* Banks must cut capacity, reduce exposure to mortgage mkt
* Earnings pressure rising, not going to go away -CAM
* Bank of Spain head reiterates call for bank restructuring
MADRID, April 21 (Reuters) - The heads of six of Spain's leading savings banks agreed on Tuesday the sector must streamline by reducing the number of banks and closing branches if they are to weather the financial crisis.
Representatives from Caja de Ahorros del Mediterraneo (CAM) , Ibercaja, BBK, Caja Espana and Caja Navarra said Spanish savings banks must cut capacity and reduce their exposure to the mortgage market as tumbling house sales hit earnings.
"Earnings pressure is rising and this is not going to go away. There are too many banks and they are too large," the General Manager of CAM, Roberto Lopez Abad, said during a conference in Madrid.
The regionally focused savings banks have been hardest hit by the economic downturn and especially by the end of the property boom due to high investments in the real estate sector and in mortgage lending.
"From a market of 1 million mortgages a year we're going to a market of half a million a year. We're returning to a financial orthodoxy that we'd forgotten," Ibercaja's General Manager, Jose Luis Aguirre, said.
The Spanish financial system, shielded from toxic instruments by strict regulation, has largely avoided serious write downs but high domestic unemployment has sent bad debt rising.
The bad loans ratio for Spain's banks reached its highest level in 12 years in February at 4.18 percent, with savings banks reporting a non-performing loans (NPL) ratio of 4.84 percent, Bank of Spain data showed.
The savings banks could see NPLs rise to 9 percent by next year, the savings banks association has said.
Last month, the Bank of Spain was forced to take over the running of savings bank Caja Castilla la Mancha (CCM), and provide 9 million euros ($11.62 million) in government guarantees to back the bank.
The bailout lead to expectations of wide-ranging restructuring plans for the country's 45 savings banks, though their highly politicised nature meant any reforms could have been put on the backburner.
"In the short-term, the important thing is survival ... in the medium term, it's back to basics," BBK's General Manager Ignacio Sanchez-Asiain said.
Bank of Spain Governor Miguel Angel Fernandez Ordonez, speaking at the same conference, reiterated a call for a restructuring of the banks.
"I'm sure the banks won't ignore restructuring processes which allow them to change size through synergies and economies of scale," he said. (Reporting by Andres Gonzalez; Writing by Paul Day; Editing by Andrew Macdonald) ($1=.7748 Euro)