Spain's Banco Sabadell sees return to profit growth in 2017

* Aims for 800 mln euro net profit in 2017

* Sees (Shanghai: 600481.SS - news) double digit return on equity by 2020

* Will close 250 branches this year in Spain

* Wants to cut toxic property assets by 9 bln euros by 2020 (Adds details from conference call)

By Jesús Aguado and Angus Berwick

MADRID, Feb 7 (Reuters) - Spain's Banco Sabadell expects a return to profit growth in 2017 after earnings stalled last year due to sterling's depreciation and charges related to mis-sold mortgage contracts, it said on Tuesday.

Spain's fifth biggest bank estimated net profit of 800 million euros ($856 million) in 2017, a 13 percent rise compared with 2016, underpinned by stable lending income which would allow it to improve its profitability over the next few years.

In a strategic update, Sabadell described 2017 as a transitional year in which it wanted to focus on containing costs, including the closure of 250 Spanish branches, and finalise the integration of its British unit TSB.

Sabadell said it expected the British economy, where it makes around a quarter of its profits through TSB which it bought in 2015, to perform better than initially expected this year after Britain's vote to leave the European Union last June.

Sabadell does not expect sterling to continue to depreciate beyond its near three-decade low, although volatility in Britain would continue, CEO Jaime Guardiola told analysts on a conference call.

Sterling's fall helped trim Sabadell's 2016 profit to a worse-than-expected 710 million euros, flat from the previous year after it booked a 490 million euro charge from a European court ruling in December on disputed mortgage clauses.

For 2017, Sabadell said it expected net interest income - a measure of earnings on lending minus deposit costs and a key profit driver for retail banks - to grow 1 percent on the back of lower funding costs and higher interest rates in Britain.

Due to these better business conditions, Sabadell said it expected to double its profitability in the next few years, with its return on equity ratio (ROE) hitting double digits by 2020 from 5.84 percent in 2016.

Analysts welcomed the new guidance and said it was realistic since it was pricing in foreseeable higher interest rates, higher banking fees and lower provisions and costs.

Sabadell's shares were up 0.4 percent at 1030 GMT.

The bank said it expected to reduce its non-performing property assets by over 9 billion euros to less 10 billion euros by 2020 as Spanish banks continue to clean up their balance sheets after Spain's real estate market crash in 2008.

($1 = 0.9347 euros) (Reporting by Angus Berwick and Jesus Aguado; Editing by Mark Potter)