UPDATE 1-ECB tells Monte dei Paschi to boost capital for bad loan deal -sources

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ROME, July 24 (Reuters) – The European Central Bank has told troubled Italian lender Banca Monte dei Paschi di Siena to strengthen its capital base by around 700 million euros ($814.45 million) to allow a planned spin-off of its bad loans portfolio, two sources close to the matter said on Friday.

The ECB, Monte dei Paschi and the Italian Treasury, which controls the bank, all declined to comment. The news was first reported by daily newspaper La Repubblica.

Monte dei Paschi last month approved a plan to offload more than 8 billion euros in bad and unlikely-to-pay loans to state-owned bad loan manager AMCO, in a move that could make it more attractive for a possible re-privatisation.

The plan also included more than 1 billion euros in equity and 3.2 billion euros in debt from bridge loans granted by JPMorgan and UBS.

The operation, which is expected to be wrapped up and operational as of Dec. 1 subject to approval from the ECB, should allow the lender to reduce its non-performing exposure ratio to 4.3% from 12.4%.

Rome currently controls Monte dei Paschi with a 68% stake, following an 8 billion euro bailout in 2017 to save the bank from sinking under problem debts and the fallout from a derivatives scandal.

It must present a strategy soon, perhaps next year, on how it intends to exit the bank.

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