German banks, insurers have 7.1 billion euro exposure to Austria's Heta -Bundesbank

FRANKFURT (Reuters) - German insurers have an exposure to the 'bad bank' set up from defunct lender Hypo Alpe Adria 1.5 billion euros (1.1 billion pounds), taking the total exposure of German banks and insurers to 7.1 billion euros, a senior official at the Bundesbank said on Tuesday.

The comments by Andreas Dombret, a board member of the German central bank, paint the clearest picture yet of the heavy impact of the Heta debt repayment freeze on Germany, a country whose close ties to Austria have been strained by the saga.

Austria's financial watchdog FMA stepped in this month and imposed a debt moratorium on Heta until May 2016 after an audit exposed a capital hole of up to 7.6 billion euros which the government was not prepared to fill.

"German insurers had an exposure to HETA of 1.5 billion euros in total at the end of last year," Dombret told Reuters in an interview.

"In total, Germany's exposure is running at 7.1 billion euros," he said, adding in the 5.6 billion euros ($6 billion) at German banks.

Heta has suspended debt repayments despite state guarantees while supervisors work out a plan that treats all creditors equally, which means that those who are owed money, including German insurers and banks, are likely to take a heavy loss.

Taxpayers had already pumped 5.5 billion euros in aid into Hypo, which Austria took over when it hit the wall after a decade of unbridled expansion fuelled by debt guarantees that its home province of Carinthia was never placed to honour.

Dombret said that while losses at individual banks were 'painful', they were 'manageable'.

Austria’s worst postwar financial scandal has swelled state debt and budget deficits and soured ties in particular with the German state of Bavaria, whose bank BayernLB -- Hypo’s former owner -- was hard hit.

It has also triggered a parliamentary investigation to find a political scapegoat for the expensive mess.

(This version of the story corrects first sentence to include word billion)

(Reporting By John O'Donnell; editing by Paul Carrel and Kevin Liffey)