MILAN, Nov 23 (Reuters) - Italian banks added a net 39 billion euros ($44 billion) to their holdings of domestic state bonds between May and September to counter a foreign sell-off under a new populist government, the Bank of Italy said on Friday.
In its twice-yearly Financial Stability Report, the central bank said foreign investors had cut their holdings of Italian government bonds by 3 percentage points in the second quarter, the biggest quarterly drop since 2012.
They now hold around 24 percent of the total.
Replicating a pattern observed during the sovereign debt crisis of 2011-2012, Italian banks stepped in to support Italian bond prices, the central bank said, increasing risks for their balance sheets.
To limit the damage to capital buffers from the drop in the value of their sovereign holdings, banks have classed two thirds of the new bond purchases as assets that they will hold to maturity which, as such, do not need to be marked to market. ($1 = 0.8811 euros) (Reporting by Valentina Za)