UPDATE 1-Greek debt revamp paves way for aid-ECB's Nowotny

Sat Mar 10, 2012 7:57am EST

Related Topics

* Successful debt revamp paves way for second Greek aid package

* Austrian "bad bank" needs 1 bln eur help in "worst case"-Nowotny

* Denies report Hypo Alpe Adria could need up to 10 bln euros (Adds quotes and background on Austrian banks)

By Michael Shields

VIENNA, March 10 (Reuters) - Greece's successful debt restructuring paves the way for a second international aid package for the country but may require more support for a state-owned Austrian bank, European Central Bank policymaker Ewald Nowotny said.

"A clear success has been achieved here. Greece's debt burden will be lessened, but of course on the other side there are still challenges and that is why this 130 billion (euro) aid package is being activated," he said in an interview aired by Austrian radio on Saturday.

Asked whether a third aid package for Greece was inevitable, he said: "I think you have to see this very realistically. It would be negligent to rule such a thing out completely but I don't see any need for this at the moment."

Greece averted the immediate threat of an uncontrolled default on Friday when enough private creditors agreed on a bond swap deal that will cut the country's public debt and clear the way for the new bailout.

In addition to losses on its direct Greek debt holdings, nationalised Austrian lender KA Finanz has to absorb around 424 million euros ($556.3 million) in costs for credit default swaps (CDS) triggered by the Greek restructuring.

That could cost the Austrian state up to 1 billion euros in aid. Nowotny - who is also governor of the Austrian central bank - said that figure was a "worst-case scenario but I believe the way it appears now it could perhaps be lower."

Austrian Finance Minister Maria Fekter said last week 600 million euros in provisions had already been built up and 400 million more was at risk for the lender.

Nowotny also said provisions were in place but would not cover a full 1 billion euro hit at KA Finanz, the "bad bank" split off after Austria nationalised Kommunalkredit in 2008.

"State aid of 800 million (euros) was already decided. In an emergency there must be a top-up from banking package funds," he said, referring to taxpayer money set aside for aid to struggling lenders.

A central bank spokesman said the 200 million euro difference between the figures given by Fekter and Nowotny reflected guarantees rather than cash aid.

A finance ministry spokesman said the extent of extra aid KA Finanz might need would be clear only after an auction of Greek CDS planned for March 19.

Ratings agencies are keeping a close eye on the support Austria may have to provide its relatively large banking sector.

Austria has agreed to take a stake of up to 49 percent in ailing lender Volksbanken in a second bailout for that bank that will cost the state more than 1 billion euros in writedowns, fresh capital and guarantees.

Hypo Alpe Adria, which the state took over in 2009, might also need more help if it is unable to get rid of risky assets in its portfolio, but Nowotny denied a newspaper report that the bank could need as much as 10 billion euros more state support.

Officials would determine by mid-year whether and how much additional aid Hypo might need, he said. "You can't rule out it will need more help but (it would be) in a completely smaller order of magnitude," he said.

($1 = 0.7622 euros) (Editing by James Jukwey)

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