20-F 1 bsmx-20201231x20f.htm 20-F

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report

For the transition period from                           to                     

Commission file number: 000-55899

BANCO SANTANDER MÉXICO, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE,

GRUPO FINANCIERO SANTANDER MÉXICO
(Exact name of Registrant as specified in its charter)

United Mexican States
(Jurisdiction of incorporation or organization)

Avenida Prolongación Paseo de la Reforma 500

Colonia Lomas de Santa Fe

Alcaldía Álvaro Obregón

01219 Mexico City
(Address of principal executive offices)
Fernando Borja Mujica

Deputy General Legal and Compliance Director

BANCO SANTANDER MÉXICO, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE,

GRUPO FINANCIERO SANTANDER MÉXICO

Avenida Prolongación Paseo de la Reforma 500

Colonia Lomas de Santa Fe

Alcaldía Álvaro Obregón

01219 Mexico City

Telephone: +(52) 55-5257-8000

Fax: +52 55-5269-2701

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

American Depositary Shares, each representing five shares of the Series B common stock of Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México, par value of Ps.3.780782962

BSMX

New York Stock Exchange

Series B shares, par value of Ps.3.780782962

BSMX

New York Stock Exchange*


*

Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México’s Series B shares are not listed for trading, but are only listed in connection with the registration of the American Depositary Shares, pursuant to the requirements of the New York Stock Exchange.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

U.S.$500,000,000 8.500% Perpetual Subordinated Non-Preferred Contingent Convertible Additional Tier 1 Capital Notes
(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close of the period covered by the annual report.

Series B shares: 3,322,685,212

Series F shares: 3,464,309,145

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

  Yes        No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

  Yes        No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

  Yes        No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

  Yes        No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer," accelerated filer,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Emerging growth company 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the eectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  

International Financial Reporting Standards as issued by the International Accounting Standards Board  

Other  

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

  Item 17        Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

  Yes      No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No


BANCO SANTANDER MÉXICO, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO SANTANDER MÉXICO

TABLE OF CONTENTS


Page

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

iii

GLOSSARY OF SELECTED TERMS

vii

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

xi

ENFORCEMENT OF JUDGMENTS

xiv

PART I

15

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

15

A. Directors and Senior Management

15

B. Advisers

15

C. Auditors

15

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

15

A. Offer Statistics

15

B. Method and Expected Timetable

15

ITEM 3. KEY INFORMATION

15

A. Selected Financial Data

15

B. Capitalization and Indebtedness

22

C. Reasons for the Offer and Use of Proceeds

22

D. Risk Factors

22

ITEM 4. INFORMATION ON THE COMPANY

69

A. History and Development of the Company

69

B. Business Overview

73

C. Organizational Structure

178

D. Property, Plants and Equipment

179

ITEM 4A. UNRESOLVED STAFF COMMENTS

179

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

180

A. Operating Results

188

B. Liquidity and Capital Resources

207

C. Research and Development, Patents and Licenses, etc.

220

D. Trend Information

220

E. Off-Balance Sheet Arrangements

221

F. Tabular Disclosure of Contractual Obligations

223

G. Safe Harbor

223

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

223

A. Directors and Senior Management

223

B. Compensation

233

C. Board Practices

234

D. Employees

239

E. Share Ownership

241

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

242

A. Major Shareholders

242

B. Related Party Transactions

243

C. Interests of Experts and Counsel

249

ITEM 8. FINANCIAL INFORMATION

249

A. Consolidated Statements and Other Financial Information

249

B. Significant Changes

250

ITEM 9. THE OFFER AND LISTING

250

A. Offering and Listing Details

250

B. Plan of Distribution

250

C. Markets

250

D. Selling Shareholders

258

E. Dilution

258

i


F. Expenses of the Issue

258

ITEM 10. ADDITIONAL INFORMATION

259

A. Share Capital

259

B. Memorandum and Articles of Association

259

C. Material Contracts

271

D. Exchange Controls

271

E. Taxation

271

F. Dividends and Paying Agents

277

G. Statement by Experts

277

H. Documents on Display

277

I. Subsidiary Information

277

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

277

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

298

A. Debt Securities

298

B. Warrants and Rights

298

C. Other Securities

298

D. American Depositary Shares

298

PART II

300

ITEM 13. DEFAULTS, DIVIDEND ARREARS AND DELINQUENCIES

300

A. Defaults

300

B. Arrears and Delinquencies

300

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

300

A. Material Modifications to Instruments

300

B. Material Modifications to Rights

300

C. Withdrawal or Substitution of Assets

300

D. Change in Trustees or Paying Agents

300

E. Use of Proceeds

300

ITEM 15. CONTROLS AND PROCEDURES

300

A. Disclosure Controls and Procedures

300

B. Management’s Annual Report on Internal Control over Financial Reporting

301

C. Changes in Internal Control over Financial Reporting

301

ITEM 16. [RESERVED]

301

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

301

ITEM 16B. CODE OF ETHICS

302

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

302

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

303

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

303

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

303

ITEM 16G. CORPORATE GOVERNANCE

303

ITEM 16H. MINE SAFETY DISCLOSURE

307

PART III

308

ITEM 17. FINANCIAL STATEMENTS

308

ITEM 18. FINANCIAL STATEMENTS

308

ITEM 19. EXHIBITS

308

}

ii


PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Definitions

Unless otherwise indicated or the context otherwise requires, all references in this annual report on Form 20-F (hereinafter the “Report”)  to “Banco Santander México,” the “Bank,” “we,” “our,” “ours,” “us” or similar terms, refer to Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México, together with its consolidated subsidiaries.

When we refer to “Banco Santander Parent” or the “Parent,” we refer to our controlling shareholder, Banco Santander, S.A., a Spanish bank.

