January 29, 2014 / 8:42 AM / 3 years ago

Austria budgets 1 bln euros for Hypo aid this year

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VIENNA, Jan 29 (Reuters) - Austria has earmarked 1 billion euros ($1.4 billion) this year for potential aid for ailing state lender Hypo Alpe Adria, Finance Minister Michael Spindelegger said on Wednesday.

It remains to be seen how much of this might actually be covered by contributions from commercial lenders being asked to support a "bad bank" that would absorb toxic assets from the nationalised lender, he told reporters after a cabinet meeting.

"We have set aside 1 billion euros in the budget this year for what concerns Hypo. Now we will see in the negotiations what we might be able to bill the banks for, but this is a matter of negotiations," Spindelegger said.

Austria has not yet unveiled a 2014 budget, which was delayed by elections in September and protracted coalition talks that led to a new government only in December.

The government said this week it wanted commercial banks to help shoulder the burden of around 13 billion euros in dud loans, leases and real estate at Hypo, which Austria had to nationalise in 2009 to avoid a collapse that would have sent shock waves across Europe.

The alternative would be establishing a state-owned vehicle to wind down toxic assets, a step which could boost state debt to around 80 percent of economic output and set off alarm bells at ratings agencies.

Under a restructuring plan agreed last year with the European Commission, Austria can give Hypo 5.4 billion euros in capital from 2013 to 2017, including between 400 million and 900 million in 2014. Of the total, 3.65 billion remains unused.

Should banks such as Erste Group, Raiffeisen Bank International or Bank Austria take part in the "bad bank" plan, their contributions could go toward funds that support ailing peers, an approach that Europe had agreed to adopt in any event, Spindelegger noted.

Banks in the past have expressed scepticism about taking part unless they get something in return, primarily a reduction in the special bank levy that Austria imposed to help recoup funds it spent propping up lenders during the financial crisis.

$1 = 0.7319 euros Reporting by Michael Shields; Editing by Mark Potter

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