By Lefteris Papadimas
ATHENS (Reuters) - Greece is aiming for a deal with international lenders on Friday on the next set of reforms to unlock additional aid, but differences remain over how to handle banks' bad loans.
Athens is struggling to keep non-performing loans to small business and consumers out of the clutches of so-called vulture funds that buy loan books of distressed debt at a discount and try to recover the money.
Prime Minister Alexis Tsipras' government started a new round of talks with euro zone institutions and the IMF this week on the bad loans, as well as splitting off the country's power grid operator from dominant electricity utility PPC and making state sector wages dependent on performance.
After successfully completing the recapitalisation of its four systemic banks and qualifying for two billion euros (£1.4 billion) in bailout loans last month, Athens must enact this second set of reforms to qualify for 1 billion euros by the end of the month.
Athens aims to pass the law by Dec. 18, parliament officials said.
"Our effort is to conclude talks on Friday," said a government official who participated in the talks with the heads of the EU/IMF mission at a central Athens hotel.
"The main hurdle is non-performing loans. Our side is trying to exempt mortgages and small business and consumer loans from being transferred to private funds."
Talks were expected to drag on until late on Thursday and also cover the structure of a new privatisation fund which Germany and other creditors insisted on to pay down debt.
Another government official said there was convergence on public sector wages and an energy ministry official said Athens was also likely to reach agreement on the power grid operator.
Separately, the government submitted to the creditors an initial draft of a tough pension reform seen as the biggest political hurdle in the coming months for Tsipras's leftist-led coalition, with just a three-seat parliamentary majority.
The reform must be adopted in January prior to the first bailout review.
After five years of austerity including 12 pension cuts, the government plans to increase social security contributions instead of slashing main pensions again. But the lenders have signalled reluctance, saying it could further damage employment.
Greece has pledged to cut spending on pensions by 1 percent of GDP or 1.8 billion euros next year. It says it can cover most of this amount from a recent retirement age increase but still needs to find 600 million euros.
"Hell, there must be ways to find those 600 million euros. It's not 6 billion, it's 600 million," Tsipras said in a television interview on Monday after critics said he would struggle to avoid a new round of unpopular cuts.
If successful, the bailout review will open the way for talks on debt relief, which Tsipras urgently seeks to convince Greeks that their sacrifices are bearing fruit.
"If there is no deal now, for the 1 billion euros, everything else will be pushed back," the first official said.
(Additional reporting by Angeliki Koutantou; Writing by Renee Maltezou; Editing by Paul Taylor)