UPDATE 1-Latvian banks' bad debts up, EBRD talks to 2 banks

(Adds quotes from FKTK head on capital injection needs)

RIGA, April 20 (Reuters) - The bad debt level of Latvian banks moved above 3 percent by the end of March and the EBRD is holding talks on taking a small stake in a further two banks, the head of the FKTK financial sector supervisor said on Monday.

She was also quoted as saying that if the bad debt level rose to 10 percent, then banks which are subsidiaries of EU banks, as the top ones in Latvia are, would need capital rises.

The FKTK said in a statement the total bad debt level rose to 3.4 percent of the total loan portfolio by the end of the first quarter from 2.1 percent at the end of 2008.

"The share of the amount of credits with delayed payments of more than 90 days rose from 3.6 percent at the end of 2008 to 7.1 percent at the end of March," it added.

The top banks are units of Nordic firms Swedbank (SWEDa.ST), SEB (SEBa.ST), Nordea (NDA.ST) and DNB NOR DNBNOR.OL.

FKTK Chairwoman Irena Krumane said the European Bank for Reconstruction and Development (EBRD) was eyeing two banks, though she did not say which. The EBRD last week signed an agreement to buy 25 percent of former second-largest bank Parex.

"They (the EBRD) do not aim for more than 10 percent (in the two banks)," Krumane said in comments broadcast by public radio.

The FKTK data showed the bank sector as a whole lost 44.2 million lats in ($80.86 million) the first quarter.

Baltic news agency BNS quoted Krumane as saying that FKTK stress tests showed banks could withstand a rise in bad debts to 7 percent of the loan portfolio, but that a rise to 10 percent or more would require capital injections.

"Of course, that (the banks which need to boost capital) is in the first place those banks with the biggest credit portfolios...and of course that is the subsidiaries of the big EU banks, also the Scandinavian banks," she said.

She also noted that the Swedish goverment and the banks themselves had said they would stand behind their Latvian units. (Reporting by Patrick Lannin; Editing by David Holmes)