UPDATE 2-Rising bad loans cast more doubts on Spanish banks
* Non-performing loans rise to 8.2 pct of portfolios
* House prices fall 7.2 pct in Q1
* Defaults seen rising as economy deteriorates
* Mergers may not be enough to clean up sector
By Jesús Aguado and Julien Toyer
MADRID, April 18 (Reuters) - Spanish banks are carrying their biggest burden of bad loans since 1994, according to data on Wednesday that fuelled doubts about whether the country's ailing lenders can survive without outside help.
The Bank of Spain on Tuesday approved plans by all 135 Spanish banks to boost capital but said some may face difficulties meeting tough requirements set by the government, making it almost mandatory for the weaker institutions to fall into the hands of stronger ones.
As the economy deteriorates, adding to Spanish households' problems in repaying debt, Spanish banks are expected to need more than the extra 53.8 billion euros ($70.7 billion) the Bank of Spain had predicted - already an increase on the government's 52 billion estimate in February.
Spain's economy has yet to recover from the bursting of a long-running property bubble four years ago, and financial markets fear the combination of private and government debt will be too great for the country to bear without turning to the euro zone rescue fund.
"With non-performing loans steadily rising, not just from households but also among small Spanish businesses, the banking sector could need a further 50 billion euros in cash to clean up its balance sheets. In the end they might need some external financing," said Angel Berges, chief executive at the independent Analistas Financieros (AFI) said.
Non-performing loans increased by 3.8 billion euros to 143.8 billion euros in February from January, representing 8.2 percent of the banks' credit portfolios, Wednesday's data showed.
Spain's government, which spooked markets last month by backtracking on this year's budget deficit target, has repeatedly ruled out seeking a bailout and says its lenders can manage without help.
The bad loans data, combined with a 7.2 percent fall in housing prices in the first quarter of the year, will accelerate a second wave of consolidation in the banking sector which aims to reduce the number of big lenders to a dozen from about 45 before the crisis.
Analysts at Citigroup suggest Spanish house prices, already around 22 percent lower than the peak in 2007, could fall a further 20-25 percent before hitting a floor.
This will eat further into the value of the 300-plus billion euros' worth of property assets on banks' balance sheets - 176 billion euros of which is already classed as "troubled" by the Bank of Spain.
"As long as the Spanish economy does not recover we will see bad loans rising in 2012 and this will clearly put more pressure on the whole Spanish banking industry to accelerate its consolidation", said Jose Carlos Diez, economist at Spanish brokerage Intermoney.
The Bank of Spain said on Tuesday it had been informed of five mergers involving 11 banks as part as the capital plans.
Most likely operations will take place before the summer when state-aided Banco de Valencia, with assets of more than 22 billion euros, and Catalunya Caixa (CX), with assets of almost 80 billion euros, are being sold.
Bankia, Spain's fourth-largest bank, remains a big question mark, with repossessed assets worth around 11 billion euros of which around 5 billion are land properties. The bank said it wants to pursue a standalone strategy rather than seek mergers, though it has not ruled it out.
The bank needs to find 5.07 billion euros by the end of 2012 and analysts have expressed doubts it can manage without outside help but its recapitalisation plan also received the green light from the Bank of Spain.
A banking source told Reuters on Tuesday Bankia could generate 8 billion euros in additional capital by further shrinking its balance sheets and selling non-strategic assets.
The result of a merger between seven regional banks, Bankia is considered important enough to the financial system to pose the risk of dragging down other lenders if it got into trouble.
The lenders have until the end of 2012 to raise their capital levels but, in order to encourage further consolidation in the sector, the government gave banks involved in mergers until the end of 2013 to meet the new demands.