BANCO SANTANDER (MÉXICO), S.A., INSTITUCIÓN DE BANCA MULTIPLE, GRUPO FINANCIERO SANTANDER MÉXICO. ANNUAL REPORT 2012

Transcription

1 BANCO SANTANDER (MÉXICO), S.A., INSTITUCIÓN DE BANCA MULTIPLE, GRUPO FINANCIERO SANTANDER MÉXICO. ANNUAL REPORT 2012 Annual Report presented pursuant to the general regulations applicable to issuers of securities and other market participants" for the year ended on December 31, Registration on the National Registry of Securities does not imply a certification on the investment quality of the securities, the solvency of the issuer or the accuracy or completeness of the information included in the prospectus, nor it validates any acts performed contravening the laws". Headquarter: Avenida Prolongación Paseo de la Reforma 500, Colonia Lomas de Santa Fe, Delegación Álvaro Obregón, 01219, México, D.F. Characteristics of outstanding securities: The characteristics of the outstanding securities are stated in each one of the supplements issued under the revolving program of unsecured bonds (certificados bursátiles bancarios) and time deposits (certificados de depósito bancario de dinero a plazo), in public offer of Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México ( Banco Santander (México) ), which are described in this annual report. Ticker Symbol: BSANT Securities issued by Banco Santander (México) under the listing program are registered in the Section of Securities of the national registry of Securities and they are listed in the Mexican Stock Exchange (Bolsa Mexicana de Valores, S.A.B. de C.V. ). Mexico City, April 30, 2013

2 REVOLVING PROGRAM OF UNSECURED BONDS (Certificados Bursátiles Bancarios) AND TIME DEPOSITS (Certificados de Depósito Bancario de Dinero a Largo Plazo) IN PUBLIC OFFER BY BANCO SANTANDER (MÉXICO), S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO SANTANDER MÉXICO AUTHORIZED TOTAL AMOUNT: UP TO PS$55,000,000, (FIFTY FIVE BILLION PESOS) represented by ,000 (five hundred fifty millions) of Instruments Each issue of Unsecured Bonds and Time Deposits (collectively, the "Instruments") made under the program described in this Prospectus (the "Program") shall have its own characteristics. The price of issue, total amount of each Issue (as defined below), nominal value, date of issue and settlement, term, expiration date, applicable rate of interest and the method to calculate such rate of interest (when applicable) and the periodicity of the payment of interest 8if applicable), the corresponding discount rate, among other characteristics of the instruments in each Issue, shall be agreed by the issuer (as defined below) with Casa de Bolsa Santander, S.A. de C.V., Grupo Financiero Santander (the Placement Agent" or Casa de Bolsa Santander ) at the moment of each Issue and they shall be disclosed to the general public at the moment of each Issue in the corresponding Supplement (as defined below). For each Issue of Instruments, a Supplement shall be prepared and presented to the Mexican National Banking and Exchange Commission for their revision and approval. Instruments shall be in Mexican Pesos. One or several issues of Instruments may be made for up to the Authorized Total Amount of the Program. Issuer: Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México Type of Instrument: Unsecured Bonds and Time Deposits Ticker Symbol: BSANT Type of offer: Public Offer Total Amount authorized for the Program: Up to Ps $55,000,000, (fifty five billion Mexican pesos) Term of the Program: 5 (five) years from the date of authorization issued by CNBV Issue Number under the Program: First. Ticker Symbol: BSANT 11 Amount of Issue: Ps $5, , (Five billions Mexican Pesos). Currency: Mexican Pesos. Nominal Value of Unsecured Bonds: Ps $ (One hundred Mexican Pesos) each. Issue Price: Ps $ (One Hundred Mexican Pesos) per Unsecured Bond. Term of Unsecured Bonds: (one thousand and ninety two) days, equivalent to three (3) years approximately. Date of Publication of the Offer: January 27, 2011 Date of Book Closing: January 28,2011. Date of Publication of the Offer for Information Purposes: January 28, Issue Date: January 31, Settlement Date: January 31, Date of registration in BMV: January 31, Expiration Date: January 27, Rating granted by Moody s de México, S.A. de C.V.: Aaa.mx. The Aaa.mx long term senior debt rating represents the most solid credit capacity and the lowest credit loss probability with respect to other domestic issuers. This is the highest rating in the Mexican Ratings Scale granted by Moody s de México, S.A. de C.V. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Rate of Interest: Pursuant to the payment schedule displayed in section named "Periodicity in the Payment of Interest" and as long as they are not fully redeemed, Unsecured Bonds shall pay annual gross interest on their Nominal Value at an annual rate equivalent to the rate stated in the paragraph below, which the Common Agent shall calculate two (2) Business Days before the beginning of each corresponding 28-day- Period of Interest (the "Date of calculation of the Annual Gross Interest Rate") to be in effect during such applicable period of interest. The Annual Gross Interest Rate (the "Annual Gross Interest Rate") shall be determined by adding 0.20% percentage points to the Mexican Benchmark Interbank Money Market Rate ( TIIE or "Interest Rate of Reference ) for 28-days terms, capitalized, or, when applicable, the equivalent to the actual number of days passed until the date of payment of interest, published by the Central Bank of Mexico on the media or via any other electronic, computer or telecommunications means, including the Internet, authorized by the Central bank of Mexico, at the Date of Calculation of the corresponding Annual Gross Interest Rate or, alternatively, within the twenty two (22) business days previous to such date, in which case the rate to be taken into account shall be the one published in the Business Day closest to said Date of Calculation of the Annual Gross Interest Rate. Should the TIIE rate ceases to exist or to be published, the Common Agent shall use as substitute rate for the calculation of the Annual Gross Interest Rate of Unsecured Bonds, the rate officially published by the Central Bank of Mexico as the substitute rate of the 28-day- TIIE. For calculating the capitalized Interest Rate of Reference, or, when applicable, the rate equivalent for the number of days actually passed until the date of payment of interest of TIIE at the aforementioned term, the Common Agent shall utilize the formula provided herein and in the corresponding instrument that documents this Issue. Once each Period of Interest has begun, the Annual Gross Interest Rate determined for such period shall not suffer any changes during such period of time. The Common Agent shall send written notice to CNBV and Indeval, with at least two (2) Business Days in advance to each Date of Payment of Interest, on the amount of interest to be paid with respect to the unsecured Bonds. Likewise, BMV shall be informed on (via SEDI or any other means instructed by BMV), no later than the immediate Business Day previous to the Date of Payment of interest, the amount of interest to be paid as well as the Annual Gross Interest Rate to be applied for the subsequent Period of Interest. Annual Gross Interest Rate Applicable to the First Period if Interest: 5.05%. Default Interest: In case of default in the payment of principal and/ or interest of Unsecured Bonds, no Default Interest shall be paid. Periodicity of Payment of interest: Interest from Unsecured Bonds shall be paid every twenty eight (28) days, pursuant to the schedule stipulated in the Instrument and in section named: Periodicity in the Payment of Interest herein. Redemption: Unsecured Bonds shall be redeemed in a single payment on the Date of Expiration. Early Redemption: Unsecured Bonds cannot be redeemed in advance. Guarantee: Unsecured Bonds have no specific guarantee nor they have any guarantee from IPAB or any other entity. Tax Regime: This section includes a brief description of certain taxes in effect in Mexico on the acquisition, proprietorship and disposal of Unsecured Bonds by Mexican Residents and non-mexican Residents for tax purposes, however, such description does not purport to be a comprehensive explanation of all the fiscal issues that may be relevant for making an investment decision with respect to Unsecured Bonds. Annual Report Banco Santander (México)

3 Place and Method of Payment of Principal and Interest: The payment of principal amount and the corresponding interest derived from Unsecured Bonds shall be performed at the offices of Indeval, located in Avenida Paseo de la Reforma No. 255, 3er. Piso, Col. Cuauhtémoc, Mexico City, Federal District. Payments may be performed via electronic transfer pursuant to the procedures established in the Instrument and in this Supplement. The last payment shall be performed against the delivery of the corresponding instrument or certificate issued by Indeval. Depositary: Indeval. Prospective Investors: Individuals or Corporations which their investment regime expressly authorizes so. Increment in the Number of Unsecured Bonds: Pursuant to the Instrument and section Increment in the Number of Unsecured Bonds" herein, the Issuer shall be entitled to issue and offer Unsecured Bonds in addition to the Unsecured Bonds in this Instrument. Rights conferred to Holders: Unsecured Bonds confer to Holders the right to collect the principal amount and the corresponding interest owed by the Issuer under each Unsecured Bond, pursuant to the terms and conditions stated in the Instrument. Common Agent: Banco INVEX, S.A., Institución de Banca Múltiple, INVEX Grupo Financiero, Fiduciary. Number of Issue under the Program: Second. Ticker Symbol: BSANT 11-2 Type of Instrument: Unsecured Bonds. Amount of Issue: Ps $3, , (Three thousand seven hundred million Mexican Pesos). Currency: Mexican Pesos. Nominal Value of Unsecured Bonds: Ps $ (One hundred Mexican Pesos) each. Issue Price: Ps $ (One Hundred Mexican Pesos) per Unsecured Bond. Term of Unsecured Bonds: 756 (seven hundred fifty six) days, equivalent to twenty seven (27) periods of twenty eight (28) days each. Date of Publication of the Offer: March 16, Date of Book Closing: March 17, Date of Publication of the offer for information purposes: March 18, Issue Date: March 22, Redemption Date: March 22, Date of Registration in the BMV: March 22, Expiration Date: April 16, Rating granted by Moody s de México, S.A. de C.V.: Aaa.mx. The Aaa.mx long term senior debt rating represents the most solid credit capacity and the lowest credit loss probability with respect to other domestic issuers. This is the highest rating in the Mexican Ratings Scale granted by Moody s de México, S.A. de C.V. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Rate of Interest: Pursuant to the payment schedule displayed in section named "Periodicity in the Payment of Interest" and as long as they are not fully redeemed, Unsecured Bonds shall bear annual gross interest on their Nominal Value at an annual rate equivalent to the rate stated in the paragraph below, which the Common Agent shall calculate two (2) Business Days before the beginning of each corresponding 28-day- Period of Interest (the "Date of calculation of the Annual Gross Interest Rate") to be in effect during such applicable period of interest. The Annual Gross Interest Rate (the "Annual Gross Interest Rate") shall be determined by adding 0.15% percentage points to the Mexican Benchmark Interbank Money Market Rate ( TIIE or "Interest Rate of Reference ) for 28-days terms, capitalized, or, when applicable, the equivalent to the actual number of days passed until the date of payment of interest, published by the Central Bank of Mexico on the media or via any other electronic, computer or telecommunications means, including the Internet, authorized by the Central bank of Mexico, at the Date of Calculation of the corresponding Annual Gross Interest Rate or, alternatively, within the twenty two (22) business days previous to such date, in which case the rate to be taken into account shall be the one published in the Business Day closest to said Date of Calculation of the Annual Gross Interest Rate. Should the TIIE rate ceases to exist or to be published, the Common Agent shall use as substitute rate for the calculation of the Annual Gross Interest Rate of Unsecured Bonds, the rate officially published by the Central Bank of Mexico as the substitute rate of the 28-day- TIIE. For calculating the capitalized Interest Rate of Reference, or, when applicable, the rate equivalent for the number of days actually passed until the date of payment of interest of TIIE at the aforementioned term, the Common Agent shall utilize the formula provided herein and in the corresponding instrument that documents this Issue. Once each Period of Interest has begun, the Annual Gross Interest Rate determined for such period shall not suffer any changes during such period of time. The Common Agent shall send written notice to CNBV and Indeval, with at least two (2) Business Days in advance to each Date of Payment of Interest, on the amount of interest to be paid with respect to the unsecured Bonds. Likewise, BMV shall be informed on (via SEDI or any other means instructed by BMV), no later than the immediate Business Day previous to the Date of Payment of interest, the amount of interest to be paid as well as the Annual Gross Interest Rate to be applied for the subsequent Period of Interest. Annual Gross Interest Rate Applicable to the First Period if Interest: 4.97%. Default Interest: In case of default in the payment of principal and/ or interest of Unsecured Bonds, no Default Interest shall be paid. Periodicity of Payment of interest: Interest from Unsecured Bonds shall be paid every twenty eight (28) days, pursuant to the schedule stipulated in the Instrument and in section named: Periodicity in the Payment of Interest herein. Redemption: Unsecured Bonds shall be redeemed in a single payment on the Date of Expiration. Early Redemption: Unsecured Bonds cannot be redeemed in advance. Guarantee: Unsecured Bonds have no specific guarantee nor they have any guarantee from IPAB or any other entity. Tax Regime: This section includes a brief description of certain taxes in effect in Mexico on the acquisition, proprietorship and disposal of Unsecured Bonds by Mexican Residents and non-mexican Residents for tax purposes, however, such description does not purport to be a comprehensive explanation of all the fiscal issues that may be relevant for making an investment decision with respect to Unsecured Bonds. Place and Method of Payment of Principal and Interest: The payment of principal amount and the corresponding interest derived from Unsecured Bonds shall be performed at the offices of Indeval, located in Avenida Paseo de la Reforma No. 255, 3er. Piso, Col. Cuauhtémoc, Mexico City, Federal District. Payments may be performed via electronic transfer pursuant to the procedures established in the Instrument and in this Supplement. The last payment shall be performed against the delivery of the corresponding instrument or certificate issued by Indeval. Depositary: Indeval. Prospective Investors: Individuals or Corporations which their investment regime expressly authorizes so. Increment in the Number of Unsecured Bonds: Pursuant to the Instrument and section Increment in the Number of Unsecured Bonds" herein, the Issuer shall be entitled to issue and offer Unsecured Bonds in addition to the Unsecured Bonds in this Instrument. Rights conferred to Holders: Unsecured Bonds confer to Holders the right to collect the principal amount and the corresponding interest owed by the Issuer under each Unsecured Bond, pursuant to the terms and conditions stated in the Instrument. Common Agent: Banco INVEX, S.A., Institución de Banca Múltiple, INVEX Grupo Financiero, Fiduciary. Number of Issue under the Program: Third Ticker Symbol: BSANT 11-3 Type of Instrument: Unsecured Bonds. Amount of Issue: Ps $1, , (One thousand seven hundred million Mexican pesos). Currency: Mexican Pesos. Nominal Value of Unsecured Bonds: Ps $ (One hundred Mexican Pesos) Each. Issue Price: Ps $ (One Hundred Mexican Pesos) per Unsecured Bond. Term of the Unsecured Bonds: 3,640 (Three thousand six hundred and forty) days, equivalent to approximately 10 (ten) years. Date of Publication of the Offer: March 16, Date of Book Closing: March 17, Date of Publication of the Offer for information purposes: March 18, Issue Date: March 22, Annual Report Banco Santander (México)

4 Redemption Date: March 22, Date of Registration in the BMV: March 22, Expiration Date: March 9, Rating granted by Moody s de México, S.A. de C.V.: Aaa.mx. The Aaa.mx long term senior debt rating represents the most solid credit capacity and the lowest credit loss probability with respect to other domestic issuers. This is the highest rating in the Mexican Ratings Scale granted by Moody s de México, S.A. de C.V. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Rate of Interest: From the Issue Date, and as long as they are not fully redeemed, Unsecured Bonds shall bear an annual fixed gross interest on their Nominal Value that the Common Agent shall calculate two (2) Business Days before the beginning of each corresponding 182-day- Period of Interest, calculated from the date of issue. To this end, the Common Agent shall take into consideration an annual gross interest rate of [*]% [(* percent)] (the "Annual Gross Interest Rate"), which will be the same during all the term of the Issue. Interests yield by Unsecured Bonds shall be calculated from their issue date or at the beginning of each period of interest of 182 (one hundred and eighty two) days. Calculations shall be rounded up to hundredths. For determining the amount of interest to be paid in each period with respect to Unsecured Bonds, the Common Agent shall utilize the formula stipulated in the Instrument for this Issue and in this Supplement. Periodicity of Payment of Interest: Interest yield by Unsecured Bonds shall be paid every 182 (one hundred and eighty two) days, pursuant to the schedule stipulated in the Instrument and in section Periodicity of Payment of Interest herein. Annual Gross Interest Rate applicable for the first Period of Interests: 8.91%. Default Interest: In case of default in the payment of principal and/ or interest of Unsecured Bonds, no Default Interest shall be paid. Redemption: Unsecured Bonds shall be redeemed in a single payment on the Date of Expiration. Early Redemption: Unsecured Bonds cannot be redeemed in advance. Guarantee: Unsecured Bonds have no specific guarantee nor they have any guarantee from IPAB or any other entity. Tax Regime: This section includes a brief description of certain taxes in effect in Mexico on the acquisition, proprietorship and disposal of Unsecured Bonds by Mexican Residents and non-mexican Residents for tax purposes, however, such description does not purport to be a comprehensive explanation of all the fiscal issues that may be relevant for making an investment decision with respect to Unsecured Bonds. Place and Method of Payment of Principal and Interest: The payment of principal amount and the corresponding interest derived from Unsecured Bonds shall be performed at the offices of Indeval, located in Avenida Paseo de la Reforma No. 255, 3er. Piso, Col. Cuauhtémoc, Mexico City, Federal District. Payments may be performed via electronic transfer pursuant to the procedures established in the Instrument and in this Supplement. The last payment shall be performed against the delivery of the corresponding instrument or certificate issued by Indeval. Depositary: Indeval. Prospective Investors: Individuals or Corporations which their investment regime expressly authorizes so. Increment in the Number of Unsecured Bonds: Pursuant to the Instrument and section Increment in the Number of Unsecured Bonds" herein, the Issuer shall be entitled to issue and offer Unsecured Bonds in addition to the Unsecured Bonds in this Instrument. Rights conferred to Holders: Unsecured Bonds confer to Holders the right to collect the principal amount and the corresponding interest owed by the Issuer under each Unsecured Bond, pursuant to the terms and conditions stated in the Instrument. Common Agent: Banco INVEX, S.A. Institución de Banca Múltiple, INVEX Grupo Financiero, Fiduciary. Number of Issue of Time Deposits under the Program: First. Ticker Symbol: BSANT Type of Instrument: Time Deposits (Certificados de Depósito Bancario de Dinero a Plazo, or CEDES). Amount of Issue: Ps $1, , (One billion Mexican pesos) Currency: Mexican Pesos. Nominal Value of Time Deposits (CEDES): Ps $ (One hundred Mexican pesos) Each. Issue Price: Ps $ (One hundred Mexican pesos) Each. Term of the Issue: 728 (Seven hundred and twenty eight) days, equivalent to approximately 2 (two) years. Date of Publication of the Offer: March 16, Date of Book Closing: March 17, Date of Publication of the Offer for information purposes: March 18, Issue Date: March 22, Redemption Date: March 22, Date of Registration in the BMV: March 22, Expiration Date: March 19, Rating granted by Moody s de México, S.A. de C.V.: Aaa.mx. The Aaa.mx long term senior debt rating represents the most solid credit capacity and the lowest credit loss probability with respect to other domestic issuers. This is the highest rating in the Mexican Ratings Scale granted by Moody s de México, S.A. de C.V. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Rate of Interest: Pursuant to the payment schedule displayed in section named "Periodicity in the Payment of Interest" and as long as they are not fully redeemed, Term Deposits shall pay annual gross interest on their Nominal Value at an annual rate equivalent to the rate stated in the paragraph below, which the Common Agent shall calculate two (2) Business Days before the beginning of each corresponding 28-day- Period of Interest (the "Date of calculation of the Annual Gross Interest Rate") to be in effect during such applicable period of interest. The Annual Gross Interest Rate (the "Annual Gross Interest Rate") shall be determined by adding 0.14% percentage points to the Mexican Benchmark Interbank Money Market Rate ( TIIE or "Interest Rate of Reference ) for 28-days terms, capitalized, or, when applicable, the equivalent to the actual number of days passed until the date of payment of interest, published by the Central Bank of Mexico on the media or via any other electronic, computer or telecommunications means, including the Internet, authorized by the Central bank of Mexico, at the Date of Calculation of the corresponding Annual Gross Interest Rate or, alternatively, within the twenty two (22) business days previous to such date, in which case the rate to be taken into account shall be the one published in the Business Day closest to said Date of Calculation of the Annual Gross Interest Rate. Should the TIIE rate cease to exist or to be published, the Common Agent shall use as substitute rate for the calculation of the Annual Gross Interest Rate of Unsecured Bonds, the rate officially published by the Central Bank of Mexico as the substitute rate of the 28-day- TIIE. For calculating the capitalized Interest Rate of Reference, or, when applicable, the rate equivalent for the number of days actually passed until the date of payment of interest of TIIE at the aforementioned term, the Common Agent shall utilize the formula provided herein and in the corresponding instrument that documents this Issue. Once each Period of Interest has begun, the Annual Gross Interest Rate determined for such period shall not suffer any changes during such period of time. The Common Agent shall send written notice to CNBV and Indeval, with at least two (2) Business Days in advance to each Date of Payment of Interest, on the amount of interest to be paid with respect to the unsecured Bonds. Likewise, BMV shall be informed on (via SEDI or any other means instructed by BMV), no later than the immediate Business Day previous to the Date of Payment of interest, the amount of interest to be paid as well as the Annual Gross Interest Rate to be applied for the subsequent Period of Interest. Annual Gross Interest Rate applicable for the first Period of Interest: 4.96%. Periodicity of Payment of interest: Interest from Time Deposits shall be paid every twenty eight (28) days, pursuant to the schedule stipulated in the Instrument and in section named: Periodicity in the Payment of Interest herein. Default Interest: In case of default in the payment of principal and/ or interest of Term Deposits, no Default Interest shall be paid. Redemption: Time Deposits shall be redeemed in a single payment on the Date of Expiration. Early Redemption: Time Deposits cannot be redeemed in advance. Guarantee: Time Deposits have no specific guarantee nor they have any guarantee from IPAB or any other entity. Tax Regime: This section includes a brief description of certain taxes in effect in Mexico on the acquisition, proprietorship and disposal of Time Deposits (CEDES) by Mexican Residents and non-mexican Residents for tax purposes, however, such description does not purport to be a comprehensive explanation of all the fiscal issues that may be relevant for making an investment decision with respect to Time Deposits. Annual Report Banco Santander (México)

5 Place and Method of Payment of Principal and Interest: The payment of principal amount and the corresponding interest derived from Time Deposits shall be performed at the offices of Indeval, located in Avenida Paseo de la Reforma No. 255, 3er. Piso, Col. Cuauhtémoc, Mexico City, Federal District. Payments may be performed via electronic transfer pursuant to the procedures established in the Instrument and in this Supplement. The last payment shall be performed against the delivery of the corresponding instrument or certificate issued by Indeval. Depositary: Indeval. Prospective Investors: Individuals or Corporations which their investment regime expressly authorizes so. Increment in the Number of Time Deposits (CEDES): Pursuant to the Instrument and section Increment in the Number of Time Deposits " herein, the Issuer shall be entitled to issue and offer Time Deposits in addition to the Time Deposits in this Instrument. Rights conferred to Holders: Time Deposits confer to Holders the right to collect the principal amount and the corresponding interest owed by the Issuer under each Time Deposit, pursuant to the terms and conditions stated in the Instrument. Common Agent: Banco INVEX, S.A., Institución de Banca Múltiple, INVEX Grupo Financiero, Fiduciary. Number of Issue Under the Program: First. Ticker Symbol: BSANT 11 Additional Type of Instrument: Unsecured Bonds (Certificados Bursátiles Bancarios). Amount of the Issue of the Original Unsecured Bonds: Ps $5, , (Five billion Mexican Pesos). Amount of the Issue of the Additional Unsecured Bonds: Ps $ , (seven hundred and thirty million Mexican Pesos). Total Amount of the Issue of Original Unsecured Bonds and Additional Unsecured Bonds: Ps $5, , (Five billion seven hundred and thirty million Mexican Pesos). Currency: Pesos. Nominal Value of Unsecured Bonds: Ps $ (One hundred Mexican Pesos) Each. Issue Price of the Original Unsecured Bonds: Ps $ (One hundred Mexican Pesos) per each Unsecured Bond. Issue Price of the Additional Unsecured Bonds: Ps $ (One hundred Mexican Pesos /100) per each Unsecured Bond. Term of Original Unsecured Bonds: (one thousand and ninety two) days, equivalent to approximately 3 (three) years. Term of Additional Unsecured Bonds: 935 (nine hundred thirty five) days. Date of Publication of the Offer of Original Unsecured Bonds: July 5, Date of Book Closing of Additional Unsecured Bonds: July 6, Date of Publication of the Offer for Information Purposes of Additional Unsecured Bonds: July 6, Issue Date of Original Unsecured Bonds: January 31, Issue Date of Additional Unsecured Bonds: July 7, Date of Redemption of Original Unsecured Bonds: January 31, Date of Redemption of Additional Unsecured Bonds: July 7, Date of Registration in the BMV of the Original Unsecured Bonds: January 31, Date of Registration in the BMV of the Additional Unsecured Bonds: July 7, Expiration Date of Unsecured Bonds: January 27, Rating granted by Moody s de México, S.A. de C.V.: Aaa.mx. The Aaa.mx long term senior debt rating represents the most solid credit capacity and the lowest credit loss probability with respect to other domestic issuers. This is the highest rating in the Mexican Ratings Scale granted by Moody s de México, S.A. de C.V. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Rate of Interest: Pursuant to the payment schedule displayed in section named "Periodicity in the Payment of Interest" and as long as they are not fully redeemed, Unsecured Bonds shall pay annual gross interest on their Nominal Value at an annual rate equivalent to the rate stated in the paragraph below, which the Common Agent shall calculate two (2) Business Days before the beginning of each corresponding 28-day- Period of Interest (the "Date of calculation of the Annual Gross Interest Rate") to be in effect during such applicable period of interest. The Annual Gross Interest Rate (the "Annual Gross Interest Rate") shall be determined by adding 0.20% percentage points to the Mexican Benchmark Interbank Money Market Rate ( TIIE or "Interest Rate of Reference ) for 28-days terms, capitalized, or, when applicable, the equivalent to the actual number of days passed until the date of payment of interest, published by the Central Bank of Mexico on the media or via any other electronic, computer or telecommunications means, including the Internet, authorized by the Central bank of Mexico, at the Date of Calculation of the corresponding Annual Gross Interest Rate or, alternatively, within the twenty two (22) business days previous to such date, in which case the rate to be taken into account shall be the one published in the Business Day closest to said Date of Calculation of the Annual Gross Interest Rate. Should the TIIE rate cease to exist or to be published, the Common Agent shall use as substitute rate for the calculation of the Annual Gross Interest Rate of Unsecured Bonds, the rate officially published by the Central Bank of Mexico as the substitute rate of the 28-day- TIIE. For calculating the capitalized Interest Rate of Reference, or, when applicable, the rate equivalent for the number of days actually passed until the date of payment of interest of TIIE at the aforementioned term, the Common Agent shall use the formula provided herein and in the corresponding instrument that documents this Issue. Once each Period of Interest has begun, the Annual Gross Interest Rate determined for such period shall not suffer any changes during such period of time. The Common Agent shall send written notice to CNBV and Indeval, with at least two (2) Business Days in advance to each Date of Payment of Interest, on the amount of interest to be paid with respect to the unsecured Bonds. Likewise, BMV shall be informed on (via SEDI or any other means instructed by BMV), no later than the immediate Business Day previous to the Date of Payment of interest, the amount of interest to be paid as well as the Annual Gross Interest Rate to be applied for the subsequent Period of Interest. Rate of Interest applicable to the Period of Interest for Original Unsecured Bonds: 5.05% Rate of Interest applicable to the Period of interest for Additional Unsecured Bonds: 5.04% Default Interest: In case of default in the payment of principal and/ or interest of Unsecured Bonds, no Default Interest shall be paid. Periodicity of Payment of interest: Interest from Unsecured Bonds shall be paid every twenty eight (28) days, pursuant to the schedule stipulated in the Instrument and in section named: Periodicity in the Payment of Interest herein. Redemption: Unsecured Bonds shall be redeemed in a single payment on the Date of Expiration. Early Redemption: Unsecured Bonds cannot be redeemed in advance. Guarantee: Unsecured Bonds have no specific guarantee nor they have any guarantee from IPAB or any other entity. Tax Regime: This section includes a brief description of certain taxes in effect in Mexico on the acquisition, proprietorship and disposal of Unsecured Bonds by Mexican Residents and non-mexican Residents for tax purposes, however, such description does not purport to be a comprehensive explanation of all the fiscal issues that may be relevant for making an investment decision with respect to Unsecured Bonds. Place and Method of Payment of Principal and Interest: The payment of principal amount and the corresponding interest derived from Unsecured Bonds shall be performed at the offices of Indeval, located in Avenida Paseo de la Reforma No. 255, 3er. Piso, Col. Cuauhtémoc, Mexico City, Federal District. Payments may be performed via electronic transfer pursuant to the procedures established in the Instrument and in this Supplement. The last payment shall be performed against the delivery of the corresponding instrument or certificate issued by Indeval. Depositary: Indeval. Prospective Investors: Individuals or Corporations which their investment regime expressly authorizes so. Increment in the Number of Unsecured Bonds: Pursuant to the Instrument and section Increment in the Number of Unsecured Bonds" herein, the Issuer shall be entitled to issue and offer Unsecured Bonds in addition to the Unsecured Bonds in the Instrument. Rights conferred to Holders: Unsecured Bonds confer to Holders the right to collect the principal amount and the corresponding interest owed by the Issuer under each Unsecured Bond, pursuant to the terms and conditions stated in the Instrument. Common Agent: Banco INVEX, S.A., Institución de Banca Múltiple, INVEX Grupo Financiero, Fiduciary. Number of Issue under th Program: Fourth. Ticker Symbol: BSANT Type of Instrument: Unsecured Bonds. (Certificados Bursátiles Bancarios). Annual Report Banco Santander (México)

6 Amount of Issue: Ps $2, , (Two billion eight hundred million Mexican Pesos). Currency: Mexican Pesos. Nominal Value of Unsecured Bonds: $ (Cien Pesos 00/100 M.N.) cada uno. Issue Price: Ps $ (One hundred Mexican Pesos) per each Unsecured Bond. Term of Unsecured Bonds: 1,820 (One thousand eight hundred and twenty) days, equivalent to 5 years. Date of Publication of the Offer: September 26, Date of Book Closing: September 27, Date of Publication of the Offer for information purposes: September 28, Issue Date: September 28, Redemption Date: September 28, Date of Registration in the BMV: September 28, Expiration Date: September 21, Rating granted by Moody s de México, S.A. de C.V.: Aaa.mx. The Aaa.mx long term senior debt rating represents the most solid credit capacity and the lowest credit loss probability with respect to other domestic issuers. This is the highest rating in the Mexican Ratings Scale granted by Moody s de México, S.A. de C.V. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Rate of Interest: Pursuant to the payment schedule displayed in section named "Periodicity in the Payment of Interest" and as long as they are not fully redeemed, Unsecured Bonds shall pay annual gross interest on their Nominal Value at an annual rate equivalent to the rate stated in the paragraph below, which the Common Agent shall calculate two (2) Business Days before the beginning of each corresponding 28-day- Period of Interest (the "Date of calculation of the Annual Gross Interest Rate") to be in effect during such applicable period of interest. The Annual Gross Interest Rate (the "Annual Gross Interest Rate") shall be determined by adding 0.50% percentage points to the Mexican Benchmark Interbank Money Market Rate ( TIIE or "Interest Rate of Reference ) for 28-days terms, capitalized, or, when applicable, the equivalent to the actual number of days passed until the date of payment of interest, published by the Central Bank of Mexico on the media or via any other electronic, computer or telecommunications means, including the Internet, authorized by the Central bank of Mexico, at the Date of Calculation of the corresponding Annual Gross Interest Rate or, alternatively, within the twenty two (22) business days previous to such date, in which case the rate to be taken into account shall be the one published in the Business Day closest to said Date of Calculation of the Annual Gross Interest Rate. Should the TIIE rate cease to exist or to be published, the Common Agent shall use as substitute rate for the calculation of the Annual Gross Interest Rate of Unsecured Bonds, the rate officially published by the Central Bank of Mexico as the substitute rate of the 28-day- TIIE. For calculating the capitalized Interest Rate of Reference, or, when applicable, the rate equivalent for the number of days actually passed until the date of payment of interest of TIIE at the aforementioned term, the Common Agent shall use the formula provided herein and in the corresponding instrument that documents this Issue. Once each Period of Interest has begun, the Annual Gross Interest Rate determined for such period shall not suffer any changes during such period of time. The Common Agent shall send written notice to CNBV and Indeval, with at least two (2) Business Days in advance to each Date of Payment of Interest, on the amount of interest to be paid with respect to the unsecured Bonds. Likewise, BMV shall be informed on (via SEDI or any other means instructed by BMV), no later than the immediate Business Day previous to the Date of Payment of interest, the amount of interest to be paid as well as the Annual Gross Interest Rate to be applied for the subsequent Period of Interest. Annual Gross Interest Rate applicable for the first Period of Interest: 5.29% Default Interest: In case of default in the payment of principal and/ or interest of Unsecured Bonds, no Default Interest shall be paid. Periodicity of Payment of interest: Interest from Unsecured Bonds shall be paid every twenty eight (28) days, pursuant to the schedule stipulated in the Instrument and in section named: Periodicity in the Payment of Interest herein. Redemption: Unsecured Bonds shall be redeemed in a single payment on the Date of Expiration. Early Redemption: Unsecured Bonds cannot be redeemed in advance. Guarantee: Unsecured Bonds have no specific guarantee nor they have any guarantee from IPAB or any other entity. Tax Regime: This section includes a brief description of certain taxes in effect in Mexico on the acquisition, proprietorship and disposal of Unsecured Bonds by Mexican Residents and non-mexican Residents for tax purposes, however, such description does not purport to be a comprehensive explanation of all the fiscal issues that may be relevant for making an investment decision with respect to Unsecured Bonds. Place and Method of Payment of Principal and Interest: The payment of principal amount and the corresponding interest derived from Unsecured Bonds shall be performed at the offices of Indeval, located in Avenida Paseo de la Reforma No. 255, 3er. Piso, Col. Cuauhtémoc, Mexico City, Federal District. Payments may be performed via electronic transfer pursuant to the procedures established in the Instrument and in this Supplement. The last payment shall be performed against the delivery of the corresponding instrument or certificate issued by Indeval. Depositary: Indeval. Prospective Investors: Individuals or Corporations which their investment regime expressly authorizes so. Increment in the Number of Unsecured Bonds: Pursuant to the Instrument and section Increment in the Number of Unsecured Bonds" herein, the Issuer shall be entitled to issue and offer Unsecured Bonds in addition to the Unsecured Bonds in this Instrument. Rights conferred to Holders: Unsecured Bonds confer to Holders the right to collect the principal amount and the corresponding interest owed by the Issuer under each Unsecured Bond, pursuant to the terms and conditions stated in the Instrument. Common Agent: Banco INVEX, S.A., Institución de Banca Múltiple, INVEX Grupo Financiero. Number of Issue under the Program: Fourth. Ticker Symbol: BSANT 11-4 Additional Type of Instrument: Unsecured Bonds Amount of the Original Issue of Unsecured Bonds: Ps $2, , (two billion eight hundred million Mexican Pesos). Amount of the Additional Issue of Unsecured Bonds: Ps $1, , (One billion three hundred million Mexican Pesos). Total Amount of the Original and Additional Issue of Unsecured Bonds: Ps $4,100,000, (Four billion one hundred million Mexican pesos). Number of Certificates of Original Unsecured Bonds: 28,000,000 (twenty eight millions) Number of Certificates of Additional Unsecured Bonds: 13,000,000 (thirteen millions) Number of Certificates of Original and Additional Unsecured Bonds: 41,000,000 (Forty one millions) Currency of the Issue: Mexican Pesos Nominal Value of Unsecured Bonds: Ps $ (One hundred Mexican Pesos) each. Issue Price of Original Certificates of Unsecured Bonds: Ps $ (One hundred Mexican Pesos) each Certificate. Issue Price of the Additional Certificates of Unsecured Bonds: Ps $ (one hundred Mexican Pesos /100) per Certificate. The Issue Price of Additional Unsecured Bonds shall be the result from adding to the Issue Price of the Original Unsecured Bonds, interest corresponding to the days passed from the beginning of the Period of Interest of the Original Unsecured Bonds until the date of issue of the Additional Unsecured Bonds (see Periodicity of Payment of Interests"). Term of Original Unsecured Bonds: 1,820 (one thousand eight hundred and twenty) days, equivalent to 5 years. Term of Additional Unsecured Bonds: 1,798 (one thousand seven hundred and ninety eight) days, equivalent to 5 years. Date of Publication of the Offer for Additional Unsecured Bonds: October 18, 2011 Date of Book Closing for Additional Unsecured Bonds: October 19, 2011 Date of Publication of the Offer of Additional Unsecured Bonds for Information Purposes: October 19, 2011 Issue Date of Original Unsecured Bonds: September 28, Issue Date of Additional Unsecured Bonds: October 20, 2011 Date of Redemption for Original Unsecured Bonds: September 28, Date of Redemption for Additional Unsecured Bonds: October 20, 2011 Date of Registration in the BMV of the Original Unsecured Bonds: September 28, Date of registration in the BMV of the Additional Unsecured Bonds: October 20, 2011 Expiration Date of Unsecured Bonds: September 21, Annual Report Banco Santander (México)

7 Rating granted by Moody s de México, S.A. de C.V.: Aaa.mx. The Aaa.mx long term senior debt rating represents the most solid credit capacity and the lowest credit loss probability with respect to other domestic issuers. This is the highest rating in the Mexican Ratings Scale granted by Moody s de México, S.A. de C.V. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Rate of Interest: Pursuant to the payment schedule displayed in section named "Periodicity in the Payment of Interest" and as long as they are not fully redeemed, Unsecured Bonds shall pay annual gross interest on their Nominal Value at an annual rate equivalent to the rate stated in the paragraph below, which the Common Agent shall calculate two (2) Business Days before the beginning of each corresponding 28-day- Period of Interest (the "Date of calculation of the Annual Gross Interest Rate") to be in effect during such applicable period of interest. The Annual Gross Interest Rate (the "Annual Gross Interest Rate") shall be determined by adding 0.50% percentage points to the Mexican Benchmark Interbank Money Market Rate ( TIIE or "Interest Rate of Reference ) for 28-days terms, capitalized, or, when applicable, the equivalent to the actual number of days passed until the date of payment of interest, published by the Central Bank of Mexico on the media or via any other electronic, computer or telecommunications means, including the Internet, authorized by the Central bank of Mexico, at the Date of Calculation of the corresponding Annual Gross Interest Rate or, alternatively, within the twenty two (22) business days previous to such date, in which case the rate to be taken into account shall be the one published in the Business Day closest to said Date of Calculation of the Annual Gross Interest Rate. Should the TIIE rate cease to exist or to be published, the Common Agent shall use as substitute rate for the calculation of the Annual Gross Interest Rate of Unsecured Bonds, the rate officially published by the Central Bank of Mexico as the substitute rate of the 28-day- TIIE. For calculating the capitalized Interest Rate of Reference, or, when applicable, the rate equivalent for the number of days actually passed until the date of payment of interest of TIIE at the aforementioned term, the Common Agent shall use the formula provided herein and in the corresponding instrument that documents this Issue. Once each Period of Interest has begun, the Annual Gross Interest Rate determined for such period shall not suffer any changes during such period of time. The Common Agent shall send written notice to CNBV and Indeval, with at least two (2) Business Days in advance to each Date of Payment of Interest, on the amount of interest to be paid with respect to the unsecured Bonds. Likewise, BMV shall be informed on (via SEDI or any other means instructed by BMV), no later than the immediate Business Day previous to the Date of Payment of interest, the amount of interest to be paid as well as the Annual Gross Interest Rate to be applied for the subsequent Period of Interest. Annual Gross Interest Rate applicable for the first Period of Interest of Original Unsecured Bonds: 5.29% Annual Gross Interest Rate applicable for the first Period of Interest of Additional Unsecured Bonds: 5.29% Default Interest: In case of default in the payment of principal and/ or interest of Unsecured Bonds, no Default Interest shall be paid. Periodicity in the Payment of Interest: Interest yield by Unsecured Bonds shall be paid every 28 (twenty eight) days, pursuant to the schedule stipulated in the Instrument and in section Periodicity in the Payment of Interest herein. Provided, however, that if the Issue Date of Additional Unsecured Bonds does not match the date of beginning of the Period of Interest in effect for the Original Unsecured Bonds, the Additional Unsecured Bonds shall generate interest during the period from the beginning of such period until the date of their Registration. Redemption: Additional Unsecured Bonds shall be redeemed in a single payment at the Expiration Date. Early Total Redemption: Additional Unsecured Bonds cannot be early redeemed. Guarantee: Additional Unsecured Bonds have no specific guarantee nor they have any guarantee from IPAB or any other entity. Tax Regime: This section includes a brief description of certain taxes in effect in Mexico on the acquisition, proprietorship and disposal of Unsecured Bonds by Mexican Residents and non-mexican Residents for tax purposes, however, such description does not purport to be a comprehensive explanation of all the fiscal issues that may be relevant for making an investment decision with respect to Unsecured Bonds. Place and Method of Payment of Principal and Interest: The payment of principal amount and the corresponding interest derived from Unsecured Bonds shall be performed at the offices of Indeval, located in Avenida Paseo de la Reforma No. 255, 3er. Piso, Col. Cuauhtémoc, Mexico City, Federal District. Payments may be performed via electronic transfer pursuant to the procedures established in the Instrument and in this Supplement. The last payment shall be performed against the delivery of the corresponding instrument or certificate issued by Indeval. Depositary: Indeval. Prospective Investors: Individuals or Corporations which their investment regime expressly authorizes so. Increment in the Number of Unsecured Bonds: Pursuant to the Instrument and section Increment in the Number of Unsecured Bonds" herein, the Issuer shall be entitled to issue and offer Unsecured Bonds in addition to the Unsecured Bonds in this Instrument. Rights conferred to Holders: Unsecured Bonds confer to Holders the right to collect the principal amount and the corresponding interest owed by the Issuer under each Unsecured Bond, pursuant to the terms and conditions stated in the Instrument. Common Agent: Banco INVEX, S.A., Institución de Banca Múltiple, INVEX Grupo Financiero. On November, 2012, Banco Santander (México) performed a Debt Issue in international markets for an amount of U.S.$1 billion, pursuant to Rule 144-A. Annual Report Banco Santander (México)

8 TABLE OF CONTENTS 1) GENERAL INFORMATION... 9 a) Glossary of terms and difinitions... 9 b) Presentation of certain financial information c) Executive Summary d) Risk Factors e) Other Securities f) Relevant changes in the rights on securities registered in the Registry g) Use of funds h) Public Documents ) THE ISSUER a) History and Background of the Issuer b) Description of the Business i) Main Activity ii) Distribution channels iii) Patents, Licenses, Brands and other Agreements iv) Main Customers v) Applicable Laws and Fiscal Status vi) Human Resources vii) Environmental Performance viii) Market Information ix) Corporate Structure x) Description of the main assets xi) Legal, administrative or arbitration processes xii) Share capital stocks xiii) Dividends ) FINACIAL INFORMATION a) Selected Financial Information b) Financial Information per line of business, geographic and exports sales c) Disclosure of Relevant Loans d) Comments and analysis of the Management on the results of operation and the financial condition of the issuer i) Operating Income ii) Financial Condition, Liquidity and Capital Resources iii) Internal Control e) Critical Accounting Estimates, Provisions or Reserves ) ADMINISTRATION a) Independent Auditors b) Transactions with Related Persons and Conflicts of Interest c) Managers and stockholders d) Corporate Bylaws and Other Agreements e) Other corporate governance practices ) UNDERLYING ASSETS ) RESPONSIBLE PERSONS ) ANNEXES a) Audited financial statements and opinion of the audit committee and report of the statutory examiner, as applicable Annual Report Banco Santander (México)

9 1) GENERAL INFORMATION a) Glossary of terms and definitions AENOR Auditor Externo Banco Santander (México), el Emisor, el Banco, la Institución o la Sociedad Banxico o Banco de México Basel III BMV Calificadora CEDES or Time Deposits CEBURES, Certificados Bursátiles or Certificados Bursátiles Bancarios CETES Banks Circular Office Issuers Circular Office CNBV or the Commission "Basel Committee" CONDUSEF CNBV's Accounting Standards CRM Dollar, Dollars or USD Issue Financial Statements United States or USA Euro or Euros In Spanish, Spanish Association of Standardization and Certification. Firm of independent auditors designated by the Issuer for the performance of the audit and review of the financial statements. Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México. The Mexican Central Bank A capital and liquidity reform package for internationally active banking organizations around the world 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 Basel Committee in Bolsa Mexicana de Valores, S.A.B. de C.V. Rating Agency that grants the corresponding rating to each Issue of Securities, to be specified in the applicable Supplement. Certificates of Time Deposits (Certificados de Depósito Bancario de Dinero a Plazo) that may be issued by the Issuer under the Program. Unsecured Bonds Certificates that may be issued by the Issuer under the Issue Program. Mexican Treasury Bills (Certificados de la Tesorería de la Federación) General Regulations applicable to Credit Institutions issued by the CNBV and published in the Federal Official Gazette on December 2, 2005 as amended. General regulations applicable to issuers of Securities and Other Participants in the Securities Market, issued by CNBV and published in the Federal Official Gazette on March 9, 2003, as amended. Mexican National Banking and Exchange Commission (Comisión Nacional Bancaria y de Valores). Basel Committee on Banking Regulations and Supervisory Practices, which includes the supervisory authorities of twelve major industrial countries Mexican National Commission for the Protection and Defense of the Users of Financial Services (Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros). Accounting standards issued by the CNBV, included in the General provisions applicable to Controlling Companies of Financial Groups, Credit Institutions, Brokerage Houses and Regulated Multiple Purpose Financial Societis, as amended. Customer Relationship Management. Dollars of the United States of America. Any issue of Securities performed by the Issuer under the Program. Refers to the audited consolidated financial statements of the Issuer as of December 31, 2012, 2011 and 2010, and for each year ended on December 31, 2012, 2011 and 2010, along with the corresponding notes to such financial statements. United States of America The currency in the member states of the European Union. Annual Report Banco Santander (México)

10 Informative Booklet GFSM, Grupo Financiero, Grupo Financiero Santander México or the Group Indeval IETU IFRS IMPI Capitalization Index INEGI Infonavit Instruments Placement Agent or Casa de Bolsa Santander IPAB ISBAN ISR VAT LCR LIBOR LIC LMV LRAF LIETU LISR MexDer Mexico ICM NAFIN MFIS NIM NSFR Document used to offer Securities in a private manner, without a Public Offer. Grupo Financiero Santander México, S.A.B. de C.V. The Mexican Institution for the Deposit of Securities: S.D. Indeval, S.A. de C.V Institución para el Depósito de Valores. Companies' Tax at a Unique Rate. International Financial Reporting Standards issued by the International Accounting Standards Board, as well as the interpretations issued by the International Financial Reporting Interpretations Committee. Mexican Institute for the Industrial Property (Instituto Mexicano de la Propiedad Industrial), Means the ratio of net total capital to assets weighted by market, credit and operation risk, determined pursuant to the method stipulated by the CNBV, in accordance with the Capitalization Requirements. Mexican National Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía) Mexican Institute of the National Housing Fund for Workers (Instituto Nacional para el Fomento de la Vivienda de los Trabajadores) Unsecured Bonds, Time Deposits. Casa de Bolsa Santander, S.A. de C.V., Grupo Financiero Santander México. Mexican Institute for the Protection of Bank Savings (Instituto para la Protección al Ahorro Bancario) ISBAN México, S.A. de C.V. a supplier of computer development and operation services, among others. Mexican Income Tax. Value Added Tax. Liquidity Coverage Ratios London Inter Bank Offered Rate. Mexican Banking Law (Ley de Instituciones de Crédito) in effect. Mexican Securities Market Law in effect (Ley del Mercado de Valores). Mexican Financial Groups Law (Ley para Regular las Agrupaciones Financieras). The Law on Companies' Tax at a Unique Rate (Ley del Impuesto a Tasa Única) in effect. The Mexican Income Tax Law (Ley del Impuesto Sobre la Renta) in effect. MexDer, Mercado Mexicano de Derivados, S.A. de C.V. United States of Mexico. Internal Control Model. Nacional Financiera, Sociedad Nacional de Crédito, Institución de Banca de Desarrollo, a Mexican government bank that provides support for SMEs Mexican Financial Information Standards in effect. Net Interest Margin. Net stable funding ratio. Annual Report Banco Santander (México)

11 Peso, Pesos, Ps. or $ GDP PRI Accounting Practices PRODUBAN Program SMEs Annual Report ro Report Capitalization Rules Common Agent RNV ROE SAT SHCP SHF Santander Consumo Santander Hipotecario Supplement Sofoles Sofomes Holders TIIE UDIs VaR Mexican pesos. Gross Domestic Product. Partido Revolucionario Institucional, a Mexican political party. Accounting criteria in effect applicable to credit institutions, issued by CNBV. The Mexican branch of Produban Servicios Informáticos Generales, S.L. (PRODUBAN), a supplier of systems development and operation services, among others. Program for the issue of Securities of the Issuer, described in the corresponding prospectus. Small and medium size enterprises, with annual income lower than Ps.100,000, This annual report for year 2012, of Grupo Financiero Santander. Rules on Capitalization Requirements for Multiple Banking Institutions, issued by the Mexican Ministry of Finance and Public Credit (SHCP) and published in the Mexican Federal Official Gazette on November 23, Banco Invex, S.A., Institución de Banca Múltiple, Invex Grupo Financiero, Fiduciary. Mexican National Securities Registry (Registro Nacional de Valores) Return on Equity, a financial index that measures profitability of own resources. The Mexican Fiscal Management System (Sistema de Administración Tributaria). Mexican Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público) Sociedad Hipotecaria Federal. Santander Consumo, S.A. de C.V. SOFOM, E.R. (A multiple purpose financial institution, a regulated entity) Santander Hipotecario, S.A. de C.V. SOFOM, E.R. (A multiple purpose financial institution, a regulated entity) A Supplement to the Prospectus prepared with respect to a Issue of Securities under the Program that includes the characteristics of such issue. 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 lowincome individuals. All existing Sofol authorizations will automatically terminate on July 19, Existing Sofoles have the option of converting to Sofomes or otherwise extending their corporate purpose to include activities carried out by Sofomes Sociedades Financieras de Objeto Múltiple, non-banking institutions in Mexico that engage in lending and/or financial leasing and/or factoring services Holders of the Securities/ Instruments. The Mexican benchmark interbank money market rate (Tasa de Interés Interbancaria de Equilibrio) Unidades de inversión, a peso-equivalent unit of account indexed for Mexican inflation, published by Banxico in the Mexican Federal Official Gazette. Value at risk, an estimate of the expected maximum loss in the market value Annual Report Banco Santander (México)

12 NOTE: Figures in million Mexican Pesos, except otherwise expressly indicated. b) Presentation of certain financial information of a given portfolio over a one-day time horizon at a 99% confidence interval This Annual Report includes our audited and consolidated Financial Statements as of December 31, 2012 and 2011 along with the corresponding notes to such financial statements. Our Consolidated Financial Statements have been prepared according to the CNBV's Accounting Standards, as amended. Information on industry and the market This Report includes information on our competitive position and market share in the segment of financial services and the size of the industry of financial services in Mexico. Such information has been obtained from statistics and other third-party data, mainly from the CNBV, which we consider a reliable source. Effect of rounding Certain amounts and percentages included in this annual report and in our consolidated financial statements have been rounded in order to ease their presentation. Percentage figures included in this Annual 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 Annual 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 Annual Report may not coincide due to rounding. Exchange Rate This Annual Report includes conversions of certain peso amounts into U.S. dollars at specified rates for convenience purposes only. These conversions should not be construed 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 converted peso amounts into U.S. dollars at an exchange rate of Ps to U.S.$1.00, the rate calculated on December 31, 2012 (the last business day in December) and published on January 2, 2013 in the Federal Official Gazette (Diario Oficial de la Federación) by the Mexican Central Bank, as the exchange rate for the payment of obligations denominated in currencies other than pesos and payable within Mexico. Conversion of 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 converting Mexican pesos into U.S. dollars at the exchange rate prevailing when such transactions were recorded. c) Executive Summary Banco Santander (México) is a multiple banking institution with operations diversified along the different business areas. The Bank is a multiple banking institution with independent legal status and its own share capital that forms part of Grupo Financiero Santander México S.A.B de C.V. an affiliate company of Banco Santander, S.A. (España), a foreign financial institution. The purpose of the Bank is to provide bank and credit services. The type of products available for customers are the ones listed, without limitation, in the Mexican Banking Law and in the regulations issued by the SHCP and the CNBV, so that customers may have access to a wide range of financial services both in domestic and international markets. The Bank is authorized to carry out multiple banking transactions that include, among others, the reception of deposits, granting of loans, transactions with securities and the execution of trusteeship agreements. As of December 31, 2012, the Bank had total assets for Ps.748,161 million; shareholders' equity that amounted Ps.96,128 million and Net Earnings for Ps.17,398 million. As of December 31, 2012, the companies and trusteeships that are consolidated with the Bank are the following: Santander Consumo, S.A. de C.V., SOFOM, ER. Santander Hipotecario, S.A. de C.V., SOFOM, ER. Banco Santander, S.A., Fideicomiso Annual Report Banco Santander (México)

13 Fideicomiso GFSSLPT Banco Santander, S.A. Instituto Santander Serfin, A.C. Santander Holding Vivienda, S.A. de C.V. Santander Servicios Corporativos, S.A. de C.V. Santander Servicios Especializados, S.A. de C.V. On December 29, 2011, the Extraordinary Stockholders' Meeting of Almacenadora Somex, S.A. (the Warehousing Company) approved the liquidation final balance sheet, and agreed the liquidation of the assets to the Stockholders. On July 3, 2012, the liquidation of assets was performed. d) Risk Factors Risks inherent to our business We are vulnerable to the current disruptions and volatility in the global financial markets. In the past five years, financial systems worldwide have experienced difficult credit and liquidity conditions and disruptions leading to less liquidity, greater volatility, general widening of spreads and, in some cases, lack of price transparency on interbank lending rates. Global economic conditions deteriorated significantly between 2007 and 2009, and many countries, including the United States of America, fell into recession. Some countries continue in recession. Many major financial institutions, including some of the world s largest global commercial banks, investment banks, mortgage lenders, mortgage guarantors and insurance companies, continue to suffer significant difficulties. Around the world, there have also been runs on deposits at several financial institutions, numerous institutions have sought additional capital or have been assisted by governments, and many lenders and institutional investors have reduced or ceased providing funding to borrowers (including to other financial institutions). The global economic slowdown and U.S. economic slowdown in particular has had a negative impact on the Mexican economy and has adversely affected our business. In particular, the Bank may face, among others, the following risks related to the economic downturn: An increment of regulations on our industry. Compliance with such regulation may increase our costs, may affect the pricing for our products and services, and limit our ability to pursue business opportunities. Reduced demand for our products and services. Inability of our borrowers to timely and fully comply with their existing obligations. The process we use to estimate losses inherent in our credit exposure requires complex judgments, including forecasts of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans. The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the process and the quality of our assets. The value and liquidity of the portfolio of investment securities that we hold may be adversely affected. Worsening of the global economic conditions may delay the recovery of the international financial industry and impact our financial condition and results of operations. Some uncertainty remains concerning the future economic environment and there is no assurance when such conditions will be ameliorated. While certain segments of the global economy are currently experiencing a moderate recovery, we expect these conditions to continue to have an ongoing negative impact on our business and results of operations. Global investor confidence remains cautious and recent downgrades of the sovereign debt of Ireland, Greece, Portugal, Spain, Italy and France have caused renewed volatility in the capital markets. A slowing or failing of the economic recovery would likely aggravate the adverse effects of these difficult economic and market conditions on us and on others in the financial services industry. Continued or worsening disruption and volatility in the global financial markets could have a material adverse effect on us, including our ability to access capital and liquidity on financial terms acceptable to us, if at all. If capital markets financing ceases to become available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits to attract more customers. Any such increase in capital markets funding costs or deposit rates could have a material adverse effect on our interest margins. Annual Report Banco Santander (México)

14 If all or some of the foregoing risks were to materialize, this could have a material adverse effect on us. Mexican government regulations may have an adverse effect on the Bank. We are subject to extensive regulation regarding our organization, operations, capitalization, transactions with related parties and other matters. These laws and regulations impose numerous requirements on the Bank, including the maintenance of minimum risk-based capital levels and loan loss reserves, regulation of our business practices, interest rates charged and application of mandatory accounting standards. Many of the applicable laws and regulations applicable to the Bank have changed extensively in recent years, with a negative impact on us. There may be future changes in the regulatory system or in the interpretation and enforcement of the laws and regulations that could adversely affect the Bank; for example, the Ministry of Finance and Public Credit recently announced that the Mexican government is to present a group of reforms to the financial system in order to increase the volume of credits granted to private sectors; the Ministry also announced that tax reforms are to be carried out. We expect such initiatives to be presented to the Mexican Congress during the second half of We cannot predict if such reforms are to be approved and, if so, the way they are going to affect our business. We consider that the amounts recovered on non-performing loans, as a percentage of the total non-performing portfolio, in the future will decrease as a consequence of the seniority of our non-performing portfolio. In addition, in Mexico, the procedures for the enforcement of collaterals take an average of two to three years due to due legal requirements under the Mexican laws, which, along with other factors such as such as third-party claims, liens and impairment of the properties, may lead to a decrement in the original value of collaterals. On July 2010, the Federal law for the Protection of Personal Data was enacted. The purpose of this Law is to protect information obtained from private persons and to guarantee the confidentiality of such information. We have already begun to comply with the requirements of the law and the supervision of our activities under the same. We cannot ensure the way competent authorities are to apply or construe such law, however, a strict application or interpretation may have an relevant adverse effect on the Bank, including an increment in operating costs and the imposition of penalties in case of violations to the provisions of the abovementioned Law. Given the current environment in the financial services sector, there may be future changes in the regulatory system or in the interpretation and enforcement of the laws and regulations that could adversely affect us and our subsidiaries, including our costs and financial margins. Future restrictions on interest rates by the Mexican government could have a material adverse effect on us. The Law for the Protection and Defense of Financial Services Users (Ley de Protección y Defensa al Usuario de Servicios Financieros) does not impose any limit on the interest rate, subject to certain exceptions, that a bank may charge. However, the possibility of imposing such limits has been and continues to be debated by the Mexican Congress, the Mexican financial authorities and different groups of debtors. In the future, the Mexican government could impose limitations or additional informational requirements regarding such interest rates. At the date of this Annual Report, the Mexican Congress and the Mexican financial authorities have not imposed specific limits to interest rates charged by banks. Part of our revenues and operating cash flow is generated by the interest rates we charge to our customers, therefore, any limitations or additional informational requirements with respect to interest rates could materially and adversely affect the Bank. Our financial results are continuously exposed to market risk. We are subject to fluctuations in interest rates and other market risks that may materially and adversely affect us. Market risk refers to the probability of variations in our net interest income or in the market value of our assets and liabilities due to interest rate volatility, exchange rates or prices of securities. Changes in interest rates affect, among others, the following areas of our business: Net interest income; The volume of loans originated; The market value of our securities holdings; and Gains from sales of loans and securities. Variations in short-term interest rates could affect our net interest income, which comprises the majority of our revenue. When interest rates increase, we pay higher interest on our floating-rate borrowings while interest earned on our fixed-rate assets Annual Report Banco Santander (México)

