* First attempt to sell last state bank failed in 2013
* HPB sees potential to expand credit businesses
* Talks continue with EBRD on capital boost
By Igor Ilic
ZAGREB, Oct 20 (Reuters) - Croatia's last major state-owned bank, Hrvatska Postanska Banka (HPB), plans to grow its consumer business and raise capital ahead of a possible sale, its chief executive told Reuters.
HPB controls slightly less than 5 percent of the banking market in the newest European Union member, where more than 90 percent of lenders are owned by foreigners, mostly banks from Austria, Italy, France and Hungary.
The government, which tried and failed to sell the bank last year, could make a fresh attempt to sell it now, or first seek to expand it and bolster its capital, probably with the help of the European Bank for Reconstruction and Development (EBRD).
"Our considerable growth potential lies in offering our financial services through some 1,000 offices of the (state-owned Croatian postal company) HP across Croatia," Tomislav Vuic, who took over the bank last month, said on Monday.
HP, the country's dominant postal service with a wide network of local offices, owns 27.5 percent of HPB.
"That potential has only partially been used so far," Vuic said in an interview.
Croatia's government agency for managing state assets told Reuters last month that HPB might be put up for sale again next year, although the government has yet to take a formal decision.
The government last year rejected as too low an offer from Austria's Erste Bank of around 100 million euros ($128 million).
"The owner will decide about the sale and the timing but our goal is to add value to the bank and that is what we will work on," said Vuic.
The EBRD's common practice in ex-communist countries is to acquire a stake in a state-owned company slated for sale and help boost its capital and value. It then withdraws when the company is ready for sale, usually after three to five years.
"We have continued the talks the previous management started with the EBRD. We want to strengthen our capital and believe the EBRD could be one of the most suitable partners," Vuic said.
Croatia, which joined the EU in July last year, is in a sixth year of recession due in part to a slow implementation of reforms needed to make the investment climate more attractive and the economy more competitive.
Vuic said HPB was keen, and had sufficient liquidity, to increase lending to small- and medium-sized companies (SMEs), which has accounted only for a fraction of its business so far.
"Although we are largely focused on retail, we see our chance for growth also in stronger lending to the SMEs, as they are expected to be among the key drivers of Croatia's economy once it recovers," he said.
In the first six months of this year, HPB posted a net profit of 34.4 million kuna ($5.7 million), 44 percent down from the same period last year, largely due to a rise in provisions for bad loans in line with stricter requirements imposed by the central bank.
(1 US dollar = 0.7840 euro)
1 US dollar = 6.0058 Croatian kuna Editing by Zoran Radosavljevic and Mark Potter