When we refer to “Former Holding Company,” we refer to Grupo Financiero Santander México, S.A.B. de C.V., our former parent company.

When we refer to “Grupo Financiero Santander México” we refer to Grupo Financiero Santander México, S.A. de C.V. our parent company from January 1, 2018, which is not a public company and is a wholly-owned subsidiary of Banco Santander Parent.

When we refer to Casa de Bolsa Santander, S.A. de C.V., Grupo Financiero Santander México, a Mexican broker-dealer, we refer to the Former Holding Company’s brokerage subsidiary, which is now owned by Grupo Financiero Santander México.

When we refer to “Gestión Santander,” we refer to SAM Asset Management, S.A. de C.V., Sociedad Operadora de Sociedades de Inversión (formerly known as Gestión Santander, S.A. de C.V., Grupo Financiero Santander México) (entity sold in December 2013).

When we refer to “Seguros Santander”, we refer to Zurich Santander Seguros México, S.A. (formerly known as Seguros Santander, S.A., Grupo Financiero Santander) (entity sold in November 2011).

When we refer to the “Santander Group,” we refer to the worldwide Banco Santander Parent conglomerate and its consolidated subsidiaries.

References in this Report to certain financial terms have the following meanings:

References to “IFRS” are to the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”) and IFRIC interpretations, which are developed by the IFRS Interpretations Committee (previously the International Financial Reporting Interpretations Committee or IFRIC) and issued after approval by the IASB.
References to “Mexican Banking GAAP” are to the accounting standards and regulations prescribed by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, or “CNBV”) for credit institutions, as amended.
References to our “audited financial statements” are to the audited consolidated financial statements of Banco Santander México as of December 31, 2019 and 2020, and for each of the fiscal years ended December 31, 2018, 2019 and 2020, together with the notes thereto. The audited financial statements were prepared in accordance with IFRS and are contained in this Report.
References herein to “UDIs” are to Unidades de Inversión, a peso-equivalent unit of account indexed for Mexican inflation. UDIs are units of account created by the Mexican Central Bank on April 4, 1995, the value of which in pesos is indexed to inflation on a daily basis, as measured by the change in the National Consumer Price Index (Índice Nacional de Precios al Consumidor). Under a UDI-based loan or financial instrument, the borrower’s nominal peso principal balance is converted either at origination

iii


or upon restructuring to a UDI principal balance and interest on the loan or financial instrument is calculated on the outstanding UDI balance of the loan or financial instrument. Principal and interest payments are made by the borrower in an amount of pesos equivalent to the amount due in UDIs at the stated value of UDIs on the day of payment. As of December 31, 2020, was equal to Ps.6.60560 (U.S.$0.3318).

As used in this Report, the following terms relating to our capital adequacy have the meanings set forth below, unless otherwise indicated. See “Item 4. Information on the Company—B. Business Overview—Supervision and Regulation.”

“Capital Ratio” refers to the ratio of the total net capital (capital neto) to risk-weighted assets calculated in accordance with the methodology established or adopted from time to time by the CNBV pursuant to the Mexican Capitalization Requirements.
“General Rules Applicable to Mexican Banks” means the General Provisions Applicable to Credit Institutions (Disposiciones de Carácter General Aplicables a las Instituciones de Crédito) issued by the CNBV.
“Mexican Capitalization Requirements” refers to the capitalization requirements for commercial banks, including Banco Santander México, set forth in the Mexican Banking Law (Ley de Instituciones de Crédito) and in the General Rules Applicable to Mexican Banks, as such laws and regulations may be amended from time to time or superseded.
“Tier 1 capital (capital básico)” means the basic capital (capital básico) of the Total Net Capital (capital neto), as such term is determined based on the Mexican Capitalization Requirements, as such determination may be amended from time to time, which is comprised of Fundamental Capital (capital fundamental) and Additional Tier 1 Capital (capital básico no fundamental).
“Tier 2 capital (capital complementario)” means the additional capital (capital complementario) of the Total Net Capital (capital neto), as such term is determined based on the Mexican Capitalization Requirements, as such determination may be amended from time to time.

As used in this Report, the term “billion” means one thousand million (1,000,000,000).

In this Report, the term “Mexico” refers to the United Mexican States, and the terms “Mexican government” or the “government” refer to the federal government of Mexico. References to “U.S.$,” “U.S. dollars” and “dollars” are to United States dollars, and references to “Mexican pesos,” “pesos,” or “Ps.” are to Mexican pesos. References to “euros” or “€” are to the common legal currency of the member states participating in the European Economic and Monetary Union.

Financial and Other Information

Market position. We make statements in this Report about our competitive position and market share in the Mexican financial services industry and the size of the Mexican financial services industry. We have made these statements on the basis of statistics and other information from third-party sources, primarily the CNBV, that we believe are reliable.

Currency and accounting standards. We maintain our financial books and records in pesos. Our consolidated income statement data for each of the years ended December 31, 2016, 2017, 2018, 2019 and 2020 and our consolidated balance sheet data as of December 31, 2016, 2017, 2018, 2019 and 2020, included in this Report, have been audited under the standards of the Public Company Accounting Oversight Board (“PCAOB”), and are prepared in accordance with IFRS. For regulatory purposes, including Mexican Central Bank regulations and the reporting requirements of the CNBV, we concurrently prepare and will continue to prepare and make available to our shareholders, statutory financial statements in

iv


accordance with Mexican Banking GAAP, which prescribes generally accepted accounting criteria for all financial institutions in Mexico.

