Italy's ruling coalition likely to delay small bank reform-sources

(This version of the story corrects paragraph six to clarify that 90-day deadline would be suspended for six months not extended to six months)

By Giuseppe Fonte

ROME (Reuters) - Italy's anti-establishment coalition government is likely to delay a planned reform of the country's mutual banks through a decree it will approve next week, two sources familiar with the matter said on Tuesday.

The right-wing League party has been pushing for a moratorium of the reform, which was introduced by the former centre-left government and is forcing hundreds of small mutual banks (BCCs) to merge to create larger groups.

Economy Minister Giovanni Tria on Tuesday argued against halting the process, telling a p arliamentary panel in the Senate that most Italian mutual banks wanted to forge ahead with the changes.

However, he also said it may be possible to give BCC banks more time before signing the accords they each need to strike with the holding company of the new groups being formed.

Under the terms of the reform, BCC banks have 90 days to sign those accords.

Two sources from the coalition, made up of the League and the anti-establishment 5-Star Movement, said the 90-day deadline could be suspended for six months in a decree to be approved by the government next week.

Debt rating agency Fitch warned on Tuesday that halting the reform would be negative for the sector's credit standing.

"Any reversal of restructuring Italy's fragmented mutual sector would go against developments in other European countries that have resulted in stronger, more cohesive mutual lenders," Fitch said in a statement.

"We believe the proposed system would improve transparency and governance," the agency said, adding the current system had in some cases "resulted in weak governance and risky lending, contributing to bank failures".

The moratorium was proposed by League Senator Alberto Bagnai, who heads the finance commission addressed by Tria on Tuesday.

Bagnai has argued the reform should be frozen to avoid increasing an "asymmetry" in euro zone banking whereby Italian lenders are under closer European Central Bank scrutiny than German peers.

Two of the three banking groups which are being formed as a result of the reform are set to fall under the direct oversight of the ECB due to their significant size.

(Additional reporting and writing by Valentina Za; Editing by Jan Harvey)