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SAO PAULO, April 28 (Reuters) - Shares of Banco Santander Brasil SA, the largest foreign lender in Brazil, jumped over 6 percent on Tuesday after posting a first-quarter profit that rose to its highest in three years.
The São Paulo-based bank, the local subsidiary of Spain's Banco Santander SA, reported faster loan book growth, declining loan defaults and robust expense growth controls that came in below inflation during the quarter.
Recurring net income, or profit before one-time items, came in at 1.633 billion reais ($564 million) in the first three months of the year, Santander Brasil said in a Tuesday securities filing. The result is the strongest since the first quarter of 2012, when it reported a recurring profit of 1.774 billion reais, according to Thomson Reuters data.
Units of Santander Brasil, a blend of the bank's common and preferred stock, surged as much as 6.2 percent earlier in the session, the strongest intraday gain for the shares since Jan. 7. The unit is now trading up 3.3 percent on the day.
But investors sought to pocket some of the stock's early gains after analysts, including Grupo BTG Pactual's Eduardo Rosman, questioned their sustainability.
Excluding payroll-deductible loans, Santander Brasil's loan book grew modestly, and executives said on an earnings conference call that spreads will remain stable this year.
Net interest income rose 2.2 percent on a quarterly basis to 7.140 billion reais, chiefly helped by a payroll lending joint venture with Banco Bonsucesso SA. Loan-loss provisions fell 1 percent and the default ratio slipped to 3 percent following the sale of 1 billion reais worth of bad debt.
Yet the robust results did little to ease concerns that Santander Brasil, the country's third largest private-sector bank, is no better positioned than rivals to navigate through a recession and slack demand for financial products in Brazil this year.
"Santander Brasil faces a major structural challenge in Brazil, namely becoming the bank of choice of individuals and companies - the franchise issue," Rosman wrote in a client note. "And with expectations of a deteriorating economy in the near future, Santander Brasil tends to be more affected than its peers."
Profit also got a boost from the sale of a stake in an energy company, according to the filing. ($1 = 2.892 Brazilian reais) (Reporting by Guillermo Parra-Bernal; additional reporting by Aluísio Alves in Sào Paulo, editing by G Crosse)