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.