* Minister says looking at tax relief for loan holders
* About 60,000 Croatians hold Swiss franc loans
* Many struggling to pay after Swiss bank move
* Croatian government faces election in late 2015
By Zoran Radosavljevic
ZAGREB, Jan 27 (Reuters) - Croatia is considering turning Swiss franc-denominated home loans into long-term lease agreements to help thousands of families hit by the surge in the value of the Swiss currency, Finance Minister Boris Lalovac said on Tuesday.
About 60,000 Croatians hold loans in Swiss francs, mostly for housing. Croatia's stock of Swiss franc loans stands at about 27 billion kuna ($4 billion) or a little under 8 percent of gross domestic product (GDP).
Speaking to Croatia's state radio from Brussels, Lalovac said the government of the European Union's newest member was discussing one of the models proposed by the central bank.
Under the model, homes bought with Swiss franc loans would be leased to their owners, most of whom are now struggling to pay monthly instalments.
"The aim is to decrease the instalments for citizens while allowing them to remain in their flats, with the right to buy them back," Lalovac said.
"The (monthly) rent would be eligible for tax relief and the banks should write off some of the principal (of the loan)," Lalovac said, without giving further details.
Parliament last week backed a government plan to help borrowers by fixing for the next 12 months the franc's exchange rate at 6.39 kuna, the level before the Swiss National bank abandoned its cap on the currency this month.
Banks opposed the plan, saying they had only been prepared to do so for three months pending a long-term solution.
The government, which faces an election later this year, said it was looking for a lasting solution to the problem in talks with the central bank and commercial banks.
Prime Minister Zoran Milanovic has floated the idea of converting the loans into the local currency, as Hungary did last year.
The central bank, however, warned this would reduce Croatia's currency reserves by 30 percent and threaten the kuna's exchange rate stability against the euro, the anchor of monetary policy.
Franc loans became popular across central and eastern Europe in the 2000s because of their low interest rates.
Standard Bank said in a note on Tuesday Croatia faced the biggest challenge of all central European states struggling with the Swiss franc issue because of its weak economy, stretched public finances and rising public sector indebtedness.
"The CHF loan problem just makes a difficult situation that much more difficult, and feeds back into a weak growth/recovery," it said.
A government source told Reuters: "Unlike the early days, when we were floating all kinds of ideas, we're narrowing them down to the more realistic and acceptable. This is one of them." (Editing by Janet Lawrence)