UPDATE 1-Shares in Italy's Creval rise after it cuts bad loan burden

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MILAN, July 14 (Reuters) - Shares in Italy’s Creval rose 5 percent on Friday after the mid-tier regional bank said it had completed a deal to shed 1.4 billion euros ($1.6 bln) of soured loans.

Creval said the deal lowered its non-performing loan (NPL) ratio -- a measure of bad debt as a share of total lending -- to an estimated 21 percent as of the end of June from 27 percent at the end of March.

Italian banks are under regulatory pressure to cut NPL ratios which, for the industry as a whole, are more than three times the European average of around 5 percent.

Lenders have been slow in shedding bad loans as a gap between their book value and prices investors are ready to pay means they can only be sold at a loss.

Stronger banks, such as UniCredit have been able to raise capital on the market to offload bad loans. But the state had to step in to recapitalise Italy’s fourth-largest bank Monte dei Paschi di Siena and help it absorb the hit from a bad loan sale enforced by the European Central Bank.

Creval said the sale took 1.2 percentage points off its best-quality capital. At 11 percent, however, the CET 1 ratio is still well above a regulatory minimum of 7.75 percent, it added.

Broker Equita said the loss linked to the disposal was lower than it had expected and raised its target price on the stock by 15 percent.

The bank is studying further asset sales to improve its capital buffer.

Creval is selling the bad loans repackaged as securities. An institutional investor has bought the riskier tranches worth a combined 62.5 million euros in nominal terms, Creval said, without disclosing the actual selling price or the identity of the investor.

The bank will tap a state guarantee scheme on a 464 million euro tranche that it could either sell or keep on its books. ($1 = 0.8757 euros) (Reporting by Valentina Za; Editing by Keith Weir)