UPDATE 1-Bad debts at Italian banks continue to rise in August-BOI
(Adds figures on government bond holdings at domestic banks)
MILAN Oct 8 (Reuters) - Bad debts at Italian banks rose 22.3 percent in August from a year earlier, Bank of Italy (BOI) data showed on Tuesday, as the country's lenders continued to suffer from the consequences of a prolonged economic recession.
The rate of increase in problematic loans was unchanged compared with July, the central bank said.
Domestic banks kept their holdings of Italian government bonds roughly unchanged at 396.7 billion euros ($538.38 billion) in August, Bank of Italy showed in a separate report.
In June, the holdings of domestic government bonds were worth 401.7 billion euros, the highest level since records began in June 2008.
While Italian lenders were keen on investing in the country's debt, they curbed lending to households and companies to keep credit risks in check.
Loans to non-financial firms fell 4.6 percent in August, a higher rate compared with the 4.1 percent recorded in July.
Lending to households contracted by 1.2 percent from the same month of 2012, following a 1.1 percent drop in July. Rates on house mortgages decreased slightly to 3.91 percent from 3.96 percent a month before.
Loans to companies became more expensive with the average rate on loans of up to 1 million euros rising to 4.50 percent from 4.41 percent.
The average cost of bigger loans, however, fell to 2.86 percent from 2.96 percent. ($1 = 0.7368 euros) (Reporting by Francesca Landini, editing by Danilo Masoni; Editing by Louise Heavens)