A proposal by Italy's government aimed at helping borrowers who have trouble repaying their bank debt has created uncertainty among investors in these assets and could weaken the market if enacted, credit rating agency Moody's said on Wednesday.

Giving borrowers the possibility to repurchase their debt at a predetermined price would reduce the amount of money recovered from debtors in bad loan securitisation transactions, the report said.

In such transactions, bad loans are repackaged as securities and buyers of those securities get repaid as the loans are recovered. (Reporting by Valentina Za, editing by Gianluca Semeraro and Bernadette Baum)