IFRS differs in certain significant aspects from Mexican Banking GAAP. We adopted IFRS in 2014. While we have prepared our consolidated financial data as of and for the years ended December 31, 2016, 2017, 2018, 2019 and 2020 in accordance with IFRS, data reported by the CNBV for the Mexican financial sector as a whole as well as individual financial institutions in Mexico, including our own, is prepared in accordance with Mexican Banking GAAP and, thus, may not be comparable to our results prepared in accordance with IFRS. All statements in this Report regarding our relative market position and financial performance vis-à-vis the financial services sector in Mexico, including financial information as to net income, return-on-average equity and non-performing loans, among others, are based, out of necessity, on information obtained from CNBV reports, and accordingly are presented in accordance with Mexican Banking GAAP. Unless otherwise indicated, all financial information provided in this Report has been prepared in accordance with IFRS.

Effect of rounding. Certain amounts and percentages included in this Report and in our audited financial statements have been rounded for ease of presentation. Percentage figures included in this Report have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, certain percentage amounts in this Report may vary from those obtained by performing the same calculations using the figures in our audited financial statements. Certain other amounts that appear in this Report may not sum due to rounding.

Exchange rates and translation into U.S. dollars. This Report contains translations of certain peso amounts into U.S. dollars at specified rates solely for your convenience. These translations should not be interpreted as representations by us that the peso amounts actually represent such U.S. dollar amounts or could, at this time, be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, we have translated peso amounts into U.S. dollars at an exchange rate of Ps.19.9087 per U.S.$1.00, the rate calculated on December 31, 2020 (the last business day in December) and published on January 4, 2021 in the Federal Official Gazette by the Mexican Central Bank, as the exchange rate for the payment of obligations denominated in currencies other than pesos and payable within Mexico (tipo de cambio para solventar obligaciones denominadas en moneda extranjera). The translation of consolidated income statement transactions expressed in pesos using such rates may result in presentation of dollar amounts that differ from the U.S. dollar amounts that would have been obtained by translating Mexican pesos into U.S. dollars at the exchange rate prevailing when such transactions were recorded. See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates” for information regarding exchange rates between the peso and the U.S. dollar for the periods specified therein.

New impairment model. IFRS 9, Financial Instruments establishes new recognition and measurement requirements for financial instruments and became mandatory for financial statement periods commencing January 1, 2018. As of January 1, 2018, the Bank began classifying its financial assets in the following measurement categories: (i) those to be measured subsequently at fair value (either through other comprehensive income or through profit or loss) and (ii) those to be measured at amortized cost. The Bank determines the applicable category of a financial asset based on the business model for managing that financial asset. We applied IFRS 9 in a retrospective manner, by adjusting the opening balance of affected financial instruments at January 1, 2018, without restating prior period amounts. Regarding the recognition of credit risk impairment, the most important change is that the new accounting standard introduces the concept of credit expected loss, whereas the previous model was based on incurred loss. The adoption of IFRS 9 as of January 1, 2018 led to a one-time increase in the allowance for impairment losses and provisions for off-balance sheet risk from Ps.17,961 million to Ps.21,217 million. Because the Bank applied these requirements in a retrospective manner by adjusting the opening balance at January 1, 2018 without restating comparative financial statements, there was no impact in the consolidated income statement. Since the Bank did not restate prior period amounts upon adoption of IFRS 9, financial information for periods prior to January 1, 2018 may not be comparable.

v


Accounting for leases. IFRS 16, Leases establishes the principles for the recognition, measurement, presentation and disclosure of the lease arrangements, in order to ensure that both lessee and lessor provide relevant information that faithfully represents these transactions. In addition, the Standard introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current Standard – i.e., lessors continue to classify leases as finance or operating leases.

Because the Bank applied IFRS 16 on January 1, 2019 using the modified retrospective approach where the right-of-use asset and the leases liability are the same on the transition date, there was no cumulative effect of adopting IFRS 16 recognized as an adjustment to the opening balance of Accumulated reserves as of January 1, 2019. Since the Bank did not restate prior period amounts upon adoption of IFRS 16, financial information for periods prior to January 1, 2019 may not be comparable.

Reclassifications on consolidated balance sheets and consolidated statement of cash flows from prior years. Since December 31, 2019, the Bank decided to present the sale of financial assets acquired under reverse repurchase agreements and pledged in repurchase agreement transactions as Other financial liabilities at fair value through profit or loss in the consolidated balance sheet. Pledged financial assets acquired under reverse repurchase agreements were presented as Financial liabilities held for trading for the year 2016 and as Financial liabilities at fair value through profit or loss for the years 2017 and 2018. This reclassification is considered by the Bank to provide a preferable presentation with the purpose of grouping in a single item of the consolidated balance sheet all the financial liabilities related to reverse repurchase agreements.

vi


GLOSSARY OF SELECTED TERMS

The following is a glossary of selected terms used in this Report.

Afore

Administradora de Fondo para el Retiro, a private financial entity established pursuant to Mexican law that manages independent retirement accounts. The main functions of an Afore include, among others, (i) managing pension funds, (ii) creating and managing individual pension accounts for each worker, (iii) creating, managing and operating specialized pension funds known as Siefores, (iv) distributing and purchasing Siefores’ stock, (v) contracting pension insurance, and (vi) distributing, in certain cases, the individual funds directly to the pensioned worker

ALCO

Our Assets and Liabilities Committee (Comité de Activos y Pasivos), which is responsible for determining guidelines for managing risk with respect to financial margin, net worth and long-term liquidity

Basel III

An international framework of capital and liquidity standards for internationally active banking organizations that includes, among other things, the definition of capital, capital requirements, the treatment of counterparty credit risk, the leverage ratio and the global liquidity standard. The Basel III framework was designed by the Basel Committee in 2010

Basel Committee

Basel Committee on Banking Supervision, which includes the supervisory authorities of twelve major industrial countries

BIVA

Bolsa Institucional de Valores, S.A. de C.V.

