agreements regarding previous transactions were signed in 2018 by Santander Bank Polska S.A., in 2019 by Santander Consumer Bank S.A. and in 2020 by Santander Leasing S.A.). The fourth transaction was made with Santander Leasing S.A. and involves synthetic securitisation of a portfolio of leasing receivables amounting to PLN 2.7bn.

Key issues and agreements

In 2021, Santander Bank Polska Group undertook a range of initiatives to diversify the funding sources. The key ones are presented below.

Significant loan agreements with financial institutions

Entity	Date of the agreement	Subject of the agreement
Santander Leasing S.A.	29 September 2021	· Loan agreement between Santander Leasing S.A. and Bank Gospodarstwa Krajowego providing for PLN 500m worth of financing based on 1M WIBOR, with a maturity date of 29 September 2025.

Key issues

Entity	Date of the issue	Subject of the issue
Santander Bank Polska S.A	29 November 2021	· Issue of EUR 750m worth of fixed-coupon senior notes as part of the EMTN Issuance Programme, taken up by Banco Santander S.A. and maturing on 29 November 2024.
Santander Bank Polska S.A	22 December 2021	· Issue of PLN 750m worth of certificates of deposits based on 6M WIBOR, maturing on 22 December 2023 and classified as sustainability bank securities in accordance with the Sustainability Issuance Framework of Santander Bank Polska S.A. The proceeds from the issue will be used to finance or refinance eligible green assets or eligible social assets specified in the above-mentioned framework.
Santander Factoring Sp. z o.o.	3 February 2021	· Issue of series J bonds of PLN 655m based on 1M WIBOR, with a maturity date of 2 August 2021
	20 May 2021	· Issue of series K bonds of PLN 430m based on 1M WIBOR, with a maturity date of 22 November 2021
	31 May 2021	· Issue of series L fixed-rate bonds of PLN 1bn, with a maturity date of 31 August 2021 and a put option
	3 August 2021	· Issue of series M bonds of PLN 655m based on 1M WIBOR, with a maturity date of 3 February 2022
	31 August 2021	· Issue of series N fixed-rate bonds of PLN 1bn, with a maturity date of 30 November 2021
Santander Leasing S.A.	11 March 2021	· Issue of series H bonds of PLN 1.1bn based on 3M WIBOR, with a maturity date of 11 March 2022 and a put option
Santander Leasing S.A.	23 June 2021	· Issue of series I bonds of PLN 850m based on 3M WIBOR, with a maturity date of 23 June 2022 and a put option
Santander Consumer Bank S.A.	· In Q1 2021, the agreement signed by SCB S.A. on the issue of debt securities up to PLN 3bn was joined by Santander Consumer Multirent Sp. z o.o. as a co-issuer. The two companies started the issue of securities as part of a new programme. The issues of Santander Consumer Bank S.A. are not underwritten, while the issues of Santander Consumer Multirent Sp. z o.o. are underwritten by Santander Consumer Bank S.A. (as a direct parent). · In 2021, the two companies issued debt securities with a total nominal value of PLN 1.4bn as part of the programme.

3. Selected Financial Ratios of Santander Bank Polska Group

Selected financial ratios of Santander Bank Polska Group	2021	2020
Cost/ income	59,6%	51,9%
Net interest income/ total income	64,7%	68,1%
Net interest margin¹⁾	2,71%	2,87%
Net fee and commission income/ total income	27,0%	24,9%
Net loans and advances to customers/ deposits from customers	80,0%	82,8%
NPL ratio ²⁾	5,0%	5,8%
NPL provision coverage ratio ³⁾	60,4%	57,9%
Costs of credit ⁴⁾	0,76%	1,21%
ROE ⁵⁾	4,7%	4,4%
ROTE ⁶⁾	5,3%	5,3%
ROA ⁷⁾	0,5%	0,5%
Total capital ratio ⁸⁾	18,58%	20,42%
Tier 1 capital ratio ⁹⁾	16,63%	18,38%
Book value per share (PLN)	266,31	280,44
Earnings per ordinary share (PLN) ¹⁰⁾	10,88	10,16

1)	Net interest income annualised on a year-to-date basis (excluding interest income from the portfolio of debt securities held for trading and other exposures related to trading) to average net earning assets as at the end of consecutive quarters after the end of the year preceding a given accounting year (excluding financial assets held for trading, hedging derivatives, other exposures related to trading and other loans and advances to customers).
2)	Gross loans and advances to customers classified to stage 3 and POCI exposures to the portfolio of gross loans and advances to customers measured at amortised cost at the end of the reporting period.
3)	Impairment allowances for loans and advances to customers classified to stage 3 and POCI exposures and measured at amortised cost to gross value of such loans and advances at the end of the reporting period.
4)	Net expected credit loss allowances (for four consecutive quarters) to average gross loans and advances to customers measured at amortised cost (as at the end of the current reporting period and the end of the previous year).
5)	Profit attributable to the parent’s shareholders (for four consecutive quarters) to average equity (as at the end of the current reporting period and the end of the previous year), excluding non-controlling interests, current period profit, undistributed portion of the profit and dividend reserve.
6)	Profit attributable to the parent’s shareholders (for four consecutive quarters) to average tangible equity (as at the end of the current reporting period and the end of the previous year) defined as common equity attributable to the parent’s shareholders less revaluation reserve, current year profit, dividend, undistributed portion of the profit, dividend reserve, intangible assets and goodwill.
7)	Profit attributable to the parent’s shareholders (for four consecutive quarters) to average total assets (as at the end of the current reporting period and the end of the previous year).
8)	The capital ratio was calculated on the basis of own funds and total capital requirements established for the individual risk types by means of the standardised approach, in line with the CRD IV/CRR package.
9)	Tier 1 capital ratio calculated as a quotient of Tier 1 capital and risk-weighted assets for credit, market and operational risk.
10)	Net profit for the period attributable to shareholders of the parent divided by the average weighted number of ordinary shares.

4. Income Statement of Santander Bank Polska S.A.

Profit of Santander Bank Polska S.A.

Condensed Unconsolidated Income Statement of Santander Bank Polska S.A. in PLN m (for analytical purposes)	2021	2020	YoY change
Total income	7 450,8	6 746,0	10,4%
- Net interest income	4 514,3	4 368,3	3,3%
- Net fee and commission income	2 119,5	1 765,5	20,1%
- Other income including ¹⁾	817,0	612,2	33,5%
Total costs	(4 477,2)	(3 595,9)	24,5%
- Staff, general and administrative expenses	(2 594,8)	(2 650,0)	-2,1%
- Depreciation/amortisation ²⁾	(504,4)	(514,9)	-2,0%
- Other operating expenses	(1 378,0)	(431,0)	219,7%
Net impairment allowances on loans and advances	(841,0)	(1 361,6)	-38,2%
Tax on financial institutions	(583,8)	(560,8)	4,1%
Profit before tax	1 548,8	1 227,7	26,2%
Tax charges	(632,9)	(489,3)	29,3%
Net profit for the period	915,9	738,4	24,0%

1)	Other income includes total non-interest and non-fee income of the bank. It comprises in particular the following items of the full income statement: dividend income, net trading income and revaluation, gain/ loss on other financial instruments and other operating income.
2)	Depreciation/ amortisation includes depreciation of property, plant and equipment, amortisation of intangible assets and depreciation of the right-of-use asset.

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In 2021, profit before tax of Santander Bank Polska S.A. increased by 26.2% YoY to PLN 1,548.8m, and the net profit for the period grew by 24.0% YoY to PLN 915.9m.

The bank’s underlying profit before tax went up by 32.6% YoY and the net profit for the period rose by 41.1% YoY.

This assumes the fixed level of contributions to the Bank Guarantee Fund (BFG) in both analysed periods (i.e. eliminating a decrease of PLN 141.5m in the amounts payable to the BFG in 2021) and exclusion of the following items:

· from the reporting period: a one-off payment (PLN 46.8m in 2021) from Aviva Group in respect of the completed divestment of the companies from that Group and releases of provisions for legal risk (PLN 21.4m in 2021), which were not recognised in the comparative period;

· from the comparative period: a provision for employment restructuring at Santander Bank Polska S.A. (PLN 121.0m), which was not disclosed in 2021;

· from both periods under review:

ü dividend income (PLN 277.5m in 2021 and PLN 108.7m in 2020);

ü provisions raised for legal risk (PLN 419.3m in 2021 and PLN 105.3m in 2020) and for legal claims and other assets (PLN 843.4m in 2021 and PLN 248.5m in 2020) connected mainly with the portfolio of foreign currency mortgage loans;

ü released provisions for legal claims and others assets (PLN 59.3m in 2021 and PLN 26.4m in 2020);

ü an additional expected credit loss allowance of PLN 80.3m made in both periods in connection with the Covid-19 pandemic (post-model adjustment) and subsequently reversed in 2021 following the review of the models taking into account the latest macroeconomic forecasts (positive impact in 2021 and negative impact in 2020).

The items that most affected the comparability of the analysed periods were the provisions raised for legal claims, other assets and legal risk (recognised under other operating expenses) which after corresponding releases (recognised in other operating income) had a total impact of PLN 1,181.9m on the bank’s income statement, up PLN 854.6m YoY. The increase in the level of the above provisions was driven by a growing scale of customers’ claims regarding foreign currency mortgage loans in the changing legal environment.

The growth of the bank’s underlying profit was mainly attributed to the following factors: a decline in net expected credit loss allowances (-38.2% YoY), an increase in dividend income (+155.3% YoY), a rise in net fee and commission income (+20.1% YoY) as well as an improvement in net trading income and revaluation (+62.9% YoY) and in net interest income (+3.3% YoY) supported by three NBP interest rates hikes introduced in Q4 2021.

At the same time, gains on other financial instruments went down (-62.4% YoY) due to higher yields of debt securities and their negative impact on pricing and gains on sale.

Structure of total income of Santander Bank Polska S.A.

Total income of Santander Bank Polska S.A. for 2021 increased by 10.4% YoY to PLN 7,450.8m. Excluding dividend income, a one-off payment from Aviva Group and releases of provisions for legal claims and legal risk, the underlying total income was up 6.6% YoY.

Net interest income

Interest income of Santander Bank Polska S.A. (PLN m) due to:	2021	2020	YoY change
Loans and advances to personal customers	2 455,5	2 571,0	-4,5%
Loans and advances to enterprises and the public sector, and leasing receivables	1 387,2	1 588,5	-12,7%
Debt securities and receivables under buy-sell-back transactions	903,7	804,9	12,3%
IRS and loans and advances to banks	(0,9)	38,2	-102,4%
Total	4 745,5	5 002,6	-5,1%
Interest expense of Santander Bank Polska S.A. (PLN m) due to:	2021	2020	YoY change
Deposits from individuals	(32,7)	(334,0)	-90,2%
Deposits from enterprises and the public sector	(29,7)	(162,9)	-81,8%
Subordinated liabilities and debt securities in issue	(85,8)	(101,6)	-15,6%
IRS and deposits from banks	(62,9)	(6,8)	825,0%
Lease liabilities	(15,9)	(19,8)	-19,7%
Liabilities under sell-buy-back transactions	(4,2)	(9,2)	-54,3%
Total	(231,2)	(634,3)	-63,6%
Net interest income	4 514,3	4 368,3	3,3%

In 2021, the bank’s net interest income grew by 3.3% YoY to PLN 4,514.3m, reflecting:

· an increase of 1.65 p.p. in interest rates in Q4 2021;

· acceleration of credit delivery in H2 2021, including mortgage loans, cash loans and business loans;

· higher returns on the debt securities portfolio along with monetary policy tightening;

· changes in the structure of deposits (continuation of the previous year’s downward trend in term deposits in favour of current balances) with broadly stable pricing terms YoY.

In 2021, the bank’s interest income went down by 5.1% YoY, and interest expense decreased by 63.6% YoY.

The cumulated net interest margin (calculated on a year-to-date basis) decreased to 2.34% in 2021 from 2.47% in 2020 due to historically low interest rates prevailing from May 2020 to October 2021, when the NBP started to tighten the monetary policy. The decrease in the margin is also an effect of a growing share of investments in debt instruments in the assets due to continuing overliquidity of the Polish banking sector. Given the relatively low yields of debt securities (until Q3 2021), this portfolio weighed down on the cumulated net interest margin.

Net fee and commission income

Net Fee and Commission Income of Santander Bank Polska S.A. (PLN m)	2021	2020	YoY change
FX fees	572,6	468,8	22,1%
Account maintenance and cash transactions ¹⁾	390,5	307,3	27,1%
Credit fees ²⁾	288,1	284,6	1,2%
Debit cards	253,6	214,5	18,2%
Electronic and payment services ³⁾	189,5	168,7	12,3%
Brokerage activities	112,3	112,5	-0,2%
Guarantees and sureties⁴⁾	87,9	67,6	30,0%
Distribution fees	87,8	42,4	107,1%
Credit cards	75,4	65,5	15,1%
Insurance fees	72,7	54,1	34,4%
Other fees ⁵⁾	(10,9)	(20,5)	-46,8%
Total	2 119,5	1 765,5	20,1%

1)	Fee and commission income from account maintenance and cash transactions was reduced by the corresponding expenses which are disclosed under “Other” in Note 6 to the Financial Statements of Santander Bank Polska S.A. for 2021 (PLN 6.7m in 2021 vs PLN 3.8m in 2020).
2)	Net fee and commission income from lending, factoring and lease activities which is not amortised to net interest income. This line item includes, inter alia, the cost of credit agency.
3)	Fees for payments (foreign and mass payments, Western Union transfers), trade finance, debit cards, services for third party institutions as well as other electronic and telecommunications services.
4)	Fee and commission income from guarantees and sureties was reduced by the corresponding expenses which are disclosed under “Other” in Note 6 to the Financial Statements of Santander Bank Polska S.A. for 2021 (PLN 23.9m in 2021 vs PLN 28.4m in 2020).
5)	Issue arrangement commissions and other fees and commissions.

Net fee and commission income for 2021 totalled PLN 2,119.5m and increased by 20.1% YoY on account of higher net income from the majority of product lines, including currency exchange (+22.1% YoY), account maintenance and cash transactions (+27.1% YoY), debit cards (+18.2% YoY), electronic and payment services (+12.3% YoY), distribution and asset management (+107.1% YoY), insurance fees (+34.4% YoY) and guarantee fees (+30.0% YoY). This growth is a sign of economic recovery and improved outlook, translating into an increased business activity and a higher number of banking operations made by customers. Accelerated lending was reflected in higher cost of credit agency but also in higher income from insurance products and guarantees. Increased number of transactions was one of the factors that contributed to a rise in fee income from currency exchange, cards and payments. It was also supported by an upturn in the financial markets observed for the greater part of the year, notably in the equity and debt securities markets. In 2021, the bank co-arranged several share issues and successfully distributed investment fund units, generating higher income in this respect compared to the previous year.

The above changes to the bank’s fee and commission income are in line with the trends observed at the consolidated level, which are described in detail in the part concerning Santander Bank Polska Group.

Structure of non-interest and non-fee income of Santander Bank Polska S.A.

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The bank’s other income (non-interest and non-fee income) presented in the figure above increased by 33.5% YoY to PLN 817.0m as a result of changes to the following components:

· An increase of 155.3% YoY in dividend income, resulting mainly from recognition in the reporting period of PLN 202.2m worth of dividends from Aviva Group companies (from the bank’s portfolio of associates and non-controlled entities) which retained the entire profit in the comparative period in line with the supervisory guidelines for the insurance sector.

· A rise of 62.9% YoY in net trading income and revaluation, reflecting higher total gains on derivatives and FX transactions, higher gains on transactions in equity and debt financial assets and a lower negative change in the fair value of credit card receivables.

· A growth of 85.2% in other operating income, resulting from recognition of an additional payment of PLN 46.8m received from Aviva Group (not included in the sale price) in connection with the completed divestment of three companies from that Group (Aviva Towarzystwo Ubezpieczeń na Życie S.A., Aviva Towarzystwo Ubezpieczeń Ogólnych S.A. and Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A.).

The positive impact of the above-mentioned components was partially offset by a decline in gains on other financial instruments (-62.4% YoY) on account of significantly lower gains on the sale of bonds (-PLN 127.3m YoY) and a lower positive change in the fair value of Visa Inc. shares (-PLN 30.0m YoY) due to developments in the financial markets.

Expected credit loss allowances

Expected credit loss allowances on loans and advances measured at amortised cost (PLN m)	Stage 1		Stage 2		Stage 3			POCI		Total	Total
	2021	2020	2021	2020	2021	2020	2021		2020	2021	2020
Allowance on loans and advances to customers	(38,1)	(91,8)	(18,1)	(368,6)	(809,5)	(877,7)	30,3		7,0	(835,4)	(1 331,1)
Recoveries of loans previously written off	-	-	-	-	(7,0)	(13,1)	-		-	(7,0)	(13,1)
Allowance on off-balance sheet credit liabilities	(9,9)	2,2	2,7	(3,7)	8,6	(15,9)	-		-	1,4	(17,4)
Total	(48,0)	(89,6)	(15,4)	(372,3)	(807,9)	(906,7)	30,3		7,0	(841,0)	(1 361,6)

Net expected credit loss allowances totalled PLN 841.0m and were down 38.2% YoY alongside a 5.1% YoY growth in gross loans and advances measured at amortised cost, which reflects a stable or lower cost of credit related to individual credit portfolios and reversal of a management allowance in respect of Covid-19 (above the values arising from the models) after the impact of the majority of existing adjustments had been reflected in the current parameter values. In the comparative period, the above additional allowance totalled PLN 80.3m.

In 2021, single allowances were made for non-performing credit exposures of individual customers, but significant repayments were observed too.

The level of net allowances was also positively affected by the sale of credit receivables from personal and business customers of Santander Bank Polska S.A. totalling PLN 2.0bn at a profit before tax of PLN 41.9m (last year, credit receivables of PLN 1.2bn were sold at a profit before tax of PLN 14.6m).

Staff and general expenses of Santander Bank Polska S.A.

Total costs of Santander Bank Polska S.A. (PLN m)	2021	2020	YoY change
Staff, general and administrative expenses, of which:	(2 594,8)	(2 650,0)	-2,1%
- Staff expenses	(1 372,3)	(1 394,2)	-1,6%
- General and administrative expenses	(1 222,5)	(1 255,8)	-2,7%
Depreciation/amortisation	(504,4)	(514,9)	-2,0%
- Depreciation/amortisation of PP&E and intangible assets	(358,7)	(357,4)	0,4%
- Depreciation of right-of-use asset	(145,7)	(157,5)	-7,5%
Other operating expenses	(1 378,0)	(431,0)	219,7%
Total costs	(4 477,2)	(3 595,9)	24,5%

Total operating expenses increased by 24.5% YoY to PLN 4,477.2m. Excluding the impact of fees payable to the Bank Guarantee Fund, the restructuring provision and the provisions for legal risk and legal claims, the underlying total operating expenses were up 7.5% YoY, reflecting an increase in particular categories of general and administrative expenses and cost of salaries.

Staff and general expenses declined by 2.1% YoY, to PLN 2,594.8m, of which:

· Staff expenses fell by 1.6% YoY to PLN 1,372.3m as an effect of high base in the comparative period including PLN 121.0m worth of provision for severance pay for Santander Bank Polska S.A. employees selected for collective redundancies. It was combined with an increase in the main component, namely the cost of salaries, resulting from the launch of all bonus schemes in 2021 and periodic review of salaries in relation to market rates. Cost of training went up too due to a higher number of initiatives.

· General and administrative expenses went down by 2.7% YoY to PLN 1,222.5m mainly due to a 37.3% YoY decrease in fees payable to the Bank Guarantee Fund as contributions to the bank resolution fund and guarantee fund which totalled PLN 237.8m for 2021. Excluding the charges related to the Bank Guarantee Fund, general and administrative expenses were 8.6% higher YoY due to the cost of equipment for remodelled premises (+87.7% YoY), marketing initiatives (+75.6% YoY), IT usage (+20.7% YoY) and maintenance of premises (+16.9% YoY), among other things.

Other operating expenses went up by 219.7% YoY to PLN 1,378.0m on account of significant increases in provisions for legal claims and other assets and for legal risk totalling PLN 1,262.6m in 2021 (+256.9% YoY), of which 97% concerned foreign currency mortgage loans.

Given the significant rise in the above provisions, the cost to income ratio grew from 53.3% in 2020 to 60.1% in 2021. On a comparative basis, the cost to income ratio for 2021 was 47.6% (47.2% in 2020).

5. Statement of Financial Position of Santander Bank Polska S.A.

Assets of Santander Bank Polska S.A. (PLN m) (for analytical purposes)	31.12.2021	31.12.2020	YoY change
Loans and advances to customers	125 449,1	119 077,3	5,4%
Investment securities	68 865,4	64 355,7	7,0%
Cash and balances with central banks	8 167,9	5 369,6	52,1%
Financial assets held for trading and hedging derivatives	4 184,0	3 225,4	29,7%
Property, plant and equipment, right-of-use assets, intangible assets and goodwill	3 285,6	3 536,5	-7,1%
Loans and advances to banks	2 744,0	2 919,0	-6,0%
Investments in subsidiaries and associates	2 377,4	2 377,4	0,0%
Other assets ¹⁾	3 111,5	2 279,6	36,5%
Total	218 184,9	203 140,5	7,4%
Equity and liabilities of Santander Bank Polska S.A. in PLN m (for analytical purposes)	31.12.2021	31.12.2020	YoY change
Deposits from customers	175 354,6	161 133,5	8,8%
Subordinated liabilities and debt securities in issue	7 310,9	5 426,8	34,7%
Financial liabilities held for trading and hedging derivatives	5 522,7	4 739,5	16,5%
Deposits from banks	1 337,6	2 993,3	-55,3%
Other liabilities ²⁾	4 831,7	3 424,6	41,1%
Total equity	23 827,4	25 422,8	-6,3%
Total	218 184,9	203 140,5	7,4%

1) Other assets include the following items of the full version of financial statements: investments in subsidiaries and associates, buy-sell-back transactions, current income tax assets, net deferred tax assets, fixed assets classified as held for sale and other assets.

2) Other liabilities include sell-buy-back transactions, lease liabilities, current income tax liabilities, provisions for off-balance sheet credit facilities, other provisions and other liabilities.

As at 31 December 2021, the total assets of Santander Bank Polska S.A. were PLN 218,184.9m, an increase of 7.4% YoY.

Net loans and advances to customers were the key item of the bank’s assets. They totalled PLN 125,449.1m and increased by 5.4% YoY due to acceleration of credit delivery to personal and business customers and a decline in expected credit loss allowances.

Deposits from customers were the largest constituent item of liabilities and the main driver of the balance sheet growth. They increased by 8.8% YoY to PLN 175,354.6m as a result of accumulation of aid funds in business accounts and a good financial standing of households.

Growth of demand for credit combined with high liquidity resulting from a steady increase in deposits contributed to a rise in investment financial assets (+7.0% YoY), notably bonds issued or guaranteed by the State Treasury.

In 2021, the bank issued two series of debt securities with a total nominal value of PLN 4,273.7m and redeemed PLN 2,294.8m worth of instruments. These measures caused an increase of 34.7% YoY in subordinated liabilities and debt securities in issue.

YoY changes in assets, equity and liabilities presented in the statement of financial position of Santander Bank Polska S.A. as at 31 December 2021 reflect changes in the consolidated statement described in the section on the financial position of Santander Bank Polska Group.

Gross loans and advances to customers of Santander Bank Polska S.A.	31.12.2021	31.12.2020	YoY change
Loans and advances to personal customers	71 116,5	67 305,2	5,7%
Loans and advances to enterprises and the public sector	58 026,7	55 899,4	3,8%
Other	49,2	31,0	58,7%
Total	129 192,4	123 235,6	4,8%

Gross loans and advances to customers amounted to PLN 129,192.4m and increased by 4.8% YoY, supported by growth of 7.0% YoY and 1.4% YoY in the portfolio of mortgage loans and cash loans to PLN 53,285.8m and PLN 14,671.1m, respectively. Loans and advances to enterprises and the public sector went up by 3.8% YoY to PLN 58,026.7m. In 2021, the NPL ratio of the portfolio measured at amortised cost was 4.3% (5.2% as at 31 December 2020).

Deposits from customers of Santander Bank Polska S.A	31.12.2021	31.12.2020	YoY change
Deposits from individuals	101 137,8	92 374,5	9,5%
Deposits from enterprises and the public sector	74 216,8	68 759,0	7,9%
Total	175 354,6	161 133,5	8,8%

Deposits from customers totalled PLN 175,354.6m and increased by 8.8% YoY, driven by dynamic growth in current account balances of retail, business and public sector customers.

Total deposits from individuals grew by 9.5% YoY to PLN 101,137.8m and included savings account balances of PLN 32,085.1m (+1.4% YoY), other current account balances of PLN 59,565.8m (+24.3% YoY) and term deposits of PLN 9,417.9m (-26.2% YoY).

Deposits from enterprises and the public sector went up by 7.9% YoY to PLN 74,216.8m, driven by growth in current account balances to PLN 65,727.5m (+5.4% YoY) and an upward trend in term deposits (+58.2% YoY) observed in the later part of the year.

6. Selected Ratios of Santander Bank Polska S.A.

Selected financial ratios of Santander Bank Polska S.A.	2021	2020
Cost/ income	60,1%	53,3%
Net interest income/ total income	60,6%	64,8%
Net interest margin¹⁾	2,34%	2,47%
Net fee and commission income/ total income	28,4%	26,2%
Net loans and advances to customers/ deposits from customers	71,5%	73,9%
NPL ratio ²⁾	4,3%	5,2%
NPL provision coverage ratio ³⁾	55,0%	51,5%
Costs of credit⁴⁾	0,68%	1,13%
ROE ⁵⁾	4,1%	3,3%
ROTE ⁶⁾	4,7%	4,0%
ROA ⁷⁾	0,4%	0,4%
Total capital ratio ⁸⁾	20,99%	23,90%
Tier 1 capital ratio ⁹⁾	18,65%	21,50%
Book value per share (PLN)	233,17	248,78
Earnings per ordinary share (PLN) ¹⁰⁾	8,96	7,23

The approach to calculation of the financial ratios of Santander Bank Polska S.A. presented and numbered in the above table is provided under the corresponding table with ratios of Santander Bank Polska Group numbered in the same way.

7. Additional Financial Information about Santander Bank Polska S.A. and Santander Bank Polska Group

Selected related party transactions

Transactions between Santander Bank Polska S.A. and its related parties are banking operations carried out on an arm’s length basis as part of their ordinary business and mainly represent loans, bank accounts, deposits, guarantees and leases.

As at 31 December 2021, the bank’s total exposure in respect of loans granted to banking and non-banking subsidiaries (including Santander Factoring Sp. z o.o., Santander Leasing S.A., Santander Consumer Multirent Sp. z o.o. and Santander Consumer Bank S.A.) was PLN 11,643.9m compared with PLN 9,359.1m as at 31 December 2020.

The deposits held with the bank by its subsidiaries (including Santander Finanse Sp. z o.o., Santander Factoring Sp. z o.o., Santander TFI S.A., Santander Leasing Poland Securatization 01, Santander Inwestycje Sp. z o.o., Santander Consumer Multirent Sp. z o.o., Santander Consumer Bank S.A.) totalled PLN 420.7m vs PLN 650.1m as at 31 December 2020.

Contingent financial liabilities were PLN 6,052.2m compared with PLN 7,388.9m as at 31 December 2020. Guarantees to subsidiaries amounted to PLN 4,640.1m vs PLN 5,821.3m as at 31 December 2020.

The above transactions are excluded from the consolidated financial statements.

Intercompany transactions with the parent entity

The bank’s receivables from the parent entity (Banco Santander S.A.) were PLN 406.4m (PLN 766.2m as at 31 December 2020), while liabilities were PLN 138.5m (PLN 490.8m as at 31 December 2020).

For more information about related party transactions please see Note 53 to the Consolidated Financial Statements of Santander Bank Polska Group for 2021 and Note 51 to the Financial Statements of Santander Bank Polska S.A. for 2021.

Selected off-balance sheet items

Guarantees and derivatives

The tables below present contingent liabilities and nominal amounts of derivative transactions of Santander Bank Polska Group.

Contingent liabilities (granted	31.12.2021	31.12.2020
Financial:	36 541,5	34 725,0
- credit lines	31 474,9	29 393,6
- credit cards	3 744,3	4 106,4
- import letters of credit	1 322,3	1 204,5
- term deposits with future term start date	-	20,5
Guarantees	8 997,6	7 585,9
Provision for off-balance sheet liabilities	(60,8)	(64,5)
Total	45 478,3	42 246,4

Contingent liabilities (received)	31.12.2021	31.12.2020
Financial	26,4	153,1
Guarantees	54 929,6	60 657,2
Total	54 956,0	60 810,3

Nominal values of derivatives	31.12.2021	31.12.2020
Forward transactions (hedging)	27 276,6	21 345,5
Forward transactions (trading)	661 823,5	508 521,8
Spot transactions	4 271,1	10 086,0
Transactions in equity instruments	48,4	30,8
Total	693 419,6	539 984,1

Description of guarantees issued

Santander Bank Polska S.A. guarantees obligations arising from customers’ operating activities. These are: payment guarantees, performance bonds, warranty guarantees, bid bonds, loan repayment guarantees and customs guarantees. In justified cases, the bank issues counter-guarantees and standby letters of credit.

All guarantees are granted in accordance with the Polish Banking Law and the Polish Civil Code. Guarantees issued by the bank to secure cross-border transactions may be subject to applicable rules as agreed by the parties (e.g. Uniform Rules for Demand Guarantees) or to foreign law if a guarantee is governed by such law.

The process and information required in the case of guarantees are similar to the lending process. The bank adopts the same approach to credit risk here as in the case of balance sheet exposures.

Collateral

As at 31 December 2021, the value of borrowers’ accounts, assets or leased assets pledged as collateral to Santander Bank Polska Group amounted to PLN 123,797.5m, including PLN 96,857.7m in relation to Santander Bank Polska S.A. (PLN 95,529.8m as at 31 December 2020).

8. Key Factors Affecting the Profit in the Next Year

The following external developments may have a significant impact on the financial performance and activity of Santander Bank Polska Group in the next year:

· Risk of new pandemic waves and virus strains and potential restrictions on economic and social activities.

· Potential further changes in the monetary policy of the ECB, the Federal Reserve and other main central banks aimed at preventing the global rise in inflation.

· Fluctuation in credit risk pricing on the financial markets.

· Changes in bond yields which are a function of monetary and fiscal policy expectations as well as of the liquidity of the banking sector.

· Changes in the demand for loans in the context of fluctuations in liquidity and in expectations of future developments.

· Changes in households’ financial situation under the influence of labour market trends.

· Changes to customers’ savings allocation decisions, impacted by expected yields from different asset classes as well as changes to the approach to saving and spending as a result of fluctuating pandemic-related concerns.

· Evolution of the global equity markets and its impact on the demand for investment funds and equities.

· Geopolitical risk.

XII. Risk and Capital Management

1. Key Risk Management Principles and Structure in the Bank and in Santander Bank Polska Group

Key risk management principles

Both the bank and other members of Santander Bank Polska Group are exposed to various risks within their day-to-day activities which adversely affect the delivery of strategic priorities of the organisation. Top risks are defined each year as part of a specialised significant risk identification process. The main types of risks include: credit risk (including concentration risk), market risk (in the banking book and in the trading book), liquidity risk, operational risk, compliance risk and reputational risk.

Risk management allows Santander Bank Polska S.A. and its Group to conduct effective and safe operations that enable development and achievement of high profitability within approved risk parameters. The bank follows a range of external standards and requirements in this respect which are binding on financial institutions. It also relies on best practice and standards developed by Banco Santander Group.

The bank and Santander Bank Polska Group have defined their risk profile which corresponds to the general risk appetite established by the Group. It is expressed as quantitative limits and captured in the Risk Appetite Statement adopted by the Management Board and approved by the Supervisory Board. The limits are set using stress tests and scenario analyses. They ensure stability of the bank’s and the Group’s position even if adverse circumstances materialise. Global limits are used to set watch limits and define risk management policies.

The integrated risk management structure includes relevant committees which have been set up to decide on identification of individual risks and internal risk management standards and policies, and to monitor the risk level.

The bank has also established a relevant organisational structure to mitigate risk at three independent and complementary levels (lines of defence), i.e.:

· organisational units which generate risk and are required to comply with the rules ensuring high quality and correctness of their performance;

· units responsible for identification, measurement, monitoring and mitigation of risks in a way that ensures independence of risk control functions from risk-taking units;

· the internal audit function whose tasks involve assessment of the management system of the bank and its subsidiaries, including the effectiveness of managing the risk related to the bank’s business and the business of its subsidiaries.

Risk management structure

The bank’s Supervisory Board, supported by the Audit and Compliance Committee of the Supervisory Board and the Risk Committee, is responsible for ongoing supervision of the risk management system in Santander Bank Polska S.A. The Supervisory Board approves the strategy, key risk management policies and risk appetite, and monitors the use of internal limits from the perspective of current business strategy and the macroeconomic environment. It conducts the reviews of the key risk areas, the identification of threats and the process of defining and monitoring remedial actions. The Supervisory Board also assesses the effectiveness of risk management measures taken by the Management Board.

