Italian government-owned Banca Monte dei Paschi di Siena (BMPS) is looking to secure a €1.5bn ($1.8bn) capital injection to cover legal risk and bad loans.

Currently, the lender is grappling with €10bn in legal claims and has failed to find a buyer so far, while the Italy Treasury is pushing for reprivatisation.

To make the process easier, BMPS is planning to get rid of its bad loans worth €8.1bn ($9.5bn) by 1 December 2020.

In doing so, the bank’s capital will be reduced by €1.1bn, bringing its core capital ratio to 9.5%.

Moreover, the bank’s board also decided to set aside over €400m of equity as the loss-making bank hit the 8.8% minimum regulatory threshold.

Therefore, BMPS is considering options to boost its finances ahead of its third-quarter results on 5 November.

Additionally, the Italian government has earmarked another €1.5bn as the Treasury is also looking at mergers as an alternative to improve its balance sheet.

Rome bailed out BMPS by acquiring a 68% stake for €5.4bn ($6.34bn) back in 2017 when the bank was moving into bad debts following years of mismanagement.

According to the bailout terms agreed with the European Union (EU) competition authorities, this stake must be sold by the end of 2021 with re-privatisation by mid-2022. The Treasury is against extending the re-privatisation deadline.

Earlier this month, the shareholders approved the decree to clean-up bad loans and accelerate the bank’s sale under a plan dubbed as the ‘Hydra’ scheme.

The Italy Treasury, which has worked on the plan for two years, is hoping to find a buyer by the year-end to acquire the government stake in BMPS.

The Treasury has already approached Banco BPM and UniCredit as potential buyers for BMPS. However, the lenders were not interested in a deal.