BMV

Bolsa Mexicana de Valores, S.A.B. de C.V.

BSC

Banking Stability Committee (Comité de Estabilidad Bancaria)

Cetes

Mexican Treasury Bills (Certificados de la Tesorería de la Federación)

CDI

Certificate of interbank deposit

CNBV

Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores)

CNSF

Mexican National Insurance and Bonding Commission (Comisión Nacional de Seguros y Fianzas)

COFECE

Mexican Federal Antitrust Commission (Comisión Federal de Competencia Económica)

CONSAR

Mexican National Commission for the Mexican Pension Saving System (Comisión Nacional del Sistema de Ahorro para el Retiro)

CONDUSEF

Mexican National Commission for the Protection and Defense of Financial Service Users (Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros)

COVID-19

SARS-CoV-2 virus or coronavirus

vii


CRM

Customer relationship management

Exchange Act

Securities Exchange Act of 1934, as amended

Federal Official Gazette

Diario Oficial de la Federación

IASB

International Accounting Standards Board

IFRS

International Financial Reporting Standards, accounting standards issued by the International Accounting Standards Board and IFRIC interpretations, which are developed by the IFRS Interpretations Committee (previously the International Financial Reporting Interpretations Committee or IFRIC) and issued after approval by the IASB

IMPI

Mexican Institute of Industrial Property (Instituto Mexicano de la Propiedad Industrial)

Infonavit

Mexican Institute of the National Housing Fund for Workers (Instituto Nacional para el Fomento de la Vivienda de los Trabajadores)

Investment Services Rules

Disposiciones de Carácter General Aplicables a las Entidades Financieras y otras Personas que Proporcionan Servicios de Inversión

IPAB

Mexican Institute for the Protection of Bank Savings (Instituto para la Protección al Ahorro Bancario)

IPC

Mexican Stock Exchange Prices and Quotations Index (Índice de Precios y Cotizaciones)

IT

Information Technology

Law of the Mexican Central Bank

Ley del Banco de México

LCR

Liquidity Coverage Ratio

LIC

Mexican Banking Law (Ley de Instituciones de Crédito)

LMV

Mexican Securities Market Law (Ley del Mercado de Valores)

Mexican Banking GAAP

The financial accounting standards and regulations prescribed by the CNBV for financial institutions, as amended

Mexican Central Bank

Banco de México

Mexican Corporations Law

Ley General de Sociedades Mercantiles

Mexican Financial Groups Law

Ley para Regular las Agrupaciones Financieras

Mexican Stock Exchange

Bolsa Mexicana de Valores, S.A.B. de C.V.

MIEA

Internal Methodology with Advanced Approach (Metodología Interna con Enfoque Avanzado)

viii


MIEB

Internal Methodology with Basic Approach (Metodología Interna con Enfoque Básico)

Morena

Mexican Political Party “Morena, also known as “Movimiento de Regeneración Nacional

MVE

Market value of equity

NAFIN

Nacional Financiera, Sociedad Nacional de Crédito, Institución de Banca de Desarrollo, a Mexican government bank that provides support for SMEs

NAFTA

North American Free Trade Agreement

National Consumer Price Index

Índice Nacional de Precios al Consumidor

NIM

Net interest margin

NIM Sensitivity

Net interest margin sensitivity is the difference between the return on assets and the financial cost of our financial liabilities based on a one-year time frame and a parallel movement of 100 basis points (1%) in market interest rates

NYSE

New York Stock Exchange

NSFR

Net Stable Funding Ratio

PCAOB

Public Company Accounting Oversight Board (United States)

Public Registry of Commerce

Registro Público de Comercio

RNV

Mexican National Securities Registry (Registro Nacional de Valores)

RWA

Risk-weighted assets

Santander Consumo

Santander Consumo, S.A. de C.V., Sociedad Financiera de Objeto Múltiple, Entidad Regulada

SEC

U.S. Securities and Exchange Commission

SHCP

Mexican Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público)

Siefores

Specialized pension funds (Sociedades de Inversión Especializadas de Fondos para el Retiro) established pursuant to Mexican law

Skip Payments

A debtor relief program established by the CNBV in response to the COVID-19 pandemic permitting individuals and SMEs to defer principal and/or interest payments due on loans for up to four months, with the possibility of extending it for an additional two months, without such loans being considered impaired under Mexican Banking GAAP.

SME

Small and medium-sized enterprises, consisting of small companies with annual revenue of less than Ps.250,000,000 (U.S.$12,557,324).

ix


Sofoles

Sociedades Financieras de Objeto Limitado, non-banking institutions in Mexico that focus primarily on offering credit or financing for specific purposes (housing, automobiles, personal loans, etc.) to middle- and low-income individuals. All existing Sofol authorizations automatically terminated on July 19, 2013. Existing Sofoles had the option of converting to Sofomes or otherwise extending their corporate purpose to include activities carried out by Sofomes

Sofomes

Sociedades Financieras de Objeto Múltiple, non-banking institutions in Mexico that engage in lending and/or financial leasing and/or factoring services and may be regulated or non-regulated

TIIE

Mexican benchmark interbank money market rate (Tasa de Interés Interbancaria de Equilibrio)

UDI

Unidades de inversión, a peso-equivalent unit of account indexed for Mexican inflation

USMCA

United States-Mexico-Canada Agreement

VaR

Value at risk, an estimate of the expected maximum loss in the market value of a given portfolio over a one-day time horizon at a 99% confidence interval

x


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Report includes forward-looking statements, principally under the captions “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview” and “Item 5. Operating and Financial Review and Prospects.” These statements appear throughout this Report and include statements regarding our intent, belief or current expectations in connection with:

asset growth and sources of funding;
growth of our fee-based business;
expansion of our distribution network;
financing plans;
competition;
impact of regulation and the interpretation thereof;
action to modify or revoke our banking license;
exposure to market risks including interest rate risk, foreign exchange risk and equity price risk;
exposure to credit risks including credit default risk and settlement risk;
projected capital expenditures;
capitalization requirements and level of reserves;
investment in our information technology platform;
liquidity;
trends affecting the economy generally; and
trends affecting our financial condition and our results.

