* EU agrees Spain does not need to extend bank rescue
* Bailed-out bank sales seen difficult without more aid
* Seven bidders line up for NCG Banco - sources
* Many potential bidders ask for state aid - sources
By Sarah White and Jesús Aguado
MADRID, Nov 14 (Reuters) - Potential buyers of Spain'srescued banks, which include foreign investors, are pressuringthe government to sweeten sales with more state aid, just asMadrid pulls its financial sector off European support, bankingsources said.
European finance ministers agreed on Thursday to Spainending a 41-billion-euro ($55 billion) European rescue programmewithout drawing more funds, after it cleansed weak lenders ofsoured property assets and began financial reforms.
The aid was only a part of the 100 billion euros offered toplug capital holes in the wake of a 2008 real estate crash.
However, the government may still have to pump more cashinto nationalised NCG Banco from Galicia, and Barcelona-basedCatalunya Banc, as potential buyers clamour for more protectionagainst losses, bankers familiar with the looming sales said.
Spain's bank restructuring fund FROB is widely expected toformally open an auction of NCG Banco in the coming weeks.
"Bidders want the bank's books completely cleaned. Some evensee a scenario where the FROB would have to inject more moneyand sell it for a euro," said one investment banker in Madrid.
Spain requested last year's aid when it was in the eye ofthe euro zone crisis, which pushed up debt costs as it wasstruggling to cope with the magnitude of the banking problems.
The state's own financial strains have now eased somewhat,giving it room to offer further funds, though the government hasresisted, arguing rescued banks have been cleaned up after theirproperty assets were transferred to a separate 'bad bank'.
Suitors for NCG Banco, while attracted by its dominantposition in Galicia, believe it still has many other problematicloans, three banking sources said.
NCG Banco took 9 billion euros in rescue funds from Spainand Europe and returned to profit in the year to September. Butdeposits fell nearly 3 percent compared with the same period in2012, and its non-performing loans as a percentage of totalcredit reached 16.7 percent.
Spanish banks' average bad loan ratio was 12.1 percent inAugust.
FOREIGN FUNDS LINE UP
At least seven potential bidders, including four banks andthree investment firms, have expressed interest in NCG Banco inthe past fortnight, a person familiar with the situation said.
Centerbridge Partners and WL Ross, the turnaround group ofU.S. billionaire Wilbur Ross who invested in a crisis-hit Irishbank, are among them, the person said.
FROB declined to comment, while Centerbridge and WL Ross didnot respond to requests for comment.
Top banks Santander, BBVA and Caixabank have previously said they would look at NCG Banco.
Several prospective bidders have said they wantedgovernment-funded asset protection schemes to shield themagainst future losses, three banking sources said.
U.S. financial services firm Guggenheim Partners is alsoamong those interested in NCG Banco, the three sources said, andit too wants more state protection against losses, a fourthsource said. Guggenheim Partners declined to comment.
Interest from international investors has complicated whatwill already be a politically-charged auction, in part becausemanagers at NCG Banco favour a solution that would help itremain a regional champion.
"Guggenheim is the big favourite of the management team,"said another senior investment banker. "It would mean theGalician bank could keep its independence and not be swallowedup by other national players."
But handing out state aid to foreign investors is anunattractive option for the government, while Spanish banks haveargued such firms would be a riskier bet than a domestic buyer.
Funds have already been told they would have to set asidearound 800 million euros, or 3 percent of NCG's risk weightedassets, as a safety net if they want to bid for the bank.
Buyers of NCG Banco will also likely receive another boostfrom the state in the form of tax credits. Like Spanish rivals,NCG Banco has so-called deferred tax assets, some of which thegovernment will turn into state-backed credits so that they cancount as capital under new Basel III rules.
This rule change is one of the few levers the government hasto negotiate with bank bidders.
An attempted auction of Catalunya Banc collapsed earlierthis year when bidders asked for asset protection schemes. It isalso set to come on the block again in the coming months.
- Budget, Tax & Economy
- NCG Banco