* S&P sees no Ukraine sovereign default this year
* January presidential election clouds outlook
* Concorde Capital sees 50-70 banks disappearing
By Kiryl Sukhotski
MOSCOW, Aug 4 (Reuters) - A Ukraine sovereign default is "far, far from inevitable" but a presidential election in January, which incumbent Viktor Yushchenko is unlikely to win, clouds the credit outlook, Standard & Poor's said on Tuesday.
S&P revised the outlook on its 'CCC+/C' rating to "positive" from "negative" last week after Ukraine sealed a deal for a third International Monetary Fund tranche worth $3.3 billion to help it cover external debt requirements and budget spending.
"We certainly don't expect a sovereign default this year and sovereign default is far, far from inevitable in Ukraine," S&P director of European sovereign ratings Frank Gill told Reuters Television.
"But let's see what happens to the political situation in January -- one of the key credit issues with this country is that the constitution is not really clear on the separation of powers," he said.
Analysts, investors and ratings agencies have long said that political turmoil besetting the ex-Soviet state since a 2004 pro-Western "Orange Revolution" has been the key risk to reforms and economic growth, in good times as well as in bad.
A power struggle between Yushchenko and his former ally during the 2004 mass street protests, Prime Minister Yulia Tymoshenko, has not only delayed reforms and the sale of state assets but put at risk the $16.4 billion IMF standby programme.
Gill said, however, that the IMF had shown increasing flexibility since the programme was agreed last November, for example by allowing a budget deficit of 6 percent of gross domestic product after initially demanding a balanced budget.
"The IMF has really been frontloading the lending and that's been really useful for Ukraine," he said. Kiev has now received over $10 billion from the $16.4 billion programme.
"It is difficult to be too constructive right now on (Ukraine's) long-term capacity to service debt but having said that, things have happened that we haven't expected," Gill said, citing the government's avoidance of a parliamentary vote on unpopular measures such as raising consumer gas prices.
BANKS TO DISAPPEAR
Gill also said concerns remained about the banking sector consisting of more than 180 banks, 16 of which are in temporary administration. Although many of the top 20 banks are foreign owned and have received support, domestic banks are struggling.
The hryvnia currency lost half of its value at the end of last year and although now it is stronger, at 7.8/$ against December's historic low of 9.5-10/$, the large amount of consumers who took out dollar loans are unable to pay them back.
Igor Mazepa, Chief Executive of Ukraine's largest investment bank, Concorde Capital, said non-performing loan ratios across the banking sector are now between 50-55 percent and he expected dozens of institutions to disappear.
"We'll be talking about 50-70 (banks) which will most likely leave the market between the next 18-24 months and of course there are not enough funds to support the banking sector," he told Reuters Television.
Banks have plunged into unprofitability, losing almost $2 billion in the first half of this year against profits of $1 billion in the same period last year. Much of the loss is down to banks making provisions for consumer default. [ID:nLH611139] (Writing by Sabina Zawadzki; Editing by Richard Balmforth)