15 does not grow as quickly, which could cause profits to grow at a reduced rate or decline in some parts of our portfolio. Interest rate variations could adversely affect us, including our net interest income, reducing its growth rate or even resulting in losses. We monitor our interest rate risk using sensitivity to net interest margin (NIM), which is the difference between the return on our financial assets and the financial cost of our financial liabilities during a one-year period and a parallel movement of 100 basis points (one percentage point) in interest rates. As of December 2012, sensitivity of 1% of the NIM was Ps million. Interest rates are highly sensitive to different factors that are beyond our control, including the increment of regulations on the financial sector, monetary policies, economic and political conditions at national and international levels, among others. Increases in interest rates may reduce the volume of loans we originate. Sustained high interest rates have historically discouraged customers from borrowing and have resulted in increased delinquencies in outstanding loans and deterioration in the quality of assets. Increases in interest rates may also reduce the tendency of our customers to prepay or refinance fixed-rate loans. Increases in interest rates may reduce the value of our financial assets. We hold a substantial portfolio of loans and debt securities that have both fixed and floating interest rates. In the case of a decrease in interest rates, our income derived from investments in securities and loans at similar maturities are likely to decrease as well, apart from a probable decrease in our financing costs. In addition, we could experience an increment in defaults under a low-interest rate environment, when such situation comes along with high unemployment levels and recession conditions. The market value of the securities at fixed rate usually decreases when interest rates increase. This could have an adverse effect in our income or our financial condition. Likewise, we could incur in costs that would affect our results while we implement strategies for decreasing our exposure to interest rates in the future. The market value of securities subject to variable rate may be adversely affected when interest rates increase, due to a delay in the implementation of reassessment strategies or the inability to refinance at lower interest rates. Increments in interest rates may decrease our gains or oblige us to record losses in the sales of our loans or securities. In recent years, interest rates in Mexico have reached historical minimum levels; however, we cannot assure that interest rates are going to maintain such low levels in the future. También estamos expuestos al riesgo de tipo de cambio como consecuencia de desajustes entre los activos y pasivos denominados en moneda extranjera. Las fluctuaciones en el tipo de cambio de divisas pueden afectar negativamente nuestros ingresos y el valor de nuestros activos y valores. We are also exposed to the risk of price of equity instruments with respect to our investments in equity instruments during the ordinary course of our business as commercial bank. The behavior of financial markets may generate changes in the value of our investments and our securities portfolio for trade. The volatility of global equity markets due to the continuous economic uncertainty and the sovereign debt crisis has had an important impact on the financial sector. Continuous volatility may affect the value of our investments in financial entities and, depending on their market value and future recovery expectations, it may turn into a permanent impairment subject to charge-offs against our results. Insofar as any of these risks are materialized, our net interest margin or the market value of our assets and liabilities may be adversely affected. Market conditions have caused and may cause important changes in the estimated market value of our financial assets. Negative adjustments in the market value may have a relevant adverse effect in our operating results, our financial condition and our perspectives. During the last five years, financial markets have been subject to a relevant stress, causing material decrements in the actual or perceived values of financial assets, in particular due to the volatility of global financial markets and an expansion of credit margins. We have a great exposure to risks related to securities and other instruments registered at market value; therefore, we are exposed to negative adjustments in the market value of the same. Valuation of assets in subsequent periods, reflecting the prevailing market conditions in that moment, may cause negative changes in the market value of our financial assets, deriving in greater losses. In addition, it may be possible for the sale price of the assets be lower to the current market value. Any of these factors could force us to perform negative adjustments to market values, affecting in an adverse manner our operating results, our financial condition or perspectives. Insofar as market values are determined via financial valuation models, said values may be inaccurate or subject to changes given that the information used in those models may not be available due to changes in the market conditions, especially for nonliquid assets, and especially under economic instability. Under such circumstances, our valuation methods require us to make assumptions, judgments and estimations in order to determine market value, and it is difficult to make reliable assumptions due to their uncertain nature and the complexity of valuation models, therefore, such indicators are imperfect with respect to actual Annual Report Banco Santander (México)

16 results. Any impairment or loss derived from the abovementioned circumstances may have a material adverse effect on our operating results, our financial condition or perspectives. The volatility in the Mexican peso exchange rates and interest rates in Mexico may adversely affect us. We are exposed to currency risk every time we hold an open position in a currency other than pesos and to interest rate risk when we have a mismatch in the re-assessment of interest rates or we carry interest-bearing securities with fixed real or nominal interest rates. Peso exchange rates and interest rates in Mexico have been subject to significant fluctuations in recent years. Because of the historical volatility in peso exchange rates and interest rates in Mexico, the risks associated with such positions may be greater than in other countries. Our foreign currency liabilities are subject to regulation by the Mexican Central Bank, who imposes liquidity requirements in the equivalent to such currencies depending on the term of such liabilities. As of December 31, 2012, Value at Risk (VaR) related to our financial instruments sensible to interest rates and exchange rates was Ps million and Ps million, respectively. Although we have followed numerous risk management procedures with respect to our brokerage and treasury activities and we are subject to regulations which aim is to prevent relevant imbalances, we cannot assure that in the future we will not suffer losses with respect to these positions, any of which could have an adverse effect on the Bank, including our operating results. A severe devaluation or depreciation in the Mexican peso may have an adverse effect in the Bank, for example, it could increase the amount in Mexican pesos of our liabilities in foreign currency and the rate of default of our debtors, affecting our operating results in US Dollars. A severe devaluation may result, as it has occurred in the past, in the implementation of currency exchange controls that would affect our ability to convert pesos into US Dollars or to export currency, all of which would have a negative impact in our business and the results of our operations. As a result of the negative economic conditions in the USA and other parts of the world, domestic and international markets have experienced a high volatility that contributed to the devaluation of the Mexican peso in 26.7% in Even though the Mexican peso increased its value with respect to the US Dollar in 5.5% and 5.5% in 2009 and 2010, respectively, in 2011 depreciation was 12.9%, for an end-of-year exchange rate of pesos per dollar. As of December 31, 2012, the appreciation of the Mexican peso was 7.0%, i.e., Ps per Dollar. Uncertainty and volatility in global markets continue to affect the Mexican peso. The Mexican government has implemented on consistent basis a series of measures for limiting the peso's volatility, from biding US Dollars to modifications in the monetary policy and regulations on the hedges of obligations of Mexican banks in foreign currency. Notwithstanding the above, we cannot assure that these measures will be effective or will be maintained, or the way such measures will impact the Mexican economy. A severe devaluation or depreciation of the Mexican peso could lead to an intervention by the government, as it has occurred in other countries, or in the breaking of the international currency exchange markets. Nowadays and since many years ago the Mexican government has not imposed restrictions the right or ability of the Mexican citizens to convert pesos into dollars, or for the transfer of other currencies abroad; however, such measures have been applied in the past and they could be implemented in the future; consequently, the fluctuation of the Peso with respect to the US Dollar could have an adverse effect in the Bank. Fluctuations in the exchange rate between the Mexican peso and the US dollar, in special depreciations of the Mexican pesos, may adversely affect the Dollar-equivalent p value of the price in pesos of Stocks listed in the BMV. Such depreciations may also affect our income and profits in US Dollars. Fluctuations in the exchange rate may also affect the value in dollars of any dividend or any other cash distribution in Mexican pesos we pay with respect to Stocks. If we are unable to effectively control the level of non-performing or poor credit quality loans in the future, or if our loan loss reserves are insufficient to cover future loan losses, the Bank may be materially and adversely affected. Our increasing approach on individuals and SMEs may cause greater levels of default and charge-offs, with an adverse effect on us. Risks derived from variations in the quality of loans and the ability to recover such loans and amounts owed by counterparties are inherent to a wide range of our products. Non-performing loans or low quality loans may affect adversely the results of our operations. We cannot assure that we will be able to control in an efficient manner the level of non-performing loans in our credit portfolio, especially, the amount of our non-performing loans could increase in a future as a result of the growth of our loans portfolio derived from future acquisitions of loans portfolios or factors beyond our control, such as adverse changes in the credit quality of our debtors and counterparties or a general deterioration in the Mexican or global economic conditions, the impact of political events, conditions affecting certain industries, or situations affecting financial markets and global economies. Annual Report Banco Santander (México)

17 A relevant number of our customers are individuals (approximately 38.4% of the gross total value of our loans portfolio as of December 31, 2012) and SMEs (enterprises with levels of income lower than Ps.100,000,000 (U.S.$7,712,598)), that, as of December 31, 2012 represented approximately 9.4% of the total gross value of the loans portfolio. As part of our business strategy, we aim to increase loans and other services to individuals and small and medium-size enterprises; however, individuals and SMEs are more sensitive to the effects of decelerations in the Mexican Economy in comparison with larger enterprises and high-income individuals, consequently, we could experience in the future greater levels of non-performance and an increase in our preventive allowance for loan losses, affecting our financial conditions and the results of our operations. For the year ended on December 31, 2012, our non-performing portfolio was Ps. 6,093 million and total charge-offs against the preventive allowance for loan losses was Ps. 8,591 million. Non-performing portfolio with respect to individuals and SMEs represented 75.0% and 11.8%, respectively, with respect to our total loans portfolio for the year ended December 31, 2012, in comparison with the 63.8% and 9.9%, respectively, for the year ended on December 31, Chargeoffs regarding individuals and SMEs represented 83.7% and 14.7%, respectively, of the total of charge-offs for the year ended December 31, 2012, in comparison with 87.8% and 10.2%, respectively, for the year ended on December 31, We cannot assure that the levels of non-performing loans and subsequent charge-offs will not be substantially greater in the future. Part of our current growth strategy is to increment the volume of credit cards portfolio at rates equivalent or slightly higher than the market, which could increase the default levels in our loans portfolio. The introduction of new products such as Hipoteca Light (mortgage loan for individuals that includes a schedule of increasing amounts of payments along the term and fixed interest rate) may cause greater credit losses. As of December 31, 2012, our mortgage portfolio reached Ps 70,876 million, representing 20.2% of our loans and gross allowances to our customers (excluding sale and repurchase agreements). If the economy and the real estate market in Mexico experiences a drop, as it may happen due to the global economic and financial crisis, it could materially affect the liquidity, business and financial condition of our customers, causing an increment in our levels of non-performing loans and therefore, higher preventive allowances for loan losses, which could adversely affect the quality of our assets, the results of our operations and our financial condition. Our preventive allowance for loan losses could be insufficient for covering an increment in non-performing portfolio or any future impairment in the general quality of our loans portfolio. Our preventive allowance for loan losses is based in our current assessment and on the expectations over different factors affecting the quality of our loans portfolio. Such factors include, among others, the financial situation of our debtors, the payment capacity, the realizable value of any collateral, the possibility of support by any guarantor, governmental macroeconomic policies, interest rates and the legal and regulatory environment. As shown by the recent global financial crisis, many of these factors are beyond our control; as a result, there is no accurate method for the determination of future loan losses and we cannot assure that our preventive allowance for loan losses will be sufficient to cover the actual losses. If our assessments and expectations regarding the abovementioned factors are different to the actual events, if the quality of our loan portfolio deteriorates for any reason, including the increment in credits to individuals and SMEs, the increment in our credit card portfolio and new products, or if future actual losses exceed our estimations of incurred losses, it is probably that we need to increase our preventive allowance for loan losses, which would be a negative effect. If we cannot control or decrease the level of non-performing loans we may suffer a significant adverse effect. Despite our risk management policies, procedures and methodologies, we may be exposed to sudden or non-identified risks; and, our failure to successfully implement and improve our risk management system may affect us in an adverse and significant way. Risk management constitutes an integral part of our activities. We aim to monitor and manage our risk exposure via different independent but complementary systems of financial, credit, market, compliance and legal information. Although we use a wide and diverse group of risk monitoring and mitigation techniques, such techniques and strategies could not be effective for mitigating our risk exposure under all market economic environments or against all types of risks, including risks we cannot identify or foresee. Some of our qualitative and quantitative tools for risk management are based in our observation of historical market behavior. We apply statistics and other tools to these observations in order to quantify our risk exposure. Such qualitative and metric tools may fail in the prediction of future risk exposures. Such risk exposures may, for example, be derived from unexpected or not properly assessed factors in the statistic models, which would limit our ability to manage our risks and, consequently, our losses could be significantly greater than the ones indicated in historical measures. Our quantitative model does not take into account all the risks. Our more qualitative approach for risk management could be insufficient, exposing us to sudden and relevant losses. Should current or potential customers consider that our risk management is inadequate, they could turn to another competitor, which would damage our reputation, our income and gains. As a credit institution, one of the main inherent risks of our operations is credit risk. For example, one important characteristic of our risk management system is the use of an internal system of risk classification for the assessment of the particular risk profile of a customer. Given that these processes involve detailed analysis regarding the credit risk of the customer Annual Report Banco Santander (México)

18 taking into consideration the qualitative and quantitative factors, they are subject to errors. When exercising their judgment, our employees could occasionally designate an inadequate credit rating to a customer or risk, which may derived in a credit risk greater than the indicated by our risk classification system. We have made efforts to improve and strengthen our credit guidelines and policies in order to be able to face the risks associated to specific customers or industries, such as affiliate entities and customers that are members of a group; however, it is possible that we could not detect such risks in a timely manner before they occur or, due to a limited availability of tools, our employees may not be able to implement our risk management system in a timely manner, which would lead to an increase in the credit risk. The inability to effectively implement, provide continuous follow-up, or to update and review on a regular basis our risk management system could derive on an increment in the levels of non-performing loans and a greater risk exposure, which would adversely affect the Bank. Our loan and investment portfolios are subject to risk of prepayment, which could adversely affect us. Our fixed-rate loan and investment portfolios are subject to prepayment risk, which results from the ability of a borrower or issuer to pay a debt obligation prior to maturity. In general, under a declining interest rate environment, prepayment activity increases, reducing the weighted average lives of our earning assets and adversely affecting the Bank. In case of an increment on payments in advance, we would be obliged to amortize net premiums into income over a shorter period of time, thereby reducing the corresponding asset yield and net interest income. Prepayment risk also has a significant adverse impact on credit card and collateralized mortgage obligations, since prepayments could shorten the weighted average life of these portfolios, which may result in a mismatch in funding or reinvestment at lower yields. The risk of prepayment is inherent to our business activity and an increment in prepayments could have a relevant adverse effect on us. We may obtain lower brokerage income and other businesses based on commissions. Fees and commissions we receive derived from different banking services and other financial services we provide to our customers represent a relevant source of income. Market recessions have led, and probably they will continue to lead to a decrement in the volume of transactions we perform for our customers and, consequently, to a decrease in income different to interests. Given that commissions we charge for portfolio management of our customers are collected according to the value or return of such portfolios, a market recession decreasing the value of our customers' portfolios or increasing the amount or withdrawals would decrease our earnings derived from our assets management, private banking and custody of securities businesses, which would adversely affect our operating results. Our customers may significantly reduce their risk tolerance with respect to investments without deposit, such as investments in stocks, debt securities and mutual funds, which would adversely affect our fees and commissions income. Even in the absence of a market recession, a return under market conditions of our mutual funds may lead to an increment in withdrawals and a decrease in deposits, which would decrease our income derived from our assets management business, adversely affecting our operating results. Our financial statements are partly based in assumptions and estimates that, if incorrect, they could lead to significant errors in our operating results and our financial condition. The preparation of financial statements requires the management to carry out judgments, estimates and assumptions that affect the amounts reported in assets, liabilities, income and expenses. Due to the uncertainty inherent to the preparation of estimates, actual results reported in subsequent periods may be based in amounts different to such estimates. Estimates, judgments and assumptions are continually assessed and they are based in historical experience and other factors, including the expectations of future events considered as reasonable under the current circumstances. Modifications to accounting estimates are recognized in the period such estimate is modified and in any other future affected period. Accounting policies that are considered as critical for our results and financial condition, based in judgments and material estimates, include a preventive allowance for loan losses, market value of financial instruments, deferred tax assets and labor obligations. The valuation of financial instruments at market value may be subjective, especially when models including nonobservable information are used. given the uncertainty and subjectivity related to the valuation of said instruments, it is possible that our operation results and the financial conditions may include significant errors if the estimates and assumptions turn out to be inaccurate. If the judgments, estimates and assumptions we use in the preparation of our consolidated financial statements are subsequently considered as incorrect, a material effect on the results of operation, our financing needs and capitalization indexes could occur. Annual Report Banco Santander (México)

19 Competition with other financial institutions could adversely affect us. We face substantial competition in all parts of our business, including the provision of loans and reception of deposits. Our main competitors in the provision of loans are other Mexican and foreign banks, mortgage banking companies, consumer finance companies, insurance companies and other institutional lenders and purchasers of loans. We anticipate that we will encounter greater competition as we expand our operations. In addition, certain of our competitors, such as Sofoles and Sofomes, are not financial institutions and not subject to the same extensive federal banking regulation, including capitalization and reserve requirements. As a result, certain of our competitors may have advantages in the performance of certain activities and the provision of certain financial services, in particular, they could be more aggressive in their activities of provision of loans. Our main competitors are BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer; Banco Nacional de México, S.A., Integrante del Grupo Financiero Banamex; Banco Mercantil del Norte, S.A., Institución de Banca Múltiple, Grupo Financiero Banorte; HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC; Banco Inbursa, S.A., Institución de Banca Múltiple, Grupo Financiero Inbursa; y Scotiabank Inverlat, S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank. Since several years ago, foreign financial institutions are allowed to establish financial groups, banks, brokerage houses and other financial institutions in Mexico. According to the CNBV, as of December 31, 2012, the ten main banks in Mexico, in terms of total assets, were the owners of 85.1% of the total assets in the Mexican banking system. Six of these ten banks are mainly foreign capital. Said foreign financial institutions are, in general, well capitalized and they have substantial resources (such as personnel, technology, organizational and product development); if any of these institutions enters the Mexican market in an aggressive manner, via the establishment or expansion of operations, we may be unable to compete with them. CNBV continues granting authorizations for the incorporation of banking institutions from time to time, including niche banks, which are authorized to operate a limited number of activities. It is probable that new banks look forward to aggressively expand their market share within the Mexican market, which could adversely affect our activities and the results of our operations. In addition, legal and regulatory reforms to the Mexican bank industry have increased the competition among banks and other financial institutions. We believe that the commitment of the Mexican government with the implementation of reforms for speeding and liberalizing the financial industry in Mexico has generated an increment of competition. As the reforms in the financial sector continue, foreign financial institutions, many of which have more resources than us, have entered and will continue to enter to the Mexican market to compete against us alone or jointly with other Mexican financial institutions. We cannot assure that we will be able to successfully compete with such national or foreign financial institutions. An increment in competition may force us to increase the rates we offer on deposits or to decrease the interest or commissions we charge on our loans, which could have an adverse effect on the Bank, including our profitability. It would also adversely affect our results and business perspectives, among other, limiting our ability to expand our customer base and our operations, increasing competition for investment opportunities. If our levels of service to customers are perceived by the market as substantially inferior to the levels of our competitors, we could loss current and potential businesses. If we fail to successfully retain and strengthen our relationships with customers, we may lose market share, incur in losses in some or all of our activities or we could be unable to obtain new deposits or to maintain the existing ones, all of which could have an adverse effect on our operating results, our financial condition and perspectives. Our subsidiaries also face a strong competition in their securities brokerage and assets management businesses. We are exposed to the risks of other financial institutions. We usually carry out transactions with counterparties of the financial services industry, including brokerage houses, commercial banks, mutual funds, investment banks, risk equity funds, hedge funds and other institutional customers. Defaults by these financial institutions and the financial services industry in general, rumors or doubts about their solvency have led to general liquidity problems in markets and they may cause losses or defaults by other financial institutions. Many of the transactions we usually carry out expose us to important credit risks in case of default by any of our main counterparties. In 2011, the financial stability of different European governments was affected by the crisis of European sovereign debt, contributing to the volatility in equity markets and loans markets. Nowadays, the risk of contagion within and beyond Europe persists as a very important number of financial institutions in Europe are exposed to the debt issued by countries subject to great financial pressures. Liquidity issues have had and may continue to have an adverse effect in interbank financial transactions. If any of the abovementioned countries defaults its debt or suffers a relevant mismatch in interest margins, the main financial Annual Report Banco Santander (México)

20 institutions and banking systems in Europe may destabilize. A default by a relevant financial counterparty or liquidity issues in the financial services industry could have a significant adverse effect on the Bank. We may be required to make significant contributions to IPAB. The Mexican Institute for the Protection of Bank Savings (Instituto para la Protección al Ahorro Bancario, or IPAB) manages the system of protection to bank savings and the financial support provided to banks in Mexico. Under Mexican law, banks are required to make monthly contributions to IPAB to support its operations that are equal to 1/12 of 0.004% (the annual rate) multiplied by the average of certain liabilities minus the average of certain assets. Mexican authorities impose regular assessments on banking institutions covered by IPAB for funding. We contributed to IPAB Ps.1,146 million in 2009, Ps.982 million in 2010 and Ps.1,228 million in 2011 and Ps.1,342 million in In the event that IPAB s reserves are insufficient to manage the Mexican bank savings protection system and provide the necessary financial support required by troubled banking institutions, IPAB maintains the right to require extraordinary contributions to participants in the system which we would be obliged to make. Although we have not been required to perform extraordinary contributions to IPAB in the past, we could be required to carry out extraordinary contributions in the future; such extraordinary contributions would increase our expenses and therefore, have a significant adverse effect on the Bank. We are subject to Mexican regulatory inspections, examinations, inquiries or audits, as well as to potential sanctions, fines and other penalties resulting from such inspections and audits, which could have a material and adverse effect on the Bank. We are subject to an extensive regulation and supervision by Mexican regulatory authorities, such as the Mexican Central Bank, the CNBV and the SHCP. These regulatory authorities have the power to issue regulations and other requirements affecting or restricting virtually all aspects of our capitalization, organization and operations, including changes to capital requirements and preventive allowance for loan losses, supervision of compliance with regulations regarding confidentiality, the imposition of measures to prevent money laundering and to regulate the terms and conditions of our products, including interest rates and commissions charged from the services we provide. Likewise, Mexican financial regulatory authorities possess significant powers to enforce applicable regulatory requirements, including the imposition of fines, requiring that new capital to be contributed, preventing us from paying dividends to shareholders or paying bonuses to employees or the revocation of licenses or permits to operate our business (including our authorization to operate as a multiple banking institution or brokerage house). In the event we encounter significant financial problems or become insolvent or in danger of becoming insolvent, Mexican banking authorities would have the power to take over our management and operations. Liquidity and Financing Risks are inherent to our business and they could affect us in a material and adverse manner. Liquidity risk occurs when, despite being solvent, we do not have sufficient financial funds for paying our liabilities at their maturities or we can only guarantee them at an excessive cost. This risk is inherent to any retail and commercial bank and may be worsened by a series of specific factors in the company, including an excessive dependence on certain source of financing, changes in credit ratings or events affecting the markets, such as market movements. Although we implement liquidity management processes for mitigating and controlling such risks, systemic and unexpected factors of the specific market make it difficult to completely eliminate these risks. Adverse and continuous restrictions in liquidity, including the provision of interbank loans, may affect the cost of financing in our business, and extreme liquidity restrictions may affect our current operations and limit our potential growth. The subsistence or worsening of the distortion and volatility in global financial markets may adversely affect us and our ability to obtain capital and liquidity under acceptable terms. Our cost of funds is directly related to current interest rates and our financial margin. Increments in interest rates and in our margins may increase significantly the cost of funds. Changes in our margins are driven by the market and they may be affected by the perception of the markets on our solvency. Changes in interest rates and our financial margin occur all the time and they are unpredictable and highly volatile. The absence of sources of funds via wholesale markets or an excessive increment in the cost of funds may oblige us to increment the rates we pay on deposits in order to attract more customers and/ or sell assets at lower prices. The persistence or worsening of such adverse market conditions or an increase in interest rates may have a relevant adverse effect on our ability to access to funds and financing costs (directly or indirectly). We depend, and we will continue to depend on customers' deposits for financing our credit activities. The continuous availability of this type of financing is sensible to different factors beyond our control, such as the general economic conditions, Annual Report Banco Santander (México)

21 consumer trust and, specifically, the trust in the financial services industry and the availability and scope of collaterals, as well as the competition among banks for attracting deposits. Any of the aforementioned factors may increase the amount of withdrawals from customer in short periods of time, thus decreasing our ability to obtain funds via deposits of customers under adequate terms, or at all, in the future. Any of these circumstances could have a severe adverse effect on our operating results, our financial condition and perspectives. We anticipate that our customers will continue, in the near future, to make short-term deposits (particularly demand deposits and short-term time deposits), and we intend to maintain our emphasis on the use of banking deposits as a source of funds. The short-term nature of this funding source could cause liquidity problems for us in the future if deposits are not made in the volumes we expect or are not renewed. If a substantial number of our depositors withdraw their demand deposits or do not roll over their time deposits upon maturity, we may be materially and adversely affected. We cannot assure you that in the event of a sudden or unexpected shortage of funds in the banking system, we will be able to maintain our funds levels without incurring in high funding costs or the liquidation of certain assets. If this were to happen, we would be adversely affected. A great number of banks have suffered severe liquidity problems in the past. He have not had relevant liquidity issues since the period from 1995 to 1996, when we experienced an significant increment in the cost of funds as a result of the financial crisis in Mexico. During such period, we were able to obtain the required funds but at a higher cost. Although we have not had significant liquidity problems during the recent years, we cannot assure that liquidity problems will not affect the Mexican banking system in the future. Even though we expect to have the ability to refinance our liabilities, we cannot assure that we will be able to repay or refinance our liabilities in all the cases. The credit card industry is highly competitive and entails significant risks, including the probability of over indebtedness of customers, which may have a significant adverse effect on the Bank. The credit card industry in Mexico is dominated by institutions that may have more financial resources and a greater market share than us. We cannot assure that we will be able to compete and maintain customers in this industry or to successfully implement our experience in the Mexican market. Our credit card business is subject to a series of risks and uncertainties, including the over indebtedness of customers, despite our low-risk-high-and-medium-income-customer approach. Currently, we apply a segmentation policy in order to measure the risk in our credit card portfolio. Pursuant to this segmentation policy, we segment our credit card portfolio in 10 groups based in a behavior score from internal and external information, and a credit capacity score based in external information. We carry out monthly validations of our scores in order to prove their predictive capacity so that we adjust methodologies if needed. We measure the loss rate for each one of the ten groups over a one-year period and we compare the loss average rate with our risk exposure in the credit card portfolio. As of December 31, 2012, approximately 58% of our credit card portfolio was within the five best rated groups, which, collectively, had an average loss rate of 4.5%, which we consider as low risk. Credit card industry is characterized by a higher level of compliance with respect to other credit industries, and defaults are highly related to macroeconomic indexes beyond our control. From 2008 to 2010, our credit card portfolio decreased Ps.28,832 million, or 48%, due to a charge-offs and deductions, the implementation of stricter credit policies and a decrement in the issue of new credit cards, as a response to the significant deterioration in the credit quality of our credit card portfolio. Part of our current growth strategy is to increase the volume of credit cards at a rate equal to or greater than market, which may increase our risk exposure in credit portfolio. In case of a deceleration or a deterioration in the Mexican economy, or if we are not able to analyze in an efficient manner the credit quality of our customers (including the approach in certain sectors), we could suffer unexpected losses, which could represent a significant adverse effect on the Bank. Credit, market and liquidity risks may have an adverse effect on our credit ratings and our cost of funds. It is probable that any decrease in our credit rating derives in an increment in our costs of funds, forcing us to provide additional collaterals or to take other actions under some of our derivative agreements, with an adverse effect on our financial margin and the results of operation. Credit ratings affect the cost and other terms under which we obtain funds. Rating agencies evaluate us on regular basis and their ratings on our debt are based in a series of factors, including our financial capacity and the conditions affecting the financial services industry in general. Annual Report Banco Santander (México)

22 Any downgrade in the credit ratings of our debt would increase our costs and would force us to provide additional collaterals or to take other steps under our derivative agreements, and it may limit our access to equity markets, affecting in an adverse manner our business. A decrement in our credit rating could adversely affect our ability to sell or trade any of our products, to participate in certain transactions at longer terms and derivative transactions or to keep our customers, in particular, those customers requiring a minimum rating to invest. In addition, under the terms of certain derivative agreements, we may be required to keep a minimum credit rating or terminate such agreements. Any of these consequences of a low rating could decrease our liquidity and adversely affect our financial condition and our results from operations. Long term debt of Banco Santander España is rated by the main rating agencies: Baa2 by Moody s Investors Service España, S.A., A- by Standard & Poor s Ratings Services and BBB+ by Fitch Ratings Ltd.; all of which have a negative perspective due to the difficult economic situation in Spain. The three rating agencies lowered the rating to Banco Santander España on February, 2012, along with the rating of the main Spanish banks, given that the macroeconomic and financial environment in Spain has turned out to be weaker than expected, with few growth expectations in the short term, a drop in the real estate market and a greater turbulence in stock markets. In addition, on April 2012, Standard & Poor s Ratings Services lowered two levels the rating of Banco Santander España, along with other 15 Spanish banks, after the decision of said rating agency of lowering the rating for the sovereign debt of Spain in two levels. Subsequently, on may 2012, Moody s Investors Service España, S.A. decreased the rating of Banco Santander España, along with the rating of other 15 Spanish banks and Santander UK plc, a subsidiary of Banco Santander in the United Kingdom. On June 2012, Fitch Ratings Ltd. decreased the rating for the sovereign debt of Spain in three levels, to BBB- with negative perspective, and shortly after that, Moody s decreased its rating for the sovereign debt of Spain in three levels, to Baa3, the lowest rating within investment grade. After the decrement in the rating of the sovereign debt of Spain, on June 11, 2012, Fitch Ratings, Ltd. lowered even more the rating of Banco Santander España, from A to BBB+. On June 25, 2012, 2012, Moody s Investors Service decreased the rating of Banco Santander España from A3 to Baa2. On June 13, 2012, as a result of the low rating of Banco Santander España, Fitch Ratings Ltd. took different rating actions against Banco Santander México, including the decrement in the long term debt rating for any issue in international stock markets, from A- to BBB+ with negative perspective, and at the same time it confirmed its rating to long term issues within the domestic Mexican market of AAA(mex) with stable perspective. On June 28, 2012, as a result of the decrement in the rating for Banco Santander España, Moody s Investors Service took different rating actions against Banco Santander México, including lowering the rating of the standalone financial strength to C-, the decrement in the rating for Mexican pesos-long term debt in international capital markets from A2 to A3 and a decrement in the rating for short term debt in Mexican pesos for any international issue from Prime-1 to Prime-2. However, the rating for long term debt for issues in the Mexican market by Moody s Investors Service was maintained at AAA(mex) with stable perspective. On July 11, 2012, Standard & Poor s Ratings Services increased the rating of short term debt in domestic and foreign currency of Banco Santander México for any issue in international stock market from A-3 to A-2, a reflect of the decision of Standard & Poor s Ratings Services to increase the rating of the short term sovereign debt of Mexico in foreign currency to A-2 on July 9, The rating of our long term debt issued in the Mexican local market, by Standard & Poor s Ratings Services, was maintained at mxaaa. Our financing cost has not been affected by the recent decrements in the ratings of the sovereign debt of Spain, the debt of Banco Santander España and our related credit ratings. Part of the debt financing is obtained via local issues in Mexican pesos, and we have a credit rating of mxaaa, Aaa.mx and AAA(mex) granted by Standard & Poor s Rating Services, Moody s Investors Services and Fitch Ratings Ltd., respectively, with respect to our domestic long term debt in Mexican pesos, with rating equivalent to the ones for our domestic short term debt in Mexican pesos. Decrements in credit ratings on the sovereign debt of Spain, the debt of Banco Santander España and in our corresponding credit ratings, may adversely affect our cost of financing in international equity markets. Although some of the possible effects are contractual and quantifiable, the consequences of a decrement in the credit rating of a financial institution are uncertain, given that they depend on different dynamic, complex and interrelated factors, including the market conditions at the moment of any decrement, any decrement in the long term credit rating of a company that results in decrements in their short term credit ratings, assumptions on the behavior of customers, investors and counterparties. Notwithstanding the above, we estimate that, if rating agencies decrease our long term debt in one or two levels, our financing costs for debt issued in international equity markets would increase approximately 10 to 20 basis points for our short term debt. The effect on our long term debt is uncertain due to the abovementioned factors; however, we consider that there could be an increment of 30 to 50 basis points in our cost of funds for long term debt issued in international equity markets in case of a decrement of one or two levels in ratings. In addition, we think that we could be required to provide additional collaterals for up to USD$38.3 million with respect to our derivative agreements in case of a decrement in ratings, based in our derivatives Annual Report Banco Santander (México)

23 position as of December 31, As a result, any decrement in our ratings could have a relevant adverse effect on us. In addition, if we were required to terminate our derivatives agreements executed with certain counterparties and we were unable to substitute such agreements, our market risk profile would be affected. In view of the difficulties in the financial services industry and financial markets, we cannot assure that rating agencies will maintain our current ratings or perspectives. If we cannot maintain favorable ratings and perspectives, our cost of funds would increase, affecting adversely our net financial income, thus adversely affecting the Bank. We are subject to market and operation risks derived from our derivative transactions, which may have a material adverse effect on us. We enter into derivative transactions for trading purposes as well as for hedging purposes. We are subject to market and operational risks associated with these transactions, including basis risk (the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or default risk (the risk of insolvency or other inability of the counterparty to a particular transaction to perform its corresponding obligations, including providing sufficient collateral). In addition, Mexican courts have had limited experience in dealing with issues related to derivative transactions, as most disputes have typically been resolved through negotiations among Mexican financial institutions. As a result, the outcomes of disputes regarding derivatives reaching the Mexican judicial system are not fully predictable. Market practices and documentation for derivative transactions in Mexico may differ from those in other countries. In addition, the execution and performance of these transactions depends on our ability to develop adequate control and administration systems and to hire and retain qualified personnel. Moreover, our ability to adequately monitor, analyze and report derivative transactions continues to depend, to a great extent, on our information technology systems. This factor further increase the risks associated with these transactions and could have a material adverse effect on the Bank. The retail banking market is exposed to macroeconomic disruptions that may negatively impact household income, and a downturn in the economy could result in increased loan losses. One of our main strategies is to focus on the retail banking sector and to grow our retail loan portfolio. The recoverability of retail loans in particular and our ability to increase the amount of loans outstanding, and our results of operations and financial condition in general, may become increasingly vulnerable to macroeconomic shocks that could negatively impact the household income of our retail customers and result in increased loan losses that could have a material adverse effect on GFSM. Although during recent years the GDP has grown on a consistent manner, the Mexican economy has experienced cycles of growth followed by drops in the economy. We cannot assure that the GDP will continue to grow. Furthermore, because the penetration of bank lending products in the Mexican retail sector historically has been low, there is little basis on which to evaluate how the retail sector will perform in the event of an economic crisis, such as a recession or a significant devaluation, among others. Consequently, our historical loan loss experience may not be indicative of the performance of our loan portfolio in the future. Our ability to maintain our competitive position depends, in part, on the success of new products and services we offer our customers and our ability to continue offering products and services from third parties, and we may not be able to manage various risks we face as we expand our range of products and services, which could have a material adverse effect on us. The success of our operations and our profitability depends, in part, on the success of new products and services we offer our clients and our ability to continue offering products and services from third parties. However, we cannot guarantee that our new products, services, and campaigns such as Autocompara (a program that allows potential clients to compare automobile insurance quotes from nine insurance companies in Mexico), Hipoteca Light (a residential mortgage product that has increasing payments over time and a fixed interest rate) Banca Móvil (a program that allows banking operations to be carried out by means of cell phones and other mobile devices), Hipoteca Inteligente (the first variable interest rate mortgage product in Mexico, with an interest rate cap of 12%), and certain cross-selling campaigns (pre-approving the customer base with differentiated credit policies for credit cards and installments loans offers) will be responsive to client demands or successful once they are offered to our clients, or that they will be successful in the future. For example, during the second half of 2011, we took part in certain cross-selling campaigns (with the previous approval for current customers based in less strict policies for the offer of loans) that derived in an increase of non-performing loans during 2012; consequently, we decided to establish more strict policies for crossselling campaigns and to decrease the volume of related loans. Annual Report Banco Santander (México)

24 In addition, our clients needs or desires may change over time, and such changes may render our products and services obsolete, outdated or unattractive and we may not be able to develop new products that meet our clients changing needs. If we cannot respond in a timely fashion to the changing needs of our clients, we may lose clients, which could in turn materially and adversely affect us. As we expand the range of our products and services, some of which may be at an early stage of development in the Mexican market, we will be exposed to new and potentially increasingly complex risks and development expenses, with respect to which our experience and the experience of our partners may not be helpful. Our employees and our risk management systems may not be adequate to handle such risks. In addition, the cost of developing products that are not launched is likely to affect our results of operations. Any or all of these factors, individually or collectively, could have a material adverse effect on the Bank. Any failure to effectively develop or update our technological infrastructure and the management of information systems, may have a significant and adverse effect on the Bank. Our ability to keep on being competitive in the markets we operate depends on our ability to improve our technological infrastructure in a timely and efficient manner. On regular basis, we must carry out investments and improvements in our information technology systems in order to be competitive. For 2013, 26% of our capital investments budget for information technology is allocated to technology infrastructure in order to decrease technological risk. We cannot assure that on the future we will be able to maintain the necessary level of expenses in order to support the improvement or updating of our information technology infrastructure. Any failure to improve or update in timely and efficient manner our information technology systems could have a severe adverse effect on the Bank. We may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis, which could expose us to additional liability and could have a material adverse effect on the Bank. We are required to comply with applicable anti-money laundering, anti-terrorism and other laws and regulations in the jurisdictions in which we operate. These laws and regulations require us, among other things, to adopt and enforce know-yourcustomer policies and procedures and to report suspicious and large transactions to the applicable regulatory authorities. These laws and regulations have become increasingly complex and detailed, require improved systems and sophisticated monitoring and compliance personnel and have become the subject of enhanced government supervision. Even though we have adopted policies and procedures aimed at detecting and preventing the use of our banking network for money laundering and related activities, such policies and procedures have in some cases only been recently adopted and may not completely eliminate instances where we may be used by other parties to engage in money laundering and other illegal or improper activities. If we fail to fully comply with applicable laws and regulations, the relevant government agencies to which we report have the power and authority to impose fines and other penalties on us, including the revocation of licenses. If customers use our banking network for money laundering or illegal or inadequate purposes, our business and reputation would be affected. Although we review our relevant counterparties internal policies and procedures with respect to such matters, we, to a large degree, rely upon our relevant counterparties to maintain and properly apply their own appropriate anti-money laundering procedures. Such measures, procedures and compliance may not be completely effective in preventing third parties (and our relevant counterparties)from using us as a conduit for money laundering (including illegal cash operations) without our (and our relevant counterparties ) knowledge. If we are associated with, or even accused of being associated with, or become a party to, money laundering, then our reputation could suffer and/or we could become subject to fines, sanctions and/or legal enforcement (including being added to any black lists that would prohibit certain parties from engaging in transactions with us), any one of which could have a material adverse effect on our operating results, financial condition and prospects. One of our core strategies is to grow our operations and we may not be able to manage such growth effectively, which could have an adverse impact on our profitability. We allocate management and planning resources to develop strategic plans for organic growth, and to identify possible acquisitions and disposals and areas for restructuring our businesses. We cannot provide assurance that we will, in all cases, be able to manage our growth effectively or comply with our strategic growth objectives. Challenges that may result from the strategic growth decisions include our ability to: Manage in efficient manner the operations and employees of expanding businesses; Annual Report Banco Santander (México)

25 Maintain or grow our existing customer base; Assess the value, strengths and weaknesses of investment or acquisition candidates; Finance strategic investments or acquisitions; Fully integrate strategic investments, or newly-established entities or acquisitions in line with our strategy; Align our current information technology systems adequately with those of an enlarged group; Apply our risk management policy effectively to an enlarged group; and Manage a growing number of entities without over-committing management or losing key personnel. Any failure to manage growth effectively, including relating to any or all of the above challenges associated with our growth plans, could have a material adverse effect on our operating results, financial condition and prospects. Operational Risks, including risks related to systems of collection, processing and storage of information are inherent to our business. Our businesses depend on the ability to process a great number of transactions in an efficient and accurate manner, and on our ability to rely on our digital technologies, computer and services, software and networks, as well as on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. The proper functioning of financial control, accounting or other data collection and processing systems is critical to our businesses and to our ability to compete effectively. Losses may result from inadequate personnel, inadequate or failed internal control processes and systems, or from external events interrupting our normal business operations. We also face the risk that the design of our controls and procedures prove to be inadequate or are circumvented. Although we work with our clients, vendors, service providers, counterparties and other third parties to develop secure transmission capabilities and prevent against cyber attacks, we routinely exchange personal, confidential and proprietary information by electronic means, and we may be the target of attempted cyber attacks. If we fail to maintain an effective data collection, management and processing system, we may be materially and adversely affected. We take protective measures and continuously monitor and develop our systems to protect our technology infrastructure and data from misappropriation or corruption, but our systems, software and networks nevertheless may be vulnerable to unauthorized access, misuse, computer viruses or other malicious code and other events that could have a security impact. An interception, misuse or mishandling of personal, confidential or proprietary information sent to or received from a client, vendor, service provider, counterparty or third party could result in legal liability, regulatory action and reputational harm. There can be no assurance that we will not suffer material losses from operational risk in the future, including relating to cyber attacks or other such security breaches. Further, as cyber attacks continue to evolve, we may incur significant costs in its attempt to modify or enhance our protective measures or investigate or remediate any vulnerability. We manage and hold confidential personal information of customers in the conduct of our banking operations. Although we have procedures and controls to safeguard personal information in our possession, unauthorized disclosures could subject us to legal actions and administrative sanctions as well as damages that could materially and adversely affect our results of operations and financial condition. In addition, our businesses are exposed to risk from potential non-compliance with policies, employee misconduct or negligence and fraud, which could result in regulatory sanctions and serious reputational or financial harm. In recent years, a number of multinational financial institutions have suffered material losses due to the actions of rogue traders or other employees. It is not always possible to detect employees' misconducts and the precautions we take to prevent and detect these activities may not always be effective. We are required to report every event related to information security issues, such as hacking or hacking attempts, events where customer information may be compromised, unauthorized access and other security breaches, to the CNBV. As of the date of this report, we have not experienced information security problems and we have not had to report any such events to the CNBV. Any material disruption or slowdown of our systems could cause information, including data related to customer requests, to be lost or to be delivered to our clients with delays or errors, which could reduce demand for our services and products and could materially and adversely affect us. Internet banking, ATMs and branches are the main distribution channels subject to this risk in Mexico. Annual Report Banco Santander (México)

26 We depend on recruiting, retaining and developing key members of our management.. Our continued success depends in part on the continued service of key members of our management team. The ability to continue to attract, train, motivate and retain highly qualified professionals is a key element of our strategy. The successful implementation of our growth strategy depends on the availability of skilled management, both at our head office and at each of our business units. If we or one of our business units or other functions fails to staff its operations appropriately or loses one or more of its key senior executives and fails to replace them in a satisfactory and timely manner, our business, financial condition and results of operations, including control and operational risks, may be adversely affected. In addition, the financial industry has and may continue to experience more stringent regulation of employee compensation, which could have an adverse effect on our ability to hire or retain the most qualified employees. If we fail or are unable to attract and appropriately train, motivate and retain qualified professionals, our business may also be adversely affected. Damage to our reputation could cause harm to our business prospects. Maintaining a positive reputation is critical for us in order to attract and maintain customers, investors and employees. Damage to our reputation can therefore cause significant harm to its business and prospects. Harm to our reputation can arise from numerous sources, including, among others, employee misconduct, litigation or regulatory outcomes, failure to deliver minimum standards of service and quality, compliance failures, unethical behavior, and the activities of customers and counterparties. Further, negative publicity against us, whether or not true, may result in harm to our prospects. Actions by the financial services industry collectively or by certain members of, or individuals in, the industry can also affect our reputation. For example, the role played by financial services firms during the financial crisis and the apparent approach towards an increasing regulatory supervision and enforcement has caused public perception of us and others in the financial services industry to decline. We could suffer significant reputational harm if we fail to properly identify and manage potential conflicts of interest. Management of potential conflicts of interest has become increasingly complex as we expand our business activities through more numerous transactions, obligations and interests with and among our clients. The failure to adequately address or the perceived failure to adequately address, conflicts of interest could affect the willingness of clients to deal with us, or give rise to litigation or enforcement actions against us. Therefore, there can be no assurance that conflicts of interest will not arise in the future that could cause material harm to us. We carry out transactions with our subsidiaries or affiliates that third parties may not consider to be on an arm s-length basis. We and our subsidiaries and affiliates have entered into a number of services agreements pursuant to which we render services, such as administrative, accounting, finance, treasury, legal services and others. In 2012, the aggregate amount of our expenses related to the service agreements we have with our subsidiaries and affiliates was Ps.2,257 million, or 11.60% of our administrative expenses, and we had an insignificant amount of income related to such agreements. In addition, we have entered into services agreements with certain affiliates to allow these companies to offer their products and services within our branch network or that assist with our activities in consideration for certain fees. The Mexican law applicable to public companies and financial groups and institutions, as well as our bylaws, provide for several procedures designed to ensure that the transactions entered into with or among our financial subsidiaries do not deviate from prevailing market conditions for those types of transactions, including the requirement that our Board of Directors approve such transactions. We are likely to continue to engage in transactions with our subsidiaries or affiliates (including our controlling shareholder). While the CNBV has not disagreed with our determinations that the terms of these transactions are substantially on market conditions in the past, we can provide no assurances that the CNBV will agree with any of our future determinations. In addition, future conflicts of interests between us and any of our subsidiaries or affiliates, or among our subsidiaries and affiliates, may arise, which conflicts are not required to be and may not be resolved in our favor. The growth in our loans portfolio could expose us to an increment in our loan losses. From December 31, 2009 to December 31, 2011, our total loan portfolio grew 50.1% in nominal terms, to Ps.105,936 (U.S.$8,170), while our consumer loans portfolio grew 11.8% in nominal terms, to Ps.5,342 (U.S.$412). From December 31, 2011 to December 31, 2012, our total loans portfolio grew 11.8% in nominal terms to Ps.37,010 (U.S.$2,854), while our consumer loans portfolio grew 26.1%. It is possible that the expansion of our loans portfolio (especially in the segments of consumer loans, loans to small and medium enterprises and real estate segment) expose us to a higher level of credit risk, which would oblige us to increase the levels of our preventive allowance for loan losses. Annual Report Banco Santander (México)

27 Our loans portfolio may stop growing at the same rate. An economic turbulence may cause the contraction of our loan portfolio. We cannot assure that our loans portfolio will continue to grow at a rate similar the historical growth rate described in this Annual Report. A reversion in the growth rate of the Mexican economy, a deceleration in the growth of customers' demand, an increment in the market competition or changes in the governmental regulations could affect our preventive allowance for loan losses and our risk index, consequently, increase our preventive allowance for loan losses. An economic turbulence may significantly and adversely affect the liquidity, the business and the financial condition of our customers, as well as to cause a general decrement in consumption and an increment in unemployment, which could lead to a lower demand of loans. Our controlling shareholder has a great deal of influence over our business and its interests could conflict with yours. Banco Santander Spain, our controlling shareholder, currently beneficially owns, directly and indirectly, 48.9% of our Series B stocks and 100% of our Series F Stocks. Due to its share ownership, our controlling shareholder has the ability to control us and the other subsidiaries of GFSM, including the ability to: Elect the majority of the directors and exercise control over GFSM and their subsidiaries; Appointment of our principal officers; Declare the payment of any dividends; Agree to sell or otherwise transfer its controlling stake in us; and Determine the outcome of substantially all actions requiring shareholder approval, including amendments of our bylaws, transactions with related parties, corporate reorganizations, acquisitions and disposals of assets and issuance of additional equity securities, if any. We operate as a stand-alone subsidiary within the Santander Group. Our main shareholders have no liability for our banking operations, except for the amount of their respective holdings of our capital stock. The interests of Banco Santander Spain may differ from our interests or those of our other shareholders and the concentration of control in Banco Santander Spain would limit other shareholders ability to influence corporate matters. As a result, we could take some measures that our other shareholders may not consider as beneficial. Our recent and future acquisitions may not be successful and they may even be detrimental to our business. We have acquired controlling interests in various companies and have engaged in other strategic partnerships. From time to time, we evaluate acquisition opportunities that we believe offer additional value to our shareholders and are consistent with our business strategy. These acquisitions may be acquisitions of assets or of existing operations, such as the GE Capital mortgage business that we acquired in However, we may not be able to identify suitable acquisition candidates, and we may not be able to acquire promising targets on favorable terms or at all. We base our assessment of potential acquisitions on limited and potentially inexact information and on assumptions with respect to operations, profitability and other matters that may prove to be incorrect. Our ability to benefit from any such acquisitions will depend in part on our successful integration of those businesses. We can give no assurances that our expectations with regards to integration and synergies will materialize. The integration of acquired businesses entails significant risks, including: unexpected difficulties in integrating operations and systems; inability to timely modify accounting standards; problems assimilating or retaining the employees of acquired businesses; difficulties in retaining customers of acquired businesses; unexpected liabilities or contingencies relating to the acquired businesses, including legal claims; the possibility that management may be distracted from day-to-day business concerns by integration activities and the resolution of related problems, and the existence of regulatory restrictions preventing us from achieving the expected benefits of the acquisition. Annual Report Banco Santander (México)

28 In addition, an acquisition could result in the loss of key employees and inconsistencies in standards, controls, procedures and policies. Moreover, the success of the acquisition will at least in part be subject to a number of political, economic and other factors that are beyond our control. Any or all of these factors, individually or collectively, could have a material adverse effect on us. We are exposed to risk of loss from legal and regulatory proceedings. We participate in different issues via our different business areas such as loans granting or fiduciary, which may give rise to risk of loss derived from legal and regulatory proceedings, including tax litigation. These issues, including the adequate dealing of potential conflicts of interest and legal and regulatory requirements, could increase the amount of damages asserted against us or subject us to regulatory enforcement actions, fines and penalties. The current regulatory environment, which suggests an increased supervisory focus on enforcement, combined with uncertainty about the evolution of the regulatory regime, may lead to material operational and compliance costs. From time to time, we are subject to certain claims and we are parties to certain legal and arbitration proceedings during the normal course of our business, including in connection with our lending and brokerage activities, relationships with our employees and other commercial or tax matters. Such claims and proceedings are and have been duly analyzed and quantified as well as disclosed and reserved, when applicable, as we consider necessary taking into account the opinion of our auditors and subject to the Accounting Standards or the CNBV and the opinion of independent experts. In view of the inherent difficulty of predicting the outcome of legal matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories, involve a large number of parties or are in the early stages of discovery, we cannot state with confidence what the eventual outcome of these pending matters will be or what the eventual loss, fines or penalties related to each pending matter may be. We believe that we have made adequate reserves related to the costs anticipated to be incurred in connection with these various claims and legal proceedings. As of December 31, 2012, we have set aside Ps.1,354 million (U.S.$104.4 million) as provisions for these legal actions (including tax-related litigation). However, the amount of these provisions is substantially less than the total amount of the claims asserted against us and in light of the uncertainties involved in such claims and proceedings (which vary depending on the type of business); there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves currently accrued by us. As a result, the outcome of a particular matter may be material to our operating results for a particular period, depending upon, among other factors, the size of the loss or liability imposed and our level of income for that period, among others. On February 16, 2012, the Mexican tax authorities issued a resolution stating that certain loss deductions derived from the sale of non-performing loans portfolio of Banco Santander (México) during year 2007 did not comply with the applicable regulations. The amount determined by the tax authorities is approximately Ps.5,236 million (U.S.$391 million), including penalties, updating and interests. We consider that such resolution is incorrect and consequently we have filed a challenge remedy. Based in the opinion of our independent tax advisors, we believe that the foundations for filing such challenge are based in sound legal arguments; therefore, we will continue to actively contest the abovementioned resolution. recently, Mexican tax authorities concluded that the deductions of losses of Banco Santander México derived from the sale of non-performing loans portfolio during year 2008 was carried out in accordance with the corresponding legal provisions. based in the opinion of our independent legal advisors and the result obtained from the revision of year 2008, we believe that the possibilities for Banco Santander México to incur in significant losses is minimum, therefore, we have not registered any reserve regarding the settlement of said tax credit in our financial statements. Notwithstanding the above, we cannot guarantee that Banco Santander México will obtain a favorable settlement from such challenge remedy. We are subject to regulatory capital and liquidity requirements that could limit our operations, and changes to these requirements may further limit and adversely affect our operating results, financial condition and prospects. Our subsidiary financial institution is subject to certain conditions in the capital requirements adopted by the CNBV, which provide for a minimum ratio of risk capital for assets, loans and transactions weighted on 8%, even when the minimum percentage for avoiding the imposition of corrective measures by CNBV is 10%. Any failure by us to comply with or maintain our capitalization ratios may result in administrative actions or sanctions which may affect our ability to fulfill our obligations, including the cancellation of our license to operate as a financial institution. On December 2010, the Basel Committee on Banking Supervision, or the Basel Committee, reached agreement on comprehensive changes to the capital adequacy framework, known as Basel III. On December 16, 2010 and January 13, 2011, the Basel Committee issued its final opinion with respect to different reforms to the regulations on capital requirement in order to strengthen the minimum capital requirements, including the gradual elimination of basic capital instruments and additional Annual Report Banco Santander (México)

29 capital (Tier 1 and Tier 2) with incentive-based amortization clauses and the implementation of a leverage ratio applicable to institutions, in addition to the current capital requirements based in assets risk. The rules of Basel III for capitalization were included in the Mexican laws via an amendment to the Bank Statutory Circular Letter published in the Federal Official Gazette as of November 28, 2012, to enter into effect on January 1st, The implementation of capitalization requirements may have a relevant and adverse effect on our operating results, our financial condition and perspectives. Requirements applicable to preventive allowance for loan losses. Except for loans to the Mexican government and the Mexican Central Bank, IPAB and certain international organizations, in general, we are required to classify each loan or type of loan according to an assessment of risk based on criteria set forth by Mexican banking regulations and to establish corresponding reserves. Our preventive allowance for loan losses is determined based in a model of expected loss pursuant to the provisions in the Bank Circular Office. This methodology for the creation of said allowance includes qualitative and quantitative factors. In addition, with regard to our loans to retail and corporate customers and financial institutions, we have received authorization from the CNBV to use our own methodology in order to determine the preventive allowance for loan losses, as an alternative for the standard method, from January 1st, Our approach is based in the Foundation Internal Ratings-Based Approach, as defined in the Basel II agreement and it is based in the assessment of four main factors: country risk, financial risk, industry risk and payment performance. As a result, we have a global calculation of the debtor's risk, which is applied to each loan transaction and mitigated by any collateral in order to obtain a level of risk associated to an allowance factor. We have a correlation between this level of risk and the internal rating of the customer that has been approved by the CNBV. Although our methodology has produced default probabilities that are lower than the ones obtained via the CNBV's standard methodology, the use of an internal methodology does not necessarily lead to a decrement in the capital requirements or in the preventive allowance for loan losses. Changes to the methodology for the calculation of the preventive allowance for loan losses could require an increment in such allowance, having an adverse effect on the Bank. Risks related to Mexico Adverse economic conditions in Mexico could have a negative effect on us. We are a holding company for Mexican financial institutions, and the majority of our operations and assets are located in Mexico and depend on the performance of the Mexican economy, consequently, our business, financial condition and results of operations may be affected by the general condition of the Mexican economy, the devaluation of the peso as compared to the dollar, financial markets instability, inflation, interest rates, regulations, taxes, social instability and other political, social and economic developments in or affecting Mexico, over which we have no control. In the past, Mexico has experienced long periods of weak economic conditions such as deterioration in the economic conditions with a negative effect on the Bank. We cannot suppose that such conditions will not occur again or that such conditions will not have an adverse effect on the Bank. According to the Mexican National Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía, or INEGI), and the Mexican Central Bank, in 2008, the Mexican gross domestic product, or GDP, grew by approximately 1.2% and inflation was 6.5%. Mexico was in a recession for five consecutive quarters from the fourth quarter of 2008 until the fourth quarter of In 2009, GDP decreased by approximately 6.2% and inflation reached 3.6%. In 2010, GDP was 5.5% and inflation was 4.4%. In 2011, GDP was 3.9% and inflation was 3.8%. In 2012, GDP increased 3.9% and inflation reached 3.6%. Mexico also has, and is expected to continue to have, volatility in exchange and interest rates. The annualized interest rates on 28-day Mexican Treasury bills (Certificados de la Tesorería de la Federación, or Cetes) averaged approximately 7.7%, 5.4%, 4.4%, 4.2% and 4.3% for 2008, 2009, 2010, 2011 and 2012, respectively. With respect to the U.S. dollar, the peso depreciated by 26.7% in 2008, appreciated by 5.5% in 2009, appreciated by 5.5% in 2010, depreciated by 12.9% in 2011 and appreciated by 7.9% in 2012, all in nominal terms, until closing at Ps per U.S. dollar. The peso continues to be affected by uncertainty and volatility in the global markets. Insofar as we assume debt in pesos, this debt could be subject to higher interest rates. Our business could be significantly affected by the general condition of the Mexican economy, by the rate of inflation or deflation in Mexico, interest rates in Mexico and exchange rates for the Mexican peso or by changes in oil prices. Decreases in the growth rate of the Mexican economy, periods of negative growth and/or increases in inflation or interest rates may result in lower demand for our services and products, lower real pricing of our services and products or a shift to lower margin services Annual Report Banco Santander (México)

