By Jeannette Neumann 

MADRID--Banco Santander SA said Wednesday that net profit rose in the fourth quarter from a year earlier on higher fees and stronger-than-expected lending income, as one of Europe's largest lenders kicks off the region's annual bank earnings season.

The Spanish lender's Executive Chairman Ana Botín said this year might be challenging but should be better than last: "Going forward, we have many opportunities for profitable growth in Europe and the Americas, in an environment we anticipate will be volatile but generally better than 2016."

Fourth-quarter net profit rose to EUR1.60 billion ($1.72 billion) from EUR25 million a year earlier, beating analysts' forecasts of EUR1.42 billion, according to a FactSet poll. The results lifted Santander's shares, which were up 4% in early trading in Madrid.

The year-earlier figure was dragged down by EUR1.7 billion in charges to cover software write-downs and potential legal claims in the U.K.

Net interest income, which measures the difference between what banks earn from loans and pay for funding, increased to EUR8.1 billion from EUR7.89 billion a year earlier, while fees rose 7.7% to EUR2.6 billion.

Net profit in Santander's U.K. business, where the bank generates around one-fifth of its earnings, was flat year-over-year at EUR474 million in euros but rose 19% when calculated in pounds.

In Brazil, which also accounts for a fifth of Santander's earnings, net profit rose 61% to EUR510 million. The increase was more moderate when calculated in reais, Brazil's currency.

At Santander's Spanish banking unit net profit rose to EUR237 million from EUR94 million.

It booked EUR467 million in losses at its corporate center, which included EUR137 million for potential claims by clients for inappropriately sold payment protection insurance, or PPI, in the U.K. The bank had booked EUR600 million for PPI claims a year earlier.

Santander executives have said the majority of wrongful PPI sales were made by U.K. lender Abbey National, which Santander bought in 2004.

The corporate center losses also include EUR32 million to restate the accounts of Santander Consumer USA Holdings Inc. The bank's consumer-lending unit in the U.S. had repeatedly delayed filing its 2015 annual accounts because of what it said were discrepancies over how its current and former accountants booked fees charged to car dealers and how the unit accounted for loan losses.

A corporate center is a vaguely defined area set up by some banks as a catch-all for costs such as headquarters staff and losses related to everything from bad acquisitions to penalties for wayward business practices.

Santander capital ratio was 10.55% in December 2016 compared with 10.47% in September under international regulations known as "fully loaded" Basel III criteria.

Santander's results will help set the tone for other banks reporting earnings over the next two months.

In the U.S., bank stocks have rallied because investors say they are expecting loosened financial regulation, lower taxes and infrastructure spending under President Donald Trump. Such policies might help to boost economic growth and inflation, encouraging the Federal Reserve to raise interest rates.

Expectations of U.S. interest rate increases have also buoyed bank shares in Europe, although some analysts say that rally might not have much further to run.

Write to Jeannette Neumann at jeannette.neumann@wsj.com

 

(END) Dow Jones Newswires

January 25, 2017 04:43 ET (09:43 GMT)

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