* 2013 net loss 1.08 bln euros
* CEO sees 2014 net loss of around 440 mln euros
* Gain from business shrinking, lower cost of state guarantees (Updates with 2014 forecast)
BRUSSELS, Feb 20 (Reuters) - Nationalised Franco-Belgian financial group Dexia could halve its net loss this year because of a sharp decline in funding costs already felt towards the end of 2013.
The bank, 94 percent owned by the French and Belgian governments, reined in its net loss to 1.08 billion euros ($1.49 billion) in 2013 from 2.9 billion euros in 2012.
Chief Executive Karel De Boeck said the figure for 2014 could be around 440 million euros, although that could change if it sold Italian public lender Crediop, one of its last remaining businesses. A sale could lead to a one-off loss.
Crediop, weighing about 35 billion euros on Dexia's balance sheet, had been thought of as unsellable and its divestment is not a European Commission requirement, but De Boeck said Dexia was in talks with possible interested parties.
"The chance of deal is less than with the other divestments, but even if it's just 10 percent it's worth a try," De Boeck said.
Dexia suffered a relatively mild 95 million euros net loss in the fourth quarter as it set aside money to cover its Puerto Rico exposure, but saw a sharp decline in the cost of funding.
The group, once the world's largest municipal lender, is no more than a penny stock investment, but its results matter because France, Belgium and, to a lesser extent, Luxembourg are guaranteeing its borrowings by up to 85 billion euros.
The states, which have already pumped in billions of euros to prop up Dexia, are threatened with losses that could derail their efforts to rein in their budget deficits.
Dexia has benefited from a sharp reduction in the fee it has had to pay for government guarantees to 5 basis points per year from an average 85 basis points in 2012.
The guarantees cost it 157 million euros last year, compared with 743 million in 2012.
Dexia said its net bank income was actually positive in the fourth quarter, after three negatives, as its liquidity requirements fell and it used cheaper government funding guarantees and less of the more expensive central bank lending.
It also made one-off gains of 54 million euros related to the disposal of assets, including securitisation vehicles of Italian public lending arm Crediop.
For the year as a whole Dexia increased provisions for the U.S. public sector, setting aside $223.5 million to cover the risk of a default by the city of Detroit and Puerto Rico.
Dexia, now essentially a portfolio of loans and bonds in run-off, said it had cut its balance sheet to 223.4 billion euros, down by 134 billion since the end of 2012.
De Boeck said that Dexia had achieved a lot in a single year.
"The terrible dragon is not yet dead, but it has become smaller," he said.
De Boeck said Dexia could face a challenge in 2014 meeting toughened capital adequacy ratios and also passing the European Central Bank's health check, known as the asset quality review, before the ECB takes over supervisory duty in November.
These could lead to a need for a capital increase, with the money having to be raised by the Belgian and French states.
Dexia has been stripped of all its activities, including public sector lending and retail banking, after it failed to recover from the 2007-2008 credit crunch, which deprived it of access to short-term money to fund largely long-term loans. ($1 = 0.7271 euros) (Reporting By Philip Blenkinsop; editing by Robert-Jan Bartunek)