* Sale not possible on basis of offers received
* Bank will stop new loans
* Austria already at loggerheads with EU over other bank
(Adds comments from supervisors, background)
By Georgina Prodhan and Michael Shields
VIENNA, May 16 Austria's Kommunalkredit
could still be sold and does not need to be wound
down, the country's market watchdog said on Thursday after
Vienna missed an EU privatisation deadline for the lender.
The sale of Kommunalkredit, a public-sector finance
specialist nationalised in 2008, was required under the terms of
Austria's bailout. Its failure adds to the country's problems
with the European Commission, which is already questioning state
aid to another Austrian bank.
The sale of Kommunalkredit was supposed to close by mid-2013
but offers proved unacceptably low in a tough market for selling
bank assets, the bank said in a statement.
"The privatisation process was not completed on the basis of
existing offers. A value-preserving transaction for shareholders
was not possible in the current market environment," it said.
But Helmut Ettl, co-head of Austria's Financial Market
Authority watchdog, told reporters the fact that Kommunalkredit
had stopped new lending did not mean it would be wound down.
"There is still a chance to sell it," he said.
Missing the deadline means the European Commission has the
right to appoint a trustee to sell the bank, but the government
asked Brussels not to take that step. In return, Kommunalkredit
will halt fresh lending but continue with loans it had already
made or promised, the bank said.
The European Commission had no immediate comment.
Ettl said he assumed Brussels would not install its own
trustee at Kommunalkredit.
The Austrian government had earmarked revenue of 250 million
euros ($322 million) this year from the sale of the bank, whose
book value is around 200 million euros.
Vienna and Brussels are already at loggerheads over the pace
of overhauling another nationalised bank, Hypo Alpe Adria
, with the Commission keen for its operating assets to
be sold by the end of the year.
Austria, which has poured more than 2 billion euros of state
aid into Hypo, is fearful that rushed sales could hurt state
finances ahead of elections due by late September.
Kommunalkredit, which hived off toxic assets into "bad bank"
KA Finanz, is in better shape than Hypo.
Hits on Greek debt had tipped it to a 2011 loss of nearly
149 million euros, but it made a 2012 profit of 18 million euros
and expects to make money again this year, its chief executive
said last month.
The bank has nearly 16 billion euros in total assets and no
Austria last year hired U.S. investment bank Morgan Stanley
as exclusive adviser for the sale of Kommunalkredit,
formerly owned by Oesterreichische Volksbanken and
($1 = 0.7775 euros)
(Reporting by Georgina Prodhan and Michael Shields; Editing by
Erica Billingham and David Holmes)