30 and products. Given that a large percentage of our costs and expenses are fixed, we may not be able to reduce costs and expenses upon the occurrence of any of these events, and our profit margins may be affected. Political events in Mexico could have a material adverse effect on us. The Mexican government has exercised and continue to exercise significant influence over many aspects of the Mexican economy; therefore, actions from the Mexican government with respect to the economy and the regulation on certain industries, including the financial services sector, could have a significant effect on Mexican private sector entities, including us, and on market conditions, prices and returns on Mexican securities, including our securities. Presidential and federal congressional elections in Mexico were held in July The candidate from the Partido Revolucionario Institucional, or PRI, Enrique Peña Nieto, took office in December In his economic platform, Peña Nieto proposed structural reforms such as the labor, energy and fiscal reforms in order to promote economic growth. Although both labor and education reforms have already been approved by Congress and a Telecomm reform has being sent to the Senate, the approval of this reform, along with a fiscal and energy reforms will require extensive negotiations among the political parties in Congress. We cannot predict whether changes in Mexican governmental and economic policy will result from the change in administration. Any such changes could adversely affect economic conditions in Mexico or the sector in which we operate and therefore could have an adverse effect on the Bank. We cannot assure that future political developments in Mexico, which is beyond our control, will not have an unfavorable impact on our financial position or results of operations. In particular, the current government or the next government could implement significant changes in laws, public policies and/or regulations that could affect Mexico s political and economic situation, which could have a material adverse effect on the Bank. Developments in other countries may affect us, including the prices for our securities. Mexican economy can be affected in different degrees by the economic and market conditions in other countries. Even though economic conditions in other countries may be greatly different from the economic conditions in Mexico, reactions of investors regarding events in other countries may have an adverse effect in the market value of securities of Mexican companies, including us. For example, during 2007 and 2008, prices of both Mexican debt and equity securities decreased substantially as a result of the global financial crisis. According to Bloomberg, the Dow Jones Industrial Average fell by 39.0% from its average level in July 2007 to its January 2009 average level, while Mexico s Stock Exchange Prices and Quotations Index (Índice de Precios y Cotizaciones, or IPC) fell by 36.0% in the same period. In 2009, 2010, 2011 and 2012, the Dow Jones Industrial Average Index increased by approximately 19.0%, 11.0%, 6.0% and 8.0%, respectively, while Mexico s Stock Exchange Prices and Quotations Index increased by 44.0% and 20.0% in 2009 and 2010, respectively, fell by approximately 4.0% in 2011, and increased by approximately 18.0% in In addition, in recent years economic conditions in Mexico have become increasingly correlated to economic conditions in the United States as a result of the North American Free Trade Agreement, or NAFTA, and increased economic activity between the two countries, which was highlighted during the recent economic crisis affecting the United States. The Mexican economy continues to be influenced by the U.S. economy, and therefore, the deterioration of the United States economy, the termination of NAFTA or other related events, or delays in the recovery of the U.S. economy may impact the economy of Mexico. In 2009, the gross domestic product of the United States contracted by 3.5% while Mexican gross domestic product fell by 6.2%. This recession caused unemployment to increase from an average of 5.8% in 2008 to an average of 9.3% in 2009 in the United States and from 4.3% in September 2008 to 6.4% in September 2009 in Mexico. This sudden change in economic conditions reduced credit demand, caused a 32.8% depreciation of the peso from September 2008 to March 2009 and triggered a monetary policy response by the Mexican Central Bank that resulted in lower interest rates, which dropped to 4.5% in December 2009 from its December 2008 level of 8.0%. These changes in macroeconomic conditions in Mexico did not have a material impact on our business or operations; however, we cannot assure that any developments in the United States or elsewhere will not materially and adversely affect us in the future. During 2011 and 2012, the developments in the global economy, and particularly in Europe, have increased the risk premiums in global credit markets, which in turn have generated volatility in the Mexican financial markets. Given the transitory nature of such volatility, due to several measures taken by the European authorities, the Mexican economy has not been materially affected by it. In turn, these developments in Europe have not had a material impact on us. However, if the risks associated with the developments in Europe increase, these developments could have a material adverse effect on us. We cannot assure you that the events in the USA, Europe or elsewhere will not materially and adversely affect the Bank in the future. Annual Report Banco Santander (México)

31 Our growth and profitability depend on the level of economic activity in Mexico. A substantial amount of our loans are to borrowers doing business in Mexico, consequently, the recoverability of these loans in particular, and our ability to increase the amount of loans outstanding and our results of operations and financial condition in general, depend, on a significant extent, on the level of economic activity in Mexico. Our results of operations and financial condition could be affected by changes in economic or other policies of the Mexican government, which has exercised and continues to exercise substantial influence over many aspects of the private sector, or other political or economic events in Mexico. Increment of violence in Mexico has adversely impacted, and may continue to adversely impact, the Mexican economy and it could have a material adverse effect on us. During the recent years, Mexico has experienced a significant increase in violence relating to illegal drug trafficking, particularly in Mexico s northern states. This increase in violence has had an adverse impact on the general economic activity in Mexico. Also, social instability in Mexico or adverse social or political developments in or affecting Mexico could adversely affect us, our ability to conduct our business and offer our services and our ability to obtain financing. We cannot assure you that the levels of violent crime in Mexico, over which we have no control, will not increase or decrease and will have no further adverse effects on Mexico s economy or on us. Furthermore, illegal activities have resulted in more detailed and comprehensive anti-money laundering rules and an increased supervision of such activities by Mexican regulators, which have impacted the way in which we conduct our foreigncurrency cash business and have resulted in an enhancement of our systems and the reinforcement of our compliance measures. Our failure to detect and report anti-money laundering activities may result in fines and may have an impact on our business and results of operations. The Corporate information we disclose may be different to the one of issuers in other countries, including USA. Issuers of securities in Mexico are required to make public disclosures that are different from, and that may be reported under formats that are not consistent with disclosures required in countries with more developed capital markets, including the USA. For regulatory requirements, our consolidated financial statements are prepared and will continue to be prepared and presented to our stockholders pursuant to the CNBV's accounting standards, which differ from the U.S. GAAP, IFRS and other accounting standards in effect in other countries. The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. This involvement, together with Mexico s political and economic conditions, could adversely affect our financial condition and the market price of our securities. The Mexican government frequently intervenes in the Mexican economy and occasionally carries out significant changes in policies and regulations. The Mexican government s actions to control inflation and other policies and regulations historically have involved, among other measures, increases in interest rates, changes in tax policies, price controls, currency fluctuations, taxes on investment flows, capital controls and limits on imports. Our business, financial condition and results of operations, as well as the market price of our securities, may be adversely affected by changes in policies or regulations involving, among others: interest rates; exchange rates and controls and restrictions on the movement of capital out of Mexico; reserve requirements; capital requirements; currency fluctuations; inflation; liquidity of the domestic capital and lending markets; and tax and regulatory policies. Mexico has experienced high inflation indexes in the past, therefore, monetary policies leading to high interest rates have been implemented. The measures of the Mexican Government to fight inflation, mainly via the Central Bank of Mexico, have had and may continue to have significant effects on the Mexican economy and our business. Strict monetary policies with high interest rates and many mandatory deposits requirements may limit the growth of Mexico and the availability of loans, decrease our loans volume and increase our preventive allowance for loan losses. A less strict policy and decrement of interest rates by Annual Report Banco Santander (México)

32 the Mexican government and Banxico may lead to an increment in inflation and, consequently, volatility in growth a nd the need of sudden and relevant increments in interest rates, which may adversely affect our interest rate spreads. Although the Mexican government has implemented what we believe to be sound economic policies over the past few years, uncertainty over whether the Mexican government will implement changes in policy or regulation in the future may contribute to economic uncertainty in Mexico and to heightened volatility in the Mexican securities markets and in the securities issued abroad by Mexican issuers. These uncertainties and other developments in the Mexican economy may adversely affect us and the market value of our securities. Tax reforms could have an adverse effect on us. The Mexican government regularly enacts reforms to the tax and other assessment regimes to which we and our customers are subject to. Such reforms include changes in tax rates and, occasionally, the enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. The effects of these changes and any other changes that result from enactment of additional tax reforms have not been, and cannot be, quantified and there cannot be assured that these reforms will not, once implemented, have an adverse effect upon our business. Furthermore, such changes may produce uncertainty in the financial system, increasing the cost of borrowing and contributing to the increase in our non-performing credit portfolio. Over the last few years, major tax reforms in Mexico have been discussed. We cannot predict if such tax reforms will be implemented in the future. The effects of these changes, if enacted, and any other changes that could result from the enactment of additional tax reforms, cannot be quantified. Exposure to the debt of the Mexican federal government could have a material adverse effect on us. Like many other Mexican banks, we invest in debt securities of the Mexican government. As of December 31, 2012, approximately 19.6% of our total assets, and 86.8% of our securities portfolio, was constituted by debt securities issued by the Mexican government. Any failure by the Mexican government to make timely payments under the terms of these securities, or a significant decrease in their market value, would have a material adverse effect on us. e) Other Securities With respect to other securities registered in the RNV, the Bank has performed the following issues which, up to date, are in effect: Name of Issuer: Banco Santander, S.A., Institución de Banca Múltiple, Grupo Financiero Santander. Number of Issue: First Ticker Symbol: BSANT 08 Type of Security: Unsecured Bonds (Certificados Bursátiles Bancarios) Type of Issue: Structured Issue based on the Mexican Stock Exchange Prices and Quotations Index, with protected capital. Type of Offer: Public Amount of Issue: Ps $190,722, (One hundred ninety million seven hundred twenty two thousand three hundred Mexican Pesos) Nominal value of Unsecured Bonds: Ps $ (One hundred Mexican pesos) each. Issue Price: Ps $ (one hundred Mexican pesos) each Term of Unsecured Bonds: (one thousand eight hundred and twenty two) days, equivalent to five (5) years approximately. Guarantee: Unsecured Bonds have no specific guarantee. Banco Santander does not guarantee Unsecured Bonds. Pursuant to the provisions of articles 6 and 10 of the Law for the Protection of Bank Savings, Unsecured Bonds are not within the obligations guaranteed by the Institute for the Protection of Bank Savings (IPAB). Issue Date: April 17, 2008 Date of Registration in the BMV: April 17, Date of Redemption: April 17, Expiration Date: April 16, Date of Publication of Offer for Information Purposes: April 16, Rate of Interest: To be determined at the expiration date, or, if an early termination event occurs. Initial Fixed Return: Ps $66.36 (sixty six Mexican pesos thirty six cents) Rate of Fixed Return: 10.00% Leverage Factor 1: 2.90 Leverage Factor 2: 1.00 Leverage Factor 3: 2.90 Level A: 138%. Date of Calculation of the Annual Gross Interest Rate: It shall be determined with the closing value of the Mexican Stock Exchange Prices and Quotations Index (IPC) three (3) Business Days previous to the Expiration Date, i.e., April 11, 2013; or in the date an event of Early Termination occurs. Initial Level of IPC: Means the level of the closing Mexican Stock Exchange Prices and Quotations Index (IPC) as of April 15, 2008, published in the Stock Exchange Bulletin, whose official value was 31, Final Level of IPC: Means the level of IPC at the date of Early Termination or 3 (three) Business Days previous to the Expiration Date, whose official value is to be published by the BMV at the next Business Day in the Stock Exchange Bulletin. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Interest Rate of the Issue: The annual gross Interest rate (the "Annual Gross Interest Rate") is to be determined with the closing value of the IPC as of three (3) Business Days previous to the Expiration Date or, in case of an event of Early Termination, pursuant to the following criteria (i) In the case of Early Termination, the following formula shall be Annual Report Banco Santander (México)

33 applied: (Payment of Early Termination / Nominal Value -1) x (360/Days Passed); and (ii) If it is not a case of Early Termination, the following formula shall be applied: (Payment at Expiration / Nominal Value 1) x (360 / Term). For this reason, for the calculation of the Annual Gross Interest Rate, the result from the criteria stipulated in the Section "Payment at Expiration" herein and in the certificate of this Issue is to be taken into consideration, and for the calculation of the rate for Early Termination, the value obtained from applying the formula stipulated in Section "Payment of Early Termination" herein and in the certificate that documents the Issue. During the term of the Issue, the Common Agent shall follow up the behavior of IPC (or whichever index substitutes it) pursuant to the dates indicated in the Table of Levels that includes the Period of Observation herein and in the certificate that documents the Issue, and, if the IPC is equal or greater than the result from multiplying Level B by Initial IPC Level, it shall be considered that an Event of Early Termination has occurred and the transaction shall be terminated, on the understanding that Level C represents the percentage of the nominal value of Unsecured Bonds to be paid that corresponds to the Period of Observation where the event of Early Termination occurs, stipulated in the Table of Levels. The IPC to be taken into account shall be the one published in the Stock Exchange Bulletin, Stock Market Section, whose official closing value is determined on a daily basis by the BMV. If a Market Event occurs, the Common Agent shall use the substitute index or method designated by the BMV officially as the substitute index for the calculation of IPC. If the BMV does not designate a substitute index or method, the Common Agent shall determine, in good faith, a substitute for IPC according to the most similar criteria to the determination of IPC. A Market Event shall be if the BMV alters the current method for the determination of the IPC, excluding changes in the securities that constitute the index or a suspension of the calculation or publication of the IPC. The Annual Gross Interest Rate for Unsecured Bonds shall be calculated from the Issue Date and such calculations shall include the calendar days actually passed during the term of the Issue. The calculation shall be rounded up to two decimal places. This Certificate may not yield return or such return may be lower than market one, but, in no case, at the expiration of the Certificates, a nominal amount lower than the nominal value of the Certificates may be settled. Tax Regime: The rate of withholding tax to be applied with respect to he interest paid by the Issuer under the Unsecured Bonds is subject to (i) for individuals and corporations residing in Mexico for tax purposes, to the provisions in articles 160 and 58, respectively, of the Mexican Income Tax Law in effect, and (ii) for individuals and corporations residing abroad, to the provisions in article 195 of the Mexican Income Tax Law in effect. Notwithstanding the previous paragraph, investors shall consult, by themselves, their tax consultants, with respect to regulations in effect that may apply to the acquisition, holding or sale of debt instruments such as Unsecured Bonds, before performing any investment in such instruments. The tax regime in effect may be modified during the term of the Unsecured Bonds. Payment of Principal Amount: It shall be carried out pursuant to Section "Criteria for Payment at Expiration" and Section "Criteria for an Event of Early Termination" herein and in the certificate documenting the Issue. Partial and Total Early Redemption: The Issuer reserves the right to settle in advance a portion or the totality of the outstanding balance of Unsecured Bonds from the Issue Date and no later than five Business Days before the Expiration Date. The date of the early redemption, the Certificates of Unsecured Bonds to be early redeemed and the price at which such payment is to be carried out shall be published in a newspaper of national circulation at least 2 Business Days in advance to the date chosen for the early redemption. In the case or partial early redemption, those holders expressing their desire to early redeem their certificates of unsecured bonds shall inform so to Banco Santander so that, in consecutive manner and for up to the amount and number of Certificates announced, the corresponding payment is performed. The Common Agent shall notify BMV via the means designated by BMV, with two business days in advance to the date of the early redemption. Early Termination: Shall be the day within the Period of Observation when the IPC is equal or greater than the result of multiplying Level B by Initial Level of IPC, pursuant to the Table of Levels attached herein. In the case of an event of Early Termination, the transaction shall be considered as terminated. The date of redemption of the Issue in the case of an event of Early Termination of the Certificates of Unsecured Bonds shall be 3 (three) Business Days after the date of Early Termination. Should the redemption date be a non business day, the redemption shall be performed on the following business day. Place and Method of Payment: The principal amount to Unsecured Bonds shall always be paid. Interest yield with respect to Unsecured Bonds shall be paid pursuant to the following criteria (i) In the case of Early Termination, Interest shall be paid pursuant to the Section "Payment in Early Termination"; (ii) If at the Expiration Date an early Termination has not occurred, it shall be paid pursuant to section "Payment at Maturity". The amount to be paid by the Issuer for principal amount and for Payment for Early Termination or Payment at Maturity shall be in Mexican pesos; such payments shall be carried out via electronic transfer at the domicile of Indeval, located in Avenida Paseo de la Reforma No. 255, 3er Piso, Col. Cuauhtémoc, 06500, Mexico City, or, in case of default, at the premises of the Issue, in Prolongación Paseo de la Reforma No. 500, Colonia Lomas de Santa Fe, Mexico City, Postal Code Depositary: Indeval Prospective Investors: Mexican or foreign Individuals or corporations; Credit Institutions, Brokerage Houses, Insurance and Bond Companies, Mutual Funds, Mutual Funds specialized Pension Funds; Pension, Retirement and Seniority Premium Funds; Warehouse Companies, Financial Lessors, Factoring Companies and Credit Unions, pursuant to the applicable laws. Increment in the Number of Unsecured Bonds: Pursuant to the terms in the instrument that documents the Unsecured Bonds, described in this Supplement, the issuer shall be entitled to issue and offer to the general public, Certificates of Unsecured Bonds in addition to the Certificates of Unsecured Bonds included in the certificate that documents the Unsecured Bonds. No Obligations to Perform, Not to Perform, and Events of Early Termination: the certificate representing the Unsecured Bonds does not include obligations to perform, refrain from performing or events of early termination, therefore, the delivery of information or the absence of events such as changes in control, mergers or splits cannot be demanded to the Issuer. Common Representative: Banco Invex, S.A., Institución de Banca Múltiple, Invex Grupo Financiero, Fiduciario. Inscription in the RNV: The instruments that constitute the subject matter of this Issue are registered under number in the National Registry of Securities. Name of Issuer: Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander Number of Issue: Fourth Number of Issue of Certificates of Unsecured Bonds: Second Ticker Symbol: BSANT 08-2 Type of Security: Certificates of Unsecured Bonds Type of Issue: Structured Issue based on the Mexican Stock Exchange Prices and Quotations Index, with protected capital. Type of Offer: Public Amount of the Issue: Ps $50,000, (fifty million Mexican pesos) Nominal Value of the Unsecured Bonds: Ps $100.00(on hundred Mexican pesos) each. Issue Price: Ps $ (one hundred Mexican Pesos) each. Currency: Mexican pesos. Term of the Issue: 1,826 days, equivalent to approximately 5 years. Guarantee: Unsecured Bonds have no specific guarantee. Banco Santander does not guarantee Unsecured Bonds. Pursuant to the provisions of articles 6 and 10 of the Law for the Protection of Bank Savings, Unsecured Bonds are not within the obligations guaranteed by the Institute for the Protection of Bank Savings (IPAB). Date of Issue and placement: July 15, Date of Registration in the BMV: July 15, Date of Redemption: July 15, Date of Expiration: July 15, Date of Publication of the Offer for information purposes: July 14, Interest Rate: Shall be determined in the Expiration Date or, in the date of an event of Early Termination. Initial Fixed Return: Ps $66.35 (sixty six Mexican pesos thirty five cents) Rate of Fixed Return: 10.00% Leverage Factor 1: 2.90 Leverage Factor 2: 1.00 Leverage Factor 3: 2.90 Level A: 138%. Level B: Located in Section "Table of Levels" in this Supplement and in the Certificate. Level C: Located in Section "Table of Levels" in this Supplement and in the Certificate. Date of Calculation of the Annual Gross Interest Rate. It shall be determined with the closing value of the Mexican Stock Exchange Prices and Quotations Index (IPC) three (3) Business Days previous to the Expiration Date, i.e., July 10, 2013; or in the date an event of Early Termination occurs. Underlying Asset: Mexican Stock Exchange Prices and Quotations Index (Índice de Precios y Cotizaciones de la Bolsa Mexicana de Valores, S.A.B. de C.V., or IPC) Variable Coupon: It shall be the result from the formula stipulated in Section "Criteria for early Termination" in this Supplement. It includes the Leverage Factor. Annual Report Banco Santander (México)

34 Initial Level of IPC: Means the closing IPC as of July 15, 2008, published in the Mexican Stock Exchange Bulletin. Final Level of IPC: Means the IPC as of the date of Early Termination or 3 business days previous to the Expiration Date, that is, July 10, 2013; whose official value is published by BMV the following business day in the Mexican Stock Exchange Bulletin. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Tax Regime: The rate of withholding tax to be applied with respect to the interest paid by the Issuer under the Unsecured Bonds is subject to (i) for individuals and corporations residing in Mexico for tax purposes, to the provisions in articles 160 and 58, respectively, of the Mexican Income Tax Law in effect, and (ii) for individuals and corporations residing abroad, to the provisions in article 195 of the Mexican Income Tax Law in effect. Notwithstanding the previous paragraph, investors shall consult, by themselves, their tax consultants, with respect to regulations in effect that may apply to the acquisition, holding or sale of debt instruments such as Unsecured Bonds, before performing any investment in such instruments. The tax regime in effect may be modified during the term of the Unsecured Bonds. Payment of Principal Amount: It shall be carried out pursuant to Section "Criteria for Payment at Expiration" and Section "Criteria for an Event of Early Termination" herein and in the certificate documenting the Issue. Partial and Total Early Redemption: The Issuer reserves the right to settle in advance a portion or the totality of the outstanding balance of Unsecured Bonds from the Issue Date and no later than 60 (sixty) Business Days before the Expiration Date. The date of the early redemption, the Certificates of Unsecured Bonds to be early redeemed and the price at which such payment is to be carried out shall be published in a newspaper of national circulation at least 5 Business Days in advance to the date chosen for the early redemption. In the case or partial early redemption, those holders expressing their desire to early redeem their certificates of unsecured bonds shall inform so to Banco Santander so that, in consecutive manner and for up to the amount and number of Certificates announced, the corresponding payment is performed. Said payment shall be equivalent to the announced price multiplied by the number of Certificates of Unsecured Bonds owned by the holder, on the understanding that, if the number of Certificates redeemed is lower than the amount of the early termination, the remainder of Certificates of Unsecured Bonds shall be paid on a pro rata basis and, if the number of Certificates of Unsecured Bonds presented for redemption is higher than the amount of early termination, such Certificates shall be redeemed on a pro rata basis. The Common Agent shall notify BMV via the means designated by BMV, with 5 (five) business days in advance to the date of the early redemption. Early Termination: Shall be the day within the Period of Observation when the IPC is equal or greater than the result of multiplying Level B by Initial Level of IPC, pursuant to the Table of Levels attached herein and in the Title. In the case of an event of Early Termination, the transaction shall be considered as terminated. The date of redemption of the Issue in the case of an event of Early Termination of the Certificates of Unsecured Bonds shall be 3 (three) Business Days after the date of Early Termination. Should the redemption date be a non business day, the redemption shall be performed on the following business day. Place and Method of Payment: The principal amount to Unsecured Bonds shall always be paid. Interest yield with respect to Unsecured Bonds shall be paid pursuant to the following criteria (i) In the case of Early Termination, Interest shall be paid pursuant to the Section "Payment in Early Termination"; (ii) If at the Expiration Date an early Termination has not occurred, it shall be paid pursuant to section "Payment at Maturity". The amount to be paid by the Issuer for principal amount and for Payment for Early Termination or Payment at Maturity shall be in Mexican pesos; such payments shall be carried out via electronic transfer at the domicile of Indeval, located in Avenida Paseo de la Reforma No. 255, 3er Piso, Col. Cuauhtémoc, 06500, Mexico City, or, in case of default, at the premises of the Issue, in Prolongación Paseo de la Reforma No. 500, Colonia Lomas de Santa Fe, Mexico City, Postal Code Depositary: Indeval Prospective Investors: Individuals or corporations whose investment regime allows them to do so. Increment in the Number of Unsecured Bonds: Pursuant to the terms in the instrument that documents the Unsecured Bonds, described in this Supplement, the issuer shall be entitled to issue and offer to the general public, Certificates of Unsecured Bonds in addition to the Certificates of Unsecured Bonds included in the certificate that documents the Unsecured Bonds. No Obligations to Perform, Not to Perform, and Events of Early Termination: the certificate representing the Unsecured Bonds does not include obligations to perform, refrain from performing or events of early termination, therefore, the delivery of information or the absence of events such as changes in control, mergers or splits cannot be demanded to the Issuer. Common Representative: Banco Invex, S.A., Institución de Banca Múltiple, Invex Grupo Financiero, Fiduciario. Inscription in the RNV: The instruments that constitute the subject matter of this Issue are registered under number in the National Registry of Securities. Issuer: Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander. Ticker Symbol: BSANT 10 Number of Issue: Seventh. Number of Issue of Certificates of Unsecured Bonds: Third Type of Instrument: Unsecured Bonds. Amount of Issue: Ps $5, , (Five billion Mexican pesos). Currency: Mexican Pesos. Nominal Value of the Unsecured Bonds: Ps $100.00(on hundred Mexican pesos) each. Issue Price: Ps $ (one hundred Mexican Pesos) each. Term of Unsecured Bonds: (one thousand and ninety two) days, equivalent to approximately 3 years. Date of Publication of the Offer: April 20, Date of Book Closing: April 21, Date of Publication of the Offer for Information Purposes: April 21, Date of Issue: April 22, Date of Redemption: April 22, Date of Registration in BMV: April 22, Expiration Date: April 18, Rating granted by Moody s de México, S.A. de C.V.: Aaa.mx. The Aaa.mx long term senior debt rating represents the most solid credit capacity and the lowest credit loss probability with respect to other domestic issuers. This is the highest rating in the Mexican Ratings Scale granted by Moody s de México, S.A. de C.V. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Interest Rate: Pursuant to the payment schedule displayed in section named "Periodicity in the Payment of Interest" and as long as they are not fully redeemed, Unsecured Bonds shall pay annual gross interest on their Nominal Value at an annual rate equivalent to the rate stated in the paragraph below, which the Common Agent shall calculate two (2) Business Days before the beginning of each corresponding 28-day- Period of Interest (the "Date of calculation of the Annual Gross Interest Rate") to be in effect during such applicable period of interest. The Annual Gross Interest Rate (the "Annual Gross Interest Rate") shall be determined by adding 0.12% percentage points to the Mexican Benchmark Interbank Money Market Rate ( TIIE or "Interest Rate of Reference ) for 28-days terms, capitalized, or, when applicable, the equivalent to the actual number of days passed until the date of payment of interest, published by the Central Bank of Mexico on the media or via any other electronic, computer or telecommunications means, including the Internet, authorized by the Central bank of Mexico, at the Date of Calculation of the corresponding Annual Gross Interest Rate or, alternatively, within the twenty two (22) business days previous to such date, in which case the rate to be taken into account shall be the one published in the Business Day closest to said Date of Calculation of the Annual Gross Interest Rate. Should the TIIE rate cease to exist or to be published, the Common Agent shall use as substitute rate for the calculation of the Annual Gross Interest Rate of Unsecured Bonds, the rate officially published by the Central Bank of Mexico as the substitute rate of the 28-day- TIIE. For calculating the capitalized Interest Rate of Reference, or, when applicable, the rate equivalent for the number of days actually passed until the date of payment of interest of TIIE at the aforementioned term, the Common Agent shall use the formula provided herein and in the corresponding instrument that documents this Issue. Once each Period of Interest has begun, the Annual Gross Interest Rate determined for such period shall not suffer any changes during such period of time. The Common Agent shall send written notice to CNBV and Indeval, with at least two (2) Business Days in advance to each Date of Payment of Interest, on the amount of interest to be paid with respect to the unsecured Bonds. Likewise, BMV shall be informed on (via SEDI or any other means instructed by BMV), no later than the immediate Business Day previous to the Date of Payment of interest, the amount of interest to be paid as well as the Annual Gross Interest Rate to be applied for the subsequent Period of Interest. Pursuant to the payment schedule displayed in section named "Periodicity in the Payment of Interest" and as long as they are not fully redeemed, Unsecured Bonds shall pay annual gross interest on their Nominal Value at an Annual Report Banco Santander (México)

35 annual rate equivalent to the rate stated in the paragraph below, which the Common Agent shall calculate two (2) Business Days before the beginning of each corresponding 28-day- Period of Interest (the "Date of calculation of the Annual Gross Interest Rate") to be in effect during such applicable period of interest. The Annual Gross Interest Rate (the "Annual Gross Interest Rate") shall be determined by adding 0.50% percentage points to the Mexican Benchmark Interbank Money Market Rate ( TIIE or "Interest Rate of Reference ) for 28-days terms, capitalized, or, when applicable, the equivalent to the actual number of days passed until the date of payment of interest, published by the Central Bank of Mexico on the media or via any other electronic, computer or telecommunications means, including the Internet, authorized by the Central bank of Mexico, at the Date of Calculation of the corresponding Annual Gross Interest Rate or, alternatively, within the twenty two (22) business days previous to such date, in which case the rate to be taken into account shall be the one published in the Business Day closest to said Date of Calculation of the Annual Gross Interest Rate. Should the TIIE rate cease to exist or to be published, the Common Agent shall use as substitute rate for the calculation of the Annual Gross Interest Rate of Unsecured Bonds, the rate officially published by the Central Bank of Mexico as the substitute rate of the 28-day- TIIE. For calculating the capitalized Interest Rate of Reference, or, when applicable, the rate equivalent for the number of days actually passed until the date of payment of interest of TIIE at the aforementioned term, the Common Agent shall use the formula provided herein and in the corresponding instrument that documents this Issue. Once each Period of Interest has begun, the Annual Gross Interest Rate determined for such period shall not suffer any changes during such period of time. The Common Agent shall send written notice to CNBV and Indeval, with at least two (2) Business Days in advance to each Date of Payment of Interest, on the amount of interest to be paid with respect to the unsecured Bonds. Likewise, BMV shall be informed on (via SEDI or any other means instructed by BMV), no later than the immediate Business Day previous to the Date of Payment of interest, the amount of interest to be paid as well as the Annual Gross Interest Rate to be applied for the subsequent Period of Interest. Annual Gross Interest Rate applicable to the First Period of Interest: 5.07%. Default Interest: In case of default in the payment of principal and/ or interest of Unsecured Bonds, no Default Interest shall be paid. Periodicity of Payment of interest: Interest from Unsecured Bonds shall be paid every twenty eight (28) days, pursuant to the schedule stipulated in the Instrument and in section named: Periodicity in the Payment of Interest herein. Redemption: Unsecured Bonds shall be redeemed in a single payment on the Date of Expiration. Early Redemption: Unsecured Bonds cannot be redeemed in advance. Guarantee: Unsecured Bonds have no specific guarantee nor they have any guarantee from IPAB or any other entity. Tax Regime: This section includes a brief description of certain taxes in effect in Mexico on the acquisition, proprietorship and disposal of Unsecured Bonds by Mexican Residents and non-mexican Residents for tax purposes, however, such description does not purport to be a comprehensive explanation of all the fiscal issues that may be relevant for making an investment decision with respect to Unsecured Bonds. The fiscal regime in effect may be modified during the term of the Issue. We recommend that investors consult their independent advisers with respect to the regulations applicable to the acquisition, holding and sale of debt instruments such as Certificates of Unsecured Bonds before making any investment decision. The rate of withholding tax to be applied with respect to the interest paid by the Issuer under the Unsecured Bonds is subject to (i) for individuals and corporations residing in Mexico for tax purposes, to the provisions in articles 160 and 58, respectively, of the Mexican Income Tax Law in effect, and (ii) for individuals and corporations residing abroad, to the provisions in article 195 of the Mexican Income Tax Law in effect and it depends on the actual payee of interests. Investors, before carrying out an investment in these Instruments, must take into account that the fiscal regime regarding the tax burden or exemption applicable to income derived from returns or sale and purchase transactions has not been verified or validated by the competent tax authorities. Place and Method of Payment of Principal and Interest: The payment of principal amount and the corresponding interest derived from Unsecured Bonds shall be performed at the offices of Indeval, located in Avenida Paseo de la Reforma No. 255, 3er. Piso, Col. Cuauhtémoc, Mexico City, Federal District. Payments may be performed via electronic transfer pursuant to the procedures established in the Instrument and in this Supplement. The last payment shall be performed against the delivery of the corresponding instrument or certificate issued by Indeval. Depositary: Indeval. Prospective Investors: Individuals or Corporations which their investment regime expressly authorizes so. Increment in the Number of Unsecured Bonds: Pursuant to the terms in the instrument that documents the Unsecured Bonds, described in this Supplement, the issuer shall be entitled to issue and offer to the general public, Certificates of Unsecured Bonds in addition to the Certificates of Unsecured Bonds included in the certificate that documents the Unsecured Bonds. Rights conferred to Holders: Unsecured Bonds confer to Holders the right to collect the principal amount and the corresponding interest owed by the Issuer under each Unsecured Bond, pursuant to the terms and conditions stated in the Instrument. Common Agent: Banco INVEX, S.A., Institución de Banca Múltiple, INVEX Grupo Financiero, Fiduciary. Inscription in the RNV: The instruments that constitute the subject matter of this Issue are registered under number in the National Registry of Securities.. Name of Issuer: Banco Santander, S.A., Institución de Banca Múltiple, Grupo Financiero Santander Ticker Symbol: BSANT 1-08 Number of Issue: Second Date of Issue of Certificate of Structured Bonds: April 28, Number of Issue under the Certificate of Structured Bonds: First Issue. Code of Identification for overseeing purposes of the CNBV: JBSANTS Type of Security: Bank Structured Bonds. Type of Issue: issue with indexed to IPC, S&P 500 Index and Dow Jones Euro STOXX 50, with protected principal amount. Type of Offer: Public Offer Amount authorized under the Program of Bank Structured Bonds: Ps $15, , (Fifteen billion Mexican pesos). Currency: Mexican Pesos Term of the Certificate of the Issue: It shall be the date of redemption of the last bank structured bond issued under the Certificate of Issue. Amount of the Issue of Structured Bonds: Ps $75 480, (Seventy five million four hundred eighty thousand Mexican Pesos). Nominal Value of Structured Bonds: Ps $ (One Hundred Mexican pesos) each. Issue Price: Ps $94.50 (ninety four Mexican Pesos and fifty cents) each. Term of Issue: 1,826 days, equivalent to approximately 5 (five) years. Guarantee: Structured Bank Bonds have no guarantee. Banco Santander does not guarantee Structured Bank Bonds. Pursuant to the provisions of articles 6 and 10 of the Law for the Protection of Bank Savings, Structured Bonds are not within the obligations guaranteed by the Institute for the Protection of Bank Savings (IPAB). Date of Issue: May 23, Date of Registration in BMV: May 23, Date of Redemption: May 23, Expiration Date: May 23, Minimum Guaranteed Interest Rate: % annual (the Minimum Guaranteed Interest Rate ). Underlying Assets: Mexican Stock Exchange Prices and Quotations Index (Índice de Precios y Cotizaciones de la Bolsa Mexicana de Valores, S.A.B. de C.V., or IPC); Standard & Poor s 500 Index, from Standard & Poor s, a division of The McGraw-Hill Companies, Inc. ( S&P 500 ) and Dow Jones Euro STOXX 50 Index from STOXX Limited, in association with Dow Jones & Company, Inc.( Dow Jones Euro STOXX 50 ). Leverage Factor: 59.09%. Variable Coupon: It shall be the result from the formula stipulated in Section "Payment at Maturity" in this Supplement. It includes the Leverage Factor and Weighted Average. Weighted Average shall be the result from the formula stated in section "Payment at Maturity" in this Supplement, which is also explained in Section "Brief Explanation of the Return of the Issue" and it includes the Minimum Guaranteed Interest Rate and the Nominal Value of the Bank Structured Bonds. Initial Level of IPC: Shall be the Closing IPC as of the date of issue, published by the Bolsa Mexicana de Valores S.A. de C.V. ( BMV ) in the site Initial Level of S&P 500: Shall be the closing value of S&P 500 index as of the date of issue, published at Initial Level of Dow Jones Euro STOXX 50: Shall be the closing value of Dow Jones Euro STOXX 50 index as of the date of issue, published at Final Level of IPC: Shall be the closing IPC observed three (3) business days previous to the Expiration Date, published by the BMV at Final Level of S&P 500: Shall be the closing value of S&P 500 observed three (3) Business Days previous to the Expiration Date, published in Final level of Dow Jones Euro STOXX 50: Shall be the closing value of Dow Jones Euro STOXX 50 index observed three (3) Business Days previous to the Expiration date, published in Annual Report Banco Santander (México)

36 Level 1: Shall be the higher value among the following formulas: Final Level of IPC/Initial Level of IPC; Final level of S&P 500/Initial Level of S&P 500; Final Level of Dow Jones Euro STOXX 50/ Initial Level of Dow Jones Euro STOXX 50. Level 2: Shall be the intermediate value between the highest and the lowest result from the following formulas: Final Level of IPC/Initial Level of IPC; Final level of S&P 500/Initial Level of S&P 500; Final Level of Dow Jones Euro STOXX 50/ Initial Level of Dow Jones Euro STOXX 50. Level 3: Shall be the lowest value among the following formulas: Final Level of IPC/Initial Level of IPC; Final level of S&P 500/Initial Level of S&P 500; Final Level of Dow Jones Euro STOXX 50/ Initial Level of Dow Jones Euro STOXX 50. Level A: 100%. Weight 1: 50%. Weight 2: 30%. Weight 3: 20%. Date of calculation of return: 3 (three) Business Days previous to the Expiration Date. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Brief Description of the Issue: It is an instrument that confers the right to receive the amount of the Nominal Amount, plus a Minimum Guaranteed Interest Rate of 15% effective at maturity. Investors also have the right to receive a Variable Coupon calculated as the 59.09% of the increment in the Weighted Average of IPC, S&P 500 and Dow Jones Euro STOXX 50 at maturity. This Weighted Average shall be determined giving the greater preponderance (Weight 1) to the best of the returns, the intermediate weight (Weight 2) to the second best return and the lowest relevance (Weight 3) to the lowest of the three returns. Variable Coupon may be equal to 0%, pursuant to the provisions in section "payment at Maturity" herein. Return of the Issue: The yield of the Issue (the Return ) shall be calculated with the closing value of IPC, S&P 500 and Dow Jones Euro STOXX 50, 3 (three) Business Days previous to the Expiration Date and using the following formula included in section "Payment at Maturity" : Return= Payment at Maturity -1 x 360 Nominal Value Term The Common Representative will review the closing value of IPC, S&P 500 and Dow Jones Euro STOXX 50 (or their corresponding substitute), 3 (three) Business Days previous to the Expiration Date. In the case of a Market Event (as defined in this Supplement), the Common Representative will use the substitute index or method designated by BMV, Standard & Poor s, a division of The McGraw-Hill Companies, Inc, and STOXX Limited, in association with Dow Jones & Company, Inc., officially as substitute indexes. If BMV, Standard & Poor s, a division of The McGraw-Hill Companies, Inc. and STOXX Limited, in association with Dow Jones & Company, Inc., do not inform such substitute methods or indexes, the Common Representative shall determine a substitute index for IPC, S&P 500 and Dow Jones Euro STOXX 50, in good faith, pursuant to the closest criteria to the ones used for the determination of IPC, S&P 500 and Dow Jones Euro STOXX 50. A "Market Event" shall occur if the BMV,, Standard & Poor s, a division of The McGraw-Hill Companies, Inc. or STOXX Limited, in association with Dow Jones & Company, Inc., alter the current method for the determination of the IPC, S&P 500 and Dow Jones Euro STOXX 50, excluding changes in the securities that constitute the IPC, S&P 500 and Dow Jones Euro STOXX 50 or a suspension of the calculation or publication of such indexes. The Return to be paid with respect to Structured Bonds shall be calculated from the Issue Date and such calculations shall include the calendar days actually passed during the term of the Issue. The calculation shall be rounded up to two decimal places. Tax Regime: The rate of withholding tax to be applied with respect to the interest paid by the Issuer under the Structured Bonds is subject to (i) for individuals and corporations residing in Mexico for tax purposes, to the provisions in articles 160 and 58, respectively, of the Mexican Income Tax Law in effect, and (ii) for individuals and corporations residing abroad, to the provisions in article 195 of the Mexican Income Tax Law in effect. Notwithstanding the previous paragraph, investors should consult, by themselves, their tax advisors with respect to regulations in effect that may apply to the acquisition, holding or sale of debt instruments such as Bank Structured Bonds, before performing any investment in such instruments. The tax regime in effect may be modified during the term of the bank Structured Bonds. Redemption of Principal Amount: Shall be performed pursuant to Section "Payment at Maturity" in this Supplement and in the corresponding Certificate. Partial and Total Early Redemption: The Issuer reserves the right to settle in advance a portion or the totality of the outstanding balance of Bank Structured Bonds from the Issue Date and no later than 60 (sixty) Business Days before the Expiration Date. The date of the early redemption, the Certificates of Bank Structured Bonds to be early redeemed and the price at which such payment is to be carried out shall be published in a newspaper of national circulation at least 5 Business Days in advance to the date chosen for the early redemption. In the case or partial early redemption, those holders expressing their desire to early redeem their certificates of unsecured bonds shall inform so to Banco Santander so that, in consecutive manner and for up to the amount and number of Bank Structured Bonds announced, the corresponding payment is performed. Said payment shall be equivalent to the announced price multiplied by the number of Bank Structured Bonds owned by the holder, on the understanding that, if the number of Bank Structured Bonds redeemed is lower than the amount of the early termination, the remainder of Bank Structured Bonds shall be paid on a pro rata basis and, if the number of Bank Structured Bonds presented for redemption is higher than the amount of early termination, such Bank Structured Bonds shall be redeemed on a pro rata basis. Pursuant to the Issue Certificate, the Common Agent shall send written notice to CNBV, Indeval and BMV, with 5 (five) Business Days in advance, via the means designated by such entities, such an early redemption. Payment at Maturity: In order to determine the amount to be paid, including principal amount and interests with respect to the bank Structured Bonds (the "Payment at Maturity"), the Common Agent shall apply the formula stipulated herein, on the understanding that the Payment at Maturity shall always include the Nominal Value and the Minimum Guaranteed Interest Rate, as well as a variable coupon that may be equal or greater than zero. Place and Method of Payment: The principal amount of Bank Structured Bonds shall always be paid. Interest accrued at the Minimum Guaranteed Interest Rate and the Variable Coupon to be paid with respect to the Bank Structured Bonds shall be paid at Maturity Date, pursuant to section "Payment at Maturity". The amount to be paid by the Issuer for principal amount, interest and return shall be in Mexican pesos, and such payments shall be performed via electronic transfer from the domicile of Indeval in Avenida Paseo de la Reforma No. 255, 3er Piso, Col. Cuauhtémoc, 06500, México, D.F. Depositary: Indeval Prospective Investors: Individuals or corporations whose investment regime allows them to do so. No Obligations to Perform, Not to Perform, and Events of Early Termination: the certificate representing the Bank Structured Bonds does not include obligations to perform, refrain from performing or events of early termination, therefore, the delivery of information or the absence of events such as changes in control, mergers or splits cannot be demanded to the Issuer. Common Representative: Banco Invex, S.A., Institución de Banca Múltiple, Invex Grupo Financiero. Inscription in the RNV: The instruments that constitute the subject matter of this Issue are registered under number in the National Registry of Securities. This instrument may not render return, or such return may be lower than the ones prevailing in the market, but in no case, at the expiration of the transaction, the nominal amount to be settled may be lower than the principal amount. Name of Issuer: Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander Ticker Symbol: BSANT 2-08 Number of Issue: Third Number of Issue under the Certificate of Structured Bonds: Second Issue. Date of Issue of Certificate of Structured Bonds: April 28, 2008 Type of Security: Bank Structured Bonds Type of Issue: issue with indexed to IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225 index, with protected principal amount. Type of Offer: Public Offer. Authorized Amount under the Program of Bank Structured Bonds: Ps $15, , (fifteen billion Mexican pesos). The nominal value of the totality of the Bonds to be issued may not exceed Ps $15, , (fifteen billion Mexican pesos). Such amount is not a revolving amount. Currency: Mexican Pesos Term of the Issue: The date the last structured bond issued under the Certificate is redeemed. Amount of Issue of Bank Structured Bonds: Ps $99,740, (ninety nine million seven hundred forty thousand five hundred Mexican Pesos) Nominal Amount of the bank Structured Bonds: Ps $ (one hundred Mexican pesos) each. Issue Price: Ps $94.30 (ninety four Mexican Pesos thirty cents) each. Annual Report Banco Santander (México)

37 Term of Issue: 1,826 days, equivalent to approximately 5 (five) years. Guarantee: Structured Bank Bonds have no guarantee. Banco Santander does not guarantee Structured Bank Bonds. Pursuant to the provisions of articles 6 and 10 of the Law for the Protection of Bank Savings, Structured Bonds are not within the obligations guaranteed by the Institute for the Protection of Bank Savings (IPAB). Date of Issue: June 25, Date of registration in the BMV: June 25, Redemption Date: June 25, Date of Expiration: June 25, Minimum Guaranteed Interest Rate: % annual (the Minimum Guaranteed Interest Rate ). Leverage Factor: 100% Average Return: Shall be the result obtained from the formula stipulated in section "Payment at Maturity" of this Supplement, explained in Section "Brief Explanation of the Return of the Issue", and included the initial and closing levels of IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225 indexes. Underlying Assets: Mexican Stock Exchange Prices and Quotations Index (Índice de Precios y Cotizaciones de la Bolsa Mexicana de Valores, S.A.B. de C.V., or IPC); Dow Jones Euro STOXX Select Dividend 30 Index of STOXX Limited, in association with Dow Jones & Company, Inc. ( Dow Jones Euro STOXX Select Dividend 30 ) and Nikkei 225 index of Nikkei Digital Media Inc. Variable Coupon: It shall be the result from the formula stipulated in Section "Payment at Maturity" in this Supplement. It includes the Leverage Factor and Average Return. Initial Level of IPC: Shall be the Closing IPC as of the date of issue, published by the Bolsa Mexicana de Valores S.A. de C.V. ( BMV ) in the site Initial Level of Dow Jones Euro STOXX Select Dividend 30: Shall be the closing level of Dow Jones Euro STOXX Select Dividend 30 as of the Issue Date published in Initial Level of Nikkei 225: Shall be the closing level of Nikkei 225 as of the Issue Date published in Final Level of IPC: Shall be the closing IPC observed three (3) business days previous to the Expiration Date, published by the BMV at Final level of Dow Jones Euro STOXX Select Dividend 30: Shall be the closing value of Dow Jones Euro STOXX Select Dividend 30 index observed 3 (three) Business Days previous to the Expiration Date, published in Final Level of Nikkei 225: Shall be the closing value of Nikkei 225 index observed 3 (three) Business Days previous to the Expiration Date, published in Level A: 100% Date of calculation of return: 3 (three) Business Days previous to the Expiration Date. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Brief Explanation of the Return on Issue: Bank Structured Bonds grant the right to receive at maturity the 100% of the invested capital plus the Minimum Guaranteed Interest Rate, equivalent to an effective rate for the term of Structured Bonds of 5%. Investors also have the right to receive a Variable Coupon calculated as the 100% of the increment in the Average Return of IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225. Variable Coupon may be equal to 0%, pursuant to section "Payment at Maturity" herein. The total amount to be paid with respect to Structured Bonds at the expiration date shall be equal to the result obtained by the formula included in Section "Payments at maturity" in this Supplement, and it will include, always, the Nominal Value of Bank Structured Bonds and the Minimum Guaranteed Interest rate. Return on Issue: The yield of the Issue (the Return ) shall be calculated with the closing value of IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225, 3 (three) Business Days previous to the Expiration Date and using the following formula included in section "Payment at Maturity" : Return= Payment at Maturity -1 x 360 Nominal Value Term The Common Representative will review the closing value of IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225 (or their corresponding substitute), 3 (three) Business Days previous to the Expiration Date. In the case of a Market Event (as defined in this Supplement), the Common Representative will use the substitute index or method designated by BMV, STOXX Limited, in association with Dow Jones & Company, Inc., and Nikkei Digital Media Inc., officially as substitute indexes. If BMV, STOXX Limited, in association with Dow Jones & Company, Inc., and Nikkei Digital Media Inc., do not inform such substitute methods or indexes, the Common Representative shall determine a substitute index for IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225, in good faith, pursuant to the closest criteria to the ones used for the determination of IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225. A "Market Event" shall occur if the BMV, STOXX Limited, in association with Dow Jones & Company, Inc., and Nikkei Digital Media Inc., alter the current method for the determination of the IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225, excluding changes in the securities that constitute the IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225 or a suspension of the calculation or publication of such indexes. The Return to be paid with respect to Structured Bonds shall be calculated from the Issue Date and such calculations shall include the calendar days actually passed during the term of the Issue. The calculation shall be rounded up to two decimal places. Tax Regime: The rate of withholding tax to be applied with respect to the interest paid by the Issuer under the Structured Bonds is subject to (i) for individuals and corporations residing in Mexico for tax purposes, to the provisions in articles 160 and 58, respectively, of the Mexican Income Tax Law in effect, and (ii) for individuals and corporations residing abroad, to the provisions in article 195 of the Mexican Income Tax Law in effect. Notwithstanding the previous paragraph, investors should consult, by themselves, their tax advisors with respect to regulations in effect that may apply to the acquisition, holding or sale of debt instruments such as Bank Structured Bonds, before performing any investment in such instruments. The tax regime in effect may be modified during the term of the bank Structured Bonds. Redemption of Principal Amount: Shall be performed pursuant to Section "Payment at Maturity" in this Supplement and in the corresponding Certificate. Partial and Total Early Redemption: The Issuer reserves the right to settle in advance a portion or the totality of the outstanding balance of Bank Structured Bonds from the Issue Date and no later than 60 (sixty) Business Days before the Expiration Date. The date of the early redemption, the Certificates of Bank Structured Bonds to be early redeemed and the price at which such payment is to be carried out shall be published in a newspaper of national circulation at least 5 Business Days in advance to the date chosen for the early redemption. In the case or partial early redemption, those holders expressing their desire to early redeem their certificates of unsecured bonds shall inform so to Banco Santander so that, in consecutive manner and for up to the amount and number of Bank Structured Bonds announced, the corresponding payment is performed. Said payment shall be equivalent to the announced price multiplied by the number of Bank Structured Bonds owned by the holder, on the understanding that, if the number of Bank Structured Bonds redeemed is lower than the amount of the early termination, the remainder of Bank Structured Bonds shall be paid on a pro rata basis and, if the number of Bank Structured Bonds presented for redemption is higher than the amount of early termination, such Bank Structured Bonds shall be redeemed on a pro rata basis. Pursuant to the Issue Certificate, the Common Agent shall send written notice to CNBV, Indeval and BMV, with 5 (five) Business Days in advance, via the means designated by such entities, such an early redemption. Payment at Maturity: In order to determine the amount to be paid, including principal amount and interests with respect to the bank Structured Bonds (the "Payment at Maturity"), the Common Agent shall apply the formula stipulated herein, on the understanding that the Payment at Maturity shall always include the Nominal Value and the Minimum Guaranteed Interest Rate, as well as a variable coupon that may be equal or greater than zero. Place and Method of Payment: The principal amount of Bank Structured Bonds shall always be paid. Interest accrued at the Minimum Guaranteed Interest Rate and the Variable Coupon to be paid with respect to the Bank Structured Bonds shall be paid at Maturity Date, pursuant to section "Payment at Maturity". The amount to be paid by the Issuer for principal amount, interest and return shall be in Mexican pesos, and such payments shall be performed via electronic transfer from the domicile of Indeval in Avenida Paseo de la Reforma No. 255, 3er Piso, Col. Cuauhtémoc, 06500, México, D.F. Depositary: Indeval Prospective Investors: Individuals or corporations whose investment regime allows them to do so. No Obligations to Perform, Not to Perform, and Events of Early Termination: the certificate representing the Bank Structured Bonds does not include obligations to perform, refrain from performing or events of early termination, therefore, the delivery of information or the absence of events such as changes in control, mergers or splits cannot be demanded to the Issuer. Common Representative: Banco Invex, S.A., Institución de Banca Múltiple, Invex Grupo Financiero. Inscription in the RNV: The instruments that constitute the subject matter of this Issue are registered under number in the National Registry of Securities. This instrument may not render return, or such return may be lower than the ones prevailing in the market, but in no case, at the expiration of the transaction, the nominal amount to be settled may be lower than the principal amount. Annual Report Banco Santander (México)

38 Name of Issuer: Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander Ticker Sybol: BSANT 3-08 Number of Issue: Fifth Number iof Issue under the Certificate of Issue of Bank Structured Bonds: Third. Issue Date of the Certificate of Bank Structured Bonds: April 28, Type of Security: Bank Structured Bonds Type of Issue: issue with indexed to IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225 index, with protected principal amount. Type of Offer: Public Offer. Authorized Amount under the Program of Bank Structured Bonds: Ps $15, , (fifteen billion Mexican pesos). The nominal value of the totality of the Bonds to be issued may not exceed Ps $15, , (fifteen billion Mexican pesos). Such amount is not a revolving amount. Currency: Mexican Pesos Term of the Issue: The date the last structured bond issued under the Certificate is redeemed. Amount of Issue of Bank Structured Bonds: Ps $750,000, (seven hundred fifty million Mexican Pesos) Nominal Amount of the Bank Structured Bonds: Ps $ (one hundred Mexican pesos) each. Issue Price: Ps $94.61 (ninety four Mexican Pesos sixty one cents) each. Term of Issue: 1,826 days, equivalent to approximately 5 (five) years. Guarantee: Structured Bank Bonds have no guarantee. Banco Santander does not guarantee Structured Bank Bonds. Pursuant to the provisions of articles 6 and 10 of the Law for the Protection of Bank Savings, Structured Bonds are not within the obligations guaranteed by the Institute for the Protection of Bank Savings (IPAB). Date of Issue: July 30, Date of registration in the BMV: July 30, Redemption Date: July 30, Date of Expiration: July 30, Minimum Guaranteed Interest Rate: % annual (the Minimum Guaranteed Interest Rate ). Leverage Factor: 100% Average Return: Shall be the result obtained from the formula stipulated in section "Payment at Maturity" of this Supplement, explained in Section: "Brief Explanation of the Return of the Issue", and it includes the initial and closing levels of IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225 indexes. Underlying Assets: Mexican Stock Exchange Prices and Quotations Index (Índice de Precios y Cotizaciones de la Bolsa Mexicana de Valores, S.A.B. de C.V., or IPC); Dow Jones Euro STOXX Select Dividend 30 Index of STOXX Limited, in association with Dow Jones & Company, Inc. ( Dow Jones Euro STOXX Select Dividend 30 ) and Nikkei 225 index of Nikkei Digital Media Inc. Variable Coupon: It shall be the result from the formula stipulated in Section "Payment at Maturity" in this Supplement. It includes the Leverage Factor and Average Return. Initial Level of IPC: Shall be the Closing IPC as of the date of issue, published by the Bolsa Mexicana de Valores S.A. de C.V. ( BMV ) in the site Initial Level of Dow Jones Euro STOXX Select Dividend 30: Shall be the closing level of Dow Jones Euro STOXX Select Dividend 30 as of the Issue Date published in Initial Level of Nikkei 225: Shall be the closing level of Nikkei 225 as of the Issue Date published in Final Level of IPC: Shall be the closing IPC observed three (3) business days previous to the Expiration Date, published by the BMV at Final level of Dow Jones Euro STOXX Select Dividend 30: Shall be the closing value of Dow Jones Euro STOXX Select Dividend 30 index observed 3 (three) Business Days previous to the Expiration Date, published in Final Level of Nikkei 225: Shall be the closing value of Nikkei 225 index observed 3 (three) Business Days previous to the Expiration Date, published in Level A: 100% Date of calculation of return: 3 (three) Business Days previous to the Expiration Date. Rating granted by Fitch México, S.A. de C.V.: AAA(mex). It is highest credit rating. It represents the maximum rating granted by Fitch México within their scale of domestic ratings. This rating is assigned to the best credit quality with respect to other issuer(s) in the country and it usually corresponds to financial obligation issued or guaranteed by the Federal Government. Brief Explanation of the Return on Issue: Bank Structured Bonds grant the right to receive at maturity the 100% of the invested capital plus the Minimum Guaranteed Interest Rate, equivalent to an effective rate for the term of Structured Bonds of 5%. Investors also have the right to receive a Variable Coupon calculated as the 100% of the increment in the Average Return of IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225. Variable Coupon may be equal to 0%, pursuant to section "Payment at Maturity" herein. The total amount to be paid with respect to Structured Bonds at the expiration date shall be equal to the result obtained by the formula included in Section "Payments at maturity" in this Supplement, and it will include, always, the Nominal Value of Bank Structured Bonds and the Minimum Guaranteed Interest rate. Return on Issue: The yield of the Issue (the Return ) shall be calculated with the closing value of IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225, 3 (three) Business Days previous to the Expiration Date and using the following formula included in section "Payment at Maturity" : Return= Payment at Maturity -1 x 360 Nominal Value Term The Common Representative will review the closing value of IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225 (or their corresponding substitute), 3 (three) Business Days previous to the Expiration Date. In the case of a Market Event (as defined in this Supplement), the Common Representative will use the substitute index or method designated by BMV, STOXX Limited, in association with Dow Jones & Company, Inc., and Nikkei Digital Media Inc., officially as substitute indexes. If BMV, STOXX Limited, in association with Dow Jones & Company, Inc., and Nikkei Digital Media Inc., do not inform such substitute methods or indexes, the Common Representative shall determine a substitute index for IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225, in good faith, pursuant to the closest criteria to the ones used for the determination of IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225. A "Market Event" shall occur if the BMV, STOXX Limited, in association with Dow Jones & Company, Inc., and Nikkei Digital Media Inc., alter the current method for the determination of the IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225, excluding changes in the securities that constitute the IPC, Dow Jones Euro STOXX Select Dividend 30 and Nikkei 225 or a suspension of the calculation or publication of such indexes. The Return to be paid with respect to Structured Bonds shall be calculated from the Issue Date and such calculations shall include the calendar days actually passed during the term of the Issue. The calculation shall be rounded up to two decimal places. Tax Regime: The rate of withholding tax to be applied with respect to the interest paid by the Issuer under the Structured Bonds is subject to (i) for individuals and corporations residing in Mexico for tax purposes, to the provisions in articles 160 and 58, respectively, of the Mexican Income Tax Law in effect, and (ii) for individuals and corporations residing abroad, to the provisions in article 195 of the Mexican Income Tax Law in effect. Notwithstanding the previous paragraph, investors should consult, by themselves, their tax advisors with respect to regulations in effect that may apply to the acquisition, holding or sale of debt instruments such as Bank Structured Bonds, before performing any investment in such instruments. The tax regime in effect may be modified during the term of the bank Structured Bonds. Redemption of Principal Amount: Shall be performed pursuant to Section "Payment at Maturity" in this Supplement and in the corresponding Certificate. Partial and Total Early Redemption: The Issuer reserves the right to settle in advance a portion or the totality of the outstanding balance of Bank Structured Bonds from the Issue Date and no later than 60 (sixty) Business Days before the Expiration Date. The date of the early redemption, the Certificates of Bank Structured Bonds to be early redeemed and the price at which such payment is to be carried out shall be published in a newspaper of national circulation at least 5 Business Days in advance to the date chosen for the early redemption. In the case or partial early redemption, those holders expressing their desire to early redeem their certificates of unsecured bonds shall inform so to Banco Santander so that, in consecutive manner and for up to the amount and number of Bank Structured Bonds announced, the corresponding payment is performed. Said payment shall be equivalent to the announced price multiplied by the number of Bank Structured Bonds owned by the holder, on the understanding that, if the number of Bank Structured Bonds redeemed is lower than the amount of the early termination, the remainder of Bank Structured Bonds shall be paid on a pro rata basis and, if the number of Bank Structured Bonds presented for redemption is higher than the amount of early termination, such Bank Structured Bonds shall be redeemed on a pro rata basis. Pursuant to the Issue Certificate, the Common Agent shall send written notice to CNBV, Indeval and BMV, with 5 (five) Business Days in advance, via the means designated by such entities, such an early redemption. Payment at Maturity: In order to determine the amount to be paid, including principal amount and interests with respect to the bank Structured Bonds (the "Payment at Maturity"), the Common Agent shall apply the formula stipulated herein, on the understanding that the Payment at Maturity shall always include the Nominal Value and the Minimum Guaranteed Interest Rate, as well as a variable coupon that may be equal or greater than zero. Annual Report Banco Santander (México)

