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MADRID (Reuters) - Spanish banks' earnings for the first half of the year, which start on Thursday with Bankinter, are likely to be marked by a continued cleanup of toxic real estate assets which will hit profits.
Although Bankinter is not fully representative of the sector, as it is less exposed to the property market than the rest of Spanish lenders, the medium-sized bank will report a halving in net profit on Thursday, a Reuters poll forecasts.
Euro zone finance ministers will discuss on Friday the conditions attached to the release of up to 100 billion euros ($122 billion) in aid for Spain's banks, loaded with bad loans following a 2008 property crash and ensuing recession.
The government has demanded banks write down losses of more than 80 billion euros on around 184 billion of repossessed property and bad loans to developers, as well as sound real estate assets, through two laws passed before the country sought European aid for its lenders.
"We expect banks to try to book as much as possible, and we forecast the bottom lines of all the Spanish domestic banks under our coverage to be close to break-even," Espirito Santo said in a research note.
Bankinter, which has a modest 60 billion euros of total assets, is set to report a 51 million euro net profit for the first half, down from 100 million a year ago, according to a poll of eight analysts.
"Bankinter has already complied with the first provisioning law and now needs to come up with an additional 136 million euros. The bank will probably advance in its cleaning exercise and still book profits," said Fabio Mostacci, analyst at broker Ahorro Corporacion.
Analysts expect the bank to post a 32 percent rise in net interest profit -- the difference between what the bank makes in loans and pays out in deposits -- boosted by the support of cheap financing from the European Central Bank.
Independent auditors and consultants have estimated Spain's banks will need 51-62 billion euros in extra capital to weather a serious downturn in the economy.
But some analysts say that the banks could use different strategies to address the need for covering potential losses on their books, as their exact capital needs are under review and the European aid is likely to force a change in the government's two banking reforms announced earlier this year.
"We expect the banks to act in a heterogeneous way, given the fact that some of them will chose to book the impact more aggressively than others but generally speaking we expect a relevant impact in all entities hitting the profits," Banesto said in a note.
"In some cases, losses could be reported," it also said.
Several entities, including CaixaBank, Popular and Banesto, have already covered part or all of their provisioning needs by retaining profits in the first quarter of the year.
Heavyweights Santander and BBVA however decided to wait and act only later in the year. ($1 = 0.8188 euros) (Additional reporting by Sonya Dowsett; Editing by Julien Toyer and Jon Loades-Carter)