VICENZA, Italy Deposits have started to return to Popolare di Vicenza after an outflow helped to drive the troubled Italian bank's direct funding down 14.4 percent last year, its chief executive said on Friday.
"Over the past few weeks the loss of deposits has been replaced by a slow and gradual recovery," CEO Fabrizio Viola told the lender's annual general meeting.
Viola said it was uncertain whether the bank would be granted the state bailout it has requested alongside fellow regional bank Veneto Banca to fill a 6.4 billion euro (5.35 billion pounds) combined capital gap and embark on a merger.
The two banks need European Union approval of their restructuring plan to tap state funds and Viola said it was too early to say when the process could be concluded though the bank hoped it may be soon.
To offset the loss in deposits, Popolare di Vicenza and Veneto Banca have tapped a state guarantee to issue a total of 10 billion euros in state-backed bonds.
Thousands of small shareholders in the two banks saw their investment wiped out last year when the two lenders had to be rescued by state-sponsored, privately funded bank bailout fund Atlante which now owns nearly 100 percent of both.
To stave off potential lawsuits, the two banks have offered to repay investors who bought stock in the past decade 15 percent of their losses, a proposal that was taken up by around 70 percent of the targeted shareholders.
"Something gives me a bit of confidence about the fact that the bank will still be here in coming years: around 94 percent of the money paid out in the settlement offer is still deposited on the bank's current accounts," Viola said.
However, Viola said Popolare di Vicenza's current loan-to-deposit ratio of 120-130 percent was unsustainable.
"We can't go on like this ... the situation has stabilised .. but we need to work to improve our funding," he said. "I'm aware confidence can only be won back with months or perhaps years of responsible behaviour."
(Reporting by Valentina Za; Editing by Keith Weir)