INTERVIEW-EBRD eyeing bigger role in "orphaned" central European banks
* Deleveraging increasing, EBRD may take more bk stakes
Hungary, Slovenia to see more western bank withdrawal
* Russia bailout of Ukraine may cause problems for both
* Political uncertainty key risk in Turkey
By Carolyn Cohn and Marc Jones
LONDON, Jan 13 (Reuters) - The European Bank for Reconstruction and Development is prepared to take more stakes in "orphaned" central and eastern banks amid signs their western parents are abandoning them at an increasing pace.
The exit from the region by big banks is raising concerns about the stability of affected economies, and is being driven by a desire to improve the look of balance sheets before the European Central Bank's Asset Quality Review (AQR).
EBRD chief economist Erik Berglof said banks in Hungary and Slovenia were particularly at risk and though the Baltics were near a turning point, more exits were likely there too.
In an interview with Reuters - in which he also expressed concerns about Ukraine's controversial aid deal with Russia - Berglof said his organisation was seeing signs that the deleveraging process by Western banks was now speeding up.
"There will be more focus on equity stakes going forward," Berglof said. "Quite a large number of (large bank) subsidiaries are orphaned, they will require new owners, there may be a role for us to step in."
While concerns about Slovenia had diminished since the country initiated a rescue operation of its troubled banks last month, Berglof did not think it was "out of the woods at all."
"There are lot of difficult decisions to make," he added. "A fair number of banks will need to be closed or merged."
The EBRD focuses mainly on investment in the private sector and has previously taken stakes in banks to help the central and eastern European region in which it operates cope with the impact of the sub-prime and euro zone debt crises.
The withdrawal of U.S. monetary stimulus was another factor hastening the departure of western banks.
Hungary's central bank governor Gyorgy Matolcsy said last month that four of the country's eight large foreign banks, which together hold 70 percent of all lending in the country, could withdraw in the next 6-18 months.
Those countries with large numbers of non-performing loans were most vulnerable, Berglof said.
Analysts have pointed to Balkan countries such as Albania and Bulgaria, along with Slovenia, as groaning under the weight of souring loans. Investors have also raised concerns about the way they are being calculated.
However, Berglof said the Vienna 2 initiative, led by the EBRD, the World Bank and the IMF, was working on an agreement to harmonise the calculation of NPLs in line with the euro zone.
On Ukraine's $15 billion bailout by Russia last month he warned it could create problems for both countries in the longer term, as it would cut incentives for Ukraine to reform its economy.
"No one is very happy about this outcome, not even Ukraine. The big risk is that the money will be used for exactly the wrong reasons, to buy votes by lowering energy prices."
In what he termed an "ironic twist", Berglof said Russian policymakers he had spoken to were considering asking organisations such as the IMF to help monitor Ukraine.
"I wouldn't rule it out ... It's also in Russia's interests to have Ukraine reforming, they don't want a big black hole."
The EBRD was set up in 1991 to help the countries of the former Soviet bloc make the transition to market economies. It has since expanded into the Middle East and North Africa.
Back in November it cut its 2014 growth projection for the whole of its region of operation to 2.8 percent from 3.2 percent. It publishes revised forecasts next week.
"Things are looking a bit better, both globally and in the euro zone," Berglof said, adding the figures were not yet finalised.
For Turkey, the EBRD country most affected by the prospect of tapering by the U.S. Federal Reserve, political risks have come to the fore ahead of elections this year.
Turkish Prime Minister Tayyip Erdogan vowed this week to forge ahead with judicial reforms which prompted a fist fight in parliament, denying he was trampling on the constitution as the government battles a damaging corruption scandal.
"Not only does it create general macro-instability, there may be sector implications because individual companies, individual ministers, individual banks are being looked into - that creates uncertainty," Berglof said.
(Editing by Susan Fenton)