MADRID—Banco Santander SA said third-quarter net profit inched higher, as the Spanish lender's business in Brazil benefited from a brightening outlook for the local economy and currency while the slump in the pound knocked returns from its U.K. unit lower.

Santander, one of Europe's largest lenders, said on Wednesday that net profit rose by less than 1% to €1.70 billion ($1.85 billion) in the three months to end-September from €1.68 billion in the same period last year. That beat analysts estimates of €1.55 billion, according to a poll by data provider FactSet.

Santander's third-quarter results come less than a month after bank executives presented investors with a three-year profitability outlook that was more downbeat than previous projections, but more in line with analysts' expectations.

The bank, run by Executive Chairman Ana Botí n, said net interest income in the third quarter fell 2.4% to €7.80 billion from €7.98 billion a year earlier, also ahead of analysts' estimates.

"The low interest rate environment within developed economies remains a challenge for parts of our business," Ms. Botí n said. The bank's " Latin American and consumer finance franchises [are] growing particularly well," she said.

Santander increased its capital ratio slightly to 10.47% as of Sept. 30, under international regulations known as "fully loaded" Basel III criteria. The bank reiterated it was on track to reach a capital ratio of 11% 2018, a level that would be below its peers.

The bank's ratio of bad loans to total loans fell slightly to 4.15% in the third quarter.

At Santander's Spanish banking unit, net profit fell 13% to €270 million on weaker lending income as banks in the country battle historically slack demand for loans and downward pressure on lending yields amid low interest rates and stiff competition. Fees, however, were up nearly 10% year-over-year.

In the U.K., net profit fell by nearly one quarter to €364 million, weighed down by a drop in net interest income and the impact of sterling's loss in value since the country's vote in June to leave the European Union. The fall in net profit was more moderate when calculated in pounds. Santander generates around one-fifth of net profit in the U.K.

In Brazil, where Santander also generates around one-fifth of net profit, the economy is starting to show signs of recovery. Santander's net profit in Brazil rose 27% in the quarter to €488 million on stronger lending income, when calculated in euros, and on higher fees. The country is still in a deep recession and Santander's provisions for bad debts rose in the quarter.

In the U.S., where Santander has been mired in regulatory problems, net profit fell 24% year-over-year on higher costs and provisions and weaker net interest income.

Separately, Bankia SA, Santander's local competitor which is majority-owned by the Spanish government, sad that third-quarter net profit fell 17% amid weak domestic demand for loans, rock-bottom interest rates and downward pressure on lending yields in Spain's competitive banking sector.

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

 

(END) Dow Jones Newswires

October 26, 2016 04:05 ET (08:05 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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