The bank’s Management Board is responsible for implementing an effective risk management system that is compliant with the regulatory requirements and internal regulations. Specifically, the bank’s role in this regard is to set up an organisational structure tailored to the size and profile of the risks taken, to segregate responsibilities in order that risk measurement and control functions remain independent of operational functions, to introduce and update the risk management strategy and ensure an adequate information policy.

The Management Board fulfils its risk management role through its committees:

· The Risk Management Committee, which approves the key decisions taken by the main lower-level risk committees (mainly credit decisions), annual limits for securities trading and ALM transactions and an annual plan of risk assessment models.

· The Risk Control Committee, which monitors the risk level across different areas of the bank’s operations and reviews the key issues that affect the bank’s risk exposure, issuing relevant recommendations to the Management Board. The Committee also supervises the activities of lower-level risk management committees set up by the bank’s Management Board.

Corporate governance structure for risk supervision and management

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· Credit Risk Committee

· Credit Policy Forum for Retail Credit Portfolios

· Credit Policy Forum for SME Credit Portfolios

· Credit Policy Forum for Business and Corporate Credit Portfolios

· Credit Committee

· Provisions Committee

· Restructuring Committee

· Market and Investment Risk Committee

· Model Risk Management Committee

· Operational Risk Management Committee/ ORMCO

· CyberTechRisk Forum

· Information Management Committee

· Assets and Liabilities Committee/ ALCO

· Liquidity Forum

· Capital Committee

· Disclosure Committee

· Local Marketing and Monitoring Committee

· General Compliance Committee

· Regulatory and Reputational Risk Committee

· Anti-Money Laundering and Counter-Terrorism Financing Committee

· Suppliers Panel.

These committees, acting within the respective remits defined by the Management Board, are directly responsible for developing risk management methods and monitoring risk levels in specific areas. Through these committees, the bank also supervises the risk attached to the operations of its subsidiaries.

The subsidiaries implement risk management policies and procedures that reflect the approach adopted by Santander Bank Polska S.A., which ensures the consistency of risk management processes across the Group.

Acting under the applicable law, the bank exercises oversight of risk management in Santander Consumer Bank S.A. (SCB S.A.) in line with the same oversight rules as applied to other Santander Bank Polska Group companies. Representatives of Santander Bank Polska S.A. on the Supervisory Board of SCB S.A. are two Vice Presidents of the bank's Management Board in charge of the Risk Management Division and the Retail Banking Division, respectively. Together with SCB S.A. Supervisory Board, they are responsible for supervision over SCB S.A. and make sure that the company operates in line with the adopted plans and operational security procedures. The bank monitors the profile and level of SCB S.A. risk via risk management committees of Santander Bank Polska S.A.

2. Risk Management Priorities in 2021

COVID-19 related situation

In 2021, the Group continued to thoroughly analyse developments in the macroeconomic environment and monitor credit exposures in individual customer segments and sectors in order to promptly and duly align the credit policy parameters where required. The Group focused on further measures taken in response to the Covid-19 pandemic, placing an increased emphasis on risk trends in credit portfolios, particularly in connection with lockdowns affecting economic activities in H1 2021. Appropriate management reports introduced in 2020 were maintained in order to identify deteriorating financial position of business customers from the sectors worst hit by the pandemic. The Group took further measures as part of the government support programmes for customers in financial distress due to the pandemic (including aid granted by the Polish Development Fund (PFR) until August 2021, guarantees issued by BGK, and Shield 4.0). At the same time, it contributed to and adopted the second moratorium developed by the banking sector under the auspices of the Polish Bank Association, which laid down uniform rules for offering tools to aid those customers.

Detailed information on credit exposures with assistance tools due to COVID-19 is provided in “Consolidated Financial Statements of Santander Bank Polska Group for 2021”, note 4 “Risk management”.

Supervisory regulations

In 2021, a range of important regulations issued by banking supervisory authorities were implemented. In the first half of the year, the Group focused on incorporation of the EBA Guidelines on loan origination and monitoring EBA/GL/2020/06. These guidelines set out standards for credit risk taking, management and monitoring, and require that institutions apply appropriate practices in relation to consumer protection and prevention of money laundering.

Alongside this, the bank implemented changes to credit processes in line with KNF Recommendation S on best practice in the management of mortgage-backed credit exposures. While the recommendation covers only mortgage-backed loans, changes also indirectly affected credit processes related to unsecured loans. The operational and management reports were adjusted to include the elements introduced by the recommendation.

The bank implemented the guidelines arising from KNF Recommendation R setting out new requirements for classification of credit exposures, estimation and recognition of expected credit loss allowances and management of credit risk.

Measures were also taken in 2021 to optimise performance of the models used in risk management processes. The following new models were developed and implemented: models supporting monitoring and recovery of credit exposures and an application model for external retail customers. Other models used by the bank were streamlined and calibrated and were monitored as part of regular reporting and periodic validation processes.

Ruling practice related to foreign currency mortgage loans

The CJEU judgment of 3 October 2019 in case C-260/18 does not resolve the doubts as to the consequences of potentially unfair terms in foreign currency loan agreements. The ruling practice of the Supreme Court will be of importance here. The expected resolution of the full bench of the Civil Chamber of the Supreme Court has not been adopted yet. In view of the above, and taking into account the differences in the ruling practice to date (including after the judgment issued by the CJEU), when assessing legal risk associated with lawsuits over foreign currency loans the bank considers different court rulings in connection with potentially unfair contractual clauses (including annulment of the entire agreement, conversion

of the loan to PLN with the interest rate based on CHF LIBOR, and maintenance of the indexation mechanism along with replacement of the bank’s exchange rate with an objective average NBP rate). The bank raises provisions for legal risk associated with pending court cases considering the likelihood of different judgments.

The bank continuously monitors the ruling practice of Polish courts and the CJEU concerning foreign currency mortgage loans and adjusts its strategy accordingly. More information on this subject is provided in note 48 “Legal risk connected with foreign mortgage loans”.

Interest Rate Benchmark reform

In connection with the entry into force of Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts (BMR) and a decision on cessation of LIBOR by ICE Benchmark Administration Limited (IBA) at the end of 2021, Santander Bank Polska S.A. launched the IBOR Programme aimed at preparing the bank for changes arising from the above-mentioned decisions.

LIBOR rates for all currencies (excluding USD LIBOR) will cease to be published by the administrator or be representative as of the end of 2021. USD LIBOR will continue to be published until 30 June 2023 for all tenors excluding one week and two months.

The IBOR Programme focuses on changes necessary to offer new products based on interest rate indices compliant with the BMR and replacing LIBOR (particularly for GBP, CHF and USD). Work is also underway to prepare the bank for introducing changes to existing transactions with maturity dates after 31 December 2021, i.e. after the date of LIBOR cessation.

The IBOR Programme is delivered by a wide group of experts representing all business lines of the bank, supported by renowned advisory companies. It is supervised by the Steering Committee composed mainly of the Management Board members and senior executives. The work is coordinated with measures taken by the bank’s subsidiaries as well as Santander Group.

The portfolios of the bank and its subsidiaries include products based on EONIA and LIBOR for CHF, EUR, GBP and USD. The largest portfolio includes mortgage loan agreements based on CHF LIBOR (around 32k agreements in Santander Bank Polska S.A. and 14k agreements in Santander Consumer Bank S.A.). The second largest portfolio comprises mortgage loans agreements based on EUR LIBOR (approx. 1.6k agreements).

In 2020–2021, the Programme focused on the portfolios based on LIBOR and EONIA. In 2022, the Programme will be continued and will cover the portfolios based on USD LIBOR, WIBOR, WIBID and EURIBOR.

The transition to alternative benchmarks carries business, pricing, interest rate, liquidity, accounting, litigation, regulatory and operational risks. They are described in Part 4 “Risk Management” of the Consolidated Financial Statements of Santander Bank Polska Group for 2021. The Group has robust structures in place to manage the transition and mitigate the foregoing risks.

Cybersecurity

During the pandemic, the importance of cyber security has increased significantly due to mass telecommuting (covering almost all processes) and the dynamically growing use of remote channels by customers in sales and after-sales processes. The Group kept track of risks, taking mitigating measures on an ongoing basis in relation to customers and employees. Security warnings were being released in response to cybercriminals’ attempts to exploit the outbreak. The areas exposed to the risk of fraud were covered with increased surveillance.

Notwithstanding the pandemic, one of the Group’s main risk management priorities is to undertake initiatives to enable secure operations of the organisation (in accordance with the banking supervision requirements), while supporting business growth and profit generation for the shareholders. The Group continues to develop innovative risk management solutions, including advanced risk assessment models and tools that help automate banking processes and reduce human errors. Another rapidly developing area is data management, analysis and use in tools and reports to support prompt, accurate and secure decision-making leading to sustainable growth of business volumes.

3. Material Risk Factors Projected in 2022 r.

One of the risk factors that will become increasingly important is growing inflation in Poland and other EU countries. Inflation may adversely affect the situation of borrowers – both retail customers (whose income will not rise or will rise at a lower rate than the cost of living) and business customers (if they are not able to pass higher costs onto buyers under their existing business models). Growing inflation also entails further increase in interest rates by the Monetary Policy Council, which means higher costs of variable-rate PLN loans. Moreover, inflation contributes to fluctuations in currency exchange rates, which affects the financial standing of companies whose business is based on foreign currency contracts. As a result of the above, the quality of the credit portfolio may deteriorate.

New risks include the situation at the eastern border of Poland, namely the migrant crisis at the border with Belarus and uncertainty as to Russia’s plans regarding Ukraine. Instability may affect imports to and exports from eastern countries (including imports from China), cost of trade with those countries and, ultimately, the situation of importers and exporters as well as subsidiaries of Polish companies based in Belarus and Ukraine.

Another threat is the evolution of the Covid-19 situation. Despite the wide availability of vaccines, the number of people vaccinated is still too low to prevent further waves of the pandemic, which results in temporary lockdowns of the selected economic sectors. As a consequence, 2022 may continue to see volatile economic activity of entities from the worst-hit sectors, causing financial difficulties, particularly in the case of small and medium-sized businesses. It is all the more likely as new variants of the virus emerge and their consequences are difficult to predict. The above factors cause uncertainty as to the pandemic situation, with a reduced possibility to estimate the economic effects and ways of dealing with the recession.

All this uncertainty may reduce the risk appetite of investors, affecting the volatility and liquidity of equity and investment funds markets.

In 2022, a number of legislative changes will be implemented that may affect credit portfolios: Polish Deal (Polski Ład), restructuring law (further changes connected with the limitation of creditors’ rights), Usury Prevention Act (further changes to the method of calculation of the maximum non-interest costs of loans), Guaranteed Home Loan Act or amended EU Mortgage Credit Directive.

ESG issues become increasingly important too and are subject to a dynamically developing legislative process. As a consequence, ESG matters will not only be incorporated in regulatory requirements concerning compliance and management of risk (e.g. credit risk, market risk or operational risk) but they will also affect the brand image and HR strategy. Furthermore, ESG matters, in particular taxonomy, customer classification rules and issues related to carbon footprint, will directly impact sales (terms and structure) as well as existing and future relations with customers of financial institutions, implying a need to adjust the business model accordingly. ESG issues used to be considered by financial institutions to be potential reputational risk factors. Recently, they have become elements of business risk. It is worth noting that compliance with all the requirements will directly affect relations with many stakeholders as well as the value and valuation of companies.

The situation connected with court proceedings related to CHF mortgage loans is still unstable. The bank raises provisions for lost cases on an ongoing basis. While addressing the risk of unfavourable court rulings, the bank manages the foreign currency position taking into account an additional open position that may arise in the future and potentially cause the bank to incur losses.

Cyber risk has been a top concern for a number of years. This relates both to human behaviour and technological aspects. The key threats include the loss or theft of sensitive data, disruption of key services, attacks against customer assets and fraudulent transactions in the wake of the dynamic growth of modern IT technologies, digital transformation and globalisation. Cyber attacks have become more sophisticated and specialised. Particularly popular are attacks based on new technologies offered by cybercriminals under a service model. In 2022, the risk of ransomware attacks, DDoS attacks or use of social engineering is not likely to decrease. Supply chain attacks, cyber spying and attacks involving artificial intelligence and machine learning are expected to remain a growing threat to cybersecurity. Due to the current geopolitical situation, a special focus should be placed on the risk of targeted attacks made by well-structured, disciplined and sophisticated groups sponsored and coordinated by regimes.

4. Credit Risk Management

Credit risk

Credit risk is defined as the possibility of suffering a loss if the borrower fails to meet their credit obligation, including payment of interest and fees. It results in the impairment of credit assets and contingent liabilities as a consequence of the borrower’s worsening credit quality. Credit risk measurement is based on the estimation of credit risk weighted assets, with the relevant risk weights representing both the probability of default and the potential loss given default of the borrower.

Credit risk in the bank and the Group arises mainly from lending activities on the retail, corporate and interbank markets. This risk is managed as part of the policy approved by the Management Board on the basis of the adopted credit procedures and discretionary limits. The internal system of credit grading and monitoring used by the bank and the Group enables early identification of potential defaults that might impair the loan book. Additionally the bank and the Group use a large set of credit risk mitigation tools, both collateral (financial and non-financial) and specific credit provisions and clauses (covenants).

Credit risk management in the bank and the Group involves measures taken as a result of the ongoing analysis of the macroeconomic environment and internal reviews of particular credit portfolios. These advanced credit risk assessment tools allow quick remedial actions to be effected in response to the first signs of any change in the portfolio’s quality or structure.

Credit policy

The credit policy adopted by the bank and the Group is a set of principles and guidelines included in credit policies and procedures which are reviewed on a regular basis. Internal limits are crucial components of the credit policy because they facilitate the monitoring of exposure concentration within individual sectors, geographical regions and foreign currencies. Pursuant to the policy in place, the bank and Santander Bank Polska Group ensure adequate diversification of the credit portfolio in terms of exposure towards individual customers and sectors.

The bank’s credit policy is defined by the Credit Risk Committee for the consolidated portfolio and cross-segment cases, and by three Credit Policy Forums for individual portfolios (personal customers, SMEs and corporate customers). Higher-level policies are approved by the bank’s Management Board. The above-mentioned committees, together with the Risk Control Committee (at the Management Board level) and the Risk Committee, also monitor the bank’s and the Group’s credit portfolios based on regular management reports. In 2021, the bank and the Group continued to pursue the existing credit risk management policy, keeping credit risk at a safe level while ensuring high profitability of loan portfolios, growth of business volumes and an increase in market share. Credit policies and processes were optimised in response to macroeconomic developments, including economic consequences of the lockdown caused by the Covid-19 pandemic.

The lending activity of subsidiaries is modelled on the bank’s credit policies. In the decision making process, the bank and Santander Bank Polska Group follow a consistent approach to credit risk and use the same IT platform to assign rating/ scoring (this does not apply to SCB S.A.). Subsidiaries have credit risk management procedures in place which are consistent with the regulations applied by the bank.

Credit risk management process

Key elements of the credit risk management process in the bank and in Santander Bank Polska Group
Credit decision making process	· The credit decision making process is based upon individual credit discretions vested in credit officers, commensurate with their knowledge and experience relating to particular activities and specific needs of respective segments (branch banking, SME banking, business banking and corporate banking). · Large credit exposures in excess of PLN 50m are referred to the Credit Committee composed of senior managers. Transactions above stated thresholds (from PLN 48.75m to PLN 195m, depending on the type of financing and the customer’s rating) are additionally signed off by the Management Board’s Risk Management Committee.
Credit grading	· The credit risk assessment tools conform to KNF guidelines, International Accounting Standards/ International Financial Reporting Standards (IAS/IFRS) and best market practice. · The Group uses credit risk grading models for its key credit portfolios, including corporate customers, SMEs, home loans, property loans, cash loans, credit cards and personal overdrafts. · Credit grading is subject to regular monitoring which is carried out in accordance with the rules described in the lending manuals. Additionally, for selected models, credit grade is automatically verified based on the number of days past due or an analysis of behavioural factors.
Key elements of the credit risk management process in the bank and in Santander Bank Polska Group
Credit reviews	· The Group performs regular reviews to determine the actual quality of the credit portfolio, confirm that appropriate credit grading and provisioning processes are in place and verify compliance with the procedures and credit decisions. · The reviews are conducted by units that are independent of credit risk-taking units.
Collateral	· The Collateral and Credit Agreements Department is a central unit responsible for ensuring that any security items at Santander Bank Polska Group are duly established and held effective in line with the lending policy for respective business segments, and that they are properly monitored and released. The Department also provides assistance to credit units in credit decision making and development of credit policies, collects data on security covers and ensures appropriate management information.
Credit risk stress testing	· Stress tests are used to evaluate potential effects of specific events, movements in financial and macroeconomic ratios or changes in the risk profile on the condition of the Group. As part of these tests, potential changes in credit portfolio quality under adverse conditions are assessed. The process also provides management information about the adequacy of the agreed limits and internal capital allocation.
Calculation of impairment	· Impairment allowances for expected credit losses are made in accordance with IFRS 9, i.e. an expected credit loss (ECL) model. · ECL allowances are determined considering macroeconomic scenarios of different probability, the time value of money and reasonable and supportable information that is available at the reporting date and concerns past events as well as current and projected economic conditions. · The recognition of expected credit losses depends on changes in risk after the recognition of the exposure: ECL allowances are measured as 12-month ECL if there has been no significant increase in credit risk since initial recognition. Otherwise, they are measured as lifetime ECL. · The standard introduces three main stages for recognising expected credit losses and POCI. · The Group regularly reviews model parameters and updates forecasts used for estimating ECL, taking into account the impact of changes in economic conditions and modifications of the Group’s credit policies and recovery strategies.
Forbearance	· As part of proactive management of credit risk and credit portfolio quality, Santander Bank Polska Group takes measures aimed at early implementation of debt restructuring (forbearance solutions) with respect to customers in financial difficulty. The purpose of debt restructuring is to better match repayment terms with the current and projected financial circumstances of the customer, minimise default risk and/or maximise recovery.

Diversification of the credit portfolio of Santander Bank Polska Group as at 31 December 2021

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Credit portfolio quality

Santander Bank Polska Group loans and advances by stages

Loans and advances to customers measured at amortised costs	31.12.2021	31.12.2020
Stage 1
Gross receivables	136 842,9	128 731,4
Allowance for expected credit losses	(694,1)	(586,9)
Stage 2
Gross receivables	7 418,3	8 657,7
Allowance for expected credit losses	(594,2)	(801,3)
Stage 3
Gross receivables	6 927,6	7 710,7
Allowance for credit-impaired receivables	(4 356,7)	(4 666,1)
POCI
Gross receivables	635,2	725,7
Impairment allowance	(212,3)	(221,5)
Total gross receivables	151 824,0	145 825,5
Total impairment allowance for expected credit losses	(5 857,3)	(6 275,8)
Net loans and advances to customers measured at amortised costs	145 966,7	139 549,7
Non-performing (credit-impaired) loan ratio	5,0%	5,8%
Non-performing loan coverage ratio	60,4%	57,9%

Santander Bank Polska S.A. loans and advances by stages

Loans and advances to customers measured at amortised costs	31.12.2021	31.12.2020
Stage 1
Gross receivables	116 035,9	108 756,7
Impairment allowance for expected credit losses	(359,0)	(359,5)
Stage 2
Gross receivables	5 557,4	5 847,3
Impairment allowance for expected credit losses	(401,7)	(506,1)
Stage 3
Gross receivables	4 882,9	5 720,8
Impairment allowance for expected credit losses	(2 859,6)	(3 131,5)
POCI
Gross receivables	532,7	568,0
Impairment allowance for expected credit losses	(119,9)	(109,6)
Total gross receivables	127 008,9	120 892,8
Total impairment allowance for expected credit losses	(3 740,2)	(4 106,7)
Net loans and advances to customers measured at amortised costs	123 268,7	116 786,1
Non-performing (credit-impaired) loan ratio	4,3%	5,2%
Non-performing loan coverage ratio	55,0%	51,5%

5. Market Risk and Liquidity Risk Management

Market risk

Market risk is defined as an adverse earnings impact of changes in interest rates, FX rates, share quotations, stock exchange indices, etc. It arises both in trading and banking activity (FX products, interest rate products, index-linked products).

Market risk within the bank’s and the Group’s operations is associated mainly with customer service operations, transactions effected to maintain liquidity on the money market and the capital market as well as proprietary trading in debt, FX and equity instruments.

The key objective of the market risk policy adopted by the bank and Santander Bank Polska Group is to reduce the impact of interest and FX rates movements on the Group’s profitability and market value as well as to increase income within strictly defined risk limits and to ensure the Group’s liquidity.

Market risk management

The Market and Investment Risk Committee approves market risk management strategies and policies as well as limits that define the maximum acceptable exposure to individual risk types, in accordance with the Risk Appetite Statement.

The Management Board takes its strategic decisions on the basis of recommendations from the Market and Investment Risk Committee, to which direct supervision of market risk management has been delegated.

ALCO – supported by the Financial Management Division – is responsible for managing market risk in the banking book is managed by the Corporate and Investment Banking Division, while the Brokerage Bureau of the Retail Banking Division is responsible for managing risk attached to equity instruments.

Identification and assessment of market risk

Interest rate and FX risks associated with the banking book are managed by the Financial Management Division, which is also responsible for managing open positions in interest rate and FX risks of companies from Santander Bank Polska Group.

The responsibility for measurement, monitoring and reporting of market risk and compliance with risk limits is vested in the Risk Management Division, which is responsible for regular reviews of market risk exposure and reporting results to the Market and Investment Risk Committee. This role is performed by the Financial Risk Department in the Risk Management Division, which is responsible for ongoing risk measurement,

implementation of control procedures and risk monitoring and reporting. The Department is also responsible for formulating the market risk policy, proposing risk measurement methodologies and ensuring consistency of the risk management process across the Group.

With the division of roles, management of risk in the banking book is fully separate from the management of risk in the trading book, and the risk measurement and reporting functions are separate from the risk managing and taking units.

The market risk management policies adopted by the bank and the Group set out a number of measures in the form of obligatory and watch limits and ratios. The limits are reviewed and the market risk appetite is updated on an annual basis. The process is coordinated by the Financial Risk Department in the Risk Management Division.

To control the banking book risk, the following maximum sensitivity limits have been set for the risk of interest rate changes:

· NII sensitivity limit (i.e. the sensitivity of net interest income to a parallel shift of the yield curve by 100 bp);

· MVE sensitivity limit (the sensitivity of the market value of equity to a parallel shift of the yield curve by 100 bp).

Sensitivity of the banking book to interest rate movements as at 31 December 2021 and 31 December 2020

1 day holding period (PLN k)	NII Sensitivity			MVE Sensitivity
1 day holding period (PLN k)	31.12.2021	31.12.2020	31.12.2021		31.12.2020
Maximum	552	410	832		613
Average	440	334	480		339
As at the end of period	291	396	356		135
Limit	700	505	875		540

In 2021, the interest rate risk limits, notably the MVE sensitivity limit, were utilised to a larger extent due to dynamic growth in the balance and stable part of the non-interest bearing and non-maturity deposit portfolio resulting from interest rate cuts in 2020 and inflow of funds as part of state aid schemes connected with the Covid-19 pandemic. The above factors led to the decision to increase the sensitivity limits in July 2021. Since October, the levels of limit utilization have decreased significantly, mainly due to a series of interest rate increases by the Monetary Policy Council and a more realistic modeling of deposits without a maturity date, taking into account the latest history of the massive inflow of funds during the COVID-19 pandemic in the models.

The bank and Santander Bank Polska Group use the following measures and limits to mitigate and control exposure to market risk in the trading book:

· daily VaR limit and Stressed VaR limit for interest rate risk, FX risk and the repricing risk of equity instruments held by Santander Brokerage Poland;

· PV01 limit set for individual currencies and transaction repricing dates;

· stop-loss mechanism used to manage the risk of loss on trading positions subject to fair value measurement through profit or loss;

· maximum limit of the total FX position and an open position for individual currencies.

As these measures relate to the calculation of a potential loss under normal market conditions, the bank and Santander Bank Polska Group also use stress tests which show the estimated potential losses in the event of the materialisation of adverse market conditions.

VaR as at 31 december 2021 and 31 december 2020 for interest rate, currency and equity risk in the trading book of Santander Bank Polska Group

1 day holding period (PLN k)	Interest Rate Risk VAR		FX Risk VAR V		Equity Securities Risk VAR
1 day holding period (PLN k)	31.12.2021	31.12.2020	31.12.2021	31.12.2020	31.12.2021	31.12.2020
Maximum	4 395	3 308	614	552	316	275
Minimum	19 540	25 900	2 447	1 935	595	729
as at the end of the period	657	658	62	80	113	77
Limit	2 703	684	538	294	364	240
1 day holding period (PLN k)	9 744	6 645	3 045	2 769	1 969	1 846

In 2021, the VaR limit for interest rate risk was exceeded in October and November. The excesses resulted from the elevated fluctuations in the interest rate market due to several decisions taken by the Monetary Policy Council to increase the reference rate. When the excesses occurred, the bank limited its open interest rate position, which was directly reflected in the low utilisation of BPV limits. . In the first half of the year, the Bank continued handling the pandemic relief programmes of the state development bank BGK and the Polish Development Fund. As a result, in its

trading book the bank had to maintain temporary positions in bonds issued by the above entities. In those periods, the maximum observed VaR levels above the limit were approved by the Supervisory Board.

In 2021, neither VAR limit for FX risk nor for equity risk was was exceeded.

.Financial instruments used for management of market and other risks

The bank and the Group use the following financial instruments in relation to repricing risk, credit risk, cash flow risk and liquidity risk:

· derivative instruments held for trading – proprietary transactions in connection with treasury services rendered to bank customers in order to mitigate market risk, maintain liquidity or as part of underwriting services;

· other financial instruments, including investment securities held for sale, hedging derivatives and equity instruments.

Market risk associated with open positions in financial instruments is mitigated through a set of limits (defined separately for the trading book and the banking book). The credit risk of such positions is reduced using concentration limits in respect of individual counterparties. In order to mitigate liquidity risk, the bank and the Group keep an adequate level of liquid financial assets bearing low credit risk (in particular government bonds and NBP bills) in line with the liquidity risk appetite defined by the bank and the Group.

No derivative instruments were used by the bank or the Group to hedge credit risk, while FX options and interest rate options were executed on a back-to-back basis and therefore did not expose the bank or the Group to market risk.

The market risk of the balance sheet is managed by the bank and the Group using, inter alia, derivative instruments and hedge accounting with respect to:

· mortgage loans bearing WIBOR rate – interest rate swaps are used to receive fixed interest and pay floating interest thus hedging the risk of movements in cash flows related to floating interest loans;

· mortgage loans in CHF and EUR – basis swaps are used to hedge the risk of movements in interest rates (CHF LIBOR, EURIBOR) and exchange rates (CHF/PLN and EUR/PLN);

· fixed interest cash loans – interest rate swaps are used to receive floating interest and pay fixed interest thus hedging the fair value of positions;

· selected fixed coupon bonds – interest rate swaps are used to hedge the fair value of bonds whereby the bank and the Group receive floating interest and pay fixed interest.

Liquidity risk

Liquidity risk is the risk of failure to meet contingent and non-contingent obligations made to customers and counterparties.

The liquidity risk policy adopted by the bank and the Group is to ensure that all outflows expected in the short term are fully covered by anticipated inflows or liquid assets. In addition, the aim of the policy is to ensure an appropriate structure of funding for the bank’s and the Group’s operations by maintaining medium- and long-term liquidity ratios at a pre-defined level and monitoring stress testing results. This policy covers all assets and liabilities as well as off-balance sheet items impacting the liquidity level.

Liquidity risk management

ALCO and the Market and Investment Risk Committee have overall responsibility for the supervision of liquidity risk on behalf of the Management Board. As part of their roles, they make recommendations to the Management Board on appropriate strategies and policies for strategic liquidity management. Liquidity risk reports and stress test results are regularly reviewed by senior management.

ALCO also supervises the liquidity management process in subsidiaries.

Liquidity management is the responsibility of the Financial Management Division, which develops and updates relevant strategies and reviews the Contingency Liquidity Plan (approved by the Management Board and the Supervisory Board). The Risk Management Division is responsible for the independent measurement and reporting of liquidity risk and for defining liquidity risk management policies. The Financial Risk Department in the Risk Management Division is also tasked with regular performance of stress tests with respect to liquidity.

Identification and assessment of liquidity risk

Liquidity risk is identified and measured daily, mainly using modified liquidity gap reports, intraday liquidity reports and regulatory reports. These reports cover a number of internal and regulatory limits. Periodical liquidity measurement reports are supported by stress test results. The bank regularly calculates the measures laid down in CRD IV/CRR (LCR and NSFR) and in KNF Resolution no. 386/2008.

Cumulative liquidity gap for Santander Bank Polska S.A. as at 31 December 2021 and in the comparative period

(by nominal value)

31.12.2021 PLN m	A'vista	up to 1 month	from 1 to 3 months	from 3 to 6 months	from 6 to 12 months	from 1 to 2 years	from 2 to 5 years	over 5 years
Contractual liquidity mismatch/gap	(139 571,5)	963,9	865,5	5 912,4	17 563,3	21 255,7	62 429,0	58 972,2
Cumulative liquidity gap	(139 571,5)	(138 607,6)	(137 742,1)	(131 829,7)	(114 266,4)	(93 010,7)	(30 581,7)	28 390,5
Net derivatives	-	-	-	-	-	-	-	-
31.12.2020 PLN m	A'vista	up to 1 month	from 1 to 3 months	from 3 to 6 months	from 6 to 12 months	from 1 to 2 years	from 2 to 5 years	over 5 years
Contractual liquidity mismatch/gap	(124 780,7)	1 194,8	676,3	2 921,6	5 979,0	25 221,6	56 508,5	58 264,5
Cumulative liquidity gap	(124 780,7)	(123 585,9)	(122 909,6)	(119 988,0)	(114 009,0)	(88 787,4)	(32 278,9)	25 985,6
Net derivatives	-	-	-	-	-	-	-	-

According to the Group’s policy, the bank should have sufficient funds to cover in full outflows expected over a one-month horizon, including under the selected stress test scenarios. The liquidity position over a longer time horizon and the level of liquid assets are also monitored.

In 2021, the bank’s funds significantly exceeded the level required to cover the expected outflows. It also met the regulatory quantitative requirements for liquidity. The key regulatory indicators (i.e. LCR, the ratios of coverage of non-liquid assets and assets of limited liquidity with own funds and core external funds applicable until June 2021 and NSFR rep since June 2021 in accordance with CRR 2) exceeded the required levels.

6. Operational Risk Management

Santander Bank Polska S.A. adopted the definition of operational risk provided by the Basel Committee on Banking Supervision, according to which operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

The objective of operational risk management is to minimise the likelihood and/or reduce the impact of unexpected adverse events.

Santander Bank Polska Group has an integrated risk management framework ensuring that all risks having material impact on its operations are identified, measured, monitored and controlled. Employees across the bank and Santander Bank Polska Group are involved in operational risk management – this process covers a number of interrelated concepts. Operational risk is inherent in all bank’s and Group’s business processes, including outsourced functions or services delivered jointly with third parties.

The bank and other Group members have developed and apply the Operational Risk Management Strategy.

The Operational Risk Management Committee (ORMCO) established by the Management Board is responsible for setting operational risk management standards for Santander Bank Polska Group. ORMCO is the main forum for discussions on operational risk. It sets the strategic direction for operational risk management, determines and monitors objectives for managing operational risk, including business continuity, information security, outsourcing/ insourcing and fraud prevention. The results of ORMCO’s work are reported to the Risk Control Committee.

In view of the growing global cyber threat, the bank has established the CyberTechRisk Forum, which is responsible for analysing, monitoring and – in some cases – approving key issues related to IT, cybersecurity and operations. The main role of the Forum is to review the strategy and development directions of IT and cybersecurity as well as to monitor technological and operational risks, including cyber risk.

Operational risk management tools

Tools used by the bank and the Group to manage operational risk
Identification and assessment of operational risk	· In the self-assessment process, the bank and Santander Bank Polska Group identify the risks they may be exposed to when delivering their functions, assess inherent and residual risks in terms of their likelihood and impact, and evaluate the design and effectiveness of existing controls. · The process of identification and assessment of operational risk is additionally supported by such tools as: scenario analysis, business impact analysis and an analysis of risk in new initiatives.
Reporting	· Each organisational unit is required to report operational risk events identified in its area of responsibility. Relevant operational risk events are escalated to senior management using a fast-track procedure. The Group runs a database of operational risk events identified across the organisation. The data are used to analyse the causes and consequences of operational risk events, facilitate the lessons learned process and implement remedial and preventive actions. · The Group also makes inputs to the external database of operational risk events run by the Polish Bank Association (ZBP) and uses information about external events from a number of sources. The analysis of external events enables benchmarking and lesson learning from events identified outside the Group.
Analysis of risk indicators	· Santander Bank Polska Group monitors financial, operational and technological risk indicators. They provide an early warning of emerging threats and support monitoring of risk in the bank’s and Group’s operations.
Defining risk mitigants	· The process of managing operational risk mitigants is designed to eliminate or reduce operational risk. Risk mitigation measures are determined based on the results of analyses carried out using various operational risk tools (including operational risk events database, risk indicators, and risk self-assessment).
Business continuity management (BCM) plans	· Each organisational unit is required to develop and update its business continuity management plan to ensure that critical business processes remain uninterrupted following an unplanned disruption. BCM plans are tested on a regular basis to provide assurance to Santander Bank Polska Group that critical business processes may be restored at the required service level and within the agreed time frame. The bank and the Group have backup locations in place where critical processes can be restored and continued if an incident occurs.

