Internal Performance:

Main drivers of good internal performance includes good planning, efficient HRM
policies and effective/optimum use of technology.

Planning Exercise:

Profit and profitability are the end outcomes of the process of business planning exercise.
Planning involves making strategies for building business and sustain topline growth. Planning for
higher profit involves a clear understanding and efficient monitoring of the cost and income
structures. Formulation of strategies and its effective implementation has twin objectives- to save
costs and augment revenues. The growth in business, a key determinant of the startegies has to be
achieved simultaneously with an improved ROA and improved NIM. All controllable other operating
expenses need to be checked. The cost cutting works only in the short term and only the generating
and strengthening revenue streams will bring the desired results in the long run. Treasury operations
play a pivotal role by augmenting resources by actively operating in the financial markets. Investment
decisions with a proper understanding of the market and in the best interests of all the stakeholders.

Optimum investment in technology:

Santander bank has implemented technology at lower cost to improve efficiency and to
overcome stiff competition. They have introduced online banking under which individual customers
as well as corporate can access from anywhere in the world for all their banking needs. The facilities
available are monitoring balances, effecting fund transfer, putting in place standing orders
instructions.

Human resource development:

Santander bank has a well documented personnel policy which takes care of most of the
needs of the workforce including flexible work option comprehensive employee assistance
programmes, counselling services for employees to overcome work related stress etc. The employees
are given training in the respective fields so as to make them more efficient. As a result of this policy
Santander bank have well trained highly dedicated and loyal workforce which give unstinted support
to the management in achieving the goals.

External performance :

The major external factors that influenced the performance of a bank are market
capitalisation, adherence to Regulatory Directives and the extend of confidence reposed by the public.
A higher market capitalisation means that the bank enjoys high reputation of the investors. Higher
market capitalisation results in increased shareholder’s wealth. The market capitalisation of
Santander at the end of 2009 stood at EUR 95,043Mn. Its total assets base as on December 2009
stood at €1110.529Mn, registering a growth rate of 5.8% Profits from UK operations has increased by
15% and share in the mortgage market has risen to 20% in the first three months of the year 2010. All
these figures indicate that they enjoy great deal of public confidence.

Analysing the performance with key financial ratios:

 ROE is one of the key indicators used in analysing the performance. It is otherwise known
as ROI. This is nothing but the ratio of the net income divided by the total equity the bank holds.
ROE= Net income/ Shareholders equity

Higher the ratio, greater will be the market share. A bank with a higher net income and
resultant higher ROE will be preferred by the investors as their wealth will increase correspondingly.
At the same time the bank with greater market share will have additional responsibility of maintaining
the trend. Hence they will not enter into risky ventures and will follow a prudent investment policy so
as to maximise the profits and ultimately the shareholders wealth. An analysis of Santander’s balance
sheets for last three years indicates that ROE has come down from 21.91 in 2007 to 13.90 in 2009.

Further analysis shows that the net operating income has been consistently increasing from
€14417Mn in 2007 to €18540Mn in 2008 and further to €22960Mn in 2009. But the decrease in the
net income is due to the additional provision made towards loan –loss which has increased from
€3397Mn in 2007 to €6601Mn in 2008 and €9484Mn in 2009. This phenomenon has been seen in
almost all the banks, due to the unprecedented financial meltdown witnessed after the US subprime
mortgage crisis. In addition to this the capital base has gone up from €41352Mn in 2007 to €51986Mn
in 2008 and further to €64335Mn in 2009. It is evident that this bank has been consistently growing
and rewarding the share holders in spite of the financial crisis which has crippled many banks around
the world

ROA is one of the most commonly used ratio to evaluate bank’s performance, this ratio tells us how
the bank uses its assets to get income. If this ratio is high it means that the bank uses all its assets
efficiently to produce more income.

ROA= Net income/ Total assets

The 2 main factors that influence the value of the bank are the future cash flows and the expected
return for the amount invested in the business by the investors. While the cash flows are influenced
by the movements in the interest rates, overall economic conditions, regulatory changes etc., the
investors’ expectation is influenced by the market interest rates which in turn are driven by the
general economic conditions. ROA will increase if the Net income increases for certain amount of
assets. Higher ROA usually denotes better performance. (Jeff.M, 2008)

An analysis of 3 years balance sheets of Santander bank reveals that the ROA has come down
progressively as under.

2009 2008 2007

ROA 0.86 % 0.96% 1.09%

NIM = Net interest income/ Average earning assets NIM for Santander has been increasing for the
past three years from 2007 to 2009 ie 1.63%, 2.05% and 2.44%, it means the bank is in good position
and is capable of getting deposits from more customers at a relatively low costs and lend at a
reasonably better rates. It reveals the confidence enjoyed by the bank from investors community.
 This ratio is widely used by financial institutions to find the credit risk involved for different
projects. Every business is associated with risks , the risk is nothing but a variation in the potential
outcome of a thing where we have an exposure. Risk cannot be totally avoided but it can be mitigated.
RAROC has been a recently developed concept. The basic assumption is that funds are to be
invested in any business only if expected return is likely to be more than the cost of investment. Each
bank is expected to allocate risk capital in respect of various segments/ units within it, by conducting
proper risk assessment.(Mark,M. and Bishop,V. 2007)

RAROC= Revenue-expenses-expected loss+ income from capital/ capital.

This is the ratio which defines the returns on capital after risk adjustment