The Italian government has approved a state-bailout for the country’s troubled lender Monte dei Paschi di Siena (MPS).

The move comes after the Siena-based bank’s failed attempt to rake in €5bn from private investors.

The funds to bailout MPS will come from a €20bn bailout package recently approved by the government, which aims to help the country’s ailing banking sector.

The troubled lender, which emerged as the worst performer in the European stress tests this year, raised only €2.5bn in private funds so far and requested a capital infusion from the state.

Under new EU rules, the bailout will involve a forced conversion of the bank's junior bonds into shares.

Commenting on the state rescue, Italy economy minister Pier Carlo Padoan said: “This will secure the capital needs of MPS and allow the bank to pursue its industrial plan.

“Italy’s third-largest bank will finally return with force to operate in support of the Italian economy and in a context of full tranquillity for its savers and its employees.”