* Former central bank governor's house set ablaze
* Central bank says reformers being targeted
* PM denies report on possible deal over PrivatBank
* An IMF mission now in Kiev to discuss new aid plan (Recasts with arson attack, quotes, details, background)
KIEV, Sept 17 (Reuters) - Ukraine's president called on Tuesday for a full investigation into an arson attack that has raised political tensions in a dispute over the IMF-backed nationalisation of the country's largest lender PrivatBank.
PrivatBank was taken into state hands against the wishes of its ex-owner, Ihor Kolomoisky, in 2016 and its fortunes are closely watched by investors because the International Monetary Fund may freeze aid if the nationalisation is reversed.
President Volodymyr Zelenskiy, who has longstanding business ties with Kolomoisky, demanded the investigation after the home of a former central banker responsible for nationalising the bank was torched in a nighttime attack in a village outside Kiev.
As part of an IMF-supported clean-up of Ukraine's financial system, the authorities nationalised PrivatBank saying the lender had a $5.6 billion hole in its balance sheet due to shady lending practices. Kolomoisky disputed this assessment.
Zelenskiy has strenuously denied suggestions that he would help Kolomoisky regain control of PrivatBank or win compensation. His new Prime Minister Oleksiy Honcharuk on Tuesday in a message to Reuters denied an earlier newspaper report about a potential settlement, saying he was not holding talks with Kolomoisky.
But Kolomoisky told Reuters by phone he believed the government was looking for a compromise.
"Honcharuk is the first smart prime minister in recent times. He understands that there must be a compromise," Kolomoisky said. "Otherwise ... I won't leave them alone."
Police have opened a criminal investigation after a property belonging to the family of former Central Bank Governor Valeria Gontareva was burned down. Gontareva did not say who might be responsible for the arson attack.
"The fire accident in the house of the former Governor of the National Bank of Ukraine is a brutal crime, the rapid investigation of which should be a priority in the work of the law enforcement agencies," Zelenskiy said in a statement.
"Everyone should feel protected in Ukraine, regardless of their past or current positions and political views."
Ukraine's central bank said reformers were being intimidated in order to paralyse their activities.
"This is no longer a series of incidents, it is TERROR. Its purpose is to intimidate reformers, past and present, to paralyse our activities, to make us silent. We will not be silent," the central bank said in a written statement.
The United States embassy called for an investigation. The opposition party led by former President Petro Poroshenko called the arson attack a signal of Ukraine's deteriorating investment climate.
A video shared with Reuters by Gontareva, who currently lives in London, showed firefighters tackling a massive blaze in her home in the village of Horenychi, on the outskirts of Kiev.
NO PRIVATBANK NEGOTIATIONS
Zelenskiy, a former comedian and actor, entered politics as a political novice this year promising to tackle corruption. He beat incumbent President Poroshenko in April.
Zelenskiy's relationship with Kolomoisky has been under intense scrutiny. The two have longstanding business ties and Kolomoisky's 1+1 TV channel was the springboard for Zelenskiy's presidential election campaign.
The president has repeatedly denied suggestions he would help Kolomoisky win back PrivatBank or help Kolomoisky win compensation. The two men met publicly last week but Kolomoisky told reporters that PrivatBank was not discussed.
Honcharuk was quoted by the Financial Times as saying on Tuesday that Zelenskiy wanted a settlement with Kolomoisky, a report which he subsequently denied.
"We are not holding any negotiations," Honcharuk said in a message to Reuters, in response to queries about his comments.
Any hint of the government rowing back on the nationalisation would sound alarm bells just as an IMF mission is in town to discuss a new aid-for-reforms deal with the government, which took charge following a snap July election.
Kolomoisky on Friday said there was room for an amicable solution now Zelenskiy was president.
The IMF did not respond to a request for comment.
NO STRENGTH LEFT
Tuesday's arson attack that marked the latest in a string of incidents affecting the former central bank governor.
Gontareva, who suffered injuries after being hit by a car in central London last month, believes she is being hounded by Kolomoisky over her decision to nationalise PrivatBank, which the businessman denies.
"The house burned down completely," Gontareva, 54, told Reuters. "I have no strength left to keep going." Earlier this month, a vehicle registered to her daughter-in-law, who shares her exact name, was torched in Kiev.
Speaking to Reuters in London on Saturday, Gontareva, in a wheelchair with casts on both her legs, said the incidents were intended to intimidate current central bank employees who have a say over the future of PrivatBank.
London police said they were not treating the car incident as suspicious and the driver was not arrested.
- Ukraine PM denies report on negotiations over PrivatBank (Reuters: Sep 17, 2019 at 9:06 AM)