By Giuseppe Fonte
ROME (Reuters) - Italy's cabinet was expected to meet on Sunday evening to approve a decree that would provide a 1 billion euro ($1.1 billion) lifeline to cooperative lender Banca Popolare di Bari, two sources with knowledge of the matter said.
The bank, which said last week it needed an urgent injection of up to 1 billion euros, has struggled to cope with mounting loan losses during a slump that has devastated Italy's economy, notably in Popolare di Bari's home region in the south.
It was placed under special administration by the Bank of Italy on Friday but the government led by Prime Minister Giuseppe Conte failed to approve a rescue package as several ministers boycotted a hastily convened cabinet meeting.
Conte will make a fresh attempt at pushing through an emergency decree to bail out the bank on Sunday evening, with a cabinet meeting due to be held at 2000 GMT, the sources said.
One of the sources, who has seen a draft of the decree, said the plan called for the injection of 1 billion euros into state-owned Banca del Mezzogiorno-Mediocredito Centrale. Of these funds, 500 million would be used to recapitalize Popolare di Bari and the rest would be set aside in case of future requirements.
The government wants a deposit guarantee fund financed by Italian banks to take part in the rescue by providing as much as 500 million euros.
The Interbank Deposit Protection Fund (FITD), whose executives are due to meet this week, said this month it had been asked for help by Popolare di Bari but wanted to examine the bank's business plan before making a decision.
The crisis at Popolare di Bari has heaped pressure on Conte's coalition, which brings together the anti-establishment 5-Star Movement and the center-left Democratic Party.
Only hours before the urgent cabinet meeting on Friday night, Conte said the banking system was in good health and there would be no need for state bailouts, prompting the right wing opposition League party to call on him to resign.
The meeting ended without approving an expected rescue package for Popolare di Bari as ministers from 5-Star and a small party led by former PD leader Matteo Renzi stayed away.
5-Star leader Luigi Di Maio said on Saturday he wanted to know why the bank had been allowed by the Bank of Italy, the sector supervisor, to deteriorate so badly and which bank managers were responsible before approving the rescue.
Since 2016, Italy has had to rescue several of its banks, including Monte dei Paschi di Siena and two Veneto lenders, rescues which 5-Star - which at the time was in opposition - slammed as a waste of taxpayer money to help bankers.
With 5 Star and the PD at loggerheads over a growing list of economic issues, from the fate of airline Alitalia to the troubled Ilva steel plant in southern Italy, the crisis could have potentially serious implications for the government.
Like thousands of Italians who invested savings in the shares and bonds of local banks, Popolare di Bari's 69,000 shareholders stand to lose their money in a rescue.