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(Adds figures on net bad loans)
MILAN, March 9 (Reuters) - Large writedowns booked by Italian banks in the fourth quarter of 2016 pushed net bad loans to their lowest level in two and a half years, data showed on Thursday, highlighting lenders' ongoing efforts to deal with the legacy of a harsh recession.
The Bank of Italy said that, net of writedowns, bad loans were 77.8 billion euros ($82 billion) in January from 86.8 billion euros in December. It was the lowest net value since June 2014.
In gross terms, loans to insolvent borrowers stood at 197.9 billion euros in January down from 200.85 billion euros in December.
The annual rate of increase was 4 percent in January. If adjusted to take into account bad loans that were sold or securitised, the yearly increase was 12.2 percent, little changed from the previous month.
Italian banks struggle to offload bad debts because they can only sell at a loss given lower market prices than net book values. Also, new strict rules on state aid to banks prevent the Rome government from stepping in decisively to help clean up the banking system like Spain or Ireland did during the financial crisis.
Bad debts are blamed for restricting banks' ability to lend and, ultimately, for curbing economic growth.
The Bank of Italy said loans to companies rose 0.9 percent in January after a 0.2 percent increase in December in adjusted terms.
Data showed corporate loans stood at 776 billion euros in January, compared with 915 billion euros at the height of the sovereign debt crisis in November 2011.
($1 = 0.9471 euros)
$1 = 0.9469 euros Reporting by Valentina Za; Editing by Toby Chopra; editing by Francesca Landini and Toby Chopra