(Adds analyst comments)
By Lefteris Papadimas
ATHENS, July 16 (Reuters) - Greece's fourth-largest lender Piraeus Bank said it was interested in cash-strapped rival ATEbank, as the country's battered banking sector moves to consolidate to weather a debilitating debt crisis.
Piraeus is the first bank to confirm it is a potential suitor for state-controlled ATEbank, which is also expected to garner interest from other major lenders including National Bank and Eurobank.
ATEbank's future has been up in the air for months and speculation has grown that its best bits could be sold off or the bank wound down altogether.
Greece's lenders have demanded the government, which has a 70 percent stake in ATEbank, restructure the ailing bank so that the near-bankrupt state avoids pumping more money into it.
The bank, which is estimated to require a capital injection of as much as 4-5 billion euros to continue operating, failed a European stress test last year and has not published its 2011 results pending a final decision on its future.
European Union sources in June said the European Commission had been pushing Greece to wind down certain banks, possibly including ATEbank, an agricultural lender founded in 1929. The Greek finance ministry denied that report.
More recently, Greek media have speculated the bank could be split into two, with its impaired loan portfolio put into a "bad bank" and its healthy assets sold off to a major Greek lender. Suitors were lining up for those assets, reports said.
In a statement on Monday, Piraeus confirmed its interest in ATEbank and said a confidentiality agreement prevented it from disclosing further details.
"The group wants to strengthen its position and size in the Greek market," said Nikos Koskoletos, an analyst at Eurobank EFG Securities. "Still, we have wait to see the terms of the transaction and whether this will move ahead."
It also remained unclear whether Piraeus would seek to buy all of ATEbank or just its healthy assets, said Takis Zamanis, head of trading at Beta Securities.
National Bank and Eurobank declined to comment on reports that they too are interested in buying parts of ATEbank.
Greek banks are under pressure to consolidate in a bid to create bigger entities that are better able to resist the country's debt crisis.
Earlier on Monday, Reuters reported that Piraeus Bank's chairman Michael Sallas and his family took out loans worth more than 100 million euros to finance an undisclosed stake in the bank. Piraeus Bank and Sallas declined to answer questions for the article, but offered a later interview.
Sallas on Sunday issued a statement attacking Reuters and accusing the news agency of "slandering" and "undermining" the bank. Reuters Global Editor for Ethics and Standards, Alix M. Freedman, said: "Our coverage of Piraeus and of the Greek banking system has been accurate and fair to every person and institution involved."
A fifth year of recession, deposit outflows and fears that Greece could crash out of the euro have hammered the country's banking system, which relies on the European Central Bank and the Greek central bank for their liquidity needs.
Greece's four biggest banks this year received 18 billion euros in capital under its EU/IMF bailout after the banks suffered heavy losses from a landmark sovereign debt swap.
Athens and its central bank have urged the country's banks to explore alliances in a bid to cope better with the debt crisis, but their call has met little success so far.
Writing by Deepa Babington; Editing by Stephen Powell