Tools used by the bank and the Group to manage operational risk
Information security	· Santander Bank Polska S.A. has the Information Security Management System in place, which is certified for compliance with the ISO/IEC 27001:2013 standard. The purpose of this system is to supervise information security in Santander Bank Polska Group’s business environment, and assess specific information and system security requirements.
Insurance	· Santander Bank Polska Group has financial risks, motor, property and professional indemnity insurance policies in place to mitigate operational risk.
Reporting to the Risk Control Committee and the Supervisory Board	· The aim of operational risk reporting is to provide up-to-date and appropriate information to the management team. Operational risk reports include details on operational risk events and losses, information security incidents, risk indicators and defined mitigants.

7. Legal and Regulatory (Compliance) Risk Management

Operating in the complex legal and regulatory environment, the bank and Santander Bank Polska Group are exposed to the risk of misapplication or misinterpretation of legal provisions, regulatory requirements, industry codes and ethical codes adopted by the bank, as well as internal policies and procedures (including codes of best practice). Non-compliance might expose the bank to loss of reputation or to administrative or criminal sanctions.

The management and control of compliance risk includes application of controls, independent monitoring of their execution and reporting. The control function is performed under three lines of defence:

· the first line of defence: management of operational risk arising from the bank’s operations;

· the second line of defence: on-going vertical verification and vertical testing;

· the third line of defence: the internal audit function.

Pursuant to the Compliance Policy, the Legal and Compliance Division of Santander Bank Polska S.A. includes a compliance function which is independent of business units. This function acts as the second line of defence by setting and enforcing standards, providing advice and reporting in the interest of employees, customers, shareholders and the public.

The compliance function supports the bank’s strategy with respect to managing regulatory risk, conduct risk and reputational risk. Its activity is also determined by the bank's business profile: it carries out tasks related to the protection of consumer rights and to ongoing digitalisation and standardisation of financial services.

In particular, the compliance function is responsible for:

· independent identification, monitoring and assessment of compliance risk that the Group is exposed to (with particular focus on new products and services, prevention of using the financial system for the purpose of money laundering and terrorist financing, protection of confidential information, management of conflicts of interest and private account share dealing by employees);

· providing advice and reporting to the Risk Management Committee, the bank’s Management Board and the Audit and Compliance Committee on the effectiveness of processes established to ensure compliance with legal and regulatory requirements;

· communication of policies and procedures, providing the management and staff with guidance on compliance risk management;

· coordination of contacts with market regulators (KNF, UOKiK, GIIF, UODO);

· coordination of the approval of new products;

· strengthening the principles of ethical business conduct;

· cooperation with the Corporate Communication and Marketing Area and the Risk Management Division in the area of reputational risk management.

The compliance function also coordinates the activities of committees supporting compliance risk management processes in respective areas of the Group:

· General Compliance Committee

· Regulatory and Reputational Risk Committee

· Local Marketing and Monitoring Committee

· Anti-Money Laundering and Counter-Terrorism Financing Committee.

These committees are composed of representatives of key organisational units that have the necessary expertise and authority to ensure that relevant decisions are taken and high quality advice is provided in the course of the proceedings.

Employees of the compliance function support the senior management of the bank in effective compliance risk management and report on key compliance issues to the bank's Management Board, the Risk Management Committee and the Audit and Compliance Committee of the Supervisory Board.

The Management Board and the Supervisory Board (through the Audit and Compliance Committee) regularly review key compliance issues identified by the compliance function. The review covers in particular:

· product monitoring

· test compliance monitoring

· monitoring of employees’ own trades

· information on the activity of market regulators

· review of upcoming legislative initiatives

· review of anti-money laundering issues

· review of ethical issues

· review of customer complaints.

In February 2021, the bank's Supervisory Board positively assessed the effectiveness of compliance risk management at Santander Bank Polska S.A., based on a positive recommendation of the Audit and Compliance Committee.

In addition to the compliance function, the second line of defence also includes other organisational units operating under internal regulations, in particular:

· for labour law responsibilities – personnel unit

· for companies and partnerships law responsibilities – corporate governance unit

· for occupational health and safety responsibilities – health and safety unit

· for accounting, reporting and tax responsibilities – financial, accounting and tax units

· for prudential requirements – risk units.

8. Reputational Risk Management

Reputational risk is defined as the risk of actual or potential adverse impact on Santander Bank Polska Group resulting in deterioration of perception of the bank and other members of the Group by customers, employees, shareholders/ investors and communities.

Potential sources of this risk are internal operational incidents and external events, such as adverse publicity, dissemination of negative feedback by customers, e.g. via the Internet, in social media and other mass media. They may refer directly to Santander Bank Polska Group and its products and services, as well as the bank’s shareholders and the entire banking or financial sector (both domestic and international).

The elements of reputational risk also include customer complaints and claims related to the process of offering banking products and services (both directly and through third parties/ suppliers/ intermediaries), including complaints about the lack of sufficient (i.e. complete, true, reliable and non-misleading) information about products/ services and related risks, the complexity of products, failures of systems and applications, misselling, capital loss, as well as establishment of relationships with entities considered to be sensitive due to the type and profile of their business (high risk sectors).

The management of reputational risk is the responsibility of the Corporate Communication and Marketing Area and the Compliance Area.

The objective of the reputational risk management process is to protect the image of Santander Bank Polska Group and to limit and eliminate negative events which affect the image and financial results of the Group.

The key risk mitigation measures include:

· Disclosure Policy of Santander Bank Polska S.A.

· Reputational risk management model consisting of the Reputational Risk Management Policy, the Reputational Risk Management Procedure and the Methodology for Reputational Risk Management at Santander Bank Polska S.A.

· Reputational risk analysis procedure

· Guidelines on cooperation with partners and sensitive sectors financing policy

· Donation Policy of Santander Bank Polska Foundation

· Daily monitoring of local, nationwide and certain international mass media sources (Corporate Communication and Marketing Area)

· Policy on the use of social networks (Corporate Communication and Marketing Area)

· Daily monitoring of social media sources (in particular: Facebook, Twitter) in the context of references to the bank (Corporate Communication and Marketing Area)

· Analysis of image-sensitive information by the Press Office (Corporate Communication and Marketing Area)

· Response to information which poses a threat to public perception of the bank (Corporate Communication and Marketing Area)

· Keeping the representatives of national and local media up to date about new products and changes to regulations regarding existing products

· Regular monitoring of reputational risk events and reputational risk profile (Compliance Area)

· Monitoring of changes in laws, internal regulations and market standards as well as abusive clauses in contracts (Compliance Area)

· Customer satisfaction survey (Chief Customer Officer)

· Recommendations and preventive actions arising from the analysis of complaints (Chief Customer Officer)

· Preparation and control by relevant units of Santander Bank Polska S.A. of all important communications and reports for shareholders, the Polish Financial Supervision Authority (KNF) and the Warsaw Stock Exchange, and timely publication of such communications and reports

· Evaluation of new products/ services or their modifications, and the related procedures, communications, commercial materials, initiatives addressed to customers (promotions, contests) and training materials for sales staff in terms of their compliance with laws and regulatory guidelines, ethical business conduct and reputational risk (Compliance Area)

· Participation in the management of customer complaints, especially those filed with regulators (Compliance Area)

· Supervision of after-sales control of investment products (Compliance Area)

· Mystery shopping

· Regular monitoring of reputational risk associated with products/ services offered by Santander Bank Polska Group through the analysis of customer complaints, sales volumes, number of customers and rate of return, if applicable (Compliance Area)

· Reviewing agreements with external suppliers and third parties (in particular the ones regarding outsourcing, critical services and high-risk services)

· Participation in the analysis of customers and transactions from sensitive sectors (including arms, gambling, tobacco, media and cannabis industries) (Compliance Area).

9. Capital Management

Introduction

It is the policy of Santander Bank Polska Group to maintain a level of capital adequate to the type and scale of operations and the level of risk.

The level of own funds required to ensure safe operations of the bank and Santander Bank Polska Group and capital requirements estimated for unexpected losses is determined in accordance with: the provisions of the CRD IV/CRR package, relevant regulations of the European Parliament and of the Council (2019/876 of 20 May 2019, 2019/630 of 17 April 2019 and 2020/873 of 24 June 2020), the Macroprudential Supervision Act of 5 August 2015, and KNF’s guidelines and recommendations regarding, among other things, the use of national options and higher risk weight for exposures secured by real estate mortgages as well as an additional capital requirement relating to the portfolio of foreign currency mortgage loans for households.

The Management Board is accountable for capital management, calculation and maintenance processes, including the assessment of capital adequacy in different economic conditions and the evaluation of stress test results and their impact on internal and regulatory capital and capital ratios. Responsibility for the general oversight of internal capital estimation rests with the Supervisory Board.

The Management Board has delegated ongoing capital management to the Capital Committee which conducts a regular assessment of the capital adequacy of the bank and Santander Bank Polska Group, including in extreme conditions, the monitoring of the actual and required capital levels and the initiation of transactions affecting these levels (e.g. by recommending the value of dividends to be paid). The Capital Committee is the first body that defines the capital policy, principles of capital management and principles of capital adequacy assessment. However, ultimate decisions regarding any increase or decrease in capital are taken by relevant authorities within the bank in accordance with the applicable law and the bank’s Statutes.

In 2021, the bank and Santander Bank Polska Group met all regulatory requirements regarding capital management.

Santander Bank Polska Group does not consider the full impact of introduction of IFRS 9 for the purpose of capital adequacy assessment and applies transitional arrangements provided for in Regulation (EU) 2017/2395 amending Regulation (EU) No 575/2013, updated in accordance with Regulation (EU) 2020/873 of the European Parliament and of the Council of 24 June 2020. Based on the above-mentioned changes, the Group uses derogation in the form of assigning a risk weight of 100% to the value of the adjustment included in own funds.

Category measuring capital adequacy of Santander Bank Polska Group as at 31 December 2021	Impact of transitional arrangements related to IFRS 9
Total own funds	+PLN 357 224 k
Total capital ratio	+22 bps
Tier 1 capital ratio	+23 bps

Pursuant to the bank’s information strategy, details about the level of own funds and capital requirements are presented in the separate report entitled “Information on capital adequacy of Santander Bank Polska Group as at 31 December 2021”.

Capital policy

As at 31 December 2021, the minimum capital ratios satisfying the provisions of the CRR and the Macroprudential Supervision Act as well as regulatory recommendations regarding additional own funds requirements under Pillar 2 were as follows:

at the level of Santander Bank Polska S.A.:

· 9.25% for Tier 1 capital ratio

· 11.25% for total capital ratio

at the level of Santander Bank Polska Group:

· 9.272% for Tier 1 capital ratio

· 11.279% for total capital ratio

The aforementioned capital ratios at the Group level take into account:

Components of the minimum capital requirement	Capital adequacy measure	31.12.2021	31.12.2020
Minimum capital ratios	· Common Equity Tier 1 capital ratio:	ü 4,5%	ü 4,5%
	· Tier 1 capital ratio:	ü 6,0%	ü 6,0%
	· Total capital ratio:	ü 8,0%	ü 8,0%
Additional capital requirement for risk related to foreign currency mortgage loans for households	· for the total capital ratio:	ü 0,029 p.p.	ü 0,034 p.p.
	· for Tier 1 capital ratio:	ü 0,022 p.p.	ü 0,026 p.p.
	· for Common Equity Tier 1 capital ratio:	ü 0,016 p.p	ü 0,019 p.p.
Capital buffer for Santander Bank Polska S.A. as other systemically important institution		ü 0,75 p.p.	ü 0,75 p.p.
Capital conservation buffer maintained in accordance with the Macroprudential Supervision Act		ü 2,5 p.p.	ü 2,5 p.p.
Systemic risk buffer		ü 0 p.p.	ü 0 p.p.

The same requirements apply to the bank, except for an additional capital requirement related to the portfolio of foreign currency mortgage loans for households. The KNF did not impose this buffer on the bank as it had not reached the materiality threshold in relation to such loans.

To mitigate the risk of credit crunch arising from the Covid-19 pandemic, on 18 March 2020 the Minister of Finance issued a regulation based on the recommendation of the Financial Stability Committee removing banks’ obligation to keep the systemic risk buffer of 3%.

Regulatory capital

The capital requirement for Santander Bank Polska Group is determined in accordance with Part 3 of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (CRR), as amended by e.g. Regulation (EU) 2020/873 of 24 June 2020 amending Regulation (EU) No 575/2013 and Regulation (EU) 2019/876 as regards certain adjustments in response to the Covid-19 pandemic.

Santander Bank Polska Group uses the standardised approach to calculate the capital requirement for credit risk, market risk and operational risk. According to this approach, the total capital requirement for credit risk is calculated as the sum of risk-weighted exposures multiplied by 8%. The exposure value for these assets is equal to the balance sheet total, while the value of off-balance sheet liabilities corresponds to their balance sheet equivalent. Risk-weighted exposures are calculated by applying risk weights to all exposures in accordance with the CRR.

On 20 July 2021, the bank received an individual recommendation from the KNF with regard to the bank’s dividend policy in H2 2021. As at 31 March 2021 (the bank’s quarterly data on own funds) and 31 May 2021 (monthly data on the receivables portfolio), the bank met all the key dividend policy criteria to be able to pay dividends up to 100% of its net profit earned in the period from 1 January 2020 to 31 December 2020. When applying the additional KNF criteria relating to the bank’s portfolio of foreign currency mortgage loans for households, the dividend yield at standalone and consolidated level was adjusted by a total of 70 p.p. As a consequence, after application of the additional criteria, the maximum dividend yield could be up to 30% of the profit earned in 2020. In view of the above KNF recommendations, pursuant to Article 349 of the Commercial Companies Code and § 50(4) of the bank’s Statutes in relation to Resolution no. 6 of the bank’s Annual General Meeting of 22 March 2021, the bank’s Management Board adopted a resolution to pay an interim dividend of PLN 220,728,918.24. The dividend was PLN 2.16 per share.

The table below presents the calculation of the capital ratio for Santander Bank Polska Group as at 31 December 2021 and in the comparative period.

Calculation of the capital adequacy ratio for Santander Bank Polska Group

as at 31 December 2021 and 31 December 2020

	Santander Bank Polska Group (PLN m)	31.12.2021	31.12.2020¹⁾
I	Total capital requirement (Ia+Ib+Ic+Id+Ie), including:	10 817,5	10 819,4
Ia	– for credit risk and counterparty credit risk	9 319,0	9 384,0
Ib	– for market risk	190,7	141,9
Ic	– for credit valuation adjustment risk	29,9	33,0
Id	– for operational risk	1 250,2	1 260,5
Ie	– for securitisation	27,7	-
II	Total capital and funds ²⁾	27 274,0	29 570,6
III	Deductions	2 156,9	1 960,2
IV	Capital and funds after deductions (II–III)	25 117,1	27 610,4
V	*Capital ratio [IV/(I12.5)]**	18,58%	20,42%
VI	Tier 1 capital ratio	16,63%	18,38%

1) Including profits allocated to own funds pursuant to the KNF’s decision and the EBA’s applicable guidelines.

2) Pursuant to the KNF’s decision of 30 December 2020, the bank received consent to allocate a part of the net profit of Santander Bank Polska Group for H1 2020 in the amount of PLN 192,430,453 to the consolidated Common Equity Tier 1 capital.

Calculation of the capital adequacy ratio for Santander Bank Polska S.A. as at 31 December 2021 and 31 December 2020

	Santander Bank Polska S.A. (PLN m)	31.12.2021	31.12.2020 ¹⁾
I	Total capital requirement (Ia+Ib+Ic+Id), including:	8 583,8	8 707,6
Ia	– for credit risk and counterparty credit risk	7 407,2	7 571,9
Ib	– for market risk	188,5	138,2
Ic	– for credit valuation adjustment risk	29,6	32,1
Id	– for operational risk	958,5	965,4
II	Total capital and funds ²⁾	25 416,2	28 032,4
III	Deductions	2 895,5	2 019,6
IV	Capital and funds after deductions (II–III)	22 520,7	26 012,7
V	*Capital ratio [IV/(I12.5)]**	20,99%	23,90%
VI	Tier 1 capital ratio	18,65%	21,50%

1) Including profits allocated to own funds pursuant to the KNF’s decision and the EBA’s applicable guidelines.

2) Pursuant to the KNF’s decision of 30 December 2020, the bank received consent to allocate a part of the net profit of Santander Bank Polska S.A. for H1 2020 in the amount of PLN 192,430,453 to the Common Equity Tier 1 capital.

Internal capital

Notwithstanding the regulatory methods for measuring capital requirements, Santander Bank Polska S.A. carries out an independent assessment of current and future capital adequacy as part of the internal capital adequacy assessment process (ICAAP). The purpose of the process is to ensure that the level and nature of own funds guarantee the solvency and stability of the bank’s and the Group’s operations.

The capital adequacy assessment is one of the fundamental elements of the bank’s strategy, the process of defining risk appetite and the process of planning.

In the ICAAP the Group uses assessment models based on the statistical loss estimation for measurable risks, such as credit risk, market risk and operational risk, plus its own assessment of capital requirements for other material risks not covered by the model, e.g. reputational risk and compliance risk.

The internal capital is estimated on the basis of risk parameters including the probability of default (PD) by Santander Bank Polska S.A. customers and the loss given default (LGD).

The Group performs an internal assessment of capital requirements, also under stressed conditions, taking into account different macroeconomic scenarios.

Internal capital estimation models are assessed and reviewed annually to adjust them to the scale and profile of the business of Santander Bank Polska S.A. and to take account of any new risks and the management’s judgement.

The review and assessment is the responsibility of the bank’s risk management committees, including: the Capital Committee and the Model Risk Management Committee.

Subordinated liabilities

Information on bond issue	Date of KNF consent to allocate the bonds to the Tier 2 capital		Nominal value of the issue allocated to subordinated liabilities
Amendments (made in 2016) to the agreement under which subordinated bonds were issued on 5 August 2010 and taken up by the European Bank for Reconstruction and Development (including extension of the maturity date to 5 August 2025)		18 May 2017		EUR100 m
Issue of bonds of Santander Bank Polska S.A. on 2 December 2016		24 February 2017		EUR 120 m
Issue of subordinated bonds of Santander Bank Polska S.A. on 22 May 2017		19 October 2017		EUR 137.1 m
Issue of series F subordinated bonds of Santander Bank Polska S.A. on 5 April 2018		12 June 2018		PLN 1 bn

For more information on subordinated liabilities, please see Note 35 to the Consolidated Financial Statements of Santander Bank Polska Group for 2021

XIII. Statement on Corporate Governance in 2021

1. Corporate Governance at Santander Bank Polska S.A.

Corporate governance sets out the rules for operation of the governing bodies, systems and processes at Santander Bank Polska S.A. Its objective is to build good relationships with shareholders, customers and other stakeholders, and to increase effectiveness of internal oversight, key internal systems and functions as well as statutory bodies. The corporate governance principles adopted by the bank focus on professionalism and integrity of members of the management and supervisory bodies, transparency and due care, which helps build trust in Santander Bank Polska Group, supports sustainable development and increases credibility of the capital market in Poland.

The bank’s corporate governance framework is based on applicable laws (in particular the Commercial Companies Code, the Banking Law and capital market regulations) as well as the rules set out in Best Practice for GPW Listed Companies, Principles of Corporate Governance for Supervised Institutions issued by the Polish Financial Supervision Authority (KNF) and the Code of Banking Ethics.

· In 2021, Santander Bank Polska S.A. complied with all the rules established in Best Practice for GPW Listed Companies 2016 adopted by virtue of Resolution no. 26/1413/2015 of the Supervisory Board of the Warsaw Stock Exchange dated 13 October 2015 and applicable until the end of June 2021.

· It also adhered to all the rules set out in the amended Best Practice for GPW Listed Companies 2021 adopted by virtue of Resolution no. 13/1834/2021 of the Supervisory Board of the Warsaw Stock Exchange dated 29 March 2021 and effective as of 1 July 2021.

· Furthermore, the bank applied all Principles of Corporate Governance for Supervised Institutions issued by the KNF on 22 July 2014.

· In the reporting period, no departures from the above-mentioned regulations were reported.

The bank has complied with the official corporate governance principles since 2002 when the first issue of best practice was published by the Warsaw Stock Exchange (Best Practice for Public Companies 2002). It also follows best sector practice contained in the Banking Ethics Code developed by the Polish Bank Association (ZBP).

The bank has adopted the following internal regulations which specify corporate governance rules in more detail: the Group-Subsidiary Governance Model, the General Code of Conduct, Guidelines for Subsidiaries, Specific Corporate Frameworks, the General Code of Conduct and specific bylaws and policies e.g. the Information Policy, the Conflict of Interest Prevention Policy, the Code of Conduct in the Securities Markets, the Anti-Money Laundering Policy, the Anti-Corruption Programme and the Sustainability Policy.

In 2021, the bank implemented KNF Recommendation Z on corporate governance at banks, effective as of 1 January 2022. To ensure full compliance with the recommendation, the processes and corporate governance rules were reviewed and supplemented both at the bank and the Group level. Recommendation Z is available on the KNF’s website at:

https://www.knf.gov.pl/knf/pl/komponenty/img/Rekomendacja_Z_70998.pdf.

This Statement on Corporate Governance in 2021 has been prepared in accordance with § 70(6)(5) of the Finance Minister’s Regulation of 29 March 2018 on current and financial reports published by the issuers of securities and the rules of equal treatment of the information required by the laws of a non-member state.

In accordance with Commission Recommendation of 9 April 2014 on the quality of corporate governance reporting (2014/208/EU), the section below presents details on application of corporate governance rules regarding the topics of most importance for shareholders. It refers both to the previous version of best practice (Best Practice for GPW Listed Companies 2016) and to the current version effective as of 1 July 2021 (Best Practice for GPW Listed Companies 2021).

Best Practice for GPW Listed Companies 2016

This version of best practice, effective as of 1 January 2016, was adopted for use by the bank pursuant to Management Board Resolution no. 160/2015 of 2 December 2015 and Supervisory Board Resolution no. 61/2015 of 16 December 2015. It was approved by the General Meeting of Santander Bank Polska S.A. on 20 April 2016.

The full text is available on the website of the Warsaw Stock Exchange at: https://www.gpw.pl/pub/GPW/files/PDF/GPW_1015_17_DOBRE_PRAKTYKI_v2.pdf

and on the bank’s website at:

https://static3.santander.pl/asset/w/y/n/wyniki-glosowan_pl_61605.pdf.

Chapter

Important aspects of application of Best Practice for GPW Listed Companies 2016

at Santander Bank Polska S.A.

Disclosure policy, investor communications

(Chapter 1)

· The bank has an effective and transparent information policy in place in relation to shareholders, investors and analysts, which is supported by a wide range of modern communication tools. Pursuant to the Information Policy of Santander Bank Polska S.A. (available on the bank’s website at: https://www.santander.pl/relacje-inwestorskie/dokumenty-korporacyjne#dokument=4), the bank actively communicates with its stakeholders in order to meet their information needs, with particular activities adjusted to their profile.

· The communication with capital market participants is based on the following rules:

ü Periodic reports (including information about the bank’s sponsorship and corporate giving activities) are published at the earliest possible date following the end of the reporting period. The market is informed in advance, via current reports, about the planned dates of publishing reports.

ü Current reports providing information required by applicable laws are published at the dates specified therein.

ü Each year, the bank organises four conferences to present analysts, investors and all the interested parties with quarterly figures. They are broadcast online in both Polish and English. To the extent permitted by law, the bank answers questions asked during the conferences and sent by email to the email address of the Investor Relations Director (available on the bank’s Investor Relations website).

ü The corporate website is available in Polish and English at: www.santander.pl and includes the Investor Relations tab with all the information required to be published in accordance with law and Best Practice for GPW Listed Companies 2016.

ü The bank also has a website dedicated to general meetings, which is available at www.santander.pl/wza.

ü As part of open communication with the shareholders, the bank (acting through the representatives of its governing bodies) provides them with all answers and explanations, ensures the possibility to participate in the general meetings by means of electronic communication and enables media representatives to join such meetings.

· When offering financial products and services, the bank is focused on providing customers with accurate information and meaningful explanations. Customer complaints are handled by the Customer Care Office in accordance with clear and transparent rules.

· If any false information is published in the media that might significantly affect the bank’s reputation, any decisions on the response are taken in accordance with the best knowledge and law.

Management Board, Supervisory Board

(Chapter 2)

· All members of the Management Board and the Supervisory Board have appropriate knowledge, experience and skills to duly perform their duties.

· Detailed information about the qualifications of members of the Management Board and the Supervisory Board is presented in the later part of this statement (Part 5 “Governing Bodies”, Sections: “Management Board” and “Supervisory Board”)

· Members of the Management Board and the Supervisory Board are appointed in accordance with the criteria which ensure that the composition of these bodies is comprehensive and diverse.

· The functions performed on the bank’s Management Board are the main area of the professional activity of its members, some of whom also sit on the supervisory boards of the bank’s subsidiaries, which facilitates oversight and operation of the Group as a whole.

· The Supervisory Board members commit sufficient time to perform their functions. Half of the members of the Supervisory Board, including all members of the Audit and Compliance Committee and its Chairman, have independent status.

Internal systems and functions

(Chapter 3)

· The bank has an effective internal control, risk management and compliance system in place, as well as an effective internal audit function adequate to the size of the bank and the type and scale of its operations. Their effectiveness is monitored and assessed by the Supervisory Board in coordination with the Audit and Compliance Committee.

· The Head of the Internal Audit Area and the head of the compliance function report directly to the President of the Management Board. The Risk Management Division is headed by the Vice President of the Management Board.

Chapter (cont.)

Important aspects of application of Best Practice for GPW Listed Companies 2016

at Santander Bank Polska S.A. (cont.)

General Meeting, shareholder relations (Chapter 4)

· Annual General Meetings are convened as soon as possible after the publication of an annual report at the date set in keeping with the applicable legislation. In 2021, the Annual General Meeting was held within less than one month of the release of the annual report for 2020.

· Since 2011, the shareholders can actively participate in General Meetings, including vote, by means of electronic communication. General Meetings are broadcast live on the bank’s website. Representatives of the media can also attend General Meetings.

· The bank presents the materials to be considered by the General Meeting in a manner convenient to the shareholders.

· Justifications of resolutions are published on the bank’s website dedicated to General Meetings on the same day as the notice of the General Meeting. In the case of resolutions requested by a shareholder to be included on the agenda, justifications are published immediately after receiving the shareholder's request (in the case of requests made in the course of the General Meeting, the justification is presented to shareholders prior to adopting a resolution). Additionally, members of the bank’s governing bodies provide verbal information prior to the vote on the matter if it is required so to consider the matter properly.

· The General Meeting should be attended by members of the Management Board and the Supervisory Board who will be able to give substantive answers to questions asked during the meeting.

· Answers to shareholders’ questions are provided in line with the applicable legislation within the set time limits.

Conflict of interest, related party transactions

(Chapter 5)

· The bank has transparent procedures in place for managing conflicts of interest. They are described in the General Code of Conduct and the Conflict of Interest Prevention Policy.

· As regards members of the Management Board and the Supervisory Board, the provisions regarding conflicts of interest are also included in their terms of reference. The representatives of the foregoing bodies must not participate in decision-making if they are involved in an actual or potential conflict of interest. They must also inform the bank of such situations.

· Members of the Management Board and the Supervisory Board refrain from professional activities which might cause a conflict of interest.

· Potential conflicts of interest involving members of the Management Board and the Supervisory Board are also considered when assessing the suitability of candidates for these bodies and as part of ongoing suitability assessments.

In 2021, no such situations were identified with regard to members of the Management Board and the Supervisory Board.

· Transactions with related parties are made in accordance with the bank’s internal regulations and market standards. If the transaction with related parties exceeds 5% of the bank’s total assets, it must be approved by the Supervisory Board.

Remuneration

(Chapter 6)

· The bank’s Remuneration Policy meets all the requirements prescribed by law and supports the Group’s growth and security. It complies with the principles of sound and effective risk management, prudent capital management, and it is consistent with the bank’s business strategy, objectives, values and long-term interests.

· The purpose of the Remuneration Policy is to support long-term sustainable growth of the Group by ensuring adequate staff remuneration for their performance and motivating them to deliver best results and to achieve the bank’s strategic goals, as well as by establishing long-term relationships with the bank and promoting behaviours that discourage excessive risk-taking.

· Remuneration payable to members of the Management Board consists of a fixed component and a variable component, with the latter awarded based on assessment of their performance.

· Remuneration payable to members of the Supervisory Board is not linked to options or other derivative instruments or any other variable components or the bank’s results.

· The remuneration of members of the Management Board and the Supervisory Board and key managers is sufficient to attract, retain and motivate persons with skills necessary for proper management and supervision of the bank. The remuneration structure fully reflects market practices while the remuneration levels match the ones offered in the banking sector, taking into account the size of business. Remuneration is adequate to the scope of tasks performed.

· The Supervisory Board has its Remuneration Committee composed in majority of independent members.

Best Practice for GPW Listed Companies 2021

The amended Best Practice for GPW Listed Companies 2021 effective as of 1 July 2021 was adopted by virtue of Resolution no. 13/1834/2021 of the Supervisory Board of the Warsaw Stock Exchange dated 29 March 2021.

The full text is available on the website of the Warsaw Stock Exchange at: https://www.gpw.pl/pub/GPW/files/PDF/dobre_praktyki/DPSN21_BROSZURA.pdf

The above version of best practice was adopted by the bank by way of Management Board Resolution no. 160/2021 of 21 July 2021 and Supervisory Board Resolution no. 108/2021 of 27 July 2021.

On 29 July 2021, the bank published a report on application of the rules set out in Best Practice for GPW Listed Companies 2021 (it is available on the bank’s website at: https://www.santander.pl/regulation_file_server/time20210729112136/download?id=163350&lang=pl_PL).

The adoption of the amended best practice will be submitted for approval to the Annual General Meeting in 2022.

Chapter

Application of Best Practice for GPW Listed Companies 2021

Disclosure policy, investor communications

(Chapter 1)

· In 2021, the rules for communication with investors were adjusted to the amended version of Best Practice, increasing the effectiveness and transparency of disclosures to shareholders, investors and analysts. In addition to complying with the rules specified in the previous document and the ones presented in the table below, the bank strives to:

ü reply immediately to any questions about the published information, and in the case of questions from investors concerning unpublished data, the bank takes efforts to reply as soon as possible and no later than within 14 days (in accordance with laws and market standards);

ü participates in investor conferences organised by Polish and foreign brokerage companies;

ü ensure that its financial results achieved in a given reporting period are published before the deadlines prescribed by law, being one of the leaders in this respect among the companies listed on the Warsaw Stock Exchange.

· The bank’s Information Policy provides for active measures to be taken to meet information needs of the bank’s stakeholders and ensure appropriate transparency of the bank, build trust, promote the bank’s image in capital markets and respond to all queries of the interested parties regarding the bank’s current standing. The current Information Policy of Santander Bank Polska S.A. is available on the bank’s website at: https://www.santander.pl/relacje-inwestorskie/dokumenty-korporacyjne#dokument=4.

· The bank has a corporate website available at: www.santander.pl, which includes the Investor Relations tab with all information required to be published in accordance with law and Best Practice for GPW Listed Companies 2021. The bank’s Investor Relations service includes a section dedicated to Best Practice for GPW Listed Companies, which contains all the required information such as: report on application of Best Practice for GPW Listed Companies 2021, information about the Supervisory Board committees, information on changes in the share capital and transactions in shares, information on incentive programmes, dividend policy, questions asked by investors (along with answers), information about pay equality between men and women (including measures taken to eliminate any gaps), the Group’s structure, schedule of corporate events, information about shareholders, the CRS/ESG Report, information about the Diversity Policy, members of the bank’s governing bodies, the General Meeting, basic corporate documents, financial statements (including presentations), development strategy, recommendations and analyses of rating agencies, current reports, records of meetings with investors, channels of communication between investors and the bank, information about mergers and acquisitions.

· The matters related to environmental and climate protection as well as social and employee issues are the foundations of the Responsible Banking agenda and an integral part of the bank’s business strategy, as reflected in ESG reports available on the bank’s website at: https://esg.santander.pl/2020/?_ga=2.130944071.994343194.1639381425-1666480052.1633513918.

· Since 2014, the bank has organised ten dialogue sessions with representatives of social and business partners in accordance with the AA1000SES standard. Their purpose is to gather feedback and expectations as to the bank’s activities in the area of Responsible Banking. Suggestions made by stakeholders are analysed and taken into account in delivery of the strategy, in planning processes and in non-financial reporting. The last dialogue session was held in April 2021 and was devoted to the bank’s role in green transformation. It was attended by representatives of NGOs, expert organisations and the bank’s customers.

Chapter

Application of Best Practice for GPW Listed Companies 2021 (cont.)

Disclosure policy, investor communications

(Chapter 1 cont.)

· The decision-making processes at the bank and the Group take into account matters related to climate change, including associated risks (details are presented in CSR/ESG Report for 2020).

