UPDATE 1-Spain economic recovery hampered by bad banks-BBVA

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SANTANDER, Spain, June 15 (Reuters) - Spain's economy and future growth is being held back by the weakness of some Spanish banks, BBVA (BBVA.MC: Quote, Profile, Research) Chairman Francisco Gonzalez said on Monday.

"The weakness in certain institutions and sector over-capacity are weighing heavily on economic recovery and future growth," Gonzalez said during a conference in northern Spain.

Gonzalez blamed "zombie" institutions -- or banks which he said were being artificially kept afloat -- for preventing consolidation of the sector and for draining resources from the system.

"As a result, any short-term recovery in lending is made more difficult, while in the medium and long term there is a lower potential for economic growth."

Large Spanish banks diversified out of domestic real estate business earlier this decade but the country's 45 mostly unlisted savings banks, which hold almost half all consumer and business loans, face heavy exposure to real estate debt.

Credit Suisse has said the savings banks face a capital hole of some 60 billion euros and the government is facing rising pressure to restructure the sector.

(Reporting by Paul Day; editing by Simon Jessop)