(Corrects banks' total loan books to 260bln EUR in 5th par)
* Piraeus and NBG plan bad bank splits by year end
* NBG in talks on joint venture for some bad loans
By Laura Noonan and George Georgiopoulos
LONDON/ATHENS Oct 3 (Reuters) - Greece's biggest lenders, National Bank of Greece and Piraeus plan to put their troubled loans into separate "bad banks" in order to restore consumers' confidence in the rest of their business, the banks' executives told Reuters.
National Bank of Greece (NBG) deputy chief executive Petros Christodoulou said he was also talking to private investors about a joint venture that would involve them taking on a minority stake in some small and mid-sized business loans.
Bad banks have been set up by several European lenders in order to improve management of unpaid loans - often selling them on to funds specialising in distressed investments - and thus show the relative health of the rest of their business. The UK government is currently considering whether to introduce this kind of split at Royal Bank of Scotland, still fragile despite being bailed out when the financial crisis brought it to the brink of failure.
Unpaid loans are a major headache for banks in Greece, where the economy has shrunk 25 percent over six consecutive years of recession. The banks are still recovering from 27 billion euros ($36.69 billion) of losses brought about by the country's unprecedented sovereign debt restructuring in 2010.
By the end of June, bad loans constituted 29 percent of Greece's four largest banks' combined 260 billion-euros loan books, more than three times the 7.15 percent average the International Monetary Fund recorded for the eurozone in 2012.
Christodoulou said NBG, which has the lowest rate of non performing loans (NPLs) at 24.4 percent of its total book, was looking to set up a bad bank "in the next two months" and was in the process of hiring advisers to help with the project.
"You need to have clear focus, clear identity of the NPLs, clear management of the NPLs, clear responsibility structure of who's responsible for what," said Christodoulou. "You need a different set of skills for NPLs."
The volume of assets to be transferred over has not yet been set. "We're in the design phase," he said, adding that the bad bank should be operationally separate by the end of 2013.
NBG may also use the bad bank structure to offload some of its bad loan exposure by finding an investor to take a minority stake in a subsidiary that will hold some of the loans.
"We've signed the NDAs (non disclosure agreements), they've seen the portfolios and they will put a price on them," said Christodoulou. "These are a number of financial funds that are trying to make a quick buck so we may or may not agree in the end."
Piraeus deputy chief executive Anthimos Thomopoulos said his bank, where impairments are running at 33 percent, was looking at ways to ring-fence bad loans from healthy ones and hoped to have its new organisation in place by the first quarter of 2014.
"The market requires clarity" about the returns of performing and non-performing loans, he said, adding it made sense to split the bank now because "the situation is stabilizing, we're nearing the end of the asset cycle", a reference to the fact that interest in non-performing loans is beginning to taper off as Greece anticipates a return to economic growth in 2014.
Greece's other major banks Eurobank and Alpha Bank declined to comment on their strategy in this area. Eurobank already manages its non performing retail loans through a subsidiary called FPS.
($1 = 0.7358 euros) (Reporting By Laura Noonan; Editing by Sophie Walker)