· The list of expenses incurred by the Group to support culture, sports, charity organisations, media and civil society organisations is included in Chapter VIII, Section 4 “Communication with Stakeholders”.

· The bank’s information policy concerning investor relations is described in more detail in Chapter VII “Investor Relations”. For more information about the arrangements facilitating communication with shareholders, see “General Meeting” below (Section 5 “Governing Bodies”).

Management Board, Supervisory Board

(Chapter 2)

· Members of the Management Board and the Supervisory Board meet all the criteria and requirements defined in the updated Best Practice.

· The rules of procedure of the foregoing bodies were changed, introducing the rule of open voting, except for the cases where a secret ballot is required by law.

· The bank has a diversity policy in place which promotes diversity among members of the Management Board and the Supervisory Board in terms of their qualities and skills, gender, educational background, expertise, age, professional experience and geographical provenance. It also requires the Supervisory Board to ensure at least 30% representation of women in the Management Board by 2025.

· When appointing the Supervisory Board members, the bank is to ensure 40%–60% representation of women by 2025 (women already account for 40% of the Supervisory Board membership).

Internal systems and functions

(Chapter 3)

· The bank meets all the criteria and requirements regarding the internal control, risk management and compliance system and internal audit function set out in the amended version of Best Practice.

· The bank’s organisational structure includes units responsible for the tasks of individual systems and functions.

· The Head of the Internal Audit Area adheres to international standards for the professional practice of internal auditing and reports directly to the President of the Management Board, with a dotted reporting line to the Chairman of the Audit and Compliance Committee.

· Remuneration payable to persons responsible for risk management and compliance and the Head of the Internal Audit Area depends on the delivery of the tasks set rather than short-term results of the bank.

· The head of the compliance function reports directly to the President of the Management Board. The Risk Management Division is headed by the Vice President of the Management Board.

· The internal audit function meets the international standards for the professional practice of internal auditing, which is verified as part of independent third-party assessment at least once every five years. The last assessment was carried out in June 2019 by the Institute of Internal Auditors.

General Meeting, shareholder relations (Chapter 4)

· The Annual General Meeting of 22 March 2021 was already organised in accordance with the amended Best Practice.

· When selecting the venue for the General Meeting, the bank enables the participation of the highest possible number of shareholders (the General Meetings of the bank are held in Warsaw, where it has had its registered office since 2018).

· Since 2011, the bank’s shareholders can participate in the General Meetings by means of electronic communication channels (e-meetings) and exercise their rights from anywhere in the world.

· To help shareholders make informed voting decisions, the bank publishes on a dedicated website (www.santander.pl/wza) justifications of all resolutions (except for points of order and where justification follows from the materials submitted to the General Meeting) together with their drafts.

· The bank takes efforts to ensure that draft resolutions are submitted no later than three days before the General Meeting.

In 2021, the shareholder’s requests were made within that time limit, including the nomination of a candidate for the Supervisory Board Chairman was submitted on 8 March 2021, i.e. 14 days before the General Meeting.

· The bank strives to distribute profit to the shareholders in accordance with the dividend policy and the KNF recommendations.

· In 2021, the Annual General Meeting did not adopt a resolution on dividend payment due to the KNF recommendation issued to banks to retain the entire profit for H1 2021. As the KNF changed its recommendation on dividend payment in H2 2021, an interim dividend was paid in accordance with the resolution of the bank’s Management Board. The period between the interim dividend payment date and the record date was seven days.

Chapter

Application of Best Practice for GPW Listed Companies 2021 (cont.)

Conflict of interest, related party transactions

(Chapter 5)

· The bank complies with all the requirements arising from the amended Best Practice in terms of managing conflicts of interest and related party transactions.

· The bank ensures equal treatment of customers and suppliers. No shareholder has preference over other shareholders in related party transactions.

· The Supervisory Board may seek external expert advice when making a valuation and analysing economic effects of related party transactions. If the transaction requires the approval of the General Meeting, the Supervisory Board assesses the need for seeking such advice.

· Members of the Management Board and the Supervisory Board refrain from professional activities which might cause a conflict of interest. They must not participate in decision-making if there is an actual or potential conflict of interest. They must also inform the bank of such situations. Potential conflicts of interest involving members of the Management Board and the Supervisory Board are also considered when assessing the suitability of candidates for these bodies and as part of ongoing suitability assessments.

Remuneration

(Chapter 6)

· The remuneration policy applicable at the bank complies with all the requirements arising from the amended Best Practice.

· The bank ensures the stability of its management team through, among other things, transparent, fair, consistent and non-discriminatory terms of remuneration.

· At least 40% of each component of variable remuneration is deferred for five years for members of the Management Board and other senior managers (as defined in the Banking Law) and four years for other identified employees.

· In 2021, the bank did not have a stock option programme for managers.

· The Supervisory Board members receive fixed monthly remuneration irrespective of the number of Supervisory Board meetings held. Supervisory Board members receive additional remuneration for work on the Supervisory Board committees.

Principles of Corporate Governance for Supervised Institutions

Santander Bank Polska S.A. abides by the Principles of Corporate Governance for Supervised Institutions as published by the KNF on 22 July 2014. The document describes internal and external relations of supervised institutions, including relations with shareholders and customers, their organisation, internal oversight framework and key internal systems and functions, as well as statutory bodies and the rules of their cooperation.

The document is available on the KNF website at https://www.knf.gov.pl/knf/pl/komponenty/img/knf_140904_Zasady_ladu_korporacyjnego_22072014_38575.pdf, and on the bank’s website at https://static3.santander.pl/asset/z/a/l/zal.-do-uchwaly-objetej-pkt-13-porzadku-obrad_pl_55449.pdf.

The Principles of Corporate Governance for Supervised Institutions were adopted by Santander Bank Polska S.A. as of 1 January 2015 by virtue of Management Board Resolution no. 116/2014 of 9 October 2014 and Supervisory Board Resolution no. 58/2014 of 17 December 2014.

They were approved by the General Meeting of Santander Bank Polska S.A. on 23 April 2015.

Chapter

Important aspects of application of the Principles of Corporate Governance for Supervised Institutions

Organisation and organisational structure

(Chapter 1)

· The organisation of the bank facilitates the delivery of long-term objectives, among other things by combining strategic planning with analysis of resources required to deliver the objectives. The bank sets its strategic objectives taking into account the character and scale of business activity in its Strategy approved by the Management Board and the Supervisory Board.

· The bank has a transparent and appropriate organisational structure with functions assigned to organisational and tasks allocated to Management Board members, head office units, branches and specific groups of positions. The effectiveness of the bank’s structure is analysed on an ongoing basis, taking into account market trends and benchmark data. The bank’s structure is available at: https://www.santander.pl/en/investor-relations/about-company/authorities.

Chapter

Important aspects of application of the Principles of Corporate Governance for Supervised Institutions

Organisation and organisational structure

(Chapter 1 cont.)

· The organisation of the bank makes it possible to change priorities as part of quarterly planning and business review. Furthermore, the bank’s Special Situations Management Policy adopted by the Management Board and approved by the Supervisory Board describes measures taken by the bank in the case of significant deterioration of its financial position or occurrence of operational events that disrupt or prevent the bank from conducting its business activity. The bank also has the Business Continuity Management Model in place.

· The bank’s employees may anonymously report breaches using the whistleblowing channels available at the bank without fear of retaliation from managers or colleagues. The effectiveness of the procedure for anonymous reporting of breaches by employees is assessed at least once a year by the Supervisory Board.

Relations with supervised institution's shareholders

(Chapter 2)

· The bank conducts its activity taking into account the interests of all stakeholders as long as they are not contrary to the interests of the bank. To that end, the bank has adopted a series of regulations which establish detailed principles ensuring compliance with the above assumptions, such as the General Code of Conduct and the Conflict of Interest Prevention Policy.

· The bank provides its shareholders with appropriate access to information and facilitates their participate in General Meetings, as described in detail in the section on Best Practice for GPW Listed Companies 2016 and 2021.

· By exercising oversight, the shareholders contribute to effective and proper functioning of the Management Board and Supervisory Board. Members of the Management Board do not exercise their voting rights attached to shares held during General Meetings. 50% of the Supervisory Board members meet the independence criterion, which prevents worsening of the effectiveness of the shareholder oversight.

· The bank’s shareholders do not hold any individual or other specific rights. Each share of the bank gives one vote at the General Meeting.

· Transactions with related parties are made in line with legal and tax requirements. The bank has relevant internal policies in place, ensuring that such transactions are made in the interest of the bank, are transparent and comply with market standards.

· If, as a result of any sudden and unexpected events, the bank’s capital adequacy ratio or the liquidity ratio falls below the level required by law and the KNF recommendations with respect to the banking sector or to the bank, the bank’s parent entity will ensure that available measures are taken to immediately restore the required levels.

· The purpose of the bank’s dividend policy is to ensure optimal capital structure of the bank and Santander Bank Polska Group. The bank’s Management Board recommends payment of dividend by way of a resolution, taking into account prudent management of the bank and capital surplus over the acceptable capital ratios, as well as laws, dividend policy and recommendations and individual guidance issued by supervisory authorities.

Management body

(Chapter 3)

· The bank is managed by the Management Board which is a collective body. All members of the Management Board meet the criteria arising from law, Best Practice for GPW Listed Companies, regulatory recommendations and Principles of Corporate Governance for Supervised Institutions, giving assurance of proper performance of their duties. It is verified by the Nominations Committee and the Supervisory Board as part of suitability assessment conducted before appointment of the Management Board members and periodically (at least annually).

· The Management Board is the only body with the authorisation and duty to manage the bank’s operations. While pursuing the adopted strategy, the Management Board is guided by safety of the bank, applicable law, recommendations of supervisors and internal regulations of the bank.

· Members of the Management Board are collectively responsible for decisions which are within its remit, irrespective of the internal division of responsibility for particular areas of operations. The internal division of powers among Management Board members is based on the organisational structure and adopted in the form of the Management Board resolution approved by the Supervisory Board.

· None of the Management Board members conducts an activity which could lead to a conflict of interest or adversely affect his or her reputation as a member of the Management Board.

· There is a succession plan for Management Board members, approved by the Supervisory Board, which enables their immediate replacement.

Chapter

Important aspects of application of the Principles of Corporate Governance for Supervised Institutions

Supervisory body

(Chapter 4)

· The bank is supervised by the Supervisory Board. All members of the Supervisory Board meet the criteria arising from law, Best Practice for GPW Listed Companies, regulatory recommendations and Principles of Corporate Governance for Supervised Institutions, giving assurance of proper performance of their duties. It is verified by the Nominations Committee as part of suitability assessment conducted before appointment of the Supervisory Board members and periodically (at least annually). The suitability assessment is submitted to the General Meeting for approval.

· The composition of the Supervisory Board ensures an appropriate number of persons who speak Polish (four out of ten members) and have appropriate experience and knowledge of the Polish financial market (six out of ten members). The Supervisory Board members who do not speak Polish take advantage of the assistance of interpreters and documentation translated into English.

· Half of the members of the Supervisory Board (including all members of the Audit and Compliance Committee and its Chairman) have independent status.

· As part of its tasks described in its Terms of Reference, the Audit and Compliance Committee monitors the performance of financial audit activities and agrees the rules of conducting these activities, including their proposed plan. The co-operation of the Audit and Compliance Committee and of the Supervisory Board with the external auditor is documented in the reports and letters addressed to these bodies and in the minutes of their meetings.

· Members of the Supervisory Board actively perform their functions and are sufficiently engaged in the work of the Supervisory Board, as demonstrated e.g. by high attendance at the meetings in 2021. All members of the Supervisory Board give assurance of proper performance of their duties. Specifically, all members of the Supervisory Board meet the criteria set out in Article 22aa of the Banking Law related to the maximum number of functions performed.

· The Supervisory Board exercises ongoing oversight of the bank’s operations and takes preventive and remedial measures.

· There is a succession plan for Supervisory Board members which enables their immediate replacement.

· Each year, the Supervisory Board assesses compliance with the Principles of Corporate Governance for Supervised Institutions. A relevant statement in this respect is an element of the report on the Supervisory Board’s activities and is available on the website at: https://www.santander.pl/relacje-inwestorskie/dobre-praktyki

Remuneration Policy

(Chapter 5)

· The rules regarding remuneration for members of the Management Board and the Supervisory Board are set out in the Remuneration Policy for Members of the Management Board of Santander Bank Polska S.A. and in the Remuneration Policy for Members of the Supervisory Board of Santander Bank Polska Group approved by the General Meeting. The bank also has the Remuneration Policy of Santander Bank Polska Group approved by the Supervisory Board and updated in May 2020.

· The Supervisory Board oversees the remuneration policy, including verification of the criteria for payment of variable components of remuneration. The Supervisory Board submits a report on the remuneration policy to the General Meeting, indicating whether the policy supports the bank’s growth and security.

· The remuneration of the Management Board members is set by the Supervisory Board and the remuneration of the Supervisory Board members is set by the General Meeting, considering the functions performed and the scale of the bank’s business. The Supervisory Board members who sit on committees are remunerated for additional tasks performed.

· Remuneration regulations for key function holders (other than Management Board members) are adopted and supervised by the Management Board.

· Variable remuneration is awarded to the Management Board members based on the evaluation of their performance. Variable remuneration for the bank’s Management Board members and its key managers depends on the assessment of the company’s long-term financial position, long-term growth in shareholder value, stability of the company’s operations and risk appetite.

· Members of the bank’s Management Board do not receive remuneration for performing duties of supervisory board members in the companies to which they have been designated by the bank.

Chapter

Important aspects of application of the Principles of Corporate Governance for Supervised Institutions

Communication Policy

(Chapter 6)

· The bank has a communication policy in place, providing clear and reliable information to its shareholders, customers and other stakeholders. The policy provides for active measures to be taken by the bank to satisfy information requirements of its stakeholders. The bank communicates with capital market participants in a way that is adjusted to the needs of specific groups.

· The bank’s information policy is available on the bank’s website at: https://www.santander.pl/relacje-inwestorskie/dokumenty-korporacyjne#dokument=5. Detailed information about its assumptions is presented in the section on application of Best Practice for GPW Listed Companies 2016 and 2021.

Promotional activities and client relations

(Chapter 7)

· The Consumer Protection Policy of Santander Bank Polska S.A. establishes the criteria for identification, organisation and protection of consumer rights in all activities of the bank, including as part of the use of customer-centric model of products and services, agreed rules for communication, complaints handling and application of predefined control mechanisms.

· When offering financial products and services, the bank is focused on providing customers with accurate information and meaningful explanations. Customer complaints are handled by the Customer Care Office in accordance with clear and transparent rules.

· The bank has formal rules in place with respect to marketing communication and advertising messages, ensuring that they are accurate and not misleading and that they comply with applicable laws, principles of fair trade and good conduct.

Key internal systems and functions

(Chapter 8)

· The bank has an effective and appropriate internal control system in place that covers all levels of the bank’s organisational structure and is annually assessed by the Audit and Compliance Committee and the Supervisory Board.

· The bank ensures independence of the internal audit function and the compliance function. The Head of the Internal Audit Area adheres to international standards for the professional practice of internal auditing and reports directly to the President of the Management Board, with a dotted reporting line to the Chairman of the Audit and Compliance Committee. The head of the compliance function reports directly to the President of the Management Board. The Head of the Audit Area and the head of the compliance function take part in all meetings of the Management Board, the Audit and Compliance Committee, the Risk Committee and the Supervisory Board.

· The bank’s risk management system is organised according to the nature, scale and complexity of the business, taking into account the strategic objectives, the risk management strategy and the risk appetite. It is assessed by the Risk Committee and the Supervisory Board on an annual basis.

Execution of rights resulting from assets acquired at client's risk

(Chapter 9)

· When buying assets at the customer’s risk, the bank (Santander Brokerage Poland) executes the customer’s orders in line with the terms and conditions and the general terms of providing services which include the principle of best execution (Best Execution Policy of Santander Brokerage Poland). The decision making process is duly documented.

Code of Banking Ethics

In addition to the foregoing corporate governance principles, Santander Bank Polska S.A. follows best sector practice established by the Polish Bank Association (ZBP) in the Code of Banking Ethics adopted by the 25th General Meeting of ZBP dated 18 April 2013.

The Code of Banking Ethics is composed of two parts:

· Code of Best Banking Practice – a set of rules to be followed by banks in their relations with customers, employees, business partners and competitors;

· Bank Employee Code of Ethics – rules of conduct for bank employees.

The Code of Banking Ethics is available on the website of the Polish Bank Association at: https://www.zbp.pl/dla-klientow/poradniki-i-rekomendacje.

Internal regulations

The general corporate governance principles are described in detail in the bank’s internal regulations.

The bank has the Group-Subsidiary Governance Model and Guidelines for Subsidiaries as well as Specific Corporate Frameworks in place. The above-mentioned model sets out the basic rules to be followed by the Group in its relations with subsidiaries. It also includes guidelines on management and supervisory bodies and corporate governance concerning key business, support and control functions.

Irrespective of their role, all employees of the bank and the Group must follow ethical principles and rules of conduct established in the General Code of Conduct. It is a set of key principles and values reflecting the corporate culture of Santander Group, whose aim is to build trust and lasting loyalty of employees, customers, shareholders and communities. These rules are strictly connected with the bank’s business strategy and purpose, which is to help people and businesses prosper in a Simple, Personal and Fair way.

The bank’s corporate value model is based on the following eight behaviours: “ Show respect”, “Keep promises”, “Embrace change”, “Bring passion”, “Actively collaborate”, “Support people”, “Talk straight” and “Truly listen”, which are additionally used as a performance review criterion.

The Code is complemented with the following regulations: Code of Conduct in the Securities Markets, Anti-Money Laundering Policy, Anti-Corruption Programme, Conflict of Interest Prevention Policy.

The formal framework of the bank’s corporate culture also includes the Sustainability Policy, which defines the organisation’s approach to sustainable development in terms of responsible banking as well as the bank’s voluntary ethical, social and environmental commitments.

2. Issuer’s Securities

Structure of equity

The table below presents the entities with significant holdings of Santander Bank Polska S.A. shares as at 31 December 2021 and 31 December 2020.

Shareholders with a stake of 5% and higher	Number of Shares and Voting Rights Held			% in the Share Capital and Voting Rights at AGM
Shareholders with a stake of 5% and higher	31.12.2021	31.12.2020	31.12.2021		31.12.2020
Banco Santander S.A.	68 880 774	68 880 774	67,41%		67,41%
Nationale-Nederlanden OFE ¹⁾	5 123 581	5 123 581	5,01%		5,01%
Other shareholders	28 184 959	28 184 959	27,58%		27,58%
Total	102 189 314	102 189 314	100,00%		100,00%

1) Nationale-Nederlanden Otwarty Fundusz Emerytalny (OFE) is managed by Nationale-Nederlanden Powszechne Towarzystwo Emerytalne (PTE) S.A

As at 31 December 2021, Banco Santander S.A. held a controlling stake of 67.41% in the registered capital of Santander Bank Polska S.A. and in the total number of votes at the bank’s General Meeting. The remaining shares were held by the minority shareholders, of which, according to the information held by the bank’s Management Board, only Nationale-Nederlanden Otwarty Fundusz Emerytalny (OFE) exceeded the 5% threshold in terms of share capital and voting power.

According to the information held by the Management Board, the ownership structure did not change in the period from the end of the financial year of 2021 until the release of the Annual Report of Santander Bank Polska Group for 2021.

Rights and restrictions attached to the issuer’s securities

The shares of Santander Bank Polska S.A. are ordinary bearer shares. Each share carries one vote at the General Meeting. The nominal value is PLN 10 per share. All shares are fully paid.

The bank did not issue any series of shares that would give their holders any special control rights towards the issuer or would limit their voting power or other rights. Neither are there any restrictions on the transfer of title to the issuer’s shares.

3. Amendment of the Statutes of Santander Bank Polska S.A.

Any amendments to the Statutes of Santander Bank Polska S.A. may be made by way of a resolution of the General Meeting and must be entered into the register of entrepreneurs of the National Court Register in order to be valid. In accordance with the Banking Law, such amendments also require consent from the Polish Financial Supervision Authority (KNF).

Pursuant to the resolutions of the General Meeting of Santander Bank Polska S.A. of 22 March 2021, the bank’s Statutes were amended as follows to ensure compliance with KNF Recommendation Z:

· The Supervisory Board resolves on its Terms of Reference and informs the General Meeting about new Terms of Reference or any amendments thereto.

· The powers of the Supervisory Board include approval of any internal regulations, where it is required under Recommendation Z, including the corporate governance policy and the key functions identification policy developed by the Management Board as well as the policy for appointment and removal of key function holders, risk management strategy and risk culture framework.

· The annual assessment of the corporate governance system made by the Supervisory Board can be combined with the assessment of the internal control system, risk management system and compliance with the corporate governance framework and other standards applied in the bank.

The bank received a consent from the KNF to amend the Statutes as above. The amendments became effective upon their registration by a registry court on 21 April 2021.

4. Governing Bodies

General Meeting

Organisation and powers of the General Meeting

The bank’s General Meeting is held as provided for in the Commercial Companies Code of 15 September 2000, the bank’s Statutes and the Terms of Reference of the General Meeting. The Statutes as well as the Terms of Reference are available on the bank’s website:

https://www.santander.pl/relacje-inwestorskie/dokumenty-korporacyjne#dokument=6

The Annual General Meeting is held once a year by 30 June. The Extraordinary General Meeting is convened when it is required to take a decision on a specific matter or when such a meeting is requested by eligible parties.

The General Meeting agrees on the issues within its remit, as defined by the above-mentioned laws and internal regulations. The Annual General Meeting:

· reviews and approves the Management Board’s report on the bank’s performance and the financial statements for the previous financial year;

· adopts a resolution on profit distribution or loss coverage;

· gives discharge to the members of the company’s governing bodies;

· reviews and approves the financial statements of the Group within the meaning of the accounting regulations;

· reviews other reports (e.g. report on the activities of the Supervisory Board).

The Annual General Meeting or the Extraordinary General Meeting may:

· adopt a resolution to amend the bank’s Statutes;

· appoint members of the Supervisory Board;

· remove members of the Management Board;

· adopt a resolution to increase share capital;

· decide on a merger with another company;

· adopt a resolution on remuneration policies for members of the Management Board and the Supervisory Board;

· set remuneration for members of the Supervisory Board.

Since 2011, the bank’s shareholders may participate in the General Meeting using electronic communication channels (without the physical presence of themselves or their proxies). This enables two-way real-time communication and makes it possible for shareholders to exercise their voting rights.

Voting (including via electronic communication channels) takes place using an electronic voting system which returns the number of votes ensuring that they correspond to the number of shares held, and in the case of a secret ballot – allows shareholders to remain anonymous. Shareholders may vote in person or by proxy.

The General Meeting is broadcast live online to all interested parties and a recording is available on the bank’s website dedicated to the General Meeting for later review. The information about the planned broadcast is published at least seven days before the date of the General Meeting.

Draft resolutions, rationale, and other submissions to the General Meeting (assessments, reports and opinions of the bank’s Supervisory Board) are published on the bank’s website early enough for the General Meeting participants to read them.

The representatives of the press, radio and TV may also attend the General Meeting.

General Meeting in 2021

On 22 March 2021, the Annual General Meeting of Santander Bank Polska S.A. was held. It approved the 2020 reports submitted by the Management Board and the Supervisory Board, and the Supervisory Board’s assessments of the required areas. It also considered the Management Board's proposal regarding the 2020 profit distribution and the set-up of a capital reserve, approved collective suitability assessment of the Supervisory Board members and the candidates for the Supervisory Board members, granted discharge to the members of the Management Board and the Supervisory Board of the bank, appointed the Supervisory Board Chairman and determined his remuneration. The Annual General Meeting also adopted a resolution to amend the bank’s Statutes to ensure compliance with Recommendation Z.

Shareholders' rights

The rights of shareholders of Santander Bank Polska S.A. are set out in the Terms of Reference of the bank’s General Meeting in line with the Commercial Companies Code.

The fundamental right of shareholders is to attend the General Meeting and vote (personally or through proxies).

Pursuant to the Terms of Reference of the General Meeting, shareholders or their proxies may participate in the General Meeting via electronic communication channels (i.e. they may vote, make an objection, communicate with the meeting room, ask questions, etc.). Each share carries one vote at the General Meeting.

· Shareholders have certain rights with respect to the General Meeting, as specified in the Commercial Companies Code. In particular, they may:

ü object to adopting a resolution;

ü appeal against resolutions adopted by the General Meeting to the court (action for revocation or cancellation of a resolution);

ü request voting by secret ballot;

ü submit draft resolutions and propose amendments and supplements to draft resolutions concerning the business of the General Meeting by the end of discussion of a particular agenda item;

ü ask questions and request information from the Management Board regarding issues on the General Meeting agenda, as provided for by the Commercial Companies Code;

ü apply for the role of the Chairman of the General Meeting or propose a candidate for that role;

ü challenge decisions made by the Chairman of the General Meeting;

ü give a brief presentation and a short response to questions concerning individual items of the agenda.

· Shareholders may also:

ü request that a list of shareholders be emailed to them free-of-charge to the indicated address, inspect the list of shareholders available in the bank’s Management Board office and request a copy of the list at their own expense;

ü demand copies of requests included in the General Meeting agenda one week before the General Meeting;

ü have access to the General Meeting minutes and request copies of resolutions confirmed by the bank’s Management Board as true copies.

The Management Board members, acting within their powers and in accordance with the act on trading in financial instruments, have an obligation to respond to shareholders’ questions which are relevant to the business of the General Meeting (for important reasons only – the response must be given in writing within two weeks of the request). The Management Board refuses to provide the requested information if it might:

ü be prejudicial to the company or its subsidiaries or affiliates due to disclosure of technical, trade or organisational secret;

ü cause a member of the Management Board to face criminal, civil or administrative liability.

Shareholders may request the bank to provide information concerning the bank outside of the General Meeting. In such a case, the Management Board may provide the requested information in writing, unless it might be prejudicial to the bank, its subsidiary or affiliate, in particular due to disclosure of the company’s technical, trade or organisational secret.

If the bank provides information outside of the General Meeting, it publishes a current report with answers to the questions asked.

Supervisory Board

Rules of the procedure of the Supervisory Board

Composition, rules for appointment and removal of Supervisory Board members

The Supervisory Board consists of at least five members appointed for a joint three-year term of office. The Supervisory Board members, including the Chairman of the Supervisory Board, are appointed and removed by the General Meeting. The Management Board informs the KNF about the composition of the Supervisory Board. The term of office of the Supervisory Board member expires no later than on the date of the General Meeting held to approve the financial statements for the last full financial year in which the member served on the Supervisory Board. It also expires as a result of the member’s death, resignation or removal. The term of office of the Supervisory Board member who was appointed before the end of The Supervisory Board of Santander Bank Polska S.A. operates under the Banking Law of 29 August 1997, the Commercial Companies Code of 15 September 2000, the bank’s Statutes and the Terms of Reference of the Supervisory Board, available on the bank’s website.

the term of the Supervisory Board expires at the same time as those of the remaining members.

Pursuant to the bank’s Statutes, at least half members of the Supervisory Board should be of independent status.

Powers of the Supervisory Board

The Supervisory Board exercises ongoing oversight of the bank’s operations. Apart from the rights and obligations provided for by the law and the Statutes, the Supervisory Board also has the following powers:

· to assess the financial statements in terms of their consistency with the books of account, documents and factual circumstances;

· to approve the bank’s annual and long-term development and financial plans, strategy and rules of prudential and stable management established by the Management Board;

· to approve the Management Board’s proposals as regards setting up and winding up the bank’s units abroad;

· to give consent to equity investments to be made by the bank if:

ü the value of such investment exceeds the PLN equivalent of EUR 4,000,000;

ü the value of such investment exceeds EUR 400,000 and, concurrently, as a result of such investment, the bank’s share in another entity will be equal to, exceed or will be reduced below 20% of the votes at the General Meeting;

· with the exception of underwriting agreements, the total exposure of the bank under such agreements does not exceed one tenth of the total own funds of the bank;

· to give consent to buy, sell or encumber non-current assets (as defined in the Accounting Act), in particular real property, if the value of a fixed asset exceeds the PLN equivalent of EUR 4,000,000, except for foreclosure of real property by the bank as a mortgagee, as a result of an unsuccessful auction held as part of enforcement proceedings or foreclosure of another fixed asset or securities by the bank, as a creditor secured by a registered pledge pursuant to the provisions of the Act on registered pledge and the register of pledges, or as a creditor secured by a transfer of title to secure loan repayment pursuant to the provisions of the Banking Law;

· to review the Management Board reports and proposals concerning profit distribution and loss coverage;

· to set remuneration for the President and members of the Management Board;

· to conclude agreements on behalf of the bank with members of the Management Board (where authorised to do so), including employment contracts and management contracts (the Supervisory Board may appoint its Chairman or another member of the Supervisory Board to make statements of will in this respect);

· to adopt the Terms of Reference of the bank’s Management Board and other terms of reference and rules provided for by the Statutes or law, and to approve the bank’s Organisational Regulations and Policy on internal control system;

· to appoint an entity authorised to audit the bank’s financial statements and to conduct financial audits in the bank;

· to request consent from the KNF to appoint two Management Board members, including the President of the Management Board;

· to inform the KNF about:

ü other Management Board members and each change in the Management Board composition;

ü compliance of the Management Board members with the criteria set out in the Banking Law, after performing the compliance assessment;

ü approving and changing the distribution of duties within the Management Board;

ü including the information on the Management Board member in charge of material risk in the bank’s operations;

· to appoint and remove the President and other members of the Management Board;

· to suspend the Management Board members for important reasons and delegate the Supervisory Board members to perform the role of the suspended Management Board members;

· to present the Annual General Meeting with a brief assessment of the bank’s situation, including the assessment of the internal control system and the material risk management system;

· to approve the policies developed by the Management Board: risk management policy, risk appetite, internal capital assessment and maintenance policy, internal control policy, remuneration policy, for each category of employees whose professional activity has a significant impact on the bank’s risk profile;

· to approve the distribution of duties within the Management Board as decided by the Management Board;

· to review the matters to be considered by the General Meeting.

The Supervisory Board takes decisions in the form of resolutions which are adopted by absolute majority in open voting. The Supervisory Board adopts resolutions in a secret ballot in the cases stipulated by law. The Supervisory Board meetings are held as and when required and at least three times in any financial year. The Supervisory Board members convene in a single location, or in different locations using remote communication channels.

Selected forms of communication with the shareholders

Each year, the Supervisory Board prepares and presents to the Annual General Meeting a report on its activities in the previous year, including a summary of operations of the Supervisory Board Committees, a report from the audit of the annual financial statements of the Group and the Management Board’s proposal of profit distribution, as well as assessment of the Group’s activities (including internal control, risk management and compliance systems and internal audit function), corporate governance practices, remuneration policy and sponsorship and corporate giving policy. The above report of the Supervisory Board is published on the bank’s website at least 26 days before the General Meeting.

Suitability assessment

All Supervisory Board members are subject to individual suitability assessment (initial and ongoing). The Supervisory Board is also subject to collective suitability assessment. The foregoing processes are delivered in accordance with the Policy on suitability assessment of Supervisory Board members in Santander Bank Polska S.A. developed in line with the Joint Guidelines of the European Securities and Markets Authority and the European Banking Authority no. EBA/GL/2017/12, Guidelines of the European Banking Authority no. EBA/GL/2017/11 on internal governance, and the applicable laws, in particular the Banking Law Act and the Commercial Companies Code. The assessment is conducted according to the Suitability assessment methodology for members of governing bodies of supervised entities published by the KNF. The individual and collective suitability assessments are conducted at least once a year and as required under the above-mentioned policy, e.g. when candidates are proposed for the Supervisory Board positions (in this case, the assessment should be generally performed before the formal appointment), when membership of the Supervisory Board changes or when the bank’s business model is significantly modified. The Supervisory Board presents the results of the suitability assessment at the next General Meeting.

Composition of the Supervisory Board

The table below presents the composition of the Supervisory Board of Santander Bank Polska S.A. as at 31 December 2021 and 31 December 2020.

Role in the Supervisory Board	Ref.	Composition as at 31.12.2021	Ref.	Composition as at 31.12.2020
Chairman of the Supervisory Board:	1.	Antonio Escámez Torres	1.	Gerry Byrne
Vice Chairman of the Supervisory Board:	2.	José Luís de Mora	2.	José Luís de Mora
Members of the Supervisory Board:	3.	Dominika Bettman	3.	Dominika Bettman
	4.	José García Cantera	4.	José García Cantera
	5.	Danuta Dąbrowska	5.	Danuta Dąbrowska
	6.	Isabel Guerreiro	6.	Isabel Guerreiro
	7.	David Hexter	7.	David Hexter
	8.	John Power	8.	John Power
	9.	Jerzy Surma	9.	Jerzy Surma
	10.	Marynika Woroszylska-Sapieha	10.	Marynika Woroszylska-Sapieha

In 2021, the Nominations Committee of the Supervisory Board of Santander Bank Polska S.A. assessed the individual suitability of the Supervisory Board members as well as collective suitability of the Supervisory Board of Santander Bank Polska S.A. in accordance with the applicable regulations and the Suitability assessment methodology for members of governing bodies of supervised entities published by the KNF. These were ongoing annual suitability assessments. Additionally, the Committee assessed the individual suitability of Antonio Escámez Torres, who had not performed any role on the bank’s Supervisory Board before.

