Fiat seeks to turn financing unit into a bank -source

MILAN, Feb 16 (Reuters) - Fiat (Berlin: FIAT.BE - news) , which has agreed to take full control of U.S. unit Chrysler (Xetra: 710000 - news) , has asked the Bank of Italy's permission to turn financing unit Fga Capital into a bank to cut funding costs, a source with direct knowledge of the situation said.

Winning a banking licence would make Fiat more competitive against rival car makers such as Volkswagen (Other OTC: VLKAF - news) and Peugeot (Berlin: PEU.BE - news) , which already have their own internal banks and were able to access cheap loans offered by the European Central Bank (ECB) during the euro zone crisis, the source said.

"Fiat was not able to access ECB funds during the two Long Term Refinancing Operations because it did not have a bank," the source told Reuters on Sunday, confirming a report in Italian newspaper Il Sole 24 Ore.

The source said the request for a banking licence was presented to the Bank of Italy earlier this year.

Fga Capital was set up in 2006 as an equal partnership between Fiat and French bank Credit Agricole (TLO: ACA.TI - news) , which also has a large retail banking network in Italy.

Last year, Fiat and Credit Agricole extended their joint venture to the end of 2021.

Fiat has high funding costs given its 'junk' credit rating and is looking for solutions to cut costs and thus improve margins.

Fiat declined to comment. The Bank of Italy was not immediately available for comment.