Banco Santander Capital Less Sensitive to Stress Than Peers, Still Uncomfortably Close to Minimum

Narrow-moat Banco Santander had a mixed performance under the recent European Central Bank, or ECB, stress test. Its 2023 common equity Tier 1 ratio under the adverse scenario of the stress test of 9.30% is uncomfortably close to the 8.90% regulatory minimum common equity Tier 1 ratio Santander would need to keep to still be able to pay dividends. However, the 2.60% decline in Santander's common equity Tier 1 ratio under the stress test from 2020 to 2023 was the joint lowest decline of the European banks we cover. If we compare Santander's operational performance under the base- and adverse scenarios, loan-loss provisions were less sensitive than the average European bank, and the decline in revenue was similar to what its peers experienced. We maintain our EUR 4.00/share fair value estimate and narrow moat rating.