* Azerbaijan's economy hit by low oil prices
* Bank laden with bad debts
* It is to suspend repayment on debt
* Creditors likely to face "haircut" - analyst (Updates with quotes, comments from creditor banks)
By Naila Bagirova and Margarita Antidze
BAKU/TBILISI, May 12 (Reuters) - International Bank of Azerbaijan, the energy exporting country's biggest lender, said on Friday it needed to restructure more than $3 billion of its debt, most owed to foreign creditors, to tackle bad loans left over from the slump in oil prices.
The state-controlled bank announced on Thursday it was suspending payments on some liabilities and seeking creditors' support for restructuring. Its dollar-denominated bond tumbled to its lowest level in over a year as investors reacted to the news.
The problems at the bank show how Azerbaijan is still wrestling with the fallout of a prolonged slump on the global oil market, even though prices recovered some lost ground in early to mid-2016 and have roughly levelled out since then.
An economic slowdown caused by the oil prices - which remain around half 2014 levels - left many of the bank's creditors unable to pay back their loans, building up non-performing debts which a previous government rescue package failed to fix.
The bank published on Friday what it said was its proposed restructuring plan. According to this, the total level of debt subject to restructuring stood at $3.34 billion as of April 18.
This included debt owed to entities including commodities trader Cargill, Italian lender Intesa Sanpaolo, Germany's Commerzbank and Bayerische Landesbank, and France's Societe Generale.
The debt the bank planned to be restructured included a $500 million Eurobond due on June 11, 2019.
The plan did not set out the size of the "haircut" that creditors will be asked to take under the restructuring. Typically, creditors are asked to agree to accept a sum less than they are owed by the debtor.
In the preliminary restructuring plan, the bank said it plans to exchange at least some of the bank's liabilities for Azeri sovereign debt.
Azerbaijan's Finance Minister, Samir Sharifov, has said he will meet the bank's creditors in London on May 23 to seek their approval for the plan.
Commerzbank, Bayerische Landesbank and SocGen declined to comment about how they viewed the bank's proposal. Lazard Frères and White & Case, hired by IBA for the restructuring process, also declined comment.
People familiar with the views of several creditor institutions, who did not want to be identified, said the institutions will participate in the restructuring talks and try to minimise any losses.
Richard Segal, emerging debt strategist at Manulife Asset Management, said if IBA's creditors are given sovereign bonds, that will leave them with a better quality asset, "but they will have to take a haircut, that's just burden sharing".
In early trading on Friday, the bank's $500 million bond fell by more than 17 cents to 82.6 cents, its lowest level since January 2016.
However, Azerbaijan's manat currency was largely unmoved. Investors said they believed the state had enough of a financial cushion to prevent contagion from the bank into the wider economy.
"The government still has plenty of money available in its sovereign wealth fund, it still has a lot of assets it can access in order to underpin its banks, and I imagine that is what they will do," said Alan Shipman, economist and consultant for Oxford Economics.
The bank said it expects its 2016 financial results to show a net loss of around 1.9 billion manats ($1.115 billion). It said that was the result of extra provisions against its loan portfolio, and the fall in the value of the currency.
It said its Tier 1 capital ratio - a safety cushion against shocks and bad loans - is expected to be negative at approximately -4.7 percent as of the end of last year. For euro zone banks, by contrast, the minimum Tier 1 capital ratio is set at plus 6 percent.
Inside Azerbaijan, a mainly Muslim country that borders Russia and Iran, news of the restructuring broke on mainstream media on Thursday night. Television stations did not report in detail what was happening.
A Reuters reporter who visited several IBA branches in the capital, Baku, on Friday said that there was no rush by depositors to withdraw their money. An employee at one branch said the bank was paying out money as normal, with no special restrictions on withdrawals.
Several bank customers said they had not heard about the restructuring. None who spoke to Reuters said they planned to close their accounts. "I think it's a state bank and nothing is going to happen with our accounts," said Valida Husseinova, a teacher.
There were though rumblings of anger on social media. One Facebook user, Samir Aliyev, asked what had happened to the money that the state had already spent on rescuing the bank.
Additional reporting by Karin Strohecker and Sujata Rao in LONDON, Arno Schuetze in FRANKFURT and Maya Nikolayeva in PARIS; Writing by Katya Golubkova and Christian Lowe; Editing by David Stamp