MADRID (Reuters) - The euro zone's biggest bank, Santander (SAN.MC), will report a 16 percent fall in first half profits on Thursday, analysts forecast, brought lower by writedowns on deteriorating Spanish real estate assets.
Santander has suffered less than domestic rivals from a severe Spanish economic downturn and property crash due to its diversified business in Latin America, Poland and Britain.
Funding holes in Spanish banks' balance sheets due to unrecognised losses from the bursting of a 2008 housing bubble, worsened by loan defaults in a recession, has pushed Spain to ask Europe for an up to 100 billion euros ($121 billion) credit line to prop up lenders.
In a recent external audit of Spain's banks, Santander was one of three judged not to need capital even in a stressed scenario, alongside smaller rival BBVA (BBVA.MC) and former savings bank CaixaBank (CABK.MC).
The lender will likely book a 900-million-euro extraordinary profit from the sale of its Colombian unit and use this to compensate writedowns on Spanish foreclosed property and unrecoverable loans to housebuilders.
Santander and BBVA are expected to book the bulk of losses related to the falling value of real estate in the second half of the year.
Outside Spain, investors will watch for updates on the health of the business in Brazil where a slumping economy has led to rising loan losses across the sector. They will look for news of a prospective stock market listing of the bank's Mexican business.
Britain will also be in focus, where historically low interest rates are eating away at profit margins in the banking sector.
Santander is expected to report first half profit of 2.9 billion euros, down 16 percent from the year-ago period.
Net interest income -- the difference between what a bank pays out on deposits and makes on loans -- is expected to rise 6.5 percent to 15.2 billion euros.
($1 = 0.8248 euros)
Editing by Julien Toyer and Andrew Hay