UPDATE: Spain Banks May See Losses In 2010

Some Spanish banks are likely to report operating losses next year as loan losses mount and revenues slump in a deep economic recession, the head of Spain's savings bank association CECA said Wednesday.

Juan Ramon Quintas also said Spanish policymakers need to make the right decisions on economic stimulus, a planned bank rescue package, and need to make loan-loss provisioning rules more flexible in order to prevent bank failures.

"If these three things are done badly, we need to be prepared for a flood [of failures]," Quintas said at a financial sector conference in Santander, northern Spain.

If done well, he added, "you'll likely be able to count the number [of failures] on the fingers of your hand."

The CECA, the mouthpiece for Spain's 45 unlisted savings banks, expects bad loans in the country's overall banking system - savings banks plus listed banks - to rise to 9% next year from 4.27% in March, as the recession drags on and unemployment continues to spiral.

Credit losses in the Spanish banking system could reach EUR28.9 billion next year, while revenue may fall to EUR36.8 billion next year from EUR46.3 billion this year, Quintas said.

As a result, "some banks will report [operating] losses, others won't," Quintas said.

Quintas said 20% of Spain's lenders would see their Tier 1 capital ratios fall below the regulatory minimum of 8%, and would need to boost capital.

He welcomed the Spanish government's planned EUR9 billion aid package - expandable to EUR99 billion - which would allow banks to strengthen their capital bases and to survive a deepening economic downturn.

Spain's gross domestic product fell 3% on year in the first quarter, while unemployment has doubled in slightly more than a year to above 17%.

Analysts at PricewaterhouseCoopers estimate that Spanish banks could need between EUR25 billion and EUR70 billion in new capital this year.

La Caixa, Spain's largest savings bank by assets, estimates that the Spanish banking sector must cut costs by between 20% and 25% to keep banks profitable enough so that they don't have to rein in lending.

Juan Maria Nin, La Caixa's managing director, speaking at the same conference, said some Spanish banks are likely to suffer losses, but he doesn't see a risk of widespread losses that could cause a systemic crisis.

-By Christopher Bjork, Dow Jones Newswires; +34 606396093; christopher.bjork@dowjones.com

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