Spanish banks face income hit and restructuring

By Jesus Aguado and Andrew Hay

MADRID (Reuters) - Rising loan defaults, slowing business and higher financing costs are likely to hurt Spanish bank income and lead to restructuring, bank leaders said in a television programme broadcast on Saturday.

Spain's banks face falling business and must accept credit growth will not return to past levels, Bank of Spain Governor Miguel Angel Fernandez Ordonez said.

"The banks need to take heed of all this because it could affect their income statements," he told Spanish National Television's Weekly Report programme which focused on the Spanish financial system.

Spain's tightly regulated banks have avoided U.S. subprime assets and built up high provisions against defaults following the collapse of a decade-long house building and property boom.

Leading banks Santander (SAN.MC) and BBVA (BBVA.MC) diversified out of domestic property years ago and are expected to take advantage of knock-down asset values to buy up firms.

Smaller institutions and savings banks have higher real estate exposure and liquidity problems which have raised expectations of mergers.

"We have the opportunity to come out of this in a better position, and clearly, in the financial system, there will be restructuring, and institutions are going to emerge much stronger than before," BBVA chief Francisco Gonzalez told TVE.

Santander Chairman Emilio Botin said some large banks had suffered because they ignored basic business practises.