The Annual General Meeting held on 22 March 2021 approved the results of the suitability assessments. Following Gerry Byrne’s resignation from his role on the Supervisory Board on 22 February 2021, effective as of the date of the Annual General Meeting, the General Meeting held on 22 March 2021 appointed Antonio Escámez Torres as the Chairman of the Supervisory Board.

Pursuant to the bank’s Statutes, Terms of Reference of the Supervisory Board and Terms of Reference of the Audit and Compliance Committee, half of the members of the Supervisory Board met the independence criteria The following members of the Supervisory Board held independent status: Dominika Bettman, Danuta Dąbrowska, David Hexter, Jerzy Surma and Marynika Woroszylska-Sapieha. Each of the above persons made a relevant statement which is subject to suitability assessment. The results of individual and collective suitability assessments of the Supervisory Board are approved by the Supervisory Board in the form of a resolution.

In 2021, the members of the Supervisory Board committed sufficient time to perform their functions. Last year, 23 Supervisory Board meetings were held at which 171 resolutions were passed. Average attendance of the Supervisory Board members was 97.66%.

The table below presents the attendance of Supervisory Board members:

Role in the Supervisory Board	Ref.	Composition as at 31.12.2021		Attandance at the meetings in 2021				Ref.			Composition as at 31.12.2020	Attandance at the meetings in 2021
Chairman of the Supervisory Board:	1.	Antonio Escámez Torres¹⁾	17/17			100%		1.	Gerry Byrne			18/18	100%
Vice Chairman of the Supervisory Board:	2.	José Luís de Mora	19/23			83%		2.	José Luis de Mora			17/18	94%
Members of the Supervisory Board:	3.	Dominika Bettman	23/23			100%		3.	Dominika Bettman ²⁾			9/9	100%
	4.	José García Cantera	20/23			87%		4.	José Garcia Cantera			17/18	94%
	5.	Danuta Dąbrowska	22/23			96%		5.	Danuta Dąbrowska			18/18	100%
	6.	Isabel Guerreiro			21/23		91%	6.		Isabel Guerreiro		18/18		100%
	7.	David Hexter			22/23		96%	7.		David Hexter		18/18		100%
	8.	John Power			23/23		100%	8.		John Power		18/18		100%
	9.	Jerzy Surma			21/23		91%	9.		Jerzy Surma		17/18		94%
	10.	Marynika Woroszylska-Sapieha			21/23		91%	10.		Marynika Woroszylska-Sapieha		17/18		94%

1) Antonio Escámez Torres was appointed a new member and the Chairman of the Supervisory Board by the General Meeting held on 22 March 2021, replacing Gerry Byrne, who in 2021 attended six out of six Supervisory Board meetings held during his service.

2) Dominika Bettman was appointed a member of the Supervisory Board on 22 June 2020 and was present during all meetings held after that date.

Members of the bank’s Supervisory Board have various academic background, extensive expertise and considerable professional experience in banking and business, including finance, accounting, financial analysis, IT law and economics. Individual competencies and experience of the Supervisory Board members guarantee due performance of the obligations entrusted with them, while their complementarity ensures effective discharge of collective supervisory obligations. The diversity of the Supervisory Board in terms of gender, age, geographical provenance and length of service with the bank is presented in Section 6 “Diversity Policy” (“Diversity policy regarding the governing bodies”).

The information about the academic background and professional experience of the bank’s Supervisory Board members is presented below.It is also published n the bank’s website at https://www.santander.pl/en/investor-relations/about-company/authorities.

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Supervisory Board committees

The Supervisory Board may establish committees and designate individuals responsible for managing the work of such committees. These committees are designed to facilitate the current activities of the Supervisory Board by preparing draft Supervisory Board recommendations and decisions with regard to their own motions or the motions presented by the Management Board.

The following Supervisory Board committees operate in Santander Bank Polska S.A.: Audit and Compliance Committee, Risk Committee, Nominations Committee and Remuneration Committee. The responsibilities of these committees are set out in their respective terms of reference introduced by virtue of the Supervisory Board resolutions.

The table below presents the membership of the Supervisory Board committees and attendance at the their meetings.

			Composition of the Supervisory Board committees and attendance of their members at the meetings in 2021 and 2020
Role in the Supervisory Board	No.	Members of the Supervisory Board as at 31/12/2021	Audit and Compliance Committee		Risk Committee		Nominations Committee		Remuneration Committee
Role in the Supervisory Board	No.		2021	2020	2021	2020	2021	2020	2021	2020
Chairman of the Supervisory Board:	1.	Antonio Escámez Torres ¹⁾		-		-		-		-
Deputy Chairman of the Supervisory Board:	2.	José Luis de Mora					6/6	5/5	4/5	3/4
Members of the Supervisory Board:	3.	Dominika Bettman ²⁾	9/9	5/5	7/7	4/4			5/5	2/2
	4.	José Garcia Cantera
	5.	Danuta Dąbrowska	9/9	8/8			6/6	5/5	5/5	4/4
	6.	Isabel Guerreiro
	7.	David Hexter ³⁾	9/9	8/8	7/7	6/6	1/1	_
	8.	John Power			7/7	6/6
	9.	Jerzy Surma	9/9	8/8	7/7	6/6	6/6	5/5
	10.	Marynika Woroszylska-Sapieha	9/9	8/8			6/6	5/5	5/5	4/4
Number of meetings in a given year			9	8	7	6	6	5	5	4

1) Antonio Escámez Torres was appointed the Chairman of the Supervisory Board on 22 March 2021, replacing Gery Byrne, who attended all meetings of the Nominations Committee (2) and the Remuneration Committee (3) held in 2021 until his resignation.

2) Dominika Bettman has been a member of the Supervisory Board and the above-mentioned Committees since 22 June 2020 and was present during all meetings of those Committees held after that date.

3) David Hexter has been a member of the Nominations Committee since 29 September 2021 and was present during all meetings of that Committee held after that date.

The operations of the Supervisory Board committees in the last year will be presented in the report on activities of the Supervisory Board in 2021, which will be submitted to the next General Meeting of Santander Bank Polska S.A. and published in due course before that meeting.

Audit and Compliance Committee

The Audit and Compliance Committee supports the Supervisory Board in fulfilment of its oversight obligations towards shareholders and other stakeholders in terms of:

ü the quality and integrity of the accounting policies, financial statements and disclosure practices;

ü compliance of the bank’s business with laws and internal regulations;

ü independence and effectiveness of activities undertaken by internal and external auditors;

ü internal control system and risk management system.

The Committee also establishes procedures the procedure for auditor selection by the bank (the main assumptions of the Policy of Auditor Selection at Santander Bank Polska S.A. are presented in Section 8 “External Auditor”, Subsection “Selection of the external auditor”), develops the auditor services policy, as well as prepares and submits recommendations to the Supervisory Board regarding appointment, re-appointment and removal of the external auditor in accordance with the applicable laws and the Policy of Auditor Selection at Santander Bank Polska S.A. The Committee assesses the independence of the statutory auditor, gives consent for such auditor to render other permitted non-audit services and monitors financial audits.

An important role of the Committee is also to support the Supervisory Board in overseeing the compliance function and compliance risk management. To that end, the Committee conducts regular reviews of key compliance matters and changes in the regulatory environment, and assesses measures taken by the Management Board in this respect.

In 2021, the Committee exercised ongoing oversight of the bank’s financial reporting and reviewed key controls, particular financial, operational, and regulatory compliance controls. As part of monitoring of the internal audit function, compliance function and control function, the Committee obtained information required to assess the effectiveness and efficiency of the internal control system and presented a relevant opinion to the Supervisory Board in this respect, noting that the system is adequate and effective in the context of the assessment criteria established by the Management Board and approved by the Supervisory Board. Likewise, the Committee deemed the risk management system of the bank to be adequate and effective.

The Committee conducted an ongoing review of matters within its remit, including regulatory, compliance, corporate governance, bancassurance and anti-money laundering issues, ICM/ SOX certification, Respect and Dignity Policy (breaches reported in confidence by employees) and other supervisory matters.

In 2021, the Committee regularly supervised the activities of the Internal Audit Area and positively assessed its operations in 2020, concluding that the Area was independent of other functions and that its operations were appropriate, effective and efficient.

Pursuant to its Terms of Reference, the Audit and Compliance Committee should convene at least four times per year at dates corresponding to the reporting and audit cycle. Additional meetings are held when necessary. In 2021, nine Committee meetings were held.

In 2021, the Committee issued a recommendation to the Supervisory Board to appoint PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp.k. (formerly: PricewaterhouseCoopers Sp. z o.o.) to review and audit the financial statements of the bank and Santander Bank Polska Group for 2021 and 2022. The recommendation met all the required criteria and was presented to the Supervisory Board as part of the selection procedure carried out in accordance with the applicable principles (re-appointment of the auditor). The process included, among other things, the assessment of PwC’s independence and the quality of services provided to date.

Furthermore, in 2021 the Committee gave consent to PwC and other entities from its network to provide permitted non-audit services. Before the relevant recommendations were presented to the Supervisory Board, the independence of the auditor had been verified with a positive outcome. Detailed information about the foregoing services is presented in Section 8 “External Auditor”, Subsection: “Permitted non-audit services”.

As at 31 December 2021, all members of the Audit and Compliance Committee met the independence criteria in accordance with the bank’s Statutes and the Act of 11 May 2017 on statutory auditors, audit firms and public oversight.

The following Committee members have knowledge and skills in the area of accounting or auditing:

· Danuta Dąbrowska: ACCA certificate and membership since 1999.

· Dominika Bettman: degree in economics and extensive professional experience gained in previous positions, including as CFO at companies from Siemens Group.

· David Hexter: degree in economics, professional experience gained in executive positions in financial institutions.

The following Committee members have knowledge and skills in the area of banking:

· David Hexter: competencies gained in executive positions in the banking and financial services sectors, including in Citibank and the EBRD.

· Dominika Bettman: competencies gained as the Member of the Supervisory Board of Eurobank S.A.

Apart from the Committee members, the regular attendees also include representatives of the bank’s Auditor, the Vice President of the Management Board in charge of the Risk Management Division, the member of the Management Board in charge of the Financial Accounting and Control Division, the member of the Management Board in charge of the Financial Management Division, the Head of the Internal Audit Area and the Bank Director in charge of the Legal and Compliance Division. Other members of the Management Board and executives are also invited to attend the Committee meetings to present reports and discuss issues related to the areas under their management.

Risk Committee

The Risk Committee is specifically responsible for:

ü issuing opinions on the bank’s current and future risk propensity;

ü issuing opinions on the risk management strategy developed by the bank's Management Board and supervising its delivery;

ü supporting the Supervisory Board in overseeing the implementation of the risk management strategy by the senior management;

ü checking if the prices of liabilities and assets offered to customers match the bank’s business model and risk management strategy, and if not – making a proposal to the Management Board to ensure adequacy of asset and liability prices in relation to different risk types;

ü issuing opinions in relation to appointment and removal of the Management Board member in charge of risk management and opinions on his/her annual objectives and their delivery.

The Risk Committee convenes at least four times per year at dates corresponding to the reporting and audit cycle. Additional meetings are held when necessary. In 2021, seven Committee meetings were held.

Nominations Committee

The Nominations Committee supports the Supervisory Board in performing its tasks, issues recommendations on appointment and removal of members of the Supervisory Board, Management Board and other key function holders by the bank’s relevant bodies, and contributes to the performance of the bank's duties with respect to the assessment of the suitability of members of the Supervisory Board, Management Board and key function holders.

The Nominations Committee holds regular meetings four times a year, as per the schedule agreed upon at the beginning of the year. Additional meetings are held when necessary. In 2021, six Committee meetings were held.

Remuneration Committee

The Remuneration Committee supports the Supervisory Board in performing its tasks concerning remuneration of members of the bank’s governing bodies and key function holders, reviews and monitors the Remuneration Policy and supports the General Meeting, the Supervisory Board and the Management Board in developing and implementing that Policy.

The Committee holds regular meetings four times a year, as per the schedule agreed upon at the beginning of the year.Additional meetings are held when necessary. In 2021, five Committee meetings were held.

Management Board

Appointment and removal of executives

Members of the Management Board of Santander Bank Polska S.A. are appointed and removed in accordance with the Commercial Companies Code, Banking Law and the bank’s Statutes.

The bank’s Management Board consists of at least three persons (including the Management Board President) appointed by the Supervisory Board for a joint three-year term of office. At least half of the Management Board members (including the Management Board President) are required to speak Polish, have a university degree, be permanent residents of Poland, have good knowledge of the Polish banking sector and experience of the Polish market to manage a Polish banking institution. Two Management Board members, including the Management Board President, are appointed with the approval of the KNF. Management Board members may be removed by the Supervisory Board or the General Meeting at any time.

The term of office of the Management Board member expires no later than on the date of the General Meeting held to approve the financial statements for the last full financial year in which the member served on the Management Board. It also expires as a result of the member's death, resignation or removal. The term of office of the Management Board member who was appointed before the end of the term of the Management Board expires at the same time as those of the remaining members.

All Management Board members are subject to individual suitability assessment (initial and ongoing). The Management Board is also subject to collective suitability assessment. The foregoing processes are delivered in accordance with the Policy on suitability assessment of Management Board members and key function holders in Santander Bank Polska S.A. developed in line with the Joint Guidelines of the European Securities and Markets Authority and the European Banking Authority no. EBA/GL/2021/06, Regulation of the Minister of Finance of 7 May 2018 on specific tasks of the nomination committees in significant banks, and other applicable laws, in particular the Banking Law Act and the Commercial Companies Code. The assessment is also conducted according to the Suitability assessment methodology for members of governing bodies of supervised entities published by the KNF. The individual and collective suitability assessments are conducted at least once a year and as required under the above-mentioned policy, e.g. when candidates are proposed for the Management Board positions (in this case, the assessment should be generally performed before the formal appointment), when membership of the Management Board changes or when the bank’s business model is significantly modified.

Due to expiry of the term of office of the Management Board, on 22 March 2021 the Supervisory Board appointed existing members of the bank’s Management Board for a new term of office, except for Michael McCarthy, who had announced his decision not to apply on 18 March 2021. On 26 May 2021, the Supervisory Board appointed Lech Gałkowski as a member of the bank’s Management Board. The individual and collective suitability assessments confirmed that each member of the Management Board and the Management Board as a whole have appropriate knowledge and skills and meet all the suitability criteria to perform their functions.

Pursuant to Article 22b(1) of the Banking Law Act, the Management Board President and the Management Board member in charge of material risk management are appointed with the approval of the KNF. Such approval was required in relation to the appointment of Michał Gajewski as the President of the Management Board and Andrzej Burliga as the Vice President of the Management Board in charge of the Risk Management Division and the Business Intelligence Area.

Powers of executives

The Management Board of Santander Bank Polska S.A. manages and represents the bank.

The Management Board takes decisions to raise obligations or transfer assets where the total value for one entity exceeds 5% of the bank’s own funds. It may also, by way of resolution, delegate its powers to take such decisions to other committees or persons at the bank. The Management Board members run the bank’s affairs jointly, and in particular: define the bank’s mission, set long-term action plans and strategic objectives, prepare assumptions for the bank’s business and financial plans, approve proposed plans and monitor their performance, regularly report to the Supervisory Board on the bank’s position in the scope and at the dates agreed with the Supervisory Board, appoint permanent or ad hoc committees and designate individuals responsible for managing the work of such committees. The committees are composed of both Management Board members and persons from outside the Management Board.

Management Board members acting severally do not have any specific powers and cannot take decisions on issuing or redeeming shares.

Permanent committees operating at the bank include:

· Assets and Liabilities Committee (ALCO)

· Credit Policy Forum for Retail Portfolios

· Credit Policy Forum for SME Portfolios

· Credit Policy Forum for Business and Corporate Portfolios

· Provisions Committee

· Operational Risk Management Committee (ORMCO)

· Disclosure Committee

· Information Management Committee

· Risk Management Committee

· Model Risk Management Committee

· Savings and Investment Products Strategy Committee (Deposit Working Group)

· Marketing Forum

· Credit Risk Committee

· Market and Investment Risk Committee

· Regulatory and Reputational Risk Committee

· Anti-Money Laundering and Counter-Terrorism Financing Committee

· Procurement Investment Committee

· Credit Committee

· Local Marketing and Monitoring Committee

· Public Policy Committee

· Restructuring Committee

· Responsible Banking and Corporate Culture Committee

· Capital Committee

· Suppliers Panel

· Capital Stress Test Forum

· Investment Advisory Committee

· Risk Control Committee

· Special Situations Management Committee

· Operations Committee of the Business Model Transformation Area

· General Compliance Committee

Rules of procedure of the Management Board

The Management Board operations are primarily governed by Banking Law, the Commercial Companies Code, the bank’s Statutes and the Terms of Reference of the Management Board, available on the bank’s website.

According to the bank’s Statutes, the following individuals are authorised to represent and bind the bank: a) the Management Board President acting individually, and b) two members of the Management Board acting jointly, or a member of the Management Board acting jointly with a commercial representative (prokurent), or two commercial representatives acting jointly. Attorneys may be appointed and authorised to act individually or jointly with any of the persons indicated in b) or with another appointed and authorised attorney.

The Management Board deals with all issues which have not been restricted to the remit of the General Meeting or the Supervisory Board. The Management Board takes decisions in the form of resolutions which are adopted by absolute majority in open voting.

The Management Board adopts resolutions in a secret ballot in cases stipulated by law. Management Board meetings are held as required. The Management Board members convene in a single location, or in different locations using remote communication channels.

The table below presents the composition of the Management Board of Santander Bank Polska S.A. as at 31 December 2021 and 31 December 2020 and the roles and responsibilities of its members. The bank’s organisational structure is presented in Chapter X “Organisational and Infrastructure Development”.

Role in the Management Board

No.

Composition as at 31.12.2021

Reporting area as at 31.12.2021

No.

Composition as at

31.12.2020

Reporting area as at

31.12.2020

President of the Management Board:

1.

Michał Gajewski

Units reporting directly to the President:

1) Legal and Compliance Division

2) Units outside of the divisional structure:

Internal Audit Area, Corporate Communication and Marketing Area, Strategy and Transformation Area, Corporate Governance Department, Classified Data Protection Unit

1.

Michał Gajewski

Units reporting directly to the President:

1) Legal and Compliance Division

2) Units outside of the divisional structure:

Internal Audit Area, Corporate Communication and Marketing Area, Strategic and Business Model Transformation Area, Customer Excellence Centre, Classified Data Protection Unit, Corporate Governance Office

Vice Presidents of the Management Board:

2.

Andrzej Burliga

1) Risk Management Division

2) Business Intelligence Area (unit outside the divisional structure)

2.

Andrzej Burliga

1) Risk Management Division

2) Business Intelligence Area (unit outside the divisional structure)

-

3.

Michael McCarthy

Business and Corporate Banking Division

3.

Juan de Porras Aguirre

Corporate and Investment Banking Division

4.

Juan de Porras Aguirre

Corporate and Investment Banking Division

4.

Arkadiusz Przybył

Retail Banking Division

5.

Arkadiusz Przybył

Retail Banking Division

Members of the Management Board:

5.

Lech Gałkowski

Business and Corporate Banking Division

-

6.

Patryk Nowakowski

Digital Transformation Division

6.

Patryk Nowakowski

Digital Transformation Division

7.

Maciej Reluga

Financial Management Division

7.

Maciej Reluga

Financial Management Division

8.

Carlos Polaino Izquierdo

Financial Accounting and Control Division

8.

Carlos Polaino Izquierdo

Financial Accounting and Control Division

9.

Dorota Strojkowska

Business Partnership Division

9.

Dorota Strojkowska

Business Partnership Division

All members sitting on the bank’s Management Board as at 31 December 2021 were appointed by the Supervisory Board for a joint three-year term of office on 22 March 2021, except for Lech Gałkowski, who joined the Management Board on 26 May 2021. Furthermore, Michael McCarthy, who sat on the Management Board as at 31 December 2020, decided not to apply for a new term of office on 18 March 2021.

The professional activities of the Management Board members focused on the performance of obligations connected with their role in the Management Board. The Management Board members complied with the limitation of the positions held with other companies, as stipulated in Article 22aa of the Banking Law Act. The succession of the Management Board members and the continued delivery of the business processes at the senior management levels is ensured by the Nomination and Succession Planning Policy for Management Board Members and Key Function Holders at Santander Bank Polska S.A. and the succession plans in place.

The information about the academic background and professional experience of the bank’s Management Board members is presented below. The extended version is also published on the bank’s website at https://www.santander.pl/en/investor-relations/about-company/authorities.

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5. Remuneration Policy

Remuneration of Management and Supervisory Board members

Remuneration of Supervisory Board members

Internal regulations concerning remuneration for supervisory function holders

As at 31 December 2021, the remuneration for the Supervisory Board members was set in accordance with the Remuneration Policy for Members of the Supervisory Board of Santander Bank Polska S.A., which was adopted by virtue of Resolution no. 49 of the Annual General Meeting of 22 June 2020. The foregoing policy complies with EU regulations, Polish laws and corporate governance principles for supervised entities.

Remuneration principles

The remuneration of members of the Supervisory Board of Santander Bank Polska S.A. is set by the bank’s General Meeting, depending on the function performed on the Supervisory Board, membership of the Supervisory Board Committees and the related additional tasks performed. The General Meeting may authorise the Supervisory Board to determine additional remuneration for the Supervisory Board members entrusted with ongoing individual oversight. The remuneration for Supervisory Board members is paid in cash only.

No additional discretionary pension benefits or early retirement programmes are envisaged for the Supervisory Board members.

Amount of remuneration

The amount of remuneration of Supervisory Board members is specified in AGM Resolution no. 30 of 22 March 2021. Members of the Supervisory Board are paid monthly remuneration for performing their role on the Supervisory Board and additional remuneration for participating in each of the meetings of the Supervisory Board Committees on which they sit. The following four members of the Supervisory Board related to Santander Group did not receive remuneration: Gerry Byrne, José García Cantera, Isabel Guerreiro and José Luis de Mora.

The table below presents the remuneration paid to members of the Supervisory Board of Santander Bank Polska S.A. in 2020 and 2021.

First and last name	Position	2021		2020
First and last name	Position	Period	PLN k	Period	PLN k
Gerry Byrne ¹⁾	Chairman of the Supervisory Board	01.01.2021-22.03.2021	-	01.01.2020-31.12.2020	-
Antonio Escámez Torres²⁾	Chairman of the Supervisory Board	22.03.2021-31.12.2021	227	nd.	nd.
José Luis de Mora ¹⁾	Deputy Chairman of the Supervisory Board	01.01.2021-31.12.2021	-	01.01.2020-31.12.2020	-
Dominika Bettman	Member of the Supervisory Board	01.01.2021-31.12.2021	303	22.06.2020-31.12.2020	128
José Garcīa Cantera ¹⁾	Member of the Supervisory Board	01.01.2021-31.12.2021	-	01.01.2020-31.12.2020	-
Danuta Dąbrowska	Member of the Supervisory Board	01.01.2021-31.12.2021	283	01.01.2020-31.12.2020	249
Isabel Guerreiro ¹⁾	Member of the Supervisory Board	01.01.2021-31.12.2021	-	01.01.2020-31.12.2020	-
David Hexter	Member of the Supervisory Board	01.01.2021-31.12.2021	346	01.01.2020-31.12.2020	320
John Power	Member of the Supervisory Board	01.01.2021-31.12.2021	307	01.01.2020-31.12.2020	289
Jerzy Surma	Member of the Supervisory Board	01.01.2021-31.12.2021	329	01.01.2020-31.12.2020	302
Marynika Woroszylska-Sapieha	Member of the Supervisory Board	01.01.2021-31.12.2021	282	01.01.2020-31.12.2020	254

1)	Gerry Byrne, José García Cantera, José Luis de Mora and Isabel Guerreiro did not receive remuneration for their membership of the Supervisory Board.
2)	Antonio Escámez Torres replaced Gerry Byrne as the Chairman of the Supervisory Board as of 22 March 2021.

John Power additionally received PLN 90k in 2020 (PLN 99k in 2020) for his membership of the Supervisory Board of the bank’s subsidiaries.

Remuneration of Management Board members

Internal regulations concerning remuneration for management function holders

The rules regarding fixed and variable components of remuneration for the Management Board members are set out in the Remuneration Policy for Members of the Management Board of Santander Bank Polska S.A. introduced by virtue of Supervisory Board Resolution no. 49 of 22 June 2020 and in the Remuneration Policy of Santander Bank Polska Group updated in July 2021.

Agreements between Santander Bank Polska S.A. and its executives

The Management Board members signed employment contracts with Santander Bank Polska S.A. for the current term of office. The contractual terms and conditions comply with general laws and internal regulations, in particular with the Remuneration Policy for Members of the Management Board of Santander Bank Polska S.A. The Management Board members also signed agreements prohibiting competitive activity after termination of their employment with Santander Bank Polska S.A.

A Management Board member who is not appointed for a new term of office or is removed from the Board is entitled to one-off severance pay. It does not apply to Management Board members who accept a new role in the bank, are removed due to gross violation of their obligations or standards of integrity, culture and professional conduct, resign or are not granted discharge.

Santander Bank Polska S.A. does not have an obligation to pay pension or other similar benefits to former members of the Management Board or the Supervisory Board.

Fixed remuneration

Pursuant to the Statutes of Santander Bank Polska S.A. and the aforementioned regulations, the remuneration of the President and members of the Management Board is set by the Supervisory Board, taking into account recommendations of the Remuneration Committee. The Committee defines the remuneration policy for Management Board members and individual terms and conditions as part of remuneration packages for each Management Board member.

Fixed remuneration includes base salary, additional benefits specified in the internal awarding regulations (e.g. health insurance) as well as severance pay and compensation arising from external regulations.

When determining the amount of the base salary of a Management Board member, the following criteria are specifically taken into account: function performed, scope of organisational responsibility at the bank, qualifications and professional experience and market competitiveness of the remuneration offered. No additional discretionary pension benefits or early retirement programmes are envisaged for the Management Board members.

The table below presents the total remuneration and additional benefits received by members of the Management Board of Santander Bank Polska S.A. in 2021 and 2020 for their membership of the Management Board.

			2021 ¹⁾					2020
First and last name		Position	Period	Remuneration (PLN k)		Additional benefits²⁾ (PLN k)		Period	Remuneration (PLN k)		Additional benefits²⁾
Michał Gajewski	President of the Management Board		01.01.2021-31.12.2021		2 817		174	01.01.2020-31.12.2020		2 603		159
Andrzej Burliga	Vice President of the Management Board		01.01.2021-31.12.2021		1 296		131	01.01.2020-31.12.2020		1 308		123
Michael McCarthy	Vice President of the Management Board		01.01.2021-22.03.2021		297		16	01.01.2020-31.12.2020		1 384		25
Juan de Porras Aguirre	Vice President of the Management Board		01.01.2021-31.12.2021		1 029		701	01.01.2020-31.12.2020		1 478		217
Arkadiusz Przybył	Vice President of the Management Board		01.01.2021-31.12.2021		1 320		101	01.01.2020-31.12.2020		1 332		89
Lech Gałkowski	Member of the Management Board		26.05.2021-31.12.2021		637		62	n/a.		n/a		n/a
Patryk Nowakowski	Member of the Management Board		01.01.2021-31.12.2021		1 053		101	01.01.2020-31.12.2020		972		88
Carlos Polaino Izquierdo	Member of the Management Board		01.01.2021-31.12.2021		1 300		630	01.01.2020-31.12.2020		1 565		254
Maciej Reluga	Member of the Management Board		01.01.2021-31.12.2021		1 053		127	01.01.2020-31.12.2020		972		115
Dorota Strojkowska	Member of the Management Board		01.01.2021-31.12.2021		1 076		101	01.01.2020-31.12.2020		1 074		89

1)	Changes to the composition of the Management Board in 2021 are presented above in “Management Board”.
2)	Additional benefits received by the Management Board members include, among other things, life insurance cover without pension option and, in case of Juan de Porras Aguirre and Carlos Polaino Izquierdo, also medical cover, accommodation, travel expenses and school fees

In 2021, Management Board members were paid allowances in lieu of annual leave of PLN 798.7k. In 2020, no such allowance was paid.

In neither of the analysed periods did Management Board members receive remuneration for their membership of the governing bodies of the subsidiaries or associates.

Variable remuneration

The general rules for determining variable remuneration for Management Board members of Santander Bank Polska S.A. are laid down in the Remuneration Policy for Members of the Management Board of Santander Bank Polska Group, and defined in more detail in the Remuneration Policy of Santander Bank Polska Group.

The annual bonus of a Management Board member depends on the annual base bonus, the availability of the bonus pool and the overall evaluation of the Management Board member’s performance.

Variable remuneration is awarded to the Management Board members based on the evaluation of their performance. The selection of metrics (as well as their granularity) for individual Management Board members takes into account their individual duties and responsibilities in the process of managing the bank.

Based on the actual metrics and evaluation of performance against objectives under WHAT, HOW and RISK categories as well as relevant weights assigned to them, the rating is established and adjusted by a multiplier, which arises, among other things, from assessment of performance against a three-year horizon, as proposed by the Supervisory Board Remuneration Committee and approved by the Supervisory Board.

In 2021, the assessment of delivery of the objectives set out in the Responsible Banking Strategy, including measures related to environmental protection and prevention of climate change, became one of the criteria for determining the bonus for members of the Management Board and the Chairman of the Supervisory Board. This process takes into account the progress made in a given year in the following three main areas of the Responsible Banking Strategy: promotion of diversity, financial empowerment and education, and development of green products and services.

The base bonus is set on the basis of an individual scope of responsibility, taking into account market conditions and other criteria. Each year, the Remuneration Committee reviews the performance of each Management Board member in line with a separate policy and a detailed procedure for evaluating the performance of the Management Board members. The final decision on the amount of the annual bonus for the Management Board members is taken by the Supervisory Board based on the Committee’s recommendation.

The level of the annual bonus is determined on the basis of global quantitative, qualitative and risk indicators as well as potential adjustments in respect of unexpected events. The indicators are set in accordance with the bank’s financial plan and strategic goals and take into account risk management requirements. The bank’s performance used to define variable components of remuneration takes into account the cost of credit, the cost of capital, and liquidity risk in a long-term perspective.

The total variable remuneration paid to Management Board members and material risk takers for a given calendar year cannot exceed 100% of the total fixed remuneration paid. However, in exceptional cases, this limit may be increased up to 200% of fixed remuneration subject to the approval of the bank’s General Meeting.

Variable remuneration is awarded in accordance with bonus regulations and paid in cash or financial instruments (shares or related instruments such as phantom stock). The remuneration paid in financial instruments may not be lower than 50% of the total amount of variable remuneration. Payment of min. 40% of variable remuneration (min. 60% in the case of variable remuneration exceeding an equivalent of EUR 1m) is conditional and deferred for the period of at least four years (five years in the case of Management Board members and senior executives). It is paid in equal annual instalments in arrears during the deferral period, unless there are reasons for reduction or non-payment.

The Management Board members may also receive variable remuneration provided for in the long-term incentive programmes designed to reinforce the connection between the long-term financial effectiveness of the bank, expectations of shareholders and awards for executives while adhering to market standards. Subject to certain criteria, the programmes enable their participants to take up a certain number of the bank's shares.

The table below presents awards paid to the Management Board members in 2021 and 2020.

		2021		2020
First and last name	Position	Period	Awards paid ²⁾ (PLN k)	Period	Awards paid ²⁾ (PLN k)
Michał Gajewski	President of the Management Board	01.01.2021-31.12.2021	1 713	01.01.2020-31.12.2020	2 058
Andrzej Burliga	Vice President of the Management Board	01.01.2021-31.12.2021	617	01.01.2020-31.12.2020	910
McCarthy Michael	Vice President of the Management Board	01.01.2021-22.03.2021	850	01.01.2020-31.12.2020	1 193
Juan de Porras Aguirre	Vice President of the Management Board	01.01.2021-31.12.2021	1 008	01.01.2020-31.12.2020	1 413
Arkadiusz Przybył	Vice President of the Management Board	01.01.2021-31.12.2021	744	01.01.2020-31.12.2020	917
Lech Gałkowski	Member of the Management Board	26.05.2021-31.12.2021	n/a	n/a	n/a
Patryk Nowakowski	Member of the Management Board	01.01.2021-31.12.2021	294	01.01.2020-31.12.2020	186
Carlos Polaino Izquierdo	Member of the Management Board	01.01.2021-31.12.2021	616	01.01.2020-31.12.2020	874
Maciej Reluga	Member of the Management Board	01.01.2021-31.12.2021	558	01.01.2020-31.12.2020	663
Dorota Strojkowska	Member of the Management Board	01.01.2021-31.12.2021	533	01.01.2020-31.12.2020	611

1)	Changes to the composition of the Management Board in 2021 are presented above in “Management Board”.
2	The awards paid in 2021 include part of the award for 2016–2019 which was conditional and deferred in time, and non-deferred part of the award paid for 2020..
3)	The awards paid in 2020 include part of the award for 2018, 2017, 2016 and 2015 which was conditional and deferred in time, and non-deferred part of the award paid for 2019 r.

