* Santander 2013 net profit up 90.5 pct at 4.37 bln euros
* Q4 2013 profit 1.06 bln eur, below forecasts
* Net interest income up 0.12 pct in Q4 from Q3
* Shares up 0.5 percent midafternoon
By Sarah White and Jesús Aguado
MADRID, Jan 30 (Reuters) - Santander, the euro zone's biggest bank, nearly doubled annual profit thanks to diminishing charges against bad real estate loans, and signalled earnings would keep growing thanks to a turnaround in Spain and Brazil.
The bank, which makes over half of its profits in emerging markets, has relied heavily on its overseas business to offset woes at home during a property market crash and a long economic downturn that finally ended in the third quarter of last year.
Net profit grew 90 percent to 4.37 billion euros ($5.96 billion) in 2013 from a year ago, but missed analysts' forecasts, as did net interest income (NII), a key measure of earnings from loans minus funding costs, which fell 13 percent.
Spain's economy grew for a second straight quarter in the final three months of 2013, data showed on Thursday, and that recovery is slowly starting to feed through to banks' earnings.
"There will be a change of cycle not only in Spain but in all of the markets we operate in," Chairman Emilio Botin told a news conference, adding that bank's lending in Spain would grow in 2014, after a 10.5 percent drop in customer loans last year.
The 79-year-old chairman - who laughed off queries about when he would step down, saying he would stay as long as the board and shareholders backed him - said the bank would propose maintaining a dividend of 0.60 euros a share against 2014 earnings.
Santander is one of the few global banks that did not slash dividends throughout the financial crisis, and some analysts had expected the bank would start cutting payouts.
Santander's NII in Spain grew slightly in the fourth quarter compared with the third, echoing results from smaller peers that have benefited from falling deposit costs.
But Santander's bad debts as a percentage of total credit in Spain jumped to 7.49 percent at the end of December from 6.4 percent a quarter earlier. This was below a sector average of 13.08 percent in November, but higher than some analysts had anticipated.
"Spain ... remains the drag divisionally in our view, still showing concerning asset quality trends," analysts at RBC Capital Markets said in a note.
At a news conference, Botin echoed earlier comments by Spanish Economy Minister Luis de Guindos on a continued difficult economic backdrop despite recent signs of recovery.
But he forecast that Santander's Spanish profits would rise to 1 billion euros in 2014 and triple that by 2016, up from net income of 478 million euros in 2013.
Santander shares, which rose over 14 percent in 2013, were up 0.5 percent at 6.417 euros at 1400 GMT, in line with the broader European banking index.
Net interest income fell in Latin America, down 15 percent in the fourth quarter from a year ago, hit by falls in the region's currencies against the euro, but some analysts were heartened by NII gains in Brazil compared with the third quarter of 2013.
Non-performing loans in Brazil, which had also been a recent concern for investors as the economy there stuttered, fell for the third quarter in a row. The Brazilian business, which contributes 23 percent of profits, beat net income expectations in the fourth quarter.
Outside Latin America, where annual profits fell nearly 24 percent from a year earlier, Santander is making a push to grow in the United States and Britain.
Even though it has been conserving capital to be ready for Europe-wide banking health checks this year, the bank said it plans to make investments in some businesses such as its UK unit in 2014, where it wants to expand commercial lending.
Botin said UK earnings would grow 17 percent in 2014, after rising 3.1 percent to 1.15 billion euros in 2013. However, a long-awaited initial public offering of its UK arm would not happen in 2014, Chief Executive Javier Marin added.
In the United States, Santander is considering buying a commercial bank to expand its footprint in the country after successfully listing its local auto-finance unit.
The bank said its core capital ratio would be around 9 percent in 2014 under stricter 'fully loaded' Basel III rules, which takes into account changes that have to be made by 2019, leaving it above minimum requirements.
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