39 Place and Method of Payment: The principal amount of Bank Structured Bonds shall always be paid. Interest accrued at the Minimum Guaranteed Interest Rate and the Variable Coupon to be paid with respect to the Bank Structured Bonds shall be paid at Maturity Date, pursuant to section "Payment at Maturity". The amount to be paid by the Issuer for principal amount, interest and return shall be in Mexican pesos, and such payments shall be performed via electronic transfer from the domicile of Indeval in Avenida Paseo de la Reforma No. 255, 3er Piso, Col. Cuauhtémoc, 06500, México, D.F. Depositary: Indeval Prospective Investors: Individuals or corporations whose investment regime allows them to do so. No Obligations to Perform, Not to Perform, and Events of Early Termination: the certificate representing the Bank Structured Bonds does not include obligations to perform, refrain from performing or events of early termination, therefore, the delivery of information or the absence of events such as changes in control, mergers or splits cannot be demanded to the Issuer. Common Representative: Banco Invex, S.A., Institución de Banca Múltiple, Invex Grupo Financiero. Fiduciary. Inscription in the RNV: The instruments that constitute the subject matter of this Issue are registered under number in the National Registry of Securities. This instrument may not render return, or such return may be lower than the ones prevailing in the market, but in no case, at the expiration of the transaction, the nominal amount to be settled may be lower than the principal amount. In addition, the following has been carried out: 7 issues of Options, pursuant to article 65 of the Mexican Securities Market Law, issued under a Prospectus and Certificate of Issue of Options authorized by CNBV via Circular Letter No. 153/30330/2011. With respect to such issues, 3 are still in effect for a total amount of Ps.122,387, and Generic issue of securities, pursuant to the terms of article 93 of the abovementioned Law. During the last three years, reports required by Mexican and foreign regulations on relevant events and periodic information have been delivered in accurate and timely manner. During the last three years, Banco Santander (México) has duly complied with the delivery of reports, as required, and such other information that, pursuant to the applicable regulations, is obliged to deliver to CNBV, the Central Bank of Mexico, and the BMV. Likewise, as required by the applicable laws and regulations, relevant events have been dully notified. In addition, CNBV authorized via Circular Letter No. 153/6393/2013 as of March 13, 2012, the registration and public offer for up to 99, ,000 Options to be issued by Banco Santander (México). f) Relevant changes in the rights on securities registered in the Registry. Not aplicable. g) Use of Funds Not aplicable. h) Public Documents This Annual Report may be looked up at the Internet site of CNBV, or in the Informatio Center of the BMV, located at Paseo de la Reforma No. 255, Colonia Cuauhtémoc, C.P , México, D.F. or in its web site, In addition, this Annual Report is available for investors at our Internet web page, Likewise, investors may obtain a copy of this Annual Repost via written request to: Mr. Gerardo Freire Alvarado, Executive Director of Investor Relations, or Jeanette Dávalos Contreras, Director of Investor Relations, who are the contact persons for investors and may be contacted at the offices of Banco Santander (México) located at Avenida Prolongación Paseo de la Reforma No. 500, Colonia Lomas de Santa Fe, Mexico City , or at the following phone number: +(52) investor@santander.com.mx. Annual Report Banco Santander (México)

40 2) THE ISSUER a) History and Background of the Issuer Banco Santander México was incorporated on November 16, 1932 under the name of Banco Mexicano. In 1955, Sociedad Mexicana de Crédito Industrial (subsequently, Banco Somex), incorporated in 1941, acquired a majority shareholding of the stocks of Banco Mexicano. In 1958, Banco Mexicano merged to Banco Español, and Banco Mexicano was the surviving entity from such merger. In 1970, Banco de Londres y México mergered into Compañía General de Aceptaciones (a former stockholder of Banco de Londres), and the surviving entity was Banco de Londres y México under a new name, Banca Serfin. In 1992, Grupo Financiero Serfín was incororated after the acquisition of Banca Serfín by Operadora de Bolsa. In 1979, Banco Mexicano modified its corporate name to Banco Mexicano Somex, S.A., operating as a multiple banking institution. In 1982, the Mexican commercial banks were nationalized by the Mexican Government. In 1990, the Constitution of the United States of Mexico was amended to allow the privatization (again) of Mexican commercial banks and the Mexican Government enacted the Law on Credit Institutions leading to the privatization of said banks from As part of this privatization process, in 1992, Grupo InverMéxico acquired Banco Mexicano Somex, and adopted the name of Banco Mexicano, S.A., Institución de Banca Múltiple, Grupo Financiero InverMéxico. In 1997, Banco Santander España acquired Grupo InverMéxico, which turned into Grupo Financiero Santander Mexicano; later on, Banco Mexicano turned into Banco Santander Mexicano. In May, 2000, Banco Santander España acquired Grupo Financiero Serfín, which merged to Grupo Financiero Santander Mexicano and changed its corporate name to Grupo Financiero Santander Serfin. In 2001, Banco Santander Mexicano adopted the corporate name of Banco Santander Mexicano, S.A., Institución de Banca Múltiple, Grupo Financiero Santander Serfín. In the beginning, Banco Santander Mexicano and Banca Serfin initially operated independently. In 2004, Banca Serfin was merged into Banco Santander Mexicano, with the surviving entity being Banco Santander Serfin, S.A., Institución de Banca Múltiple, Grupo Financiero Santander Serfin. Subsequently, in 2006, the Bank was renamed Banco Santander, S.A., Institución de Banca Múltiple, Grupo Financiero Santander. On February 21, 2008, the corporate name of the Bank was changed to Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander. We own 99.99% of the Bank s capital stock. On December 23, 2010, Banco Santander Mexico entered into a stock and assets purchase agreement to acquire the residential mortgage business of General Electric Capital Corporation and its subsidiaries, or GE Capital, in Mexico, or the GE Capital mortgage business. The purchase price for the acquisition was Ps.2,042 million (U.S.$157 million) and, in addition, we repaid at closing to GE Capital the Ps.21,009 million (U.S.$1,620 million) intercompany debt at that date relating to the GE Capital mortgage business, which GE Capital historically had financed through intercompany debt. The total volume of assets at the time of closing was Ps.23,904 million (U.S.$1,844 million), including a total loan portfolio of Ps.21,926 million (U.S.$1,691 million), while the total volume of liabilities was Ps.21,494 million (U.S.$1,658 million). The transaction closed on April 29, The acquisition made us the second-largest provider of residential mortgages in Mexico in terms of residential mortgages outstanding in 2011, as determined in accordance with Mexican Banking GAAP, according to information published by the CNBV.. In November 2012, Banco Santander Mexico completed a debt offering in international markets for an amount of U.S.$1 billion. The securities were issued and placed pursuant to Rule 144A and Regulation S of the American Securities Act of Interests are to be paid on a six-monthly basis, every May 9 and November 9, from May 9, The principal amount will be paid at the maturity of the securities (November 9, 2022). Securities will generate interests at an annual rate of 4.125%. The principal amount will be paid at the maturity of the securities or, if applicable, the date of early settlement. Alliance for Merchant Processing in Mexico On December 22, 2009, Banco Santander (México) and Elavon Merchant Services México ( Elavon ) entered into a Rights Purchase Agreement ( RPA ) via which Banco Santander (México) sells, transfers and assigns to Elavon the rights on certain earning generated by merchant processing and the title on certain assets used in connection to merchant processing. The purpose Annual Report Banco Santander (México)

41 of this agreement is that Elavon carries out the management of the Merchant Processing. Elavon is a worldwide merchant processor, affiliate of US Bank, and it has similar alliances in Spain, United Kingdom and Puerto Rico. The main contributions of are its know-how, its product and services portfolio, multinational customers with presence in Mexico and its access to the investments required by this business.. On January 2010, Banco Santander (México) and Elavon executed an agreement of commercial alliance in order to share earnings and expenses related to merchant processing, which is detailed in the document named "Alliance Agreement". Under this document, the parties agree that only for tax, records, reporting and payment purposes, the Alliance in established as a Joint Venture and the payment of the Purchase Price is to be considered as a cash contribution to the Joint Venture, and the amortization of assets purchase will be performed as part of the Joint Venture. During January 2010, certain clauses and conditions included in the agreements such as payment of the sale price, were fulfilled, as well as the approval by the applicable authorities so that this date were to be considered for legal, fiscal and accounting purposes, as the one for the substantial transfer of all the rights and obligations including the corresponding acknowledgement in the accounting records of the income and profit derived from such transaction. In January, as closing of this transaction and pursuant to the practices dictated by the Commission, the Bank acknowledged in the income statement, within the item of discontinued transactions, a profit (net of taxes) for Ps million. Third-Party Branches Agreement with Telecomm. In January 2010, CNBV granted to Banco Santander (México) the Safety Certification on the encryption of information and authentication of customers for the scheme of third-party branches with Telecomm. In February, Banco Santander (México) and Telecomm began operations under this scheme. This agreement allows Banco Santander (México) to complement its national coverage, adding the 1,575 offices of Telecomm to the 1,000 branches of the Bank at national level. In addition to cash withdrawal and deposits services, Banco Santander (México) offers the service of clarifications via this third-party branch, and it is the only bank offering this service through Telecomm. Issue of Unsecured Bonds of Banco Santander (México). On April 22; 2010, Banco Santander (México), an affiliate of Grupo Financiero Santander México, placed in the market Ps.5,000 million via the sale of a three-year bond. These Unsecured Bonds were issued at variable rate, with a premium over 28- day TTIIE rate. The interest rate for the first period was 5.07%, in accordance with the issue prospectus. The bond was rated as Aaa by Moody s and AAA by Fitch México, the highest level in the domestic investment grade scale in both rating agencies. Early Redemption of Subordinated, Preferred, Unsecured, Voluntarily Convertible into B Series Stock Obligations of Banca Serfin (today, Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México). On September 23, 2010, Banco Santander (México), previous authorization of the Central Bank of Mexico, performed the payment in advance of the 150,000 subordinated, preferred, unsecured obligations, voluntarily convertible into B Series stock of Banca Serfin (BSERFIN04), issued on November 30, 2004, via the Nassau branch, in Bahamas, to their holders Banco Santander Central Hispano, S.A. (today, Banco Santander, S.A. (España)) and Bank of America Corporation. The amount paid to holders was U.S.$151.4 million, including principal amount and interest. Early Redemption of Subordinated, Preferred, Unsecured, Voluntarily Convertible into B Series Stock Obligations of Banco Santander Serfin (today, Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México). On September 23, 2010, Banco Santander (México), previous authorization of the Central Bank of Mexico, performed the payment in advance of the 150,000 subordinated, preferred, unsecured obligations, voluntarily convertible into B Series stock of Banco Santander Serfin (BSERFIN05D), issued on March 31, 2005 via the Grand Cayman, B.W.I. branch, to their holders Banco Santander Central Hispano, S.A. (today, Banco Santander, S.A.(España)) and Bank of America Corporation. The amount paid to holders was U.S.$152.1 million, including principal amount and interest. Annual Report Banco Santander (México)

42 Sale of Servicio PanAmericano de Protección y Servicio, S.A. de C.V. (Serpaprosa) During November 2010, Banco Santander (México) sold its interest on Servicio PanAmericano de Protección y Servicio, S.A. de C.V. (Serpaprosa). The sale price was Ps.191 million and such transaction derived in a loss that amounted Ps.73 million, registered in the income statement within item "Other Operation Results". Issue of Unsecured bonds (certificados bursátiles) and Term Deposits (certificados de depósito bancario) of Banco Santander (México). On January 31, 2011; Banco Santander (México), subsidiary of Grupo Financiero Santander, issued Unsecured Bonds for an amount of Ps.5,000 milion at a 3-year term, Variable Rate based on 28-day TIIE plus 20 base points. The interest rate for the first period was 5.05%, according to the issue prospectus. On March 22, 2011, Banco Santander (México) carried out two issues of Unsecured Bonds for an amount of Ps.6,400 million, with the following characteristics: Unsecured Bonds (Certificados Bursátiles Bancarios) at 2-year term, for an amount of Ps.3,700 million at a variable interest rate based on the 28-day TIIE plus 15 base points. Unsecured Bonds at a 10-year term for an amount of Ps.1,700 million at a fixed interest rate of 8.91%. On March 22, 2011, the Bank issued Term Deposits (Certificados de Depósito Bancario) at a 2-year term for an amount of Ps.1,000 million at a variable interest rate of 28-day TIIE plus 14 base points. The three issues of Unsecured Bonds and the issue of Term Deposits received an Aaa rating from Moody s and AAA from Fitch México, the highest level in the domestic investment grade scale of both rating agencies. On May 6, 2011, Banco Santander (México) issued Term Deposits (Certificados de Depósito Bancarios) for an amount of Ps.4,500 million at a 360-day term, Variable Rate based in 28-day TIIE plus 8 basis points. On July 7, the reopening of the issue of Unsecured Bonds from January 31, 2011 took place with an increment in the amount of Ps.730 million, at a 2.3-year term and variable rate based in 28-day TIIE plus 20 basis points. On September 28, 2011, Banco Santander (México) issued Term Deposits for an amount of Ps.2,800 million at 5-year term, Variable Rate based in the 28-day TIIE plus 50 basis points. On October 20, the issue of Unsecured Bonds BSANT 11-4 as of September , was reopened with an increment in its amount of Ps.1,300 million, at a 4.6-year term and a variable rate based in 28-day TIIE plus 50 basis points. Purchase of Credit Portfolio. During the months of January, February and April of 2011, in order to manage at a domestic level the relations with regional customers, Banco Santander (México) purchased credits from Mexican companies or those with a Mexican parent company from foreign banks members of Grupo Santander. The acquisition of these credits was performed at market value. The nominal value at the date of acquisition was Ps.18,394 million. Santander completes the acquisition of the mortgage business of GE Capital in Mexico (currently, Santander Hipotecario, S.A. de C.V., SOFOM, E.R.). On April 29, 2011, Santander concluded the acquisition off the mortgage business of GE Capital Corporation (GE) in Mexico, once all the conditions in the purchase agreement announced on December 24, 2010 were fulfilled. With this transaction, Santander México consolidates his position as the second most important financial entity within the mortgage business in Mexico, and as a leading bank within the medium and residential segment. This transaction included the acquisition of four entities and other assets regarding the mortgage business. Upon the closing of the transaction, total assets were Ps.23,051 million, including a total credit portfolio amounting Ps.21,926 million, and liabilities for Ps.21,494 million. These entities and the corresponding assets were purchased by Banco Santander (México), S.A., and a subsidiary company was incorporated. This transaction represented a payment of Ps.2,042 million of share capital and Ps.21,009 million for the substitution of funds previously provided by GE's entities. Annual Report Banco Santander (México)

43 Nowadays, this mortgage business is carried out via a company named Santander Hipotecario, as a complement to the business of mortgage sale performed by the Bank through more than 1,000 branches along the country, being brokers the primary distribution channel. Relevant Events Banco Santander México and Fibra Uno agree upon a purchase of real estate. In April, 2012 Banco Santander México and Fibra Uno, S.A. de C.V, agreed the acquisition of 220 properties owned by Banco Santander México with an approximate value of Ps.3,334 million, to immediately rent them to Banco Santander México for a term of 20 years and an annual rent of approximately Ps.275 million and the commitment to invest in improvements by Fibra Uno, S.A. de C.V., for an amount of approximately Ps.100 million. Said transactions are subject to the compliance of the suspension clause that consists on the notification and approval by the Federal Competition Commission. Issue of Senior Debt Notes. On November, 2012, Banco Santander México carried out the issue of debt securities named Senior Notes for an amount of U.S.$.1,000,000,000, issued and placed pursuant to Rule 144A and Regulation S of the Securities Act of 1993 of the USA. Actions of Rating Agencies. Standard & Poor s On March 12, 2103, Standard and Poors changed from stable perspective to a positive perspective and confirmed the ratings for Banco Santander (México) and other 5 banks in Mexico. On October 22, 2012, Standard and Poors confirmed the ratings for Banco Santander (México), with a "stable" perspective. Said ratings were maintained in BBB global long term scale and A-2 global scale short term. Systemic relevance was rated "High" when previously it has been rated as moderate. On July 11, 2012 Standard & Poor's Ratings Services improved its short term global scale ratings in domestic and foreign currencies for Banco Santander (México)and other 5 banks in Mexico, from 'A-3' to 'A-2'. Ratings from these rating agencies were limited by the global scale in foreign currency rating of the sovereign (Mexico) and the change did not reflected an improvement in the opinion of the Rating Agency for short term with respect to these institutions. The rest of ratings and perspectives remained unchanged. Moody s On June 28, 2012 Moody's Investors Service decreased ratings with no support of financial strength (BFSR) and BCA's of six Mexican banks, including Banco Santander (México). Such ratings are derived from the updating of Moody's assessment of the relationship between credit profiles of countries and the financial institutions located in such countries, and they also include the recent actions taken by Moody's with respect to European banking groups. Long term deposits and debt GLC ratings for Santander México decreased one level, to A3, with a stable perspective, from A2, and they include one level of improvement derived from the assessment of systemic support of Moody's. Short term deposits rating was also decreased to Prime-2, from Prime-1. This action was derived from: (i) the decrement in BCA without support of Santander México to baa1, from a3; and (ii) the decrement of BCA without support for the Spanish head office Banco Santander S.A. (Santander) to baa2 in decreasing review, from a3. Fitch Ratings On June 13, 2012 Fitch Ratings carried out rating actions on affiliates in Latin America of Banco Santander (SAN), after the decrement of global ratings as issuer (IDRs) and the viability rating (VR) of SAN as of June 11, Annual Report Banco Santander (México)

44 IDRs and national scale ratings of Banco Santander (México) (SAN México) are now derived from VR in bbb+, similar to the parent company. Perspective of long term IDRs continues to be negative as the parent company's, given that the rating agency does not consider feasible a complete dissociation between the ratings of SAN and SAN México. VR of SAN México reflects the opinion of Fitch in the sense that, given its financial condition, it may be above the VR of the parent company (under a scenario of moderate degradation) provided deterioration in the perception of the market with respect to the affiliate does not occur. Support Ratings decreased from 1 to 2 due to the inability of the parent company to provide support, even though Fitch considers that, given its systemic relevance, the Mexican Government (Long term IDR in foreign currency of BBB and in domestic currency, BBB+ with stable perspective) would probably provide support if required, therefore, a SRF of BBB- was designated. Awards and recognitions Santander is recognized as the "Bank of the Year" by The Banker On November 2012, Santander received recognition as Bank of the Year 2012 by the prestigious magazine The Banker. Banco Santander was acknowledged this year due to the efficiency in transactions, the ability to innovate and its aggressive commercial offer that, along to a healthy portfolio, allowed the growth of the net income in almost 35% at the end of year Santander Receives the Award of "Bank of the Year" by Euromoney. In 2012 and 2010 Euromoney named Banco Santander (México) as the best bank in the category Equity House in Mexico, and in 2012, Euromoney also acknowledged our Private Banking Unit as the best within the category super prosperous", defined as customers that worth U.S.$0.5 to U.S.$1.0 million. Santander Receives three Recognitions from NAFIN due to its Support to PyMes (Small and Medium Enterprises) On November 2012, Banco Santander received three awards due to the work for financing Small and Medium Enterprises with resources from Nacional Financiera (Nafin), being the first institution to win in three different categories during the same year. During the NAFIN awards ceremony to Financial intermediaries, Banco Santander received awards within the categories "Government Suppliers", "Small Taxpayers Regime ("REPECOS", in Spanish) and "Guarantees" due to its leadership and innovation in such categories. As of December, 31, 2012, the subsidiaries of the Bank represented 11.41% of the total assets, as follows: Santander Consumo, S.A. de C.V. SOFOM, ER, Its main activity is to provide all types of credits with or without guarantee, to national or foreign individuals or corporations, as well as to issue all kinds of credit cards via current account credit agreements. Santander Hipotecario, S.A. de C.V. SOFOM, ER, Its main activity is to provide mortgages to national individuals or corporations. Instituto Santander Serfin, A.C., Its main activity is to provide courses, seminaries, lectures, studies and all kinds of events related to the promotion of financial and exchange education. Banco Santander, S.A. Fideicomiso , tiene como objeto celebrar, compensar y liquidar operaciones con contratos de futuros y opciones por cuenta de terceros y suscribir las acciones del capital social del Mercado Mexicano de Derivados, S.A. de C.V. (MexDer). Fideicomiso GFSSLPT Banco Santander, S.A., Its objective is to enter into, clear and settle transactions futures and options agreements in behalf of third parties and to subscribe stocks of share capital of Mercado Mexicano de Derivados, S.A. de C.V. (MexDer). Santander Holding Vivienda, S.A. de C.V., Its main activity is to acquire stocks of financial companies. Santander Servicios Corporativos, S.A. de C.V., Its main activity is to hire or provide any kind of administrative, operative, accounting, financial, technical assistance, research, human resources, supervision, marketing or commercial development services in Mexico or abroad. Annual Report Banco Santander (México)

45 Santander Servicios Especializados, S.A. de C.V., Its main activity is to hire or provide any kind of administrative, operative, accounting, financial, technical assistance, research, human resources, supervision, marketing or commercial development services in Mexico or abroad. : The table below shows the percentage of interest of the Bank in each subsidiary as of December 31, 2012 Company % of Interest Santander Consumo, S.A. de C.V., SOFOM ER 99.99% Santander Hipotecario, S.A. de C.V., SOFOM ER 87.87% Instituto Santander Serfin, A.C % Banco Santander, S.A., Fideicomiso % Fideicomiso GFSSLPT, Banco Santander, S.A % Santander Holding Vivienda, S.A. de C.V % Santander Servicios Corporativos, S.A. de C.V % Santander Servicios Especializados, S.A. de C.V % b) Description of the Business. i) Main Activity Banco Santander Mexico is a corporation (sociedad anónima) authorized to operate as a multiple banking institution (institución de banca múltiple) under the Mexican Banking Law. Banco Santander (Mexico) is a leading multi-purpose bank in Mexico in terms of total assets, net income and loan portfolio as of December 31, As of December 31, 2012, Banco Santander Mexico had total assets of Ps billion, total loans net of allowances of Ps billion, total deposits of Ps billion and shareholders equity of Ps.96.1 billion. As of December 31, 2012, Banco Santander Mexico employed 13,142 people and had 1,142 branches located throughout Mexico. Its headquarters are located in Mexico City, Federal District, and it operates in every state in Mexico. Banco Santander Mexico provides a broad range of retail and commercial banking services to its customers, including Mexican peso and foreign currency-denominated loans to finance a variety of commercial transactions, trade, foreign currency forward contracts and credit lines and a variety of retail banking services, including mortgage financing. In addition to its traditional banking operations, Banco Santander Mexico offers a variety of ancillary financial services including financial leasing, financial advisory services and mutual fund management. Individuals Retail Banking Private banking for individuals with net wealth in excess of Ps.3.5 million (Ps. 3 million before January, 2013) SMEs with annual gross revenues of less than Ps.100 million Middle-market companies and large domestic companies with annual gross revenues between Ps.100 million and Ps.1,050 million Institutions, comprised of Mexican federal government agencies, state agencies and municipalities, as well as Mexican universities Global Wholesale Banking Offers bank services and products to our segment of large customers, including domestic and international corporate companies, institutions and financial groups. It also structures especialized products of high added value to institutions and corporations classified in segments of Retaol Banking, in order to satisfy specific needs. The products and services offered are divided as follows: Global transaction banking (GTS), which includes cash management, global custody and security services, trade finance and funding alternatives for institutions with international operations Credit markets, which includes origination, structurinf and execution of financing if large projects, syndicated loans and corporate debt issues in national and international markets. Corporate Finance, which offers services of advisory, origination and execution of issues in stock markets as well as financial and strategic advisory in mergers and acquisitions processes. Annual Report Banco Santander (México)

46 Equity products and services, including brokerage in equity markets, brokerage in derivative markets, design and provision of over-the-counter derivatives with variable rate. underlying assets and an analysis department that issues reports and investment recommendations. Rates products and services, where we offer the design and provision of over-the-counter derivatives with underlying assets of rates, inflation of fixed rate, as well as the design and execution of transactions and hedging on interest rate and exchange rates. Proprietary Trading, responsible for the management of our proprietary investment portfolio. In addition, we have a Corporate Activities operating segment comprised of all other operational and administrative activities that are not assigned to a specific segment or product listed above. These activities include the centralized management of our financial investments, the financial management of our structural interest rate risk and foreign exchange position and the management of our liquidity and equity through securities offerings and the management of assets and liabilities. Retail Banking General Banco Santander Mexico s Retail Banking segment s activities include products and services for private banking clients, individuals, SMEs, middle-market companies, large domestic companies and institutions. As of December 31, 2012, Banco Santander Mexico s Retail Banking segment accounted for approximately 74% of our total loan portfolio based in the total principal amount of loans to this sector, approximately 84% of our total demand and term deposits, 77% of our financial income, 85% of our commissions income and 58% of our income before taxes. Retail Banking of Banco Santander México provided services to approximately 10 million customers as of December 31, 2012, an increment of approximately 712,000 customers from December 31, At the end of 2012, our branches and alternative channels provided more than : 890,000 credit cards, 580,000 consumer loans and 16,000 mortgages. Individuals We classify our individual customers as high income, or premier, customers with a monthly income in excess of Ps.35,000; mid-income, or preferred, customers with a monthly income between Ps.7,500 (U.S.$578) and Ps.35,000 (U.S.$2,699); and low-income, or classic, customers with a monthly income below Ps.7,500 (U.S.$578) In addition, we classify customers according to their life stage. We believe that this classification of customers allow us to offer our customers a product portfolio according to their specific needs. We are focused on premier and preferred customers, a segment that we have observed with a growth as a result of our efforts to provide innovative products and services. We began to classify those customers eligible as premier or preferred on April, 2010, and soon after, we began to sell accounts in packages of products or services known as Membresía Premier and Círculo Preferente to our premier and preferred customers, respectively. As of December 31, 012, individuals represented 38% of our total loans and 30% of our deposits. Individuals (including those in our private banking business described below) represented 60% of our commissions and fees income and 30% of our income before taxes for the year ended in New customers, individuals, are classified according to their social and economic status as classic, preferred or premier customers (as described below in -Retail Banking Private Baking ). Individuals are classified in sub-segments pursuant to their age, and each sub-segment is offered custom products according to their social and economic status and age. By this strategy, we aim to build loyalty of customers by developing products that satisfy their financial needs along their financial life cycle. We follow different service models for each type of customer: Annual Report Banco Santander (México)

47 Premier customers: We provide customized financial and investment services to its premier customers. These customers are assigned a representative who is familiar with the customer s individual needs and who can recommend and provide access to specialized investment products and personalized financial services. The premier banking unit is the Retail Banking division s initiative to provide its customers with solutions tailored to their financial planning needs. Through Casa de Bolsa Santander, the brokerage subsidiary of GFS, Banco Santander Mexico offers securities trading services to its premier customers. The premier banking unit has 70 exclusive offices called Santander Select, which provide services in a comfortable and private environment to our premier customers. In addition, 1,058 of Banco Santander (Mexico) s representatives provide attention to approximately 439,164 customers in its 1,142 regular branches throughout Mexico. Preferred customers: We use a multichannel service model, supported by its account managers as well as operators in our customer service centers for our 2,060,235 preferred customers as of December 31, We provide differentiated services with preferential benefits such as insurance, additional credit cards, consumer loans and automated payments to customers with an increasing potential. We consider customers with increasing potential those with a monthly income between Ps.7,500 (U.S.$578) and Ps.35,000 (U.S.$2,699). Classic customers: Our emphasis is on serving customers through alternative channels. In our branches, these customers are served under a standardized model through pools of account executives, with a sales-oriented approach. Banco Santander (Mexico) offers differentiated services such as preferred bundled offers and payroll benefits to customers with growing potential. As of December 31, 2012, this segment had 7,196,053 customers. Within retail banking, customers classified as individuals, along with private banking customers, represented 70% of our fees and commissions income and 52% of our income before taxes for the year ended on Private Banking We classify our individual customers with a net wealth in excess of Ps. Ps.3.5 million (Ps.3 million, before January, 2013) as private banking customers. We provide customized financial and investment services to these high net worth individuals. These customers are assigned to a specialized banker who is familiar with the customer s individual needs and who can recommend and provide access to specialized products and services. The private banking model is based on full-service representation to our customers by means of specialized bankers, who provide service to a limited number of customers and help customers to monitor their portfolios and adapt to changing conditions. We offer a wide range of financial products to our private banking customers and offer customers the opportunity to invest in funds managed by other financial institutions and independent asset managers. In order to provide a differentiated business model, we have two segments in private banking, depending on the total balance of the customer: Private Banking customers with wealth in excess of Ps $3.5 million and Private Banking customer with net wealth in excess of Ps million. We offer to these customers the same products and services we offer to our private banking customers, but we customize such products and services according to their specific needs. Our private banking unit has been recognized as the second-best supplier in Mexico according to the recent Euromoney Private Banking Survey It has one of the largest numbers of mutual funds and products ranging from fixed income to equity to capital protection funds. The private banking unit has been implementing a commercial and business model according to best practices and has developed a new strategy to offer loans and transactional banking products specially designed for our Private Banking and Private Wealth customers. As of December 31, 2012, our private banking unit had 28 offices and 127 specialized bankers located throughout Mexico who provide service to approximately 21,221 customers. As of December 31, 2012, our private banking business managed approximately Ps.167,581 in assets and had approximately private banking accounts. Annual Report Banco Santander (México)

48 Small Market Enterprises (SME'S) As of December 31, 2012, our SMES line of business represented 10.0% of its total loans portfolio and 6% of our deposits..within retail banking, SMEs represented 9% of our commissions income and 9% of our income before tzxes as of December 31, We offer to our customers in this business line a wide range of products, including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, current accounts, savings products, mutual funds and insurance brokerage. Banco Santander (Mexico) s Retail Banking segment provides banking services and originates loans for SMEs. The maximum level of credit extended to such companies is generally limited to approximately Ps.8,000,000 (U.S.$617,008). In 2010 we developed revolving lines of credit for SME customers that do not require collateral. We named these credit lines as Crédito Ágil. These credit lines are limited to Ps.8,000, (U.S.$617,008) and are primarily used by SME customers to finance their working capital needs. Crédito Ágil can also be used as a special purpose credit card, which allows a large number of SME customers to access term financing for the first time. Approximately 73% of the SMEs loans portfolio has certain collaterals granted by NAFIN. Our SMEs business represents Ps.33,175 million of our loans portfolio as of December 31, 2012, an increment of 71.2% from December 31, This increment reflects the positive results obtained due to the improvement in services to customers during For example, we offered a wider range of products and we improved our credit processed, which derived in a faster and better customer service. Likewise, we created a specialized network of executives for SMEs exclusively dedicated to provide services to SMEs. SME's specialized network included 539 executives and twelve specialized offices (SMEs centers) as of December 31, Middle-Market Companies and Large Companies This business line is constituted by companies with annual revenues between Ps.100 million (U.S.$7.7 million) and Ps.1,050 million (U.S.$80.9 million) and fulfill other qualification requirements. We offer middle-market companies a wide range of products, including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, current accounts, cash management, treasury services, financial advisory services, savings products, mutual funds and insurance brokerage. We offer to our corporate customers with higher income the same products and services we offer to wholesale banking customers. As of December 31, 2012, we had 35,635 middle-market and large companies customers, As of December 31, 2012, we had 27 specialized offices throughout Mexico in order to service our corporate customers. Our enterprises portfolio represented Ps.79,314 million (U.S.$6,117 million) of our loans portfolio as of December 31, 2012; an increment of 8% with respect to The quality of this portfolio has no been affected by growth, in fact, the default rate decreased from 2.4% as of December 31, 2011 to 1.3% as of December 31, As of December 31, 2012, our corporate customers represented 23% of our loans portfolio and 16% of our deposits, as well as 10% of our commissions income and 12% of our income before taxes for the year ended in The middle-market business is an important source of deposits and most of its revenues come from credit products. This business has consistently increased its array of products designed to meet our customers needs in terms of cash management and collection solutions. Due to the low penetration in this market by Mexican banks, we believe we have an opportunity to increase the provision of loans and cash management and collections solutions to middle-market corporations. In addition, Banco Santander Mexico has significantly increased cross-selling within this business unit. We have established a model to serve customers that actively use at least three products, including investment, credit, payroll administration and cash management, among others. We refer to these clients as Vinculados Transaccionales (Transactionally Linked). Our sales team has focused on increasing the volume of transactions of our middle-market corporations customers and, as a result, we had more than 5,200 Vinculados Transaccionales customers as of December 31, 2012, an increase of 29% from December 31, Government Institutions This business unit caters to Mexican federal government agencies, states agencies and municipalities as well as Mexican universities. Institutional customers are a potential source for new individual payroll customers. As of December 31, 2012, these customers represented 4% of our total loans portfolio and 20% of our deposits. Institutions accounted for 3% of our fee income and 3% of our operating profit before tax in the year ended December 31, We had 6,493 institutional customers as of December 31, We have 12 specialized representative areas in Mexico that offer tailor-made products to meet our institutional customers needs. Among the products we offer to our governmental clients are current accounts, loans, payroll processing, cash Annual Report Banco Santander (México)

49 management, collection services and payment processing services. Serving these institutions allows us to cross-sell current accounts, credit card services, loan products, insurance products and collection services to their employees. Global Wholesale Banking General Global Wholesale Banking is the business unit entrusted with meeting the needs of corporate and institutional customers which, because of their size, complexity or sophistication, require customized services and value-added wholesale products. The customers in our Global Wholesale Banking segment generally consist of large Mexican companies that require sophisticated services such as investment banking services and certain Mexican and non-mexican multinational companies that are served globally by the Santander Group. This segment also includes national and international financial institution groups and large institutional clients. This segment provides comprehensive products and services relating to finance, guarantees, mergers and acquisitions, equity and fixed income, structured finance, international trade finance, cash management services and e-banking, structured loans, syndicated loans, acquisition financing and asset and capital structuring, among others, through two branch offices located in Mexico City and Monterrey. The Global Wholesale Banking segment uses its range of products, knowledge of the local market and efficient execution in order to customize the financial solutions it offers to our customers. As of December 31, 2012, the Global Wholesale Banking segment served 384 customers and accounted for 26% of our total loan portfolio, 15% of our total demand and time deposits, 14% of our fee income and 23% of our operating profit before tax. The main products and services that our Global Wholesale Banking segment provides are: Global Transaction Services(GTS). which includes cash management, trade finance and funding alternatives for international trade transactions; Credit markets, which includes origination, structuring and execution for financing projects, syndicated loans and issues of corporate bonds in debt markets. Corporate Finance, which offers services of advisory, origination and execution of issues in stock markets as well as financial and strategic advisory in mergers and acquisitions processes. Equity Products and Services, including brokerage in equity markets, brokerage in derivative markets, design and provision of over-the-counter derivatives with variable rate, underlying assets and an analysis department that issues reports and investment recommendations. Treasury Trading Activities. where we offer the design and provision of over-the-counter derivatives with underlying assets of rates, inflation of fixed rate, as well as the design and execution of transactions and hedging on interest rate and exchange rates. Global wholesale banking products and solutions for retail customers, which offers retail segment clients tailor-made wholesale banking products and solutions in order to meet specific needs; and Proprietary trading, which is responsible for the management of our proprietary investment portfolio. Global Transaction Services - GTS Our GTS unit offers to customers of Wholesale Banking of Banco Santander México, products and services focused on easing and improve the most common bank transactions of corporate and institutional customers, such as: Annual Report Banco Santander (México)

50 Cash management. It offers to our customers our platforms of electronic banking, making it possible to perform payments and collections and an automated and efficient management of liquidity, thus providing the customers with a better control of cash flows. Basic Financing. It Provides short term financing solutions to customers. Commercial Financing. It includes our products for financing of production chains, such as confirming, factoring and leasing, among others. Trade Finance. We have a team specialist in origination, structuring and execution of foreign trade flows financing, including loans and guarantees management. During 2012, the magazine "Trade Finance" named Banco Santander (México) the best bank within the category Best trade bank in Mexico.. Custody. It includes management, settlement and custody services for the securities of corporate and institutional customers. Credit Markets Credit market transactions of Global Wholesale Banking are the responsibility of our Credit Markets department, and it includes project financing, debt markets, syndicated credits and financing of acquisitions and structuring of assets and capitals: Project Finance. The market for project finance in Mexico showed strong growth during Banco Santander (Mexico) has been able to close transactions in different sectors such as renewable power, petrochemicals, infrastructures and transport. During the last years, the Bank has diversified its portfolio and it is still one of the leading banks in consulting, structuring and financing of infrastructure projects. He have led the financing of a wind farm named Eoliatec del Itsmo, where we supported Electricite de France as documentation agent. We also took part in the issue of American debt market of Project Bonds for projects Oaxaca II and IV, two wind farms, for the Spanish company Acciona, which represented the first issue of its type in Latin America. We took part in financing the petrochemical project Etileno XXI, which was the biggest U.S. dollars-financing in the Mexican market. Within the infrastructure, Santander also took part in the financing of the manufacture of the subway cars for Line 12 of Mexico City's Subway, a project carried out by CAF. In 2012, Santander participated in the financing of the new platform "La Muralla IV" of Grupo R, which is to be operated by Pemex Exploración y Producción in the Gulf of Mexico. Debt Markets. We have an active participation in Mexican and international debt markets. During 2012, we acted as leading placement agent in the offers from PEMEX, CFE, Holcim and Liverpool, among others. Likewise, we ranked fourth in terms of volume and domestic market, according to Bloomberg, and we took part in some of the biggest debt offers from Mexican issuers such as Petróleos Mexicanos (Ps.11,500 million) and Comisión Federal de Electricidad (Ps.13,500 million). Within international debt markets, we took part in some of the biggest offers from Mexican issuers such as Petróleos Mexicanos (U.S.$1,750 million) and Banco Santander México (U.S.$1 billion). Syndicated Loans and Financing of Acquisitions. During 2012, we ranked sixth among global banks, according to Loan Connector; and third among Mexican banks (our own estimates) with respect to syndicated loans in Mexico, and we were third place by number of transactions, pursuant to LoanConnector. In addition, we acted as structuring and placement agent in the following transactions: Cemex, Gruma, Atento, Gas Natural, among others. Asset & Capital Structuring. This area offers structuring services for investments in assets by using an optimal mix of Capital and Debt and structuring of investments in strategic projects for emerging sectors, such as renewable power and power efficiency. During 2012, we continued to invest Seed Capital in renewable energy projects by purchasing project El Sauzal, the 200 MWatts- wind farm located in Oaxaca. Corporate Finance The area of corporate finance of our Global Wholesale Banking department participates in the following activities: Mergers and Acquisitions This area provides investment banking services to public and privately held businesses, as well as in international transactions where one of the parties is Mexican. We offer a wide range of investment banking services with respect to mergers and acquisitions, including sell-side advisory, buy-side advisory, management buyouts, restructurings and capital raising services. As Annual Report Banco Santander (México)

51 part of Banco Santander Mexico s universal banking model, we are able to offer financing to the parties we advise via our Credit departments. During 2012, we acted as exclusive financial advisor in several transactions with its clients, including the sale and leasing of Santander (Mexico)'s branches and another private transaction in the commercial sector. During 2011, we closed two public merger and acquisitions transactions and five transactions in total (private and public). Equity Capital Markets During 2012, we acted as Global Coordinator in the subsequent international offer of the Fideicomiso de Infraestructura de Bienes Raíces FIBRA UNO, placed in Mexico and internaitonal markets for an amount of more than Ps.8,800 million (U.S.$679 million); we acted as Joint Global Coordinator of the Public Offer of Banco Santander, placed in international and Mexican markets for an amount of more than Ps.42,800 million (U.S.$3,301 million), being the greatest issue of an institution within the Mexican market. Likewise, we acted as local and international bookrunner in the public offer and subsequent offer of Vesta y Alsea, for a total amount of more than U.S.$383 million. As of December 2012, we ranked second, according to Bloomberg's information. Equity Products and Services Global Wholesale Banking offers to institutional and corporate customers, brokerage services in organized stock exchange markets, derivative markets, design and provision of over-the-counter derivatives and analysis and provision of market reports. The performance of such brokerage services is carried out by Casa de Bolsa Santander, a brokerage house subsidiary of Grupo Financiero Santander México. We offer brokerage services in markets via our direct participation in domestic markets or via other brokers in international markets. We offer services in primary market in collaboration with the corporate finance area, as the service of securities distribution in public offers of stocks. Through our participation in listed derivatives markets, we offer to our institutional customers, derivative products listed at international and domestic level. With respect to listed derivatives, we are a relevant participant in MexDer. During December 2012, we ranked within the top 5 among the most active brokers with respect to volume operated in futures (dollar futures and M10, M20, M30 bonds futures)and options (IPC and stock options). We also offer services on management, settlement and custody of stocks and equity portfolios of corporate and institutional customers. In 2012, Banco Santander (México) received the award "Domestic Commended"; "Cross Border Commended" and "Leading Clients Commended" within the Agent Banks in the 2012 Emerging Markets Survey carried out by the magazine Global Custodian; in that same analysis, Banco Santander also ranked first due to its number of domestic customers for custody services. Likewise, we offer our institutional and corporate customers, customized derivative products in order to manage and cover their financial risks and optimize the performance of their portfolios. Such derivatives are listed in over-the-counter markets. Treasury Trading Activities Global Wholesale Banking offers a variety of treasury products to our customers. We provide sophisticated and innovative derivative products to manage the market risk exposure to exchange rates and interest rates. We have an efficient hedging model based in a sales force specialized for each segment that allow us to have specialists committed to meet specific needs. We have structuring and product development teams that work for having an avant-garde portfolio of solutions for our customers. The global network of Banco Santander España, with its solid presence in Europe and Latin America, provide us with the ability to offer a wide range of international products, as it is the comprehensive service we offer to our domestic customers. In addition, we offer treasury products as a standard solution to medium and retail companies, providing improvements in hedges and returns. We have implemented intensive processes of adaptation designed to ensure that customers understand and accepts the risks inherent to derivatives markets. Annual Report Banco Santander (México)

52 Products of Global Wholesale Banking and Solutions for Retail Banking Customers. We have dedicated teams that provide customers of retail banking with customized wholesale banking products an solutions in order to meet specific needs. Our team of retail markets designs and provides derivative products adapted for retail banking customers, and distributes them through our branch network. Likewise, it provides customized derivative products customized for said customers with specific and complex requirements. Our retail investment banking team participates in structuring a variety of transactions such as project financing and acquisitions, issues of debt and stocks, mergers and acquisitions and structuring of assets and equity, in order to provide our customers with custom solutions that meet their specific needs in timely manner. Proprietary Trading The proprietary trading area of Global Wholesale Banking is responsible for the management of the proprietary books of Banco Santander (Mexico). In the management of the Bank s books, the Bank seeks to maintain recurrent results for each single individual book with the main objective of preserving capital. The decision-making process is based on fundamental aspects of each market, supported by technical views. The strict observance of these principles has allowed this activity to present sustainable results for the organization. The proprietary trading desks must comply with risk control policies established by Banco Santander Mexico s senior management and also with those applied worldwide by Banco Santander España. All positions and processes are strictly monitored and controlled by specialized market and operational risk teams and finance and compliance departments. Proper risks management for each financial market area and sustainable initiatives, such as social, environmental and corporate governance criteria are also part of the proprietary trading activity. Our Main Products Deposit-Taking Activity and Repurchase Agreements We offer to our Retail Banking customers a variety of deposit products such as: Current accounts (also referred to as demand deposits), which do not bear interest; Traditional savings accounts, which bear interest; and Time deposits, which are represented by certificates of bank deposits, which normally have a maturity of less than 36 months and earn interest at a fixed or floating rate. In addition, we accept deposits from financial institutions as part of its treasury operations, which are represented by certificates of interbank deposit, or CDIs, and which earn the interbank deposit rate. In addition to representing a significant source of stable funding for Santander Mexico, we regard each account holder as a potential customer for the full range of products and services we offer. We also execute repurchase agreements. Repurchase agreements are Mexican-law governed repurchase and resale agreements (reportos) pursuant to which a party agrees to a temporary purchase or sale of securities in exchange for (i) a specified premium to be paid or received and (ii) the obligation to resell or repurchase the underlying security. Under a circular issued by the Mexican Central Bank, Mexican banks may enter into repurchase operations with Mexican and foreign counterparts. Repurchase operations may be entered into in respect of bank securities, Mexican government securities, debt securities registered with the CNBV and certain foreign securities. Repurchase operations must be entered into under master agreements, such as the master agreements of the International Securities Market Association and the Public Securities Association. Collateral may be provided in connection with repurchase operations. As of December 31, 2012, repurchase agreements creditors amounted to Ps.73,436 million, a decrement of 40.2% with respect to December 31, We expect to continue using this source of funds due to its broad availability and low cost. Annual Report Banco Santander (México)

53 The table below presents a breakdown of Banco Santander (Mexico) s deposits by product type at the dates indicated. As of December 31, (Million Mexican Pesos) Demand Deposits: Interest bearing deposits 115, , ,238 Non-interest bearing deposits 95,243 68,061 55,674 Subtotal 210, , ,912 Time deposits: Notes with interest payable at maturity 139, , ,402 Fixed Term Deposits 6,287 17,779 6,732 Foreign currency time deposits 5,341 4,417 5,808 Subtotal 151, , , , , ,854 Repurchase Agreements 73, , ,254 Sales of collaterals or collaterals granted as 6,853 15,478 21,299 guarantee Total 442, , ,407 Credit Transactions The following table shows a breakdown of Banco Santander (Mexico)'s loan and credit portfolio by customer category at the dates indicated: December 31, Change, December 31, 2012 vs. December 31, 2011 Millions of pesos % (millions of pesos) Retail: Individuals , ,973 20, % SME's... 34,599 19,382 13, % Middle-market and large domestic companies... 77,890 73,321 5, % Institutions... 14,953 15,654 (701) (4.5%) Subtotal , ,330 39, % Corporate Customers... 88,485 91,343 (2,817) (3.1)% Total , ,673 37, % Retail lending General Banco Santander (México)We offer retail lending products to customers through our extensive branch network and on-site service units. We divided our customers into separate categories based principally on their monthly income (for individuals) and annual gross revenues (for businesses). we adapt our products and services according to the needs of each customer classification. Cabe resaltar que nuestros créditos e hipotecas son generalmente originados y administrados (incluyendo la cobranza de los mismos) internamente. Our loans and mortgages are generally originated and serviced internally. We believe our underwriting system has the capability to process large application volumes (greater than the expected volume for the upcoming years), maintaining the tight controls and information requirements to improve the decision models. Annual Report Banco Santander (México)

54 We make credit available to our customers through the various loan products listed in the table below. The table sets forth the composition of our individual and SME customer loan portfolio at the dates indicated. As of December 31, Change, December 31, 2012 vs. December 31, (Millions of pesos) (Millions of pesos) (%) Payroll loans 70,876 63,361 7, % Personal Loans 37,301 28,637 8, % Credit Card 33,175 19,382 13, % Mortgages 14,504 13,233 1, % SME's 11,830 8,477 3, % Others (60) (22.6%) Total 167, ,355 34, % The Santander Hipotecario residential mortgage portfolio amounted to Ps.19,025 million and Ps.19,423 million as of December 31, 2011 and December 31, 2012, respectively. The following table shows the annual interest rate applicable to the main categories of retail lending products at December 31, Annual Interest Rate ( %) Credit cards Personal loans (includes payroll loans, personal loans and others) Mortgages Payroll Loans Payroll loans are a typical consumer lending product with a differentiated method of payment. We grant loans (after conducting a risk assessment) to clients that receive their salaries through a current account at the Bank. The loan payments are made through automatic charges to the current account and are scheduled according to the payroll frequency of each employee (weekly, biweekly, monthly). Our customers include employees from the public and private sectors. At December 31, 2012, payroll loans amounted to Ps.14,504 million, representing approximately 4% of our total lending portfolio. We held approximately 12.3% of the market share in Mexico in payroll loans at December 31, 2012, as determined in accordance with Mexican Banking GAAP, according to information published by the CNBV. Personal Loans Personal loans are loans granted to individuals with maturities of up to 48 months, and the monthly installments to be paid by the customer may not exceed 30.0% of such customer s net monthly salary. Personal loans are not secured by collateral. At December 31, 2012, personal loans amounted to Ps.11,830 million, representing approximately 3% of our total lending portfolio. Our personal loans portfolio included 1,046,050 customers as of December 31, 2012, a 16% increase since December 31, Credit Cards We are the third-largest issuer of credit card loans in the Mexican market according to information published by the CNBV, and we had issued 3.2 million credit cards across 2.7 million accounts as of December 31, At this date, we held a 13.4% market share, with a Ps.37,301 million loan portfolio and a delinquency rate of 2.87%, the lowest in the Mexican market, in Annual Report Banco Santander (México)

55 each case as determined in accordance with Mexican Banking GAAP, according to information published by the CNBV. As of December 31, 2012, our total credit card loans outstanding represents approximately 11% of our total loans portfolio. We issue 24 different MasterCard and Visa credit cards designed for our different business segments. We mainly issue to our existing customers, such as deposit account holders and non-deposit account holders. Our income from credit cards includes interchange merchant fees, interest on credit card balances, annual cardholder fees and fees charged for cash advances. We market our credit cards through our branch network and offer preselected credit cards to our customer base across all socioeconomic customer segments. Our growth strategy is based on gaining market share while growing profits, by focusing on product innovation and aggressive customer acquisition efforts through commercial campaigns and managing risk according to different segments and channels. Since 2001, we have launched credit card products designed to serve customer preferences and financial needs and aimed at encouraging demand for our products. The main customer preferences and needs that have been addressed are low rates, no commissions, total protection and miles/rewards programs. This strategy has allowed us to increase our turnover per active account by approximately 10% from 2011 to During 2007 and 2008, excessive over-leverage in the consumer credit market in Mexico resulted in poor portfolio performance. This also affected our credit card portfolio. As a result, we implemented contingency measures, such as tightening of credit policies, reinforcement of collections and reduction or cancellation of credit lines. These factors helped to put delinquency rates and credit losses back within acceptable risk levels by the middle of As of December 31, 2012, our credit card portfolio has the best performance in terms of asset quality (defined as total non-performing loans as a percentage of total loans) among the seven largest private banks in Mexico, according to information published by the CNBV. The following table shows the non-performing loans in our credit card portfolio as a percentage of the total loans in our credit card portfolio for the periods indicated. For the years ended December 31, Total credit card non-performing loans as a percentage of total credit card loans 2.87% 2.53% 4.14% A special risk management unit for the credit card business continuously monitors portfolio performance. New application scores, behavior scores and capacity score models were implemented to manage new growth strategies. In addition, the credit card portfolio is segmented for risk according to behavior models. Depending on risk stratification, different offers are designed in order to increase, maintain or reduce exposure and profitability. Our credit card business follows the Santander Group s corporate model, which provides the following benefits: Standardization throughout the Santander Group s markets through standardized management of certain business levers : acquisition, activation, billing, receivables, retention, loyalty and products. Knowledge transfer across geographies and business levers. Campaign definitions, design and results are shared by the Santander Group s card units globally by means of an electronic campaign library. State-of-the-art decision-making process based on commercial and business facts and information, supported by strong analytic capabilities and robust infrastructure that enable us to design and execute focused, aggressive strategies and tactics, directed by a group of experts who collectively identify portfolio-relevant trends, patterns and opportunities in order to grow the business. Campaign management. All marketing initiatives and campaigns are run through a proven statistical model that allows the managers of the business levers to measure and analyze each campaign. New product development is subject to a very strict methodology that provides deep opportunity analysis and filtering. The Institution has invested in creating robust business support and commercial processes. A fully integrated branch network manages customer product offerings through CRM tools, which enables branch executives to proactively approach the customer base with tailored product offerings. Due to our new issuing process, customers can leave the branch with their credit card in less than fifteen minutes. Our contact centers provide segmented customer service and retention activities, utilizing analytical tools as well as predictive retention models. Annual Report Banco Santander (México)

56 In addition to issuing credit and debit cards, we also manage ATMs and point-of-sale terminals. The point-of-sale terminals business is a joint venture with Elavon Merchant Services México, or Elavon, which is a subsidiary of U.S. Bancorp, a company that provides end-to-end payment processing services to more than one million merchants in the United States, Europe, Canada and Puerto Rico. The main contributions of Elavon are its know-how, its portfolio of products and services, its multinational customers with operations in Mexico and its access to the investments that this business requires. Our alliance with Elavon has resulted in what we believe is a more diligent management of our credit card business, focusing on providing new payment solutions and innovative business services for merchants. Mortgages We offer loans to our customers for the purchase of real estate secured by mortgages with a maturity of up to 20 years. We have a leading position in this business among non-government-owned banks and, at December 31, 2012, held a 15.7% market share in Mexico in terms of amounts of loans outstanding, according to information published by the CNBV. As of December 31, 2012, we had a total mortgage portfolio of Ps.70,876 million, representing approximately 20% of our total loans portfolio. On December 23, 2010, we entered into a stock and assets purchase agreement to acquire the residential mortgage business of General Electric Capital Corporation and its subsidiaries, or GE Capital, in Mexico, or the GE Capital mortgage business. The purchase price was Ps.2,042 million (U.S.$157 million), which was determined at closing based on the aggregate total equity of the entities that we acquired, plus the net value of the assets that we purchased directly, minus a negotiated discount. In addition, we repaid at closing to GE Capital the Ps.21,009 million (U.S.$1,620 million) intercompany debt at that date relating to the GE Capital mortgage business, which GE Capital historically had financed through intercompany debt. The total volume of assets at the time of closing was Ps.23,904 million (U.S.$1,844 million), including a total loan portfolio of Ps.21,926 million (U.S.$1,691 million), while the total volume of liabilities was Ps.21,494 million (U.S.$1,658 million). As a result of our acquisition of the GE Capital residential mortgage business, we had the third-largest mortgage portfolio in the private banking sector in Mexico in 2011, according to information published by the CNBV. The mortgage portfolio of the GE Capital mortgage business represented approximately 31% and 27% of the portfolio of Banco Santander Mexico as of December 31, 2011 and 2012, respectively, pursuant to the accounting standards of CNBV. We did not purchase any loans to developers as part of the acquisition or otherwise. The business we acquired consists of mortgage offering, liquidity loans and home improvements to individuals for their personal use, guaranteed by mortgages in first place, holding of mutual funds and other similar for residential real estate located in Mexico. The former mortgage business model of GE Capital was to generate and execute mortgages via independent brokers and to manage the business via this distribution channel. Since the mortgage business of GE Capital has been incorporated to our mortgage business, we have established two different sales channels: brokers and our own branch network. Both distribution channels are operated and administered by our mortgage business unit. It is important to mention that we do not have exclusivity agreements with those independent brokers. In addition, we have taken measures in order to increase the level of generation of mortgages, mainly by consolidating the relationship of Banco Santander México with these brokers and the addition of mortgage products of Banco Santander México to the offer of the acquired business. Nowadays, the business is operated using Santander's software. On average, the loan-to-value ratio of our mortgage loans is 62% as of December 31, We do not make any loans for more than 85% (or up to 90%, in the case of loans with support from the Mexican Institute of the National Housing Fund for Workers (Instituto Nacional para el Fomento de la Vivienda de los Trabajadores, or Infonavit) of the value of the property to be purchased. Borrowers must meet certain minimum monthly income levels as evidenced by recent payroll information and tax returns. Borrowers must provide satisfactory documentary evidence to confirm their employment or other types of revenue and to otherwise evaluate their ability to pay. According to the Federal Mortgage Agency (Sociedad Hipotecaria Federal, or SHF), there was a deficit of approximately 9.0 million homes in Mexico in This deficit is expected to increase to an estimated 14.2 million homes in 2020, according to the SHF, based on the expected demographic growth of 600,000 families per year in Mexico, according to the SHF. We expect that this systemic housing deficit in Mexico will continue to drive demand for our residential mortgages and related products in the short term. Insurance Brokerage On February 22, 2011, Banco Santander Spain publicly announced that it had reached an agreement with Zurich Financial Services Group to establish a strategic alliance for bancassurance in Mexico, Brazil, Chile, Argentina and Uruguay. On July 15, 2011, we announced that we had signed the definitive agreements with Zurich Financial Services Group regarding this long-term Annual Report Banco Santander (México)

