UPDATE 2-Hungarian central bank to tighten rules on banks, sees shake-up
* Central bank highlights corporate bad loans
* Seeks faster clean-up of bad loan portfolios
* Clean-up could attract new buyers for some banks -Governor
* Bank to tighten rules on household lending
* Latest interventions into bank sector (Adds central bank governor's comments)
By Krisztina Than and Gergely Szakacs
BUDAPEST/LONDON, May 22 (Reuters) - Hungary's central bank proposed regulatory action on Thursday to encourage commercial banks to clean bad corporate loans from their books, a move which could improve their ability to lend and accelerate a shake-up of the sector.
In the latest intervention by Hungarian authorities in the local banking system, the bank also announced plans to impose stricter rules this year on household loans, to stop credit growing unhealthily fast as an economic recovery gathers pace.
The central bank has said the banking sector needs a shake-up that could result in several foreign banks leaving, and would make the sector more competitive.
Speaking in London, Governor Gyorgy Matolcsy, a close ally of Prime Minister Viktor Orban, said the clean-up of bad loans may attract buyers for some banks in the country.
Matolcsy also told reporters that there were some initial talks with lenders about the idea of them placing non-performing loans in a so-called "bad bank".
"Clearing out the loan portfolios may result in promising new buyers for some of these banks," Matolcsy said. He also said a "new consolidation" was needed in the sector.
He did not name any but said a couple of foreign-owned lenders have sent signals they might leave Hungary.
"I do not mean the banks I mean the owners, the banks will stay here in Hungary. A sort of restructuring will happen to the Hungarian banking system in two years' time."
The clean-up could accelerate a shake-up of the bank sector, which is dominated by foreign names such as Austria's Erste and Raiffeisen, Italy's Intesa Sanpaolo and UniCredit, Belgian KBC, or German MKB. The top lender is Hungary's OTP Bank.
Matolcsy said the idea of a bad bank emerged to help lenders dragged down by sour loans and enhance stability.
"It will help them and it will help the National Bank of Hungary. For their part they need it to clear out the NPL (non-performing loans) part of their loan portfolios and for us we need it ... for financial stability."
Orban's government has repeatedly said it wants to see over 50 percent of the country's banks in Hungarian hands. At the moment, Hungarian ownership is at around 40 percent based on total assets.
The central bank has already tightened funding rules and announced measures to push commercial banks to buy more local-currency government debt in an attempt to reduce the country's high reliance on foreign financing.
LEVIES AND INCENTIVES
Hungary's banks pay one of Europe's highest bank levies, and were forced to swallow heavy losses on a previous government measure in 2011 to help troubled foreign currency borrowers.
The central bank said earlier on Thursday that banks were still not adequately supporting economic growth.
This is partly due to a high stock of non-performing corporate loans on banks' books, the central bank said in its latest financial stability report. It said banks needed to tackle the problem soon to fend off risks to financial stability and to encourage new lending.
In a presentation the central bank highlighted five banks, without naming any, whose profits and corporate loan stocks have fallen over the past four years. The regulator also said weak profitability posed risks to economic growth.
It suggested possible "positive and negative incentives" to speed up the cleansing of loan books.
"For banks, a negative incentive would be the introduction of stricter loan-loss provisioning obligations," the bank said in its report.
Balazs Vonnak, a director of the bank, told a news conference that the bank was considering several solutions and would table proposals within a few months.
"This is entirely independent of the consolidation of the banking sector," Vonnak said.
The bank said 18 percent of loans were non-performing at the end of 2013 in the corporate segment, while bad loans in the household portfolio rose to 18.6 percent.
The bank also said its Financial Stability Council has approved a plan to impose an upper limit on payment-to-income ratios on household loans, which should take effect this year. It did not say what the limit would be.
So far, all the main players have said they intend to stay in Hungary except for German BayernLB which has to sell its Hungarian unit MKB due to an order from the European Commission to restructure its operations. (Additional reporting by Carolyn Cohn and Sujata Rao in LONDON; Editing by Ruth Pitchford and Susan Fenton)