Italian banks well capitalised but still face risks-IMF

MILAN, March 26 (Reuters) - Increasing provisions for bad loans and developing a market to dispose of impaired assets would shore up the defences of Italian banks, the International Monetary Fund said on Tuesday.

In a report following a mission to Italy, the IMF said the Italian banking system was on the whole well capitalised but lenders still faced risks because of a prolonged recession and their big holdings of domestic sovereign debt.

"Continuing weakness in the real economy and the link between the financial sector and the sovereign remain key risks," the IMF said in the report.

The report said a series of actions, including higher loan loss provisions and creating a market that would help lenders get rid of impaired assets, would strenghten the banks.

It said banking foundations, which hold stakes in Italy's top lenders, warranted closer oversight to promote "greater transparency, better corporate governance and sound financial management."

The IMF also said the Bank of Italy should have stronger powers, including the authority to dismiss individual bank board members and managers.

(Reporting By Silvia Aloisi; editing by Francesca Landini)

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Keywords: ITALY BANKS/