Last checked at 
* Will make new provisions of up to 4.7 bln euros
* Lender losses in 2016 not seen topping 2.5 bln euros
* Popular likely to suspend 2016 dividend payment
* Shares in Spanish banks fall after announcement (Adds details and quotes from the Chairman)
By Jesús Aguado and Jose ElÃas RodrÃguez
MADRID, May 26 (Reuters) - Banco Popular triggeredrenewed concerns over the health of Spanish banks on Thursdaywith plans for its second 2.5 billion euro ($2.8 billion)capital increase in less than four years to cope with toxic realestate assets.
Spain's banks reduced their balance sheets after a propertybubble burst at the end of 2008, but doubts remain about theirprofitability, with returns hit by low interest rates andheavily indebted borrowers paying down loans.
Popular, the most exposed of Spain's banks to the troubledproperty sector, said regulatory uncertainties on capital levelsdemanded by the European Central Bank meant it needed to makenew provisions of up to 4.7 billion euros in 2016.
The mid-sized bank said these would allow it to increase itscoverage ratio on non-performing assets to 50 percent from thecurrent level of 38 percent to bring it in line with the averagecoverage ratio of most listed lenders in Spain.
Banco Popular Chairman Angel Ron told Reuters he expectedlosses this year but they would not exceed the size of thecapital increase, which is equal to around half the bank'smarket capitalisation.
Ron said he did not expect Popular to make a dividendpayment in 2016 following the rights issue, although Spain'ssixth-biggest bank by assets said it expected to reach acash-pay out ratio of at least 40 percent in 2018.
"In terms of provisions, we are doing twice as much in onego as analysts were expecting over the next three years and thisshould clear any doubts over provision necessities and bankcoverage," Ron said in the telephone interview.
The bank said it expected the capital increase to allow itto speed up real estate divestment plans and report afully-loaded core capital ratio of more than 10.8 percent thisyear and at least 12 percent in 2018.
Popular aims to reduce its exposure to property assets by 15billion euros between 2016 and 2018.
BANK SHARES HIT
Banco Popular's shares fell more than 20 percent after itssurprise announcement, as it had previously said its coveragelevels were sufficient.
As of March, Banco Popular had soured real estate assets ofaround 25 billion euros, which are proportionally the highest inSpain at around 25 percent of total loans.
However, other Spanish bank shares were also hit by fearsthey could consider similar new provisioning efforts or capitalhikes. Shares in Banco Sabadell dropped around 6percent, while Caixabank slipped more than 4 percentand Bankia fell by more than 2 percent.
Shares in Banco Santander and BBVA, whichhave larger international operations, were 1.8 percent and 1.1percent lower respectively.
"From the financial sector's point of view it is what webelieve needs to be done," Ron told Reuters.
Some analysts welcomed Popular's move, while others said itwould not put an end to the bank's credit quality difficulties.
However, acting Economy Minister Luis de Guindos said thatin the long term the news was positive as Popular was addressingbalance sheet weakness.
Following the issue of around 2 billion new shares at 1.25euros per share, a discount of 46 percent from the close onWednesday, Popular said by 2018 it expects a return on tangibleequity of at least 9 percent, from 4.15 percent. ($1 = 0.8947 euros) (Editing by Alexander Smith)
