Europe's largest banks are likely to set more money aside for possible loan losses in the fourth quarter, having already bolstered provisions in the third.

Of the 25 largest banks in the continent, 19 reported either higher loan loss provisions or actual provisions versus provision releases in the third quarter compared to a year ago. Spain-based Banco Santander SA booked the largest provision, of €3.07 billion, followed by U.K.-based HSBC Holdings PLC and France's BNP Paribas SA with €1.07 billion and €947 million, respectively, S&P Global Market Intelligence data showed.

Big European banks are also likely to set aside further provisions in the fourth quarter as they need to update model assumptions under IFRS 9 and because they will want to be generally prudent, Justin Bisseker, a European equities analyst at asset manager Schroders told Market Intelligence. This as the European Union's economy is heading into a recession over the winter, according to EU Economy Commissioner Paolo Gentiloni.

IFRS 9 specifies how an entity should classify and measure financial assets, financial liabilities and some contracts to buy or sell nonfinancial items.

While more provisioning is likely over the next few quarters, according to Sam Theodore, a senior consultant at Scope Ratings, banks will not "reach for the panic button" because they are well capitalized. Also, most current provisions are written against loans issues after the 2008 global financial crisis and, hence, with conservative criteria, Theodore wrote in a Nov. 8 note.

Spain's mortgage relief package for vulnerable households could lead to more bad debt, with Reuters quoting Santander CEO José Antonio Alvarez as saying that "[some] of the measures have an impact on the provisions." The two other Spanish banks in the sample, Banco Bilbao Vizcaya Argentaria SA and CaixaBank SA, booked provisions of €911 million and €172 million, respectively, in the third quarter.

* Access asset quality and provisioning details for Banco Santander on CapitalIQPro. * Access financial institutions list monitoring on CapitalIQPro.

Thirteen of the sampled banks booked year-over-year increases in third-quarter net income. These included BNP Paribas, the largest eurozone bank, which posted net income of €2.76 billion, and Santander, which reported €2.42 billion.

The only two loss-making banks in the sample were Denmark's Danske Bank A/S and Zurich-based Credit Suisse Group AG. Danske earmarked provisions for money-laundering investigations, while beleaguered Credit Suisse was weighed down by losses related to its restructuring.

The banks' results show that profitability is being strengthened due to improved net interest margins driven by higher central bank interest rates, Theodore said.

Lenders will likely continue to see the benefits from higher rates in the fourth quarter, according to Bisseker. "Net net Q4 will likely be another quarter of earnings per share upgrades," the analyst said.

After consecutive hikes of 75 basis points at each of its last two monetary policy meetings, the European Central Bank is likely to make another increase in December. Governing council member Joachim Nagel has said the ECB will initiate another "robust" hike.

Even as a recession becomes more and more likely, banks hold solid capital levels that could help them weather a downturn. All sampled banks had common equity Tier 1 ratios above 12% at September-end.

Banks in Russia and Ukraine, where government ownership means they are subject to different market dynamics than those in Western Europe, were excluded from this analysis.