Many important factors, in addition to those discussed elsewhere in this Report, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among other things:

changes in capital markets in general that may affect policies or attitudes towards lending to Mexico or Mexican companies;
changes in economic conditions, in Mexico, in particular, in the United States, or globally, including as a result of the COVID-19 pandemic;
the monetary, foreign exchange and interest rate policies of the Mexican Central Bank;
inflation;
deflation;

xi


unemployment;
unanticipated turbulence in interest rates;
the deterioration of the terms of trade between Mexico, the United States and Canada;
the implementation of new economic policy by the administration in Mexico;
movements in foreign exchange rates;
movements in equity prices or other rates or prices;
changes in Mexican and foreign policies, legislation and regulations;
changes in requirements to make contributions to, for the receipt of support from programs organized by or requiring deposits to be made or assessments observed or imposed by, the Mexican government;
changes in taxes and tax laws;
competition, changes in competition and pricing environments;
our inability to hedge certain risks economically;
economic conditions that affect consumer spending and the ability of customers to comply with obligations;
the adequacy of allowance for impairment losses and other losses;
increased default by borrowers;
our inability to successfully and effectively integrate acquisitions or to evaluate risks arising from asset acquisitions;
technological changes;
changes in consumer spending and saving habits;
increased costs;
unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms;
changes in, or failure to comply with, banking regulations or their interpretation; and
the other risk factors discussed under “Item 3. Key Information—D. Risk Factors” in this Report.

The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “forecast” and similar words are intended to identify forward-looking statements. You should not place undue reliance on such statements, which speak only as of the date they were made. We undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this Report because of new information, future events or other factors. Our independent public accountants have neither examined nor compiled the forward-looking statements and, accordingly, do not provide any assurance with respect to such statements. In light of the risks and uncertainties described above, the future events and

xii


circumstances discussed in this Report might not occur and are not guarantees of future performance. Because of these uncertainties, you should not make any investment decision based upon these estimates and forward-looking statements.

SUMMARY OF RISK FACTORS

Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows, and prospects. See "Item 3.  Key Information—D.  Risk Factors" for more information.

Risks relating to our business

Our operations and results have been, and we expect will continue to be, materially and adversely impacted by the COVID-19 pandemic.

The credit quality of our loan portfolio may deteriorate and our allowance for impairment losses could be insufficient to cover our actual losses, which could have a material adverse effect on us.

Our exposure to individuals and small and medium-sized businesses could lead to higher levels of non-performing loans, allowances for impairment losses and write-offs.

We may generate lower revenues from commission-based businesses.

The financial problems faced by our customers could adversely affect us.

Risks Related to Macroeconomic Factors and Market Risk

We are vulnerable to disruptions and volatility in the global financial markets.

Our financial results are constantly exposed to market risk. We are subject to fluctuations in interest rates and other market risks, which may materially and adversely affect us and our profitability.

Market conditions have resulted, and could result, in material changes to the estimated fair values of our financial assets. Negative fair value adjustments could have a material adverse effect on our results, financial condition and prospects.

The retail banking market is exposed to macroeconomic shocks that may negatively impact household income, and a downturn in the economy could result in increased loan losses.

Liquidity and funding risks are inherent in our business and could have a material adverse effect on us.

Risks Related to Government Regulation

Mexican government banking laws and regulations may have a material adverse effect on us.

Future Mexican government restrictions on interest rates or commissions could have a material adverse effect on us.

We are subject to potential intervention by any of our regulators or supervisors, particularly in response to customer complaints.

We may be required to make significant contributions to the IPAB.

xiii


We are subject to Mexican regulatory inspections, examinations, inquiries or audits, and future sanctions, fines and other penalties resulting from such inspections and audits, including the revocation of Banco Santander México’s banking license, could have a material adverse effect on us.

Risks Related to our Operations and Controls Regulation

If we are unable to manage the growth of our operations, this could have an adverse impact on our profitability.

Any failure to effectively improve or upgrade our information technology infrastructure and management information systems in a timely manner or any failure to successfully implement new IT regulations could have a material adverse effect on us.

Risks Relating to Mexico

Adverse economic conditions in Mexico could have a negative effect on us.

Political decisions in Mexico could have a material adverse effect on us.

The volatility in peso exchange rates and interest rates in Mexico could have a material adverse effect on our business.

ENFORCEMENT OF JUDGMENTS

We are a stock corporation (sociedad anónima de capital fijo) incorporated in accordance with the laws of Mexico. All of our directors and officers and experts named herein are non-residents of the United States, and all or substantially all of the assets of such persons and substantially all of our assets are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or to enforce against them or us in United States courts judgments predicated upon the civil liability provisions of United States federal securities laws. We have been advised by our special counsel as to Mexican law, that there is doubt as to the enforceability, in original actions in Mexican courts, of liabilities predicated solely on U.S. federal securities laws and as to the enforceability in Mexican courts of judgments of United States courts obtained in actions predicated upon the civil liability provisions of U.S. federal securities laws. We have been advised by such special Mexican counsel, Ritch, Mueller, Heather y Nicolau, S.C., that no bilateral treaty is currently in effect between the United States and Mexico that covers the reciprocal enforcement of civil foreign judgments. In the past, Mexican courts have enforced judgments rendered in the United States by virtue of the legal principles of reciprocity and comity, consisting of the review in Mexico of the United States judgment, in order to ascertain, among other matters, whether Mexican legal principles of due process and the non-violation of Mexican law and/or the Mexican public policy (orden público) have been complied with, without reviewing the merits of the subject matter of the case, provided that U.S. courts would grant reciprocal treatment to Mexican judgments.

xiv


PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

A.   Directors and Senior Management

Not applicable.

