UPDATE 2-Austria misses EU deadline to sell Kommunalkredit
* Sale not possible on basis of offers received
* Bank will stop new loans
* Austria already at loggerheads with EU over other bank (Adds comments from supervisors, background)
By Georgina Prodhan and Michael Shields
VIENNA, May 16 (Reuters) - Austria's Kommunalkredit could still be sold and does not need to be wound down, the country's market watchdog said on Thursday after Vienna missed an EU privatisation deadline for the lender.
The sale of Kommunalkredit, a public-sector finance specialist nationalised in 2008, was required under the terms of Austria's bailout. Its failure adds to the country's problems with the European Commission, which is already questioning state aid to another Austrian bank.
The sale of Kommunalkredit was supposed to close by mid-2013 but offers proved unacceptably low in a tough market for selling bank assets, the bank said in a statement.
"The privatisation process was not completed on the basis of existing offers. A value-preserving transaction for shareholders was not possible in the current market environment," it said.
But Helmut Ettl, co-head of Austria's Financial Market Authority watchdog, told reporters the fact that Kommunalkredit had stopped new lending did not mean it would be wound down. "There is still a chance to sell it," he said.
Missing the deadline means the European Commission has the right to appoint a trustee to sell the bank, but the government asked Brussels not to take that step. In return, Kommunalkredit will halt fresh lending but continue with loans it had already made or promised, the bank said.
The European Commission had no immediate comment.
Ettl said he assumed Brussels would not install its own trustee at Kommunalkredit.
The Austrian government had earmarked revenue of 250 million euros ($322 million) this year from the sale of the bank, whose book value is around 200 million euros.
Vienna and Brussels are already at loggerheads over the pace of overhauling another nationalised bank, Hypo Alpe Adria , with the Commission keen for its operating assets to be sold by the end of the year.
Austria, which has poured more than 2 billion euros of state aid into Hypo, is fearful that rushed sales could hurt state finances ahead of elections due by late September.
Kommunalkredit, which hived off toxic assets into "bad bank" KA Finanz, is in better shape than Hypo.
Hits on Greek debt had tipped it to a 2011 loss of nearly 149 million euros, but it made a 2012 profit of 18 million euros and expects to make money again this year, its chief executive said last month.
The bank has nearly 16 billion euros in total assets and no non-performing loans.
Austria last year hired U.S. investment bank Morgan Stanley as exclusive adviser for the sale of Kommunalkredit, formerly owned by Oesterreichische Volksbanken and Dexia. ($1 = 0.7775 euros) (Reporting by Georgina Prodhan and Michael Shields; Editing by Erica Billingham and David Holmes)