* Recurring profit slumps 8.5 pct to 1.5 bln reais
* Default ratio rises, leading to higher provision
* Return on equity climbs, bucking industry trends
SAO PAULO, Oct 25 (Reuters) - Banco Santander Brasil SA posted an 8.5 percent decline in third-quarter profit on Thursday, as rising delinquencies forced the nation's largest lender to boost bad loan provisions.
Recurring net income, or profit excluding one-off items, fell to 1.501 billion reais ($743 million) from 1.643 billion reais in the third quarter of 2011, Santander Brasil said on its website. Compared with the prior three months, recurring profit rose 2.5 percent.
Management led by Chief Executive Marcial Portela Álvarez will discuss results at a news conference later Thursday.
Interest income, or revenue from lending and trading operations before provisions to cover non-performing loans, rose 13.5 percent on an annual basis after Santander Brasil boosted its loan book by 10 percent in the period. Fee income, or proceeds from financial services other than loans, fell 13 percent over the past year.
Expenses rose sharply in the period, driving profits lower. General, payroll and administrative expenses jumped 12 percent on a year-on-year basis, driving the efficiency ratio to 45 percent. The lower the ratio, the more efficient cost controls are at a bank.