* French banks issued 2.65 bln euros in ABS backed by SME loans
* Further 750 mln-1.25 bln euros due to be issued this month
* ECB keen to foster SME ABS market, considering purchases
PARIS, June 10 A market for securities backed by loans to small and mid-size companies is emerging in France and could soon be worth 10 billion euros ($13.6 billion), a senior official at the Bank of France said on Tuesday.
French banks tested the waters for such securities in April, issuing 2.65 billion euros in SME loans pooled together, in a pilot project encouraged by the Bank of France.
The French securities are unique in at least one respect. Instead of relying on grades from the usual credit-rating agencies, they use internal ratings from the Bank of France.
After the April issue, a further 750 million-1.25 billion euros is due to be issued later this month, according to the head of market operations at the Bank of France, Alexandre Gautier.
"We could very quickly be at up to 10 billion euros" in issuance, Gautier told a conference.
Eager to get credit flowing to SMEs, the ECB said last week it would consider buying asset-backed securities as it seeks to foster the market, which remains small and illiquid in Europe.
Gautier said that the securities, which are issued by a special-purpose vehicle although the underlying loans backing them remain on banks' balance sheets, have yet to win ECB approval to be used as collateral at the central bank.
He acknowledged that there was some concern about whether the securities were tailored to generate collateral banks could use to get access to ECB funding, rather than helping create a new market to help finance credit-hungry SMEs.
If banks pushed the securities, a real market for the securities should emerge, Gautier insisted. Final investors could eventually take 20 percent of the issuance. Another 50 percent might be used for repo agreements and the final 30 percent pledged as collateral at the ECB.
The French securities offer a premium, or spread, over benchmark bonds between those offered by unsecured debt and covered bonds, Gautier said. ($1 = 0.7345 Euros) (Reporting by Leigh Thomas; Editing by Larry King)