57 alliance. On November 4, 2011, we announced that we had completed the final documentation and obtained the authorizations necessary to close the sale of our insurance company subsidiary Seguros Santander to ZS Insurance America, S.L., which was created as a consequence of the strategic alliance between Banco Santander Spain and Zurich Financial Services Group, for a price of Ps.7,441 million. The joint venture is 51% controlled by Zurich Financial Services Group and 49% by Banco Santander Spain. Banco Santander Mexico does not hold shares in the joint venture. In connection with the sale and joint venture, Seguros Santander, as a subsidiary of ZS Insurance America, S.L., and Banco Santander Mexico entered into an exclusive distribution agreement with respect to all types of insurance other than auto insurance. As a result, Banco Santander Mexico will continue to sell insurance policies on behalf of this joint venture and to receive commissions from those sales. Prior to its sale to ZS Insurance America, S.L., Seguros Santander offered life, automobile, fraud and home insurance. Its products were offered through our branch network. We did not distribute third-party providers insurance products prior to the sale of Seguros Santander to ZS Insurance America, S.L. We distribute insurance products from ZS Insurance America, S.L. as well as third-party providers. We sell products issued by the Zurich joint venture, which, together with sales of products of its predecessor, Seguros Santander, represented almost 21% of the commissions we earned in Sales of products issued by the Zurich joint venture represented 23% of the commissions we earned in Total outstanding insurance premiums distributed by us increased 23%, to Ps.9,780 million, in 2012 as compared to 2011, and total insurance commissions collected by us increased 32% in 2012 as compared to In 2012, commissions related to lending activities increased 26%, and commissions related to open-market policies, such as life insurance policies, increased 40%, in each case as compared to The products we distribute as part of our insurance brokerage services include life, automobile, home, health, accident, fraud, unemployment and life-savings insurance. We focus on simple standardized banking product-related insurance mainly intended for the retail business. We cross-sell these insurance products, for example credit life insurance, with our banking products. The products are sold through our distribution network and we receive a service fee from the insurance providers based on the insurance sales. All risks are assumed by, and all premiums are payable to, the relevant third-party insurance providers. In 2011, we launched our Autocompara program, which allows potential clients to compare automobile insurance quotes from the seven largest insurance companies in Mexico. Clients may access this program at our branches, on the Internet or by telephone. This new program has been accompanied by a national publicity campaign, which has allowed us to position ourselves among the top companies in the automobile insurance sector. As of December 31, 2012, automobile insurance products generated commissions of Ps.550 million based on a portfolio of approximately 487,730 outstanding automobile insurance policies. Corporate Lending We offer a wide range of credit products to our corporate customers, including general corporate and working capital financing and foreign trade financing complemented by deposit-taking and cash management services. As of December 31, 2012, we had approximately 250,000 SME customers, 35,635 middle-market corporation customers and 6,493 government institutional customers. Our middle-market corporation customers include companies across all industry sectors. Our SME and middle-market corporation clients coverage is through our officers who are appointed according to the customer s geographic location in the case of middle-market clients, and according to the location of our corporate headquarters in Monterrey and Mexico City in the case of our large domestic companies customers. ii) Distribution channels. Distribution Network General We refer to our strategy of using multiple distribution channels, such as branches, internet banking, mobile banking and contact centers, tailored to each of our client segments and designed to reach a broad spectrum of customers in a cost-efficient manner as our multichannel distribution strategy. Our distribution network provides integrated financial services and products to our customers through a variety of channels, including our traditional proprietary branch network and on-site service units and complementary distribution channels such as ATMs, our contact centers and other direct sales distribution channels like internet Annual Report Banco Santander (México)

58 banking, which we refer to as alternative distribution channels. The main objective of the multichannel distribution strategy is to benefit from the synergy of the various channels and to direct customers to the most effective channel for the purposes of their transactions. As of December 31, 2012, our distribution channels included: Branch network: We have 1,142 branches throughout Mexico. ATMs: We have 4,946 ATMs with coverage throughout Mexico. Contact centers: We have 2,160 contact center positions with approximately 4,183 employees. We receive more than 3.4 million in-bound calls per month and generate 4.8 million transactions. Internet banking: We had, on average, more than 34.7 million banking transactions per month in 2012, with more than 485,283 active customers. Mobile banking: Our newly launched channel, which enables customers to complete transactions from their cell phones and tablets. Specialized sales force: We have 211 agents in our Asesores Super Nomina network. Third-party branches (corresponsalía): We have 1,582 complementary branches provided by our agent, Telecomm. Third-party mortgage brokers: In the year ended December 31, 2012, approximately 35% of our mortgages were originated through third-party mortgage brokers. Branch Network Our branch network offers our products and services to our customers. The table below shows the number of our branches as well as windows, corporate offices and Santander Select's units along all the regions of Mexico, at the dates indicated. The information is on offices of Banco Santander México only. Windows are service centers that do not have a branch director and located in neighboring areas; for example, a window may be located within a court room. Our executive offices include: (i) Select Centers, which operate as individual branches and have a director and 4 to 5 account executives; (ii) Select Spaces, which are smaller and located beside a branch, but they operate as an independent branch with a Director and approximately three account executives, and (iii) box offices, located within branches with two account executives but no ATMs. During 2010 and 2011 we did not have box offices. Santander Select units are service areas that do not have a director and are located in contiguous locations, however, they are bigger than windows; for example, Santander Select units may be located in universities or hospitals. Change, December 31, 2012 As of December 31 vs. December 31, # % Central % Metro North % Metro South % Northeast % Northwest % North % West % South % Southeast % Total: 1,142 (1) 1,097 (2) 1,073 (3) % (1) 954 branches window units + 3 Select centers + 44 Select spaces + 22 box Select. (2) 944 branches window units + 2 Select centers + 33 Select spaces. (3) 949 branches window units + 1 Select centers + 7 Select spaces. Annual Report Banco Santander (México)

59 Alternative Distribution Channels General We also distribute our products and services through alternative distribution channels, which have experienced consistent growth in terms of sales, services, provision of product information and customer preference. These alternative distribution channels consist of ATMs, our contact centers, internet banking, mobile banking, Asesores Super Nomina and third-party branches. Because of their low cost and large attendance capacity, these channels are becoming one of the most efficient ways to interact with our customers at any time. We believe that alternative distribution channels are an important way to reach certain customers, in particular those in the low income segment where we are able to have a more effective relationship with a broader customer base. ATMs We operate an extensive network of 4,946 ATMs throughout Mexico, including those located in our branches and on-site service units. Our customers may use these ATMs to access their accounts and conduct banking transactions. The following table shows the number of our ATM machines across Mexico s regions at the dates indicated. Change December 31, 2012 As of December 31, vs. December 31, # % Central % Metro North % Metro South % Northeast % Northwest (0.4%) North % West % South % Southeast % Total: 4,946 4,689 4, % Contact Centers Our contact centers in Queretaro and Crisol, Mexico can be used by customers to make inquiries, execute payment transactions or apply for products and services, such as personal loans. A portion of our contact center personnel is dedicated to contacting current account holders to offer them additional products and services, in particular insurance, credit cards and consumer loans. Those products are offered to preauthorized customers who are selected by our Risk and Commercial Intelligence departments in our central offices. Our contact centers also have a retention unit that handles customer requests for the cancellation of products or services. Our contact centers serve three basic functions: Customer service: we receive more than 2.8 million service calls per month from our customers. Sales: through our contact centers, we grant approximately 35% of the consumer loans and around 32% of the credit cards that we issue. Collecting account receivables: with more than 1.5 million outbound and inbound calls, we collect more than Ps million of account receivables per month. Internet Banking We view the internet banking channel as the most efficient and convenient way to access bank services and as a key instrument for offering additional products. Our strategy includes three main components that seek to ensure the success of our internet banking channel: Annual Report Banco Santander (México)

60 Customer acquisition: this includes a complete strategy regarding how to easily enroll new customers and make product alliances to promote internet banking as easy, fast and secure. We seek to provide great service to our internet banking customers through an intuitive operating platform that we are developing throughout the site. Customer transactions: we are constantly improving the ways our customers access information, creating synergies within all our channels in order to promote the use of internet banking and optimize transaction costs. Selling products and services: we offer products according to a customer s profile and design easy and efficient product acquisition processes. As of December 31, 2012, we had approximately 485,283 active portal clients. We had, on average, more than 34.7 million internet banking transactions, either monetary or non-monetary, per month in the year ended December 31, The following table presents summarized operating statistics for our internet banking channel. Change, year ended December 31, 2012 vs. year ended December 31, Monthly Average 2011 Year ended on December 31 # % Monetary transactions 10,129,445 9,452, ,368 +7% Non-monetary transactions 24,639,918 21,194,200 3,445, % Total transactions 34,769,363 30,646,277 4,123, % Mobile Banking In March 2012, we launched our new mobile banking (Banca Móvil) channel, which enables customers to effect transactions on mobile phones. The application comes with a geo-reference function, which allows our customers to locate the nearest Santander branch or ATM. The application is compatible with most of the cell phones available in the Mexican market, including smart phones. There is also a customized version for tablets. Mobile banking lowers the cost of bringing services to our customers and makes our services more convenient in order to increase customers transactions. Asesores Súper Nómina (Specialized Sales Force) Our Asesores Super Nomina network is a specialized sales force responsible for selling products and services, mainly consumer loans, credit card loans, insurance and planned saving products upon the delivery of the payroll kits to the employees of the companies that have payroll services with the Bank. Payroll kits are welcome kits that describe all of the benefits of the payroll deposit service to the client. These kits also include a debit card along with applications for certain products, such as consumer loans, credit card loans and insurance. The main goals of the Asesores Super Nomina program are to identify opportunities for cross-selling different products and to gain the customer s loyalty at the outset. When the payroll kits are delivered, the Asesores Super Nomina also explain the different benefits of being a customer of the Bank and assist with the activation process of debit cards and other products. Since 2012, every active payroll client is also evaluated for a consumer loan. As of December 31, 2012, 212 agents belonged to our Asesores Super Nomina network. These agents are located throughout Mexico, mainly at our branches but also at some of our corporate offices. The table below presents the volume of transactions offered through this distribution channel: Annual Report Banco Santander (México)

61 Year ended December 31, Year ended December 31, 2012 vs. Year ended December 31, 2011 (monthly average) (monthly average) (percentage change) Total payroll kit deliveries... 73,159 68,193 7% Consumer loan applications... 48,083 41,015 17% Credit card applications... 46,031 33,311 38% Insurance applications... 29,383 28,266 4% Planned savings applications... 32,698 24,060 36% Third-Party Branches We provide banking services to our customers through 1,582 complementary branches provided by our agent, Telecomm as of December 31, At these third-party branches, we process more than 115,500 transactions per month, offering basic banking services, such as debit and credit deposits, withdrawals and balance inquiries. These branches strengthen our national coverage and fortify our payroll service to companies with local coverage. We are evaluating other joint strategies with third parties that might be interested in offering our services, which would increase the number of customers visiting their facilities and their revenues from commission received per transaction. In the first quarter of 2013, we entered into an agreement with Oxxo, which operates convenience stores throughout Mexico, pursuant to which we obtained more than 10,800 new third-party branches. Under this agreement, our customers will be able to carry out 2 types of transactions: deposits to a debit card and payments to credit cards any day of the week. Such transactions will be limited to Ps.5,000 per day per account. Under this agreement, to be renewed on a yearly basis, we pay to Oxxo a fixed amount per transaction. Third-Party Mortgage Brokers The acquisition of the GE Capital residential mortgage business in April 2011 reinforced our strategy of originating mortgages through third-party mortgage brokers, and approximately 30.0% of our mortgages were originated through this channel in Since substantially all of the mortgages originated by the GE Capital mortgage business are originated by thirdparty mortgage brokers, the percentage of mortgages originated through third-party mortgage brokers was significantly greater in 2012 as compared to Approximately 35% of our mortgages were originated through third-party mortgage brokers in We have a direct relationship with the largest mortgage brokers in Mexico and an indirect relationship with approximately 50 smaller brokers, which sometimes originate mortgages on behalf of the larger brokers. Although we do not have exclusivity arrangements with these third-party mortgage brokers, we estimate that 30% of their operations are for our benefit. iii) Patents, Licenses, Brands and other Agreements After operating for more than 15 years in Mexico, the brand Santander has become a marketing leader in the financial services market in Mexico. We are ranked fifth, among other banks, with respect to advertising investment, according to information as of November 2012 from Ibope AGB México, an independent agency that follows up advertising and rating levels in television. Likewise, we are the brand number three in terms of brand awareness without support and third in the classification of "most remembered brand", according to a report prepared by Ipsos, a global market research company, for Banco Santander España in September-October Our marketing plan is based in our sound business plan, focused on providing service to our premier, preferred and small enterprise customers, as well as the provision of mortgages. Our college customers are especially relevant given that they are the core part of our social responsibility policy and they have found in us a bank that understands their needs. Customers that attend college are generally classified as classic, due to their status of low income, as they are students. We also provide a strong support to SMEs, given that they are the major providers of jobs in Mexico. Today, Banco Santander México is one of the banks with greater growth within the segment of SMEs. Likewise, the premier segment is critical, as it may be observed in the development of the concept Santander Select with exclusive branches for that sector. In 2012, we had 69 Santander Select offices. Our direct and clear strategy, based in quality helped us to be ranked in second place (with another bank) in terms of customer service, according to the Customer Satisfaction Corporate Survey carried out by Ipsos for Banco Santander España in September-October We are working hard to improve the global experience of our customers, in order to become the leading bank in terms of customer satisfaction. Annual Report Banco Santander (México)

62 One of our most recognized qualities is innovation, which is evident in the development if successful products that were well received by the markets, for example, the credit cards named "Light" and "Black", investment funds and mortgages, among others, that are innovative products that provide added value to our brand. In Mexico, part of our efforts in marketing are dedicated to social responsibility. Our ATMs receive voluntary donations from our customers, four times a year, to support the valuable work of UNICEF in Mexico, so that children may attend school and receive a quality education. This program has collected more than Ps.119 million during the last ten years. Likewise, we support the environment via the foundation Reforestamos México and the construction of houses via the foundation Fundación Vivienda (Fideicomiso Provivah), with more than 2,000 houses built during the last four years. In addition, Labor Unions, along with other organizations, promote the program of the Mexican bank association (Asociación de Bancos de México): Bécalos, which has provided 135,000 scholarships to students. We have been leaders for two years in the program Bécalos, by providing the majority of the financial resources to students. In 2012, our media campaign was focused and will continue to focus on high growth markets and key products in order to achieve the objectives of retail banking: insurance, credit card and collections. Other campaigns that combine advertising and customers' events are focused and will continue to focus on universities, certain customer segments (small enterprises, premier, preferred and select, private banking and mortgages. During the second half of 2012 we launched our campaign Acciones Santander which has helped us to consolidate our position as the third most recognized brand within the Mexicn banking system, according to a study performed by Ipsos México, a market research company, in November Likewise, we intend to take advantage of the opportunities of regional corporate sponsorship such as the "Copa Libertadores", "Copa Sudamericana" and "Copa Oro" and global sponsorships such as Ferrari and pilots of the motor-racing team McLaren; We will continue to build local sponsorships such as Cirque du Soleil in Mexico City, and the official credit card of the "Arena Monterrey", one of the locations with the greatest volume of tickets sale in the world. In Mexico, the ownership of brands may be acquired only via a registration approved by IMPI, the agency responsible for the registration of brands and patents in Mexico. After registration, the owner of the brand has the exclusive use of the Brand in Mexico for ten years. Brand registrations may be renewed indefinitely for additional terms of ten years each, if the applicant proves that he/she has used the brand during the last three years. The main domain names used for our business, including and are owned by us or any of our affiliates. The information included in our web pages is not incorporated by reference to this Annual Report, nor does it constitute part of this Annual Report.. Nowadays, the Bank does not take part in any development or research activity. iv) Main Customers. Any type of disclose or otherwise mentioning the names of customers of banks or brokerage houses represents a violation to the applicable financial regulations, therefore, below we present certain information on loan transactions of the Bank. As of December 31, 2012, we have no loans granted to debtors and as of December 31, 2011, loans to debtors or groups of persons representing s collective risk with an individual amount greater than 10% of Tier I capital (of the immediate previous month to the date of report) of the Bank, were constituted by one group that in the aggregate represent an amount of Ps.10,364 million equivalent to 15.15%, of the Tier 1 Capital of the Bank. v) Applicable Laws and Fiscal Status. Regulatory Authorities Our business is regulated by the LIC and the regulations issued and enacted by SHCP, CNBV and the Central Bank of Mexico. As well as the rules issued by the Central Bank of Mexico and IPAB. The authorities that oversee the transactions carried out by our financial entities are SHCP, the Central Bank of Mexico, and CNBV. The main authorities that regulate and oversee financial institutions, related to the activities of Banco Santander (México) are the Central Bank of Mexico (Banco de México), SHCP, CNBV, IPAB and CONDUSEF. Such authorities are subject to different organic laws and administrative regulations that govern their supervision power and other faculties. Said authorities Annual Report Banco Santander (México)

63 constantly enact administrative regulations within the scope of their corresponding responsibilities for the regulation of financial entities, as it will be explained below. Banco Santander (México), as a financial services company, is subject to the supervision and regulations of the CNBV. The SHCP (Ministry of Finance and Public Credit) is the main regulator of the Mexican financial system and, as such, its main responsibility is to oversee the financial sector, supported by four decentralized and autonomous bodies: CNBV, CNSF, CONSAR and CONDUSEF. SHCP regulates its structure and transactions via the enactment of provisions applicable to the establishment, organization and operation of credit institutions, their capitalization and certain other aspects of their operations. Banxico is the responsible for the preparation and implementation of the monetary policy of the country; it operates as a reserve bank, regulates the exchange market and the monetary market, the repurchase agreements and derivatives markets, and oversees the clearing house of Mexican banks. By issuing circular letters, Banxico regulates the terms of the investment and loans transactions of the credit institutions, including the Bank. The CNBV is an autonomous and decentralized body that depends of SHCP. The main functions of the CNBV are to oversee credit institutions, brokerage houses and ancillary credit activities and organizations. CNBV oversees banking institutions and monitors their internal policies and procedures, enacts regulations applicable to banks, authorizes the investment policies of banks, oversees designations of the individuals to act as members of the board or statutory auditors of a bank or financial services holding companies subject to its jurisdiction, as well as the designation of their main executives; it reviews the capitalization levels, the rating of loans portfolio, risks and the structure of maturities of investments and loans of the entities subject to supervision, including the Bank. Banking Regulation The SHCP, either directly or through the CNBV, possesses broad regulatory powers over the banking system. Banks are required to report regularly to the financial regulatory authorities. Reports to bank regulators are often supplemented by periodic meetings between senior management of the banks and senior officials of the CNBV. Banks must submit their unaudited monthly and quarterly and audited annual financial statements to the CNBV for review, and must publish on their website and in a national newspaper their unaudited quarterly balance sheets and audited annual balance sheets. The CNBV may order a bank to modify and republish such balance sheets. In addition, banks must publish on their website, among other information: the bank s basic consolidated and audited annual financial statements, together with a report containing the management s discussion and analysis of the financial statements and the bank s financial position, including any important changes thereto and a description of the bank s internal control systems; a description of the bank s Board of Directors, identifying independent and non-independent directors and their resumes; a description and the total sum of compensation and benefits paid to the members of the Board of Directors and senior officers during the past year; unaudited quarterly financial statements for the periods ending March, June and September of each year, together with any comments thereon; any information requested by the CNBV to approve the accounting criteria and special registries; a detailed explanation regarding the main differences in the accounting used to prepare the financial statements; the credit rating of their portfolio; the capitalization level of the bank, its classification (as determined by the CNBV) and any modifications thereto; financial ratios; a brief summary of the resolutions adopted by any shareholders meeting, debenture holders meeting, or by holders of other securities or instruments; and the bank s bylaws. Annual Report Banco Santander (México)

64 The CNBV has authority to impose fines for failing to comply with the provisions of the Mexican Banking Law, or regulations promulgated thereunder. In addition, the Mexican Central Bank has authority to impose certain fines and administrative sanctions for failure to comply with the provisions of the Law of the Mexican Central Bank (Ley del Banco de México) and regulations adopted by it and the Law for the Transparency and Ordering of Financial Services, particularly as violations relate to interest rates, fees and the terms of disclosure of fees charged by banks to clients. Violations of specified provisions of the Mexican Banking Law are subject to administrative sanctions and criminal penalties. Licensing of Banks Authorization of the Mexican government is required to conduct banking activities. The CNBV, with the approval of its Governing Board and subject to the prior favorable opinion of the Mexican Central Bank, has the power to authorize the establishment of new banks, subject to minimum capital standards, among other things. Approval of the CNBV is also required prior to opening, closing or relocating offices, including branches, of any kind outside of Mexico or transfer of assets or liabilities between branches. Intervention La CNBV, con la aprobación de su junta de gobierno, podrá declarar la intervención en una institución de banca múltiple de confo The CNBV, with the approval of its Governing Board, may declare the managerial intervention (intervención) of a banking institution pursuant to Articles 138 through 149 of the Mexican Banking Law (a CNBV Intervention ). In addition, the Governing Board of IPAB may also appoint a peremptory manager (administrador cautelar) if IPAB provides liquidity, in accordance with applicable law, to a banking institution. A CNBV Intervention pursuant to Articles 138 through 149 of the Mexican Banking Law will only occur when (i) during a calendar month, the Capital Ratio of a bank is reduced from a level equal to or below the minimum Capital Ratio required under the Mexican Capitalization Requirements, to 50% or less than such minimum Capital Ratio, (ii) the bank does not maintain the minimum Capital Ratio required under the Mexican Capitalization Requirements, (iii) the CNBV, in its sole discretion, determines the existence of irregularities that may affect the stability or solvency of the bank and, as a result, the interests of the public and of the bank s creditors, and (iv) if the bank (a) does not timely repay loans or debt securities issued, or (b) does not timely pay deposits or clear checks. The peremptory manager will be appointed by IPAB, if IPAB has granted extraordinary financial support to a bank in accordance with the Mexican Banking Law. The peremptory manager appointed by IPAB will assume the authority of the Board of Directors and the shareholders. The peremptory manager will have the authority to represent and manage the bank with the broadest powers under Mexican law, will prepare and submit to IPAB the bank s budget (for approval), will be authorized to contract liabilities, make investments, undertake acquisitions or dispositions and incur expenses, is authorized to hire and fire personnel and may suspend operations. The appointment of the peremptory manager must be registered in the Public Registry of Commerce of the corresponding domicile. Revocation of a License; Payment of Guaranteed Obligations Revocation of Banking License. In the case that the CNBV revokes a license to be organized and operate as a banking institution, IPAB s Governing Board will determine the manner under which the corresponding banking institution shall be dissolved and liquidated in accordance with Articles 122 Bis 16 through 122 Bis 29 of the Mexican Banking Law. In such a case, IPAB s Governing Board may determine to carry out the liquidation through any or a combination of the following transactions: (i) transfer the liabilities and assets of the banking institution in liquidation to another banking institution directly or indirectly through a trust set up for such purposes; (ii) constitute, organize and manage a new banking institution owned and operated directly by IPAB with the exclusive purpose of transferring the liabilities and assets of the banking institution in liquidation; or (iii) any other alternative that may be determined within the limits and conditions provided by the Mexican Banking Law that IPAB considers as the best and least expensive option to protect the interests of bank depositors. Reasons to Revoke a Banking License. The events upon which the CNBV may revoke a banking license are the following: if a shareholder decision is made to request the revocation;; if the banking institution is dissolved or initiates liquidation or bankruptcy procedures (concurso mercantil or quiebra); Annual Report Banco Santander (México)

65 if the banking institution (a) does not comply with any minimum corrective measures ordered by the CNBV pursuant to Article 134 Bis 1 of the Mexican Banking Law, (b) does not comply with any special corrective measure ordered by the CNBV pursuant to such Article 134 Bis 1, or (c) consistently does not comply with an additional special corrective measure ordered by the CNBV; if the banking institution does not comply with the minimum Capital Ratio required under the Mexican Capitalization Requirements; or if the banking institution (a) does not timely repay loans or debt securities issued or (b) does not timely pay deposits or clear checks. Upon publication of the resolution of the CNBV revoking a banking license in the Official Gazette of the Federation (Diario Oficial de la Federación) and in two newspapers of wide distribution in Mexico and registration of such resolution with the corresponding Public Registry of Commerce, the relevant banking institution will be dissolved and liquidation will be initiated. Upon liquidation or declaration of bankruptcy of a banking institution, IPAB is required to proceed to make payment of all guaranteed obligations of the relevant banking institution in accordance with the terms and conditions set forth in the Mexican Banking Law and the IPAB Law. Obligations of a banking institution in liquidation that are not considered guaranteed obligations pursuant to the IPAB Law, and that are not effectively transferred out of the insolvent banking institution, will be treated as follows: long term obligations will become due (including interest accrued); unpaid principal amounts, interest and other amounts due in respect of unsecured obligations denominated in pesos or UDIs (a peso-equivalent unit of account indexed for Mexican inflation) will cease to accrue interest; unpaid principal amounts, interest and other amounts due in respect of unsecured obligations denominated in foreign currencies, regardless of their place of payment, will cease to accrue interest and will be converted into pesos at the prevailing exchange rate determined by the Mexican Central Bank; secured liabilities, regardless of their place of payment will continue to be denominated in the agreed currency, and will continue to accrue ordinary interest, up to an amount of principal and interest equal to the value of the assets securing such obligations; obligations subject to a condition precedent, shall be deemed unconditional; and obligations subject to a condition subsequent, shall be treated as if the condition had occurred, and the relevant parties will have no obligation to return the benefits received during the period in which the obligation subsisted. Liabilities owed by the banking institution in liquidation will be paid in the following order of preference (i) liquid and enforceable labor liabilities, (ii) secured liabilities, (iii) tax liabilities, (iv) liabilities to IPAB, as a result of the partial payment of obligations of the banking institution supported by IPAB in accordance with the Mexican Banking Law, (v) bank deposits, loans and credits as provided by Article 46, Sections I and II of the Mexican Banking Law, to the extent not transferred to another banking institution, as well as any other liabilities in favor of IPAB different from those referred to in clause (iv) above, (vi) any other liabilities other than those referred to in the following clauses, (vii) preferred subordinated debentures, (viii) non-preferred subordinated debentures, and (ix) the remaining amounts, if any, shall be distributed to shareholders. Financial Support Determination by the Financial Stability Committee. The Financial Stability Committee, or FSC, includes representatives of the SHCP, the Mexican Central Bank, the CNBV and IPAB. In the case that the FSC determines that if a bank were to default on its payment obligations and such default may (i) generate severe negative effects in one or more commercial banks or other financial entities, endangering their financial stability or solvency, and such circumstance may affect the stability or solvency of the financial system, or (ii) result in the operation of the payments system to be put at risk, then the FSC may determine, on a case-by-case basis, that a general percentage of all of the outstanding obligations of the troubled bank that are not considered guaranteed obligations under the IPAB Law and guaranteed obligations in amounts equal to or higher than the amount set forth under Article 11 of the IPAB Law (400,000 UDIs per person per entity), be paid as a means to avoid the occurrence of any of such circumstances. Notwithstanding the foregoing, Annual Report Banco Santander (México)

66 under no circumstance may transactions such as liabilities or deposits in favor of shareholders, members of the Board of Directors and certain senior officers, and certain illegal transactions or the liabilities resulting from the issuance of subordinated debentures, be covered or paid by IPAB or any other Mexican governmental agency. Types of Financial Support. In the case that the FSC makes the determination referred to in the prior paragraph, then IPAB s Governing Board will determine the manner according to which the troubled commercial bank will receive financial support, which may be through either of the following options: (a) If the FSC determines that the full amount of all of the outstanding liabilities of the relevant troubled bank (guaranteed and non-guaranteed) must be paid, then the financial support may be implemented through (i) capital contributions granted by IPAB in accordance with the Mexican Banking Law, or (ii) credit support granted by IPAB also in accordance with the Mexican Banking Law, and in either case the CNBV shall refrain from revoking the banking license granted to such commercial bank. (b) If the FSC determines that less than the full amount of all the outstanding liabilities of the troubled commercial bank (guaranteed and non-guaranteed) must be paid, then the support will consist of transferring the assets and liabilities of such bank to any third party, as set forth in the Mexican Banking Law. Conditional Management Regime. As an alternative to revoking the banking license, a new conditional management regime was created, which can be established in respect of commercial banks with a Capital Ratio below the minimum required pursuant to the Mexican Capitalization Requirements. To adopt this regime, the relevant bank, with prior approval of its shareholders, must voluntarily request from the CNBV the application of the conditional management regime. To qualify for such regime, the relevant commercial bank should (i) deliver to the CNBV a plan for the reconstitution of its capital, and (ii) transfer at least 75% of its shares to an irrevocable trust. Banking institutions with a Capital Ratio equal to or below 50% of the minimum Capital Ratio required by the Mexican Capitalization Requirements may not adopt the conditional management regime.. Capitalization and Corrective Measures The minimum subscribed and paid-in capital for banks is set in accordance with three different components; credit risk, market risk and operational risk. Pursuant to the Mexican Banking Law and the General Rules Applicable to Mexican Banks, banks may participate in any of the activities and render the services as provided under the Mexican Banking Law, as well as those permitted under other laws. In accordance with the capitalization rules in effect as of January 1, 2013, the minimum equity capital required for banks that engage in all banking activities under the Mexican Banking Law (such as Banco Santander Mexico) is 90,000,000 UDIs (approximately Ps million as of December 31, 2012). The Mexican Capitalization Requirements set forth the methodology to determine the net capital relative to market risk, risk-weighted assets and operations risk. Under the relevant regulations, the CNBV may impose additional capital requirements. The Mexican Capitalization Requirements provide capitalization standards for Mexican banks similar to international capitalization standards, particularly with respect to the recommendations of the Basel Committee on Banking Regulations and Supervisory Practices, or the Basel Committee, which includes the supervisory authorities of twelve major industrial countries. The General Rules Applicable to Mexican Banks, classify Mexican banks in several categories based on their Capital Ratio. The corrective measures below are determined based on the following classifications, in effect since January 1st, 2013: Annual Report Banco Santander (México)

67 Class I Class II Class III Class IV Class Capital ratio and components Equal to or greater than 10%, equal or greater than regarding Tier 1 capital 1 and equal or greater than regarding capital Tier 1 jointly. Equal to or greater than 8% and less than 10%, equal or greater than (as a general rule) and less than regarding Tier 1 capital 1 and equal or greater than 0.75 (as a general rule) and less than regarding capital Tier 1 jointly. Equal to or greater than 7% and less than 8%, equal to or greater than and less than regarding Tier 1 capital 1 and equal to or greater than 0.75 and less than regarding capital Tier 1 jointly. Equal to or greater than 4.5% and less than 8%, equal to or greater than and less than regarding Tier 1 capital 1 and equal to or greater than 0.75 and less than 0.75 regarding capital Tier 1 jointly. Class V Less tan 4.5% and less than regarding Tier 1 capital 1. The General Rules Applicable to Mexican Banks require Mexican banks to maintain a minimum Capital Ratio of 10% to avoid the imposition of corrective measures notwithstanding that the minimum required Capital Ratio is 8%. Aggregate net capital consists of Tier 1 capital (which, in turn, consists of Tier 1 capital 1 and Tier 1 capital 2) and Tier 2 capital. The Mexican Capitalization Requirements include among the Tier 1 capital 1, mainly, paid-in capital, which represents the most subordinated right to collect in case of liquidation of the credit institution that are not due nor grant a reimbursement right, profits (mainly including retained profits), and capital reserves, and subtract from such Tier capital 1,among other things, certain subordinated debt instruments, issued by financial and non-financial entities, securities representing residual parts of portfolio securitization, investments in the equity of venture-capital funds and investments or credits to related companies, reserves pending creation, loans and the other transactions that contravene applicable law, and the intangibles (including goodwill). Tier 1 capital 2 is comprised by preferential shares, regarding which the issuer has the right to cancel the dividends payment and subordinated debt instruments, that are not subject to due date or forced conversion, regarding which it is possible to cancel the interests payment and that may become shares of a credit institution or a controlling entity or are subject to cancellation (when capitalization problems arise). The supplementary part (Tier 2) of the basic capital comprises capital instruments, as long as such capitalization instruments are registered at the Mexican National Securities Registry (Registro Nacional de Valores, o RNV), are subordinated to deposits and any other debt of the credit institution, do not have any specific guarantee, having a term of at least equal to 5 years and are convertible in shares at their maturity date and the general preventive reserves up to an amount that not exceeds the 1.25% of the weighted assets by credit risk. These instruments shall compute as capital based on its maturity date, computing the 100% if the due date exceeds 5 years, 80% if the due date exceeds from 4 and up to 5 years, 60% if the due date exceeds from 3 and up to 4 years, 40% if the due date exceeds from 2 and up to 3 years, 20% if the due date exceeds from 1 and up to 2 years, and do not compute if the due date is less than 1 year. Every Mexican credit institution must create certain legal reserves (fondo de reserva de capital), that are considered as part of Tier 1 capital. The credit institutions must separate and allocate 10% of their net income to such reserve each year until the legal reserve equals 100.0% of their paid-in capital (without adjustment for inflation). The remnant net income, to the extent not distributed to shareholders as dividends, is added to the retained profits account. Under Mexican law, dividends may not be paid out in charge of legal reserve. As of December 31, 2012, we and our subsidiaries had set aside an aggregate of Ps.8,526 million in regards of legal reserves (including Ps.7,971 million in legal reserves for the Bank on an individual basis) compared to aggregate paid-in capital of Ps.21,056 million (without adjustment for inflation which includes the paid-in capital of Ps.8,086 million of the Bank on an individual basis). The Banking Law and the General Rules Applicable to Mexican Banks establish the minimum corrective and special additional measures that banks must fulfill according to the category in which they were classified based on its capital. These corrective measures are designed to prevent and, when necessary, correct the operations of the banks that could negatively affect their solvency or financial stability. The CNBV is required to notify the relevant bank in writing of the corrective measures that it must observe, as well as verify its compliance of corrective measures imposed. Such corrective measures include: requiring the bank to (x) inform the board of directors about the bank s classification, as well as the causes that motivated such classification, and submit a detailed report containing a comprehensive evaluation of the bank s financial situation, its level of compliance with the regulatory framework and the main indicators that reflect the degree of stability and solvency of the bank, (y) include in such report any observations mandated, in accordance with their respective scope of authority, by each of the CNBV and the Mexican Central Bank and (z) report in writing the financial situation to the chief executive officer and chairman of the board of directors of the bank or the board of directors of the bank s holding company, in the event the bank is part of a financial group; Annual Report Banco Santander (México)

68 requiring the bank s board of directors to (y) within no more than 15 business days, submit to the CNBV, for its approval, a plan for capital restoration that will result in an increase in its Capital Ratio, which may contemplate a program for improvement in operational efficiency, streamlining costs and increasing profitability, the carrying out of contributions to the capital and limits to the operations that the banks may carry out in compliance with their bylaws, or to the risks derived from such operations. The capital restoration plan shall be approved by such bank s board of directors before being presented to the CNBV. The bank shall determine in the capital restoration plan that, in accordance with this subsection, it must submit, periodic targets, as well as the date in which the capital of such bank will get the capitalization level required in accordance with the applicable provisions. The CNBV, through its governing board, must resolve all that corresponds to the capital restoration plan that has been presented to them, in a maximum of 60 calendar days from the date the plan was submitted; and (z) comply with the plan within the period specified by the CNBV, which in no case may exceed 270 calendar days starting the day after the bank was notified of the respective approval. To determine the period for the completion of the restoration plan, the CNBV shall take into consideration the bank s category, its financial situation, as well as the general conditions prevailing in the financial market. The CNBV, by agreement of its governing board, may extend the deadline once by a period that will not exceed 90 calendar days. The CNBV will monitor and verify compliance with the capital restoration plan, without prejudice of the provenance of other corrective measures depending on the category in which the corresponding bank is classified; requiring the bank to suspend any payment of dividends to its shareholders, as well as any mechanism or act that involves the transfer of any economic benefits to the shareholders. If the bank belongs to the holding company, the measure provided in this subsection will apply to the holding company to which the bank belongs, as well as the financial entities or companies that are part of such holding company. This restriction on the payment of dividends for entities that are part of the same financial group will not apply in the event the dividend is being applied to the capitalization of the bank; requiring the bank to suspend any capital stock repurchase programs of the bank and, in the event the bank belongs to a financial group, also the programs of the holding company of such group; requiring the bank to postpone or cancel the interest payments on outstanding subordinated debt and, when applicable, defer the payment of the principal or exchange the debt into shares of the bank in the amount necessary to cover the capital deficiency, in advance and proportionately, according to the nature of such obligations. This corrective measure will be applicable to those obligations that are identified as subordinated debt in their indenture or issuance document; requiring the bank to suspend payment of any extraordinary benefits and bonuses that are not a component of the ordinary salary of the chief executive officer or any officer within the next two levels, as well as not granting any new benefits in the future for the chief executive officer and the officers until the bank complies with the minimum levels of capitalization required by the CNBV in accordance with the provisions referred to in Article 50 of the Mexican Banking Law; requiring the bank to refrain from increasing outstanding amounts of any credit granted to any individual who is a related party. Regardless of the capital ratio of the banks, the CNBV may order the implementation of additional and special corrective measures. The additional and special corrective measures that, if applicable, the banks must comply with are: (a) define the concrete actions that it will carry out in order not to deteriorate its Capital Ratio; (b) hire the services of external auditors or any other specialized third person for special audits on specific issues; (c) refrain from agreeing to increases in the salaries and benefits of the officers and employees in general, except for agreed salary revisions and in compliance with labor rights; (d) substitute officers, members of the board or external auditors with appointed persons occupying the respective positions; or (e) undergo other actions or be subject to other limitations as determined by the CNBV, based on the result of its functions of monitoring and inspection, as well as with sound banking and financial practices. On July 26, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee, reached broad agreement on the overall design of a capital and liquidity reform package for internationally active banking organizations around the world, known as Basel III, which includes, among other things, the definition of capital, the treatment of counterparty credit risk, the leverage ratio and the global liquidity standard. On September 12, 2010, the Basel Committee announced a substantial strengthening of existing capital requirements in connection with Basel III. The full text of the Basel III rules and the results of a quantitative impact study to determine the effects of the reforms on banking organizations were published on December 16, Annual Report Banco Santander (México)

69 The Basel III rules for capitalization were implemented in Mexico through an amendment to the General Rules Applicable to Mexican Banks published in the Official Gazette of the Federation on November 28, 2012, effective as of January 1, Banco Santander Mexico currently complies with the minimum capital requirement. Reserve and Compulsory Deposit Requirements The compulsory reserve requirement is one of the monetary policy instruments used as a mechanism to control the liquidity of the Mexican economy to reduce inflation. The objective of the Mexican Central Bank s monetary policy is to maintain the stability of the purchasing power of the Mexican peso and in this context, to maintain a low inflation level. Given the historic inflation levels in Mexico, the efforts of the Mexican Central Bank have been directed towards a restrictive monetary policy. Under the Law of the Mexican Central Bank, the Mexican Central Bank has the authority to determine the percentage of the liabilities of financial institutions that must be deposited in interest or non-interest-bearing deposits with the Mexican Central Bank (Depósitos de Regulación Monetaria). These deposits may not exceed 20% of the aggregate liabilities of the relevant financial institution. The Mexican Central Bank also has the authority to order that 100% of the liabilities of Mexican banks resulting from specific funding purposes, or pursuant to special legal regimes, be invested in specific assets created in respect of any such purpose or regime. The Mexican Central Bank imposes reserve and compulsory deposit requirements on Mexican commercial banks. Bulletin 36/2008 published on August 1, 2008, stated that the total compulsory reserve deposit required of Mexican commercial banks was Ps billion, which had to be deposited in eight installments by eight deposits of Ps.35.0 billion each on August 21 and 28; September 4, 11, 18 and 25; and October 2 and 9, The amount of the deposit that each bank had to make was determined based on each bank s pro rata share of total Mexican financial institution time deposits allocated as of May 31, The compulsory deposit reserves required under the terms of the Bulletin 36/2008 have an indefinite term. During the time these reserves are maintained on deposit with the Mexican Central Bank, each banking institution receives interest on such deposits every 28 days. The Mexican Central Bank will provide advance notice of the date and the procedure to withdraw the balance of these compulsory deposits at such time, if any, that the compulsory deposit reserves are suspended or terminated.. Classification of Loans and Allowance for Loan Losses The loan classification and rating rules set forth under the General Rules Applicable to Mexican Banks, provide a methodology to classify (i) consumer loans (i.e., each of credit card exposure and loans to individuals, divided as separate groups), considering as principal elements (a) for credit card exposure, the possibility of non-payment and potential losses, and (b) for loans to individuals, the possibility of non-payment, potential losses (taking into account collateral and guarantees received), and credit exposure (net of reserves created); (ii) mortgage loans (i.e., residential, including loans for construction, remodeling or improvements), considering as principal elements delinquency periods, possibility of non-payment and potential losses (taking into account collateral and guarantees received); and (iii) commercial loans, based principally on an evaluation of the borrower s ability to repay its loan (including country risk, financial risk, industry risk and payment history) and an evaluation of the related collateral and guarantees. The loan classification and rating rules also permit banks, subject to prior approval by the CNBV, to develop and adopt specific internal procedures within certain parameters to grade the loans in their loan portfolio. Generally, our subsidiaries follow the methodology set forth in the loan classification and rating rules. However, with respect to our commercial, corporate and financial institutions portfolios, we received approval from the CNBV effective as of January 1, 2012 to use our internal models to determine our allowance for impairment losses as an alternative to the standard generic models developed by the CNBV. Our approach is based on the Foundation Internal Ratings-Based Approach as defined in the Basel II accords and is based on the evaluation of four main factors: country risk, financial risk, industry risk and payment performance. This results in an overall determination of debtor risk, which is then applied to each loan operation and mitigated by any collateral to obtain a risk grade which is associated to a provision factor. We have a mapping between this risk grade and the internal customer rating that has been approved by the CNBV. Our internal methodology predicts expected losses more accurately than the standard methodology because it is based on the particular characteristics of our portfolio, whereas the standard methodology approved by the CNBV is based on the Mexican banking sector as a whole, which has a higher risk profile than us. While our internal methodology has resulted in the calculation of probabilities of default that are lower than the probabilities of default calculated and established by the CNBV in its standard methodology, the use of an internal methodology does not necessarily result in a reduction of capital requirements or provisions. The loan classification and rating rules require that consumer loans to individuals be stratified on a loan-by-loan basis, considering the type of loan, amounts due, the number of unpaid billing periods applicable to the relevant loans, collateral received and other factors that may influence delinquency, on an expected loss basis. Based in the category designated to each Annual Report Banco Santander (México)

70 loan, the bank is obliged to create an allowance for the potential default in the payment of the corresponding loans. The preventive allowance for loan losses constituted in accordance with the Accounting Standards of the CNBV, may be lower insofar as the maturity date of the loan gets closer and the default payments are performed. Credit card loans are to be classified depending of the amounts owed, amounts paid at the corresponding dates, credit limits and minimum required payments. Consumer Loans must be classified in A, B, C, D or E, depending on the percentage of allowance required (from 0% to 100%); credit card consumer loans may be classified as A, B-1, B-2, C, D or E also depending upon the percentage of allowance required. Under the loan classification and rating rules, mortgage loans must also be stratified on a loan-by-loan basis, considering the number of unpaid monthly installments applicable to the relevant loans, the current loan-to-value ratio and other factors that may influence the recovery process, on an expected loss basis; and a statutory percentage must be applied to loans that are past due for each level, as a means to create an allowance. Mortgage loans to individuals may be classified as A, B, C, D or E, depending upon the percentage of allowance required (ranging from 0% to 100%). The loan classification and rating rules establish the following categories corresponding to levels of risk and applicable allowance and set forth procedures for the grading of commercial loans: A-1, A-2, B-1, B-2, B-3, C-1, C-2, D and E. The rating of commercial loan portfolios is determined by an analysis of the financial risk, industry risk, country risk and the credit experience, which include the following risk factors: financial structure and payment capacity, sources of financing, administration and decision making, integrity of the financial information, market position and the specific collateral or guarantees that cover the credits. Loans to government entities, such as states and municipalities, must also be graded considering financial risk, historical behavior and credit experience, the specific collateral or guarantees that cover the credits, and other factors established by the CNBV. The loan classification and rating rules require that Mexican banks grade their commercial loan portfolio (except loans made to or guaranteed by the Mexican federal government) as of the end of each quarter and the classification must be reported to the CNBV. The classification of mortgage and consumer loans is required to be made monthly and reported to the CNBV. The preventive allowance for loan losses is held in a separate account on our balance sheet and all write-offs of uncollectible loans are charged against this allowance. Mexican banks are required to obtain authorization from their Board of Directors to write-off loans. The determination of the preventive allowance for loan losses, particularly for commercial loans, requires management s judgment. The preventive allowance for loan losses calculation that results from using the estimated and prescribed loss percentages may not be indicative of future losses. Differences between the estimate of the allowance for impairment losses and the actual loss will be reflected in our financial statements at the time of charge-off. Liquidity Requirements for Foreign Currency-Denominated Liabilities Pursuant to regulations of the Mexican Central Bank, the total amount of maturity-adjusted (by applying a factor, depending upon the maturity of the relevant liability) net liabilities denominated or indexed to foreign currencies that Mexican banks, their subsidiaries or their foreign agencies or branches may maintain (calculated daily), is limited to 1.83 times the amount of their Tier 1 capital. To calculate such limit, maturity-adjusted foreign currency-denominated or indexed assets (including liquid assets, assets with a maturity of less than one year, short term derivatives and spot foreign exchange transactions) are subtracted from maturity-adjusted foreign currency-denominated or indexed liabilities, and the aforementioned factor is applied to the resulting amount. The maturity-adjusted net liabilities of Mexican banks denominated or indexed to foreign currencies (including dollars) are subject to a liquidity coefficient (i.e., to maintaining sufficient foreign currency-denominated or indexed liquid assets). These permitted liquid assets include, among others: United States dollar-denominated cash or cash denominated in any other currency freely convertible; deposits with the Mexican Central Bank; treasury bills, treasury bonds and treasury notes issued by the United States government or debt certificates issued by agencies of the United States government, which have the unconditional guarantee of the United States government; Annual Report Banco Santander (México)

71 demand deposits or one to seven-day deposits in foreign financial institutions rated at least P-2 by Moody s Investors Service, Inc., or Moody s, or A-2 by Standard & Poor s Rating Services, or S&P; investments in mutual or similar funds or companies approved by the Mexican Central Bank, that satisfy certain requirements; and unused lines of credit granted by foreign financial institutions rated at least P-2 by Moody s or A-2 by S&P, subject to certain requirements. Such liquid assets may not be posted as collateral, lent or be subject to repurchase transactions or any other similar transactions that may limit their transferability. Banco Santander Mexico is in compliance with the applicable reserve requirement and liquidity coefficients in all material aspects. Lending Limits In accordance with the General Rules Applicable to Mexican Banks, limits relating to the diversification of a bank s lending transactions are determined in accordance with the bank s compliance with Mexican Capitalization Requirements. For a bank with: a Capital Ratio greater than 8.0% and up to 9.0%, the maximum financing exposure to a person or a group of persons representing common risk to the bank, is limited to 12.0% of the bank s Tier 1 capital; a Capital Ratio greater than 9.0% and up to 10.0%, the maximum financing exposure to a person or a group of persons representing common risk to the bank is limited to 15.0% of the bank s Tier 1 capital; a Capital Ratio greater than 10.0% and up to 12.0%, the maximum financing exposure to a person or a group of persons representing common risk to the bank is limited to 25.0% of the bank s Tier 1 capital; a Capital Ratio greater than 12.0% and up to 15.0%, the maximum financing exposure to a person or a group of persons representing common risk to the bank is limited to 30.0% of the bank s Tier 1 capital; and a Capital Ratio greater than 15.0%, the maximum financing exposure to a person or a group of persons representing common risk to the bank is limited to 40.0% of the bank s Tier 1 capital. These lending limits are required to be measured on a quarterly basis. The CNBV has discretion to reduce the aforementioned limits, if internal control systems or the risk management of the bank is inadequate. The following financings are exempt from these lending limits: (i) financings guaranteed by unconditional and irrevocable security interests or guarantees, that may be enforced immediately and without judicial action, granted by foreign financial institutions with investment grade ratings and established in a country member of the European Union or the Organization for Economic Cooperation and Development (which guarantees must be accompanied with a legal opinion as to their enforceability), (ii) securities issued by the Mexican government and financings made to the Mexican government, Mexican local governments (subject to such financings being guaranteed by the right to receive certain Federal taxes), the Mexican Central Bank, the IPAB and development banks guaranteed by the Mexican government, and (iii) cash (transferred to the bank lender under a deposit that may be freely disposed of by the lender). However, such financings may not exceed 100% of a bank s Tier 1 capital. Likewise, financings granted to Sofomes for which the bank owns at least 99% of its capital stock, are exempted from the aforementioned limits, but such financings may not exceed 100% of a bank s Tier 1 capital; in turn, the controlled Sofomes maintain or grant financing (regardless of the origin of the resources) to a person or a group of persons representing common risk, such financing shall comply with the aforementioned limits. The aggregate amount of financings granted to the three largest borrowers of a bank may not exceed 100.0% of the bank s Tier 1 capital. Los bancos deben revelar, en las notas a sus estados financieros, (i) el número y monto de los financiamientos que excedan del 10.0% del capital básico (Tier 1), y (ii) el monto total de los financiamientos otorgados a los tres deudores principales. Annual Report Banco Santander (México)

72 Funding Limits In accordance with the General Rules Applicable to Mexican Banks, Mexican banks are required to diversify their funding risks. In particular, a Mexican bank is required to notify the CNBV, on the business day following the occurrence of the event, in the event it receives funds from a person or a group of persons acting in concert that represent in one or more funding transactions more than 100.0% of such bank s Tier 1 capital. None of the liabilities of Banco Santander Mexico to a person or group of persons exceeds the 100.0% threshold. Related Party Loans Pursuant to the Mexican Banking Law, the total amount of the transactions with related parties may not exceed 50% of the bank s Tier 1 capital. For the case of loans and revocable credits, only the disposed amount will be counted. The General Rules Applicable to Banks stipulate that the aggregate amount of transactions subject to credit risk for relevant related parties shall not exceed 25% of Tier 1 capital of the previous month; otherwise, the excess shall be subtracted in order to determine such capital. A control and follow-up of the consumption of both limits is carried out on a monthly basis, in order to assure a strict compliance with the abovementioned regulations. Foreign Currency Transactions Mexican Central Bank regulations govern transactions by banks denominated in foreign currencies. Mexican banks may, without any specific additional approval, engage in spot, foreign exchange transactions (i.e., transactions having a maturity not exceeding four business days). Other foreign currency transactions are deemed derivative transactions and require approvals as discussed below. At the end of each trading day, banks are generally obligated to maintain a balanced foreign currency position (both in the aggregate and by currency). However, short and long positions are permitted in the aggregate, so long as such positions do not exceed 15.0% of a bank s Tier 1 capital. In addition, Mexican banks must maintain liquid assets, prescribed by regulations issued by the Mexican Central Bank, in connection with maturities of obligations denominated in foreign currencies (as discussed under Liquidity Requirements for Foreign Currency-Denominated Liabilities above). Derivative Transactions The Mexican Central Bank has issued rules that apply to derivative transactions entered into by Mexican banks. Mexican banks are permitted to enter into swaps, credit derivatives, forwards and options with respect to the following underlying assets: specific shares, groups of shares or securities referenced to shares; that are listed in a securities exchange; stock exchange indexes; Mexican currency, foreign currencies and UDIs (a peso-equivalent unit of account indexed for Mexican inflation); inflation indexes; gold or silver; wheat, corn, soybean and sugar; swine meat; natural gas; aluminum and copper; rice, sorghum, cotton, oats, coffee, orange juice, cocoa, barley, cattle, swine, milk, canola, soybean oil and soybean paste; nominal or real interest rates with respect to any debt instrument; Annual Report Banco Santander (México)

73 loans or other advances; and futures, options and swaps with respect to the underlying assets mentioned above. Mexican banks require an express general approval, issued in writing by the Mexican Central Bank, to enter into, as socalled intermediaries, derivative transactions, with respect to each class or type of derivative. Mexican banks that have not received the relevant general approval would require a specific approval from the Mexican Central Bank to enter into such derivative transactions (or even if in possession of such general approval, to enter into derivative transactions with underlying assets different from the assets specified above). Mexican banks may, however, enter into derivatives without the authorization of the Mexican Central Bank, if the exclusive purpose of such derivatives is to hedge the relevant bank s existing risks. Authorizations may be revoked if, among other things, the applicable Mexican bank fails to comply with Mexican Capitalization Requirements, does not timely comply with reporting requirements, or enters into transactions that contravene applicable law or sound market practices. Banks that performing derivative transactions with related parties or with respect to underlying assets of which the issuer or debtor are related parties, shall comply with the corresponding limits set forth in the Mexican Banking Law in respect of related party transactions. Institutions may collateralize derivative transactions through cash deposits, receivables and/or securities of its portfolio. Derivative transactions that are entered into in over-the-counter (OTC) markets, may be collateralized only when the counterparties are credit institutions, brokerage firms, foreign financial institutions, mutual funds, pension fund managers, Sofoles, and any other counterpart authorized by the Mexican Central Bank. Mexican banks are required to periodically inform their Board of Directors with respect to the derivative transactions entered into, and whether or not the Mexican bank is in compliance with limits imposed by the Board of Directors and any applicable committee. Mexican banks must also inform the Mexican Central Bank periodically of derivative transactions entered into and whether any such transaction was entered into with a related party. Derivatives must be entered into pursuant to master agreements that must include international terms and guidelines, such as ISDA master agreements and master agreements approved for the domestic market. Banco Santander Mexico has received approval from the Mexican Central Bank to engage in swaps, forwards and options related to stocks, indices, currencies and interest rates. Restrictions on Liens and Guarantees Under the Mexican Banking Law, banks are specifically prohibited from (i) pledging their securities or other assets as collateral, except (a) if the Mexican Central Bank or the CNBV so authorizes, including as described above with respect to derivative transactions, or (b) for obligations in favor of the Mexican Central Bank, IPAB, Mexican development banks or governmental trusts, and (ii) guaranteeing the obligations of third parties, except, generally, in connection with letters of credit and bankers acceptances. Bank Secrecy Provisions; Credit Bureaus Pursuant to the Mexican Banking Law, a Mexican bank may not provide any information relating to the identity of its customers or specific deposits, services or any other banking transactions (including loans) to any third parties (including any purchaser, underwriter or broker, or holder of any of the bank s securities), other than (i) the depositor, debtor, accountholder or beneficiary and their legal representatives or attorneys-in-fact, (ii) judicial authorities in trial proceedings in which the accountholder is a party or defendant, (iii) the Mexican federal tax authorities for tax purposes, (iv) the SHCP for purposes of the implementation of measures and procedures to prevent terrorism and money laundering, (v) the Federal Auditor (Auditoría Superior de la Federación), to exercise its supervisory authority, (vi) the supervisory unit of the Federal Electoral Agency, and (vii) the federal attorney general s office (Procuraduría General de la República) for purposes of criminal proceedings, among others. In most cases, the information needs to be requested through the CNBV. The CNBV is authorized to furnish foreign financial authorities with certain protected information under the Mexican bank secrecy laws, provided that an agreement must be in effect between the CNBV and such authority for the reciprocal exchange of information. The CNBV must abstain from furnishing information to foreign financial authorities if, in its sole discretion, such information may be used for purposes other than financial supervision, or by reason of public order, national security or any other cause set forth in the relevant agreement. Banks and other financial entities are allowed to provide credit-related information to duly authorized Mexican credit bureaus. Annual Report Banco Santander (México)

74 Money Laundering Regulations Mexico has in effect rules relating to money laundering; the most recent set of rules have been in effect since April 21, 2009 and have subsequently been amended (the Money Laundering Rules ). Under the Money Laundering Rules, our subsidiaries operating in the financial sector are required to satisfy various requirements, including: the establishment and implementation of procedures and policies, including client identification and know-yourcustomer policies, to prevent and detect actions, omissions or transactions that might favor, assist or cooperate in any manner with terrorism or money laundering activities (as defined in the Mexican Federal Criminal Code (Código Penal Federal)); implementing procedures for detecting relevant, unusual and suspicious transactions (as defined in the Money Laundering Rules); reporting of relevant, unusual and suspicious transactions to the SHCP, through the CNBV; and the establishment of a communication and control committee (which, in turn, must appoint a compliance officer) in charge of, among other matters, supervising compliance with anti-money laundering provisions. Our subsidiaries operating in the financial sector are also required to organize and maintain a file before opening an account or entering into any kind of transaction, for the identification of each client (each, an Identification File ). An individual s Identification File shall include, among other information, a copy of the following documentation or data (which must be maintained and updated): (i) full name, (ii) date of birth, (iii) nationality and country of birth, (iv) tax identification number and the certificate evidencing the tax identification number issued by the SHCP or the population registry identification number and evidence thereof issued by the Ministry of Interior, as the case may be, (v) occupation, profession, main activity or line of business, (vi) complete domicile (including telephone number), (vii) address, if any, and (viii) advanced electronic signature series number, when applicable. An entity s Identification File shall include, among other information, a copy of the following documentation or data (which must be maintained and updated): (i) corporate name, (ii) domicile, (iii) nationality, (iv) name of the sole administrator, the members of the Board of Directors, the general manager or any relevant attorney-in-fact, (v) main activity or line of business, (vi) tax identification number and the certificate evidencing the tax identification number issued by the SHCP, (vii) advanced electronic signature series number, when applicable, and (viii) copy of the public deed containing its constitutive documents. Identification Files shall be maintained for the complete duration of the corresponding agreement entered into with such client, and for a minimum term of ten years from the date such agreement is terminated. Under the Money Laundering Rules, our subsidiaries operating in the financial sector must provide to the SHCP, through the CNBV, (i) quarterly reports (within ten business days from the end of each quarter) with respect to transactions equal to, or exceeding, U.S.$10,000.00, (ii) monthly reports (within 15 business days from the end of the month) with respect to international funds transfers, received or sent by a client, with respect to transactions equal to, or exceeding, U.S.$10,000.00, (iii) reports of unusual transactions, within 60 calendar days counted from the date an unusual transaction is detected by our financial subsidiaries systems, and (iv) periodic reports of suspicious transactions, within 60 calendar days counted from the date the suspicious transaction is detected. In June 2010 new regulations were issued by the SHCP, as amended in September and December 2010 and August 2011, which restrict cash transactions denominated in U.S. dollars that may be entered into by Mexican banks. Pursuant to such regulations, Mexican banks are not permitted to receive physical cash amounts, in U.S. dollars, from individuals in excess of U.S.$4, per month for deposits. Mexican banks are also not permitted to receive physical cash amounts, in U.S. dollars, from their corporate clients, except in very limited circumstances. Also, Mexican banks are not permitted to receive physical cash amounts, in U.S. dollars, from individuals, in excess of U.S.$ per day for individual foreign exchange transactions. In each case, the monthly amount per individual for such transactions cannot exceed U.S.$1, In addition, the newly enacted regulations set forth certain reporting obligations for Mexican banks regarding their U.S. dollar cash transactions, to the SHCP (through the CNBV). Annual Report Banco Santander (México)