B.   Advisers

Not applicable.

C.   Auditors

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

A.   Offer Statistics

Not applicable.

B.   Method and Expected Timetable

Not applicable.

ITEM 3. KEY INFORMATION

A.

Selected Financial Data

The following tables present our selected consolidated financial data for each of the periods indicated. You should read this information in conjunction with our audited financial statements and related notes and the information under “Item 5. Operating and Financial Review and Prospects” included elsewhere in this Report.

We have derived our selected consolidated income statement data for the years ended December 31, 2016, 2017, 2018, 2019 and 2020 and our selected consolidated balance sheet data as of December 31, 2016, 2017, 2018, 2019 and 2020 from our audited financial statements, which have been prepared in accordance with IFRS. We have included in Item 18 hereto our audited financial statements as of December 31, 2019 and 2020 and for each of the three years in the three-year period ended December 31, 2020.

15


CONSOLIDATED INCOME STATEMENT DATA IN ACCORDANCE WITH IFRS

For the year ended December 31, 

  

2016

  

  

2017

  

  

2018 (5)

  

  

2019

  

  

2020

  

  

2020

 

(Millions of U.S.

 

(Millions of pesos)(1)

 

dollars) (1)(2)

Interest income

Ps.

77,453

Ps.

98,002

Ps.

99,537

Ps.

108,846

Ps.

103,977

U.S.

5,223

Interest income from financial assets at fair value through profit or loss

14,049

15,384

12,008

603

Interest expenses and similar charges (6)

 

(28,323)

 

(42,158)

 

(51,589)

 

(58,074)

 

(50,175)

 

(2,520)

Net interest income

 

49,130

 

55,844

 

61,997

 

66,156

 

65,810

 

3,306

Dividend income

 

94

 

150

 

210

 

235

 

246

 

12

Income from entities accounted for using the equity method

178

9

Fee and commission income (net)

 

13,940

 

14,813

 

15,722

 

16,424

 

17,023

 

855

Gains/(losses) on financial assets and liabilities (net)

 

3,760

 

3,458

 

1,484

 

2,854

 

5,984

 

301

Exchange differences (net)

 

2

 

6

 

 

 

19

 

1

Other operating income

 

486

 

669

 

748

 

1,553

 

1,651

 

83

Other operating expenses

 

(3,361)

 

(3,614)

 

(4,393)

 

(5,145)

 

(5,213)

 

(262)

Total income

 

64,051

 

71,326

 

75,768

 

82,077

 

85,698

 

4,305

Administrative expenses

 

(22,655)

 

(25,437)

 

(28,649)

 

(29,258)

 

(30,135)

 

(1,514)

Personnel expenses

 

(11,472)

 

(12,748)

 

(14,354)

 

(15,428)

 

(14,876)

 

(747)

Other general administrative expenses (6)

 

(11,183)

 

(12,689)

 

(14,295)

 

(13,830)

 

(15,259)

 

(766)

Depreciation and amortization (6)

 

(2,058)

 

(2,533)

 

(2,973)

 

(5,222)

 

(5,743)

 

(288)

Impairment losses on financial assets not at fair value through profit or loss (net):

 

(16,661)

 

(18,820)

 

(18,810)

 

(19,220)

 

(21,799)

(1,095)

Loans and receivables (3)

 

(16,661)

 

(18,820)

 

 

 

 

Financial assets at amortized cost (3)

(18,806)

(19,220)

(21,731)

(1,092)

Financial assets at fair value through other comprehensive income

(4)

(68)

(3)

Gains/(losses) on modification of financial assets (net)

(1,743)

(88)

Impairment losses on other assets (net):

 

 

 

(5)

 

(370)

 

(119)

 

(6)

Non-current assets held for sale

 

 

 

(5)

 

(370)

 

(119)

 

(6)

Provisions (net) (4)

 

(881)

 

(437)

 

(562)

 

(775)

 

(974)

 

(49)

Gains/(losses) on disposal of assets not classified as non-current
assets held for sale

 

20

 

6

 

7

 

16

 

6

 

Gains/(losses) on disposal of non-current assets held for sale not
classified as discontinued operations

 

71

 

69

 

38

 

42

 

9

 

1

Operating profit before tax

 

21,887

 

24,174

 

24,814

 

27,290

 

25,200

 

1,266

Income tax

 

(5,351)

 

(5,496)

 

(5,458)

 

(6,909)

 

(6,226)

 

(313)

Profit from continuing operations

 

16,536

 

18,678

 

19,356

 

20,381

 

18,974

 

953

Profit from discontinued operations (net)

 

 

 

 

 

 

Consolidated profit for the year

Ps.

16,536

Ps.

18,678

Ps.

19,356

Ps.

20,381

Ps.

18,974

U.S.

