* Audit will show 3 billion-euro hole at Popular - source
* Popular highly exposed to real estate sector
* Other mid-sized savings banks also in need of European money
* Spain's Bankia to be the bulk of capital shortfalls
* Santander and BBVA seen with clean reports
By Jesús Aguado
MADRID, Sept 26 (Reuters) - Musty-smelling branches and ageing furniture symbolise the thrifty philosophy of Spain's Popular, a trait which has made the bank one of the country's most efficient.
But even careful Popular, which has weathered the nation's economic turmoil without public funds, may be forced to take European aid due to its exposure to Spain's property crash.
Spanish banks will learn from an audit on Friday the extent of the damage from the collapse of a real estate boom that left the sector with 184 billion euros in repossessions and bad loans.
The Madrid government sought up to 100 billion euros in euro zone aid for its crisis-torn banking sector after the nationalisation of Bankia and the audit, coordinated by consultancy Oliver Wyman, will decide each bank's needs.
Banco Popular Espanol's Chairman Angel Ron is one of the few bankers in Spain to question publicly the wisdom of the stress tests and says his bank does not need aid.
"It's like taking a very aggressive medicine before even being ill," Ron, 50, told a forum in Barcelona last week.
The audit will show a gap of 3 billion euros at the nation's sixth-biggest lender, the biggest capital need of any of the banks that have not already had a bailout from the Spanish government, one banking source said.
Sources at Popular said it needed less than 2 billion euros, a sum that it can raise by itself. If the hole in its balance sheet is 3 billion, the bank is likely to require public aid.
The burden of the Spanish banks' debts on central government finances, along with aid demands from regional governments have pushed the euro zone's fourth biggest economy towards a European aid programme.
The audit of the 14 banks that account for 90 per cent of Spain's banking sector will show capital needs of between 55 billion euros and 60 billion euros, a source with direct knowledge of the matter said.
Economy Minister Luis de Guindos says the capital shortfall for the entire sector will be in line with preliminary estimates published in June of 62 billion euros. That number came from an earlier, more superficial audit of Spanish banks, done by Oliver Wyman and Roland Berger.
The Spanish big three - BBVA, Santander and Caixabank - are expected to emerge with no capital needs identified.
Most of the European rescue money, 40 billion to 45 billion euros, will go to nationalised savings banks Bankia, NovaGalicia, Catalunya Caixa and Banco de Valencia.
The biggest questions to be answered in the audit are around the capital needs of Popular and two other commercial banks, Sabadell and Bankinter, as well as four savings banks, Banco Mare Nostrum, Kutxabank, Ibercaja-Liberbank-Caja 3, Unicaja-CajaEspaña/Duero.
Together the seven are set to take a total of 15 billion to 20 billion euros in the European aid, but some may not need any.
The final European cash injections will depend on each bank's ability to raise its own funds as well as the size of the haircut small bondholders will be forced to take and the price at which assets are transferred into a "bad bank" the government must set up as one of the conditions for European aid for the banks.
Unlike Spain's savings banks, which were at the heart of the financial system's problems and were run by executives with close links to regional and political authorities, Popular has a reputation for responsibility.
"When you enter the offices of Popular in central Madrid you realise that this bank has not embarked on a spending spree," said a financial source who works closely with the bank.
"You just have to see the furniture from the sixties to realise the bank is almost all about austerity," said the source, who declined to be named.
During Spain's decade-long building boom and credit spree, Popular refrained from offering new borrowers televisions and vacations, like other banks did.
But it did get into the construction sector frenzy and now has 31.3 billion euros exposure to real estate. Its foreclosed assets rose to 9.8 billion euros at the end of June, one of the highest among Spanish banks.
It also ended up with substantial stakes in struggling real estate firms Metrovacesa and Colonial, which it took on in exchange for loans that went bad.
If Popular takes public funds it will unload repossessed buildings and bad loans into the bad bank.
Popular, which reported a profit of 480 million euros last year, has one of the Spanish financial industry's lowest "efficiency ratios", which measures expenses as a percentage of revenue, at 38.5 percent. A lower efficiency ratio means that a bank is making considerably more than it is spending and is therefore on a sound fiscal footing.
The bank has already announced plans to raise up to 2.3 billion euros selling off branches, a life and pension insurance business in Portugal and other non-core assets. It also plans a 700 million euros rights issue and forecasts 7 billion euros in pre-provisioning profit between now and end-2014
Popular took over northern Galician lender Pastor in 2011 as the government urged banking consolidation, and has been in tentative negotiations about a tie-up with savings bank Banco Mare Nostrum (BMN).
But after earlier mergers of weak banks only created big weak banks, the government is nervous about a Popular-BMN deal.
A Spanish government source has said it would only make sense if a big, healthier bank was involved.
According to a source close to BMN, the audit will reveal a 2 billion euros capital gap at that savings bank.