75 On October 17, 2012, the Federal Law to Prevent and Identify Transactions with Illegal Proceeds (Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita) was published in the Official Gazette of the Federation, (the New Money Laundering Law ). The New Money Laundering Law will become effective on July 17, Under such law, our subsidiaries operating in the financial sector will be required to satisfy the following requirements: the establishment and implementation of policies and procedures, including client identification and know-yourcustomer policies, to prevent and detect actions, omissions or transactions that might favor, assist or cooperate in any manner with terrorism or money laundering activities; the reporting of relevant, unusual and suspicious transactions to the SHCP, through the CNBV; and the maintenance of information and documentation regarding the client identification, as well as of relevant, unusual and suspicious transactions, for at least 10 years Rules on Interest Rates Mexican Central Bank regulations limit the number of reference rates that may be used by Mexican banks as a basis for determining interest rates on loans. For peso-denominated loans, banks may choose any of a fixed rate, the Mexican benchmark interbank money market rate (Tasa de Interés Interbancaria de Equilibrio, or TIIE), Mexican Treasury bills (Certificados de la Tesorería de la Federación, or Cetes) rate, CCP (costo de captación promedio a plazo), the rate determined by the Mexican Central Bank as applied to loans funded by or discounted with NAFIN, the rate agreed upon with development banks in loans funded or discounted with them, the weighted bank funding rate (tasa ponderada de fondeo bancario) and the weighted governmental funding rate (tasa ponderada de fondeo gubernamental). For UDI-denominated loans, the reference rate is the UDIBONOS. For foreign currency-denominated loans, banks may choose any of a fixed rate or floating market reference rates that are not unilaterally determined by a financial institution, including LIBOR or the rate agreed upon with international or national development banks or funds, for loans funded by or discounted with such banks or funds. For dollar-denominated loans, banks may choose either a fixed rate or any of the rates referred to in the prior sentence or CCP-Dollars, as calculated and published in the Official Gazette of the Federation by the Mexican Central Bank. The rules also provide that only one reference rate can be used for each transaction and that no alternative reference rate is permitted, unless the selected reference rate is discontinued, in which event a substitute reference rate may be established. A rate, or the mechanism to determine a rate, may not be modified unilaterally by a bank. Rates must be calculated on annual basis, based on 360-day periods. On November 11, 2010, the Mexican Central Bank published new rules that regulate the issuance and use of credit cards. Such rules standardize the regulations and forms that enable card holders to authorize charges for recurrent payments relating to goods and services and standardize the procedures for objecting to improper charges and cancelling such services quickly and securely. The rules also establish the way in which credit card issuers shall determine the amount of the minimum payment in each period by means of a formula that favors payment of a part of the principal at the time of each minimum payment, with the aim of achieving payment of debts within a reasonable time period. Such rules also include certain protection provisions for card users in case of theft or loss of their credit cards, the creation of incentives to credit card issuers to adopt additional measures to reduce risks derived from use of credit cards in internet transactions and the wrongful use of information contained in credit cards. These rules did not have a material impact on our operations or financial condition. Fees Under Mexican Central Bank regulations, Mexican banks, Sofoles and Sofomes may not, in respect of loans, deposits or other forms of funding and services with their respective clients, among others (i) charge fees that are not included in their respective, publicly disclosed, aggregate annual cost (costo anual total), (ii) charge alternative fees, except if the fee charged is the lower fee, and (iii) charge fees for the cancellation of credit cards issued. In addition, among other things, Mexican banks may not (i) charge simultaneous fees, in respect of demand deposits, for account management and relating to not maintaining minimum amounts, (ii) charge fees for returned checks received for deposit in a deposit account or as payment for loans granted, (iii) charge fees for cancellation of deposit accounts, debit or teller cards, or the use of electronic banking services, or (iv) charge different fees depending upon the amount of a money transfer. Under the regulations, fees arising from the use of ATMs must be disclosed to users. Mexican banks, Sofoles and Sofomes operating or permitting customers to use ATMs must choose between two options for charging fees to clients withdrawing cash or requesting balances: (i) specifying a fee for the relevant transactions, in which case, Mexican banks, Sofoles and Sofomes issuing credit or debit cards may not charge cardholders any additional fee (credit or debit Annual Report Banco Santander (México)

76 card issuers are entitled to charge operators the respective fee), or (ii) permit credit card or debit card issuers to charge a fee to clients, in which case, banks, Sofoles and Sofomes may not charge additional fees to clients. The Mexican Central Bank, on its own initiative or as per request from CONDUSEF), banks, Sofoles or Sofomes, may assess whether reasonable competitive conditions exist in connection with fees charged by banks, Sofoles or Sofomes in performing financial operations. The Mexican Central Bank must obtain the opinion of the Federal Antitrust Commission (Comisión Federal de Competencia) in carrying out this assessment. The Mexican Central Bank may take measures to address these issues. IPAB The IPAB Law, which entered into effect on January 20, 1999, provides for the creation, organization and functions of IPAB, the Mexican bank savings protection agency. IPAB is a decentralized public entity that regulates the financial support granted to banks for the protection of bank deposits and other bank credits. Only in exceptional cases may IPAB grant financial support to banking institutions. According to the IPAB Law, banks must provide the information required by IPAB for the assessment of their financial situation and notify IPAB about any event that could affect their financial stability. The IPAB Law expressly excludes the release of such data from bank secrecy provisions contained in the Mexican Banking Law and expressly provides that IPAB and the CNBV can share information databases of banks. IPAB will manage and sell the loans, rights, shares and any other assets that it acquires to perform its activity according to the IPAB Law, to maximize their recovery value. IPAB must ensure that the sale of such assets is made through open and public procedures. The Mexican President is required to present annually a report to Congress prepared by IPAB with a detailed account of the transactions conducted by IPAB in the prior year. IPAB has a governing board of seven members: (i) the Minister of Finance and Public Credit, (ii) the Governor of the Mexican Central Bank, (iii) the President of the CNBV, and (iv) four other members appointed by the President of Mexico, with the approval of two-thirds of the Senate. The deposit insurance to be provided by IPAB to bank depositors will be paid upon determination of the dissolution and liquidation, or bankruptcy of a bank. IPAB will act as liquidator or receiver in the dissolution and liquidation, or bankruptcy of banks, either directly or through designation of a representative. IPAB will guarantee obligations of banks to certain depositors and creditors only up to the amount of 400,000 UDIs (or approximately U.S.$150,384 as of December 31, 2012), per person per bank. Banks have the obligation to pay IPAB ordinary and extraordinary contributions as determined from time to time by the Governing Board of IPAB. Under the IPAB Law, banks are required to make monthly ordinary contributions to IPAB, equal to 1 12 of 0.004% multiplied by the average of the daily outstanding liabilities of the respective bank in a specific month, less (i) holdings of term bonds issued by other commercial banks; (ii) financing granted to other commercial banks; (iii) financing granted by IPAB; (iv) subordinated debentures that are mandatorily convertible in shares representing the capital stock of the banking institution; and (v) restricted assets and liabilities resulting from the repurchase transactions (reportos) and lending of securities with the same counterparty, pursuant to the provisions issued by IPAB. IPAB s Governing Board also has the authority to impose extraordinary contributions in the case that, given the conditions of the Mexican financial system, IPAB does not have available sufficient funds to comply with its obligations. The determination of the extraordinary contributions is subject to the following limitations: (i) may not exceed, on an annual basis, the amount equivalent to 0.003% multiplied by the total amount of the liabilities outstanding of the banking institutions that are subject to IPAB ordinary contributions; and (ii) the aggregate amount of the ordinary and extraordinary contributions may not exceed, in any event, on an annual basis, an amount equivalent to 0.008% multiplied by the total amount of a bank s liabilities subject to IPAB contributions. The Mexican Congress allocates funds to IPAB on a yearly basis to manage and service IPAB s liabilities. In emergency situations, IPAB is authorized to incur additional financing every three years in an amount not to exceed 6.0% of the total liabilities of certain Mexican banks as determined by the CNBV. Annual Report Banco Santander (México)

77 Law for the Protection and Defense of Financial Services Users A Law for the Protection and Defense of Financial Services Users is in effect in Mexico. The purpose of this law is to protect and defend the rights and interests of users of financial services. To this end, the law provides for the creation of CONDUSEF, an autonomous entity that protects the interests of users of financial services and that has very wide authority to protect users of financial services (including imposing fines). CONDUSEF acts as arbitrator in disputes submitted to its jurisdiction and seeks to promote better relationships among users of financial institutions and the financial institutions. Banco Santander Mexico and its subsidiaries must submit to CONDUSEF s jurisdiction in all conciliation proceedings (initial stages of a dispute) and may choose to submit to CONDUSEF s jurisdiction in all arbitration proceedings that may be brought before it. The law requires banks to maintain an internal unit designated to resolve any and all controversies submitted by clients. Our financial subsidiaries have such a unit. CONDUSEF maintains a Registry of Financial Service Providers (Registro de Prestadores de Servicios Financieros), in which all financial services providers must be registered, that assists CONDUSEF in the performance of its activities. CONDUSEF is required to publicly disclose the products and services offered by financial service providers, including interest rates. To satisfy this duty, CONDUSEF has wide authority to request any and all necessary information from financial institutions. Furthermore, CONDUSEF may scrutinize banking services provided by approving and supervising the use of standard accession agreements. Banco Santander Mexico and its subsidiaries may be required to provide reserves against contingencies which could arise from proceedings pending before CONDUSEF. Our financial subsidiaries may also be subject to recommendations by CONDUSEF regarding our standard agreements or information used to provide our services. Our financial subsidiaries may be subject to coercive measures or sanctions imposed by CONDUSEF. The bank neither any of its subsidiaries are not the subject of any material proceedings before CONDUSEF. Law for the Transparency and Regulation of Financial Services The Law for the Transparency and Regulation of Financial Services regulates (i) the fees charged to clients of financial institutions for the use and/or acceptance of means of payment, as with debit cards, credit cards, checks and orders for the transfer of funds, (ii) the fees that financial institutions charge to each other for the use of any payment system, (iii) interest rates that may be charged to clients, and (iv) other aspects related to financial services, all in an effort to make financial services more transparent and protect the interests of the users of such services. This law grants the Mexican Central Bank the authority to regulate interest rates and fees and establish general guidelines and requirements relating to payment devices and credit card account statements. The Mexican Central Bank has the authority to specify the basis upon which each bank must calculate its aggregate annual cost (costo anual total), which comprises interest rates and fees, on an aggregate basis, charged in respect of loans and other services. The aggregate annual cost must be publicly disclosed by each bank. The law also regulates the terms that banks must include in standard accession agreements and the terms of any publicity and of information provided in account statements. Our subsidiaries operating in the financial sector must inform the Mexican Central Bank of any changes in fees at least 30 calendar days before they become effective. Law on Transparency and Development of Competition for Secured Credit On December 30, 2002, the Mexican Congress enacted the Law on Transparency and Development of Competition for Secured Credit (Ley de Transparencia y de Fomento a la Competencia en el Crédito Garantizado, or the Secured Credit Law), as amended on May 25, The Secured Credit Law provides a legal framework for financial activities and certain other services performed by private credit institutions (as opposed to governmental entities) in connection with secured loans relating to real property in general and housing in particular (i.e., purchase, construction, restoration or refinancing). In particular, the Secured Credit Law established specific rules requiring the following: (i) the disclosure of certain information by credit institutions to their clients prior to the execution of the relevant loan agreement, including the disclosure of certain terms relating to interest rates, aggregate costs and expenses payable; (ii) the compliance by credit institutions and borrowers with certain requirements in the application process; (iii) the binding effect of offers made by credit institutions granting secured loans; (iv) the inclusion of mandatory provisions in loan agreements; and (v) the assumption of certain obligations by public officers (or notaries) before whom secured loans are granted. In addition, the Secured Credit Law seeks to foster competition among credit institutions by permitting security interests underlying a secured loan to survive any refinancing thereof, even if such loans were granted by different credit institutions. This provision of the Secured Credit Law is designed to reduce expenditures made by borrowers. Annual Report Banco Santander (México)

78 Amendments to Financial Regulations Impacting Banks The Mexican financial system has continued to advance in recent years, consistent with demands from regulators and market participants, developments in other jurisdictions and to address systemic issues resulting from the global financial crisis. In particular, in June 2007, a new Law for the Transparency and Ordering of Financial Services (Ley para la Transparencia y Ordenamiento de los Servicios Financieros) was approved, which granted the Mexican Central Bank authority to regulate interest rates and fees and the terms of disclosure of fees charged by banks to their customers. Even though the recent global financial crisis did not affect Mexican banks directly, many Mexican corporations were affected, primarily by having engaged in foreign-currency linked derivative transactions, which increased exposures substantially as a result of the devaluation of the peso, triggering a new regulation issued by the CNBV that seeks to improve disclosure standards as they relate to derivative transactions. The Federal Law for Protection of Personal Data Held by Private Persons (Ley Federal de Protección de Datos Personales en Posesión de Particulares) that protects obtained personal data recently became effective. Under such law, we are required to ensure the confidentiality of information received from clients. No assurances may be given as to how such law will be interpreted. However, if strictly interpreted and enforced, we may be subject to fines and penalties in the event of violations to the provisions of such law. On November 28, 2012, the General Rules Applicable to Brokerage Firms and Credit Institutions with respect to Investment Services (Disposiciones de Carácter General Aplicables a las Casas de Bolsa e Instituciones de Crédito en Materia de Servicios de Inversión, or the Investment Services Rules) were published in the Official Gazette of the Federation, and shall become effective on August 29, The purpose of the Investment Services Rules, among others, is to identify the different types of investment services that may be offered by banks and brokerage firms, including a distinction between advisory and non-advisory services, to charge such entities with obligations to evaluate each client s and each product s investment profile, and to establish a presumption in favor of their clients that all investment transactions resulting from personalized investment recommendations or advice issued by the bank or the brokerage firm. In accordance with the Investment Services Rules, banks and brokerage firms rendering advisory services in connection with investments shall ensure that any advice, recommendation or suggestion given to the client is reasonable for such client, and consistent with the client s investment profile. The Investment Services Rules establish an obligation for banks and brokerage firms to create a committee which shall be responsible for the analysis of financial products (the Analysis Committee ) offered by such entities, and whose members shall be independent from the structuring area of the relevant entity. The Analysis Committee shall have the following functions, among others: to approve and determine investment profiles for each financial product; to determine the guidelines and limits for the composition of investment portfolios; Tax Situation For 2012, the Bank is subject to the Mexican Income Tax ( ISR ) and the Single-Rate Corporations Tax ( IETU ). ISR is determined taking as taxable or deductible items certain effects of inflation, such as the depreciation calculated on constant pesos values; the effect of inflation is accrued or deducted on certain monetary assets or liabilities via the annual adjustment due to inflation. In the Law on Federal Income for 2013, the income tax rate for companies was modified, when years ago a transition regime had been stipulated for years 2013 and The rates were 30% for 2012 and 2011 and for 2013 it will be 30%, 29% for 2014 and 28% for 2015 and subsequent years. IETU considers, as a general rule, income, deductions and other fiscal credits based in cash flows, however, the Bank and SOFOMES, with respect to services where interests are paid and charged, cash flows are determined via the brokerage margin based in accrual. For years 2012 and 2011 the IETU rate will be 17.5%. Payable Tax on profit is the higher between ISR and IETU. Based in financial projections, the Management identified that the Bank, in essence, will pay ISR, therefore, IETU is not to Annual Report Banco Santander (México)

79 be payable at a medium term, based in the tax and financial projections, so the Bank has only recognized deferred ISR. The ISR reserve in the income statement is constituted as follows: vi) Human Resources December 31, 2012 Current ISR 5,682 IETU 10 Deferred ISR (2,061) IETU (2) As of December 31, 2012, on a consolidated basis we had 13,142 employees, an increase of 8.2% since December 31, We classify our employees as executives, professionals and administrative employees. Executives include the top management. Professionals are middle-management personnel. The remainder of the employees are administrative employees. We intend to add 200 new branches to our branch network by 2014 and to hire an additional 2,000 employees to staff these branches. We have traditionally enjoyed good relations with our employees and their union. Of the total number of our employees, 3,450, or 26.2%, were members of the Banco Santander Mexico labor union, which is affiliated with the National Federation of Bank Unions (Federación Nacional de Sindicatos Bancarios), as of December 31, We negotiate salaries with our union on an annual basis and benefits every two years, as required under Mexican law. In 2011, the collective bargaining agreement relating to both salaries and benefits was renewed, and in 2012, the collective bargaining agreement relating to salaries was renewed again, in accordance with Mexican law. Our collective bargaining agreement applies only to our unionized employees. While terms of employment are generally the same for unionized and non-unionized employees, benefits may differ. The table below summarizes the number and type of our employees as of December 31, 2012, 2011 and As of December 31, Employees Executives Professionals 5,656 5,048 4,702 Administrative 7,386 7,006 6,791 Total 13,142 12,151 11,579 vii) Environmental Performance We have initiated a strategic Social Corporate Responsibility (Responsabilidad Social Corporativa) program which promotes a continuous commitment to acting in a responsible manner, thereby contributing to economic development and improving the quality of life of our employees and their families, and the community as a whole. In this context, we have reaffirmed our respect and commitment to the environment by establishing environmental policies and an Environmental Management System (Sistema de Gestión Ambiental, or SGA). On December 15, 2009, we obtained AENOR re-certification of the UNE concession certificate ISO 14001:2004, and this accounts for the SGA, which applies to the administration, management and maintenance of our principal executive offices in Santa Fe, Mexico City. The re-certification has a term of three years with annual revisions. In January 2012, the certification body conducted a maintenance audit and confirmed that the SGA was operating in an effective manner. Our environmental policy aims to integrate sustainability into our day-to-day management and is carried out by our senior management. Further, our environmental policy requires us to be committed to the following: Annual Report Banco Santander (México)

80 Compliance with environmental law requirements applicable to the environmental aspects of the production and management process and services in general, as well as with other requirements which Grupo Financiero Santander Mexico sets forth and environmental requirements of clients and associates. Control and subsequent diminution of the environmental impact generated by the production and management process and services in general. Maintaining a commitment to continually improve and prevent land, water and air pollution within work premises. Establishing and continuously carrying out the objectives and action plans necessary to reduce environmental impact. Our environmental policy is communicated to all of our employees through one or more of the following means: communication ads, posters located within the workplace, intranet website and/or training courses to contractors and new employees. Below is a list of the acknowledgments and certifications which we have obtained: Corporativo Centro Santa Fe, Mexico City, Mexico: ISO 14001:2004 and the award for Smart Building in Centro Tecnológico de Operaciones (CETOS), Queretaro, Mexico: IMEI National Award for Smart Building in 2004, Quinta Wellington Redwood Mexico Award in 2005, 2007 and 2008 (related to optimization of internal processes), and the Empresa Socialmente Responsable (Socially Responsible Business) Award in Contact Center, Querétaro, Mexico: IMEI National Award for Smart Building in Contact Center, Querétaro, México: National Award for Energy Savings 2012 by the federal electricity commission throughout FIDE (Fideicomiso para Ahorro de Energía Eléctrica). To the best of our knowledge, nowadays, there are no international, federal, state or local environmental laws, rules or regulations that will materially adversely affect our results of operations or our position with respect to our competitors. However, possible future environmental laws may adversely affect our operating results. viii) Market Information We face a strong competition in every aspect of our business, from Mexican financial groups, retail banks, insurance companies and brokerage houses, to foreign banks and international financial institutions. Banco Santander México competes for retail and commercial customers with other large Mexican banks, including subsidiaries of other foreign banks that, as Banco Santander México, are part of financial groups. In some states of Mexico, Banco Santander México also competes with regional banks. In addition, Banco Santander México competes with some foreign banks (mainly those with headquarters located in USA and Spain) for the business of large Mexican industrial groups and governmental entities, as well as high wealth individuals. The main competitors of Banco Santander México are BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer; Banco Nacional de México, S.A., Integrante del Grupo Financiero Banamex, que es parte de Citigroup; Banco Mercantil del Norte, S.A., Institución de Banca Múltiple, Grupo Financiero Banorte; HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Banco Inbursa, S.A., Institución de Banca Múltiple, Grupo Financiero Inbursa and Scotiabank Inverlat, S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat. Some of the competitors of Banco Santander México are significantly larger and have more financial resources than Santander México, including more assets and a greater capital base. The following table shows loans and market share in terms of Banco Santander México as of December 31, 2012, according to CNBV. Ranking of Banco Santander México among banks (1) December 31, 2012 Market share of Banco Santander México among banks (1)(2) Recent Rankings Loans % Deposits % Total Assets % Annual Report Banco Santander (México)

81 Quality of Assets (3) % Stockholders' Equity % Net Income % Efficiency (4) % Return on Average Equity (ROAE) (5) % Source: financial information published by CNBV. (1) Among the seven main banks of the private sector in mexico, in terms of total assets: Banco Santander México; BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer; Banco nacional de México, S.A., member of Grupo Financiero Banamex; Banco Mercantil del Norte, S.A., Institución de Banca Múltiple, Grupo Financiero Banorte; HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC; Banco Inbursa, S.A., Institución de Banca Múltiple, Grupo Financiero Inbursa; and Scotiabank Inverlat, S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank. (2) We determined the market share based in information published by CNBV. (3) Defined as non-performing portfolio as a percentage of the total loans portfolio. (4) Efficiency ratios correspond to administration and promotion expenses as a percentage of the operating results, excluding the preventive allowance for loan losses, that is, the financial income, commissions and fees charged (net), brokerage income and other operating income. (5) We determine the Return on Average Equity based in the annual net income, using the daily average of stockholders' equity. Our prestige and leadership has been recognized in the Mexican financial system, as well as in the broader Mexican business community. In 2012, Euromoney and The Banker ranked Banco Santander Mexico as the overall best bank in Mexico; likewise, America Economía recognized Banco Santander México as the best bank in the country and the second one in Latin America. The magazine Trade Finance named the bank as the best bank "Trade" in In 2012 and 2010, Euromoney also recognized our private banking unit as the best in the super affluent category, defined as clients worth between U.S.$0.5 and U.S.$1.0 million. The banking sector in Mexico can be classified into two groups: the mature, established large banks and the recently created new banks. As of December 31, 2012, the four largest banks, BBVA Bancomer, Banamex, Banorte and Banco Santander Mexico, held in the aggregate 67.8% of the total deposits in Mexico, followed by a total of 13.5% held in the aggregate by HSBC, Scotiabank and Inbursa, all of which are established large banks. The remaining 18.7% was distributed among 35 other banks. We also compete with credit unions in Mexico. Credit unions are financial institutions that are formed for the purpose of providing access to funding and favorable conditions for savings and receipt of loans and financial services. Credit unions do not provide services to the public in general, since they are only authorized to carry out transactions with their members. The operation of a credit union is carried out by its own members. In order to be a member of a credit union, one must comply with the eligibility requirements established for that organization and acquire a certain number of shares of the credit union. The deposits of members with a credit union are not subject to any form of deposit insurance. There are credit unions for many different economic groups, ranging from fishermen to industrialists, but there are also mixed credit unions that accept members who perform different economic activities and social sector credit unions that serve economic sectors that are unable to access traditional financial institutions due to social, economic and geographic conditions. Commercial banks in Mexico also compete in the retail market with non-banking institutions known as Sofoles and Sofomes, which focus primarily on offering consumer, commercial and mortgage loans to middle- and low-income individuals. Until recently, the commercial credit market for middle- and low- income individual customers has been serviced almost exclusively by non-banking institutions. Currently, more than 50 non-banking institutions are licensed to operate in Mexico. Mexican non-banking institutions may engage in certain specific lending activities, but are prohibited from engaging in many banking operations, including receiving deposits, foreign trade financing, offering current accounts and engaging in foreign currency operations. Traditional banks have begun to extend their credit services to the markets previously dominated by Sofoles and Sofomes. At the beginning of 2008, the Mexican Banking Law was modified to, among other things, grant authority to the CNBV (with the assistance of other regulators, but having primary responsibility) to authorize the creation of banks solely to engage in certain activities (which is intended to incentivize competition, reduce required capital considering their risk exposure and improve the attention to certain industries and regions) as compared to so-called universal banks, such as Banco Santander Mexico. As a result of the reduced capital requirements and potential reduced operational costs that are likely to apply to this type of bank, competition has increased as a result of the creation of more banks to target specific market niches. To our knowledge, as of December 31, 2012, the CNBV has granted several authorizations for the creation of this kind of limited operation bank. Annual Report Banco Santander (México)

82 In addition, commercial banks will probably face increasing competition from Sofoles and Sofomes as a result of reforms to several financial laws, which have been enacted with the main purpose of deregulating lending activities in Mexico, including financial leasing and factoring activities. Commercial banks also face increasing competition from securities firms and other financial intermediaries that can provide larger companies with access to domestic and international capital markets as an alternative to bank loans. Market Position of Banco Santander México Net Income The table below shows the net income and market share in terms of net income of the main seven largest banks in Mexico for the periods indicated: As of December 31, (Million pesos) (market share (%)) (1) (Million pesos) ( market share (%)) (1) (Million pesos) ( market share (%)) (1) Santander Ps. 17, % Ps. 13, % Ps. 12, % BBVA Bancomer 23, , , Banamex 12, , , Banorte(2) 10, , , HSBC 4, Scotiabank 3, , , Inbursa 4, , , Other (3) 11, , , Mexican Financial System Ps. 87, % Ps. 71, %(4) Ps. 74, % Source: CNBV. (1) Market share data are calculated by us, using information published by the CNBV. (2) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. (3) Net income and market share data for Others are calculated by us, using information published by the CNBV. (4) Figures do not add up due to rounding effects. Stockholders' Equity The table below sets forth the stockholders' equity and market share in terms of stockhodlers' equity (as a percentage of total stockholders' equity of 42 banks of the Mexican private sector) for the seven private banks with the largest market share for each of the periods indicated: As of December 31, (Market Share (Market Share (Market Share (Million pesos) (%)) (1) (Million pesos) (%)) (1) (Million pesos) (%)) (1) Santander Ps. 95, % Ps. 91, % Ps. 79, % BBVA Bancomer 117, , , Banamex 129, , , Banorte(2) 66, , , HSBC 43, , , Scotiabank 29, , , Inbursa 54, , , Total para siete bancos(3) Ps. 535, % Ps. 509, % Ps. 480, % Source: CNBV. (5) Market share data are calculated by us, using information published by the CNBV. (1) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. (2) Stockholders' Equity and market share for the seven banks is calculated by us based in information published by CNBV. Return on average equity and equity to total assets ratio. The following table sets forth the return on average equity of the seven largest banks in Mexico and the most recent capitalization index available for the indicated periods. Annual Report Banco Santander (México)

83 As of December 31, Return on average equity (%)(1) Equity to total assets ratio (%) Return on average equity (%)(1) Equity to total assets ratio (%) Return on average equity (%)(1) Equity to total assets ratio (%) Santander 18.6% 12.8% 16.0% 12.0% 16.3% 11.6% BBVA Bancomer Banamex Banorte(2) HSBC Scotiabank Inbursa Mexican financial system 14.0% 10.6% 12.5% 10.0% 13.5% 10.4% Source: Return on average equity and the equity to total assets ratio are calculated by us using information published by the CNBV. (1) Calculated based upon the average daily balance of shareholders equity. (2) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. Tier 1 Capital Index The table below shows the Tier 1 Capital index of Banco Santander and its peers for the periods indicated. The Tier 1 Capital index is defined as Tier 1 capital divided by risk-weighted assets. As of December 31, (%) Santander 14.5% 14.5% 15.3% 11.8% 11.3% BBVA Bancomer Banamex Banorte(1) HSBC Scotiabank Inbursa Mediana de siete bancos 14.5% 14.5% 15.3% 13.9% 11.3% Source: CNBV. (1) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. Efficiency As of December 31, 2012, Banco Santander Mexico was the second-most efficient financial group among the seven largest financial groups in Mexico, according to each financial group s efficiency ratio. For this purpose, we calculate the efficiency ratio as administrative expenses divided by total income, using information published by the CNBV. The following table sets forth Banco Santander Mexico s and its peers efficiency ratios for the time periods indicated. As of December, 31, (%) Santander 38.6% 43.4% 38.3% BBVA Bancomer Banamex Banorte(1) HSBC Scotiabank Inbursa Sistema financiero mexicano 54.4% 56.0% 53.0% Source: Efficiency ratios are calculated by us, using information published by the CNBV. (1) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. Annual Report Banco Santander (México)

84 Total Loans The following table shows loans and market share in terms of loans (as a percentage of total loans of 42 private banks in Mexico) for the seven private banks with the greatest market share for the years indicated below: As of December 31, (Million Pesos) Market Share (%)(1) Million Pesos Market Share (%)(1) Million Pesos Market Share (%)(1) Million Pesos Market Share (%)(1) Million Pesos Market Share (%)(1) Santander Ps. 350, % Ps. 313, % Ps. 227, % Ps. 205, % Ps. 229, % BBVA Bancomer 659, , , , , Banamex , , , , Banorte(2) 392, , , , , HSBC 198, , , , , Scotiabank 127, , , , , Inbursa 174, , , , , Total for seven banks (3) Ps. 2,347, % Ps. 2,151, % Ps.1,840, % Ps.1,720, % Ps.1,664, % Source: CNBV. (1) Market share is calculated by us based in information published by CNBV. (2) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. (3) Total Loans and market share for the seven banks are calculated by us based in information published by CNBV. The table below shows total housing loans and market share of Banco Santander México for the periods indicated: As of December 31, Market Share (%)(1) Market Share (%)(1) Market Share (%)(1) Market Share (%)(1) (Million Pesos) (Million Pesos) (Million Pesos) (Million Pesos) (Million Pesos) Santander Ps. 70, % Ps. 63, % Ps. 34, % Ps. 29, % Ps. 27, % BBVA Bancomer 153, , , , , Banamex 67, , , , , Banorte(2) 71, , , , , HSBC 19, , , , , Scotiabank 50, , , , , Inbursa 1, , , , , Total for seven banks (4) Ps. 434, % Ps. 397, % Ps. 348, % Ps. 318, % Ps. 292, % Total system Ps. 452, % Ps. 412, % Ps. 362, % Ps. 333, % Ps. 306, % Source: CNBV. (1) Market share is calculated by us based in information published by CNBV. (2) Total mortgage loans for 2007 is calculated by us based in information published by CNBV. (3) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. (4) Total mortgage loans and market share for the seven banks is calculated by us based in information published by CNBV. The table below shows the total consumer loans and market share of Banco Santander México for the periods indicated: Market Share (%)(1) As of December 31, (Million Pesos) Market Share (%)(1) (Million Pesos) Market Share (%)(1) (Million Pesos) Market Share (%)(1) (Million Pesos) Market Share (%)(1) (Million Pesos) Market Share (%)(1) Santander Ps. 63, % Ps. 50, % Ps. 41, % Ps. 45, % Ps. 64, % BBVA Bancomer 173, , , , , Banamex 149, , , , , Banorte(2) 47, , , , , HSBC 34, , , , , Scotiabank 20, , , , , Inbursa 5, , , , , Total for seven banks (4) Ps. 495, % Ps. 424, % Ps. 344, % Ps. 335, % Ps.415, % Total System Ps. 596, % Ps. 496, % Ps. 400, % Ps. 387, % Ps. 468, % Source: CNBV. Annual Report Banco Santander (México)

85 (1) Market share is calculated by us based in information published by CNBV. (2) Total consumer loans for 2007 is calculated by us based in information published by CNBV. (3) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. (4) Total consumer loans and market share for the seven banks is calculated by us based in information published by CNBV. The table below shows total retail loans and market share of Banco Santander México for the periods indicated: As of December 31, (Million Pesos) Market Share (%)(1) (Million Pesos) Market Share (%)(1) (Million Pesos) Market Share (%)(1) (Million Pesos) Market Share (%)(1) (Million Pesos) Market Share (%)(1) Santander Ps. 176, % Ps. 164, % Ps. 130, % Ps. 109, % Ps. 114, % BBVA Bancomer 235, , , , , Banamex 169, , , , , Banorte(2) 170, , , , , HSBC 111, , , , , Scotiabank 42, , , , , Inbursa 125, , , , , Total for seven banks (4) Ps. 1,032, % Ps. 988, % Ps. 840, % Ps. 808, % Ps. 756, % Total System Ps. 1,215, % Ps. 1,142, % Ps. 983, % Ps. 935, % Ps. 874, % Source: CNBV. (1) Market share is calculated by us based in information published by CNBV. (2) Total retail loans for 2007 is calculated by us based in information published by CNBV. (3) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. (4) Total retail loans and market share for the seven banks is calculated by us based in information published by CNBV. The table below shows total loans to government and financial entities and the market share of Banco Santander México for the periods indicated: As of December 31, Market Share (%)(1) Market Share (%)(1) Market Share (%)(1) Market Share (%)(1) (Million Pesos) (Million Pesos) (Million Pesos) (Million Pesos) (Million Pesos) Santander Ps. 39, % Ps. 35, % Ps. 20, % Ps. 21, % Ps. 22, % BBVA Bancomer 96, , , , , Banamex 57, , , , , Banorte(2) 102, , , , , HSBC 32, , , , , Scotiabank 14, , , , , Inbursa 42, , , , , Total for seven banks (4) Ps. 385, % Ps. 340, % Ps. 307, % Ps. 257, % Ps. 200, % Total System Ps. 485, % Ps. 411, % Ps. 381, % Ps. 312, % Ps. 240, % Source: CNBV. (1) Market share is calculated by us based in information published by CNBV. (2) Total government loans and financial entities for 2007 is calculated by us based in information published by CNBV. (3) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. (4) Total government loans and financial entities and market share for the seven banks is calculated by us based in information published by CNBV. Total Deposits The following table shows deposits and market share in terms of deposits (as a percentage of total loans of 42 private banks in Mexico) for the seven private banks with the greatest market share for the years indicated below: Market Share (%)(1) As of December 31, Market Share Market Share Market Share (Million Pesos) (%) (Million Pesos) (%) (Million Pesos) (%) Santander Ps. 362, % Ps. 315, % Ps. 276, % BBVA Bancomer 616, , , Banamex 512, , , Banorte(1) 400, , , HSBC 138, , , Annual Report Banco Santander (México)

86 Scotiabank 138, , , Inbursa 100, , , Total for seven banks Ps. 2,268, % Ps. 2,303, % Ps. 2,120, % Source: CNBV. (1) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. Quality of Assetsalidad de Activos the table below shows the quality of assets, defined by CNBV as total non-performing portfolio as a percentage of total portfolio, for the seven largest banks in Mexico, for the periods indicated: Al 31 de diciembre de Default Rate (%) Default Rate (%) Default Rate (%) Santander 1.7% 1.7% 1.7% BBVA Bancomer Banamex Banorte(1) HSBC Scotiabank Inbursa Mexican Financial System 2.5% 2.5% 2.3% Source: CNBV. (1) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. Branches and ATMs The following table sets forth Banco Santander Mexico s total bank branches and market share based on number of bank branches for the time periods indicated. As of December, (Branches) (Market share (%))(1) (Branches) (Maket share (%))(1) (Branches) (Market Share (%))(1) (Branches) (Market share (%))(1) (Branches) (Market share (%))(1) Santander 1, % 1, % 1, % 1, % 1, % BBVA Bancomer 1, , , , , Banamex 1, , , , , Banorte(2) 1, , , , , HSBC 1, , , , , Scotiabank Inbursa Total para siete bancos(3) 7, % 7, % 7, % 7, % 7, % Total del sistema 12, % 11, % 11, % 10, % 10, % Source: CNBV. (1) Market share data are calculated by us, using information published by the CNBV. (2) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. (3) Total bank branches and market share data for Santander + Top 6 are calculated by us, using information published by the CNBV. The following table sets forth Banco Santander Mexico s total number of ATMs and market share in terms of ATMs for the time periods indicated. As of December 31, (ATMs) (Market share (%))(1) (ATMs) (Market share (%))(1) (ATMs) (Market share (%))(1) (ATMs) Market share (%))(1) (ATMs) Market share (%))(1) Santander 4, % 4, % 4, % 4, % 4, % BBVA Bancomer 7, , , , , Banamex 6, , , , , Banorte(2) 6, , , , , Annual Report Banco Santander (México)

87 HSBC 6, , , , , Scotiabank 1, , , , , Inbursa Total for seven banks (3) 34, % 32, % 30, % 28, % 27, % Total of system 40, % 36, % 35, % 33, % 29, % Source: CNBV. (1) Market share data are calculated by us, using information published by the CNBV. (2) In March 2011, IXE merged with Banorte, and the information above for Banorte in 2011 is consolidated with IXE results. (1) Total ATMs and market share data for the seven banks are calculated by us, using information published by the CNBV. ix) Corporate Structure Banco Santander (México) is a financial entity part of Grupo Financiero Santander, an affiliate of Banco Santander, S.A. (España). Below we provide a brief explanation of Banco Santander (España), at global and Latin American level. Banco Santander (SAN.MC, STD.N) is a commercial bank in Spain and it has a presence in the 10 main markets. As of December 2012, Santander Group, via its subsidiaries, was one of the largest financial groups in Latin America in terms of assets, according to annual reports. As of December 31, 2012, Grupo Santander had 14,392 offices and transactions in more than 20 countries along the world. Banco Santander México Banco Santander Mexico is a corporation (sociedad anónima) authorized to operate as a multiple-purpose banking institution (institución de banca múltiple) under the Mexican Banking Law. Banco Santander Mexico is one of the top multipurpose banks in Mexico in terms of total assets, net income and loan portfolio as of December 31, For the year ended December 31, 2012, Banco Santander Mexico had net income of Ps.17.4 billion, and as of December 31, 2012, Banco Santander Mexico had total assets of Ps billion, total loans, net of allowance for impairment losses, of Ps billion, total deposits of Ps billion and total equity of Ps.96.1 billion. As of December 31, 2012, Banco Santander Mexico employed 13,142 people (including employees from the GE Capital mortgage business) and had 1,142 branches located throughout Mexico. Its headquarters are located in Mexico City, Distrito Federal, and it operates in every state in Mexico.. Banco Santander Mexico provides a broad range of retail and commercial banking services to its customers, including peso- and foreign currency-denominated loans to finance a variety of commercial transactions, trade, foreign currency forward contracts and credit lines and a variety of retail banking services, including mortgage financing and credit cards. It seeks to offer its customers a wide range of products while providing high levels of service. In addition to its traditional banking operations, Banco Santander Mexico offers a variety of ancillary financial services including financial leasing, financial advisory services, insurance brokerage and investment management. x) Description of the main assets Our registered office is located in Mexico City, in Avenida Prolongación Paseo de la Reforma 500, Colonia Lomas de Santa Fe, Delegación Álvaro Obregón, Ciudad de México, D.F., C.P , México. In addition, we own 2 other properties located in Querétaro, Mexico. We rent 128 additional buildings. Our branches operate at leased facilities with lease agreements with terms of 1 to 10 years. The table below shows our main properties at the indicated dates: Main properties as of December 31, Amount Central Offices Owned 3 Rented 128 Total 131 Branches Owned 3 Rented (1) 1,117 Annual Report Banco Santander (México)

88 Main properties as of December 31, Amount Total 1,120 (2) Other properties (3) Owned 1 Rented 807 Total 808 1) Includes 67 branches under bailment (comodato). 2) We have 22 box offices to service Santander Select Customers, which share the same property. 3) Consists mainly of back offices, storage, parking lots and ATMs. On April 27, 2012, Banco Santander Mexico entered into an agreement to sell 220 properties (branches, offices and parking lots) to Fibra Uno, a Mexican publicly traded real estate investment trust. The sale of the properties was completed in May 2012 for Ps.3,334 million, which resulted in the recognition of net gains in the amount of Ps.1,730 million. Under the agreement, the properties were immediately leased back to Banco Santander Mexico for a period of 20 years with an annual rent of Ps.275 million. See note 1 and 13 to our audited and consolidated financial statements. xi) Legal, administrative or arbitration processes During the normal course of business, we are party in some demands and we participate in some judicial and arbitration proceedings. Particularly, areas such as brokerage, credit and fiduciary, tax, labor and retail are prone to litigation and other regulatory and legal proceedings. Said claims and proceedings are and have been analyzed and quantified, as well as duly disclosed or reserved, as applicable, as we consider it necessary taking into consideration the point of view of our auditors and always subject to the Accounting Criteria of the CNBV and the opinion of the independent experts. We do not believe that the liabilities derived from such demands and proceedings, collectively, represent or may have a relevant adverse effect on our consolidated financial condition, our results or our transactions. It is important to mention that there are no relevant proceedings where any of our advisors, directors, members of the senior management or any of our affiliates is the counterparty against us or any of our subsidiaries or possesses a relevant interest against us or our subsidiaries. Banco Santander (México), in its capacity of fiduciary, is part of several proceedings filed against it as part of the ordinary course of business, and, in our opinion, it is reasonable to think that they will not have a relevant and adverse effect on our results, operations of our financial condition. Fiscal authorities issued a resolution as of February 16, 2012 that stipulates that certain loss deductions derived from the sale of non-performing loans portfolio of Banco Santander (México) during year 2007 did not comply with the applicable regulations. The amount determined by the tax authorities is approximately Ps billion, including penalties, updating and interests. We consider that such resolution is incorrect and on April 27, 2012 we filed a challenge remedy. Based in the opinion of our independent tax advisors, we believe that the foundations for filing such challenge are based in sound legal arguments; therefore, we will continue to actively contest the abovementioned resolution. In addition, based in on our consultancy, we believe that the risk of a relevant loss for Banco Santander (México) is remote and, accordingly, we have not created preventive reserves in our Financial Statements with respect to the abovementioned resolution. However, we cannot assure the successful settlement of the challenge remedies filed by Banco Santander México. We estimate that our total liability, supposing that all the legal proceedings were settled against us, would represent material losses not reserved by us. As of December 31, 2012, we have reserved Ps.1,354 million (U.S.$104.4 million) as reserves for legal proceedings (including tax proceedings). Said reserves are presented within the item "Sundry creditors and Other Accounts Payable" of our Financial Statements. xii) Share capital stocks During years 2011 and 2010 no event modifying the share capital, number of stocls and class of stocks that constitute the share capital occurred. In year 2012, on Extraordinary and Ordinary Stockholders' Meeting as of February 22, 2012, agreed to increase the share capital of the institution, and therefore, share capital is constituted as follows: The table below shows the structure of our share capital at the date hereof. Annual Report Banco Santander (México)

89 (Amounts in Mexican pesos) Series F Stock Amount Series B Stock Amount Total Stocks Amount % Fixed Capital Grupo Financiero Santander, S.A.B. de C.V. 67,792,912,762 6,779,291,276 13,055,329,442 1,305,532,944 80,848,242,204 8,084,824, Sundry 0 0 7,161, ,160 7, , Total Share Capital 67,792,912,762 6,779,291,276 13,062,491,041 1,306,249,104 80,855,403,803 8,085,540, xiii) Dividends Dividends Policy We paid dividends in December 2008, January 2010, February 2011, March 2012 and September 2012 in an aggregate amount of Ps.7,287 million, Ps.3,000 million, Ps.5,690 million and Ps.8,075 million and Ps.7,300 million, respectively, equivalent to Ps.0.09, Ps.0.04, Ps.0.07, Ps.0.10 and Ps.0.09 per share, respectively. Although we have no current plans to adopt a formal dividend policy in respect of the amount and payment of dividends, we currently intend to declare and pay dividends on an annual basis, subject to approval by our shareholders. The declaration and payment of dividends in respect of any period is subject to a number of factors, including our debt service requirements, capital expenditure and investment plans, other cash requirements, our shareholders having approved our financial statements and the payment of dividends, and such other factors as may be deemed relevant at the time. We cannot assure you that we will pay any dividends in the future. The declaration, payment and amount of any dividend are considered and proposed by our Board of Directors and approved at the general shareholders meeting by the affirmative vote of a majority of our shareholders in accordance with the applicable regulatory, corporate, tax and accounting rules and are subject to the statutory limitations set forth below. Under Mexican law, dividends may only be paid from retained earnings resulting from the relevant year or prior years results if (i) the legal reserve has been created or maintained, by annually segregating 5% of net earnings, until the legal reserve equals at least 20% of the fully paid-in capital, (ii) shareholders, at a duly called meeting, have approved the results reflecting the earnings and the payment of dividends, and (iii) losses for prior fiscal years have been repaid or absorbed. All shares of our capital stock rank pari passu with respect to the payment of dividends. The reserve fund is required to be funded on a standalone basis for each company, rather than on a consolidated basis. The level of earnings available for the payment of dividends is determined by Mexican Banking GAAP. As of December 31, 2012, the Bank (on an individual basis) had set aside Ps.7,971 million in legal reserves compared to paid-in capital of Ps.8,086 million, and thus was in compliance with the regulations pertaining to its legal reserve. Annual Report Banco Santander (México)

90 3) FINANCIAL INFORMATION a) Selected Financial Information Below we present a condensed version of the income statement and balance sheet of Banco Santander (México), consolidated with its subsidiaries, for the years ended on December 31, 2012, 2011 and This information is consistent with the financial statements of the Bank and it must be analyzed jointly with the Audited Consolidated Financial Statements and the corresponding notes, included in section "Annexes" in this Annual Report. All the information is presented in millions of Mexican pesos. Financial statements as of December 31, 2011 and 2010 were reclassified in some accounts for comparison purposes with respect to financial statements as of December 31, Banco Santander (México) Consolidated Income Statement For the years ended in 2012, 2011 y 2010 Millions of Mexican pesos Financial Margin 33,782 28,713 26,215 Allowance for loan losses (9,445) (6,556) (8,425) Financial Margin after allowance for loan losses 24,337 22,157 17,790 Commissions and Fees, Net 11,051 9,305 8,306 Brokerage Result 1, ,954 Other operating income (loss) 3,095 1, Administrative and promotional expenses (19,462) (17,382) (15,380) Operating Income 20,962 16,091 14,724 Equity in results of subsidiaries and associated companies Income before Income Taxes 21,032 16,160 14,751 Current and deferred income taxes (3,629) (2,450) (2,251) Income before equity in non-consolidated and associated companies 17,403 13,710 12,500 Discontinued operations Net Income 17,403 13,710 12,886 Minority Interest (5) (10) (2) Net Income 17,398 13,700 12,884 Banco Santander (México) Consolidated Balance Sheet For years ended in 2012, 2011 and 2010 Millions of Mexican pesos ASSETS Cash and due from banks 81,626 66,598 93,289 Margin accounts 3,995 8,276 7,812 Investment in securities 169, , ,206 Sale and repurchase agreements 8,314 4,602 10,834 Loans Portfolio 344, , ,738 Non-performing loans portfolio 6,093 5,316 3,818 Total Loans 350, , ,556 Allowance for loan losses (-) (11,580) (11,191) (10,254) Loans Portfolio, Net 339, , ,302 Taxes and employee profit share (Net) 10,567 8,058 5,083 Other Assets 135, , ,956 Annual Report Banco Santander (México)

91 Total Assets 748, , ,482 LIABILITIES Deposits 397, , ,091 Interbank Loans 27,463 19,554 18,863 Creditors under sale and repurchase agreements 73, , ,254 Other Liabilities 153, , ,006 Total Liabilities 652, , ,214 Shareholders' equity 96,128 91,710 79,268 Total liabilities and shareholders' equity 748, , ,482 Banco Santander (Mexico), S.A. Main Indicators Net Income 17,398 13,700 12,884 ROE 18.5% 16.1% 16.3% Efficiency 39.0% 43.4% 38.3% Recurrence 61.6% 63.3% 63.9% Non performing loans 1.7% 1.7% 1.7% Coverage 190.1% 210.5% 268.6% Capitalization 14.8% 14.8% 15.6% b) Financial Information per line of business, geographic area and export sales. The information is presented only per business area. Information per segment has been prepared according to the classification used by Banco Santander (México), at secondary level, based in the type of business developed: The activities of Retail Banking include products and services for individuals, private banking customers, SMEs, our segment of middle market enterprises and governmental entities. We provide banking services to individuals of every income level and offer a wide range of products and services such as term and demand deposits, debit and credit cards, mortgages, payroll loans and personal loans. Our retail banking unit also provides services to domestic middle and large market enterprises that are not serviced by Global Wholesale Banking. We offer different services to SMEs, including commercial loans, transaction services for payments and collections, insurance, hedging and foreign trade. Income before taxes of Retail Banking for the year ended on December 31, 2012 reached Ps.11,900 millon, an increment of Ps.1,807 millon, or 17.9%, with respect to Ps.10,093 million obtained during the year ended on December 31, This increase was due to: An increase of 28.5% in interest yielded by loans portfolio, except credit card, mainly due to an increment of 25.1%, or Ps.39,460 million in the average volume of the portfolio, as a consequence of the growth derived from our business activities. An increase of 18.5% in commissions and fees (net) or Ps.1,649 million, mainly due to an increment of Ps.726 million in commissions on insurance policies and Ps.357 million in commissions on credit cards. Annual Report Banco Santander (México)

92 An increment of 15.8%, or Ps.2,485 million in administration expenses, mainly due to an increment of Ps.1,086 million in personnel expenses, mainly wages and salaries; Ps.304 million in rent, Ps.141 million in technology; Ps.352 million in other expenses and Ps.274 million in contributions to IPAB, directly related to an increment in deposits balance. Global Wholesale Banking Global Wholesale Banking provides to customers of this segment comprehensive products and services, including corporate banking, global transaction banking and mutual funds, with respect to financing, guarantees, mergers and acquisitions, debt and equity markets, structured financing, foreign trade, collection and payment services, project financing, syndicated loans, acqisitions financing and investment plans financing, among others. This segment also includes treasury services related to fixed and variable rate procucts, exchange rate and derivatives. In addition, this segment also includes proprietary trading. Income before taxes of Global Wholesale Banking for the year ended on December 31, 2012 was Ps.4,979 million, an increment of Ps.2,046 million, or 69.8%, with respect to Ps.2,933 million obtained in the year ended on December 31, This increment was due to an increase of Ps.1,732 million in brokerage income, in comparison with the loss of Ps.118 million for the year ended on December 31, This was complemented by an increment in interests on productive assets of Ps.1,768 million or 10.5%, compared with the Ps.18,617 million for the year ended on December 31, 2012 with respect to Ps.16,849 million for the year ended on December 31, This is mainly due to an increment of Ps.228 millones, or 4.7%, on interests on loans portfolio, derived from an increase of 10.1%, or Ps.8,603 million in the average volume of the portfolio along with a decrement of 28 basis points in the average interest rate. Likewise, said increment was due to interests on investmentsfor Ps.314, million or 3.60%, from Ps.8,718 million in the year ended on December 31, 2011, to Ps.9,032 million for the same period ended on December 31, 2012, due to an increment of Ps.16,909 million or 11.5%, in the average balance of investments, due to an increment in the market activity, adversely affected by a decrease of 42 basis points in average interest rates on these investments. Corporate Activities Our Corporate Activities segment is comprised of all operational and administrative activities that are not assigned to a specific segment or product mentioned above. The Corporate Activities segment includes the financial management division, which manages structural financial risks that arise from our commercial activities, mainly liquidity risk and interest rate risk, provides short- and long-term funding for our lending activities and calculates and controls transfer prices for loans and deposits in local and foreign currency. The financial management division also oversees the use of our resources in compliance with internal and regulatory limits regarding liquidity and regulatory capital requirements. Through the assignment of a transfer price to each loan or deposit, interest income is divided between our operating segments (Retail Banking and Global Wholesale Banking) and the Corporate Activities segment as follows: The difference between the interest rate charged to customers for the loans granted by our operating segments and the transfer price assigned to these loans is assigned as interest income to the respective operating segment; The difference between the interest rate paid to customers for the deposits received by our operating segments and the transfer price assigned to these deposits is assigned as interest income to the respective operating segment; and Finally, the difference between the transfer price charged to the loans and the transfer price paid for the deposits is assigned to Corporate Activities as net interest income. The financial management division determines transfer prices based on interest rates currently prevailing in the market for different durations, which are estimated from the yield of the most representative and liquid short and medium term corporate, government and Mexican Central Bank debt securities, and from the Mexican Central Bank s reference interest rates for longterm securities. The ALCO manages the risks associated with financial margin and net worth of the banking book, as well as liquidity risk for the entire balance sheet. We hedge the interest rate risk of the balance sheet using strategies that can address specific operations or modify the risk profile as a whole. In recent years, the ALCO portfolio was comprised of fixed rate positions, mainly Mexican sovereign bonds, in addition to fixed rate swaps, to protect the interest rate margin against a lower interest rate environment. As the scenario changed to more stable short term interest rates, we have reduced the volume of activity in the ALCO portfolio, leaving existing positions to mature at their stated maturity. Annual Report Banco Santander (México)

93 The operating income before taxes for the year ended on December 31, 2012 was Ps.4,759 million, compared with the year ended on December 31, 2011 of Ps.3,370 million, that is, an increment of Ps.1,389 million, or 41.2%. This increment was mainly due to an increment in other operating income for Ps.1,173 million. Net Interest Income for the year ended on December 31, 2012 was Ps.3,532 million, which represented a decrement of Ps 333 million with respect to year ended on December 31, Said decrease was mainly due to: (i) spread in ALCO portfolio positions, from Ps.1,662 million in the year ended on December 31, 2011, to Ps.1,497 million for the period ended on December 31, 2012, that means, a decrease of Ps.165 million due to the expiration of certain ositions, (ii) issues of unsecured bonds and term deposits in the BMV, where the spread of issues was Ps.119 million greater for the period ended on December 31, 2012 than the negative result of Ps.156 million of the year ended on December 31, 2011 due to the growth in volume during the first semester of 2012; (iii) transfer rates management of retal banking inreased from Ps.44 million for the year ended on December 31, 2011, to Ps.260 million for the year ended December 31, 2012; this gain is constituted by the allocation of a fund rate to oans, the result of contracted liabilities and hedgings performed by portfolio; said variation has a counterparty in the Retail Banking and Global Wholesale Banking as greater income due to decrements in the cost of funds allocated so that it gets closer to the actual cost of funds of the bank. The preventive allowance for loan losses decreased Ps.70 million for the year ended on December 31, 2012, which, compared with the result obtained in the year ended on December 31, 2011 for Ps.382 millones, represents a decrement of Ps.312 million. Commissions Income for the year ended on December 31, 2012 was negative for Ps.82 million, mainly due to the payment to Global Wholesale Banking for Ps.40 millions, with respect to the project of sale of branches. Brokerage income for the year ended December 31, 2012 was negative for Ps.56 million, which, compared with the income of Ps.108 millions achieved in the year ended on December 31, 2011, represents a drop of Ps.164 million, mainly due t a decrement in the value of certain securities such as Su Casita and Crédito Inmobiliario. Other operating income (expenses) for the year ended on December 31, 2012 was Ps.1,355 millones that, compared with the result obtained durong the year ended on December 31, 2011 for Ps.182 million, represents an increment of Ps.1,173 million, mainly due to the sale of branches for Ps.1,730 million. Administration and Promotion expenses allocated to the segment of Corporate Activities were Ps.8 million for the year ended on december 31, 2012, representing a decrement of Ps.314 million with respect to the expenses incurred in the year ended on December 31, 2011 of Ps.306 million, mainly due to the desincorporartion of Seguros Santander. As of December 31, 2012 As of December 31, 2011 Segmentos Retail Global Corporate Retail Global Corporate Wholesale Wholesale Banking 1/ Banking 2/ Activities Banking 1/ Banking 2/ Activities (Millones de pesos) Financial Margin 26,535 3,801 3,446 21,208 3,656 3,850 Allowance for loan losses (9,212) (163) (70) (6,106) (67) (382) Financial Margin after Allowance for loan losses 17,323 3,638 3,376 15,102 3,588 3,467 Net Commissions 9,930 1,208 (88) 8,247 1,236 (178) Intermediation result 626 1,518 (203) 890 (198) 142 Other operating income(expenses) 1, , Administration and promotion expenses (17,692) (1,845) 75 (15,111) (1,925) (346) Operating Result 11,786 4,521 4,654 10,014 2,701 3,376 Equity in the result of non-consolidated and associated companies (4) Result before income tax 11,782 4,523 4,727 10,014 2,701 3,445 Annual Report Banco Santander (México)

94 c) Disclosure of Relevant Loans Pursuant to the applicable laws, there are no loans granted to the Bank for an amount equivalent to 10%, or more of its total liabilities as of December 31, d) Comments and analysis of the Management on the results of operation and the financial condition of the issuer. The information below corresponds to Banco Santander (México), consolidated with its subsidiaries. Figures are consistent with the audited consolidated income statements of the Bank and subsidiaries. All the information is presented in millions of Mexican pesos, unless otherwise stated; therefore, increases are expressed in real terms. Certain amounts and percentages included in this Annual Report have been rounded up; consequently, figures presented in the different tables may vary slightly. i) Operating Income (figures in millions) During 4Q12, Santander reported a net income of Ps.3,846 million, representing a YoY increment of 15.9%. If we consider certain increments in administrative and promotion expenses, a charge-off of an account receivable and greater allowances in 4Q12, the reported net income is Ps.3,218 million, a decrement of 3.0% with respect to the figure reported for 4Q11 and 20.9% lower than 3Q12. Net Income in 12M12 was Ps.16,829 million, an increment of Ps.3,876 million, or 29.9%. if we exclude the creation of allowances during 3Q11 pursuant to provisions of the CNBV for an amount of Ps.1,067 million, the extraordinary income derived from the sale and subsequent lease of offices in 2Q12 for Ps 1,710 millions, as well as the aforementioned 4Q12 effects, the reported net income was Ps.17,398 million, an increment of 27.0% with respect to 12M11. Net Interest Income for 4Q12 was Ps.8,802 million, an increment of Ps.1,044 million, or 13.5% compared to the one of 4Q11, of Ps.7,758 million, and an increment of Ps.227 million, or 2.6% in comparison with the one of 3Q12. For 12M12, net Interest Income was Ps.33,782 million, an increment of Ps.5,069 million, or 17.7% with respect to the Ps.28,713 million obtained in 12M11. This is due mainly to an increment in interest income from the loans portfolio. During 4Q12 preventive allowances for loans losses were created for an amount of Ps.2,949 million, representing an increment of Ps.908 million, or 44.5% with respect to 4Q11, and an increment of Ps.415 million, or 16.4% with respect to 3Q12. For 12M12, allowances reached Ps.9,445 million, an increment of Ps.2,889 million, or 44.1%, with respect to 12M11. The increment is due to the growth of 11.8% in the loans portfolio during the last twelve months. Interest Income adjusted by allowances for loan losses reported on 4Q12 amounted Ps.5,853 million, an increment of 2.4% and a decrease of 3.1% with respect to 4Q11 and 3Q12 respectively. For the period 12M12, this item increased to Ps.24,337 million, an increment of 9.8% with respect to Ps.22,157 million reported on 12M11. Net Commissions in 4Q12 amounted Ps.3,111 million, an increment of Ps.806 million or 35.0% with respect to 4Q11, and an increment of Ps.476 million with respect to 3T12. The increase from 3Q12 to 4T12 is due to an increase in credit card commissions, insurance and technical advisories and public offers. With respect to 12M12, Net Commissions reached Ps.11,051 million, an increment of Ps.1,746 million or 18.8% with respect to 12M11. Brokerage Income for 4Q12 was Ps.306 million, an increment of Ps.442 million with respect to 4Q11 and a decrement of Ps.580 million with respect to 3Q12. This is due to profits in the sale-purchase of securities for Ps.1,930 million, ones, derivatives positions, stocks and debt instruments and a negative result in valuation income for Ps.(1,624) million. With respect to 12M12, brokerage income was Ps.1,941 million, an increment of 132.7% or Ps.1,107 million with respect to 12M11. Other operating income for 4Q12 amounted to Ps.205 million, a decrement of 34.8% with respect to the Ps.315 million obtained in 4Q11 and an increment of 29.2% with respect to the Ps.159 million in 3Q12. With respect to 12M12, Other operating income amounted to Ps.3,095 million, while in 12M11 they amounted to Ps.1,177 million. With respect to 12M12 this figure includes the profit derived from the sale and subsequent lease of branches. Annual Report Banco Santander (México)

