UPDATE 1-Spain to stress test banks again, focus on seven
* Spain will stress test banks again by October
* Seven banks in focus after independent audit
* Spain to make aid request on Monday, sign MoU by July 9
* Direct recapitalisation with EU funds still on the table
By Julien Toyer and Jesús Aguado
MADRID, June 22 (Reuters) - Spain will carry out yet another stress test of its banks by October with a focus on seven lenders, d ocuments released after an independent audit of the banking sector showed on Friday.
Doing the test gives Spain at least two more months to negotiate for direct cash injections into lenders as part of a European aid package of up to 100 billion euros ($125 billion), designed to keep the country from sinking deeper into the euro zone debt crisis.
The government is fighting to avoid taking on the aid itself and then channelling it to the banks, which would affect the public debt and potentially ramp up its borrowing costs.
Economy Minister Luis de Guindos said direct European aid for the banks was still an option although euro zone nations had initially ruled it out.
A first independent audit of the banking sector, published on Thursday, showed the sector needs up to 62 billion euros, but a second, more detailed audit, as well as new stress tests, will help determine precisely how much each bank needs and in which form - loans or cash.
"A larger sample study of asset valuations will also be carried out for those institutions for which it is considered useful to estimate capital needs," according to a document released on the Economy Ministry website.
An independent audit from consultancies Oliver Wyman and Roland Berger said Spain's three biggest banks, Banco Santander , BBVA and Caixabank, would not need extra capital even in a stressed scenario.
It also said immediate problems were limited to four banks: Bankia, and CatalunyaCaixa, NovaGalicia and Banco de Valencia, all three already nationalised.
This leaves seven out of 14 tested banking groups were left in the spotlight: Sabadell, Popular, Ibercaja-Caja3-Liberbank, Unicaja-CEISS, Kutxabank, Banco Mare Nostrum and Bankinter.
Sabadell and Bankinter said they would not need to tap any public funds and insisted they would be in a position to strengthen their capital with their own resources.
However, a source from the economy ministry said it was too soon to draw conclusions on the needs of the banks.
The source also said the government would not enact a new set of capital requirements for the entire banking sector, because the plan is to target individually those lenders struggling to meet the new demands. The government decreed in February and May steep provisioning requirements forcing all banks to recognize future losses on property loans and assets.
The government intends to keep all banks running and protect bondholders from any loss on their investments, he said.
"The focus is completely individualised and additional capital buffers will only be required from the banks that need them," the source said. "We're not looking at liquidating any entity and this possibility (of losses for bondholders) is not on the table."
However, European Competition Commissioner Joaquin Almunia, who has to authorise state aid to business under EU competition law, has said at least one bank may have to be wound down.
The Spanish government, which will formalise an aid request for its banks on Monday and negotiate the terms of the Memorandum of Understanding by July 9, is already in talks with the European Commission to restructure the nationalised lenders.
"It is expected that the recapitalisation of Bankia will start as soon as possible," the source said.
According to a restructuring plan submitted to the Bank of Spain earlier this month, Bankia and its parent company BFA need part of their aid as soon as July. The group has asked for 19 billion euros.
CatalunyaCaixa, NovaGalicia and Banco de Valencia will also need funds in the next few weeks.
The rest of the entities will have nine months, starting in October, to raise the capital and de Guindos said it could not be ruled out that some of them get the cash directly from the EU funds in order to try to break the vicious link between bank risk and sovereign risk.
"This possibility is absolutely open to Spain if there is progress in the next few months (on a banking union). The process of recapitalisation is not instantaneous," he said.
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