UPDATE 1-Greek private sector credit shrinks faster than in rest of euro zone
* Real borrowing costs highest since Greece joined euro
* Minister meets banking association to seek lending boost
* Consumer loans offer silver lining (Recasts, adds credit data, details)
ATHENS, Jan 29 (Reuters) - Bank lending to Greece's private sector shrank at a much sharper pace than in the rest of the euro zone in December, data showed on Wednesday, depriving the depressed economy of a much-needed boost to help it recover after a six-year slump.
Athens expects the Greek economy to pull out of recession this year, with national output expanding by 0.6 percent, but much will depend on credit that the central bank has said will play a crucial role in supporting growth.
The Bank of Greece data showed that Greek bank lending shrank by 3.9 percent. That was a much sharper contraction than in the rest of the euro zone, where lending to households and companies fell by 2.3 percent in December, adding to pressure on the European Central Bank (ECB) to do more to support the weak economy.
Hit by austerity and record unemployment, Greek households have been tapping savings to cope with economic hardship as banks struggle with an increase in bad loans.
Credit to Greek businesses and households has been shrinking for three consecutive years, declining by about 11 percent from its end-2010 peak and aggravating the country's worst postwar economic slump.
There was a more than fourfold increase in lending during Greece's debt-fuelled economic boom from 2001 to 2007.
Data also showed that Greek bank deposits rose for a second month in a row in December, to 163.25 billion euros ($223.06 billion) from 161.04 billion euros in November, the rise mainly the result of increased cash holdings by non-financial firms.
Bank deposits had declined for five straight months up to October last year.
An expanding deposit base would help banks to provide more credit, having lost about 90 billion euros, or a third of their deposit base, after the country plunged into a debt crisis in late 2009. The increase, however, has been smaller than hoped.
High borrowing costs have dampened demand for both corporate and consumer credit. Average real interest rates on new loans hit 8.3 percent in November, the highest level since Greece joined the euro, despite record-low ECB benchmark rates.
Greek Development Minister Costis Hatzidakis held talks with the Hellenic Banking Association (HBA) on Wednesday to try to find ways to boost lending to companies.
One silver lining was seen in consumer loans, where central bank figures showed net monthly credit growing by 63 million euros in December, the first rise in more than three years. ($1 = 0.7319 euros) (Reporting by George Georgiopoulos and Harry Papachristou; Editing by David Goodman)