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MILAN, March 8 (Reuters) - A top executive from Veneto Banca and Popolare di Vicenza on Wednesday met Italian treasury ministry officials to assess the chances of agreeing a state bailout of the two troubled banks, a source with direct knowledge of the matter said.
The source said low take-up of a settlement offer to small shareholders in the banks could put at risk the 5 billion euro ($5.3 billion) bailout that Italy is discussing with the European Commission and the European Central Bank.
For the rescue to go ahead, EU competition authorities must deem the banks viable and approve a restructuring plan for them. Failing this, the banks would have to be wound down in a blow to Italian savers and the wider banking system.
The two banks, which are expected to make big losses for 2016, already received 3.5 billion euros last year from state-sponsored, privately-funded rescue fund Atlante, created to help Italy's troubled banks under new EU rules that limit state aid to shield taxpayers.
But this process all but wiped out the savings of more than 200,000 small shareholders in the lenders.
The two banks, based in the northeastern Veneto region, have proposed repaying 169,000 shareholders, who bought stock in the last 10 years, around 15 percent of investment losses if they agree not to pursue legal action.
The source said that the outcome of this settlement offer was an important factor in determining whether the two banks qualified for state aid.
The two banks said on Tuesday take-up of the settlement so far was around 30 percent ahead of a deadline of March 15 for Veneto Banca and March 22 for Popolare di Vicenza.
The source said take-up had increased significantly since then.
However, Wednesday's meeting between treasury officials and Popolare di Vicenza Chief Executive Fabrizio Viola -- who has been drafted in to oversee a merger between the two banks and also chairs a strategic committee at Veneto Banca -- was not expected to yield a final decision.
The treasury was not immediately available for a comment.
The banks have said they are aiming for an 80 percent take-up and have set aside 600 million euros to repay shareholders.
The two banks are being probed by prosecutors over the alleged mis-selling of shares to retail investors and new management has said the settlement aims to make them more attractive to future buyers by lowering legal risks. ($1 = 0.9490 euros) (Additional reporting by Giuseppe Fonte, writing by Valentina Za, editing by Paola Arosio and Jane Merriman)