The Italian treasury's bad bank is in discussions to buy roughly €3.7 billion of bad loans from Banca Carige SpA to help clear its balance sheet and make the struggling lender more appealing as a target for a merger, Reuters reported, citing Il Messaggero.

Il Messaggero said the bad loans were made up of approximately €2 billion of unlikely-to-pay loans and €1.7 billion of nonperforming loans.

Carige is reportedly considering using a €320 million convertible bond to bolster its capital and to avoid a government rescue. The ECB earlier appointed three temporary administrators for Carige, in a bid to stabilize the bank following the resignation of the majority of its board members.