UPDATE 1-Spain's Unicaja, Liberbank book higher provisions in pre-merger clean up

* Liberbank reports fourth quarter loss of 18 mln euros

* Unicaja’s fourth quarter net almost wiped out by provisions

* Shares in both lenders rise as analysts welcome clean-up

* Combined entity improves capital by about 40 bps in quarter (Recasts to focus on clean-up effort, adds shares)

MADRID, Feb 2 (Reuters) - Spain’s Unicaja and Liberbank reported on Tuesday bigger-than-expected provisions because of the coronavirus crisis, sending their shares higher as investors welcomed the move to clean up their books.

Unicaja’s 34 million euro ($41 million) provision in the fourth quarter of 2020 almost entirely wiped out its profits, while Liberbank reported a loss of 18 million euros after extraordinary charges of 54 million euros.

Analysts polled by Reuters had forecast a 9 million euro net profit at Unicaja and a 3 million euro profit at Liberbank.

But their shares climbed more than 3%, compared with a 1.5% rise in the blue-chip index, boosted by the clean up.

Banks across Europe are struggling to cope with record low interest rates and the economic downturn sparked by the COVID-19 pandemic, forcing them to focus on cost cuts.

Unicaja’s acquisition of Liberbank, agreed at the end of 2020, will create Spain’s fifth-biggest bank with more than 109 billion euros in assets. It aims to lift profitability and save 192 million euros on gross costs by 2023.

Analysts said the extra provisions and solid capital generation of around 40 basis points of the combined entity in the fourth quarter were welcome moves before the merger.

Net interest income, or earnings on loans minus deposit cost, rose at both lenders thanks to lower funding costs and an increase in corporate lending boosted by state-backed credits.

Unicaja reported a cost of risk, which measures the cost of managing credit risks and potential losses, of 85 basis points (bps) compared to guidance of 60-80 bps. Chief Financial officer Pablo Gonzalez said he expected it to fall to 50-60 bps.

“Following the provisioning effort of 200 million in 2020, we expect to book much lower provisions in 2021 and onwards,” Gonzalez told analysts.

Boards of both banks are due to sign off final documents for the merger and will call a shareholders’ meeting for March. The deal is expected to close late in the second quarter or early in the third.

$1 = 0.8288 euros Reporting by Jesús Aguado; Additional by Emma Pinedo; Editing by Kirsten Donovan and Edmund Blair