Banco Santander, the euro zone's biggest bank, on Wednesday posted an almost 5 per cent fall in first-quarter net profit, hit by a deepening recession in Brazil, its second biggest market, and the sliding Brazilian real.

The Spanish bank makes about a fifth of its profit in Brazil and falling currencies there and in other countries such as Britain, its biggest market which also saw a smaller earnings slide, are hurting earnings once converted into euros.

The gloom in Brazil threatens to hamper chairman Ana Botin’s strategy of organic growth for the bank, which under her father and predecessor expanded rapidly through acquisitions, given its emerging market businesses largely compensated for the collapse of its domestic market during Spain’s financial crisis.

Santander reported a net profit of €1.63 billion for the three months through March, compared with the €1.72 billion it posted in the same quarter last year, but it beat analysts’ forecasts of a 12.5 per cent fall. In Brazil, profit slumped by 25 per cent from a year before.

At a group level, net interest income, a measure of earnings on loans minus deposit costs, was €7.62 billion, down 5.2 per cent from a year ago.

In Spain, this mirrors the margin-squeezing effect of low interest rates experienced by other Spanish banks and increased competition for lending that has seen it roll out a new current account scheme which offers generous cash backs.

Santander, which has long been under scrutiny over its capital ratios, showed progress with its “fully-loaded” common Equity Tier 1 ratio, a key measure of financial strength, nudging up to 10.27 per cent from 10.05 per cent in December.

Reuters