UPDATE 1-Italy should do more to tackle banks' bad loans - IMF

(Recasts with IMF recommendations, adds details)

MILAN, Oct 5 (Reuters) - The Italian government has recently taken a number of measures to tackle bad loans but these efforts may not be sufficient to strengthen its ailing banking system, the International Monetary Fund said on Wednesday.

A three-year long recession left a legacy of more than 200 billion euros ($224 billion) in non-performing loans on Italian banks’ balance sheets, and uncertainty over the value of these loans has depressed investors’ appetite for the country’s banks.

In its Global Financial Stability Report published on Wednesday, the IMF said that Italy’s recent reform on insolvency, which introduced extrajudicial procedures to speed up asset recovery in bankruptcy cases, should be extended to cover existing non-performing loans and not just new ones.

Italian authorities should also examine the asset quality of smaller banks that are not scrutinised by the European Central Bank and monitor that lenders meet ambitious targets set for the reduction of their bad loans, the fund said.

In comments relating to the restructuring plan of troubled lender Monte dei Paschi di Siena, the IMF said that addressing the lack of capital at weak banks is needed to ensure the stability of the system as a whole and to support the broader economy. ($1 = 0.8930 euros) (Reporting by Alessia Pe, writing by Francesca Landini, editing by Angus MacSwan)