* Higher lending volumes seen boosting Latin American business
* Likely to protect UK balance sheet at expense of growth -source
* Banco Popular integration in Spanish spotlight
* Digital strategy and capital buffers face investor scrutiny
MADRID, April 1 (Reuters) - Spanish bank Santander is expected to take a cautious stance on its British business in a strategy update on Wednesday, seeking to reassure investors after its aborted recruitment of former UBS banker Andrea Orcel as CEO.
Though Brexit uncertainty is casting a shadow over the bank's third-biggest market, the euro zone's largest lender by market value is benefiting from its global diversification and expects solid growth in Latin America, which accounts for 43 percent of its earnings.
The bank is expected to further protect its balance sheet in Britain, where higher costs have dented profitability, by setting stricter conditions for lending, a banking source said.
Globally, Santander is likely to reinforce efficiency measures as part of its digital transformation to persuade investors that its latest profitability and capital targets can be maintained, analysts said.
The bank declined to comment before the event.
"This time the strategy update won't be as much about setting new targets but rather outlining how they will be met," a second banking source said, adding that cost-saving measures in mature European markets would also be key to offsetting a squeeze on lending from low interest rates.
In January Santander said it was aiming to lift its return on tangible equity (ROTE) -- a measure of profitability -- to 13-15 percent in the medium term from 11.7 percent in 2018.
It also set a mid-term core Tier 1 capital ratio target of 11-12 percent, against 11.3 percent in 2018 but below the average of more than 12.5 percent among its European peers.
Analysts such as Jefferies still express some concern over the targets and capital adequacy.
The bank says it is comfortable with its capital buffers because of its lower-risk retail model. It recently said it was considering reintroducing a scrip dividend in 2019, which UBS estimates would add 25 basis points to its capital through 2021.
Continuing robust growth in lending volumes in Brazil, its biggest market, is expected to offset some pressure on pricing and financial margins, though other challenges remain.
In the United States it is working to lift low profitability ratios of around 4 percent while savings from the integration of Banco Popular remain a focus in Spain, its second-biggest market.
Investment firm Alantra expects Santander to deliver 600 million euros in cost cuts from the integration, compared with a target of 500 million euros as part of its attempt to improve its 10.8 percent underlying ROTE in Spain.
The aborted hiring of Orcel is not on Wednesday's agenda, but investors are likely to question the management over Santander's decision in January to withdraw its job offer.
"Orcel was seen as a potential dealmaker. Now that he is not on board, the bank wants to be seen as a robust retail bank with Latin America as its core growth story," said Enrique Quemada, chief executive of investment bank ONEtoONE.
Santander has said it is sticking with Jose Antonio Alvarez as CEO, but investors say a replacement in the medium term is not to be ruled out. (Reporting by Jesús Aguado Editing by David Goodman)