Difficultiesfaced by Banco SantanderSA's Brazil unit are down to currency fluctuations and do notreflect a drop in Brazilian real-denominated earnings, which are expected toremain stable or even improve in 2017, according to the Spanish bank's topexecutives.

Speakingon a conference call after Santander's Brazil operations reported a 24.8%year-over-year decrease in first-quarter attributable profit to €359 million,group CEO José Antonio Álvarez told analysts that the unit's performance on thecorporate side "reflects the economic situation of the country,"while its retail side was performing "much better than expected."

"[On]the corporate side, we have a cost of risk that is in line with ourexpectations," he said. "We are in line with the macro environment inthe country, so we do not expect an increase of the cost of risk on that side.

"Onthe retail side, we keep our focus on auto finance, where we think we arefacing potential pressures of higher cost of risk. Although as of today wedon't have any reason to believe that in 2017 we're going to be outside therange we gave to you, [that is] 4.5% to 5% cost of risk."

OnSantander's Brazilian operations, he added: "We remain relativelyoptimistic. We feel comfortable with the guidance we gave to generate at leastthe same profits in local currency as last year."

Despitethe decline in profit, Brazil was one of several key geographies for Santanderthat beat consensus expectations, performing 18% better than expected,according to a Haitong Research note. Chile beat consensus expectations by 26%,it said, Portugal by 89%, the corporate center by 9% and Spain ex real estateby 21%.

Bycontrast, Mexico and Poland performed 5% and 9% worse than expectedrespectively, while net profit in the U.S. was 53% lower than consensus due tohigher provisions driven by the oil and gas sector and the increase in theSantander Consumer USAportfolio, Haitong Research said.

Despitethe lower-than-expected earnings of the U.S. unit, Álvarez told analysts thatSantander is not planning to divest any of its assets in the country because itremains a strategic market for the company.

CFOJosé García Cantera said the recently announced inSpain will reduce costs by about €100 million a year. He added that the impactof the closures will be relatively minimal because many of the branches arestaffed by only one or two employees.

"Butwe expect to reduce the cost base in absolute terms going forward in order toreach our target of having a cost-to-income ratio of less than 50%," hesaid, adding that the bank expects its loan book in Spain to stabilize by thethird or fourth quarter after recent decreases in the volume of loans.

Acrossthe group, Santander posted a first-quarter profit of €1.63 billion, down from €1.72billion in the same period a year ago, but, according to Haitong Research,beating consensus by 8%.

Thebank's phased-in common equity Tier 1 ratio stood at 12.36% at March-end,compared to 12.55% at Dec. 31, 2015, and 11.91% at March 31, 2015. The fullyloaded ratio stood at 10.27%, compared to 10.05% and 9.67% during therespective periods.