THE French state agency overseeing the sale of assets of ailing bank, Credit Lyonnais, has asked the government for seven billion francs (£850 million) to balance its books, a finance ministry source said yesterday.

The appeal was another warning of the potential cost to taxpayers of the state controlled bank's disastrous expansion spree during the late 1980s and early 1990s which could eventually hit 100 billion francs.

It came after the state backed defrasance agency, known as the Public Body for Financing and Restructuring or EPFR, posted a loss of seven billion francs for its first year of operation, as a result of losses on sales of the bank's assets.

The ministry source said the request was no surprise and that much less than that would be given this year.

One report said it was likely to be two to three billion francs.

Another state official said it was important not to exaggerate the matter, noting the EPFR had been expected to make losses and that it did not go against its statutes.

The request comes as Prime Minister Juppe is trying to cut France's deficit to qualify for European monetary union.

But the money is expected to be mainly drawn from privatisation receipts rather than central budget funds.

Under the rescue plan, the assets of Credit Lyonnais were hived off into a so called "bad bank", the Consortium de Realisation (CDR), under EPFR's supervision.

It has a 20 year mandate but two thirds of its assets are due to be sold by 1998.

The EPFR troubles stem from estimated losses in 1995 of 8.23 billion francs on asset sales and writedown of goodwill of 11.78 billion, the business daily La Tribune said, and the losses could well mount further.

CDR chairman, Mr Michel Rouger, has estimated its doubtful loans at 86 billion francs.

There are also 36 billion of off balance sheet liabilities whose risk is not yet known.

The CDR suffered a five billion franc loss on its recent 1.3 billion franc sale of the MGM studio which fell into the bank's hands after a loan default.