CREDIT Lyonnais has denied a newspaper report alleging its chairman may have been negligent in taking too long to arrange swap cover for a huge loan that threatens to plunge the state bank back into the red.

The report in the Paris newspaper Liberation "is completely false", a bank spokesman said.

The daily said the finance ministry believed the bank committed "monumental error" in waiting to cover the loan arranged as part of a state rescue of Credit Lyonnais and said it was targeting the chairman, Mr Jean Peyrelevade, as the culprit.

The finance ministry said it had no comment on the report, which claimed the bank could have saved billions of francs in losses had it entered into swap agreements on the loan earlier.

The report coincided with efforts by the bank to renegotiate the state rescue plan that has gone badly awry and had echoes of a whispering campaign against Mr Peyrelevade earlier, in which the government was said to be unhappy over the pace of his efforts to improve the bank's finances.

Under last year's bailout, the bank transferred 130 billion francs (£16 billion) of shaky assets to a state backed rescue vehicle, giving it a Ffr119 billion loan to finance the acquisition, part of a total Ffr145 billion credit line.

To make Credit Lyonnais share in the costs of its rescue after the expansion spree that brought it to its knees, the government obliged it to lend money at below market interest rates to the rescue vehicle But it is financing the loan at fixed rates that are nearly double money market rates.

Mr Peyrelevade has said the loan will cost the bank Ffr3 billion this year and could cost it Ffr2 billion in 1997. Analysts say unless the rescue package is changed, it could post a net attributable loss of up to Ffr2 billion in 1996 after eking out a Ffr13 million profit in 1995.

The newspaper said Credit Lyonnais was tardy in arranging swap cover for the loan. But the bank spokesman said it would have been "imprudent" to have taken such action until the rescue had been approved by the European Commission in July 1995.

The government is expected next month to announce a new restructuring package for the bank, the third in three years. The bank is reportedly hoping to transfer the financing costs stemming from the bailout to another state entity.

Earlier this month, the government demanded a criminal investigation of ex top executives of the bank for allegedly concealing losses at one of its key units. But the "get tough" approach has been seen by some bankers and analysts as an exercise to soften up the public for giving the bank another dose of public money.