(Bloomberg) --
The European Central Bank's Single Supervisory Mechanism will likely lift the ceiling on Greek banks' holdings of the country's sovereign bonds, people familiar with the situation said.
The supervisory ceiling set in 2015 is expected to be lifted in February, according to the people, who asked not to be named discussing ongoing deliberations.
European and national authorities warned Greek lenders in March 2015 against increasing their exposure to the debt for “prudential reasons,” given the clash between the Syriza party-led government and the country's creditors at the time. The friction threatened to jeopardize Greece's membership in the euro area.
Prime Minister Kyriakos Mitsotakis and ECB President Christine Lagarde discussed lifting the cap on sovereign holdings during a meeting on Tuesday, according to one of the people.
An SSM spokesman declined to comment.
Yields on Greek bonds fell on the news that lenders will now be able to make unlimited purchases of sovereign notes. Yields on 10-year debt dropped to the lowest level in almost six weeks.
Read More: It's Show Time for Greece's Hercules Plan to Slash Bad Loans
The Mitsotakis government, which took office in July, has taken a more market-friendly approach than the radical-left Syriza, agreeing to stick to fiscal targets for 2020, pushing ahead with privatizations and unblocking investments.
The administration has also set an ambitious target of helping banks offload some 33 billion euros ($37 billion) of bad loans by providing state guarantees.
--With assistance from Andrew Blackman and Vassilis Karamanis.
To contact the reporter on this story: Sotiris Nikas in Athens at snikas@bloomberg.net
To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Jerrold Colten, Paul Tugwell
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