January 10, 2018 / 3:49 PM / a year ago

UPDATE 1-Monte dei Paschi leads Italian bank gains on bad debt data

(Recasts with details)

MILAN, Jan 10 (Reuters) - Monte dei Paschi di Siena shares rose by as much as 6.7 percent on Wednesday, leading other banking stocks higher after data confirmed a slow fall in Italian lenders’ bad debts.

Italy’s banking index was up by 3 percent by 1436 GMT, with Monte dei Paschi, Intesa Sanpaolo and Banco BPM all up around 4 percent.

Traders pointed to the latest Bank of Italy data which showed a 6.4 percent annual decline in defaulted loans held by lenders, compared with a yearly drop of 5.5 percent in October.

Italian banks still hold 173 billion euros ($208 billion) in loans that defaulted due to a harsh recession that ended in 2014. However, the economy has been steadily improving over the past year and it is expected to have grown by 1.5 percent in 2017, Italy’s strongest rate since 2010.

The stock of bad debts, which fell to a three-year low in July after UniCredit sold 16 billion euros in bad debts, is set to drop further when Monte dei Paschi manages to shift 25 billion euros in soured loans off its balance sheet.

The Tuscan bank, which was bailed out by Italy’s government last year and is now 68-percent owned by the state, plans to complete the sale of bad loans repackaged as securities by mid-2018.

Under pressure from regulators to shed the bad debts, Italian banks are trying to boost recoveries but sales, normally carried out at a loss, are the quickest way to dispose of them.

A rescue fund financed by Italian financial institutions on Wednesday closed an 805 million euro investment in the Monte dei Paschi’s bad loan securitisation, buying 95 percent of the so-called mezzanine notes.

The fund said a further investment in the riskier, junior tranche and the tapping of a state guarantee to wrap the safest, senior tranche ahead of it being placed on the market would take place in the first half of the year.

In a further sign of investor confidence, despite an upcoming election expected to result in a hung parliament, Italy sold 9 billion euros of a new 20-year bonds on Wednesday after the issue drew more than 31 billion euros in orders. ($1 = 0.8342 euros)

Reporting by Valentina Za and Gianluca Semeraro; editing by Alexander Smith

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