UPDATE 1-Spain's Abanca approaches Liberbank about takeover

* Deal would value Liberbank at 1.7 bln euros

* Abanca and Liberbank would create Spain’s sixth-biggest lender (Adds detail from letter sent by Abanca to Liberbank board)

MADRID, Feb 22 (Reuters) - Spanish regional lender Abanca said on Friday that it had approached Liberbank about a takeover offer, which would value the former savings bank at around 1.7 billion euros ($1.9 billion).

A merger between Abanca and Liberbank would create Spain’s sixth-biggest bank with around 90 billion euros in assets, continuing a trend of consolidation in the Spanish banking sector.

Abanca said it had sent a letter to Liberbank’s board expressing its intention to make an offer that would be submitted in cash or shares at a price of 0.56 euros per share, which would be a 44 percent premium to Thursday’s closing price.

This would value Liberbank at around 1.7 billion euros ($1.93 billion), according to Reuters calculations.

Earlier on Friday Abanca had confirmed that it had approached Liberbank’s main shareholders regarding a potential takeover, after the Expansion newspaper reported the two banks planned to merge. Abanca, which is owned by Venezuelan businessman Juan Carlos Escotet through his holding company, said no deal had been reached yet.

Liberbank’s shares surged as much as 22.4 percent on Friday and closed 19.9 percent higher at 0.470 euros.

Liberbank, however, said it had not received any concrete offer from Abanca and that it was not in talks over any strategic options apart from a proposed merger it was working on with Unicaja.

As with other European banks, financial margins at Spanish lenders are under pressure due to ultra low interest rates, leaving banks trying to offset low profitability through consolidation.

Since the outbreak of the financial crisis in 2008, the number of Spanish lenders has shrunk to 12 from over 55.

Abanca said that as part of its potential offer, its cash offer would be submitted for shares that represent up to 75 percent of Liberbank’s capital.

Abanca also said it would offer shareholders that hold between 25 percent and 45 percent of Liberbank’s capital the possibility of exchanging their stake for shares of Abanca.

The potential takeover offer is subject to Abanca obtaining a majority stake in Liberbank.

“Positive news for Liberbank, not only because any hint of a counter offer will boost the price but also because it strengthens its negotiating position in the face of negotiations with Unicaja,” Banco Sabadell said in a note about Abanca’s potential offer.

Liberbank’s own banking foundation is among its key shareholders, with a stake of around 23 percent. Foundations support the local community and fund development projects.

Merrill Lynch is advising Abanca on the potential merger with Liberbank.

Separately, Deutsche Bank is working with Liberbank on the deal with Unicaja, which is being advised by Mediobanca.

Abanca said it was setting March 1 as a deadline for Liberbank to allow Abanca to analyze its balance sheet.

$1 = 0.8817 euros Editing by Andrés González and Susan Fenton