953

Profit attributable to the Parent

 

16,536

 

18,678

 

19,353

 

20,381

 

18,974

 

953

Profit attributable to non-controlling interests

 

 

 

3

 

 

 

Earnings per share from continuing and discontinued operations:

 

  

 

  

 

 

 

 

Basic earnings per share

 

2.44

 

2.76

 

2.86

 

3.01

 

2.80

 

0.14

Diluted earnings per share (7)

 

2.44

 

2.75

 

2.85

 

3.00

 

2.80

 

0.14

Earnings per share from continuing operations:

 

 

 

 

 

 

Basic earnings per share

 

2.44

 

2.76

 

2.86

 

3.01

 

2.80

 

0.14

Diluted earnings per share (7)

 

2.44

 

2.75

 

2.85

 

3.00

 

2.80

 

0.14

Cash dividend per share (8)

 

2.58

 

1.31

 

1.36

 

1.52

 

 

Weighted average shares outstanding

 

6,777,381,551

 

6,777,381,551

 

6,776,220,369

 

6,775,455,458

 

6,776,640,349

 

6,776,640,349

Dilutive effect of rights on shares (7)

 

9,612,806

 

9,612,806

 

10,773,988

 

11,538,899

 

10,354,008

 

10,354,008

Adjusted number of shares

6,786,994,357

6,786,994,357

6,786,994,357

6,786,994,357

6,786,994,357

6,786,994,357

Dividend paid

17,468

8,910

9,228

10,293

Basic earnings per share

2.44

2.76

2.86

3.01

2.80

0.14

Diluted earnings per share

2.44

2.75

2.85

3.00

2.80

0.14

Dividend pay-out ratio

 

105.64%

 

47.77%

 

47.76%

 

50.59%

 

0.00%

 

0.00%

(1)Except share and per share amounts.
(2)Results for the year ended December 31, 2020 have been translated into U.S. dollars, for convenience purposes only, using the exchange rate of Ps.19.9087 per U.S.$1.00 as calculated on December 31, 2020 and reported by the Mexican Central Bank in the Federal Official Gazette on January 4, 2021 as the exchange rate for the payment of obligations denominated in currencies other than pesos and payable within Mexico. These translations should not be construed as representations that the pesos amounts represent, have been or could have been converted into, U.S. dollars at such or at any other exchange rate.
(3)Impairment losses less recoveries of previously written-off loans (net of legal expenses).
(4)Principally includes provisions for off-balance sheet risk and provisions for tax and legal matters. See “Item 5. Operating and Financial Review and Prospects.”

16


(5)Since January 1, 2019, amounts are prepared in accordance with IFRS 9. Periods prior to January 1, 2018 have not been restated.
(6)Amounts for 2019 prepared in accordance with IFRS 16. Since the Bank did not restate prior period amounts upon adoption of IFRS 16, financial information for periods prior to January 1, 2019 may not be comparable.
(7)To calculate diluted earnings per share, the amount of profit attributable to the Parent and the weighted average number of shares issued, excluding the average number of treasury shares, are adjusted to consider all the dilutive effects inherent to potential shares. For additional information on earnings per share, see Note 4.2.ii to our audited financial statements included elsewhere in this Report.
(8)On May 26, 2016, we paid a dividend of Ps.3,844 million, equal to Ps.0.0475 per share. On December 30, 2016, we paid a dividend of Ps.13,624 million, equal to Ps.0.1685 per share. On May 30, 2017 we paid a dividend of Ps.4,234 million, equal to Ps.0.0524 per share. On December 27, 2017, we paid a dividend of Ps.4,676 million, equal to Ps.0.0578 per share. On June 29, 2018, we paid a dividend of Ps.4,279 million, equal to Ps.0.6304 per share. On December 28, 2018, we paid a dividend of Ps.4,949 million, equal to Ps.0.7292 per share. On May 28, 2019, we paid a dividend of Ps.4,843 million, equal to Ps.0.7135 per share. On December 27, 2019 we paid a dividend of Ps.5,450 million, equal to Ps.0.8030 per share. Considering the effects of the COVID-19 pandemic and on the recommendation received from the CNBV, the Bank decided not to declare or pay dividends in 2020.

17


CONSOLIDATED BALANCE SHEET DATA IN ACCORDANCE WITH IFRS

As of December 31, 

  

2016

  

  

2017

  

  

2018 (1)

  

  

2019

  

  

2020

  

  

2020

 

(Millions of U.S.

(Millions of pesos)

dollars)(2)

Assets

Cash and balances with the Central Bank

Ps.

78,663

Ps.

57,687

Ps.

55,310

Ps.

65,207

Ps.

71,053

U.S.

3,569

Financial assets at fair value through profit or loss

267,524

268,127

504,354

25,333

Financial assets held for trading

 

342,582

 

315,570

 

 

 

 

Other financial assets at fair value through profit or loss

 

42,340

 

51,705

 

107,425

 

79,927

 

70,356

 

3,534

Financial assets at fair value through other comprehensive income

155,789

236,980

356,089

17,886

Available-for-sale financial assets

 

154,644

 

165,742

 

 

 

 

Financial assets at amortized cost

766,225

747,823

763,256

38,338

Loans and receivables

 

675,498

 

679,300

 

 

 

 

Hedging derivatives

 

15,003

 

15,116

 

9,285

 

9,256

 

8,306

 

417

Non-current assets held for sale

 

1,107

 

1,295

 

1,277

 

935

 

551

 

28

Investments in associated entities

1,001

50

Tangible assets

 

5,692

 

6,498

 

8,714

 

10,542

 

12,206

 

613

Right-of-use assets (5)

5,611

5,643

283

Intangible assets

 

5,772

 

6,960

 

8,044

 

8,832

 

8,607

 

432

Tax assets

 

23,301

 

20,209

 

21,968

 

23,135

 

20,733

 

1,041

Other assets

 

6,335

 

9,109

 

7,163

 

11,173

 

15,759

 

792

Total assets

Ps.

1,350,937

Ps.

1,329,191

Ps.

1,408,724

Ps.

1,467,548

Ps.

1,837,914

U.S.

92,316

Liabilities

 

  

 

  

 

 

 

 

Financial liabilities at fair value through profit or loss (3)

Ps.

Ps.

Ps.

