Standardised approach: an approach for calculating credit risk capital requirements under Pillar I of

Basel II. Under this approach, the risk weightings used in the capital calculation are determined by the
regulator. Basic IRB approach: all the risk parameters are determined by the regulator except for the
probability of default, which is estimated internally by the bank. The CCFs required to calculate EAD are
determined by the regulator. Internal ratings-based approach (IRB): an approach based on internal
ratings for the calculation of risk-weighted exposures. Advanced IRB approach: all the credit risk
parameters are estimated internally by the entity, including the CCFs for calculating the EAD. AMA
(Advanced Measurement Approach): an operational risk measurement technique set forth in Basel
capital adequacy norms, based on an internal modelling methodology.

CET1 (Common Equity Tier 1): the highest quality capital of a bank. Common equity: a capital measure
that considers, among other components, ordinary shares, the share premium and retained profits. It
does not include preference shares.

AT1 (Additional Tier 1): capital which consists primarily of hybrid instruments.

Tier 1: core capital less hybrid instruments. Tier 2: supplementary capital instruments, mainly
subordinated debt and general loan loss allowances, which contribute to the robustness of financial
institutions. CoCos (Contingent Convertible Bonds): debt securities that are convertible into capital if a
specified event occurs.

CCoB (Conservation Buffer): a capital buffer equal to 2.5% of riskweighted assets (and comprised fully of
high-quality liquid assets) to absorb losses generated from the business.

CCAR (Comprehensive Capital Analysis Review): a framework introduced by the Federal Reserve to
review the capital planning and adaptation processes of the main US financial institutions.

CCF (Credit conversion factor): a conversion factor used for converting off-balance-sheet credit risk
balances into credit exposure equivalents. Under the AIRB approach Santander Group applies the CCFs
in order to calculate the EAD value of the items representing contingent liabilities and commitments.

Credit risk: the risk that customers are unable to meet their contractual payment obligations. Credit risk
includes default, country and settlement risk. Credit risk mitigation: a technique for reducing the credit
risk of a transaction by applying coverage such as personal guarantees or collateral. Counterparty credit
risk: the risk that a counterparty will default on a derivatives contract before its maturity. The risk could
arise from derivatives transactions in the trading portfolio or the banking portfolio and, as with other
credit exposures, it is subject to a credit limit. CVA (Credit Valuation Adjustment): the difference
between the value of the risk-free portfolio and the true portfolio value, taking into account
counterparty credit risk.

ECB Supervisory Board: the body which undertakes the planning and execution of the ECB’s supervisory
tasks, carrying out preparatory work and making proposals for decisions for approval by the ECB
Governing Board. CRR (Capital Requirements Regulation) and CRD IV (Capital Requirements Directive):
directive and egulation transposing the Basel II framework into European Union law. BCBS: Basel
Committee on Banking Supervision. BIS: Bank for International Settlements. BRRD (Bank Recovery and
Resolution Directive): approved in 2014, the BRRD establishes the framework for the recovery and
resolution of banks with the objective of minimising the costs for taxpayers. SRB (Single Resolution
Board): the single resolution authority, which is the second pillar of the Banking Union after the Single
Supervisory Mechanism. SRB: Systemic Risk Buffer. SREP (Supervisory Review and Evaluation Process):
a review of the systems, strategies, processes and mechanisms applied by credit institutions and of their
risks. SRF: Single Resolution Fund. SRM: Single Resolution Mechanism. SSM (Single Supervisory
System): the system of banking supervision in Europe. It comprises the ECB and the competent
supervisory authorities of the participating EU countries.

LCR (Liquidity Coverage Ratio): a ratio that ensures that a bank has an adequate stock of
unencumbered high quality liquid assets that can be converted, easily and immediately, into cash in
private markets, to meet its liquidity needs for a 30 calendar day liquidity stress scenario.

NSFR (Net Stable Funding Ratio): a ratio designed to ensure a bank has a balanced balance sheet
structure, in which stable funding requirements are funded by stable liabilities.

TLAC (Total Loss Absorbency Capacity -16% 2019, and 18% 2022): an additional requirement to the
minimum capital requirements set out in the Basel III framework for the absorption of total losses and
effecting a recapitalisation that minimises any impact on financial stability, ensures the continuity of
critical functions and avoids exposing taxpayers to losses. This requirement is applicable to all G-SIBs.
TLTRO: Targeted Longer-Term Refinancing Operations. MREL (Minimum Requirement of Eligible
Liabilities): the final loss absorption requirement established in European legislation for institutions
based on an assessment of their resolution plans.

Pillar 1 – Minimum Capital Requirements: the part of the New Basel Capital Accord that establishes the
minimum regulatory capital requirements for credit, market and operational risk. Pillar 2 - Supervisory
Review Process: an internal capital adequacy assessment process reviewed by the supervisor with
possible 197 MARKET RISK _ 2018 Pillar 3 Disclosures Report additional capital requirements for risk that
are not included in Pillar I and the use of more sophisticated methodologies than Pillar I. Pillar 3 -
Market Discipline: this pillar is designed to complete the minimum capital requirements and the
supervisory review process and, accordingly, enhance market discipline through the regulation of public
disclosure by the entities.

VaR (Value at Risk): estimate of the potential losses that could arise in risk positions as a result of
movements in market risk factors within a given time horizon and for a specific confidence level.
Interest rate risk: exposure of the bank’s financial position to adverse movements in interest rates.
Acceptance of this risk is a normal part of the banking business and can be a source of significant returns
and creation of shareholder value. EL is calculated by multiplying probability of default (a percentage)
by exposure at default (an amount) and LGD (a percentage). Over-the-counter (OTC): off-exchange, that
is, trading done between two parties (in derivatives, for example) without the supervision of an
organised exchange.