ECB asks Banca Carige for plan to cut soured loans

MILAN (Reuters) - The European Central Bank has sent a letter to Italy's Banca Carige asking the mid-tier lender to present a plan to cut its soured loan portfolio and assess the impact on its capital.

Carige emerged as one of the weakest lenders in the euro zone after a 2014 sector health check and had to raise capital last year.

It remains under the spotlight after a fall in its direct funding at the end of 2015 and the first quarter of 2016.

In a statement on Thursday the lender said the ECB, in a "draft" decision, had asked it to cut soured loans to a maximum of 5.5 billion euros (4.92 billion pounds) by the end of 2017 with a minimum coverage ratio of 45 percent.

The ECB also asked it to cut problematic loans to a maximum of 4.6 billion euros by end 2018 and 3.7 billion euros by end 2019, with minimum coverage ratios of 43 percent and 42 percent respectively.

At the end of June, Carige had around 7 billion euros of soured loans on its books with a coverage ratio of 45.6 percent.

The lender has until Nov. 3 to send the ECB its own observations on the matter, Carige said, adding it had already started studying tougher cuts to soured loans than those announced in its 2016-2020 business plan in June.

That plan envisaged the sale of 1.8 billion euros of non-performing loans in two tranches by the end of 2017.

Italian banks have racked up around 360 billion euros in gross problematic loans due to a tough recession but have resisted pressure to sell them on as prices investors are ready to pay are, in many cases, below their book value.

Carige management said in June it would consider capital measures only if necessary.

The letter from the ECB also contained a draft decision on the results of the latest supervisory review and evaluation process (SREP), Carige said.

(Reporting by Stephen Jewkes and Andrea Mandala; Editing by Toby Chopra)