Banco Santander's net income in the first quarter declined 23.9 percent to 1.604 billion euros after it increased its provisions for non-performing loans by 51 percent to 3.127 billion.
Without the provisions, earnings increased 9.2 percent to a quarterly record of 6.280 billion euros. The bank's net interest income rose 10.6 percent to 7.821 billion euros.
The group's non-performing loan ratio rose to 3.98 percent from 3.61 percent a year earlier. Santander said its core capital ratio at the end of March was 9.11 percent, meeting the European Banking Authority's requirement of 9 percent ahead of time.
Attributable earnings in Spain and Portugal fell 72.8 and 63.8 percent respectively. Earnings were also lower elsewhere, falling 39.5 percent in Britain, 17.2 percent in the United States and a more modest 4.1 percent in Latin America.
"I value Santander's diversification, but then again their home market is a real worry," Bloomberg quoted Peter Braendle of Swisscanto Asset Management as saying. Santander's share price closed down 3.4 percent.
The bank said it had borrowed 35 billion euros in long-term funds from the European Central Bank and had deposits with the ECB of 37 billion. It said it increased its exposure to Spanish public debt by 6-7 billion euros.
Chief Executive Alfredo Sáenz said Santander plans to speed up the sale of foreclosed properties this year and increase provisions for possible losses on its real estate assets.