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San Marino plans to inject liquidity into its struggling lenders

The Central Bank of the Republic of San Marino intends to raise up to €150 million in June for a planned liquidity injection into its struggling banks, which are saddled with €1.8 billion in gross nonperforming loans, as part of efforts to revamp the country's banking system and find new equity capital, Reuters reported, citing "a source close to the matter."

The small country located within central Italy has six banks including Cassa di Risparmio della Repubblica di San Marino SpA, in which the state holds a major stake. The liquidity operation aims to ensure that the country's lenders have stable funding while the NPL problem is being addressed by local authorities, who are seeking a longer-term solution, the source said.

Simone Celli, the secretary of state for finance, said the government plans to set up a national bad bank to deal with the NPLs attributable to San Marino citizens, which account for almost 50% of total bad loans, the newswire noted.

San Marino is not part of the European Union. However, it uses the euro and abides by the currency's rules. As such, the country is expected to comply with EU bail-in rules by September 2018. Approximately €260 million in capital is needed by the six lenders to manage their NPLs, according to the source, noting that the amount is equivalent to one-fifth of the country's GDP, according to the report. When the new global rules from the Basel Committee on Banking Supervision are applied, that estimate balloons to €490 million, the source added.

Celli said that the government wants to avoid a bail-in, the report noted.