VIEW-Banks face abyss

By Steve Slater

LONDON (Reuters) - British banks are "staring into the abyss" and European lenders may need to raise 83 billion euros (67 billion pounds) more capital as a credit crisis bites hard and drives up bad debts, analysts warned on Thursday.

"Things are getting worse, faster than we thought," Jonathan Pierce, analyst at Credit Suisse, said in a note on British banks entitled "Staring into the abyss?"

That could renew strain on capital even after 44 billion pounds has been raised in recent months, and leave Royal Bank of Scotland (RBS.L) facing a loss this year and next, Pierce said.

Banks across Europe face a grim outlook and could need to raise 83 billion euros and slash dividends, said Huw van Steenis, analyst at Morgan Stanley.

"Deleveraging, funding stresses, weaker macro and re-regulation make us think it's still too early to buy the banks sector," van Steenis said in a note. He cut 2009 earnings forecasts by more than 30 percent for many banks.

Trading updates from a batch of European banks this week have flagged a sharp rise in bad debts as consumers and businesses struggle to cope with a deepening credit crisis.

Many are also struggling to reduce their balance sheets, or reported continued asset growth, which could add to strain on capital even after governments have stepped in with rescue funds for banks in Britain, Germany and beyond.

Britain slashed interest rates by a surprising 1.5 percentage points on Thursday and the European Central Bank and Swiss national bank cut rates by 50 basis points in attempts to ward off deep recessions.