MILAN, July 29 (Reuters) - An Italian judge has rejected a request by prosecutors to shelve a false accounting case against former executives at bank Monte dei Paschi di Siena, which had to be bailed out by the state.
The case revolves around allegations that the three former executives failed to properly book bad loan provisions between 2012 and 2015 and stems from a complaint presented by the bank's small shareholders.
Monte dei Paschi, the world's oldest bank, had to request state aid at the end of 2016 after an attempt to raise capital on the market failed. The Italian state retains a stake of around 68% in the bank.
Small shareholders argue that documents used by the bank as it sought to convince investors to buy into two successive capital increases in 2014 and 2015 did not provide an accurate picture of the lender's real financial situation.
In his ruling, dated July 25 and seen by Reuters on Monday, judge Guido Salvini told Milan prosecutors to investigate the allegations further and gave them nine months to do so. The prosecutors were not initially convinced that the case was strong enough to pursue.
The case raises questions about Monte dei Paschi's health before it was bailed out by the government and whether the rescue, approved by European authorities and costing the taxpayer 5.4 billion euros ($6 billion), respected EU rules on dealing with banking crises.
The executives under investigation are Monte dei Paschi's former Chairman Alessandro Profumo, its former Chief Executive Fabrizio Viola and the former head of the bank's team of internal auditors, Paolo Salvadori.
Lawyers for Profumo and Viola declined to comment on the case. A lawyer for Salvadori did not respond to a request for comment.
In its ruling, the judge refers to a confidential report by the European Central Bank dated June 2, 2017 following an audit of the bank by its inspectors the previous year.
The report, seen by Reuters, found that a lot of loans deemed to be performing had in fact turned sour and that the bank had failed to set aside sufficient funds to cover for loan losses.
It said that based on an estimate submitted by the bank on Dec. 13, 2016, the lender's CET 1 ratio - a key measure of financial strength - would have been just 0.58% at the end of 2015 after taking into account the results of the inspection, compared with a minimum regulatory requirement of 4.5%.
A month after the ECB inspectors' report, the European Commission authorised the government in Rome to rescue Monte dei Paschi with taxpayer money, saying it had been reassured by the ECB that the bank was solvent and respected minimum capital requirements.
An ECB spokeswoman declined to comment. ($1 = 0.8985 euros) (Writing by Silvia Aloisi; Editing by Keith Weir and Jan Harvey)