UPDATE 1-Austria's Hypo Alpe Adria names Picker CEO
* Hypo's Bosnia head Picker to become CEO at start of 2014
* Replaces CEO who quit in July
* Decisions needed on future of nationalised lender (Adds details from statement, background, reaction)
VIENNA, Dec 20 (Reuters) - Nationalised Austrian lender Hypo Alpe Adria [HAABI.UL} named insider Alexander Picker as its new chief executive on Friday, promoting the head of its business in Bosnia to a three-year term that starts at the beginng on 2014.
Picker, 51, replaces Gottwald Kranebitter, who quit in July, saying that political wrangling over whether the lender was worth keeping afloat made his job impossible.
Now Picker, a polyglot eastern European banking expert who helped clean up Hypo's Slovenian operations, gets thrust into the debate over what to do with a loss-making group desperately in need of a political decision determining its future.
One senior Vienna banker called Picker "a good solution", citing his experience running UniCredit Bank Austria's ATF bank in Kazakhstan and his revamp of Hypo in Slovenia.
Hypo's chronic need for state aid since Austria took over the lender in 2009 is complicating the country's efforts to cut debts and deficits. It is high on the list of priorities for new Finance Minister Michael Spindelegger.
A decision on setting up a "bad bank" for ailing Hypo has been on hold during negotiations on setting up a new government, which got sworn in this week.
A state task force focusing on Hypo has proposed transferring around 19 billion euros ($26 billion) in Hypo loans, leases and property - two-thirds of its balance sheet - into a wind-down vehicle as the bank breaks itself up.
Putting these into a state-run wind-down unit would relieve pressure on Hypo but could boost state debt to 80 percent of economic output - a danger signal for debt rating agencies - unless private investors step forward to control the bad bank, a step healthier banks have shown scant interest in taking.
The country's political leaders, central bank and Hypo itself have ruled out letting the lender go bust, which would trigger around 14 billion in debt guarantees from home province Carinthia that the province can't afford to pay.
Under a restructuring plan agreed with the European Commission, Austria can provide Hypo with 5.4 billion euros in capital from 2013 to 2017. Of that, up to 3.65 billion is still available, the bank has said. It has already got 4.8 billion in capital, direct cash infusions and guarantees from taxpayers.
Austria's coalition partners have earmarked 5.8 billion euros in aid to struggling banks over the next five years.
Another problem case is partly nationalised Volksbanken , which has said it cannot rule out a potential need for more public support.