SAN Banco Santander SA

MADRID—Banco Santander SA said Wednesday that fourth-quarter net profit rose 0.3% from a year earlier.

Net profit for the three months to the end of December, was €1.46 billion ($1.59 billion). Analysts had forecast €1.29 billion, according to a poll by data provider FactSet.

The Spanish bank reported net interest income of €7.89 billion against €7.71 billion a year earlier and forecasts of €7.88 billion.

Net interest income, a key driver of profit for retail banks such as Santander, is the difference between what lenders pay clients for deposits and charge for loans.

Investors and analysts are closely watching the pace at which Santander is able to generate capital given concerns that the bank is one of the most weakly capitalized European lenders.

Santander Executive Chairman Ana Botí n had tried to quell those concerns by issuing â,¬7.5 billion in shares in January 2015. But she hasn't made as much progress boosting capital since then and that weakness continues to vex investors and analysts.

"Capital is the biggest risk to Santander's share price," Exane BNP Analyst Santiago Ló pez Dí az wrote in a research report ahead of the results. "While capital ratios are not fully comparable across the board in Europe (due, among other things, to differences in balance sheet compositions), Santander's level stands well below the ratio we expect for the European sector as a whole at the end of 2015."

Capital concerns have heightened as the recession deepens in Brazil, which generates around one-fifth of Santander's net profit.

Brazil's currency had fallen 26% against the euro as of December 2015 from a year earlier, which will chip away at Santander's revenue in the South American country when it is converted into euros on the lender's financial statements.

More individuals and businesses will struggle to pay their debts on time amid Brazil's recession.

Francisco Riquel, an analyst with Madrid-based financial-services firm N+1 Group, estimates that Santander's nonperforming loans in Brazil will more than double by 2017 from 2014.

A weak capital ratio, currency problems in the bank's Latin American units and an overall bleak, low-interest rate outlook for European banks, have combined to slash Santander's market value to around €59 billion from around €86 billion before the bank raised capital in early January 2014.

Despite the plummet, Santander remains the eurozone's largest bank by market value.

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

(END) Dow Jones Newswires

January 27, 2016 02:15 ET (07:15 GMT)

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