Banco Santander Brasil reported a 17.6% fall in second-quarter net profit, missing analysts' estimates as narrower lending margins and higher provisions for bad loans weighed on earnings.

The lender posted recurring net profit of BRL3bn ($587mn) for the April-to-June period, below the BRL3.9bn forecast by analysts surveyed by LSEG, Reuters reported.

The result marked Santander Brasil's weakest quarterly profit since the fourth quarter of 2023. Return on average equity, a key profitability measure, fell to 12.5% from 16.4% a year earlier, while shares dropped as much as 7% following the announcement.

Net interest income slipped 0.4% to BRL15.34bn as the bank continued reducing exposure to lower-income borrowers.

Loan-loss provisions increased 6.5% to BRL8.26bn after the bank booked additional provisions for wholesale clients and revised its write-off criteria.

Chief Financial Officer Carlos Gonzalez-Blanch said a weaker macroeconomic outlook and high interest rates could also affect provisions later this year.

"I want a more boring, more predictable bank. One that doesn't deliver positive surprises, but doesn't deliver negative ones either," Gonzalez-Blanch said, adding that the bank aims to improve profitability through cost reductions, stronger fee income and a normalisation of loan-loss provisions.

Santander Brasil is the first major private lender to report quarterly earnings, with Itaú Unibanco and Bradesco due to release results next week.