Pursuant to the remuneration system applicable at the bank, Management Board members may be conditionally entitled to a bonus for 2021 which would be paid in part in 2022 and thereafter, if specific criteria are met. As at the date of these financial statements, the Supervisory Board did not take a decision in this respect.

Incentive Programme

As at the approval date of the Annual Report of Santander Bank Polska Group for 2021, the periodical “Performance Shares” Incentive Programme was not renewed.

In 2020, Santander Bank Polska S.A. settled the sixth edition of the three-year incentive programme (6th Incentive Programme) addressed to the employees of the bank and its subsidiaries (up to 250 people) who contributed significantly to an increase in the value of the organisation.

The 6th Incentive Programme was launched under resolution of the bank’s Annual General Meeting of 17 May 2017. Its objective was to retain and incentivise executives and – in the long term – to facilitate the achievement of the quantitative and qualitative indicators at the levels set by the Supervisory Board.

In view of the fulfillment of the economic criteria for payment of the award, on 22 June 2020 the bank’s Annual General Meeting approved the final list of participants in the programme (197 names) and passed a resolution on raising the bank’s share capital by issuing new shares. As part of the programme, the bank issued 101,009 series O shares at PLN 10 per share.

Shares and conditional rights held by Supervisory and Management Board members

As at the release dates of the financial reports for the periods ended 31 December 2021, 30 September 2021 and 31 December 2020, none of the members of the Supervisory Board held any shares or attached conditional rights to shares of Santander Bank Polska S.A.

The table below shows shares and attached conditional rights to shares of Santander Bank Polska S.A. held by Management Board members as at the release dates of the above-mentioned reports.

	23.02.2022	27.10.2021	23.02.2021
Management Board members as at 31.12.2021	Number of shares of Santander Bank Polska S.A.
Michał Gajewski	4 795	4 795	4 795
Andrzej Burliga1)	1 884	3 884	3 884
Lech Gałkowski¹⁾	951	951	n/a.
Michael McCarthy ²⁾	n/a.	n/a	4 403
Patryk Nowakowski ³⁾	-	1 055	1 055
Carlos Polaino Izquierdo	3 126	3 126	3 126
Juan de Porras Aguirre	3 379	3 379	3 379
Arkadiusz Przybył	2 999	2 999	2 999
Maciej Reluga	2 301	2 301	2 301
Dorota Strojkowska	2 732	2 732	2 732
Razem	22 167	25 222	28 674

1) On 24 November 2021 Patryk Nowakowski disposed of all of its shares in Santander Bank Polska S.A. On 13 January 2021 Andrzej Burliga sold 2,000 shares.

2) Lech Gałkowski took up his role as a Management Board member on 26 May 2021.

3) Michael McCarthy decided not to apply for a new term of office as the Management Board member.

Relationship between the remuneration paid to Management Board members and key managers and long-term business and financial objectives of the company

The remuneration policy of Santander Bank Polska S.A., which regulates variable components of remuneration paid to material risk takers (identified employees), has an overall objective to incentivise employees to meet short-, medium- and long-term objectives of the Group, exceed plans, and achieve progress in individual performance.

The criteria that affect the type and amount of fixed and variable remuneration paid to the Management Board members were defined so as to support the delivery of the bank’s business strategy, long-term interests and stability, in particular by:

· setting annual objectives in accordance with the bank’s financial and strategic plans, and assessing the performance of individual Management Board members;

· applying a flexible remuneration policy by maintaining a proper balance between fixed and variable components;

· awarding part of remuneration in the form of financial instruments and deferring payment of variable remuneration for a minimum of four years (with an option to extend that period to five years) ensuring that the bank’s financial performance has influence on remuneration in the long-term perspective;

· applying malus clauses ensuring proper and effective risk management and discouraging excessive taking of risk which might materialise in the deferral period;

· awarding the variable components of remuneration only if it does not represent any threat to the solid capital base of the bank or the Group in the long-term horizon;

· a possibility to set up incentive programmes to support delivery of the bank’s strategy in a three-year perspective (“Performance Shares” programme).

Variable remuneration of identified persons (including the Management Board members) depends on assessment of their individual performance and on the results of their organisational unit, area under management and the bank. The individual performance is assessed in accordance with the standard procedure, based on financial and non-financial criteria. The performance review covers the period of minimum three years and takes into account the bank’s economic cycle and business risk. At least 50% of variable remuneration is paid in the form of phantom stock based on the bank’s shares. In addition, payment of min. 40% of variable remuneration is deferred for the period of at least four years (five years in the case of Management Board members and senior executives). It is paid in equal annual instalments in arrears during the deferral period, unless there are reasons for reduction or non-payment.

Santander Bank Polska Group has a formal process in place for identification, assessment and ex-post review of performance resulting in adjustment of the variable remuneration for identified employees (material risk takers) and other employees subject to those regulations.

The variable components of remuneration for the identified employees responsible for risk management, compliance with the law, internal regulations and market standards, and internal audit are reviewed and monitored by the Remuneration Committee of the Supervisory Board. Variable remuneration of the heads of the compliance and internal audit areas is approved by the Supervisory Board.

In addition, Management Board members and key employees may receive awards under long-term incentive programmes (and take up the bank’s shares at their nominal value). The purpose of these programmes is to retain the above-mentioned staff and improve the efficiency and value of the organisation. The programmes set out in detail the criteria that must be met by the Management Board members and other participants for an award to be granted, and the right of the bank’s Supervisory Board to change the terms and conditions of the incentive programme, e.g. in the event of any substantial deterioration of the financial standing or risk profile. In 2020, the bank completed the 6th Incentive Programme described above in the section on the “Performance Shares” programme.

Other transactions with the bank’s executives

Loans and advances

Loans and advances granted by Santander Bank Polska S.A. to the bank’s managers and their relatives totalled PLN5 996k as at 31 December 2021 vs PLN 6,528k as at 31 December 2020. These facilities were sanctioned on regular terms.

Deposits placed with Santander Bank Polska S.A. by the bank’s executives and their relatives totalled PLN 14 014k as at 31 December 2021 (PLN 18,351k as at 31 December 2020).

Accruals for employee benefits

Accruals for unused holidays of PLN 45 018k (PLN 42,614k in 2020) disclosed in Note 55 to the Consolidated Financial Statements of Santander Bank Polska Group for 2021 also include accruals for unused holidays related to members of the bank’s Management Board.

6. Diverisity Policy

Foundations of the diversity management approach

Santander Bank Polska S.A. complies with the laws on diversity, inclusion and equal opportunities. It is committed to promoting diversity in accordance with best practice and ensuring equal treatment of employees and other stakeholders regardless of their gender, age, education, health conditions, race, religion, national or ethnic origin, political beliefs, trade union membership, family status or sexual orientation.

Aspects such as respect for individuality, promotion of equal treatment and the prevention of discrimination are addressed by a number of policies and procedures applicable at the bank, including the Sustainability Policy, the Human Rights Policy, the Respect and Dignity Policy and the Corporate Culture Policy of Santander Bank Polska Group. These policies are presented in Chapter XIV “Statement on Non-Financial Information for 2021”, Section 4 “Employee Policies and their Outcomes”, Subsection “Protection and promotion of diversity”.

As a signatory to the Diversity Charter (the international initiative supported by the European Commission), Santander Bank Polska S.A. committed itself to respecting and promoting diversity.

Diversity policy regarding the governing bodies

The bank pursues its diversity strategy as part of selection, assessment of suitability and succession of members of supervisory and management bodies. Not only does it strive to ensure that members of the Management and Supervisory Boards have a wide range of capabilities, professional skills, adequate experience and good reputation, but it is also committed to having a balanced representation of men and women on these boards, while ensuring diversity in terms of age, academic and professional background and geographical origin.

The above processes are delivered in a way preventing discrimination on any grounds, particularly based on gender, race, colour, ethnic or social origin, genetic features, religion or beliefs, membership of a national minority, property, birth, disability, age or sexual orientation.

The bank’s internal regulations in this respect are based on the Joint ESMA and EBA Guidelines on the assessment of the suitability of members of the management body and key function holders EBA/GL/2017/12 and complies with the applicable laws, including the Banking Law Act and the Commercial Companies Code. They also comply with new Guidelines EBA/GL/2021/06 effective as of 31 December 2021.

The Management Board Diversity Policy of Santander Bank Polska S.A. promotes diversity among Management Board members in terms of their qualities and skills to ensure different perspectives and extensive experience, prevents exclusion (promotes inclusion) and supports independent judgment and informed decision making based on a wide range of criteria.

Pursuant to the above policy, the Supervisory Board strives to achieve minimum 30% representation of women in the Management Board by 2025 and increase diversity in terms of age and geographical provenance.

Furthermore, the Appointment and Succession Policy for Management Board Members and Key Function Holders of Santander Bank Polska S.A. is to ensure the continuity of business processes delivered by senior managers, while maintaining the best possible balance of the management team in terms of gender, knowledge, skills and experience.

The diversity of the Supervisory Board is governed by the Policy on the Suitability Assessment of the Supervisory Board Members in Santander Bank Polska S.A. and the Nomination and Succession Planning Policy for Supervisory Board Members in Santander Bank Polska S.A., which require that – apart from having adequate education, professional experience and good repute – the candidates for the Supervisory Board and the Management Board positions should possess a wide spectrum of qualities and skills and independence of mind. Moreover, the former policy sets out an objective of 40%–60% female representation on the Supervisory Board by 2025.

To ensure min. 30% share of women on the Management and Supervisory Boards, the Nominations Committee of the Supervisory Board takes into account all personnel of Santander Group and business objectives related to cross-border activities. Further to this, it takes measures to ensure that the succession plans include an appropriate percentage of women to achieve the set objective and that the women considered in such plans are ready to take up their role within the prescribed time frame.

As at 31 December 2021, there were four women on the bank’s Supervisory Board: Danuta Dąbrowska, Dominika Bettman, Isabel Guerreiro and Marynika Woroszylska-Sapieha (40% of membership) and one woman on the Management Board: Dorota Strojkowska, Head of the Business Partnership Division (11% of membership). Women accounted for 26% of the supervisory and management bodies and taking into account key managers –29%. They represented 45% of senior management and 56% of middle management.

The current composition of the Supervisory and Management Boards ensures diversity in terms of gender, age, experience and academic background. The tables and graphs below show diversity of the above-mentioned bodies:

Gender		Women		Men
Supervisory Board		4		6
Management Board		1		8
Age		31-40	41-50		51-60	over 60
Supervisory Board		-	2		5	3
Management Board		-	5		4	-
Years of employment with Santander Bank Polska S.A.		up to 5	6-10		11-15	16-20	21-25	over 26
Supervisory Board		3	5		1	1	-	-
Management Board		2	3		2	1	1	1
Work experience	Number of persons
Supervisory Board	7
Management Board	4

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7. Internal Control and Risk Management Systems

Objective of the internal control system

Santander Bank Polska Group has an internal control system in place, which together with the risk management system (described in Chapter XII “Risk and Capital Management”) is a fundamental element of the Group’s management system.

The internal control system supports decision-making processes, contributes to an increase in operational efficiency of the organisation, and ensures adherence to risk management principles, laws, internal regulations and standards, regulatory requirements and best market practice. The effective system allows the bank to ensure the reliability of financial reporting and its compliance with laws, international standards, internal regulations and supervisory recommendations.

Organisation and operation of the internal control system

The bank’s Management Board is responsible for developing and implementing an effective internal control system in all organisational units, and for updating internal regulations and establishing adequacy and effectiveness criteria for evaluating that system. Its role is to ensure continuity of the system and to verify control mechanisms and procedures, as well as to define and take relevant measures to remove any deficiencies after they are identified. The Supervisory Board monitors the effectiveness of the internal control system and performs annual assessment of adequacy and effectiveness of the control function based on the opinion of the Audit and Compliance Committee.

The internal control system of Santander Bank Polska S.A. is tailored to the organisational structure, risk management system and market environment. It covers the Business Support Centre, branches, partner outlets and subsidiaries. It includes but is not limited to:

· a control function, which includes positions, task forces and organisational units which are responsible for ensuring that the control mechanisms defined as part of such processes as Operational Risk Self-assessment are properly implemented (for more information, please see Chapter XII “Risk and Capital Management”);

· a compliance function, which is a separate organisational unit (Compliance Area and Money Laundering and Terrorist Financing Risk Management Department), whose goal is to support Santander Bank Polska Group’s executives in managing compliance risks to ensure that the Group adheres to laws, regulatory requirements and best practices;

· an internal audit function, i.e. an independent and unbiased organisational unit (Internal Audit Department), which assesses the adequacy and effectiveness of the risk management and internal control system as part of the first and second line of defence, reports critical deficiencies (significant weaknesses) to the bank’s Management Board and to the Supervisory Board or its Audit and Compliance Committees, and recommends measures to be taken to improve existing processes.

The internal control and risk management systems are based on three lines of defence.

Three lines of defence in the internal control and risk management systems

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The Internal Control System Policy of Santander Bank Polska S.A. defines, among other things, the objective, structure and scope of the internal control system. Detailed regulations describe responsibilities as part of the internal control system, rules for identifying processes and risks that are material from the point of view of the control environment, along with their control mechanisms, risk control mechanisms and inspections carried out as part of independent monitoring of control mechanisms. The purpose of monitoring, testing and reporting is to ensure that the control environment is effective in terms of design and operation of the controls, and to strengthen the control culture at all levels within the organisation.

The Group’s internal control system enables regular verification of control mechanisms in terms of their effectiveness. The results are escalated to and reviewed by the bank’s Management Board and the Audit and Compliance Committee of the Supervisory Board of Santander Bank Polska S.A.

Control mechanisms related to financial reporting

One of the key objectives of the internal control system is to ensure full accuracy and credibility of financial reporting.

Data inputs in the source systems are subject to formal operational and approval procedures which state the responsibilities of individual staff members. Data processing for the purpose of financial reporting is subject to relevant control mechanisms and covered by specialist internal controls whose objective is to monitor and test the correctness and accuracy of data. Any manual corrections or management overrides are also under strict control. Santander Bank Polska Group has a business continuity plan in place, which covers all IT systems used to prepare financial reports. The plan is updated on an ongoing basis.

To manage risk associated with the preparation of financial statements, the bank monitors legal and regulatory changes to reporting obligations and updates its accounting principles and disclosures accordingly. The bank exercises oversight of its consolidated entities through its representatives sitting on the supervisory boards of individual subsidiaries.

Financial reporting is subject to multi-stage verification:

· Financial statements are formally approved by the Disclosure Committee, which is responsible for ensuring that the financial disclosures of Santander Bank Polska Group comply with all legal and regulatory requirements before they are released.

· The bank’s management confirms that the control mechanisms in place effectively mitigate the risk of any failure to identify any material error in the financial statements.

· Annual and interim financial statements are also reviewed by the Audit and Compliance Committee of the Supervisory Board and approved by the Supervisory Board.

· The Audit and Compliance Committee monitors the financial reporting process, taking into account information about changes in the accounting and reporting policies, and analyses all recommendations issued for the bank’s Management Board by an external auditor along with the Management Board’s response, and supervises their implementation.

· The effectiveness of control mechanisms related to financial reporting is additionally assessed by an independent external auditor as part of the annual certification process for compliance with the Sarbanes-Oxley Act.

Internal control under the Sarbanes-Oxley Act and other regulations

In the light of the Sarbanes-Oxley Act, Santander Bank Polska Group operates as a material and independent organisation within the structure of Santander Group and as such is required to implement, maintain and assess the effectiveness of the internal control environment pursuant to the above-mentioned act.

The certification process for compliance with the Sarbanes-Oxley Act in 2021 covered all key business areas of Santander Bank Polska S.A. and was carried out using solutions and methodology based on Santander Group’s approach. The scope of testing included risk factors which were particularly significant for the reliability and accuracy of financial statements, taking into account the local control environment.

In view of the requirements arising from external regulations, Santander Bank Polska S.A. took measures to ensure that its internal control system complies with the Volcker Rule (section 619 of Dodd-Frank Wall Street Reform and Consumer Protection Act), RDA/RRF (Basel Committee on Banking Supervision 239: Principles for effective risk data aggregation and risk reporting), the Regulation of the Minister of Finance on the risk management system, internal control system, remuneration policy and detailed method of internal capital estimation in banks, and KNF’s Recommendation H on the internal control system in banks.

The assessment of the design and effectiveness of the internal control system covers all available information and related recommendations, including audit and post-inspection recommendations. Results of assessments and tests form the basis for the bank's management to make representations on the effectiveness of the control environment.

As part of the SOX certification process for 2021, the bank's management confirmed that no incidents had been identified in Santander Bank Polska Group which could significantly affect the relevant processes or threaten the effectiveness of the internal control over financial reporting.

8. External audotor

Entity authorised to audit financial statements

In accordance with the bank’s Statutes and applicable regulations and pursuant to the recommendation of the Audit and Compliance Committee issued in line with the applicable principles, on 23 February 2021 the bank’s Supervisory Board adopted Resolution no. 24/2021 reappointing PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp.k. (PwC) to:

· review the bank’s semi-annual financial statements and the Group’s semi-annual consolidated financial statements for H1 2021 and H1 2022;

· audit the bank’s financial statements and the Group’s consolidated financial statements for 2021 and 2022.

On 9 June 2021, the bank signed an agreement with PwC on the audit and review of financial statements for the above-mentioned periods of 2021. On 3 August 2021, an annex to the agreement was signed in relation to voluntary audit of the condensed interim special purpose financial statements for the period from 1 January to 30 June 2021, which was one of the conditions precedent to payment of an interim dividend.

The audit firm has been providing services to the bank since 2016. The bank uses advice services provided by this firm and other entities from the PwC network. In the bank's view, the above services do not affect the impartiality or independence of the auditor.

Santander Bank Polska S.A. and Banco Santander S.A. retain auditors from the same network, which ensures a consistent approach to the audit process across Santander Group.

Santander Bank Polska S.A. selects an entity authorised to audit financial statements pursuant to the Policy of Auditor Selection (adopted by the Supervisory Board on 4 October 2017 pursuant to the recommendation of the Audit and Compliance Committee, and amended on 25 April 2019). The Policy complies with Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities and the Polish Act of 11 May 2017 on statutory auditors, audit firms and public oversight.

Detailed rules of cooperation with the audit firm and the audit team are specified in the Audit Services Policy of Santander Bank Polska S.A. of 6 May 2021.

Selection of an external auditor

A decision to appoint or reappoint an entity authorised to audit the bank’s and the Group’s financial statements is made by the bank’s Supervisory Board based on the recommendation of the Audit and Compliance Committee.

Pursuant to the Policy of Auditor Selection at Santander Bank Polska S.A., the bank selects an audit firm pursuant to the following rules:

· The bank and the Committee may invite any audit firm to place bids for carrying out statutory audits on condition of a four-year cooling-off period after the end of the relationship following the expiry of the maximum duration of the engagement.

· An audit firm is selected taking into account findings and conclusions made in the final report of the Audit Supervision Authority (KNA) published on its website.

· The Audit and Compliance Committee’s recommendation regarding the selection of an entity authorised to audit financial statements takes into consideration the following aspects where applicable:

Initial engagement of an auditor:

ü at least two audit firms to choose from, along with the rationale and the Committee’s justified preference for one of them;

ü competencies of the audit firms and their ability to perform the required services;

ü independence of the auditor;

ü legal requirements;

ü consistency and effectiveness of the audit from the Group’s perspective as well as from the higher-level consolidation perspective;

ü comparison of individual proposals in accordance with the agreed criteria, having regard to the weights allocated on the basis of a relevant questionnaire.

Reappointment of the auditor:

ü assessment of the quality of services provided to date;

ü independence of the auditor;

ü legal requirements;

ü consistency and efficiency of the audit from local Group perspective as well as from the higher level consolidation perspective.

· The same auditor is appointed for the audit of financial statements of the bank and consolidated financial statements of the Group. The same auditor may be appointed to perform all other audit-related services.

· The bank/ the Group complies with the applicable laws with respect to the minimum and maximum duration of an audit engagement and the minimum cooling-off period.

As part of statutory measures aimed at prevention and containment of Covid-19 and other contagious diseases and management of crisis situations caused by them, the Act on statutory auditors was amended on 31 March 2020, whereby the mandatory 5-year audit firm rotation for public interest entities was repealed. Currently, EU Regulation No 537/2014 is directly applicable, stipulating that the maximum engagement of the same audit firm cannot exceed 10 years.

The recommendation issued by the Audit and Compliance Committee before the appointment of PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp.k. (formerly: PricewaterhouseCoopers sp. z o.o.) to review and audit the financial statements of Santander Bank Polska S.A. and Santander Bank Polska Group for 2021 and 2022 met all the required criteria and was presented to the Supervisory Board as part of the selection procedure carried out in accordance with the applicable principles (reappointment of the auditor). The process included, among other things, the assessment of PwC’s independence and the quality of services provided to date.

Permitted non-audit services

The rules for provision of permitted non-audit services to Santander Bank Polska S.A. by the audit firm performing the audit, entities connected with the audit firm or by members of the audit firm network are laid down in the Policy for audit related and non-audit services rendered by the auditor, which was reviewed by the Audit and Compliance Committee and approved by the Supervisory Board on 29 September 2021. The Policy meets the requirements arising from Act of 11 May 2017 on statutory auditors, audit firms and public oversight as well as EU regulations, including Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities and Directive 2014/56/EU of the European Parliament and of the Council of 16 April 2014 on statutory audits of annual accounts and consolidated accounts.

Pursuant to the foregoing policy:

· Appointment of an auditor to render audit-related or permitted non-audit services must be approved by the Audit and Compliance Committee based on the assessment of whether such services will not affect independence of the auditor.

· Once a year, before the conclusion of the audit of the Group’s annual financial statements, summary information on non-audit services is sent to the Committee for assessment of their potential impact on the auditor’s independence and objectivity.

· When the statutory auditor or the audit firm provides permitted non-audit services to the audited entity, its parent undertaking or its controlled undertakings, for a period of three or more consecutive years, the total fees for such services must not exceed 70% of the

average total fees paid in the last three consecutive years for statutory audits of separate and consolidated financial statements of the above-mentioned entities. The above limit does not apply if the auditor has not rendered non-audit services for at least one year.

The scope of permitted services (i.e. services which, under the existing regulations, the statutory auditor can provide when auditing the financial statements of the bank/ Group) includes audit-related services (e.g. review of interim financial statements, assurance services) and non-audit services (e.g. tax services and general advisory services).

The Policy also lists prohibited services. Specifically, the auditor must not:

· audit and/or review its own work (self-review);

· perform a management role in the audited company or in relation to the services provided (management functions);

· represent the audited company or Group (advocacy).

In addition, it is not permitted to provide accounting, financial, actuarial, outsourcing (as part of internal audit) and mediation services as well as services related to valuation, design and implementation of financial information systems and specific tax services.

In 2021, PwC, the audit firm appointed to audit the financial statements of Santander Bank Polska S.A. and its Group for 2020 and 2021 (along with other entities from the PWC network) provided the following permitted non-audit services:

ü review of interim financial statements of the bank/ Group;

ü verification of consolidation packs;

ü verification of capital adequacy disclosures;

ü verification of reports on remuneration of the Management and Supervisory Boards;

ü services connected with an issue prospectus;

ü assurance services related to safekeeping of customers’ assets and disclosures regarding variable remuneration.

The Audit and Compliance Committee approved the appointment of PwC and other entities from its network to provide the foregoing permitted non-audit services. Before the relevant recommendations were presented to the Supervisory Board, the independence of the auditor had been verified with a positive outcome.

Remuneration of external auditor

The table below shows the remuneration paid to PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp.k. in 2020 and 2019 for audit of the financial statements of Santander Bank Polska S.A. and its subsidiaries, and for audit-related services and other permitted assurance services rendered under the agreements in place.

Remuneration of External Auditors (in PLN k)	Reporting Year ended on 31.12.2021	Reporting Year ended on 31.12.2020
Audit fees in respect of the parent bank ¹⁾	3 693	2 738
Audit fees in respect of the subsidiaries	2 239	2 148
Audit fees related to assurance services, including the review of the parent bank and subsidiaries ²⁾	1 258	1 146
Fees for non-assurance services ³⁾	354	349

1) Remuneration for audits performed by PricewaterhouseCoopers sp. z o.o. Audyt sp. k. in 2021 and 2020 under the Agreements with Santander Bank Polska S.A. on audit and review of financial statements of 9 June 2021 and of 16 June 2020, respectively, including assurance services on compliance with the ESEF standard. Based on Annex 1 of 3 August 2021 to the Agreement of 9 June 2021, PwC also performed the audit of the Interim Condensed Special Purpose Financial Statements of Santander Bank Polska S.A. for 6 months ended on 30 June 2021.

2) Remuneration for the review of financial statements under the agreements referred to in point 1 and for services related to verification of capital adequacy disclosures and assessment of compliance with requirements regarding the custody of customers’ assets. The amounts also include remuneration for reports on risk management system and information prospectuses for Santander TFI S.A.

3) Remuneration paid in respect of non-assurance services refers to the agreed procedures related to the Jessica projects and remuneration for issuance of attestation letters made in connection with the EMTN prospectus.

9. Pending court proceeding

The table below displays cases pending before court with regard to claims made by or against the bank or its subsidiaries as at 31 December 2021 and 31 December 2020.

Court Proceedings with Santander Bank Polska Group as a Party (in PLN m)	31.12.2021	31.12.2020
Amounts claimed by the Group	1 133,8	1 004,7
Claims against the Group ¹⁾	2 533,3	1 261,6
Receivables due to bankruptcy or arrangement cases	54,8	51,6
Value of all litigation	3 721,9	2 317,9
Completed significant court proceedings	659,3	735,2

For more information on legal proceedings, including disputes over foreign currency mortgage loans, see Note 49 “Contingent liabilities” to the Consolidated Financial Statements of Santander Bank Polska Group for 2021.

XIV. Statement on Non-Financial Information for 2021

1. Business model and key non-financial ratios

In accordance with the bank’s strategy and business model, each banking activity and process are analysed from the perspective of customers and their needs. The bank is aware of its impact on the quality of lives of its stakeholders and on the social and economic growth, in accordance with the lines of action mapped out by the UN Sustainable Development Goals 2015–2030. The bank uses, among other things, financial capital (e.g. deposits), human capital (e.g. employees), intellectual capital (licenses, processes), and social capital (e.g. relationships with stakeholders). In addition, like any other company, it draws on environmental capital (e.g. uses energy resources). By processing these capitals through its strategy, activities and products, it creates value not only for shareholders, but also for a wider group of stakeholders.

The business model allows the bank and the Group to contribute to the achievement of the UN Sustainable Development Goals 2015–2030.

Value creation model of Santander Bank Polska S.A.

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The comprehensive offering of Santander Bank Polska S.A. satisfies customer needs with regard to personal and business accounts, credit, savings, investment, settlement, insurance and card products.

The financial services include cash management, payments, transactions in the capital, money, FX and derivative markets, as well as guarantees, trade finance and brokerage services.

The bank’s customers also have access to products offered by other companies from Santander Bank Polska Group, such as investment funds, asset portfolios as well as insurance, lease and factoring products.

Key performance indicators	2021	2020
Total number of bank customers (in thousands) (Group)	7 157	7 083
Total number of bank customers (in thousands) (bank)	5 432	5 215
Number of electronic banking users (in thousands) (bank)	4 492	4 179
Number of branches (branches, off-site locations and Santander Zones)	396	468
Number of partner outlets	164	138

2. Responsible Banking/ ESG Strategy

Santander Bank Polska S.A. creates long-term value for all stakeholders in a sustainable way. The Responsible Banking Strategy is an integral part of the overall business strategy of the bank. It specifies the bank’s approach to ESG and defines sustainable development.

The bank aligns its Responsible Banking Agenda with the challenges and requirements of society to help people and meet their needs in accordance with the best international standards. This particularly refers to compliance with the Sustainable Development Goals (SGD), the Paris Agreement, UNEP FI Principles for Responsible Banking (PRB), Net Zero Banking Alliance and other relevant international, regional and local frameworks.

The bank’s ESG strategy contributes to delivery of the 2030 Agenda of the UN. In its business activity, the bank focuses on the areas on which it has real impact as a financial institution. These include:

Key sustainable Development Goals of the 2030 UN Agenda pursued by Santander Bank Polska S.A.

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Responsible banking pillars, i.e. corporate culture and sustainable finance.

Pillars of responsible banking at Santander Bank Polska S.A.

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Responsible sales

As responsible sales are one of the key aspects of responsible banking, Santander Bank Polska S.A. became one of the initiators and signatories of the Declaration on Responsible Sales.

The project, launched by financial institutions and led by the Consumer Federation, was created to raise awareness and promote ethical standards in customer relations, educate the business and consumers, increase confidence in the financial industry and prevent unfair practices. This is the first such cooperation between companies that care about improving the quality of banking services. Its initiators are ANG Spółdzielnia, Santander Bank Polska S.A. and BNP Paribas Bank Polska S.A. KPMG is the first auditor of the project.

Policies and documents defining the Group’s approach to sustainable development

The Sustainability Policy, which sets out general voluntary commitments and ethical, social and environmental standards that go beyond the legal framework. The Policy is accompanied by the following documents:

· Environmental, Social and Climate Change Risk Management Policy;

· Human Rights Policy;

· Corporate Volunteering Policy;

· Defence Sector Policy.

In 2021, delivery of the selected goals of the Responsible Banking Strategy, including the tasks related to the protection of the environment and prevention of climate change, has been one of the criteria for determining a bonus for members of the bank’s Management Board and Supervisory Board. A particular focus is placed on the progress made in the three key areas of the Responsible Banking Strategy, namely:

· promoting diversity;

· providing financial support by ensuring an easier access to financial services and financial education;

· developing green products and services.

In addition to this, the delivery of the Responsible Banking agenda is one of the objectives set for the Management Board members, senior executives and all employees. Since 2021, the implementation of the Responsible Banking priorities, which is one of the bank’s operational strategy objectives, has accounted for min. 10% of individual performance assessment in the WHAT dimension.

Delivery of the Responsible Banking objectives	2020	2021
Top 10 company to work for (position in ranking)	Top Employer certificate	Top Employer certificate
Women in managerial positions (%)	35%	34,7%
Equal Pay Gap (%)	2,4%	2,4%
Number of financially empowered people since 1 January 2019 (in thousands)	70 767	130 992
Green finance provided (EUR m)*	144	214
Electricity from renewable sources ** (%)	85%	82%
Reduction of single-use plastics (%)	100%	100%
Scholarships, internships and entrepreneurship programmes (number)	3 283	6 422
Number of people helped (in thousands)	363 464	305 652

* Excluding Corporate and Investment Banking Division

** Change in the presentation of the ratio vs the previous statement. Currently, the ratio additionally includes the energy that is not purchased directly from suppliers (e.g. branches).

Green Bank

Sustainable finance

Climate policy

Climate and environmental protection are key areas under the Responsible Banking Strategy of Santander Bank Polska S.A. One of the pillars of the Strategy is Green Banking, whose overarching goal is to counteract the effects of climate change. The bank’s climate strategy is based on four pillars:

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The bank supports customers in implementing long-term strategies to transform their businesses to low- or zero-emission ones. Santander Bank Polska S.A. actively participates in the green transformation of the Polish energy sector, and in the upcoming years will continue financing the transition from coal-based to renewable energy. As one of Poland’s largest banks, Santander Bank Polska S.A. is aware of its role in the transformation of the Polish economy and the importance of its actions, policies and lending for that process.

At Santander Bank Polska S.A. environmental matters are embedded in decision-making processes. The ESG (environmental, social, governance) guidelines are used for evaluating the assets to be financed by the bank.

Climate goals

Already back in 2019, the bank decided not to engage in financing any new thermal coal mines or new power units fired by steam coal. Starting from 2020, all agreements made by the bank with entities using coal explicitly forbid allocating the funds granted by the bank for coal mining or production.

As part of its contribution to the Net Zero Strategy goal (to achieve climate neutrality by 2050), the bank has declared that by 2030 it will have stopped providing financial services to power generation clients with more than 10% of revenues dependent on thermal coal. Moreover, by 2030

the bank plans to completely reduce its exposure to thermal coal producers. In 2022, further decarbonisation targets will be set for other sectors – oil and gas, transport and metals.

During the next five years, Santander Bank Polska S.A. intends to revise its product strategy so as to be able to offer customers products that reduce or eliminate carbon emissions in each area of activity, and at the same time meet their expectations.

Santander Group has set climate-related targets that are pursued by entities from all the countries in which the Group operates. These targets include:

· acquiring and providing EUR 120 billion in green financing by 2025;

· ensuring that by 2025 all the energy used originates from renewable sources;

· achieving net zero carbon emissions by 2050;

· becoming carbon neutral in own business in 2020 (net zero carbon emissions) – target achieved with compensation mechanism applied;

· removing unnecessary single-use plastics from the bank’s branches and corporate buildings by the end of 2021 – the target has been achieved. The only single-use plastic were bottles, which were completely withdrawn from use in 2020 and replaced with water filters.

In order to ensure appropriate skills and knowledge to achieve the set targets, Santander Bank Polska S.A. organised internal training sessions on sustainable development and ESG, including training on carbon footprint calculation. In addition, a special ESG section was added to the intranet.

