PRAGUE, Dec 8 (Reuters) - The Czech Republic will only back the European Union's proposed banking union plan if it is given a guarantee that its lenders will not be forced to backstop those of struggling euro zone countries, its central bank governor told daily Lidove Noviny.
The non-euro EU state has threatened to veto the banking union plan if it exposes the Czechs' highly capitalised and healthy financial sector - 90 percent of which is foreign owned - to risks by forcing it to pool assets with risker EU members.
Prague has found potential allies in Britain and Sweden, other countries outside the euro, which are resisting handing supervision of their banks to the European Central Bank that is answerable only to the currency's users.
Germany has also objected to any deal that would give the ECB final say over regulation and says that should mostly be left with local authorities.
Central Bank Governor Miroslav Singer told the newspaper he would travel as an adviser to Prime Minister Petr Necas to a Dec. 13-14 EU summit at which officials would try to hammer out details of the first stage of the banking union.
EU member states have set the goal of creating rules by the year end that will put the regulation of all banks primarily under the ECB, removing the final say from local regulators like the Czech central bank.
Singer said the Czechs could potentially agree, but only if there was a guarantee it would not allow the Czech banking system to become a cash pot for euro zone lenders.
'Countries outside of the euro zone that don't want to share the risk shouldn't be pulled into it,' Singer told Lidove Noviny. 'Why would I want to share risk for the euro zone project and drill pipes for them to take money from us? Why would I do that for a project aimed at saving the euro zone that we don't need?'
With a negative loan-to-deposit ratio, meaning there are more bank deposits than outstanding loans, and a capital adequacy rate of 16 percent, or double the global mandatory requirement, Czech banks are among the EU's most secure.
Officials in the country of 10.5 million fear their lenders, almost all owned by western European banking groups, will therefore be among the first to be called on if their parent units or fellow subsidiaries in other countries need to shore up their balance sheets.
They see the banking union as a threat because it would force the Czechs to contribute to an EU-wide deposit guarantee fund, force their banks to assist other units in their banking groups by providing capital, and allow parent banks to convert subsidiaries into branches.
'We said fine, you want something and you need our vote,' Singer said. 'And because only the first step - common regulation - is to be passed unanimously, for the others we want ... to hear a guarantee that with the other pillars you don't say: prepare the pipes that at one point will allow money to flow to the euro zone.'
Like most of the EU's 10 newest members, the Czechs sold their state banks into private hands after the fall of Communism, a crucial step in transforming from a centrally-planned to a market-based economy.
Now the Czechs' main lenders are owned by Austria's Erste Bank, Italy's Unicredit, France's Societe Generale and Belgium's KBC.
(Reporting by Michael Winfrey; editing by James Jukwey) Keywords: EU BANKING/CZECH
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