Popolare di Bari is under pressure to clean up its balance sheet and boost its financial strength but it has said it has difficulties raising capital on the market.

One of the last two large popolari banks to adhere to 2015's landmark reform of the sector, the bank is now looking to become a joint stock company by creating a holding company that would keep the mutual status and a sub-holding that would be a proper joint stock company, the sources said.

One source said the bank would spin off its bad loans into a separate vehicle and transfer the good assets to the sub-holding company.

The idea would then be for other southern Italian popolari banks to transfer their assets into the sub-holding company as well.

The two sources said Popolare di Bari like other popolari banks has been encouraged to consider a merger by the Bank of Italy.

The Bank of Italy had no immediate comment.

(Additional reporting by Stefano Bernabei, writing by Giulio Piovaccari; Editing by Alexandra Hudson)

By Valentina Za and Paola Arosio