95 Administration and promotion expenses as of 4Q12 amounted to Ps.5,821 million, an increment of Ps.799 million, or 15.9%, with respect to 4Q11 and higher in Ps.831 million or 16.7% with respect to the figure for 3Q12. With respect to 12M12, these expenses amounted to Ps.19,462 million, that is, an increment of Ps.2,080 million. Net Interest Income Concept Interest Income Interests and return on loans portfolio 28,899 23,549 17,323 Interest and return on credit card portfolio 8,264 6,590 7,122 Interests and return on securities 12,022 11,567 10,529 Interest on cash 2,453 2,622 2,793 Interests and premiums on repurchase and sale agreements and securities loans 2,788 1,789 1,066 Interests on margin accounts Commissions charged for the initial granting of loans Total Interest Income 55,457 46,885 39,626 Interest Expense Interests on demand deposits (2,164) (1,503) (929) Interests on term deposits (5,717) (5,612) (4,608) Interests on credit instruments (1,299) (893) (236) Interests on bank loans and other organisms (791) (781) (640) Interest on subordinated obligations 0 0 (75) Interests on sale and repurchase agreements and securities loans. (11,704) (9,383) (6,923) Total Interest Expenses (21,675) (18,172) (13,411) Total Net Interest Income 33,782 28,713 26, vs 2011 Net Interest Income for year 212 amounted to Ps.33,782 million, an increment of Ps.5,069 million or 17.7% with respect to the Ps.28,713 million in 2011; as a consequence of an increase of 18.7% in the average balance of interest-bearing assets and an increment of 3 basis points in the average rate on these assets, combined with an increment of 19.3% in the average amount of interest-bearing liabilities along with an increment of 5 basis points in the average rate of such liabilities. Interest Income: Interest Income amounted to Ps.55,457 million in 2012, an increment of Ps.8,572 million or 18.3% with respect to Ps.46,885 million of This growth is mainly due to an increase in volumes of loans portfolio, as well as an increase of 32 basis points in the average interest rate. Increment in the interest income in loans portfolio (except credit cards) amounted to Ps.28,889 million in 2012, an increment of Ps.5,352 million or 22.7% with respect to the Ps.23,547 million registered in This is due to an increment of 19.0% in the average volume of the portfolio, along with an increment of 30 basis points in the average interest rate. In 2012, Interest income derived from credit card portfolio was Ps.8,264 million, can increment of Ps.1,672 million or 25.4% with respect to the Ps.6,592 million registered in This was due to an increase in the average volume of the portfolio, which in 2012 was Ps.32,965 million and Ps.25,719 million in The increment in average volume was affected by a reduction in the average rate of 56 basis points in this portfolio. Interests and returns on securities amounted to Ps.12,022 million in 2012, an increment of Ps.455 million or 3.9% with respect to the Ps.11,567 million in This increment is due to the combined effect of an increment of Ps.23,447 million or 11.9% in the average volume, partially affected by a decrement in the average rate of 42 basis points. Annual Report Banco Santander (México)

96 Interests on cash in 2012 amounted to Ps.2,453 million, a decrement of Ps.169 million or 6.4% with respect to the Ps.2,622 million in This is due to a combined effect of the decrease in the average volume of funds of 3.7% or Ps.2,069 million, plus a decrease in the average interest rate of 45 basis points. Interests and premiums on sale and repurchase agreements and securities loans during 2012 amounted to Ps 2,788 million, an increment of Ps.999 million or 55.8% with respect to Ps.1,789 million in This is due to an increment in the average volume of Ps.21,108 million or 54.3%, while the average rate keeps levels of 4.6%. Interest Expense: Interest Expense during 2012 amounted to Ps 21,675 million, an increment of Ps 3,503 million or 19.3% with respect to the Ps.18,172 million in This is due to an increment in interest paid on term and demand deposits for Ps.767 million, interest on credit instruments issued, for Ps.406 million, as well as interests on repurchase and sale agreements and securities loans for Ps.2,321 million. Interest paid on demand deposits amounted to Ps.2,164 million in 2012, an increment of Ps.661 million or 44.0% with respect to the Ps.1,503 million of This is due to an increment of 20.9% in the average balance of demand deposits, along with an increment of 24 basis points in the average interest rate. Interests paid on term deposits amounted to Ps.5,717 million in 2012, an increment of Ps.105 million or 1.9% with respect to the Ps.5,612 million in This is due to an increment of 1.5% in the average volume. Interests paid on credit instruments in 2012 amounted to Ps.1,299 million, an increment of Ps.406 million or 45.4% with respect to the Ps.893 million in This is due to an increment of 44.2% in the average balance of issued credit instruments, necessary for funding the growth in loans portfolio, along with an increment of 5 basis points in the average interest rate. Interests paid on sale and repurchase agreements amounted to Ps.11,704 million in 2012, an increment of Ps.2,321 million or 24.7% with respect to Ps.9,383 million in This is due mainly to the increment of 25.5% in the average balance of sale and repurchase agreements, partially offset by a decrement of 3 basis points in the average interest rate vs 2010 Net Interest Income for year 2011 amounted Ps.28,713 million, an increment of Ps.2,498 million or 9.5% with respect to the one registered in 2010 of Ps.26,215 million. This is due to an increase of 28% in the average balance of interest-bearing assets and a decrease of 72 basis points in the average rate generated by these assets, combined with an increase of 35% in the average amount of interest-bearing liabilities along with an increment of 12 basis points in the average interest rate of said liabilities. Interest Income: Interest Income amounted to Ps.46,885 million in 2011, an increment of Ps.7,259 million or 18.3% with respect to Ps. 39,626 million in This increment is mainly due to volumes in the loans portfolio in all products, especially in mortgages, due to the purchase in April of the mortgage business of GE Money en México, except for loans to financial institutions. Average interest rate in loans portfolio decreased 72 basis points in this period, affecting all the portfolios in different magnitudes. Increment in the Interest Income in loans portfolio ((except credit cards) amounted to Ps.23,549 million in 2011, an increment of Ps.6,226 million or 35.9% with respect to Ps.17,323 million in said increment is due to an increase of 38.7% in the average volume of the portfolio, partially offset by a decrease of 30 basis points in the average interest rate. In 2011, interest income of credit card portfolio was Ps.6,590 million, an increment of Ps.532 million or 7.5% with respect to the Ps.7,122 million in This increment was due to a decrease in the average volume, which in 2011 was Ps.25,719 million and Ps.26,240 million in 2010 as a consequence of the combined effect of charge-offs of default loans mainly during the first half of 2011, and an increase derived from new loans during the second half of Another reason was the decrease in the average rate in this portfolio of 152 basis points. Interests and returns on securities amounted to Ps.11,567 million in 2011, an increment of Ps.1,038 million or 9.9% with respect to the Ps.10,529 million in This increment was due to the combined effect of an increase of Ps.42,862 million or 27.8% in the average volume, offset by a decrease of 97 basis points in the average interest rate. Annual Report Banco Santander (México)

97 Interests from cash in 2011 amounted to Ps.2,623 million, an increment of Ps.170 million or 6.1% with respect to the Ps. 2,793 million in This was due to a decrement in the average volume of funds, and a decrement in the average interest rate of 12 basis points. Interest and premiums on sale and repurchase agreements and securities loans amounted to Ps.1,789 million in 2011, an increment of Ps.723 million or 67.8% to the Ps.1,066 million in 2010 derived from an increment in the average volume of Ps.16,819 million or 76.1%, partially offset by a decrease of 23 basis points in the average interest rate. Interest expense: Interest Expense in 2011 amounted Ps.18,172 million, an increase of Ps.4,761 million or 35.5% with respect to the Ps.13,411 million in This was due to an increment in interest paid for term and demand deposits of Ps.1,578 million, interests generated by credit instruments for Ps.657 million, as wel as interests on sale and repurchase agreements and loans on securities for Ps.2,460 million. Interests paid on demand deposits amounted to Ps.1,503 million in 2011, an increment of Ps.574 million or 61.8% with respect to the Ps.929 million in 2010 derived from the increment of 20.9% in the average balance of demand deposits along with an increment of 41 basis points in the average interest rate. Interests paid on term deposits amounted to Ps 5,612 in 2011, an increment of Ps.1,004 million or 21.8% with respect to the Ps.4,608 million in 2010, derived from an increment of 20% in average volume. Interests paid on credit instruments issued in 2011 amounted to Ps.893 million, an increment of Ps.657 million or 278.4% with respect to the Ps.236 million in 2010 derived from an increment of 258% in the average balance of issued credit instruments, for funding the growth in the loans portfolio, and an increment of 29 basis points in the average interest rate. Interests paid on sale and repurchase agreements and loans of securities amounted to Ps.9,383 million in 2011, an increment of Ps.2,460 million or 35.5% with respect to the Ps.6,923 million in This is mainly due to an increment of 39.9% n the average balance of sale and repurchase agreements, partially offset by a decrease of 15 basis points in the average interest rate. Net Commissions Concept Credit Cards 2,685 2,330 2,557 Accounts Management Collection Services 1,434 1,257 1,156 Mutual Funds 1,117 1,199 1,225 Foreign Trade Insurance 2,962 2,235 1,425 Technical Assistance and public offers Checks negotiation Purchase and sale of securities and money market transactions Others 13 (18) (135) Total Net Commissions 11,051 9,305 8, vs 2011: Net Commissions in 2012 amounted Ps.11,051 million, an increment of Ps.1,746 million or 18.8% with respect to the Ps.9,305 million in This increment was due mainly to an increment in insurance commissions for Ps.727 million, or 32.5% with respect to the previous year, due to an increment in commissions for technical assistance and public offers for Ps.362 million or 56.3% with respect to the previous year and an increase in credit card commissions of Ps.355 million or 15.2%. In addition, there were increments in commissions for collections services, foreign trade, purchase and sale of securities and money market transactions, checks, mutual funds and others. Annual Report Banco Santander (México)

98 Credit card commissions in 2012 increased Ps.355 million or 15.2% with respect to This increment was mainly due to new credit and debit cards. At the end of 2012, the number of cards increased 10.5% with respect to the number of available cards in Commissions derived from collection services amounted to Ps.1,434 million in 2012, an increment of Ps.178 million or 14.2% with respect to Ps.1,256 milion of This was due to an increment in the number of transfer and electronic collection transactions. Commissions from the sale of insurance policies amounted to Ps.2,962 million in 2012, an increment of Ps.727 million or 32.5% with respect to the Ps.235 million in This increment is due to an increase in the volume derived from our strategy of selling insurance policies along with other products, such as current accounts and mortgages; as well as the sale of new products such as autocompara and an increment in sales via our alternate channels such as ATMs and contact center. Commissions for technical assistance and public offers amounted to Ps.1,005 million in 2012, an increment of Ps.362 million or 56.3% with respect to the Ps.643 million in 2011 derived from the increment in debt restructuring activities and an active participation in public offers vs 2010: Net Commissions in 2011 amounted to Ps.9,305 million, an increment of Ps.999 milion or 12.0% with respect to the Ps.8,306 million in This increment was due mainly to an increment in insurance commissions for Ps.810 milion, or 56.8% with respect to the previous year and an increment in commissions for technical assistance and public offers for Ps.200 million or 45.1% with respect to the previous year. In addition, there were increments in commissions for collections services, foreign trade, purchase and sale of securities and money market transactions, checks, mutual funds and others. Credit card commissions in 2011 slightly decreased Ps.277 million or 8.9% with respect to This decrement was mainly due to a decrease in new credit and debit cards. Commissions derived from collection services amounted to Ps.1,257 millio in 2011, an increment of Ps.101 million or 8.7% with respect to Ps.1,156 million of This was due to an increment in the number of transfer and electronic collection transactions. Commissions from the sale of insurance policies amounted to Ps.2,235 million in 2011, an increment of Ps.810 million or 56.8% with respect to the Ps.1,425 million in This increment is due to an increase in the volume derived from our strategy of selling insurance policies along with other products, such as current accounts and mortgages; as well as the sale of new products such as autocompara and an increment in sales via our alternate channels such as ATMs and contact center. Commissions for technical assistance and public offers amounted to Ps.643 million in 2011, an increment of Ps.200 million or 45.1% with respect to the Ps.443 million in 2010 derived from the increment in debt restructuring activities financial advisories and syndicated loans. Brokerage Result Concept Valuation Currency (75) (36) 31 Derivatives (1,018) (3,124) 5,509 Stocks 322 (1,318) 571 Debt Instruments (924) Subtotal (646) (4,425) 5,187 Purchase/ Sale of Securities Currency 94 1, Derivatives 971 4,601 (5,208) Stocks 1,033 (531) 2,415 Debt Instruments Subtotal 2,587 5,259 (1,233) Annual Report Banco Santander (México)

99 Total Brokerage Result 1, , vs 2011: Net profit obtained in 2012 in brokerage amounted to Ps.1,941 million, an increment of Ps.1,107 million or 132.7% with respect to the Ps.834 million in 2011, derived from the combined effect of a profit for Ps.2,587 million in the purchase and sale of securities, and a loss of Ps.646 million in the valuation of securities during 2012; when in 2011 we obtained a profit of Ps.5,259 million in the purchase and sale of securities and a loss in valuation for Ps.4,425 million. In 2012, the net derivative position recorded a loss of Ps.47 million, where Ps.1,018 million corresponded to valuation losses not compensated by profits in purchase and sale transactions for Ps.971 million. These losses in derivatives are compensated by net profits in currency positions for Ps.19 million, stock positions for Ps.1,355 million and positions in debt instruments for Ps.614 million. In 2011, the net derivative position recorded a profit of Ps.1,477 million, where Ps.3,124 million corresponded to valuation losses not compensated by profits in purchase and sale transactions for Ps.4,601 million. In addition to profits in derivatives, we obtained profits in currency positions for Ps.1,098 million, debt instruments positions for Ps.108 million and losses in stock positions for Ps.1,849 million vs 2010: Net profit obtained in 2011 in brokerage amounted to Ps.834 million, a decrement of Ps.3,120 million or 78.9% with respect to the Ps.3,954 million in 2010, derived from the combined effect of a profit for Ps.5,259 million in the purchase and sale of securities, and a loss of Ps.4,425 million in the valuation of securities during 2011; when in 201o we obtained a valuation profit of Ps.5,187 million and a loss in the purchase and sale of securities for Ps.1,233 million. In 2010, the net derivative position recorded a profit of Ps.301 million, where Ps.5,509 million corresponded to valuation gains not compensated by losses in currency derivatives for Ps.5,208 million. This result includes losses from equity derivative positions of Ps.1,775 million, positive results in interest rate derivatives of Ps.1,776 million, and positive results in currency derivatives of Ps.300 million. The net income of currency derivatives is hedging currency positions, which generated earnings of Ps.908 million in this period. The net gain in derivatives is covering currency positions that generated gains for Ps 908 during this period. Net losses in stock derivatives amounted Ps.1,775 million compensated by gains in stock positions for Ps.2,986 million. The gain of Ps.300 million in derivatives for interest rate is linked to bond positions in trading counters. These results obtained in 2010 are explained by more favorable market conditions, which also generated extraordinary income for Ps.869 million milion derived from the sale of ALCO positions. Administration Expenses Concept Personnel Salaries and Benefits 8,226 7,211 6,352 Credit Card Professional Fees Rents 1, Promotion and Marketing Expenses Taxes and Duties 1, Technology expenses 1,695 1,522 1,365 Depreciations and amortizations 1,540 1,457 1,397 Contributions to Savings Protection Fund (IPAB) 1,342 1, Transport of Securities Other 2,274 1,841 1,704 Total Administrative Expenses 19,462 17,382 15,380 Annual Report Banco Santander (México)

100 2012 vs 2011: Administrative Expenses in 2012 amounted to Ps.19,462 million, an increment of Ps.2,080 million or 12.0% with respect to the Ps.17,382 million in This increment is due to an increase in personnel expenses, technology expenses, rent and contributions to the savings protection fund. Personnel salaries and benefits amounted to Ps.8,226 million in 2012, an increment of Ps.1,015 million or 14.1% with respect to Ps.7,211 million in This increment is due to an increment in the staff and in the wages and salaries for supporting the growth of the business. Rent expenses in 2012 amounted to Ps.1,258 million, an increment of Ps.281 million or 28.8% with respect to the Ps.977 million in 2011, derived from the sale and subsequent leasing of branches. Technology expenses amounted to Ps.1,695 million in 2012, an increment of Ps.173 million or 11.4% with respect to the Ps.1,522 million in 2011, derived from investments in technology that are necessary for supporting the growth in the business activities vs 2010: Administrative Expenses in 2011 amounted to Ps.17,832 million, an increment of Ps.2,002 million or 13.0% with respect to the Ps.15,380 million in This increment is due to an increase in personnel expenses, technology expenses, rent and contributions to the savings protection fund. Personnel salaries and benefits amounted to Ps.7,211 million in 2011, an increment of Ps.859 million or 13.5% with respect to the Ps.6,352 million in This increment is due to an increment in the staff and in the wages and salaries for supporting the growth of the business. Promotion and Marketing Expenses amounted to Ps.827 million in 2011, an increment of Ps.258 million or 45.3% with respect to the Ps.569 million in 2010, mainly due to an increment in the promotion and marketing for the different products and services the bank launched during Technology expenses amounted to Ps.1,536 million in 2011, an increment of Ps.163 million or 11.9% with respect to the Ps.1,373 million in 2010, derived from investments in technology that are necessary for supporting the growth in the business activities. ii) Financial Condition, Liquidity and Capital Resources Our control and management functions involve planning our funding requirements, structuring the sources of financing to achieve optimal diversification in terms of maturities, instruments and markets and setting forth contingency plans. Overall, we have a strong liquidity position with total loans, net of allowance for impairment losses, as a percentage of our deposits, representing approximately 93.6% of our total deposits as of December 31, We constantly review our liquidity position and the forecasted growth of our business lines relative to our loan/deposit ratio. Banco Santander España and its subsidiaries follow a global model in which each unit is responsible for its own capital and funding. We are autonomous in the management of our liquidity and capital needs, with no structural support from any other unit of the Santander Group Spain. Risk-Weighted Assets and Regulatory Capital Pursuant to Mexican Capitalization Requirements, Banco Santander Mexico, our commercial bank subsidiary, is required to maintain specified levels of net capital on an unconsolidated basis as a percentage of risk-weighted assets, including credit, market and operational risks. The minimum Capital Ratio currently required by the Mexican Capitalization Requirements in order not to be required to cancel interest payments or principal payments (including the forced conversion into securities shares) is 8%. As of December 31, 2012, Banco Santander Mexico s Capital Ratio was 14.78%. The table below presents Banco Santander Mexico s risk-weighted assets and Capital Ratios as of December 31, 2012, 2011 and 2010, calculated in accordance with CNBV accounting standards: Annual Report Banco Santander (México)

101 For the years ended on December 31, (Thousands of pesos, except percentages) Capital: Tier 1 74,618,425 71,674,469 68,703,017 Tier 2 1,578,396 1,469,060 1,088,486 Total capital 76,196,821 73,143,529 69,791,503 Risk-Weighted Assets: Credit risk 320,267, ,333, ,471,552 Market risk 145,714, ,705, ,440,784 Operational risk 49,600,221 46,365,635 53,745,194 Total risk-weighted assets 515,582, ,405, ,657,530 Required Regulatory Capital: Credit risk 25,621,420 21,386,712 18,837,724 Market risk 11,657,178 14,376,447 12,755,263 Operational risk 3,968,018 3,709,251 4,299,616 Total risk-weighted assets 41,246,616 39,472,410 35,892,603 Capital Ratios (credit, market & operational risk): Tier 1 capital to risk-weighted assets 14.47% 14.53% 15.31% Tier 2 capital to risk-weighted assets 0.31% 0.30% 0.24% Total capital to risk-weighted assets(1)(2) 14.78% 14.82% 15.56% (1) Banco Santander Mexico s Capital Ratio as of December 31, 2011 decreased by 74 basis points, from 15.56% in 2010 to 14.82% in 2011, mainly due to a 13.5% (Ps.2,549 million) increase in required regulatory capital associated with credit risk and a 12.7% (Ps.1,621 million) increase in required regulatory capital associated with market risk, which were partly offset by an increase of 4.8% (Ps.3,352 million) in total capital and a decrease of 13.7% (Ps.590 million) in required regulatory capital associated with operational risk. (2) Banco Santander Mexico s Capital Ratio as of December 31, 2012 decreased by 4 basis points, from 14.82% as of December 31, 2011 to 14.78% as of December 31, 2012, mainly due to a 19.8% (Ps.4,235 million) increase in required regulatory capital associated with credit risk and a 7.0% (Ps.259 million) increase in required regulatory capital associated with operational risk, which were partly offset by an increase of 4.2% (Ps.3,053 million) in total capital and a decrease of 18.9% (Ps.2,719 million) in required regulatory capital associated with market risk.. The Mexican government has stated that the country will be an early adopter of the Basel III international rules, which will require full implementation by Basel III is a capital and liquidity reform package for internationally active banking organizations around the world that includes, among other things, the definition of capital, capital requirements, the treatment of counterparty risk, the leverage ratio and the global liquidity standard. The framework of Basell III was designed by the Governors Group and Chiefs of Supervision of the Basel Bank Supervision Committee on On November 28, 2012,the CNBV published changes to the regulations under Basel III standards in Mexico, which resulted in changes to Mexican regulations that impacted regulatory capital requirements. The new regulations are applicable to Mexican banks as of January 1, According to our estimates, we believe Banco Santander Mexico and its subsidiaries will be above the 10.5% threshold that will be required under the Basel III. December 31, 2012 (Millions of pesos) Long term debt Debt securities (current portion) 1,371 Debt securities (long term portion) 33,380 Stockmarket Note (1) 19,835 Total debt 54,586 Stockholders' Equity Annual Report Banco Santander (México)

102 Paid-In Capital Share Capital 36,357 Premium from sale of stocks 11,454 Capital gained Capital Reserves 349 Results from previous years 31,068 Valuation result from securities available for sale 678 Valuation result from cash flow hedge securities 90 Net Income 17,822 Minority Interest 9 Totao Stockholders Equity 97,827 Total capitalization 152,413 (1) This concept is part of the balance of Term Deposits (Investments) Liquidity Management Liquidity management seeks to ensure that, even under adverse conditions, we have access to funds necessary to cover client needs, maturing liabilities and working capital requirements. Liquidity risk arises in the general funding of our financing, trading and investment activities. It includes the risk of unexpected increases in the cost of funding the portfolio of assets at appropriate maturities and rates, the risk of being unable to liquidate a position in a timely manner at a reasonable price and the risk that we are required to repay liabilities earlier than anticipated. Our general policy is to maintain adequate liquidity to ensure our ability to honor withdrawals of deposits in amounts and at times consistent with historical data, make repayment of other liabilities at maturity, extend loans and meet our own working capital needs in compliance with the applicable internal and regulatory reserve requirements and liquidity coefficients in all material aspects. In addition, the Basel III framework will implement a liquidity coverage ratio, or LCR, and a net stable funding ratio, or NSFR. The LCR will require banks to maintain sufficient high-quality liquid assets to cover the net cash outflows that could be encountered under a stress scenario. The NSFR establishes a minimum amount of stable funding a bank will be required to maintain based on the liquidity of the Bank s assets and activities over a one-year period. We have three principal sources of short-term peso funding: (i) demand deposits, comprised by interest-bearing and noninterest-bearing demand deposits, (ii) time deposits, which include short-term promissory notes with interest payable at maturity (pagarés bancarios), fixed-term deposits and foreign currency time deposits and (iii) reverse repurchase agreements. The following table shows the composition of our short-term funding described above: As of December 31, (Million pesos) Demand Deposits 210, , ,912 Term deposits: General Public 125, , ,096 Money market 25,953 16,409 13,846 Subtotal 151, , ,942 Reverse repurchase agreements 73, , ,254 Total 435, , ,108 Demand deposits are our most important funding source and are also less expensive relative to other sources of funding. Our funding strategy focuses on increasing the source of low-cost funding through new banking products and commercial Annual Report Banco Santander (México)

103 campaigns oriented to grow the volume of demand deposits from our existing customers and expand our customer base. Consistent with our funding strategy, we were able to increase our non-interest-bearing demand deposits by approximately 40% with respect to December 31, 2012 as a result of tailored marketing efforts based on the extensive knowledge of our customers that we have developed using information technology and leveraged using CRM strategies. Short-term promissory notes with interest payable at maturity (pagarés bancarios) are generally issued to meet short-term funding needs and are generally issued with maturities ranging from one to 364 days. Sale and repurchase agreements are another important instrument in Mexico s money market as they provide short-term investments to banking customers, mainly with Mexican government-issued paper and to a lesser extent securities issued by other Mexican banks and corporations. We have used sale and repurchase agreements to achieve cost efficiencies and as an additional source of short-term funding. In the future, we expect to continue using the funding sources described above in accordance with their availability, their cost, and our asset and liability management needs. The short-term nature of these funding sources, however, increases our liquidity risk and could cause liquidity problems for us in the future if deposits are not made in the volumes we expect or are not renewed. For example, we are aware of the risk that a substantial number of our depositors may withdraw their demand deposits or not roll over their time deposits upon maturity; however, we believe we can respond to a liquidity problem by increasing the interest rates we pay on time deposits, altering our mix of funding sources and by liquidating our short-term assets. We review our pricing policy daily and we believe we are able to reflect our cost of funding in the pricing of loans effectively, reducing the impact on net income. We also have access to short and long-term financing through the issuance of unsecured bonds (certificados bursátiles bancarios), time deposits (certificados de depósito bancario de dinero a plazo) and Senior notes. As of December 31, 2012, the balance of our short and long-term financing outstanding in the local market totaled Ps.35,094 million. In addition, there is a very short term financing via promissory notes with interest payable at maturity (pagarés con rendimiento liquidable al vencimiento) considered as tradicional investment. The cost of our peso-denominated funding has not been affected by the downgrades of Spain s sovereign debt, Banco Santander Spain s debt and our related downgrades. For debt financing, we rely in part on local, peso-denominated issuances, and we continue to be rated mxaaa, Aaa.mx and AAA(mex) by Standard & Poor s Ratings Services, Moody s Investors Service and Fitch Ratings Ltd., respectively, with respect to our local peso-denominated long-term debt, with equivalent ratings for our local peso-denominated short-term debt. However, the downgrades of Spain s sovereign debt, Banco Santander Spain s debt and our related downgrades could adversely affect our cost of funding related to any further issuances of debt in the international capital markets. We do not rely in any material respect on funding from our parent company, Banco Santander Spain, and Banco Santander Spain does not rely in any material respect on funding from us. As such, the elimination of funding to us from Banco Santander Spain or any deterioration of Banco Santander Spain s financial condition or increase in its funding costs would not have an impact on us except to the limited extent disclosed in section Risk Factors Risks Associated with Our Business Credit, market and liquidity risk may have an adverse effect on our credit ratings and our cost of funds. Any downgrading in our credit rating would likely increase our cost of funding, require us to post additional collateral or take other actions under some of our derivative contracts and adversely affect our interest margins and results of operations. Our management expects that cash flows from operations and other sources of liquidity will be sufficient to meet our liquidity requirements over the next 12 months, including our expected 2013 capital expenditures. For 2013, we have a capital expenditures budget of Ps.2,495.1 million (U.S.$192.4 million), of which 49.6% will be invested in information and technology and other furniture and equipment (Ps.1, million). The management estimates that operation cash flows and other liquidity sources will be sufficient to meet our liquidity needs during the next twelve months, including our investment budget for At the end of year 2014, we expect to add 200 new branches to our branch network and to hire 2,000 additional employees to work in such branches. We expec this expansion to have an approximate cost of Ps.1.75 billion and it will be financed with cash flows derived from our operations. During the fourth quarter of 2012, we opened 15 branches and 15 more during the same period of 013. We expect to open a total of 75 new branches at the end of year We expect to invest Ps.675 million during 2013 with respect to these75 new branches. As of December 31, 2012, total interest-bearing liabilities denominated in dollars amounted to Ps.39,784 million, representing 10.98% of our total deposits. The sources of such funding as of December 31, 2012, 2010 and 2009 were as follows: Annual Report Banco Santander (México)

104 As of December 31, (Million pesos) Demand deposits inmediata 17,407 16,030 15,434 Term deposits 5,341 4,417 5,807 Interbank loans and other loans 17,036 11,249 8,862 Total 39,784 31,696 30,103 Foreign Currency Position Our foreign currency-denominated assets, most of which are U.S. dollar denominated, are funded from a number of sources, including: (i) savings accounts and time deposits from private banking customers and medium and large Mexican companies, primarily in the export sector; (ii) issuance of U.S. dollar-denominated certificates of deposit in the Mexican market; (iii) interbank deposits; (iv) trade and working capital financing facilities from Mexican development banks and from foreign export-import banks; and (v) issuance of euroclearable certificates of deposit for foreign investors. We also obtain funding in foreign currency by swapping funding in Mexican pesos into U.S. dollars or euros through foreign currency derivatives (foreign currency swaps and cross-currency swaps) with certain local and foreign counterparties. Foreign currency funding rates are generally referenced to the London Interbank Offered Rate, or LIBOR. Mexican Central Bank regulations require that a bank maintain open positions in foreign currencies no higher than a specified level with respect to its total Tier 1 capital. As of December 31, 2012, our foreign currency-denominated assets, including derivative transactions, totaled U.S.$38,041 million (Ps.493,232 million) and our foreign currency-denominated liabilities, including derivative transactions, totaled U.S.$38,050 million (Ps.493,349 million). As part of our asset and liability management strategy, we monitor closely our exposure to foreign currencies, with a view to minimizing the effect of exchange rate movements on our income.. As of December 31, 2012, we are also in compliance with the limits established for us by the Mexican Central Bank for maturity-adjusted net foreign currency-denominated liabilities, which was U.S.$10,461 million (Ps.135,635 million). As of such date, our maturity-adjusted net foreign currency-denominated liabilities were U.S.$4,002 million (Ps.51,889 million). For the years ended December 31, 2012, 2011 and 2010, we were in compliance with all regulatory requirements relating to the ratio of U.S. dollar-denominated liabilities to total liabilities. Composition of Deposits The following table sets forth the composition of our demand and time deposits as of December 31, 2012, 2011 and As of December 31, (Million pesos) Demand deposits Interest bearing deposits 115, , ,238 Non-interest bearing deposits 95,230 68,055 55,674 Subtotal 210, , ,912 Term deposits Notes with interest payable at maturity 139, , ,398 Fixed-term deposits 6,287 17,779 6,732 Foreign currency term deposits 5,346 4,423 5,812 Subtotal 151, , ,942 Total 362, , ,854 Short and Long Term Financing Annual Report Banco Santander (México)

105 The following table sets forth the composition, term and rate of our short and long-term financing as of December 31, Security 2012 Term Rate (Million pesos) Bank Bonds jan-13 TIIE Bank Bonds feb % Bank Bonds may-13 Guaranteed rate subject to IPC and BOVESPA Bank Bonds may-13 IPC, S&P 500, Dow Jones and Euro Stoxx 50 Bank Bonds jun-13 IPC, Dow Jones, Euro Stoxx 50 and Nikkei 225 Bank Bonds jul-13 IPC, Dow Jones, Euro Stoxx 50 and Nikkei 225 Bank Bonds dec-13 TIIE Bank Bonds dec-13 TIIE Bank Bonds may-14 TIIE Bank Bonds may-13 TIIE Bank Bonds may-14 TIIE Bank Bonds jun-14 TIIE Bank Bonds nov-14 TIIE Bank Bonds aug-15 TIIE Bank Bonds oct-15 Guaranteed rate subject to IBEX35 Unsecured Bonds apr-13 Guaranteed rate subject to IPC Unsecured Bonds 3, apr-13 TIIE + 15pb Unsecured Bonds 5, apr-13 TIIE + 12pb Unsecured Bonds 4 15-jul-13 Guaranteed rate subject to IPC Unsecured Bonds 5, jan-14 TIIE + 20pb Unsecured Bonds jan-14 TIIE + 20pb Unsecured Bonds 2, sep-16 TIIE + 50pb Unsecured Bonds 1, sep-16 TIIE + 50pb Unsecured Bonds 1, mar % Senior notes 12, nov % Subtotal 34,751 Plus - Accrued Interest 343 Total 35,094 Senior Notes In November 2012, Banco Santander Mexico, issued senior notes in an aggregate principal amount of U.S.$1.0 billion under an indenture dated as of November 9, 2012, which we refer to as the 2022 notes. The 2022 notes were issued at an issue price of 98.18%. The 2022 notes mature on November 9, 2022 and bear interest at a rate per annum equal to 4.125%. Interest is paid semi-annually in arrears on May 9 and November 9 of each year. The net proceeds from this issuance were used to extend the duration of our liabilities and to refinance indebtedness maturing in the first half of notes are redeemable in full, not partially, at the option of Banco Santander Mexico at any time prior to maturity, at par plus accrued and unpaid interest upon the occurrence of certain specified changes in Mexican laws affecting the withholding tax applicable to payments under the 2022 notes. Banco Santander Mexico has also the right to redeem the 2022 Notes, in whole or in part, at the greater of 100% of their principal amount outstanding and a make-whole amount defined as the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 40 basis points, plus, in each case, accrued interest thereon to the date of redemption and any additional amounts payable with respect thereto Notes are not secured or guaranteed by any of our affiliated companies, by the IPAB or any other Mexican governmental agency, or by any other entity, and the 2022 notes are not convertible, by their terms, into our shares or equity capital. The 2022 notes, other than as set forth below, rank pari passu in right of payment with all of Banco Santander Mexico s other unsecured obligations other than obligations that are, by their terms, expressly subordinated in right of payment to the 2022 Annual Report Banco Santander (México)

106 notes. The notes are effectively subordinated to (i) all of Banco Santander Mexico s secured indebtedness with respect and up to the value of Banco Santander Mexico s assets securing that indebtedness, (ii) certain direct, unconditional and unsecured general obligations that in case of Banco Santander Mexico s insolvency are granted preferential treatment pursuant to Mexican law (including tax and labor claims) and (iii) all of the existing and future liabilities of Banco Santander Mexico s subsidiaries, including trade payables. The indenture governing the 2022 notes imposes certain restrictions on Banco Santander Mexico s ability to consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any person. However, the indenture does not limit Banco Santander Mexico s ability to incur senior, secured or other additional indebtedness (including additional 2022 notes), Banco Santander Mexico s ability to grant liens on its assets and properties, its payment of dividends or require Banco Santander Mexico to create or maintain any reserves. The indenture governing the 2022 notes also provides for events of default, which, if any of them occurs, would permit or require, as applicable, the principal and interest on all then outstanding 2022 notes to be due and payable immediately. Banco Santander México may issue additional notes from time to time pursuant to the indenture governing the 2022 notes. Off-Balance Sheet Accounts In the ordinary course of our business, we are a party to off-balance sheet activities to manage credit, market and operational risk and that are not reflected in our audited financial statements. These activities include commitments to extend credit not otherwise accounted for as contingent loans, such as overdrafts and credit card lines of credit. We record our offbalance sheet operations as memorandum accounts, which are described more fully in note 30 of our audited financial statements included in this annual report. We provide customers with off-balance sheet credit support through loan commitments. Such commitments are agreements to lend to a customer at a future date, subject to compliance with the contractual terms. Since substantial portions of these commitments are expected to expire without our granting of any loans, total commitment amounts do not necessarily represent our actual future cash requirements. These loan commitments totaled Ps.95, 021 million and Ps.112,672 as of December 31, 2012 and 2011 respectively. The credit risk of both on- and off-balance sheet financial instruments varies based on many factors, including the value of collateral held and other security arrangements. To mitigate credit risk, we generally determine the need for specific covenant, guaranty and collateral requirements on a case-by-case basis depending on the nature of the financial instrument and the customer s creditworthiness. We may also require comfort letters. The amount and type of collateral held to reduce credit risk varies, but may include real estate, machinery, equipment, inventory and accounts receivable as well as deposits, stocks, bonds and other tradable securities that are generally held in our possession or at another appropriate custodian or depository. The collateral is valued and inspected on a regular basis to ensure both its existence and adequacy. Additional collateral is required when it is considered necessary by us. The following table presents our outstanding contingent loans and other off-balance sheet assets as of December 31, 2012, 2011 and 2010: Annual Report Banco Santander (México)

107 As of December 31, (Million pesos) Proprietary record accounts: Contingent assets and liabilities 32,628 31,331 30,638 Credit commitments 133, , ,167 Assets in trust or mandate: Trusts 125, , ,423 Mandates 1,580 1,556 1,479 Assets in custody or under administration 3,520,226 2,891,995 2,660,335 Collateral received 72,236 42,458 35,890 Collateral received and sold or pledged as guarantee 55,900 20,442 3,207 Investment banking transaction on behalf of third parties 860,193 3,779,955 4,288,193 Uncollected interest earned on past due loan portfolio 860,193 3,779,955 4,288,193 Other accounts 1, , , ,268 Total 5,271,474 7,471,591 7,642,528 Contractual Obligations The table below presents our contractual obligations at December 31, Menos de 1 año Más de 1 año y menos de 3 años Al 31 de diciembre de 2012 Vencimientos Más de 3 años y menos de 5 años Más de 5 años Total (Millones de pesos) Demand deposits 210, ,928 Term deposits 151, ,542 Debt securities 11,333 8,049 5,662 17,915 42,959 Bank and other loans 25,127 1, ,990 Reverse repurchase agreements 73, ,436 Collaterals sold or pledged 6, ,853 Obligations derived from operating leasing ,619 5,105 8,084 Creditors derived from settlement of transactions 38, ,562 Sundry creditors and other accounts payable 19,592 5,809 1, ,017 Total 537,333 17,169 9,034 23, ,371 iii) Internal Control Pursuant to our corporate by-laws, our Board of Directors has created the committes below, which report to the Board of Directors: Audit Committee Corporate Practices, Appointments and Compensations Committee Integral Risk Management Committee Remunerations Committee Annual Report Banco Santander (México)

108 Audit Committee The objective, structure, faculties and responsibilities of the Audit Committee, which reports to the Board of Directors, have been established in the bylaws approved by our Board of Directors pursuant to the Mexican laws. The main functions of our Audit Committee are: (i) evaluate the performance of our independent auditors, including the revision and approval of their anual audit report; (ii) revision and approval of the financial statements and recommendations to the Board of Directors for their approval; (iii) revision of our internal controls and to inform the Board of Directors on any irregularity; (iv) to provide an opinion on the financial information prepared by the CEO, including opinions with respect to (a) if the accounting policies and criteria are adequate and sufficient; (b) if the financial information reasonable presents pur financial condition and our results, and (v) ensure that operations with related parties and transactions requiring the approval of the Board of Dicretors or stockholders are approved. The Audit Committee, in general, may review our financial information and its preparation and, to that end, it may carry out investogations, require the opinion of third parties and to request explanations and information to our executives. Pursuant to the applicable laws, the members of the Audit Committee must be appointed due to their proffesional qualifications, experience and reputation. At least one of the members must have a wide experience within the internal control/ finance/ audit areas. Executives or employees of Grupo Financiero Santander cannot be members of the Audit Committee. The Audit Committee must have at least three members, and no more than five, from the Board of Directors, who must be Directors or Alternate Directors, all of them independent, as determined pursuant to article 24 of the LRAF, 25 of LMV and our corporate by-laws. Pursuant to the Mexican law and our corporate bylaws, the President of the Audit Committee is elected and removed by the general stockholders' meeting. The President cannot be the president of the Board of Directors and he/she must be chosen due to his/her knowledge, capacity and professional prestige. Members of the Audit Committee are appointed for indefinite term until they are removed or they resign. Current members of our Audit Commitee are: Name Title Status Fernando Ruíz Sahagún President of the Audit Committee and Independent Member Independent José Eduardo Carredano Fernández Independent Member Independent Alberto Felipe Mulás Alonso Independent Member Independent Antonio Purón Mier y Terán Independent Member Independent Certain usual guests attend the meetings of the Audit Committee. Usual Guests may participate in the meetings witho no voting right, and the President of the Audit Committee has the power to dismiss them. Current guests in our Audit Committee are: Name Javier Pliego Alegría Guillermo Roa Luvianos José Ignacio Valle Aparicio Title Executive Director of Internal Audit Independent Auditor Independent Auditor The secretary of the Audit Committee is Alfredo Acevedo Rivas and the assistant secretary is Eduardo Fernández García Travesí. All the members of the Audit Committee are considered to be independent pursuant to article 24 of the Law on Financial Groups, article 25 of the Securities Market law and the corporate bylaws. Corporate Practices, Appointments and Compensations Committee The main funcions or our Corporate Practices, Appointments and Compensations Committee are: to call shareholder meetings, to aid the Board of Directors in the preparation of reports to be presented at shareholder meetings and to propose and provide advice to the Board of Directors on the following subjects: Annual Report Banco Santander (México)

109 policies and guidelines for the use or enjoyment of our property; policies for loans and other transactions with related parties; transactions different to loans with related parties; policies for exempting related party transactions from authorization; transactions with employees; unusual or non-recurring transactions; appointment, dismissal and compensation of the CEO; appointment and compensation of executive officers; policies that set limits on the authority of the CEO and executive officers; organization and strategic succession of human resources; waivers to directors, executive officers or other persons to take advantage of our business opportunities for themselves or on behalf of third parties; policies to promote activities in compliance with the relevant legal framework and access to adequate legal defense; proposed emoluments to directors and members of committees; monitoring compliance of established corporate practices in general with all applicable laws or regulations; presenting a report to the Board, based on reports of the activities of the CEO and the internal committees; and Propose appropriate legal actions against officers of the company and its subsidiaries that do not comply with the principles of loyalty and diligence. The Corporate Practices, Appointments and Compensations Committee may request the opinion of independent experts as it may consider it necessary for the proper performance of their duties. Current members of the Corporate Practices, Appointments and Compensations Committee are: Members Alberto Felipe Mulás Alonso Fernando Ruíz Sahagún José Eduardo Carredano Fernández Antonio Purón Mier y Terán Title President (Independent Member) Member (Independent Member) Member (Independent Member) Member (Independent Member) The secretary of the Corporate Practices, Appointments and Compensations Committee is Alfredo Acevedo Rivas and the assistant secretary is Eduardo Fernández García-Travesí. The Corporate Practices, Appointments and Compensations Committee must include at least three members of the Board of Directos which may be members or deputy members, all of them independent as determined pursuant to article 24 of the LRAF, Article 25 of the LMV and our corporate by-laws. Pusruant to the applicable regulations and our corporate by-laws, the president of the Corporate Practices, Appointments and Compensations Committee is appointed and removed by the General Stockholders' meeting. The president cannot be president of the Board of Directors and he/she must be appointed based in his/her experience, skills and reputation. The members of the Corporate Practices, Appointments and Compensations Committee are appointed indefinetly until they are removed or they resign. Comprehensive Risk Management Committee The Comprehensive Risk Management Committee depends of the Board of Directors as required by local law. This committee proposes objectives, policies and procedures for the management of risk as well as risk exposure limits to the Board of Directors. In addition, the Risk Management Committee approves the methodologies that we use to measure the various types of risks to which we are subject, as well as the models, parameters and scenarios for risk measurement, and monitors market, liquidity, credit, counterparty, legal and operational risks. Annual Report Banco Santander (México)

110 The current members of the Comprehensive Risk Management Committee are: Member Guillermo Güemez García Marcos Alejandro Martínez Gavica Alberto Torrado Martínez Joaquín Vargas Guajardo Juan Sebastián Moreno Blanco Pedro José Moreno Cantalejo José Carlos Ávila Benito Javier Pliego Alegria* Juan Garrido Otaola * No voting rights. Title Independent member (President) President and CEO Independent Director Independent Director Independent Director Vice President of Retail Banking Vice President of Finance and Administration Executive Director of Internal Audit Deputy General Director of Global Banking and Markets Certain permament guests also attend the meetings of the Comprehensive Risk Management Committee; permanent guests may participate in the meetings at the discretion of the President, without voting right. Current permanent guests in our Comprehensive Risk Management Committee are:estanislao de la Torre Álvarez, Guillermo Alfonso Maass Moreno, Eduardo Fernández García-Travesí and Emilio de Eusebio Saiz. Remiunerations Committee The policies and guidelines of our Remunerations Committee are: It must be constituted by at least two members of the Board of Directors, one of them independent in order to be the president of such Committee. At least one member must hace knowledge and experience in risk management or internal controls. The chief of the Comprehensive Risk Management Unit must be a member. A representative of human resources must be a member. A representative of finnacial planning and budget division must be a member. The internal auditor may participate with no voting rights. The Remunerations Committee must meet every quarter, and at least a majority of the members must be present, on the understanding that an independent director must be present always. Meetings and resolutions adopted in the meetings of the Remunerations Committee must be registered in minutes signed by all the attendees. Current members of the Remunerations Committee are: Name Antonio Purón Mier y Terán Alberto Felipe Mulás Alonso Marcos Alejandro Martínez Gavica José Carlos Ávila Benito Enrique Mondragón Domínguez Pedro José Moreno Cantalejo Javier Pliego Alegría Eduardo Fernández García Travesí Title Independent Member Independent Member CEO Deputy General Director of Credit Deputy General Director of Human Resources Vice President of Finance and Administration Executive Director of Internal Audit General Counsel Annual Report Banco Santander (México)

111 e) Critical Accounting Estimates, Provisions or Reserves Critical Accounting Policies The following is a description of certain key accounting policies on which our financial condition and results of operations are dependent. The key accounting policies generally involve complex quantitative analyses or are based on subjective judgments or assumptions. Our Management considers that estimates and assumptions used were adequate under the current circumstances. In the opinion of our Management, key accounting policies under the CNBV accounting criteria are those related to the determination of the preventive allowance for loans losses, reasonable value of financial instruments, assets of deferred taxes and labor liabilities. For a complete description of our accounting policies, see Note 2 to our audited consolidated financial statements included herein. Preventive allowance for loan losses Our preventive allowance for loan losses is determined pursuant to the classification and assessment rules for loans portfolio stipulated in the Single-Circular Letter for Banks applicable to multiple banking institutions in Mexico. Preventive allowance for loan losses in our retail portfolio is determined based in the classification of loans according to the categories established in the Single-Circular Letter for Banks. For the determination of the preventive allowance for loan losses in retail banking we follow a methodology that includes the assessment of the payment capacity of the debtor and the related guarantee as part of the analysis for the loan rating in order to estimate a probable loss and to define the percentage of necessary allowance. Retail portfolio is rated every three months. The calculation of the preventive allowance for loan losses in retail portfolio requires the judgment of the Management. The determination of the preventive allowance for loan losses for our retal portfolio that uses the default probability percentages cannot be an indicator of future losses. Differences between the preventive allowance for loan losses and the actual loss are reflected in our financial statements at the moment of performing charge-offs and deductions in loans. Due to the changing conditions of our debtors and the markets where we operate, it is possible for relevant adjustments in the preventive allowance for loan losses and changes in estimates in the recovery of loans to occur in the short term. In the case of preventive allowances for loans losses in pour consumer credit, mortgages, credit card and institutions portfolios, the portfolio rating is determined based in a methodology of expected loss, where the rating is determined according to the default probability, the severity (associated to the value and nature of the guarantee) and default exposure (total risk). Up to date we consider that under this methodology, we have an adequate estimate for covering probable losses in the aforementioned portfolio. Fair Market Value of Financial Instruments The consolidated balance sheet reflects assets and liabilities related with our securities and derivatives at fair value. These amounts are based in market prices or estimated values obtained via the use of valuations provided by suppliers of prices or internally determined through valuation models. Valuation models are usually based in an analysis of discounted cash flows that uses, when available, parameters of the original market or independently, including return curves, interest rates, volatilities, debt or capital values, exchange rates and curves of credit risk. The determination of fair value my vary significantly depending on the inputs or assumptions included in the valuation methodology; in addition, future redemptions or the sale of financial instruments reflect the market conditions of the moment the transaction is performed and they may vary significantly from the estimated market values reflected in the consolidated balance sheet. The net effect of changes in the fair value of securities for trade, trade derivatives and hedging derivatives is recorded in the income statement of the period in item "Brokerage Income". Changes in the fair value of securities available for sale and the effective portion of the changes in the fair value of cash flow hedging derivatives are recorded in the account of comprehensive income in the stockholders' equity of the consolidated balance sheet. On regular basis we carry out a review of the consolidated balance sheet for objective evidence of impairment of an instrument. Annual Report Banco Santander (México)

112 An instrument is considered to be impaired and, therefore, an impairment loss is incurred, if, and only if, there is objective evidence of the impairment as a result of one or several events that occurred after the initial acknowledgement of the security, and such events had an effect on the estimated future cash flows, which can be determined in a reliable manner. It is unlikely to identify a single event that may be the cause of impairment; rather, the combined effect of different events may be the reason of the impairment. Expected losses derived from future events are not recognized, no matter their probability. Deferred Tax Assets We determine deferred tax on temporal differences, tax losses and fiscal credits from the initial recognition of items ad at the closing of each period. Deferred tax derived from the temporary differences is recorded using the method of assets and liabilities, which is to compare accounting and fiscal values of the assets and liabilities. From such comparison, taxable and deductible temporary differences are obtained and, added to the tax losses to be deducted and tax credits derived from preventive allowances for loan losses pending of deduction, the tax rate at which such items are to be reversed is applied. Amounts derived from these concepts correspond to the deferred tax asset or liability. We recognize an allowance for deferred tax asset in order to acknowledge only the deferred tax asset that we consider with a high probability to be recovered in a short term, taking into account for this criterion only the generated by the effect of the fiscal credit derived from preventive allowances for loan losses pending to be deducted that we estimate to occur and considering such differences as temporary, pursuant to the financial and fiscal projections we prepare, and for this reason, we do not record the whole effect of such fiscal credit. For the preparation of fiscal and financial projections, we take into consideration income before income taxes for the recent previous years as well as all the information available on future years. Labor Liabilities Pursuant to the Mexican Federal Labor Law, we have liabilities for indemnities, pensions and seniority premiums payable to employees that cease to provide their services under certain circumstances; likewise, there are other liabilities derived from our collective bargaining agreement. Our policy is to register liabilities for indemnities, seniority premium, pensions and medical benefits after retirement as they are accrued pursuant to actuarial calculations based in the projected unit credit method, using nominal interest rates. The calculation of labor liability and expenses from these benefits depends on certain estimations and assumptions in the actuarial calculations performed by independent actuaries. Said assumptions are described in Note 22 to our audited Consolidated Financial Statements and include, among others, the discount rate, expected return on the assets of the pension plans and increase rates on salaries, as well as contributions stipulated in the plan. Actuarial Profits and Losses for pension plans, seniority premiums and medical benefits after retirement are amortized to future years pursuant to the provisions in NIF D-3, Benefits to Employees. Regarding the concept of benefits at termination, actuarial profits and losses are recorded in the income statement of the year they occur. Although we believe that our assumptions are adequate, material differences under the current circumstances or material changes in assumptions may affect our labor liabilities, resulting in future additional expenses. 4) ADMINISTRATION a) Independent Auditors Our corporate by-laws provide for an independetn auditor to be appointed by the Board of Directors, with the favorable opinion of the Audit Committee. Pursuant to the LMV and our corporate by-laws, duties or independent auditors include, among others, the revision of transactions, books, records and other relevant documents of the company and the presentation of a report on such review to the Annual Ordinary Stockholders' Meeting. The audited and consolidated financial statements included in this Annual report were audited by Galaz, Yamazaki, Ruiz Urquiza, S.C., member of Deloitte Touche Tohmatsu Limited in Mexico. The firm has been our independent auditor since year During the last three years, our auditors have not issued negative or qualified opinions, nor an abstention of opinion with respect to our financial statements. During 2010, 2011 and 2012, Galaz, Yamazaki, Ruiz Urquiza, S.C. provided audit services and other services. During 2010, 2011 and 2012 we paid Ps million, Ps million and Ps million, respectively, for such audit services and others. Annual Report Banco Santander (México)

113 b) Transactions with Related Persons and Conflicts of Interest Loans to Related parties Articles 73, 73 Bis and 73 Bis 1 of the Mexican Banking Law (Ley de Instituciones de Crédito) regulate and limit loans and other transactions pursuant to which related parties may be liable to a bank. Transactions covered under the Articles are deposits, any type of loans, restructurings and amendments to such loans, net derivatives positions and investments in securities other than equity securities. For purposes of these provisions, the term related parties refers to (1) holders, either directly or indirectly, of 2% or more of our or any of our subsidiaries shares; (2) our or any of our subsidiaries principal and alternate Board members; (3) relatives of a Board member or of any person specified in (1) and (2) above; (4) any person not our officer or employee who, nevertheless, is empowered to contractually bind us; (5) any corporation (or its directors or executive employees) in which we or any of our subsidiaries owns, directly or indirectly, 10% or more of its equity stock; (6) any corporation who has a director or officer in common with us or any of our subsidiaries; or (7) any corporation in which our external auditors, our employees, holders of 2% or more of our shares, or we or any of our directors or officers holds 10% or more of the outstanding capital stock. The majority of our Board of Directors must approve such loans. Before approval, however, the loan must undergo our customary review procedures for loans, which will vary depending on the nature and amount of the loan, except that such loans must always be reviewed and recommended by the highest loan review committee at the management level, and must be recommended by a special committee of directors responsible for reviewing our largest loans and all loans falling within the scope of Articles 73, 73 Bis and 73 Bis 1 of the Mexican Banking Law. In addition, certain filings must be made with the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, or CNBV) with respect to such loans. Loans to individuals in amounts less than the greater of (1) two million UDIs (Unidades de inversión, a peso-equivalent unit of account indexed for Mexican inflation) or (2) 1% of a bank s Tier 1 net capital is exempt from such provisions. Loans to related parties may not exceed 50% of a bank s Tier 1 Capital. The CNBV may, upon request, grant exemptions from these provisions. In our case, all loans to related parties, no matter the amount, are approved by the Board of Director. The Ministry of Finance and Public Credit has adopted rules that exclude from the category of loans to related parties those loans granted to the Mexican government, loans to companies that provide ancillary services to us, provided that in each case such entities do not grant a loan to a related party; and loans to our directors or directors of Banco Santander (México) within the minimum limits stipulated above. Said loans are not included for the calculation for the limit of 50% of Tier 1 net capital of our loans portfolio that may consist on loans to related parties, and it does not require the previous approval from our Board of Directors. As of December 31, 2012, our loans granted to related parties per Article 73, of the Mexican Banking Law, totaled Ps.77,584 million, which included loans granted to Banco Santander Mexico s subsidiaries Santander Consumo and Santander Hipotecario (formerly GE Consumo México S.A. de C.V., Sociedad Financiera de Objeto Múltiple, Entidad no Regulada) for Ps.47,413 million and Ps.17,992 million, respectively, which were eliminated from the balance sheet on consolidation. These loans with related parties were approved by the Board of Directors. Pursuant to LIC, loans to subsidiaries that are part of our financial group are not considered as transactions with related parties; therefore, they are not included within the limit of 50% of Tier 1 capital. Pursuant to the methodology to classify the loan portfolio set forth under the loan classification and rating rules, 99.0% of the loans granted to related parties have a credit quality of A1 and 1.0% has a credit quality of A2. Our loans to related parties are carried out under terms and conditions similar to the ones for loans of similar quality and risk. In addition, pursuant to the Mexican Banking Law, no loans may be made to any bank officers or employees, except in connection with certain employment benefits. As permitted by the Mexican Banking Law, we currently provide loans to our employees at favorable rates. Loans to Our Directors and Executive Officers Banco Santander Mexico has granted loans to our directors (excluding directors who are also executive officers) of Ps.0.2 million, Ps.0.1 million, Ps.0.5 million and Ps.0.4 million as of January 1, 2010, December 31, 2010, December 31, 2011 and December 31, 2012, respectively. None of these loans is disclosed as nonaccrual, past due, restructured or potential problems. All loans were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons not related to Banco Santander (Mexico), and did not involve more than the normal risk of collectibility or present other unfavorable features. In addition, Banco Santander (Mexico) has granted loans to our executive officers (including directors who are also executive officers) of Ps.84.7 million, Ps.91.8 million, Ps.96.5 million and Ps.85.2 million as of January 1, 2010, December 31, Annual Report Banco Santander (México)

