The head of the International Finance Corp said on Saturday that the group plans to work with private equity funds, debt servicing companies and major banks to soak up toxic assets held by banks in emerging markets.

The IFC, the World Bank's private-sector lender, said this week it would contribute up to $1.5 billion toward a proposed $5 billion global scheme that would invest in or mobilize investment to buy up distressed assets.

Speaking to reporters on the sidelines of the IMF and World Bank meetings in Istanbul, IFC chief Lars Thunell said countries in eastern Europe, and some in Latin America and Asia, were struggling under the weight of bad assets held on bank books.

We think a lot of these banks will want to get these assets off their balance sheets, Thunell told reporters.

He said banks also faced the threat of increasing non-performing loans. The International Monetary Fund warned earlier this week that corporate defaults have picked up in all regions, and investors expect the default rate to double in eastern Europe over the next year.

The IMF has urged countries to clean up their banking sectors to ensure they are able to lend and don't hinder economic recovery.

He said the Debt and Asset Recovery Program would not only free up bank capital for new lending in crisis-hit markets, but also free up time for banks that are currently consumed with trying to manage the assets.

Thunell, who said big commercial banks like HSBC Holdings Plc would likely partner with the IFC, is no newcomer to troubled assets.

He oversaw Sweden's bad loans bank Securum, a repository for toxic debt during the country's banking crisis in the 1990s. Securum was able to restructure and sell off distressed assets held by the government, much of it at a profit.

Asked if IFC expects to profit from the program, Thunell said: If you do it right, yes. It's high risk and as always you win some, you lose some.

He also said IFC would soon launch an asset management fund that will invest up to $1 billion on behalf of sovereign wealth funds and pension funds in businesses in developing markets.

The effort is part of a plan announced last year by World Bank President Robert Zoellick to convince state-owned funds and pension plans to invest in equities in Africa.

Charles Dallara, managing director of the Institute of International Finance, an association of global banks, welcomed the IFC's plan.

This could be helpful, not so much for toxic assets but for bad assets in general, he said.

Emerging markets banks are being hit by the recession. In general they are in good shape but some of them could probably do with a bit of capital supplementation, Dallara added.

(Additional reporting by Steve Slater)