* Eurobank posts Q3 loss of 223 mln euros
* Eurobank needs 5.8 bln euros capital
* Piraeus posts nine-month loss of 629 mln euros
* Says total recapitalisation need is 7.3 bln euros (Updates with Piraeus Bank results)
By George Georgiopoulos
ATHENS, Dec 20 Greek lenders Eurobank and Piraeus have both reported quarterly losses, hit by bad debt provisions and higher funding costs that squeezed net interest income.
With the economy shrinking at an annualised rate of nearly 7 percent in the third quarter and with one in four Greeks without work, borrowers are having a hard time servicing their debts, forcing banks to provision for potential loan losses.
Piraeus Bank, which took over the healthy assets of state lender ATEbank and agreed to buy Societe Generale's Greek unit Geniki this year, lost 629 million euros ($833 million) in the nine months to end-September.
Eurobank, which is considering a merger offer by National Bank to form Greece's largest bank group, reported a 223 million euro third-quarter loss, which brought its nine-month hit to 1.095 billion.
Tough conditions were seen persisting in 2013 with the economy projected to contract for a sixth straight year, meaning a further rise in non-performing loans.
"2013 will be a difficult year, there is a chance of another wave of bad debt after measures adopted by the government," Eurobank chief executive Nicholas Nanopoulos said on a conference call.
Greece passed a 13.5 billion-euro austerity package of budget cuts and tax hikes for the next two years to unlock bailout aid and hit a primary budget surplus in 2013, which will pressure household budgets.
Both banks spelled out their total recapitalisation needs, as set by the country's central bank.
Eurobank's came to 5.8 billion euros, including the impact of two Greek sovereign debt writedowns earlier this year, whose total hit came to 6 billion euros.
Eurobank has already received nearly 4 billion euros from the Hellenic Financial Stability Fund set up to recapitalise the country's systemic banks, and expects to get a further 1.8 billion euros from the fund shortly, executives said.
Piraeus said it needed 7.3 billion euros in capital. The bank, which received an advance of 4.7 billion euros from the HFSF in May this year, said the support fund provided an additional 1.5 billion euros this month and a letter of commitment for another 1.1 billion.
Greece and its international lenders have earmarked 50 billion euros from the country's 130 billion-euro bailout to recapitalise viable banks whose equity capital was wiped out after participating in a sovereign debt swap in March.
Under the plan banks will have to issue new shares to achieve a core Tier 1 capital solvency ratio of at least 6 percent of assets and convertible bonds or so-called CoCos to boost the ratio to up to 9 percent.
The private sector must take up at least 10 percent of the new shares to be issued to keep lenders privately run.
Eurobank said loans overdue by more than 90 days hit 21.3 percent of its loan book at the end of September from 17.6 percent at the end of March - pushing up provisions for impaired loans by 23 percent in the nine-month period to 1.213 billion euros. The bank said the stock of provisions covered 53 percent of non-performing loans.
Executives told analysts that a diagnostic study on its loan book by Blackrock, commissioned by the central bank to ascertain possible future loan losses to end-2014, saw impairments at 4.9 billion euros under a baseline scenario.
While the bank had already booked 4.6 billion in provisions, it was about 1.3 billion euros short under an adverse scenario by Blackrock, they said.
Piraeus Bank's loan impairment charges in the nine-month period reached 1.44 billion euros. Loans overdue for more than 90 days reached 18 percent of its book.
Apart from loan impairments, higher funding costs stemming in part from banks' recourse to the Greek central bank's emergency liquidity funding mechanism (ELA) pressured net interest income at both banks.
Greece's two other big banks - Alpha and National - will report on Friday. (Editing by Mike Nesbit and Greg Mahlich)