* Net profit of 96.1 mln euros vs 109 mln loss last year
* Misses 101.5 mln euros average forecast
* BES studying bid for Spain's Banco Gallego-CEO
* Net interest income stable at 1.18 bln euros
By Sergio Goncalves
LISBON, Feb 5 (Reuters) - Banco Espirito Santo, Portugal's second largest listed bank by assets, reported on Tuesday a 2012 net profit of 96.1 million euros ($130.01 million), after a year ago loss, and said it may bid for Spain's Banco Gallego, a bank controlled by NovoCaixaGalicia.
NovoCaixaGalicia was taken over by the Spanish state in 2011 through its bank restructuring fund FROB.
BES' 2012 profit, boosted by strong gains on its government bond holdings, marked a turnaround from a loss of 109 million euros in 2011, the year Portugal was bailed out by the European Union and IMF. The bank said trading gains reached 570 million euros last year, reversing a loss of 22 million euros in 2011.
Analysts surveyed by Reuters had expected a net profit last year of 101.5 million euros.
Net interest income was stable at 1.18 billion euros and commissions up 5 percent to 828 million euros.
Portuguese banks sharply turned around their earnings as the country's sovereign debt crisis started to improve.
The country's bonds were some of the strongest gainers last year and thanks to their large holdings, local banks had strong capital gains. Portuguese 10-year bonds currently yield around 6.45 percent, down from 18 percent a year ago.
BES said its results included a 54.1 million euro charge in connection with the purchase of the rest of insurance unit BES Vida. It also said that the recession continued to hurt the bank last year.
Portugal's woes forced the reinforcement of provisions by 1.2 billion euros and pushed up its bad loans ratio to 3.9 percent, from 2.7 percent in 2011.
BES said its Core Tier 1 capital ratio at the end of December was 9.9 percent measured by European Banking Authority criteria and 10 percent according to the Bank of Portugal's rules.
In October, the bank became the first among its peers to return to the bond market since Portugal requested a bailout. It first sold a 750 million euro 3-year unsecured bond and then successfully issued a 500 million euro 5-year bond last month.
BES' dependency on ECB funds fell by 1.8 billion euros to a net borrowing position of 6.9 billion euros at the end of December.
Chief Executive Officer Ricardo Salgado said the board had given the go-ahead for his team to explore investment opportunities in Spain and that their Spanish unit was ready for expansion, adding that Banco Gallego looked like the most likely option.
"Banco Gallego was recapitalised by the (Spanish state fund) FROB and there will be a competitive auction. There is no set date but could be halfway through March or in April," Salgado said.
This purchase would expand BES' branch network in Spain by six times. BES currently has 25 branches in Spain.
BES shares closed up 0.58 percent on Tuesday, in line with the wider Lisbon index.