Sustainable products

Santander Bank Polska Group was the first institution in Poland to offer financial solutions with a margin based on the satisfaction of ESG criteria (ESG-Linked Loans). The bank has both local and global expertise in ESG, which makes it stand out in the Polish banking services market. The Polish team consists of people who introduced the first ESG financial solutions (both credit facilities and bonds) to the Polish market. In turn, on the global level, Santander has a dedicated team of experts in key ESG fields with experience in building new ESG products, as well as in specialised areas such as hydrogen technology.

The offer of sustainable financing is addressed to various customer groups, including customers from most climate-sensitive sectors, i.e. energy, oil and gas and industry sectors. For this reason, sustainable financing has focused on customers from those areas. Since 2021, the bank has noted an increasing interest in this type of financing also in other sectors, which is largely related to greater customer awareness and the publicly announced sustainable development strategy.

Santander Bank Polska S.A. offers a full range of green finance products, including:

· loans designed to support sustainable projects, including investments in renewable energy;

· loans linked to the Sustainable Development Goals;

· green bonds, social bonds and sustainability bonds;

· sustainability-linked bonds;

· advice in terms of acquiring sustainable finance;

· financial advice in the ESG area.

Using both global and local experience, Santander Bank Polska S.A. is able to provide clients with financing in accordance with best practices. The bank seeks to build an environmentally and socially sustainable credit portfolio. This ambition is manifested in particular by the bank’s commitment to ESG-linked finance or solutions specifically dedicated to sustainability-linked projects (such as investments in renewable energy). ESG-linked/ sustainability-linked finance complies with relevant international standards, including the ICMA, LMA or the EU taxonomy.

The bank does not provide finance to tropical timber wholesalers if they buy or sell timber without the appropriate FSC certification. Likewise, no financing is provided to jewelry makers if they use rough diamonds originating from countries torn by armed conflicts or not certified under the Kimberley process.

An example of ESG-linked finance is municipal investments in green transport. In 2021, Santander Bank Polska S.A. together with the state development bank BGK financed the purchase of 37 electric buses for the city of Poznań. The new vehicles significantly reduce the negative environmental impact of urban transport and improve air quality.

Also in 2021, Santander Bank Polska S.A. in cooperation with other banks signed PLN 479m (EUR 105m) worth of agreements to finance a portfolio of renewable energy sources owned by an independent producer of renewable energy. The funding will be used to build a portfolio of 4 wind farms and 29 photovoltaic projects that won RSE auctions. Their total power output will be 106 MW.

In 2021, Santander Leasing S.A., acting on the basis of Santander Bank Polska Group standards, introduced simplified application rules for solar panels financing. The loans are granted for a term of 10 years and are secured by a BGK guarantee. In addition, the company began work on launching products co-financed under the state programme “My Electrician” (“Mój elektryk”).

The green offer of Santander Leasing S.A. includes:

· lease/ loan for the purchase of zero-emission/ hybrid vehicles for business;

· loan for the purchase of zero-emission/ hybrid vehicles for consumers;

· lease/ loan for the purchase of solar panels for business;

· lease/ loan for the purchase of solar panels for consumers;

· lease/ loan for the purchase of energy-efficient machines (including farming machines) for business.

In terms of green financing, after 12 months of 2021, Santander Leasing S.A. can boast having financed PLN 693m worth of projects, 66% more than in the same period of 2020.

Support for green transformation in 2021

· Santander Leasing S.A. offers as many as eight products in the following categories: Renewables, Clean mobility, Agro, Circular Economy.

ü Lease or loan for the purchase of zero-emission or hybrid vehicles for business. As part of this project, two special leasing deals were offered to customers between 1 January 2021 and 18 November 2021: 100% for the purchase of an electric vehicle and 102% for the purchase of a hybrid vehicle.

ü Customers were offered a loan for the purchase of zero-emission or hybrid vehicles for consumers.

ü Lease or loan for the purchase of solar panels for business;

ü Loan for the purchase of solar panels for consumers (a new product in the market);

ü Lease or loan for the purchase of energy-efficient machines (including farming machines) for business.

· The Corporate and Investment Banking Division made the second largest issuance of green bonds for a non-financial company with a total value of 400 mln zł.

In 2021, the bank issued 860.7 thousand eco-friendly cards (42.4% of all cards).
The product range was extended to include the first Eco Loan, with reimbursement of a fee for customers using loan proceeds to purchase eco-friendly solutions.

In 2022, the bank is going to implement the Sustainable Finance Classification System (SFCS) that sets the taxonomy-based technical criteria for classifying investments as green (in terms of both general and specific targets).

The bank has the Corporate Sustainability Bonds Framework Policy and the Green Bonds Framework Policy in place, which define the bank’s commitment to allocating funds from the issue of green bonds to projects related to renewable energy (solar and wind energy). Concurrently, work is underway in Santander Group to develop new corporate framework policies that will be aligned with SFCS in all aspects.

In 2021, Santander Bank Polska S.A. developed the Sustainability Issuance Framework, which received a second party opinion from an independent rating agency. The bank was the first institution in Poland to issue sustainability debt securities totalling PLN 750m.

Green finance in 2021

		Green finance granted in 2021 r.
Obszar	EUR m		PLN m
Green construction	107,8		495,7
Renewable energy	109,5		503,7
Clean mobility	79,1		363,6
Agri	76,2		350,5
Circular economy	0,2		0,9
Total	372,8		1 714,4

Taxonomy-eligible economic activity

The bank’s objectives are compliant with the EU taxonomy. The bank’s sustainable financing proposal supporting transformation of customers takes into account EU standards and taxonomy improvements. See Section “Sustainable finance”.

Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (the “EU Taxonomy”) lays down a unified classification system for sustainable activities designed to support investors in taking investment decisions. Under the EU Taxonomy, institutions that are required to publish non-financial information must meet a number of reporting obligations, which in the case of credit institutions will become effective in the full scope in 2024. The main performance indicator for credit institutions will be the green asset ratio (GAR), which shows the proportion of exposures related to and assets invested in taxonomy-aligned activities compared to the total covered assets (adjusted assets) of those credit institutions. The calculation of the GAR for on-balance sheet exposures covers financial assets, including loans and advances, debt securities, equity holdings and repossessed collaterals in the portfolio of financial institutions, non-financial undertakings, households, and local governments. The analysis does not include exposures to central governments and central banks and the trading portfolio.

The tables below contain inter alia information to be disclosed in the transitional period in accordance with Article 10.3(a)(b) and (c) of Commission Delegated Regulation (EU) 2021/2178 supplementing Regulation 2020/852. Source data used for the calculation of percentage shares indicated in the tables are derived from FINREP reports, i.e. financial statements consolidated for prudential purposes, prepared for central banks. The components and aggregates have the same information content and limitations as FINREP reports.

structure of gross total assets as at 31/12/2021

Items not covered for GAR calculation		Share as at 31/12/2021 ¹⁾
Exposures to central governments ²⁾			20.5%
Exposures to central banks			2.8%
Trading portfolio			0.2%
Total			23.5%
Items covered for GAR calculation		Share as at 31/12/2021 ¹⁾
Exposures to households				35.1%
Exposures to undertakings that are not obliged to publish non-financial information ³⁾				20.0%
Exposures to undertakings that are obliged to publish non-financial information ⁴⁾				12.9%
Derivatives ⁵⁾				1.5%
On demand interbank loans ⁵⁾				0.3%
Other assets ⁵⁾				6.7%
Total				76.5%
1)	All the above items are presented in relation to the consolidated gross total assets as per FINREP reporting.
2)	The above percentage share includes exposures towards local governments, as in FINREP reports they are disclosed in aggregate with central institutions.
3)	Exposures to SMEs
4)	Non-financial information must be published by undertakings that meet the criteria referred to in Article 19a or 29a of Directive 2013/34/EU. The value takes into account all exposures to financial institutions and non-financial undertakings reduced by the SME portfolio.
5)	Assets accounting for 11.1% of the assets included in the GAR denominator and excluded from the numerator, not subject to analysis in terms of taxonomy eligibility.

In the transitional period, the taxonomy alignment analysis covers only the taxonomy eligibility of particular exposures with regard to two climate objectives (climate change mitigation or climate change adaptation). As part of full disclosures, the taxonomy alignment analysis will also cover technical screening criteria and additional criteria in relation to six environmental objectives. As at 31 December 2021, the analysis covered 76.5% of gross total assets. 88.9% of exposures included in those assets were subject to taxonomy eligibility assessment (less assets excluded from the GAR numerator). 26.6% of this part of assets is taxonomy-eligible (fits with the stated category of NACE codes) in the mandatory approach, and 40.1% is taxonomy-eligible in the voluntary approach.

Share of taxonomy-eligible activities as at 31/12/2021

Taxonomy-eligible activity ²⁾

Share of taxonomy-eligible

activities as at 31.12.2021 ¹⁾

Share of taxonomy-non-eligible activities

as at 31.12.2021 ³⁾

Loans to households secured by residential properties

(mandatory approach)

26.6%

73.4%

The above loans with exposures to non-financial undertakings and financial institutions estimated as taxonomy-eligible

(voluntary approach)

40.1%

59.9%

1)	The categories included in the table are presented in relation to the total assets included in the GAR calculation and calculated based on FINREP reporting.
2)	Taxonomy-eligible economic activity means an economic activity in sectors that contribute substantially to climate objectives (climate change mitigation or climate change adaptation), specifically: activity carried out by financial institutions, undertakings and households.
3)	Taxonomy-non-eligible economic activity means the activity carried out in sectors that do not contribute substantially to climate objectives.

Some of the data included in the table above are based on estimates and represent voluntary disclosures.

The taxonomy eligibility assessment of economic activities was conducted on the basis of estimates, using appropriate ratios:

· 5% with respect to financial instruments from the portfolio of financial institutions, calculated based on the publication on sustainable finance in the European financial market published on the ECB site.

· 39% for non-financial undertakings, calculated as a result of analysis of the types of activities (by PKD [Polish Classification of Activities] codes mapped to NACE codes) carried on by Group-financed non-financial undertakings listed on stock exchange or undertakings that fulfil the criteria specified for undertakings that are obliged to publish non-financial information. The level of 39% relates to the share of credit exposures to the above-defined taxonomy-eligible non-financial undertakings (i.e. those from sectors which according to the regulator contribute substantially to climate objectives) in the portfolio of total loans and advances to those entities.

In estimates, relevant ratios were applied to the total value of debt and equity instruments portfolios, loans and advances to financial institutions and non-financial undertakings.

Exposures to households include loans secured by residential properties, which are taxonomy-eligible in full. They account for 26.6% of the assets included in the GAR calculation and are subject to disclosure under the mandatory approach.

Green office and infrastructure

The ambition of Santander Bank Polska S.A. is to achieve climate neutrality by 2050. The bank’s Net Zero Strategy assumes reduction of greenhouse gas emissions, including in-house emissions due to the use of electricity, business travel and car fleet as well as emissions attributable to lending, advisory and investment services provided to customers from all segments.

Since 2020, 100% of electricity the bank purchases directly from its sellers has come from green sources (mainly hydroelectric power plants). The bank has the ECO Premium certificate from Tauron Group, which confirms that 100% of electricity sold to the bank is covered by the Green Energy Sale Guarantee scheme and is generated from renewable energy sources.

In 2021, the bank continued to increase the energy efficiency of the organisation, e.g. it replaced energy-consuming fluorescent lights with LEDs in 42 branches. The bank is also replacing its fleet vehicles with hybrid low-emission cars with lower fuel consumption.

Energy consumption [MWh]	2021	2020	2019
Total electrical energy consumption	26 449,0	29 917,0	33 144,0
- Including total consumption of energy from non-renewable resources	14 174,3	11 078,9	18 018,2
- natural gas	12 399,4	9 408,6	15 100,4
- fuel oil	1 549,4	1 351,4	1 776,7
- gas oil	225,6	318,8	1 141,2
% of green energy purchased by the bank in 2020	100%	100%	15%

Direct emissions (scope 1) and indirect emissions (scope 2)
Type of emission	Scope	2021	2020	2019
CO2 emissions related to the purchase of electricity for the bank’s purposes [tonnes]	Scope 2	3 347,6¹⁾	4 395,0	25 355,2
CO2 emissions related to heat generation [tonnes]	Scope 1	2 705,4²⁾	2 031,8	3 315,5

1)	Source: “Wskaźniki emisyjności CO₂, SO2, NOx, CO i pyłu całkowitego dla energii elektrycznej na podstawie informacji zawartych w Krajowej bazie o emisjach gazów cieplarnianych i innych substancji za 2020 rok”, Warsaw, December 2021
2)	Source: KOBiZE report: "Wartości opałowe (WO) i wskaźniki emisji CO ₂ (WE) w roku 2018 do raportowania w ramach Systemu Handlu Uprawnieniami do Emisji za rok 2021". In 2021, the bank used more natural gas for heating purposes than in 2020.

Car fleet		2021			2020
Number of petrol cars		12			85
Number of diesel cars		3			7
Number of hybrid/ electric cars		1 317			1 303
Paper consumption	2021			2020
Branch Banking [tonnes]	177			186
Business Support Centre [tonnes]	19			34
	2021
Paper waste and other waste, incl. electronic data storage devices (disposal)	Branches		Business Support Centre			Total
Papier waste [kg]	532 439		684 121			1 216 560
Magnetic storage devices (disposal) [kg]	1 650		12 120			13 770

To reduce the use of plastics, already back in 2020 the bank opted out of water in plastic bottles and spring water dispensers. Water filters were installed in all locations. Kitchens and staff rooms were equipped with water carafes and glasses.

In 2021, Santander Bank Polska S.A. started to issue eco-friendly cards made in 85% of recycled plastic. Thanks to the use of sustainable materials for this payment solution, the carbon footprint is reduced to 75%. The cards have a new uniform vertical design across all Santander Group entities in Europe.

The bank steadily reduces paper consumption. It encourages customers to sign agreements in an electronic form – over 50% of the transactions made in branches in 2021 were paperless. The bank has procedures in place to send documents to customers electronically. In addition, an increasing share of documents are stored in electronic rather than paper format.

Inclusive banking

For Santander Bank Polska S.A., inclusive banking means catering for the needs of diverse customer groups. Inclusion is one of the pillars of the Responsible Banking Strategy. The bank makes sure that its product range, services and communication are suitable for all customers and continuously increases accessibility using the latest technologies and providing appropriate conditions to people choosing traditional branches.

For more than ten years, Santander Bank Polska S.A. has been running and developing the “Barrier-Free Banking” (“Obsługa bez Barier”) programme, designed to ensure access to the bank’s services and products for customers with diverse needs (people with disabilities, the elderly, pregnant women). The bank steadily improves accessibility using advanced technologies and ensuring appropriate conditions in traditional branches.

All branches and partner outlets adhere to the barrier-free banking standards which take into account diverse customer needs, including the needs of people with disabilities. At branches, customers may use priority-service points. There are mini magnifying glasses and signature frames for blind or visually-impaired customers. At each outlet, hearing-impaired customers may talk online with the bank’s advisor who uses Polish sign language. This option is also available via Santander mobile, Santander internet and the bank’s website.

37 (as at 10 December 2021 r.) branches are equipped with portable induction loops, i.e. devices which facilitate interactions with customers who use hearing aids. There are special procedures in place regarding statements of will made by customers who cannot read and/or write. Barrier-free branches may be equipped with additional tools such as tactile ground surface indicators and maps in Braille with a bell to be rung for

assistance, and the TOTUPOINT navigation and information system, which supports spatial awareness and increases safety for people with visual impairment. In 2021, the number of branches offering these solutions increased by two, with the next ones to follow in 2022.

The bank conducts regular audits at branches to make sure they are accessible to customers with disabilities. At the end of 2021, Santander Bank Polska S.A. had a network of 157 (as at 10 December 2021 r.) certified barrier-free outlets.

The bank also has a network of audio-enabled ATMs which are easier to use by people with visual impairment. They are labelled with dedicated high-contrast stickers in Braille. When the customer makes a transaction at the ATM using their earphones, they can switch off the screen to increase security and comfort. The ATMs can also be switched into a high-contrast mode. Currently, there are 1,430 (as at 10 December 2021 r.) such machines in place (nearly 90% of the entire bank’s ATM network).

Special solutions were also implemented in remote channels. Online and mobile banking services are regularly developed and audited in terms of accessibility for customers with disabilities. Users can log into the mobile app using Face ID or Touch ID, while customers calling the Multichannel Communication Centre can be identified using voice recognition. In July 2021, the bank introduced cards with a blind notch on the side, which makes them easier to use for blind and partially sighted people when using ATMs or making payments.

The bank’s advertising messages are adapted to the needs of the visually and hearing impaired. The videos published on the website of the Barrier-Free Banking Programme and the bank’s YouTube channel are available with subtitles, audio description (voice-over) and translation by the Polish sign language interpreter.

In accordance with the Accessibility Act of 19 July 2019, the bank also provides an option to request the accessible documents (e.g. non-personalised contract templates, terms and conditions) remotely or in branches. In 2021, the bank ran regular communication and education campaigns addressed to its employees and customers, through training sessions, meetings and webinars with experts as well as social media campaigns.

3. Risk Management System

Santander Bank Polska S.A. has risk management policies in place to:

· identify and measure the risk taken;

· define the best risk-reward ratio;

· regularly set and review the relevant limits that mitigate risk exposure.

Santander Bank Polska Group modifies and develops risk management methods on an ongoing basis, taking into consideration changes in the Group’s risk profile, economic environment, regulatory requirements and best market practice. The directions are set by the Management Board and the Supervisory Board, which actively support the risk management strategy by approving key risk management policies, having its representatives on the committees responsible for risk management, reviewing and approving risks and risk reports.

The risk management system of the bank and the Group complies with the banking industry standards and legal and regulatory guidelines and recommendations. Selected units are responsible for identification, measurement, monitoring and mitigation of risks. Based on the overall risk level, a risk profile is defined. Risk appetite, together with a number of risk limits, is reflected in the Risk Appetite Statement adopted by the Management Board and approved by the Supervisory Board.

The risk management system of Santander Bank Polska S.A. covers the following material risks:

· credit risk (including concentration risk)

· operational risk

· market risk (in the banking book and in the trading book)

· liquidity risk

· model risk

· reputational risk

· compliance risk

· business risk

· capital risk

· risk of excessive leverage.

From the point of view of negative impact of those risks on society, environment, employees, human rights and anti-corruption measures, particular importance is attached to operational risk, compliance risk and reputational risk. In addition, the bank has identified social and environmental risks (including climate risks) related to financing customers from sensitive sectors.

ESG risk management as part of the risk management framework

Santander Bank Polska S.A. is of the opinion that environmental and climate-related risks may affect the bank's operations in the medium to long term. Risks result from factors related to the physical effects of climate change (caused by one-off events as well as by chronic changes in the environment), as well as from factors embedded in the transition to the growth model characterised by lower emissions with changes in legislation and technology, and in behaviours of business entities. Climate risk is one of the key risks that have been identified as having adverse impact on the bank’s reputation among its employees, customers, shareholders/ investors, and communities.

Since 2015, ESG governance has been regulated by appropriate policies. The bank has been consistently introducing ESG risk management procedures in all its business lines, and has identified social and environmental risks (including climate risks) related to financing customers from sensitive sectors.

The bank analyses the impact of climate-related opportunities and threats on its business, strategy and financial plans in the short, medium and long term. When taking credit decisions, the bank is aware that relying solely on historical financial data may lead to misguided conclusions. But if this process is supported by an analysis of non-financial data, this may shed new light on risk perception and capital allocation. In the opinion of Santander Bank Polska S.A. the environmental risk analysis enhances the traditional credit risk analysis, and non-financial data permit a better understanding of the borrower's exposure to environmental and climate change risks.

Better quality of available non-financial data means better quality of risk analysis, which in turn helps lower costs for the bank and borrowers. In 2022, Santander Bank Polska S.A. is going to implement the Sustainable Finance Classification System for selected customer segments (largest customers, mortgage and leasing customers), setting the technical criteria for classifying dedicated or general-purpose financing as green or socially sustainable.

ESG risk assessment

Identification and proper risk assessment are fundamental to effective risk management and control. For this reason, Santander Bank Polska S.A. takes part in the Group’s Climate Stress Tests (two physical risks have been identified for Poland: flood and drought).

In 2019, the environmental and social aspects of risk management were incorporated into the bank’s assessment criteria for projects delivered by the Corporate and Investment Banking segment. In 2021, the environmental and climate change risk assessment procedure was implemented for customers from the Corporate and Investment Banking segment. The activities of customers from that segment may be subject to exclusions or limitations, as specified in the Environmental, Social and Climate Change Risk Management Policy and in internal procedures. The scope of the risk analysis depends on several factors, including the sector and size of the company.

The environmental and social risk manager in the Wholesale Risk Department is responsible for analysing this risk and issuing recommendations on the customer or transaction. Credit partners are required to verify whether the environmental and social risk analysis has been conducted and whether the recommendation of the environmental and social risk manager has been included in the credit application.

Additionally, all issues which may trigger reputational risk (including activities subject to restrictions) must be consulted with the compliance unit.

The above procedures must be applied by the bank and its subsidiaries, excluding Santander Consumer Bank S.A. As part of consolidated risk management, the bank seeks to harmonise the above procedures in keeping with the proportionality principle and taking into account the specific nature of activities of each entity. This means that the solutions presented in those procedure are generally reflected in the internal regulations of Santander Consumer Bank S.A., but specific solutions may be different.

Sectoral policies

In considering financial product or service requests from sensitive sector entities, the bank applies appropriate policies and conducts a social and environmental risk analysis. In the first place, the bank’s business units assess the environmental impact of a specific transaction/ activity and look at compliance with policy requirements. On that basis, a recommendation is prepared for the bank’s risk units (in accordance with internal regulations).

The policies of Santander Bank Polska S.A. set out the criteria used by the bank when granting financial products and/or services (including all forms of financing, insurance, asset management, equity investments and advisory services) with respect to customers and projects related to the activities described in those policies.

In 2021, the Environmental, Social and Climate Change Risk Management Policy was implemented. The policy superseded three previous sectoral policies for soft commodities, energy, and mining and metal sectors.

Responsibility for ESG risk management

Since 2021, the responsibility for planning the activities of Santander Bank Polska S.A. under the Responsible Banking Strategy has rested with the ESG Forum, which is chaired by the bank's CEO, and consists of 11 representatives of all divisions of the bank. The Forum’s role is to analyse challenges, opportunities and risks related to the EU Sustainable Finance agenda, including ESG risks, and to plan activities, and coordinate their implementation at the bank.

The ESG Forum regularly reports the results of its work to the bank's Management Board and, twice a year, to the Responsible Banking and Corporate Culture Committee.

The bank’s Management Board is responsible for supervising and approving the responsible banking strategy and ensuring that ESG criteria are reflected in the bank’s overall business strategy (in the short-, medium- and/or long term), and in the risk management framework.

At Santander Bank Polska S.A. all members of the Management Board are responsible for ESG risks. The Risk Management Division acts as the second line of defense in ESG risk management.

4. Anti-Corruption Policies and their Outcomes

Ethics

At Santander Bank Polska S.A., all employees are required to act in accordance with corporate values.

The bank reinforces ethical standards and promotes the culture of responsible and ethical conduct among its employees in line with the Simple, Personal and Fair values.

Corporate behaviours promoted among employees:

· show respect

· bring passion

· talk straight

· keep promises

· embrace change

· actively collaborate

· support people

· truly listen.

All employees of Santander Bank Polska S.A. are expected to follow the ethical standards defined in the General Code of Conduct. The Code sets directions of ethical business practice and provides guidelines to be followed in specific circumstances. It also establishes ethical principles to be applied by all employees, explains what to do in different situations and provides information about the consequences of breaches. The principles concern the following:

· non-competition;

· conflict of interest;

· relations with suppliers;

· relations with customers,

· accepting benefits;

· prevention of corruption;

· confidentiality of information;

· personal data protection;

· marketing and sale of financial services;

· prevention of money laundering and terrorism financing;

· conduct in the securities markets;

· accounting and financial information obligations;

· relations with public officials;

· intellectual property rights;

Furthermore, the Code specifies the scope of responsibility of individual units for implementing ethical principles and defines the role of the compliance function’s management, Committee for Compliance with Santander Group’s Regulatory Requirements, Internal Audit, Audit and Compliance Committee, Supervisory Board, the HR function and the Business Ethics Council.

Any employee of the Group who becomes aware of a breach of the Code or of other codes, policies, procedures or internal conduct regulations, of suspected offence, corruption or money laundering, or of violation of any other laws and the Human Rights Policy applicable in the Group must promptly report this fact.

The Respect and Dignity Policy provides detailed information on how to report breaches of ethical principles and other misconduct via dedicated channels and establishes rules for handling the reported cases.

The employees who report breaches in good faith are ensured that the case will be thoroughly investigated and that the report will be kept in strict confidence. Whistleblowers must not be subject to any reprisal or other type of negative action. Employees can use different channels, including:

· ethics helpline – to report (including anonymously) breaches of law or ethical principles, violation of internal procedures, instances of corruption, fraud, money laundering, confidential information leaks and excessive risk-taking;

· employee relations helpline – to report instances of discrimination, bullying, harassment and other misconduct related to employee relations, including non-compliance with corporate values and behaviours;

· dedicated mailbox;

· KLAKSON intranet application.

Each of these channels may be used to report concerns anonymously.

In 2021, employees reported 205 cases via whistleblowing channels. Each case was investigated and resolved. Allegations were confirmed in 34 cases and disciplinary action was taken in 23 cases.

In 2021, the bank took measures to revise and update the policy in accordance with the EU Directive on protection of whistleblowers and the Act on protection of persons reporting breaches. New terms and conditions for reporting breaches were defined in line with the foregoing Act.

The Code is publicly available on the bank’s website: https://www.santander.pl/regulation_file_server/time20210115133556/download?id=160538&lang=pl_PL

Prevention of corruption

Santander Bank Polska S.A. combats any forms of corruption. Prevention of corruption is one of the elements of the General Code of Conduct. The Code is supplemented with other policies. They include the Conflict of Interest Prevention Policy, which was updated in 2021 and approved by the Management Board of Santander Bank Polska S.A.

The purpose of the policy is to provide guidelines to employees, managers and Group subsidiaries for prevention and management of conflicts of interest that may arise in the course of business. Specifically, the policy sets forth the guidelines for:

· identifying the relationships and events (services, operations, transactions and contracts) where conflicts of interest may arise;

· taking measures to prevent conflict of interest to the extent possible;

· defining a process for identifying and assessing the importance of actual or potential conflicts of interest, determining mitigating measures and reporting any significant conflicts of interest;

· managing conflicts, including ways to handle unavoidable conflicts and notify them to individuals or entities concerned;

· documenting properly the process of implementing measures introduced for the foregoing purposes so as to ensure internal control over conflicts of interest that can be demonstrated to regulators;

· making a list of categories of potential conflicts of interest, including examples.

Santander Bank Polska Group applies a zero tolerance policy on corruption. The policy is fleshed out in the Anti-Corruption Programme, which sets out the rules for prevention of corruption, notwithstanding other control mechanisms that may be required under other relevant laws or local requirements.

The Programme is applied in accordance with the General Compliance Framework, the General Code of Conduct and other regulations as well as local law.

The Anti-Corruption Programme contains:

· provisions on prevention of corruption;

· general guidelines with respect to gifts and hospitalities to public officials;

· guidelines on gifts and hospitalities to employees;

· relations with third parties;

· application of additional control mechanisms;

· whistleblowing channels.

In 2021, one suspected corruption incident was reported. An employee accepted a discount shopping card from a customer with a renewable limit. The card was sent back to the customer along with a letter in which the bank expressed its disapproval of such practices. The customer apologised for his behaviour.

The bank’s employees can broaden their knowledge about ethics, prevention of corruption and the Corporate Defense Policy through a revised e-learning course available to anyone interested. The course covers the following topics:

· applicable ethical standards;

· avoidance of situations which may give rise to conflicts of interest;

· whistleblowing channels available at the bank;

· procedures to be followed in specific circumstances, e.g. in relations with public officials, agents or intermediaries;

· practices and situations to be avoided by employees as potentially corrupt ones – not only giving money but also giving, offering or accepting benefits of any kind such as offering goods and services below market prices, giving gifts, funding trips, hotel accommodation, meals, tickets, hiring friends.

The training includes practical exercises and ends with a test. Every two years, each employee of Santander Bank Polska Group must complete the training, confirm that they have read the General Code of Conduct, the Anti-Corruption Programme and the Corporate Defense Policy, and have the test score of min. 80%.

In 2021, 97.3% of employees completed the revised e-learning course on ethics and compliance (matters covered by the General Code of Conduct, the Anti-Corruption Programme and Corporate Defense Policy).

In 2021, the bank undertook a range of initiatives to increase the awareness of ethical standards and knowledge of the corporate culture. They included:

· continuation of communication campaign designed to promote ethical behaviours and explain how to report breaches:

ü cases reported in 2020 as part of second edition of “Whistleblowing news”;

ü rules for giving and accepting gifts (including an animated video);

ü series of four videos: “Whistleblowing – is there anything to be scared of?”

ü an employee survey: “Which whistleblowing channel are you most likely to use to report a breach?”;

ü an animated movie: “Do you know the whistleblowing channels available at the bank?”;

ü articles and materials published on the intranet: “Speak up – why is it so important?”“Anti-trust regulations”, “Employee relations”;

ü webinar as part of the Risk Culture Week;

· development of educational initiatives for managers based on the findings from reports;

· launch of regular meetings of the Head of the Ethics and Relations Office with Management Board members – sharing conclusions and recommendations based on reported cases.

Supply chain

Supplier relationship management is the responsibility of the Contracts and Procurement Management Department. Suppliers are selected taking into account social, environmental and reputational criteria. Supply chain management is regulated by the following policies and procedures: Procurement Policy, Supplier Selection Policy, Policy on Cooperation with Suppliers and Outsourcing, and Procedure for Suppliers Management and Outsourcing. The rules for cooperation with suppliers are also contained in the Sustainability Policy and in the Human Rights Policy.

Supplier management is aligned to international standards of Santander Group and is developed and adjusted by the bank to the changing business and social environment. All suppliers are subject to uniform selection criteria.

When selecting suppliers, the bank:

· checks if they diversify their income and if they are not dependent on the bank;

· checks the certificates they hold, e.g. the ones related to environmental protection, employee relations, etc.;

· confirms that they apply CSR principles, ethic codes, anti-corruption programmes and publish the required reports;

· checks if they have an ethical approach to finance by controlling payment of wage contributions and taxes as well as debt to counterparties, if any.

The above information is used by the bank as the criterion for selecting a supplier.

All purchases made by the bank are governed by the Procurement Policy of Santander Bank Polska S.A. and must be coordinated by the Procurement Office. The supplier of a product or service that takes part in the procurement process must provide documentation in the B-ZONE system. One of its elements is the CSR questionnaire that includes information about CRS activities, satisfaction of criteria concerning employment practice and respect for human rights, as well as compliance with environmental criteria (impact of goods and services on the environment). The CSR assessment made on the basis of the questionnaire is taken into account during the bidding process and may be a decisive factor in supplier selection.

During the procurement process, all organisational units of the bank are expected to follow best procurement practices such as selection of supplier according to objective and ethical standards, negotiation of bids, verification of products, services and invoices in terms of compliance with the agreed terms and conditions, and development and storage of documentation related to the supplier selection process.

The agreements with suppliers include mandatory CSR clauses requiring them to adhere to the ten principles of the United Nations Global Compact. At the beginning of the supplier certification process, the bank assigns a billing limit to each supplier with turnover above PLN 1m (taking into account the turnover for the last year, the current year and the planned purchase amount) to make sure that it is not excessively reliant on the bank and that it diversifies its income sources. Suppliers that are subject to the certification process or provide critical services are asked about their sustainable development practices. Their answers are taken into account in the contract awarding process.

In 2021, the bank identified 50 key suppliers and sent them a request to complete the ESG questionnaire along with a cover letter. The response rate of 60% and the replies did not affect the supplier selection and certification process (the questionnaires were sent to selected suppliers and were not formally incorporated in the policies and procedures concerning cooperation with suppliers). The questionnaire was developed on the basis of material provided by Santander Group.

· 100% of bidders participating in procurement processes that completed the CSR questionnaire in B-ZONE;

· 707 – bidders who at least once completed the CSR questionnaire in B-ZONE;

· 1,304 – number of times the CSR questionnaire was completed in B-ZONE.

Key Performance Indicators of procurement policies	2021	2020
Number of suppliers subject to certification with turnover above PLN 50k	1 226	1 587
Percentage share of suppliers subject to certification in the total number of suppliers (suppliers with turnover above PLN 50k)	73%	81%

5. Employee Policies and their Outcomes

Employment

Employees are human and intellectual capital of Santander Bank Polska S.A. The bank provides development opportunities and encourages knowledge sharing and self-education. The bank’s corporate culture is based on the values and ethical standards which help build trust and earn lasting loyalty of employees.

The guidelines and values to be followed by all employees of the bank are set out in the General Code of Conduct. It establishes standards and promotes the desired behaviours in relation to various aspects across the organisation.

Employee matters are also addressed in other documents such as:

· Terms and Conditions of Employment

· HR Policies

· Training Policy

· Remuneration Policy of Santander Bank Polska Group.

