MILAN, May 23 (Reuters) - Italian bank Mediobanca said on Friday it would proceed to cancel 1 billion euros ($1.4 billion) in state-backed bonds that it had issued at the height of the euro zone crisis in a further sign that the funding situation at Italian banks is improving.
At the peak of the crisis, Italy had offered to guarantee bank bonds so that lenders could use them as collateral to borrow from the European Central Bank at two extraordinary liquidity tenders in late 2011 and early 2012.
As market tensions eased Italian banks have returned to borrow from international investors and have been repaying longer-term ECB funds ahead of the maturity of the two three-year operations.
UniCredit, Italy's biggest bank, said earlier this week it had cancelled similar state-backed bonds worth 10.1 billion euros. ($1 = 0.7323 Euros) (Reporting by Lisa Jucca)