The move is part of steps aimed at strengthening the country's bank finances. The measures were contained in the 1999 budget appropriations law passed by parliament at the weekend.

The new measures also raise to 75 per cent from 20 per cent the profits banks are allowed to allocate free of tax to provisions for results between January 1, 1998 and December 31, 2001.

They include the establishment of a fund to cover the banks' foreign exchange risks, and the authorisation for banks to exclude some non-performing loans from their balance sheet.

The state will pay a total debt of 549 million dinars owed by 125 state-controlled firms that are in the privatisation process or are likely to be privatised, a parliament report obtained by Reuters said.

The payment of the principal of non-performing loansthat were contracted before December 31, 1997 would nevertheless be rescheduled over a 25-year period.

Among these firms is milk firm Societe Tunisienne des Industries Laitieres for an amount of 6.8 million dinars.

The state will give its guarantee to non-performing loans worth 171 million dinars of 13 other firms that are not listed in the privatisation programme. The payment of these debts is rescheduled over a 25-year period.

``The aim of these measures was essentially to enable the banking sector to strengthen its financial situation and prepare for greater competition,'' finance minister Mohamed Jeri told the parliament.

``Estimated non-performing loans of the banking sector represent 28 per cent of the total bank's liabilities, which is a high rate compared to international norms, and therefore limits the banking sector's capacity to raise money abroad in order to finance the country's economy,'' he added.

The banks' outstanding loans are estimated at nearly 12 billion dinars and totalnon-performing debt was put at about 3.0 billion dinars of which nearly 1.0 billion dinars was accounted for state-controlled firms, bankers said.