UPDATE 1-Italian banks "in great difficulty"- ABI

* Banks put survival at risk in pre-recovery lending

* Banks, employers, govt discuss loan moratorium

* Talks on tax breaks for banks on bad loans

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ROME, July 17 (Reuters) - The head of Italy's banking association has warned banks they put their own commercial survival at risk by supporting government calls to help the country's economic recovery with increasingly risky bad loans.

Italian banks are facing hard times -- torn between growing lending requests by government and businessman and a sheer rise of bad loans which are expected to increase more in the coming 12 months, according to a Bank of Italy official on Friday. [ID:nRON004735]

"Banks should lend to companies ahead of the economic recovery in a way that allows the banks to still be there at the end of the crisis", the banking association ABI head Corrado Faissola said on Friday.

"The commercial banks find themselves in very serious difficulty."

Stress tests conducted on Italian banks showed that they have adequate capital even if the macroeconomic scenario were to worsen, Italy governor Mario Draghi said last week. [ID:nL8637798]