UPDATE 2-Ireland reviews payment options for 'bad bank' loans

* FinMin advisor moots paying banks in stages

* Govt considering a number of approaches

(Adds comments from minister's advisor)

DUBLIN, Aug 27 (Reuters) - Ireland is considering several options for paying Allied Irish Banks (ALBK.I), Bank of Ireland (BKIR.I) and other lenders for tens of billions of euros in loans they will transfer to a state-run "bad bank".

Ireland is creating a National Asset Management Agency (NAMA) to take commercial property loans with a nominal value of 90 billion euros ($128 billion) off the books of beleaguered banks in a bid to revive its financial system and economy.

Under draft legislation, Ireland will pay the banks government bonds in return for the distressed loans. The banks will be able to cash the bonds with the European Central Bank, providing them with badly-needed liquidity.

"Consideration is being given to a number of different approaches," a finance ministry spokesman said on Thursday.

Finance minister Brian Lenihan, who has said he will buy the banks' assets at a "significant discount", is under pressure not to overpay for the loans, some of which were written on development projects rendered nearly worthless by a property crash and subsequent recession.

Lenihan's economic advisor, Alan Ahearne, said on Thursday he liked a proposal that the government should pay the banks in two parts for the loans.

"I like that idea," Alan Ahearne told Newstalk radio, adding that Lenihan was considering it. "It has attractive features."

The proposal was originally made by Patrick Honohan, one of the contenders to be Ireland's next central bank governor, according to a source familiar with the matter. [ID:nLR206890]

Honohan, a professor of economics at Trinity College Dublin, has said the first payment would represent the basic price that can be expected to be recovered from the loans and would be paid in bonds.

The remainder should be paid in the form of an equity stake in NAMA's future recoveries.

The first part would likely represent the current market price for assets on which the loans have been lent and the second part would represent their "long-term economic value".

Lenihan will signal how much he will pay for the 90 billion euros pot and the likely writedown on the loan book for each participating bank when he introduces legislation setting up NAMA to parliament on Sept. 16.

Despite the possibility that they may get less funding upfront, shares in Bank of Ireland and Allied Irish Banks were each up around 9 percent on Thursday, outperforming a general index .ISEQ that was 2 percent stronger.

Ahearne said nationalising the two lenders, as suggested by opposition political parties and some academic economists, would be a huge mistake.

"To do a nationalisation of Bank of Ireland and AIB tonight would be an absolute disaster. It would, with almost certainty, be a very bad outcome and quite probably it would be catastrophic."

(Reporting by Carmel Crimmins; Editing by Dan Lalor, John Stonestreet) ($1 = 0.7024 euro)