* Liquidity, deposit strains putting pressure on banks
* ECB "oxygen tank will end one day" -analyst
* Austerity plans set to squeeze economy in 2011
By Sergio Goncalves and Andrei Khalip
LISBON, Nov 25 (Reuters) - Portugal has denied it's under pressure to get help now from its eurozone brethren but its banks could sooner or later become a trigger for a mayday call if national austerity measures continue to drain liquidity.
Although its banks are not at the heart of Portugal's woes as Ireland's are, they are already dependent on a lifeline from abroad, namely European Central Bank funding, analysts said.
And now a worsening economic situation is starting to gnaw into deposits by households and the volume of bad loans is on the rise at a time when bank funding remains tight.
"Banks do not represent a fundamental problem in Portugal, but if you look at what could be a trigger for Portugal to seek aid, the banking sector's liquidity is definitely there," said London-based Citi economist Giada Giani.
Analysts say Portugal has a few months until a major bond repayment comes due in April to persuade markets it can avoid becoming the next euro zone member to follow Ireland in seeking a bailout, but its growth and fiscal outlook make it a daunting task.
Portuguese banks have not been exposed to toxic assets in the global financial crisis and there has been no property bubble in Portugal, unlike in countries like Ireland or Spain.
But investor concerns about Portugal's creditworthiness have squeezed the banks out of the interbank market for loans.
And on Friday the European Union and International Monetary Fund were said to be looking at ways to make senior bondholders share some of the pain of rescuing Ireland's banks, a move which is unlikely to make the banks' access to the bond market any easier.
"The problem is that banks are highly reliant on ECB loans as they have been shut off from the wholesale market. They may just run out of liquidity," Giani said.
And analysts say the ECB cannot be there forever for Portuguese banks. The ECB has warned about the risk of creating a long-term dependency on its non-standard liquidity measures and said it will continue to scale down its support next year despite the escalation of euro zone debt tensions.
"This oxygen tank will end one day. Banks are seeking liquidity at 1 percent with the ECB, but in the market they'd have to pay 6, 7 or 8 percent to be able to borrow, which would put an end to profitability," Joao Pereira Leite, head of investment at Banco Carregosa, said.
Fitch Ratings this month cut the credit rating of four leading Portuguese banks -- Millennium bcp, Banco Espirito Santo, BPI and Banif -- citing their reliance on ECB loans, debt coming due in 2011 and 2012 and deteriorating domestic performance and asset quality.
Borrowing by Portuguese banks from the ECB, which hit a record of over 49.1 billion euros in August, dropped 20 percent the following month. But last month it was practically unchanged at just over 40 billion euros, disappointing analysts.
Fernando Ulrich, head of BPI, said this week he expected his and other Portuguese banks' dependence on ECB loans to diminish towards the end of the year but next year they will have to pay more for these financing lines than the current 1 percent.
FALLING DEPOSITS
Meanwhile recent Bank of Portugal data showed that deposits by private individuals fell in September by 1.45 billion euros ($1.9 billion) to 116.86 billion euros, a second straight monthly fall and the biggest drop in years. Total deposits still rose in the month to 212.6 billion euros.
An exodus of deposits heightened problems in Ireland and Greece, forcing banks to turn to the ECB for funds.
"The dynamics of deposits is of key importance in a debt crisis. In Greece this was what made the government throw in the towel and ask for EU aid. So if we see deposits steadily falling it may be a very bad sign," Giani said.
Andre Rodrigues, an analyst at Caixa BI investment bank, said the drop in deposits in Portugal showed the economic difficulties that people are living through, having to withdraw money from savings to pay their bills and he expects the situation to worsen next year.
"Non-performing loans are also likely to keep rising in the coming months as a result of new austerity measures in the 2011 budget ... which will translate into a significant deterioration of macroeconomic data and can have a major impact on bank earnings," he added.
The 2011 budget includes painful measures such as a 5 percent cut in civil servants' wages, a rise in value-added tax to 23 percent from 21 percent, as well as cuts in tax benefits.
The government expects the economy to grow 1.3 percent this year after last year's 2.6 percent contraction, but consumption is already fizzling out and many economists anticipate a new recession in 2011 when the new austerity programme kicks in.
"The road ahead is going to be very difficult for Portuguese banks in the next few years, with margins narrowing, less credit and bad loans rising, especially with the austerity measures," said Leite.
"There is already a war for deposits and it will continue as it's the cheapest source of capital. The scenario is not good for the Portuguese banking sector," he said. ($1=.7510 euros) (Editing by Greg Mahlich)