* Santander reports 2012 results before market open
* Property provisions in Spain could halve profits -poll
* Capital gains and overseas growth potential in focus
* Rising bad loans in Spain, Brazil also in spotlight
By Sarah White
MADRID, Jan 31 (Reuters) - Santander's efforts to cope with rising bad loans and to store up capital will come under scrutiny on Thursday when the Spanish bank reports 2012 results hurt by big provisions on soured real estate assets in its home market.
Performance in countries such as Brazil will be particularly in focus as the euro zone's biggest bank, which generates the bulk of its income outside Spain, combats domestic problems, including growing loan defaults as unemployment spirals in a prolonged recession.
Santander is expected to finish booking all of the provisions enforced by Spain's government against rotten property loans and assets in the fourth quarter, which could cut yearly earnings in half.
The bank's net income for 2012 is set to fall 54 percent to 2.48 billion euros ($3.37 billion), a Reuters poll of analysts showed. Santander had already made just over 5 billion euros of property provisions in the first nine months of the year, covering 90 percent of what it needed to book.
The writedowns have hurt all Spanish banks, tipping some like smaller, domestic-focused ones like Sabadell into the red in the fourth quarter. The lenders were crippled by a real estate bubble that burst five years ago, pushing Spain to try and clean up the sector once and for all last year.
The country took 40 billion euros in European aid for lenders that couldn't cope and needed fresh capital.
Healthier lenders such as Spain's second-biggest bank BBVA and top player Santander have instead focused on building up capital alone, though that has come at a potential cost to future earnings.
Santander has sold some Latin American businesses and also raised $4 billion by listing 25 percent of its Mexican operation in September.
Investors will be looking for signs that the bank can keep notching up capital gains and drive earnings growth, especially as non-performing loans begin to edge up in key markets such as Latin America, pushing up provisioning.
The slowing economy of Brazil, which drives 26 percent of Santander's profits, is a particular concern, pushing some analysts to prefer the stock of BBVA, a bank more exposed to Mexico. BBVA reports 2012 earnings on Friday.
"We continue to prefer Mexico over Brazil, and we believe it will offer more relative support to results in BBVA versus Santander," analysts at Nomura said.
The delayed listing of Santander's UK branch will be one focus on Thursday, as a potential outing edges closer, while overseas acquisitions and joint-ventures have also been on the cards.
The bank is close to a deal with the U.S.'s Chrysler Group to set up an in-house financing arm, according to recent media reports. ($1 = 0.7370 euros) (Additional reporting by Jesus Aguado; Editing by Bernard Orr)