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MILAN (Reuters) - Senior bonds issued by Banca Popolare di Vicenza fell sharply on Wednesday, hit by concerns that the Italian regional bank and local rival Veneto Banca may not qualify for a state bailout they need to stay afloat.
Popolare di Vicenza reported on Tuesday a 1.9 billion euro (1.65 billion pounds) loss for 2016 hit by writedowns of doubtful loans and other assets.
It also said a key indicator of its ability to meet short-term cash outflows - the liquidity coverage ratio - fell to 38 percent at the end of last year, well below an ECB threshold of 90 percent, after it lost 3 billion euros in direct funding. The ratio stood at 113 percent in June.
The bank warned it had suffered significant deposit outflows this month as customers withdrew their money due to worries about its future and possible losses under European "bail-in" rules aimed at shielding taxpayers from bank rescues.
Both Popolare di Vicenza and Veneto Banca have requested state aid but they must be deemed solvent by European regulators to be allowed to receive public support.
By 0745 GMT an Oct. 2018 Popolare di Vicenza bond IT098532650= yielded 24.19 percent, up from 20.71 percent at Tuesday's close. The yield on a March 2020 bond IT120564404= was up to 14.59 percent from 13.15 percent.
Traders said some selling also hit bonds issued by Veneto Banca, which is yet to publish its full-year earnings.
Reporting by Valentina Za, editing by Silvia aloisi