October 26, 2018 / 3:53 PM / in 21 days

UPDATE 1-Reform of Italy's 'popolari' banks frozen pending ECJ ruling

(Adds legal sources on timing of final verdict, context)

ROME, Oct 26 (Reuters) - Italy’s top administrative court on Friday extended the freeze on a landmark reform of large mutual banks, pending a ruling by the European Court of Justice (ECJ).

Popolare di Sondrio and Popolare di Bari are the only two “popolari” banks affected by the 2015 reform that are yet to adopt changes aimed at improving governance and making them more appealing for potential investors.

Italy’s State Council, which had previously frozen the reform pending an appeal against it by the two banks, said on Friday it would only rule on that appeal following a decision by the ECJ, the European Union’s top court.

Legal sources told Reuters the final verdict was now likely to be delayed by at least a year.

Italy’s constitutional court has already rejected claims the reform violates Italy’s constitution.

Popolare di Sondrio, nestled in the mountains of Italy’s wealthy Lombardy region, is widely regarded by analysts as a well-managed bank and a sought-after merger partner. Its soured loans accounted for around 15 percent of total lending at the end of last year, broadly in line with the national average.

Popolare di Bari, on the other hand, is headquartered in southern Italy, where default rates are generally higher. Its soured loans accounted for around a quarter of total lending at the end of 2017.

The lender has said it will seek to raise much needed capital only after transforming into a joint-stock company, so the delay raises questions over its fundraising efforts. (Reporting by Domenico Lusi; Writing by Valentina Za and Giulio Piovaccari; Editing by Mark Potter)

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