Santander, Spain’s largest bank, on Tuesday unveiled a 22 per cent increase in net attributable profits for the first quarter, as acquisitions and cost controls helped offset a sharp slowdown in lending and business activity in most markets.

The result, of €2.2bn ($3.43bn), included a first-time contribution – worth a net €151m – from the bank’s acquisition last year of parts of ABN Amro. Excluding this, the year-on-year rise would have been 14 per cent, in line with Santander’s own forecasts, and those of analysts.

However, the contribution from continental Europe was down 7 per cent at €1.2bn, as weakness in wholesale banking, asset management and insurance activities offset steady growth in the retail operations.

In Latin America and the UK, the bank said hedging instruments had helped to offset the impact of the euro’s strength against that of the US dollar and sterling. Net profits from Latin America were ahead 22 per cent in dollar terms, but only 7 per cent, at €729m, once consolidated.

Net interest income, after dividends, was ahead nearly 15 per cent, to €4bn. Growth in lending across the group slowed to 9 per cent year-on-year from 17 per cent at this stage in 2007. Loan loss provisions were stepped up 69 per cent to €1.14bn, as the ratio of non-performing loans climbed to 1.16 per cent of the total portfolio, from 0.82 per cent at the year-earlier stage.

José Antonio Alvarez, the chief financial officer, said the ratio would continue to climb this year, but stressed that it remained well below the European average. “There is no cause for alarm at all,” he told the Financial Times.

Analysts, however, seized on the deterioration in the bank’s loan portfolio, comparing Santander unfavourably with BBVA, Spain’s second-biggest bank. On Monday, Santander’s main domestic rival unveiled a smaller increase in non-performing loans – to 0.99 per cent from 0.84 per cent – as it reported a 15 per cent rise in first-quarter attributable profit, to €1.4bn. Including gains on the sale of equity holdings, profits were €1.95bn.

Dresdner Kleinwort said the “acceleration in non-performing loans [at San­tander] requires watching”.

Moody’s, the credit rating agency, on Monday downgraded its outlook on the Spanish banking system, warning that a “hard landing” in the property sector, coupled with a broader consumer downturn and financing difficulties in wholesale markets, had left some smaller lenders vulnerable.