The formal corporate culture framework also includes the Sustainability Policy, which emphasises employees’ contribution to the bank’s success and the need to develop employee relationships that are based on mutual trust and loyalty. The bank is committed to taking measures to ensure that employees feel motivated, engaged and rewarded. Furthermore, pursuant to the Policy the bank undertakes to:

· promote employment stability, flexible working hours and work-life balance, and ensure safety in the workplace;

· make sure that employees follow the rules of ethics and responsible behaviour based on the General Code of Conduct;

· encourage employees to engage in corporate volunteering to support the well-being of local communities and strengthen employees’ pride about being part of the organisation.

Number of employees	2021						2020
	Women		Men		Women			Men
Group		7 877		3 704		8 814			3 981
Bank		6 546		3 038		7 204			3 219
1)The table includes active employees

Number of employees(Bank) by type of employment	2021
Full-time employment
Women		6 192
Men		2 780
Total		8 972
Part-time employment (1/2 FTE)
Women		7
Men		5
Total		12
Other
Women		347
Men		253
Total		600

Number of employees (Bank) by type of contract	2021
Fixed-term employment contract
Women	689
Men	385
Total	1 074
Indefinite-term employment contract
Women	5 857
Men	2 653
Total	8 510

Total number of new hires (Bank) in the reporting period by:	2021
Gender
Women	728
Men	424
Age
Under 30	586
30–50	539
Above 50	27
Percentage of new hires (Bank) in the reporting period by:		2021
Gender
Women		10,3%
Men		13,6%
Age
Under 30		37,5%
30–50		7,5%
Above 50		1,8%

Total number of leavers (Bank) in the reporting period by:	2021
Gender
Women	1 463
Men	617
Age
Under 30	476
30–50	1 240
Above 50	365

Employee turnover ratio (Bank) in the reporting period	2021		2020
Groupa	20,0%		16,3%
Bank	20,0%		13,0%
Employee turnover ratio (Bank) in the reporting period		2021
Gender
Women		20,6%
Men		19,7%
Age
Under 30		30,4%
30–50		17,3%
Above 50		24,9%

Training and education

Training policies

At Santander Bank Polska S.A., training is delivered in accordance with the Training Policy and the following documents: Training Matrix – knowledge and skills, and Training organisation process.

Key training and development programmes

Central programmes

The bank pursues an integrated talent management strategy designed to ensure training and development at each stage of an employee lifecycle. The strategy is based on the 70-20-10 approach, which combines learning through experience (70), through others (20) and through structured courses (10).

· Key activities related to self-study:

ü implementation of the DOJO system;

ü access to learning platforms (e.g. Udemy, EduWeb, eTutor, Inspiro);

ü assessment tests, mainly DISC, Gallup, Harrison;

ü Development Elixir (Eliksir Rozwoju) – inspirations in the form of webinars, lectures by internal and external experts, discussion panels, mailing;

ü Development Planet (Planeta Rozwoju) – an internal portal dedicated to development initiatives;

· Projects promoting knowledge-sharing:

ü o YOUniversity – an internal tutoring programme (around 150 tutors);

ü o mentoring;

ü o BRIDGE (MOST) – an internal internship programme enabling employees to take part in projects delivered by other organisational units of the bank;

ü o Mundo – an internal internships programme as part of which employees can participate in projects delivered across Santander Group.

· Training and workshops

ü o mandatory training for sales and head office staff, including induction training.

Santander Bank Polska S.A. offers training corresponding to the needs of the employees, their job and skills required. They include:

· Advisor of the Future (Doradca Przyszłości) – training designed to develop skills connected with services provided to customers in digital channels;

· Service Design Academy;

· Keep up the momentum (Trzymaj Rozwój) – a development programme for employees with the highest annual performance rating;

· Young Leaders – a programme run across Santander Group to develop leadership skills of a selected group of talented employees;

· Futuro – a programme for all managers of the bank designed to develop their leadership skills.

The bank’s employees can also choose from a variety of training courses on social skills of the future, which are available in a cafeteria system, as well as workshops organised at the request of specific groups and units (team building, facilitation, team coaching). Alongside this, the bank supports local programmes launched by business units based on a business development pool, that is a budget earmarked for development of skills related to delivery of the bank’s strategic objectives.

Senior managers are offered tailored training programmes delivered by internal trainers.

Average number of training hours per employee	2021	2020
Group	23,2	16,2
Bank	33,1	20,3

Average number of taining hours in the reporting period		2021
Gender
Women		35,6
Men		27,5
Grade
Senior management		37,5
Middle management		38,4
Other employees		35,1
Form of training	2021
E-learning courses and other forms not indicated below	65%
Individual training and workshops	13%
Webcasts	22%
Attendence by gender		2021	2020
Gender		Time (hours)	%
Women		109 418	82%
Men		23 575	18%

Human Rights Policies and their Outcomes

Human and employee rights

The Human Rights Policy of Santander Bank Polska Group is a formal commitment to respect human rights in accordance with the highest international standards. The key objective in this regard is to observe and promote human rights as part of the business activity and to prevent and minimise the effects of any infringement arising therefrom.

The Human Rights Policy lays down the principles and commitments arising from the international declarations that apply to the bank’s and the Group’s relationships with their stakeholders. Each commitment comes with a list of specific actions. The Policy establishes a set of principles regarding the relationships with various stakeholders, including equal access to employment and promotion, and protection against discrimination based on age, gender, race, religion, origin, marital status or financial situation.

In its Human Rights Policy, the bank has also undertaken to analyse and assess human rights policies and practices of its counterparties before entering into any loan agreements or other agreements. The bank will respond to any breach of human rights in the workplace and use relevant disciplinary measures where justified.

Due to their importance, the matters covered by the Human Rights Policy are also reflected in the Sustainability Policy, which stresses the bank’s commitment to respecting and promoting human rights in relation to all its stakeholders.

Human rights matters are also reflected in the Defence Sector Policy, which introduces exclusions and limitations to the bank’s relationships with customers dealing with arms and dual-use technologies. The bank also notes risks related to projects carried out in the countries which have not ratified the key UN legal documents on human rights and those which are subject to UN/EU sanctions for violating human rights or using internal repressions, as defined in the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights and the Optional Protocol to the Convention on the Rights of the Child on the involvement of children in armed conflict.

Pursuant to the Human Rights Policy, the bank undertakes to:

With respect to employees:		· prevent discrimination and practices against personal dignity; · prevent forced labour and child labour; · respect the freedom of association and collective bargaining; · protect employees’ health; · offer stable working conditions.

With respect to customers:	· offer only the products and/or services that match customers’ situation and needs, making it easy for them to understand the terms and conditions, benefits, risks and costs; · avoid any unjustified discrimination when offering products, in accordance with the General Code of Conduct;
	·
With respect to suppliers:	· foster respect for human rights throughout the supply chain; · apply the Supplier Selection Policy, which includes environmental, social and ethical criteria expected from suppliers; · promote relationships with suppliers that demonstrate their commitment to human rights and have their own policies in this respect.

With respect to other business partners:	· promote the Human Rights Policy, especially where it is required due to the origin, activity or importance to the bank;

With respect to communities in which the bank operates:	· promote respect for human rights, particularly in those places where the legal and institutional framework is less developed; · respect, support and promote human rights in the communities the bank serves; · supervise and control the impact of the operations on the communities; · guarantee security to protect human rights; · help combat corruption.

Equality and diversity

Diversity and inclusion are the foundations of the Group’s corporate culture and are seen as the source of its strength and competitive advantage. Diversity is also addressed and recognised in the workplace, product offering, customer service and relationships with other stakeholders.

The principles supporting diversity and equal treatment are applied at each stage of the employee lifecycle, starting from recruitment and throughout the employee’s time with the organisation (terms of employment, access to training and development initiatives, promotion opportunities) to the termination of employment with the bank.

The bank ensures equal treatment of female and male employees by monitoring differences in remuneration using the EPG (Equal Pay Gap) and GPG (Gender Pay Gap) indicators.

As part of diversity management, the Group aspires to have a balanced representation between men and women in all functions and responsibilities, including on management and supervisory bodies.

Since 2017, Santander Bank Polska S.A. has been a signatory to the Diversity Charter. The bank’s corporate culture develops the policies and mechanisms that support equal treatment and diversity management at work.

The bank complies with the laws on diversity, inclusion and equal opportunities. It implements best practice promoting diversity. The bank ensures equal treatment of employees and other stakeholders regardless of their gender, age, education, health conditions, race, religion, national or ethnic origin, political beliefs, trade union membership, family status or sexual orientation.

Diversity is addressed in, inter alia, the Respect and Dignity Policy, which describes how to build a diversified working environment with respect for ethical standards and dignity of each employee. The Policy establishes the methods for reporting breaches of ethical standards and other irregularities, including discrimination, bullying and harassment. It determines the responsibility of management and each employee for its implementation.

Santander Bank Polska S.A. also has the Management Board Diversity Policy in place, in which the bank has undertaken to ensure that the candidates for the roles of Management Board members and key function holders possess a wide range of qualities and skills as well as the ability to show independence of mind and opinions, to ensure gender balance in the composition of the Management Board and to fight any discrimination against the candidates for Management Board members. Santander Group’s target is for 40% of senior executive positions to be held by women.

Diversity and inclusion is also addressed in the Corporate Culture Policy of Santander Bank Polska Group, which contains the bank’s commitment to promote work environment where diversity is respected, valued and seen as an asset. The Policy acknowledges the benefits of having diverse workforce, presenting it as a source of competitive advantage and an opportunity to deliver business and strategic objectives and to recruit and retain talent.

Apart from the above-mentioned documents, diversity is also addressed in:

· Sustainability Policy

· Human Rights Policy

· commitments of the bank as a signatory to the Diversity Charter

Key Performance Indicators of diversity policies	2021	2020
Number of women in top management positions	28.8%	22,0%
Number of women in senior management positions	44.8%	50,0%
Number of women in middle management positions	56.2%	57.20%

Promotion of diversity and inclusion across the organisation is a key enabler of cultural transformation of the Group. The Group fosters inclusive leadership ensuring that all employees have equal opportunities in all areas.

Selected initiatives supporting equality and diversity

· #Santander Women podcasts;

· employee groups: “Santander Women”, “IT from female perspective” (“IT kobiecym okiem”), “Embrace Poland”, “Santander Parents”;

· May – Diversity Month;

· cooperation with FOB & Diversja;

· International Day of Persons with Disabilities;

· International Day against Homophobia, Transphobia and Biphobia;

· Equal Company certificate;

· Diversity IN Check;

· workshops: “Giving precedence to diversity” (“Precedencja na różnorodność”) and “Let’s talk about diversity – the place to be yourself” (“Porozmawiajmy o różnorodności – the place to be yourself”);

The bank does a series of podcasts: “Santander Women”, which focus on diversity and inclusion in large organisations and on women’s leadership. In 2021, an initiative called “IT from female perspective”) (“IT kobiecym okiem”) was launched to encourage women to pursue tech-related careers.

Several employee groups were created, including “Santander Parents”, “Ecology” or “Embrace” for LGBT+ people and their allies. The above initiatives support “the place to be yourself” campaign run by Santander Group to create a work environment that makes everyone feel comfortable.

As part of the Diversity Month, a range of events were organised, including webinars, workshops, panels and inspirational meetings focusing on the strength and potential of diversity and inclusion in an organisation. To promote these values, the bank also held a series of workshops: “Giving precedence to diversity” (“Precedencja na różnorodność”) and meetings: “Let’s talk about diversity” (“Porozmawiajmy o różnorodności”), which were run by the bank’s leaders.

In 2021, the bank established a partnership with “Share the Care” Foundation, which will support the bank in the transposition of the EU work-life balance directive in 2022 with regard to extension of paternity leaves. This is to ensure equal opportunities for women in the labour market and change the approach to the use of parental leaves by fathers.

The bank also cooperates with UNGC Network Poland in respect of the Standard of Ethics Programme, whose key priority is to ensure equal opportunities of men and women in business.

Gender Pay Gap

The strategic priority of Santander Bank Polska S.A. is to ensure equal opportunities and support gender equality at all levels across the organisation. Guaranteeing full pay equality between men and women is one of the key strategic commitments.

Across Santander Group, the measurement of pay equality is focused around two concepts:

· The Gender Pay Gap (GPG) metric, which measures the difference in pay regardless of the job, in an organisation or a business (vertical approach).

· Equal Pay Gap (EPG) metric, which compares compensation for women and men who hold the same job position, with the same level, in the same role. This is intended to capture “equal pay for equal work” (horizontal approach).

GPG is a structural ratio both economy and society-wise and has been used for several dozen years. Its level reflects, among other things, the structure of the bank as that of a network-based institution that provides services to customers countrywide, with majority of its workforce being female versus predominantly male employees in, for example, IT units. These examples show the reasons for differences between average remuneration paid to men and women, regardless of their job.

Changes in GPG will be evolutionary, driven by changes in the bank’s organisational structure as well as actions taken to support diversity and equal treatment, including:

· a greater female representation among senior executives;

· development programmes dedicated to women;

· ensuring gender balance in recruitment and development processes;

· a relevant female representation in succession planning;

· promoting equal treatment and inclusion among employees.

EPG is both an operational indicator used to track pay equality and actions taken in this area and a strategic one in the long and short term horizon. It is key to ensure equal treatment of male and female employees in the same jobs.

As at 31 December 2021, the bank’s EPG was 2.4%, which means that on average women holding the same positions as men earned 2.4% less.

The ambition of Santander Bank Polska S.A. is to ensure equal pay for men and women in the same jobs. To this end:

· the bank has defined annual targets to reduce EPG;

· information about EPG has been included in monthly HR Dashboards provided to managers along with a list of jobs where such differences occur as well as EPG per job in their respective structures (if there are any differences);

· HR decisions are made considering their impact on EPG; the salary review process and pay rises make it possible to eliminate differences.

The bank measures and tracks both GPG and EPG in line with its corporate standards.

Employee groups (Bank)	GPG	EPG
Employee groups (Bank)	Regardless of the nature of the job	The same job
Key managers	26,4%
Senior menagers ¹⁾	5,2%	As at 31 December 2021, women earned 2.4% less than men in the same jobs.
Orher menagers	17,4%
Other employees	30,8%

1) exclusive of the Management Board which has a dedicated remuneration report

Ratio of base slary by men and women (Bank) by:	2021
Senior menagers	95,3%
Orher menagers	83,8%
Other employees	70,5%
Percentage of employees by diversity criteria – gender	2021
Gender
Women	4	33%
Men	8	67%
Age
Under 30t	0	0%
30-50	6	50%
Above 50 years	6	50%

Percentage of employees by diversity criteria – gender	2021
Women	6 542	68,3%
Key managers	20	32,8%
Senior menagers ¹⁾	26	44,1%
Orher menagers	704	56,2%
Other employees	5 792	70,6%
Men	3 030	31,7%
Key managers	41	67,2%
Senior menagers ¹⁾	33	55,9%
Orher menagers	548	43,8%
Other employees	2 408	29,4%

Percentage of employees by diversity criteria – age	2021
Under 30 t	1 452	15,2%
Orher menagers	30	2,1%
Other employees	1 422	97,9%
30-50	6 681	69,8%
Key managers	50	0,7%
Senior menagers ¹⁾	43	0,6%
Orher menagers	1 012	15,1%
Other employees	5 576	83,5%
Obove 30 years	1 439	15,0%
Key managers	11	0,8%
Senior menagers ¹⁾	16	1,1%
Orher menagers	210	14,6%
Other employees	1 202	83,5%

6. Social Policies and their Outcomes

Social responsibility

The social responsibility agenda of Santander Bank Polska S.A. is described in the Sustainability Policy and the Corporate Volunteering Policy of Santander Bank Polska S.A.

In its relations with communities, the bank supports delivery of the UN Sustainable Development Goals:

· good health and well-being

· quality education

· gender equality

· decent work and economic growth

· industry, innovation and infrastructure

· sustainable cities and communities

· climate action.

The bank participates in long-term social projects which are aimed at responding to the needs of local communities and making a positive contribution to society.

Key sponsorship projects in 2021

In 2021, Santander Bank Polska S.A. delivered sponsorship initiatives in the following three main areas: sports, culture and education. The pandemic and the resulting sanitary regime changed the way in which projects were delivered and affected the number of initiatives undertaken, involving a wider use of remote communication and promotion tools. The bank focused mainly on long-term projects which give a bigger opportunity to create lasting association between a given event and the bank. It also started new image-building projects involving the bank’s experts from different areas.

Key sponsorship and social responsibility projects continued/ launched in 2021

UEFA

Champions League

· In 2021, the bank continued the sponsorship of the UEFA Champions League (UCL), the world’s most prestigious football club competition.

· The sponsorship agreement with UEFA signed on 29 November 2017 was effective from the 2018/2019 season until the end of the 2020/2021 season. This project allowed the bank to reach a wide group of supporters and their families.

· As one of the UEFA Champions League sponsors, the bank was present in the media via Polsat, a broadcaster of UCL, the Domowe Rozgrywki miniseries (which promoted watching football matches with family members) and sponsorship billboards accompanying sports events, matches, trailers and the series. With the above initiatives taken between November 2020 and April 2021, the bank reached 14m viewers.

Santander Orchestra

· Santander Orchestra is a cultural and educational project run by Santander Bank Polska S.A. since 2015 to support the careers of talented young musicians. The project combines top class musical workshops with lectures on a variety of topics, an element that is often not included in the traditional curriculum.

· As part of the last year’s edition, the following works were created in partnership with Warner Music Poland:

ü “Szymon Komasa – Piosenki z Kabaretu Starszych Panów. Laboratorium”, an album featuring famous singers and young musicians from Santander Orchestra. During the recording session, the musicians (around 40 beneficiaries) took part in educational workshops on personal finance management and biohacking.

ü Two music videos released to promote the album.

· In 2021, Santander Orchestra also recorded a Christmas music video “Jingle Bells” with one of the contestants in the 2021 edition of The Voice of Poland.

Key sponsorship projects continued/ launched in 2021 (cont.)

“Finansiaki” economic education project

· “Finansiaki” is another project run by Santander Bank Polska S.A. to support development of educational capabilities of parents and teachers in the area of finance and entrepreneurship by providing relevant materials (which comply with the core curriculum of kindergartens and primary schools).

· The key element of the project is the internet portal https://finansiaki.pl/ certified as a barrier-free website. It was launched in December 2016 and can be accessed via mobile devices. The educational materials available on that website (lesson plans, tips on how to talk to children, game ideas) were developed by experts and include a variety of ideas how to teach finance management in a fun and playful way.

· The programme is complemented by the following initiatives:

ü financial education classes based on ready-made lesson plans run in kindergartens and primary schools as part of corporate volunteering;

ü a free guide for parents on how to teach entrepreneurship to children aged 3–14: “Finansiaki. To My!”, available for download on the Finansiaki website since 2020;

ü “Finansiaki to My” Facebook profile launched in December 2020, including tips for parents and teachers on how to talk with children about finance in a simple and fun way. In 2021, the bank launched cooperation with parenting influencers and bloggers.

“How's Your Driving” campaign

· The “How’s Your Driving” (“Jak Jeździsz”) campaign was launched by the bank in 2015 to promote responsible behaviour and good road manners via social media.

· As part of this initiative, which now has nearly 160k Facebook and Instagram followers, interesting articles on cars and safe driving are published alongside up-to-date traffic information.

· In 2021, the number of interactions was record high: the users not only received messages but also actively participated in discussions or initiated them. This helped increase the visibility of the project in social media.

· The content of both profiles, including expert articles, video quizzes on traffic regulations, online educational games, learning materials for driving tests, reaches a large number of users and directs them to the project website: https://jakjezdzisz.pl/.

“Security in Cyberspace” educational project

· Santander Bank Polska S.A. is a partner of the “Security in Cyberspace” (“Bezpieczeństwo w Cyberprzestrzeni”) project, which was launched in 2017 and is coordinated by the Warsaw Institute of Banking. The purpose of the project is to raise the awareness of online safety and to develop practical skills related to the use of new technologies.

· In 2021, the following initiatives were delivered as part of the project:

ü classes for primary and secondary school students, lectures, training and e-learning courses for university students;

ü meetings with seniors and lectures for more than 1k people over 65 years of age (as part of partnership with Zaczyn Foundation started in September 2021);

ü tutorials on cybersecurity (over 100 videos in total);

ü materials for national, regional and student media;

ü a new website: http://cyberbezpieczenstwo.edu.pl or https://cyber.wib.edu.pl/

ü panel sessions.

· In 2021, nearly 1.5k classes, lectures, webinars, training sessions, e-learning courses, conferences and contests were organised for more than 120k participants (children and teenagers, students, seniors). Educational materials (including videos, brochures and leaflets) were distributed by the Warsaw Institute of Banking through the local, industry and Poland-wide media, newsletters and social media.

Memory workout: health and well-being of seniors

· In 2021, the bank started cooperation with the Stocznia Foundation, which develops specialist materials and tools for improving cognitive skills. They are available for free at: www.silowniapamieci.pl and are particularly addressed to elderly people who wish to train their memory, logical thinking, visual-spatial awareness, concentration, praxis and planning.

· Thanks to the contribution of Santander Bank Polska S.A., the Foundation printed 2k copies of “Trening umysłu dla seniorów. Scenariusze do pracy w parach senior – opiekun”, a book containing ready-made activity plans, exercises and worksheets that can be used to train cognitive skills.

· The printed copies were distributed to the recipients across Poland, particularly to family members and support workers caring for elderly people enabling them to do exercises without any prior experience.

Key sponsorship and social resposibility projects continued/ launched in 2021 (cont.)

Digital Festival 2021 (3rd edition)

· Santander Bank Polska S.A. was a partner of the 3rd edition of Digital Festival, the largest education and technology initiative in Poland aimed at promoting digital technologies. The event, which was organised by the Digital Poland Foundation under the slogan: “Digital is evolution, not revolution”, was held on 1–10 October 2021 and was addressed to the people who wanted to acquire or develop their knowledge and skills.

· The Festival consists of several main initiatives, some of which are delivered throughout the year: Knowledge Zone (Strefa Wiedzy), Innovation Night (Noc Innowacji), SkillUp Academy (Akademia SkillUp), Digital Discounts (Cyfrowe Zniżki), Guides (Przewodniki), Reports (Raporty), Digital Arts. As part of the initiative, several dozens inspiring contests, quizzes, webinars, training sessions, hackathons, workshops and panel discussions were held, all of which were devoted to new technologies.

· Experts from Santander Bank Polska S.A. delivered training, gave interviews and commented on research results presented in reports provided to participants. The training presentations of the bank’s experts (e.g. “What makes a professional LinkedIn profile”, “How to write so that others could understand”, “Non-violent communication”) are now available on the platform offering free training courses on a variety of topics that are aimed to develop digital skills (Akademia SkillUp)

· The campaign promoting the Festival reached more than 13m people via national media and more than 7m people via social media.

Open Eyes Economy Summit 2021 (6th edition)

· The bank sponsored the 6th edition of Open Eyes Economy Summit – International Congress of the Economy of Values, which was held in a hybrid formula on 16–17 November 2021 in ICE Kraków Congress Centre.

· This event, hosted by Kraków since 2016, brings together renowned representatives of the world of science, economics and culture. It is devoted to economy based on social values. The sixth edition covered the four main topics: firm–idea, brand–culture, city–idea and international governance.

· The event was attended by 1.5k participants on-site, 3.7k participants (from 37 countries) online, and 250 speakers who took part in 83 panel sessions.

Santander Universidades Programme

· For the last 10 years, the bank has been cooperating with Polish universities, having the ambition to support the academic community, including through scholarship and training programmes offered via the www.santander-grants.com platform. One of the activities under the Programme in 2021 was the Santander Universidades Academy – a series of webinars for students, graduates and all those who are interested in finance, economics, leadership, artificial intelligence, robotics, and auditing. The speakers were leaders from Santander Bank Polska S.A. The event was organised jointly with the Cracow University of Economics and its Academic Banking Society. The nine webinars were attended by 20 speakers and more than 1000 participants from 100 Polish universities.

·

Santander Bank Polska Foundation

Activities in 2021

In 2021, Santander Bank Polska Foundation performed 59 educational, charity and cultural donation agreements in cooperation with social partners. The key cyclical projects include grant programmes.

In 2021, the following four grant programmes were delivered:

Here I live, here I make eco-friendly changes

· The aim of the “Here I live, here I make eco-friendly changes” (“Tu mieszkam, tu zmieniam EKO”) programme is to introduce changes in local communities, promote environmental education and bring together residents. The jury of the competition particularly focus on original ecological initiatives responding to social needs. Projects delivered as part of the programme included creation of vertical gardens, pocket parks, rain gardens, plant murals, green libraries and public transport stops.

· Number of applications: 1,062

· Number of organisations helped: 58

· Number of beneficiaries: 538,577

· Programme budget: PLN 300,000

Bank of Children’s Smiles

· As part of the “Bank of Children’s Smiles” (“Bank Dziecięcych Uśmiechów”) programme, the Foundation co-financed projects aimed to help children and teenagers who need psychological support due to, among other things, the effects of the Covid-19 pandemic.

· Number of applications: 161

· Number of organisations helped: 15

· Number of beneficiaries: 422

· Programme budget: PLN 150,000

Bank of Young Sports Champions
· The “Bank of Young Sports Champions” (“Bank Młodych Mistrzów Sportu”) programme promotes active lifestyle. As part of the 2021 edition, grants were awarded to sports projects and events for young people aged 5–26 such as team sports events, competitions for people with disabilities, training and other initiatives promoting fair play and sportsmanship.	· Number of applications: 585 · Number of organisations helped: 29 · Number of beneficiaries: 5,674 · Programme budget: PLN 150,000
Cyberattack Defenses
· The Foundation launched the first edition of the “Cyberattack Defenses” (“Haki na Cyberataki”) programme whose purpose is to award the most interesting consumer finance education projects concerning: ü protection against financial crimes such as frauds; ü safe use of electronic banking; ü safe online finance management.	· Programme budget: PLN 1,200,000 · Results: 28 lutego 2022

Other programmes included:

· 2021/22 Scholarship Programme – as part of the fourth edition of the Programme, scholarships were awarded to 31 out of 683 applications submitted in the 2021/2022 school year.

· “Flicker Club” (“Klub Płomyka”) – a continuation of the project aimed to renovate units in educational care centres and hospitals and provide necessary equipment, books and toys. In 2021, four Flicker Clubs were opened (and the fifth and the sixth one in January 2022). Since the start of the project, nine such units have been renovated across Poland.

· “Sow the seeds of ecological change” (“Zasiej EKO-zmianę”) – 42k bags of night-scented stock were given to customers of the bank’s branches around Poland to encourage them to make eco-friendly changes in local communities. Customers sew flower seeds on balconies and in gardens and could participate in a photo contest open to the youngest customers of the bank.

· “We Will Double Your Impact” (“Podwójna Moc Pomagania”) – a joint initiative of the Foundation and the bank.

ü As part of the first edition, Santander Bank Polska S.A., in partnership with Santander Towarzystwo Funduszy Inwestycyjnych S.A., Santander Leasing S.A. and Santander Factoring sp. z o.o., donated PLN 1 million to support child psychiatry.

ü Over 10k people took part in the second edition of the fundraiser. The bank doubled the funds raised and additionally donated the difference between that amount and the declared amount of PLN 2m to support child and adolescent mental health units in 16 hospitals across Poland.

· 4th North Macroregion Helps (Północny Pomaga) Charity Run – virtual North Macroregion Helps Charity Run organised by volunteers from the North Macroregion and Santander Foundation. The participants were to cover the distance of 7.1km running, walking, roller blading, cycling, by scooter, on horseback or otherwise. PLN 68.1k was raised and donated to the Eugeniusz Dutkiewicz Home Hospice in Gdańsk.

Corporate volunteering

Corporate volunteering at the bank is supported by Santander Bank Polska Foundation. In 2021, 126 projects were carried out to support social organisations and people in need, involving 1,734 volunteers from around Poland.

The initiatives undertaken by the bank were aimed to help people with disabilities, children and teenagers with cancer, hospice patients, lonely elderly individuals, and children and teenagers in educational care centres. They also included ecological projects.

Furthermore, the volunteers took part in financial education projects for young people, e.g. in the “Bakcyl” project run in partnership with the Warsaw Institute of Banking, and in the “Małe Miasto Wągrowiec” project designed to teach children how money works and how to earn, save

and spend it. As part of skill-based volunteering, employees shared their knowledge of cybersecurity, civil law and labour law with children and teenagers from educational care centres.

As part of an event organised by the volunteers from the bank’s Central Macroregion, 900 books and 200 board games were donated to young people from educational care centres.

Expeditures on social and other projects

The expenditures of Santander Bank Polska S.A on social projects and other non-core projests.

Expenses of Santander Bank Polska Group in 2021 for non-core activities (PLN m)	2021
Education, including:	5,3
- Financial education	2,4
Sports	3,2
Culture	1,4
Environmental protection	1,4
Charity events and statutory activities of foundations/associations, including:	4,3
- "We Will Double Your Impact" fundraiser	2,0
Industry conferences	0,2

XV. Statement of the Management Board

True and Fair Presentation of the Financial Statements

To the best of the Management Board’s knowledge, the financial figures and the comparable data presented in the financialstatements incorporated in the “Annual Report of Santander Bank Polska S.A. for 2021” and “Annual Report of Santander Bank Polska Group for 2021” were prepared in keeping with the applicable accounting policies and give a true and fair view of the state of affairsand earnings of Santander Bank Polska S.A. and Santander Bank Polska Group. The Management Board’s Report contained in this document shows a true picture of the development, achievements and position of Santander Bank Polska S.A. and its Group (including the underlying risks) in 2021.

Auditor selection

The audit firm responsible for auditing the unconsolidated and consolidated financial statements of Santander Bank Polska S.A. for 2021 was selected in compliance with the applicable legislation. The bank has the “Auditor Appointment Policy at Santander BankPolska S.A.”, the “Auditor Services Policy at Santander Bank Polska S.A.” and the “Policy for Non-Audit Services Rendered by theAuditor”, which relate to the policy of selection of an audit firm and the policy of provision of non-audit services by an audit firm, a affiliate of an audit firm or a member of its network. The bank complies with the applicable legal provisions relating to the rotationof audit firms and the key statutory auditor, and the appropriate cooling-off periods.

The following persons have signed this Management Board Report with an electronic qualified signature.

Date	Name	Function	Signature
22.02.2022	Michał Gajewski	President	The original Polish document is signed with a qualified electronic signature
22.02.2022	Andrzej Burliga	Vice-President	The original Polish document is signed with a qualified electronic signature
22.02.2022	Juan de Porras Aguirre	Vice-President	The original Polish document is signed with a qualified electronic signature
22.02.2022	Arkadiusz Przybył	Vice-President	The original Polish document is signed with a qualified electronic signature
22.02.2022	Lech Gałkowski	Member	The original Polish document is signed with a qualified electronic signature
22.02.2022	Patryk Nowakowski	Member	The original Polish document is signed with a qualified electronic signature
22.02.2022	Carlos Polaino Izquierdo	Member	The original Polish document is signed with a qualified electronic signature
22.02.2022	Maciej Reluga	Member	The original Polish document is signed with a qualified electronic signature
22.02.2022	Dorota Strojkowska	Member	The original Polish document is signed with a qualified electronic signature

Scope

Business environment

Performance of the banking sector

Performance of Santander Bank Polska Group

History of Santander Bank Polska S.A. (most important events)

Ownership structure

Share capital

Majority shareholder

Business profile of Santander Bank Polska Group

Business model of Santander Bank Polska Group

Value creation by Santander Bank Polska Group

Position of Santander Bank Polska S.A. and its Group in the Polish banking sector

Position in the banking sector

Share in key market segments

Competitive advantages

Subsidiaries

Associates

III. Macreconomic Situation in 2021

Economic growth

Labour market

Inflation

Monetary policy

Loans and deposits

Financial market situation

Stock market

Legal environment of the banking sector

Strategic directions

Key activities planned for 2022

Economic growth

Labour market

Inflation

Monetary policy

Loans and deposits

Situation on financial markets

Human capital

Support programme for employees selected for collective redundancies

Human resources management during the Covid-19 pandemic

Selected HR initiatives

Recruitment policy

Performance management

Remuneration policy and bonus schemes

Fixed remuneration

Variable components of remuneration

Social and employee benefits

Training and development

1. Customer Service Quality and Customer Experience Management

Customer experience (CX) management

Dynamic progress measured by the NPS

Methodological foundations of customer-centric transformation

Customer experience management at the strategic level

Management and monitoring of activities impacting customer experience at the operational level

Management of collection, analysis and use of voice of the customer

Building and improving customer experience standards

Service standards

Emphatic communication standards – plain language

Product and service design and development standard

Complaints management

Ownership structure in 2021 and the majority shareholder

Majority shareholder

Ratings by Fitch Ratings

Ratings by Moody’s Investors Service

Pillars of Responsible Banking at Santander Bank Polska S.A.

Corporate Social Responsibility Report

Relations with stakeholders

Marketing communication

Brand promise

PR communication

Social media

Content management

Operational structure

Segment reporting

Retail Banking

Business and Corporate Banking

Main development directions

Personal customers

Cash loans

Mortgage loans

Personal accounts and bundled products, including:

Ø Payment cards

Deposit and investment products, including:

Other transformation measures

(Agile)

Factoring business conducted via Santander

Factoring Sp. z o.o.