June 20, 2013 / 1:03 PM / 4 years ago

UPDATE 2-Slovenia awaits EU approval to transfer bad loans - PM

* External bank audit already underway

* GDP fall seen deeper than expected earlier

* Exports to rise (Updates with finmin comment)

By Marja Novak

LJUBLJANA, June 20 (Reuters) - Slovenia is awaiting the European Commission's approval to transfer first bad loans from commercial lenders to a 'bad bank' in late June, Prime Minister Alenka Bratusek said on Thursday.

Clearing up the troubled banking sector, is a vital task for the 3-months old Bratusek government.

Finance Minister Uros Cufer told reporters in Brussels later on Thursday that an external audit of the Slovenian banks is already taking place, in line with the European Commission's demands, and that Deloitte is performing a part of that audit.

Although the Bank of Slovenia had said it expected the external audit to show Slovenia's assessment of the size of bad loans in its banks was correct, many analysts believe the audit may show that the situation is worse than portrayed so far by the government and central bank.

A poor audit outcome could deepen Slovenia's financial problems, while an audit confirming official projections could soothe the markets.

Slovenia's struggle to avoid an international bailout was hit by worsening economic prospects detailed earlier on Thursday, which may thwart its aim to return to growth next year.

The government's macroeconomic institute said the economy would contract by 2.4 percent this year, compared to a 1.9 decline expected earlier due to lower domestic consumption, and the recession would extend into 2014.

Slovenian banks, mostly state-owned, are choking under 7 billion euros ($9.4 billion) of bad loans, and the government plans to transfer 3.3 billon euros of those loans to the bad bank in the coming months to clean up the banking sector.

The first transfer is expected on June 28, pending the Commission's approval.

"Bank clean up is our most important action to help the economy," Bratusek told a news conference. "I hope the European Commission will act quickly ... so that the transactions will be made as planned."

The macroeconomic institute said the economy would shrink by 0.2 percent in 2014, versus a previous forecast for 0.2 percent growth. A central bank analyst told Reuters on Wednesday the central bank also expected a mild fall in 2014.

The institute said domestic demand will contract by 4.1 percent in 2013 and 1.3 percent in 2014 due to budget cuts, with unemployment rising to 13.6 percent in 2014 from 13.4 in 2013.

Export is expected to remain the main drive of the economy and rise by 1.8 percent in 2013 and 3.2 percent in 2014.

$1 = 0.7461 euros Reporting By Marja Novak; editing by Zoran Radosavljevic and Ron Askew

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