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By Bloomberg

Italy’s government passed rules that may help banks strengthen their capital and boost profit, the latest in a series of measures that are remodelling the nation’s lenders.

Prime Minister Matteo Renzi’s cabinet approved a decree law to shorten the time it takes banks to seize assets on bad loans, while allowing lenders to deduct loan losses from their tax bill in a single year instead of over five, Finance Minister Pier Carlo Padoan told reporters on Tuesday.

The government is seeking to align banking practices with those of other European countries after introducing sweeping reforms of the nation’s cooperative lenders that will probably prompt a wave of mergers. Italy is also studying a proposal to create a so-called bad bank to allow lenders to offload troubled assets as low interest rates maintain pressure on banks’ profit even as the economy emerges from recession.

The new arrangement on tax deductions may boost banks’ common equity Tier 1 ratios, a measure of financial strength, by 10 basis points, Riccardo Rovere, a Milan-based analyst at Mediobanca SpA, wrote in a note Wednesday. “Shortening the recovery period of collaterals by one year would impact earnings per share by an average of 6 percent in 2018,” he also said.

Banca Monte dei Paschi di Siena SpA and Banco Popolare SC may see a greater reduction to their cost of credit risk from quicker repossessions because their loan books have longer durations, according to Banca Akros SpA’s analyst Luigi Tramontana.