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* Angola admits "bad" loans in local unit's credit portfolio
* Opposition leader questions state guarantee for BESA loans
* BES Angola has links to ruling elite and leader's family
* Central banker denies any favouritism in BESA loans
By Shrikesh Laxmidas and Pascal Fletcher
LISBON/JOHANNESBURG, July 18 (Reuters) - Angola has broken its silence over its connection to Portugal's troubled Banco Espirito Santo, but its admission of bad loans in the local subsidiary focuses attention on a generous state guarantee covering most of this flawed loan portfolio.
The crisis affecting one of Portugal's best-known banking institutions had highlighted its exposure in former colony Angola, where subsidiary BES Angola (BESA) is a major financial player with links to the ruling elite and family of President Jose Eduardo dos Santos.
After maintaining a conspicuous silence over the BES crisis, Angolan central bank governor Jose de Lima Massano admitted to parliament on Thursday there were problems with BESA's credit portfolio, including operations he described as "bad" and "in an irregular state". He provided no figures or ratios.
In his comments, which were only made available to media on Friday, Massano sought to play down the impact of BES's problems in Africa's No. 2 oil producer, saying BESA's problematic credit portfolio posed no threat to Angola's financial stability.
But while saying customers' deposits with BESA were not at risk, Massano made no mention of the guarantee extended by the Angolan state in December, and reported by BES, to cover 70 percent of the loan portfolio of the Angolan affiliate.
In its 2013 accounts report published this week, BESA said the Angolan state guarantee, granted on the last day of 2013 and lasting 18 months, covered $5.7 billion of loans out of a total of $8.1 billion.
Bank of Portugal Governor Carlos Costa said the Angolan guarantee helped to eliminate uncertainty.
But Isaias Samakuva, leader of Angola's main opposition party UNITA, asked President Dos Santos to explain why the guarantee for BESA - which Samakuva said covered more than $5 billion in "bad credit" - was granted, arguing it may have breached legal national budget limits for such guarantees.
"Yet in spite of this, we see roads halted, without repairs, because the contractors say they haven't received money and some have even withdrawn their machinery," he said, referring to credit and cashflow problems experienced by some construction and real estate firms in Angola as economic growth has slowed.
The IMF sees Angola's real GDP growth slowing this year to 3.9 percent from 4.1 percent in 2013 and 5.2 percent in 2012, due to a temporary drop in oil production in the first half of the year and slower agricultural output. But gross international reserves were at a "comfortable" $31.2 billion at end-May.
UNITA's Samakuva said the national assembly should look into the state guarantee for BESA, amid reports in the Portuguese and Angolan private media that the Angolan bank lacked solid information and documentation on billions of dollars of loans.
According to the BESA website, parent bank BES currently holds a 55.71 percent stake in the Angolan affiliate.
When asked about the Angolan guarantee for BESA's loans, and how it was granted, Angola's presidency spokesman Aldomiro Vaz da Conceicao said: "No, no, I can't talk to you about this. You have to speak to the governor of the central bank and the finance minister."
Besides referring to Massano's comments in parliament, neither the central bank, nor the finance ministry responded to specific questions about the Angolan state guarantee.
BESA has links to the Angolan ruling elite.
The Angolan bank was set up in 2002. Two years later, BES sold 19 percent of BESA to GENI, controlled by Isabel dos Santos, the president's billionaire businesswoman daughter.
In 2009, it sold 24 percent of the Angolan unit to Portmill, a company linked to Angolan Vice-President Manuel Vicente and General Manuel Helder Vieira Dias Jr. "Kopelipa", a military adviser to Dos Santos and powerful figure in Angolan politics.
Apparently seeking to deflect any suggestions that loans conceded by BESA might have involved political favouritism, Massano told parliament: "I can say we didn't identify elements indicating any favouring of credit to specific citizens or entities, ... We have debtors here from all levels".
Angola has rebuilt itself after a 27-year civil war ended in 2002, but analysts say the economy is too reliant on the state and on oil production, which is Africa's highest after Nigeria.
Many of Angola's banks have been hit by a surge in bad loans in the last two years as the oil-dependent economy cooled down from double-digit growth posted up to 2009. In 2013 alone, bad loans in the sector jumped 50 percent to around $3.35 billion.
In October at a banking conference, central bank governor Massano warned about the risks of this and recommended more careful lending practices by local banks.
In December, Ricardo Salgado, then CEO of BES, met the Angolan president and announced a capital increase of $500 million by the bank's Angolan subsidiary BESA to fund an expansion of its branches across the southern African state.
Salgado later said the meeting also cemented the Angolan state guarantee for 70 percent of BESA's loan portfolio.
In its 2013 results report, parent BES hailed the sovereign guarantee for BESA as a vote of confidence in its Angolan operation, which it said was playing a significant role in financing non-oil private companies that were helping to advance the government's 2013-2017 National Development Plan.
Six months after Salgado met Dos Santos, with questions swirling about BES's exposure to dubious loans and with its shares losing value, the Portuguese banker and other Espirito Santo family members agreed to give up the bank's leadership.
Portuguese weekly Expresso reported last month that BESA did not know to whom it had extended loans worth $5.7 billion - around 80 percent of its debt portfolio - during the mandate of previous CEO Alvaro Sobrinho, who left the post in October 2012.
The paper said BESA's new CEO Rui Guerra had informed shareholders about the problem in November 2013.
Asked by Reuters about the Expresso article in June, Guerra dismissed it. "As head of the bank I know the situation ... and that type of article really does not make sense."
Central Bank Deputy Governor Ricardo Viegas D'Abreu was at that time equally dismissive. "We don't launch investigations based on things that appear in newspapers," he said.
But Banco Nacional de Angola is paying attention now.
"We're at this moment finishing off our evaluation work," Massano told parliament on Thursday, saying the situation at BESA would require a "reinforcement of capital" by the bank. (Writing by Pascal Fletcher; Editing by Will Waterman)