182,646

Ps.

153,600

Ps.

301,476

U.S.

15,143

Financial liabilities held for trading (3)

226,215

193,492

Other financial liabilities at fair value through profit or loss (3)

 

177,473

 

166,886

 

178,265

 

273,725

 

211,514

 

10,624

Financial liabilities at amortized cost

 

806,091

 

820,431

 

890,284

 

864,266

 

1,111,955

 

55,853

Hedging derivatives

 

14,287

 

11,091

 

8,393

 

7,523

 

19,078

 

958

Provisions (4)

 

7,202

 

6,730

 

6,800

 

9,104

 

10,604

 

533

Lease liabilities (5)

5,919

6,131

308

Tax liabilities

 

44

 

71

 

194

 

322

 

204

 

10

Other liabilities

 

14,398

 

15,080

 

18,855

 

18,291

 

23,118

 

1,161

Total liabilities

Ps.

1,245,710

Ps.

1,213,781

Ps.

1,285,437

Ps.

1,332,750

Ps.

1,684,080

U.S.

84,590

Shareholders’ equity

 

106,768

Ps.

116,558

Ps.

124,240

Ps.

132,715

Ps.

150,293

U.S.

7,548

Share capital

Ps.

8,086

8,086

25,660

25,660

25,660

1,289

Share premium

 

16,956

 

16,956

 

 

 

 

Accumulated reserves

 

65,190

 

72,838

 

79,227

 

86,674

 

105,659

 

5,306

Profit for the year attributable to the Parent

 

16,536

 

18,678

 

19,353

 

20,381

 

18,974

 

953

Valuation adjustments

 

(1,596)

 

(1,177)

 

(985)

 

2,043

 

3,504

 

176

Non-controlling interests

 

55

 

29

 

32

 

40

 

37

 

2

Total equity

 

105,227

 

115,410

 

123,287

 

134,798

 

153,834

 

7,726

Total liabilities and equity

Ps.

1,350,937

Ps.

1,329,191

Ps.

1,408,724

Ps.

1,467,548

Ps.

1,837,914

U.S.

92,316

(1)Since January 1, 2019, amounts are prepared in accordance with IFRS 9. Periods prior to January 1, 2018 have not been restated.
(2)The balance as of December 31, 2020 has been translated into U.S. dollars, for convenience purposes only, using the exchange rate of Ps.19.9087 per U.S.$1.00 as calculated on December 31, 2020 and reported by the Mexican Central Bank in the Federal Official Gazette on January 4, 2021 as the exchange rate for the payment of obligations denominated in currencies other than pesos and payable within Mexico. These translations should not be interpreted as representations that the pesos amounts represent, have been or could have been converted into, U.S. dollars at such or at any other exchange rate.
(3)Since December 31, 2019, the Bank began presenting the sale of financial assets acquired under reverse repurchase agreements and pledged in repurchase agreement transactions as Other financial liabilities at fair value through profit or loss. Pledged financial assets acquired under reverse repurchase agreements were presented as Financial liabilities held for trading for the year 2016 and as Financial liabilities at fair value through profit or loss for the years 2017 and 2018.
(4)Includes provisions for pensions and similar obligations, provisions for off-balance sheet risk and provisions for tax and legal matters. See “Item 5. Operating and Financial Review and Prospects.”

18


(5)Amounts prepared in accordance with IFRS 16. Periods prior to January 1, 2019 have not been restated. See Note 2.h to our audited financial statements included elsewhere in this Report for more details on the initial adoption of IFRS 16.

SELECTED RATIOS AND OTHER DATA

All of the selected ratios and other data below (except for number of shares, offices and employee data) are presented in accordance with IFRS unless otherwise noted.

As of and for the year ended December 31, 

  

2016

  

  

2017

  

  

2018

  

  

2019

  

  

2020

 

(Millions of pesos or percentages, except per share, offices and employee data)

 

Profitability and performance

  

 

  

 

  

 

  

  

Net interest margin (1)

4.97%

5.34%

5.55%

5.59%

4.64%

Total margin (2)

6.38%

6.76%

6.96%

6.98%

5.84%

Return on average total assets (ROAA) (3)

1.50%

1.57%

1.49%

1.47%

1.13%

Return on average equity (ROAE) (4)

14.89%

16.93%

16.27%

15.73%

13.42%

Efficiency ratio (5)

38.58%

39.21%

41.74%

42.01%

41.87%

Net fee and commission income as a percentage of operating expenses (6)

 

56.41%

52.96%

49.72%

49.75%

47.45%

Gross yield on average interest earning-assets

 

7.82%

9.35%

10.14%

10.47%

8.15%

Average cost of interest bearing liabilities

 

3.17%

4.52%

5.20%

5.50%

3.97%

Net interest spread

 

4.65%

4.83%

4.94%

4.97%

4.18%

Common stock dividend payout ratio (annual) (7)

 

105.64%

47.77%

47.76%

50.59%

0.00%

Average interest-earning assets (8)

 

989,857

1,047,976

 

1,120,323

 

1,187,076

 

1,422,697

 

Average interest-bearing liabilities (8)

 

893,128

932,380

 

991,805

 

1,056,356

 

1,262,423

 

Capital adequacy

 

  

  

 

 

 

 

Net tangible book value

 

99,455

108,450

 

115,243

 

125,966

 

145,227

 

Net tangible book value per share

14.67

16.00

17.01

18.59

21.43

Average equity as a percentage of average total assets

10.10%

9.28%

9.17%

9.35%

8.44%

Total capital (Mexican Banking GAAP) (9)

109,238

115,321

121,454

125,083

151,458

Tier 1 capital (Mexican Banking GAAP) (9)

 

81,785

89,267

 

94,035

 

100,236

124,255