Nowotny: fx loans main issue for Austrian banks

VIENNA, Nov 6 (Reuters) - Foreign currency lending is the main issue for Austrian banks in emerging Europe and the central bank is working with lenders and local regulators to reduce this exposure, Austrian central bank governor Ewald Nowotny said.

Nowotny, who is also a member of the European Central Bank's Governing Council, told journalists on Friday that Austrian banks have lent around 80 billion euros ($119 billion) in the former Communist bloc, where they are among the top banks. In countries including Hungary, Romania, Poland, Ukraine and the Baltics, most mortgages and many car loans were taken in foreign currencies -- mostly euro and Swiss francs -- to benefit from cheaper interest rates.

"The growth of foreign currency lending has certainly contributed to growth in those countries but it's not sustainable," Nowotny said.

"We have talked to banks about reducing the foreign currency loans and are also working closely with the central banks in the relevant states," he said. "This is one of the long-term changes that we want to push through as a lesson of the crisis."

Nowotny said Austrian banks were not homogeneous and that some of them would have a more difficult time than others to repay state aid granted under the banking stability package.

"There are lenders who can (pay back state aid) and others where this is not so sure," Nowotny said. "What we see is that the differences are getting bigger rather than smaller. We are monitoring this closely."

Nowotny said that the Austrian central bank recommends to extend the Austrian banking package by one year until the end of 2010.

($1=.6734 Euro)