114 2010, December 31, 2011 and December 31, 2012, respectively. None of these loans is disclosed as nonaccrual, past due, restructured or potential problems. As of January 1, 2010, December 31, 2010, December 31, 2011 and December 31, 2012, 98.8%, 98.3%, 97.3% and 97.9% of the total amount of these loans, respectively, were made pursuant to an employee benefit plan that makes standardized loans available to all of our employees without preferential terms or conditions for any of the executive officers, as permitted by the Mexican Banking Law. The rest of these loans were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons not related to Banco Santander Mexico, and did not involve more than the normal risk of collectibility or present other unfavorable conditions. Pursuant to the applicable Mexican privacy laws, Banco Santander Mexico is not permitted to disclose the identity of its loan recipients. The following table sets forth unnamed members of our senior management who are the recipients of loans pursuant to an employee benefit plan granted by Banco Santander Mexico. The recipients of such loans have not waived the application of these privacy laws. The material terms that differentiate these loans to unnamed members of our senior management listed below from those made in the ordinary course of business in transactions with unrelated persons are the following: The applicable interest rate for each of these loans is the 28-day TIIE capped at 8.0%, which is less than the interest rate that would be charged to unrelated persons. The average TIIE rate from January to December 2012 was 4.79%. We do not charge any commissions for these loans, whereas we would normally charge commissions on loans made to unrelated persons. As of December 31, Mortgage (1) Maximum Credit Line (2) Maximum Total Type of Loan Amount (3) Balance Amount (3) Balance Balance (Million pesos) Executive 1 Ps Ps Ps. 0 Ps. 0 Ps Executive Executive Executive Executive Executive Executive Executive Executive Executive Executive Executive Executive Total Ps Ps Ps. 4.8 Ps. 2.7 Ps (1) Pursuant to our benefit plan for employees, each executive may be granted up to 3 mortgages. The balance column includes all the outstanding loans as of Decmeber 31, (2) Pursuant to our benefit plan for employees, each executive may be granted up to 2 unsecured consumer loans. The column of balance includes all the outstanding loans as of December 31, (3) The maximum amount corresonds to the initial total amount of loans. Operaciones con Filiales From time to time, we enter into agreements, including service agreements, with Banco Santander Spain, our subsidiaries, affiliates and other entities of GFSM such as Santander Consumo, Casa de Bolsa Santander, Gestión Santander, Isban México, S.A. de C.V., Gesban México Servicios Administrativos Globales, S.A. de C.V. and Santander Global Property, S.A. de C.V. We have entered into service agreements pursuant to which we render services, such as administrative, accounting, finance, Annual Report Banco Santander (México)

115 treasury, legal services and others. We believe that these transactions with our affiliates have been made on terms that are not less favorable to us than those that could be obtained from unrelated third parties. We have agreements with the following service providers, which are also entities of the Santander Group: Ingeniería de Software Bancario, S.L., or ISBAN, for the provision of IT services such as project development, quality plans, remediation plans, maintenance of application software, functional support of various applications and consulting. Produban Servicios Informáticos Generales, S.L., or Produban, for the provision of IT services such as data processing, administration of IT services, project development, consulting, software quality management and project development support. Gesban Mexico Servicios Administrativos Globales, S.A. de C.V., or Gesban, for the provision of accounting services, fiscal management, budget control, support services and inspections and audits. Geoban, S.A. or Geoban, for the provision of operating services and back-office retail services, such as the execution of administrative activities related to investment and loans products (loanss to SMEs, mortages, agriculture sector, preparation of files and maintenance of accounts, foreign trade, etc.) Santander Global Facilities, S.A. de C.V., or SGF, for leasing spaces and positions for Contact Center Operators. In addition, in January, February and April 2011, we acquired loans previously held by non-mexican related parties for which the borrower or the holding company of the borrower was a Mexican company. The acquisition of the portfolios amounted to Ps.18,110 million and was made at fair value. The amount was recognized in our consolidated income statement. The following table sets forth our assets and liabilities held in connection with related parties as of December 31, 2012, 2011 and 2010: For the years ended on december 31, (Million pesos) Accounts receivable - Cash 390 5,930 3,602 Repurchase agreements 940 1,125 1,378 Transactions with financial derivative instruments (asset) 18,939 23,697 26,434 Outstanding loan portfolio 2,288 1, Other accounts receivable, (net) 8, ,240 Accounts Payable - Term deposits 644 7, Credit Instruments 1, Interbank loans and from other organisms 46,993 49,989 28,344 Sale and repurchase agreements ,161 Transactions with derivative financial instruments (liabilities) 24,872 28,490 27,250 Subordinated Obligations ,512 Other accounts payable The following table shows the main transactions performed with related persons for the years ended on December 31, 2012, 2011 and 2010: For the years ended on December 31, (Million pesos) Income from - Interests Collected commissions 4,196 3,499 2,821 Results from transactions with derivative financial 59, , ,423 Annual Report Banco Santander (México)

116 instruments Expenses from - Interests 2,819 2,713 2,290 Administration expenses Results from transactions with derivative financial instruments 64, , ,194 Technology services 1,374 1,298 1,104 c) Managers and stockholders Board of Directors Currently, our Board of Directors is constituted by twelve members and ten alternate directors. The members of our Board of Directors and alternate directors are elected for one-year terms at our annual ordinary general shareholders meeting and may be re-elected. Pursuant to Mexican law, members of our Board of Directors continue to be members of the Board despite the expiration of their term until new members of the Board have been appointed and assumed office. Under our bylaws and in accordance with the LIC and the Mexican Securities Market Law (Ley del Mercado de Valores), at least 25% of the members of our Board of Directors have to be independent. Independence is determined in accordance with Article 24 of the Mexican Financial Groups Law and our bylaws. The Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, or CNBV) may contest the determination made by our shareholders as to the independence of our directors. We have not determined whether any of our directors or any of the members of our committees other than the audit committee would be considered independent as defined in the U.S. securities laws or the rules of any U.S. securities exchange. An alternate director must be appointed for each member of our Board of Directors. Alternate directors attend Board of Directors meetings only when called to substitute for his or her respective member of the Board of Directors. Alternate directors have in the past attended Board of Directors meetings in temporary absences of members or by invitation. In case of attendance of both the member and the alternate director, the vote of the member is the only one takein into account. There are two different categories of directors depending on the type of shareholder appointing each such director: Series B and Series F. Series B shares can be freely subscribed. Series F shares can be acquired directly or indirectly only by Banco Santander Spain and can be sold only with the previous authorization of the SHCP, unless such shares must be transferred to the IPAB as collateral or as property. Both categories of directors have the same rights and obligations. Pursuant to our corporate by-laws,, Series F stockholders representing 51% of our share capital may have the right to appoint the 50% plus one of our members of the Board of Directos, along with the corresponding alternate director; and to appoint an additional member for every additional 10% of our share capital under their possesion. Series B stockholders may have the rights to appoint the rest of the members of the Board of Directors and their corresponding añternate members. The following table sets forth information about the members and alternate members of our Board of Directors, each of whom was elected at our general shareholders meeting on April 18, 2013 for a period of one year. The business address of our directors is Avenida Prolongación Paseo de la Reforma 500, Colonia Lomas de Santa Fe, Delegación Álvaro Obregón, 01219, México, Distrito Federal, Mexico. Name Title Series Member since Carlos Gómez y Gómez President Series F 1992 Marcos Alejandro Martínez Gavica Director Series F 1997 Fernando Solana Morales Director Series F 2003 Guillermo Güemez García Independent Director Series F 2012 Joaquín Vargas Guajardo Independent Director Series F 2009 Juan Ignacio Gallardo Thurlow Independent Director Series F 2013 Vittorio Corbo Lioi Independent Director Series F 2012 Carlos Fernández González Independent Director Series B 1997 Fernando Ruiz Sahagún Independent Director Series B 2003 Alberto Torrado Martínez Independent Director Series B 2009 Juan Sebastián Moreno Blanco Independent Director Series F 2011 Pedro José Moreno Cantalejo Independent Director Series F 2006 Annual Report Banco Santander (México)

117 Rodrigo Brand de Lara Alternate Director Series F 2012 Eduardo Fernández García-Travesí Alternate Director Series F 2006 Ramón Riva Marañon Alternate Director Series F 2007 Francisco Manuel Ortega Souviron Alternate Director Series F 2010 Eduardo Fernández García-Travesí Alternate Director Series F 2006 José Eduardo Carredano Fernández Independent Alternate Director Series F 1997 Alberto Felipe Mulás Alonso Independent Alternate Director Series F 2009 Jesús Federico Reyes Heroles González Garza Independent Alternate Director Series F 2009 Enrique Krauze Kleinbort Independent Alternate Director Series B 2010 Luis Orvañanos Lascurain Independent Alternate Director Series B 2010 Antonio Purón Mier y Terán Independent Alternate Director Series B 2009 The secretary of the Board of Directors is Alfredo Acevedo Rivas and the assistant secretary of our Board of Directors is Rocío Erika Bulhosen Aracil. Carlos Gómez y Gómez is the Chairman of our Board of Directors and Chairman of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Gestión Santander, Santander Consumo and Santander Hipotecario. He has also been a member of the Boards of Directors of Grupo KUO, S.A.B. de C.V. and DINE, S.A.B. de C.V. since He is also a member of the Boards of Directors of Grupo Trimex, S.A. de C.V., Grupo Yoreda, S.A. de C.V., Grupo Ceslo, S.A. de C.V., Grupo Dupuis, S.A. de C.V., Club de Industriales, A.C., Club de Banqueros de México, A.C. (Mexican Banking Club), Arena Media Communications, S.A. de C.V. and Consejo Mexicano de Asuntos Internacionales, A.C. From 2005 to 2008, he served as the Vice Chairman of the Board of Directors of the Mexican Stock Exchange (Bolsa Mexicana de Valores, S.A.B. de C.V.) and from 2006 to 2007, he was a member of the Board of Directors of Consorcio Aeromexico, S.A.B. de C.V. His other principal business experiences have included serving as the Chairman of the Board of Directors of Casa de Bolsa InverMéxico, S.A. de C.V. from 1986 to 1991, Vice President of the Mexican Banking Association from 1992 to 1997, President of the Mexican Banking Club from 1994 to 2000 and Chairman of the Mexican Banking Association from 1998 to He holds a degree in Business Administration from Universidad Anáhuac. Marcos Alejandro Martínez Gavica Is a member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Gestión Santander, Santander Consumo and Santander Hipotecario. He also serves as our and Banco Santander Mexico s Executive President and Chief Executive Officer. He began his career in 1978 at the Banco Nacional de México, S.A., holding various positions and ultimately joining the bank s management. He holds a degree in Chemical Engineering from Universidad Iberoamericana and a Masters in Administration with a specialty in financial planning from the Instituto Panamericano de Alta Dirección Empresarial. Fernando Solana Morales is an independent member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Santander Hipotecario and Santander Consumo. He serves on the Boards of Directors of various companies, including Solana Consultores, S.A. de C.V., Impulsora de Desarrollo y Empleo en América Latina, S.A. de C.V., Acrosur, S.A. de C.V., Telmex, S.A.B. de C.V., Grupo Carso, S.A.B., Siglo XXI Editores S.A. de C.V., Consejo Mexicano de Asuntos Internacionales S.A. de C.V. and Fresnillo plc. From 1976 to 1977, he served as the Mexican Minister of Commerce. From 1982 to 1988, he acted as the Chief Executive Officer of Banco Nacional de México. From 1988 to 1993, he served as the Mexican Minister of Foreign Affairs. In 1994, he was elected to the Mexican Senate and served as a Senator until 2000, when he became the Chairman of the Board of Directors and Chief Executive Officer of Solana y Asociados. He has degrees in Engineering, Philosophy, Business Administration and Public Policy from the Universidad Nacional Autónoma de México. Juan Sebastián Moreno Blanco is an alternate member of our Board of Directors and a member of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Santander Consumo and Santander Hipotecario. He has been the Vice President of Retail Banking for Banco Santander Mexico since September Mr. Moreno Blanco began his career as an executive officer of Bankinter in Spain in From 1997 to 2005, he headed Banco Santander Mexico s Business Development Department. From 2006 to 2008, he served as the head of the Latin American Division of Banco Santander Mexico s Business Development Department in Madrid, Spain. From 2008 to 2010, he acted as President and Chief Executive Officer of Banco Santander Puerto Rico. In addition, he has served as a member of the Board of Directors of Santander Bancorp in Puerto Rico since He holds a bachelor s degree in Business Administration with a major in Finance from the University of Houston. Pedro José Moreno Cantalejo is an alternate member of our Board of Directors and a member of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Santander Consumo and Santander Hipotecario. He started his career in the banking industry in 1985 as Chief of Administration at GESBISA Caja Postal de Ahorros Madrid. From 1991 to 1998, he worked in Grupo Hispamer Grupo Financiero holding various positions and ultimately joining the group s management. From Annual Report Banco Santander (México)

118 1998 to 2000, he acted as Chief Executive Officer and Vice President of Investment Banking of Banco Central Hispanoamericano. From 2000 to 2001, he acted as President of Strategic Planning in Hispamer Banco Financiero as well as Chief Executive Officer Asernet (Asp Internet) in Banco Santander Spain. From 2001 to 2004, he acted as Chief Strategic and Financial Officer of the European Division of Banco Santander Spain. From 2004 to 2006, he acted as a member of the Board of Directors of Santander Consumer EFC (Spain), Santander Consumer UK, Ltd. and Santander Consumer Bank (Poland). During such period he also acted as Chief Financial Officer and Chief Risk Officer of the European Division of Banco Santander Spain. From 2006 to 2010, he acted as Banco Santander Mexico s Vice President of Finance. In October 2010, he became Banco Santander Mexico s Vice President of Administration and Finance. He holds a degree in Economic and Business Sciences, CEU Luis Vives, from Universidad de Madrid, a Masters in Management of Financial Entities from the Centro de Estudios Comerciales (CECO), and MBAs from the Executive and Senior Executive Programs from the Escuela de Negocios (ESADE). Ramón Riva Marañón is an alternate member of our Board of Directors, BA in Civil Engineering by the Universidad Iberoamericana, and a master degree in Administration by the Instituto Tecnológico Autónomo de México. Currently, he is a Deputy General Director of Special Projects in Banco Santander México. Also, he has been deputy General Director of Enterprises and Institutions, Executive Director of Corporate Banking, and Deputy General Director of Retail Banking. He was Regional Director in BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer in the State of Mexico and Recovery Director in Bancrecer; Executive Director in Banca Serfin from 1993 to 1995 and worked in different positions in Banca Serfin from 1987 to He was Account executive for Acquisitions in Procter %Gamble & from 1986 to Rodrigo Brand de Lara is an alternate member of our Board of Directors and was appointed Deputy General Director of Institutional Relationships and Communication for Grupo Financiero Santander Mexico in In 2010, he was the Director General for the Social Communication Division of the Mexican Ministry of Foreign Affairs (SRE). From 2006 to 2010, he was the head of the Social Communication Unit and the Spokesperson for the SHCP. From 2004 to 2006, he served as Director General of Social Communication and Institutional Link for IPAB. Mr. Brand de Lara has held the following positions at SHCP: Deputy General Director of Economic and Financial Analysis from 2001 to 2004; Senior Advisor to the Subsecretary of Finance and Public Credit from 2000 to 2001; Subdirector of Internal Credit Coordination and Training from 1999 to From 1996 to 1999, he was an Economist in Mexico for Deutsche Morgan Grenfel and during 1996 he was also an Advisor to the Deputy Director of Financial Engineering of BANOBRAS (Mexico). Mr. Brand de Lara graduated with a degree in Economics from ITAM. Francisco Manuel Ortega Souviron is an alternate director of our Board of Directos and the Board of Directors of Santander Consumo and Santander Hipotecario. He has a BA in Industrial Engineering for the Universidad Pontificia Comillas of Madrid, Spain (ICADE), likewise, he has completed studies in Mathematical Sciences and Physcal Sciences in the Universidad Nacional de Educación a Distancia in Spain, and he has also a master's degree in Business Administration by the Massachusetts Institute of Technology. He has worjed as Deputy General Director of Business Development for Banco Santander from 2006 to 2009, likewise, he was main associate in charge of customers, projects and development in McKinsey & Company in Mexico from2003 to He was engagement manager in McKinsey & Company in México from 2002 to 2003, he worked as Manager of am advisors team of McKinsey Nueva York from 2000 to 2002 and was asociate of McKinsey Nueva York from 1998 to He was market anayst in Electricidad ENEGAS in Madrid from 1994 to Eduardo Fernández García-Travesí Is an alternate member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Santander Consumo, Santander Hipotecario and Gestión Santander. Mr. Fernández García-Travesí was appointed Chief Legal Officer of Banco Santander Mexico in Previously, he was Banco Santander Mexico s Executive Legal Director from 2001 to He joined Banco Santander Mexico in Mr. Fernández García-Travesí began his career in 1981 at Bremer, Quintana, Obregón y Mancera S.C. Mr. Fernández García-Travesí graduated from the Universidad Iberoamericana in Mexico with a law degree. Guillermo Güemez García is an alternate independent member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Santander Consumo, Santander Hipotecario and Seguros Santander. He is an independent member of the Board of Directors and member of the investment committee of ING AFORE. He is also an independent member of the Board of Directors and member of the audit committee of Zurich Compañía de Seguros S.A. In addition, he serves as a member of the strategy and finance committee of Nacional Monte de Piedad, a member of the Board of Directors of GEUPEC S.A. de C.V., a member of the senior advisory board of Oliver Wyman and chairman of the assets and liabilities committee of Banco Latinoamericano de Comercio Exterior. He is the President of the advisory committee of the Economics and Business Administration school of the Universidad Panamericana and of the Music Academy of the Palacio de Minería. He was Deputy Governor of the Mexican Central Bank (Banco de México) and President of the responsibilities commission of the Mexican Central Bank from 1995 to He was a member of the cabinet of the CNBV from 2007 until Annual Report Banco Santander (México)

119 2010, an alternate member of the cabinet of the Mexican National Insurance and Bonding Commission (Comisión Nacional de Seguros y Fianzas, or CNSF) from 1995 to 2007 and Executive Director of the Coordinadora Empresarial para el Tratado de Libre Comercio (Business Coordinator for the Free Trade Agreement) (Mexico-USA-Canada) from 1991 until He held several executive positions at Banamex from 1974 to He has a degree with honors in Civil Engineering from the Universidad Nacional Autónoma de Mexico. He holds a master s degree in Science from Stanford University. Joaquín Vargas Guajardo is an independent member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He is the Chairman of the Board of Directors of Corporación Mexicana de Restaurantes, S.A.B. de C.V. He is also a member of the Boards of Directors of several companies including Vitro, S.A.B. de C.V., Grupo Posadas, S.A.B de C.V., Médica Sur, S.A.B. de C.V. and Grupo Aeroportuario del Pacífico, S.A.B. de C.V. From April 1997 to April 2005 and from April 2008 to April 2012, he was a member of the Board of Directors of the Mexican Stock Exchange. He is a member of the compensation committee of Grupo Aeroportuario del Pacífico, S.A.B. de C.V. He holds a degree in Business Administration from the Instituto Tecnológico y de Estudios Superiores de Monterrey and studied Business Management at the Instituto Panamericano de Alta Dirección Empresarial. Juan Ignacio Gallardo Thurlow is an independent member of our Board of Directors and member of the Board of Directors of Grupo Financiero Santander México, Casa de Bolsa Santander, Santander Consumo and Santander Hipotecario. He is president of the Board of Directors of Grupo GEPP (Group of the Pepsicola bottling plants and their brands in the Mexican republic) and Grupo Azucarero México, S.A. de C.V. He is a member of the Board of Caterpillar, Inc. and Lafarge. He is also a member of International Advisory Board of Bombardier and, as part of his activities of business representation, he is a member of the Mexican Board of Business Men (Consejo Mexicano de Hombres de Negocios, A.C. (CMHN)) and of the Consejo Empresario de América Latina (CEAL). He is General Cordinator of COECE (Coordinadora de Organismos Empresariales de Comercio Exterior para las negociaciones con los Tratados de Libre Comercio de México). From 1972 to 1988 he was president of the Board of Directors of Rosario México and from 1974 to 1988, of Clevite de México. From 1976 to 1980 he was Executive Director of the International Division and Investment Bank of Multibanco Comermex. From 1978 to 1989 he was President ot the Board of Babcock de México, S.A. de C.V. and from 1981 to 1983 he was General Director of Grupo Industrial Minera México, S.A. Mr. Gallardo Thurlow has a BA in Law by the Escuela Libre de Derecho and completed the course AD II in the Instituto Panamericano de Alta Dirección Empresarial (IPADE). Vittorio Corbo Lioi is an independent member of our Board of Directors and of the Board of Directors of Grupo Financiero Santander México, Casa de Bolsa Santander, Santander Consumo and Santander Hipotecario. He is a senior researcher at the Centro de Estudios Públicos in Santiago, Chile and a part-time professor of Economics at the Pontificia Universidad Católica, Chile and at the University of Chile. He is a director of Banco Santander, S.A. in Spain and Banco Santander Chile, SURA S.A., Empresa Nacional de Electricidad, S.A. and Compañía Cerveceras Unidas in Chile. He is the President of the management committee of the Insurance Company SURA Chile, a financial consultant to certain companies and an advisor to the World Bank and the International Monetary Fund. From 2003 to 2007, he was the President of the Central Bank of Chile. From 1991 to 2003, he was a full-time professor of Economics at the Universidad Pontificia of Chile. From 1984 to 1991, he served in several management positions at the World Bank. He was also Professor of Economics at the Concordia University in Montreal, Canada from 1972 to 1981 and a lecturer at Georgetown University from 1985 to Mr. Corbo holds a degree in Commercial Engineering from the University of Chile (with honors) and a doctorate in Economics from MIT. José Eduardo Carredano Fernández is an alternate independent member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He has been a member of the Boards of Directors of Grupo Financiero Asecam, S.A. de C.V. since 1994 and of Industrial Formacero, S.A. de C.V. since 1987, of La Ideal S.A. de C.V. since 1984 and of Aceros La Ideal S.A. de C.V. since Mr. Carredano Fernández has been the Chairman of the Board of Directors of Misa de México, S.A. de C.V. since He was Director of Seguros Génesis, S.A. from June 1995 to October He holds a Public Accountant degree from the Universidad Iberoamericana. Alberto Felipe Mulás Alonso is an alternate independent member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Banco Santander Spain, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He is a member of the Boards of Directors of multiple companies, including Empresas ICA, S.A.B. de C.V., URBI Desarrollos Urbanos, S.A.B. de C.V., Grupo Aeroportuario Centro Norte, S.A.B. de C.V., Grupo Modelo, S.A.B. de C.V., Grupo Comex, Organización Ramírez, Farmacias de Ahorro, RCO and Societaria Hipotecaria Federal. Previously, he was a member of the Advisory Board of IFC in Mexico and a consultant to the Interamerican Development Bank, the World Bank and the International Monetary Fund. Mr. Mulas Alonso served as the first National Commissioner and Coordinator of the National Housing Commission reporting to the President of the Republic of Mexico from August 2001 to December He worked in investment banking in the following positions: as Associate in Bankers Trust Company in the city of New York from 1988 to Annual Report Banco Santander (México)

120 1990; as Vice President of J.P. Morgan in Mexico from 1992 to 1996; as Mexico Country Manager of Lehman Brothers, Inc. in Mexico from 1992 to 1996 and as Managing Director and Representative of Donaldson, Lufkin & Jenrette from 1999 to Mr. Mulas Alonso has a degree in Chemical Engineering with honors from Universidad Iberoamericana and a master s degree in Business Administration, specializing in finance and strategic planning, from the Wharton School of the University of Pennsylvania. Jesús Federico Reyes Heroles González Garza is an alternate independent member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He was the chief executive officer of Petróleos Mexicanos from December 2006 to September He is the Executive President of StructurA. He is a member of several Boards of Directors such as OHL México, S.A.B. de C.V. and Water Capital Mexico (WCAP Holdings S.A. de C.V.). He is a member of the consulting Boards of Energy Intelligence Group (EIG) and Deutsche Bank. He is also a member of a Morgan Stanley Private Equity group that develops energy projects in Mexico and Latin America. He served as an ambassador to the United States of America for Mexico from 1997 to From 1995 to 1997, he was the Secretary of Energy in Mexico. From 1994 to 1995, he was the General Director of Banobras. From 1993 to 1994, he was the representative of Mexico of the Grupo de Personas Eminentes (Eminent Persons Group) of APEC. Mr. Reyes Heroles González Garza graduated with a degree in Economics from ITAM in 1976 and studied law at UNAM. He earned a doctorate degree in Economics from the Massachusetts Institute of Technology in Carlos Fernández González is an independent member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Santander Consumo and Santander Hipotecario. He is the Chief Executive Officer and Chairman of the Board of Directors of Grupo Modelo, S.A. de C.V. He is also a member of the Boards of Directors of Emerson Electric Co. and Grupo Televisa, S.A.B. de C.V. He holds a degree in Industrial Engineering from Universidad Anahuac, completed Proficiency Program AD2 from the Instituto Panamericano de Alta Dirección Empresarial and has participated in diverse seminars on financial engineering, marketing and industrial relations among others. Fernando Ruíz Sahagún is an independent member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He also serves on the Board of Directors of several companies, such as Bolsa Mexicana de Valores, S.A.B. de C.V., Empresas ICA, S.A.B. de C.V., Fresnillo PLC, Grupo Cementos de Chihuahua S.A.B. de C.V., Grupo México, S.A.B. de C.V., Grupo Modelo, S.A.B. de C.V., Grupo Palacio de Hierro, S.A.B. de C.V., Grupo Pochteca, S.A.B. de C.V., Kimberly Clark de México, S.A.B. de C.V., Mexichen, S.A.B. de C.V., San Luis Corporación, S.A.B. de C.V. Mr. Ruíz Sahagún is a member of the International Fiscal Association (IFA) and of the Instituto Mexicano de Ejecutivos de Finanzas, A.C. (Mexican Institute of Finance Executives). He is also a member of the Instituto Mexicano de Contadores Públicos A.C. (Mexican Institute of Public Accountants) and served as a member of its Board from 1993 to He is one of the founding partners of Chevez, Ruiz, Zamarripa y Cia. S.C., a tax law firm in which he now serves as counsel. He holds a degree in Public Accounting from the Universidad Nacional Autónoma de México. Alberto Torrado Martínez is an independent member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He is the Chairman of the Board of Directors and Chief Executive Officer of Alsea, S.A.B. de C.V., and Chairman of the Mexican Communications Council. Mr. Torrado has also served as Chairman of the Asociación Nacional de Servicios de Comida Rápida and as a member of the Cámara Nacional de la Industria Restaurantera y de Alimentos Condimentados. He is one of founding partners of Torrquin, S.A. de C.V., serving as the CEO from 1990 to From 1984 to 1989, he was the CEO of Candiles Royal, S.A. de C.V. Mr. Martínez holds a degree in Accounting from the Instituto Tecnológico Autónomo de México. He also completed graduate studies at the Instituto Panamericano de Alta Dirección Empresarial and participated in other seminars, and completed studies at Harvard University and the Wharton School of the University of Pennsylvania. Enrique Krauze Kleinbort is an alternate independent member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Banco Santander Spain, Casa de Bolsa Santander and Santander Consumo. He is director and founder of the publisher Editorial Clío. He has published numerous books over the last 30 years. He is the author of multiple documentaries and television series on Mexican history. In 1990 he was inducted into the Mexican Academy of History. He obtained the Premio Comillas biography award in Spain in In December 2003, the Spanish government awarded him the Gran Cruz de la Orden de Alfonso X, el Sabio. In April 2005, he became a member of the Colegio Nacional. In July 2006, he was honored with the Ezequiel Montes Ledesma Award by the government of Queretaro, Mexico. In September 2007, he was honored by the Universidad Autónoma de Nuevo León with the Honoris Causa doctorate. Mr. Krauze Kleinbort holds a degree in Industrial Engineering from UNAM and a doctorate degree in History from El Colegio de México. Annual Report Banco Santander (México)

121 Luis Orvañanos Lascurain is an alternate independent member of our Board of Directors and a member of the Board of Directors of Banco Santander Mexico. He is the founder, Chairman of the Board of Directors and Chief Executive Officer of Corporación GEO, a developer and construction company, and its 24 subsidiary companies. He is a member of the Board of Directors of Club de Industriales, A.C., Grupo Zúrich México, S.A., Consejo Mexicano de Hombres de Negocios (Mexican Council of Businessmen) and Arroz con Leche, S.A. de C.V. and a member of CANADEVI and Colegio de Arquitectos, A.C. (Association of Architects). He has a degree in Architecture from the Universidad Iberoamericana. Antonio Purón Mier y Terán is an alternate independent member of our Board of Directors and of the Boards of Directors of Banco Santander Mexico, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He is also a member of the Board of Directors of Zurich Santander Seguros México, S.A. He serves as an associate of the Centro de Investigación y Análisis Económico (Economic Research and Analysis Center, or CIDAC) and he is a member of the Instituto de Fomento e Investigación Educativa (Institute for the Promotion of Educational Research, or IFIE) and of Metrópoli He advises public and private institutions with respect to strategy, transactions and organization in collaboration with the Centro de Investigación y Docencia Económicas (Center for Economic Research and Training, or CIDE) and with other specialists. He served as a director-partner in the Mexican office of McKinsey & Company, Inc. for over 26 years. He is currently a professor of training courses to McKinsey s partners and he is in charge of the partners coaching program at a worldwide level. He is a member of the Board of Directors of Nadro, S.A., of Patronato del Museo Nacional de Arte (the Patronage of the National Art Museum) of Banco Santander Spain and of the Universidad Iberoamericana. Mr. Purón Mier y Terán holds a Masters in Business Administration from Stanford University and a degree in Chemical Engineering from the Universidad Iberoamericana. Before starting at McKinsey, he was a full-time teacher at the Universidad Iberoamericana and worked at the Mexican Petroleum Institute, Ingeniería Panamericana and Polioles, S.A. Executive Officers Our executive officers are responsible for the management and representation of the Bank. The following table presents the names and positions of our executive officers. The business address of our officers is Avenida Prolongación Paseo de la Reforma 500, Colonia Lomas de Santa Fe, 01219, México, Distrito Federal, Mexico. Certain of our executive officers are also members of the Board of Directors and of the Boards of Directors of our subsidiaries. Executive Officers Title Year of appointment to current position Marcos Alejandro Martínez Gavica Executive President and Chief Executive Officer 1997 Pedro José Moreno Cantalejo Vice President of Administration and Finance 2010 Juan Sebastián Moreno Blanco Vice President of Retail Banking 2010 Eduardo Fernández García-Travesí General Counsel 2006 Emilio de Eusebio Saiz Deputy General Director of Intervention and Control Management 2010 Estanislao de la Torre Álvarez Deputy General Director of Media 2006 José Carlos Ávila Benito Deputy General Director of Credit 2002 *Juan Garrido Otaola Deputy General Director of Global Wholesale Banking 2013 José Antonio Alonso Mendívil Deputy General Director of Business Strategy 2011 Rodrigo Brand de Lara Deputy General Director of Institutional Relationships and Communication 2011 Pablo Fernando Quesada Gómez Deputy General Director of Business and Institutional Banking 2013 Jorge Alberto Alfaro Lara Deputy General Director of Payment Systems 2005 Javier Pliego Alegría Executive Director of Internal Audit 2011 Alfonso Sánchez de Pazos Deputy General Director of Private Banking 2013 Deputy General Director of Individual and SME Juan Pedro Oechsle Bernos Banking 2011 Enrique Luis Mondragón Domínguez Deputy General Director of Human Resources 2011 Ramón Riva Marañón Special Projects 2013 * CNBV authorization is pending. Below we present the biographies of our executive officers who are not also members of our Board of Directors. Annual Report Banco Santander (México)

122 Emilio de Eusebio Saiz became the Deputy General Director of Intervention and Control Management at Grupo Financiero Santander Mexico in December 2010 after serving as the Director for Control of Corporate Management of Expenses in the Santander Group between March 2008 and November He began his career in the Santander Group s Human Resources Department, where he worked from 1989 to He worked in the Financial Division of the Santander Group from 1990 to 1992 and in the General Intervention and Control Management division from 1992 to Mr. Eusebio Saiz holds a degree in Economics from the Universidad Complutense de Madrid and completed graduate studies at the Instituto de Empresas de Madrid in Spain. Estanislao de la Torre Álvarez has been our Deputy General Director of Media since He previously served as CEO of Altec México from 2004 to 2006 and Executive Director of Operations for Grupo Financiero Santander Mexico from 1998 to He holds a master s degree in Public Accounting from the Instituto Tecnológico Autónomo de México (ITAM). José Carlos Avila Benito was appointed Deputy General Directorr of Credit in 2002 after holding the position of Senior Credit Director at Banco Rio de la Plata in Argentina from 1998 to Mr. Avila Benito began his career at Grupo Santander in He has a graduate degree in commerce expertise obtained from the Escuela Universitaria de Estudios Empresariales. Juan Garrido Otaola was appointed Director of Global Wholesale Banking at Grupo Financiero Santander Mexico on February, He previously served as Managing Director in Banco Santander Spain in European Fixed Income and Currency Sales ( ), Corporate Sales ( ), Iberia Retail Treasury Products (2008 to 2009) and Spain Corporate Sales (2005 to 2008). Prior to joining the Santander Group he worked for Banco Portugues de Investimento ( ) and J.P. Morgan in Equity Sales, Derivatives and Trading of Futures, Options and Money Markets ( ). He is a Business Administration graduate from Suffolk University, Boston, Massachusetts and has an MBA from ESEUNE, Bilbao, Spain. José Antonio Alonso Mendívil was appointed Deputy General Director of Business Strategy for Grupo Financiero Santander Mexico in October Previously, he was appointed Deputy General Director of Individual and SME Banking in 2009 after serving in various positions within the Santander Group since Mr. Alonso Mendívil is a member of the board of directors of the investment funds managed by Gestión Santander and a member of the board of directors of Seguros Santander. From 1997 to 2007, Mr. Alonso Mendívil was a director of various positions at Banco Mercantil del Norte (Banorte) and he started working in the banking industry in 1986 at Bancomer. Mr. Alonso Mendívil graduated with a degree in Administration from the Universidad Intercontinental in Mexico and holds a master s degree in Business Administration from the Universidad de Monterrey in Mexico. Pablo Fernando Quesada Gómez was appointed Deputy General Director of Private Banking in He has previously held the following positions in Santander since 1993: Director of Corporate Banking from 1993 to 1994; Regional Business Director from 1995 to 1996; Regional Director of Company Banking from 1997 to 1999; Regional Director (Center West) from 2000 to 2004; Regional Director (Southern Metropolis) in 2005; Executive Director of Company and Institutional Banking in 2006; Western Region Executive Director from 2007 to 2009; Western Region Executive Director for Company Banking from 2009 to Mr. Quesada was also the Subdirector of Corporate Banking for Banco Mercantil Probusa (Mexico) from 1989 to 1992 and Corporate Bank Account Executive Banca Cremi (Mexico) from 1984 to Pablo Fernando Quesada Gómez graduated with a degree in Business Administration from the Universidad del Valle of Atemajac, Guadalajara. Jorge Alberto Alfaro Lara was appointed Deputy General Director of Payment Systems in 2005 and also serves as an alternate member of the Board of Directors of Santander Consumo. He was the Executive Director of Consumer Credit and Payment Systems for Banco Santander Mexico from 1996 to Prior to joining the Santander Group, Mr. Alfaro Lara served on the boards of directors of, among others, Total System de México, S.A., Controladora Prosa, S.A. and Transunion de México, S.A. Mr. Alfaro Lara began his career as Vice President of Operations for American Express in He studied Civil Engineering at Texas A&M University and received his master s degree in Administration from the Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM) in Mexico. Javier Pliego Alegría was appointed Executive Director of Internal Audit in Previously, he was the Director of Internal Audit for Grupo Santander in Portugal from 2006 to 2011 and Managing Internal Auditor for Grupo Santander (Spain) from 1997 to Mr. Pliego also worked in data treatment for SECEMG S.A. (Spain) in 1997 and as a Risk Analyst for The Chase Manhattan Bank from 1994 to Mr. Pliego Alegría graduated with a degree in Economic and Entrepreneurial Sciences from the Universidad Autónoma de Madrid. Alfonso Sánchez de Pazos was appointed the Deputy General Director of Private Banking in He previously served as Executive Director of Global Transactional Banking ( ). Before joining Grupo Financiero Santander Mexico he worked as Product Manager in Banco Santander Spain from 2002 to From 1998 to 2002 he worked at Banco Santander Mexico as Executive Director of International Banking, Factoring and Leasing. He joined Banco Santander Spain in 1987 Annual Report Banco Santander (México)

123 working in a retail office for four years and then was promoted to Account Executive of Corporate Banking ( ). He is a lawyer with a degree from the Universidad Autónoma de Madrid and has an MBA from Escuela Europea de Negocios and a Master of Internacional Commerce from Universidad Complutense de Madrid. Juan Pedro Oechsle Bernos was appointed Deputy General Director of Individual and SME Banking in He also serves as a member of the Board of Directors of Seguros Santander. Between 2010 and 2011, Mr. Oechsle was Chief Executive Officer of Banco Santander Hong Kong Branch with regional responsibilities for the group in Asia. From 2003 to 2010, he had several managerial responsibilities in Banco Santander Mexico, as Executive Director for South and Southeastern regions, Executive Director of Business and Institutional Banking and Director of Corporate Banking. Prior to this he was responsible for Structured Transactions in Santander Brazil and led the Cost Efficiency Department in Santander Puerto Rico. Before he joined Banco Santander, Mr. Oechsle worked for Citibank in Corporate Banking as well as in Banco Wiese in Peru. Mr. Oechsle holds a degree in Business Administration with a major in Finance from the University of Texas at Austin and completed graduate studies in Finance at Fundação Dom Cabral (Brazil). Enrique Luis Mondragón Domínguez was appointed Deputy General Director of Human Resources in He has also held the following positions at Banco Santander Mexico: Executive Director of Human Resources from 2008 to 2011; Executive Regional Director (Southern Metropolis) from 2007 to 2008; Executive Director of Corporate Resources from 2000 to 2007; Executive Director of the General Division from 1997 to 2000; Executive Director of Planning and Projects from 1996 to 1997; Director of Strategic Planning and Marketing from 1993 to 1996; and Subdirector of Company Banking in Before joining the Santander Group, Mr. Mondragón was the General Manager for Grupo Karat, S.A. de C.V. (Mexico) and also worked for Banamex as an Account and New Products Executive within the Corporate Finance Division from 1989 to 1990 and as a Credit Analyst from 1986 to Mr. Mondragón Domínguez has a degree in Finance from ITAM, a master s degree in Economics from the University of London (Queen Mary s College) and a degree in Economics from ITAM. Committees Committees constituted to assist the Board of Directors in the development of theit functions as well as the description of their activities and their corresponding members are included in nuber 3) Financial Information paragraph d) Comments and analysis of the management on the operating results and financial condition of the issuer, sub-paragraph iii) Internal Control. Remunerations The aggregate amount of compensation and benefits of our executive officers during fiscal year 2012 was Ps million. Stockholders of Banco Santander (México) are detailed in this paragraph c) Managers and Stockholders in this Number 4) Management. In the bank, Directors of the Board do not receive emoluments or pension or retirement plans. The applicable regulations do not oblige us to disclose the individual remunerations paid to each of our executive officers, members of the Board or members of the Committees, and we do not otherwise disclose such information. The aggregate compensation includes, for our executive officers, amounts generated under our bonus program. The criteria for granting and paying bonus compensation vary depending on the department and the activities performed by such executive officer. Our executive officers may participate in the pension plan that is available to our employees, but at contribution percentages that are different from those of the rest of our employees. The total pension obligations to our executive officers, together with the total sum insured under our life insurance policies, amounted to Ps million as of December 31, Supervision Body As of December 31, 2012 Member C.P.C. José Ignacio Valle Aparicio Statutory Examiners F and B Series Alternate Member C.P.C. Guillermo A. Roa Luvianos In Annual General Meeting of Shareholders held on April 18, 2013, it was agreed the appointment of C.P.C. Guilermo A. Roa Lluvianos and C.P.C. José Ignacio Valle Aparicio, as Owner and Deputy Commissioners, respectively, of the shares of Series "F" and "B". Annual Report Banco Santander (México)

124 d) Corporate Bylaws and Other Agreements Amendments to Corporate Bylaws Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México, from its date of incorporation up to date has modified its corporate bylaws pursuant to the laws applicable to its legal nature, stipulated by regulatory and overseeing authorities, as well as the business strategies set by the Management. In year 2012, Articles Seventh and First of the corporate bylaws were amended, previous authorization from the competent authorities: Article Seventh.- On the Extraordinary and Ordinary Annual general Stockholders' Meeting as of February 22, 2012, an increase to the share capital of the institution was approved, consequently, the corresponding Article regarding share capital was amended as follows: "SEVENTH.- Share Capital. The society shall have a share capital of Ps.8,085,540, represented by a total of 80,855,403,803 stocks with a nominal value of Ps.0.10 (ten cents) per share; divided into 67,792,912,762 "F" Series Stocks and 13,062,491,041 "B" Series Stocks. From the share capital, an amount of Ps.8,085,540, is fully subscribed and paid, representing a total of 80,855,403,803 stocks with a nominal value of Ps.0.10 (ten cents) per share, M.N. divided into 67,792,912,762 "F" Series Stocks and 13,062,491,041 "B" Series Stocks. Article First.- In Stockholders' meeting as of September 12, 2012, a modification to the name of the Institution was approved, adding to the name of the Financial Group the word "México", as a consequence of the modification in the name of Grupo Financiero Santander México, S.A. B. de C.V., therefore, the article was amended to remain as follows: FIRST.- The Society shall be named Banco Santander (México). This name shall be followed by the words "Sociedad Anónima, or its acronym S.A., and "Institución de Banca Múltiple" and the legend "Grupo Financiero Santander México " Board of Directors. Compensation Plans for Executives and Members of the Board. Pursuant to the provisions in Article Twenty Nine sections V and VI of the Corporate Bylaws, the Board of Directors has the following faculties: Pursuant to the provisions in Article Twenty Nine sections V and VI of the Corporate Bylaws, the Board of Directors has the following faculties: For establishing rules for the structure, organization, constitutions, functions and faculties of the members of the Board of Directors, the internal committees and the work commissions, appointing their corresponding members and their compensations. For appointing and dismissing the CEO, the main executives, delegates and independent auditor, as well s the president, secretary and assistant secretary of the Board, and to determine their compensations. Notwithstanding the faculties of this Management Body, it is not empowered to stipulate compensation plans for directors and members of the Board. Article twenty Three of the Bylaws stipulates that the members of the Board are to refrain from voting on their own accounts, reports or opinions, or with respect to any matter affecting their responsibility or personal interest. Agreements. There are no agreements entered into with the aim of delay, prevent, postpone or increase the cost of a change of control in the Institution. Trusteeships limiting corporate rights. There are no trusteeships or mechanisms limiting corporate rights conferred by stocks. Stocks with voting rights. Stocks representing the share capital will confer to their holders the same rights and obligations, without limits, in the meetings. Each outstanding stock will confer one vote. Change of rights and limits to the acquisitions of stocks. Corporate bylaws stipulate provisions for the acquisition of stocks: Annual Report Banco Santander (México)

125 Series "B" stocks may be purchased by any individual or corporation, provided they comply with the provisions in the Law for Credit Institutions, being of free subscription. Series "F" stocks may only be purchased by Grupo Financiero Santander México, S.A. B. de C.V.. Statutory clauses or agreements among stockholders limiting management. There are no clauses or agreements limiting the management of the society of its stockholders. e) Other corporate governance practices. Banco Santander (México), S.A. follows the Best Corporate Practices code in order to provide independence and to institutionalize corporate bodies, as well as for preventing any situation of conflict of interest, by adopting additional corporate governance criteria with respect to those stipulated in the applicable regulations, which are accepted at international level. Some of the strengths of corporate governance of the institutions are the following: Members of the Board possess a deep knowledge and experience in the banking business, therefore, an adequate balance among independent and other members of the Board is achieved, as well as an adequate dedication and involvement in the risk control of the same. The existence of the Audit Committee, Corporate Practices, Nominating and Compensation Committee with the responsibility to know and provide opinion on the transactions with related parties, approvals for taking advantage or exploitation of opportunities for the Group or the entities controlled by it, or on which the group has a relevant influence, and in general, with respect to those transactions representing a conflict of interest. Code of Ethics Our Board of Directors has approved and adopted our General Code of Conduct, which are a code of ethics that applies to all of our employees, including executive officers, and to our Board members. The current version of the General Code of Conduct is posted and maintained on our website at under the heading Conoce al Banco-Código de Conducta. The information contained on our website is not a part of this Annual Report. On February 14, 2013 the Board of Directors approved certain changes to our Code of Conduct. The directives regarding the conduct expected from employees with respect to the assets of the company and its safeguarding; the management of seized real estates, accounting duties and financial information; internal controls and disclosure of relevant information; corruption acts; tax obligations for us and our customers; rights of intelectual and industrial and third parties' property, and the filing and maintenance of information were included. 5) UNDERLYING ASSETS General Data and Stock Market Information Each of the Series of this issue may be related, individually or jointly, pursuant to the provisions of the fourth paragraph of article 66 of the Mexican Exchange Law, to any of the following securities for which, during the last three years and up to date, no material suspensions have occurred in their trading. The Issuer shall publish on a monthly basis at the Internet site the information regarding the behavior of the Underlying Assets of the Series in effect. Stocks For more information regarding stocks, investors may consult the following Internet sites: Bloomberg page does not constitute a part of the prospectus and consequently, the Commission did not review it. Some Issuers have a Market Maker. The effect of the performance of the market maker is reflected as an increase in the levels of operation and an improvement in the bid-offer spread of the prices of the stocks of the corresponding Issuer. Annual Report Banco Santander (México)

126 Ene-08 May-08 Sep-08 Ene-09 May-09 Sep-09 Ene-10 May-10 Sep-10 Ene-11 May-11 Sep-11 Ene-12 May-12 Sep-12 Ene-13 Issuer América Móvil S.A.B. de C.V. Cemex, S.A.B. de C.V. Grupo México S.A.B. de C.V. Wal-Mart de México S.A.B. de C.V. Ticker Symbol AMX L CEMEX CPO GMEXICOB WALMEXV i. AMX L Stock Market where it is quoted: Mexican Stock Market Description: America Móvil, S.A.B. de C.V. provides mobile communications services in different regions of Mexico. The company participates in different strategic alliances with companies located in South America and USA. This Issuer has American Depositary Receipts (ADR) that are quoted in the New York Stock Exchange, under the ticker symbol AMX. Historical Evolution: 160% 140% 120% 100% 80% 60% 40% 20% 0% IPC AMXL Comparison Basis: January 1, 2008 Period Minimum Maximum Average Volume Price Price (Securities) ,433, ,934, ,433, ,242, ,628, st Half ,965, nd half ,628, st half ,722, nd half ,546, July ,683, August ,583, September ,604, October ,344, November ,934, December ,142, Annual Report Banco Santander (México)

127 Ene-08 May-08 Sep-08 Ene-09 May-09 Sep-09 Ene-10 May-10 Sep-10 Ene-11 May-11 Sep-11 Ene-12 May-12 Sep-12 Ene-13 Historical Volatility: 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% DEA 1M DEA 3M DEA 6M DEA 12M Source of information on Evolution and Historical Volatility: Material Suspensions: This stock has not suffered material suspensions during the last three years. Stock Market where it is quoted: Mexican Stock Market ii. CEMEX CPO Description: Cemex, S.A.B. de C.V., produces, distributes and sells cement and concrete mixings at domestic and international levels. This issuer has American Depositary Receipts (ADR) quoted in the New York Stock Exchange under the ticker symbol CX. During the last three years, no material suspensions have occurred in the trading of this issuer. Annual Report Banco Santander (México)

128 Ene-08 May-08 Sep-08 Ene-09 May-09 Sep-09 Ene-10 May-10 Sep-10 Ene-11 May-11 Sep-11 Ene-12 May-12 Sep-12 Ene-13 Historical Evolution: 160% 140% 120% 100% 80% 60% 40% 20% 0% IPC CEMEXCPO Comparison Basis: January 1, 2008 Period Minimum Maximum Average Volume Price Price (Securities) ,196, ,260, ,478, ,441, ,925, st Half ,227, nd half ,490, st half ,847, nd half ,024, July ,024, August ,553, September ,922, October ,190, November ,642, December ,993, Annual Report Banco Santander (México)

129 Ene-08 May-08 Sep-08 Ene-09 May-09 Sep-09 Ene-10 May-10 Sep-10 Ene-11 May-11 Sep-11 Ene-12 May-12 Sep-12 Ene-13 Ene-08 May-08 Sep-08 Ene-09 May-09 Sep-09 Ene-10 May-10 Sep-10 Ene-11 May-11 Sep-11 Ene-12 May-12 Sep-12 Ene-13 Historical Volatility: % % % % 80.00% 60.00% 40.00% 20.00% 0.00% DEA 1M DEA 3M DEA 6M DEA 12M Source of information on Evolution and Historical Volatility: Material Suspensions: No material suspensions have occurred in the trading of this stock during the last three years. iii. GMEXICO B Stock Market where it is quoted: Mexican Stock Market Description: Grupo México, S.A.B. de C.V., processes and sells copper, silver, gold and zinc. The company also has the concession of two railroad tracks: Pacific-North and Chihuahua-Pacific. The company, through its subsidiaries, operates mines and refines precious metals. During the last three years no relevant suspensions have occurred in the trading of the issuer. Historical Evolution: 300% 250% 200% 150% 100% 50% 0% IPC GMEXICOB Comparison Basis: January 1, 2008 Annual Report Banco Santander (México)

130 Ene-08 May-08 Sep-08 Ene-09 May-09 Sep-09 Ene-10 May-10 Sep-10 Ene-11 May-11 Sep-11 Ene-12 May-12 Sep-12 Ene-13 Period Minimum Maximum Average Volume Price Price (Securities) ,102, ,393, ,026, ,404, ,902, st Half ,147, nd half ,672, st half ,948, nd half ,856, July ,576, August ,861, September ,139, October ,541, November ,576, December ,509, Historical Volatility: % % % 80.00% 60.00% 40.00% 20.00% 0.00% DEA 1M DEA 3M DEA 6M DEA 12M Source of Information on Historic Evolution and Volatility: Material Suspensions: No material suspensions have occurred in the trading of this stock during the last three years. iv. WALMEX V Stock Market where it is quoted: Mexican Stock Market Description: Wal-Mart de Mexico, S.A.B. de C.V. is a retailer of food, clothes and other goods under different sale formats. The company operates different brands such as Wal-Mart super centers, Sam s Club, Superama, Suburbia, Vip s, Ragazzi and El Porton. Annual Report Banco Santander (México)

131 Ene-08 May-08 Sep-08 Ene-09 May-09 Sep-09 Ene-10 May-10 Sep-10 Ene-11 May-11 Sep-11 Ene-12 May-12 Sep-12 Ene-13 No material suspensions have occurred in the trading of this stock during the last three years. Historical Evolution: 250% 200% 150% 100% 50% 0% IPC WALMEXV Comparison Basis: January 1, 2008 Period Minimum Maximum Average Volume Price Price (Securities) ,876, ,710, ,567, ,681, ,992, st Half ,368, nd half ,957, st half ,418, nd half ,582, July ,109, August ,170, September ,976, October ,491, November ,530, December ,290, Annual Report Banco Santander (México)

132 Ene-08 May-08 Sep-08 Ene-09 May-09 Sep-09 Ene-10 May-10 Sep-10 Ene-11 May-11 Sep-11 Ene-12 May-12 Sep-12 Ene-13 Historical Volatility: 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% DEA 1M DEA 3M DEA 6M DEA 12M Source of Information on Historic Evolution and Volatility: Material Suspensions: No material suspensions have occurred in the treading of this stock during the last three years. Índexes Index Mexican Stock Exchange Index S&P 500 Index Ticker Symbol IPC SPX (i) Mexican Stock Exchange Index (IPC) The Mexican Stock Exchange Index is the main indicator of the Mexican Stock Exchange; it expresses the performance of the stock market with respect to variations of prices in a representative, balanced and weighted sample of the set of stocks quoted in the stock exchange. The closing value of IPC is determined by the BMV and it may be consulted at the website: IPC is an accurate indicator of the variations in the stock market and it takes into consideration two main concepts: Representativeness. The sample reflects the behavior and the dynamics of operation of the Mexican market. Invertability: The series of stocks that constitute the sample have the liquidity and operation characteristics that facilitate the purchase and sale transactions in order to respond to the needs of the Mexican market. GENERAL CHARACTERISTICS OF IPC Formula: Where: It: Index in t time Pit: Price of i issuer in t time I t I t1 Qit: Stocks of issuer i in time t FAFi: Adjustment Factor due to Variable Stocks of issuer i fi: Adjustment factor due to ex - right of issuer i in time t i= 1, 2, 3.n P it1 P *( Q *( Q Annual Report Banco Santander (México) it it1 it * FAF * FAF )* f i i it1

133 Size of the Sample: The number of issuers to be included in the sample of the Mexican Stock Market Index (IPC) is 35 series, which may vary during the term due to corporate movements. The sample shall comply with the selection criteria stated herein. Selection Criteria: The selection of the issuer to be included in the IPC sample is based in two indicators: daily rotation and market value adjusted by variable stocks. a. First Filter. Those stock series with a capitalization value adjusted by variable stock (using the percentage of variable stock rounded off pursuant to the limits defined by BMV) equal or greater than 0.1% of the capitalization value of the IPC at the moment of the selection shall be eligible. b. Second Filter. Those issuers ranked in the first 45 places pursuant to rotation, shall be eligible. Those Issuers that passed the filters will be classified according to their rotation and market value adjusted by variable stocks (reported), from greater to lower and they will be rated based in the place they occupy in each criterion pursuant to the table below: Place Rating < = Ratings will be added and issuers will be classified from lowest to highest based in this addition. The first 35 issuers of this classification will be included in the index. If two or more series have the same final rating and there are no more available places in the sample, those series with the highest market value adjusted by variable stocks will be selected. Those series with a specific possibility of being suspended or withdrawn from market, no matter the reason, will not be included in the sample. Weighting of the stock series Weighting will be performed taking into consideration the capitalization value adjusted by variable stock. Variable stocks are those shares actually available for investors. The following are not considered as variable stocks when under the possession of: Majority stockholders Key directors and non-independent advisors Stocks in the hands of parent companies. Pension funds or employees' options Strategic partners. Formula for determining the weighting of each stock series in IPC VMAF i i VMAF Where: ωi: Relative weight of each stock series within the sample of the index. VMAF: Market Value adjusted by variable stock of all the issuers in the index sample. VMAFi: Market Value adjusted by variable stocks of issuer i. Where: FAFi: Adjustment Factor due to variable stocks of issuer i Qi: Number of stocks of issuer i registered in the Stock Exchange Pi: Last reported exchange price of issuer i VMAF ( FAF * Q ) * P i i i i Annual Report Banco Santander (México)

134 Maximum Weightings In order to avoid concentrations in the weight of IPC components and, according to the international best practices, the maximum participation of a stock series at the beginning of the term of the sample is 25%. The 5 most important stock series of the sample cannot have a joint weight of more than 60%. If the aforementioned limits are passed, weights are to be adjusted to these limits by re-distributing the excesses proportionately among the series included in the sample. For the 60%-limit, if during the term of the adjusted sample the limit is passed again during 45 consecutive days of trading, BMV will carry out again the corresponding adjustment in order to comply with the concentration limits stipulated for IPC. Formula for the adjustment to weight limits within IPC: Adjustment for a 25%- limit for a stock series within the IPC sample: With ωi 0.25, (i = 1,, 35) Where 35 i1 i 1 i VMAF i / VMAF _ de_ la _ muestra_ del_ índice Adjustment for a 60%- limit in the accrued weight of the 5 most important issuers within the IPC. with ωi 0.25, (i = 1,, 35) Where So that j = 1,,5 35 i1 i 1 i VMAF i / VMAF _ de_ la _ muestra_ del_ índice 35 i1 j 0.6 ωj = Relative participation of the j-th highest stock series within the sample. Review and continuance of the sample The review on inputs and outputs of series in the IPC sample will be performed once a year, provided that no special event occurs, otherwise, the necessary modifications would be performed according to the corresponding market or corporate event giving origin to such modification. Additional restrictions are taken into consideration in order to ensure the continuance and a greater replicability of the IPC, especially in the case of those series with a corporate movement during their stay in the sample. In case of a corporate event, the maximum replicability will be obtained in order to minimize the effect in indexed financial products, and that includes portfolios, updating of capital movements, etc. At the end of the term of the sample, the application of the criteria stipulated for the selection of series is standardized in the review and selection for the new period. If, for any reason, an issuer is subject to a process of Public Offer for purchase or merger or any other extraordinary event including the purpose or the consequence of cancellation of its registration in the BMV, the stocks subject to such purchase offer will be withdrawn from the sample the day such public offer is executed in the BMV, and a new stock series or issuer will be placed under the same criteria stipulated for the selection of the sample. The Mexican Stock Exchange shall inform the markets as soon as possible about the changes derived from this paragraph. Periodic balance of the Sample In order to obtain an Index representative of the market behavior and with a high level of replicability, the sample will be balanced on a quarterly basis during its term, that is, on the months of December, March and June after the review. The objective is to achieve the lowest possible deviation of weights with respect to the stipulated limits (25% as maximum for a stock series and 60% maximum for the 5 most important issuers) at the moment of changing the sample, in the month of September. Adjustment due to ex - rights Annual Report Banco Santander (México)

135 Taking into account the formula selected for determining IPC, where the capitalization value adjusted by variable stocks of each issuer determines its weight, any change in the number of registered securities will have an effect on the weighting of the stock sample. Consequently, the value of issuers declaring any right affecting their capitalization value must be adjusted. Event pursuant to the Internal Rules of BMV Type of Movement Factor of Adjustment Required Adjustment Repurchase Repurchase Decrease in Capital Payment of Dividends in Stocks Capitalization None Event pursuant to the Internal Rules of BMV Type of Movement Factor of Adjustment Required Adjustment Repurchase Repurchase Decrease in Capital Payment of Dividends in Stocks Capitalization None Annual Report Banco Santander (México)

136 Event pursuant to the Internal Rules of BMV Type of Movement Factor of Adjustment Required Adjustment Subscription Suscription Increment in Capital Exchange of Securities Stock Restructuring Change of Capital Split and Reverse Split Reverse Split None Reimbursement Reimbursement Decrement in Capital Demerger Demerger Decrease in Capital Merger Merger Depending on the type of Merger Increment in Capital Not classified as corporate right Convertible Obligations Increment in Capital Where: Factor of adjustment due to movement Factor of adjustment required in issuer i. Number of stocks previous to adjustment Number of stocks derived from conversion. Number of stocks to split. Number of stocks after adjustment. Number of stocks due to restructuring. Number of suscribed stocks. Price previous to adjustment Price after adjustment. Subscription Price. Sample: Annual Report Banco Santander (México)

137 Ene-08 May-08 Sep-08 Ene-09 May-09 Sep-09 Ene-10 May-10 Sep-10 Ene-11 May-11 Sep-11 Ene-12 May-12 Sep-12 Ene-13 For more information o this index regarding its background, main characteristics and the criteria for the selection of issuers, please visit Historical Evolution: 160% 140% 120% 100% 80% 60% 40% 20% 0% MEXBOL Annual Report Banco Santander (México)