GENOA, Italy, Feb 10 (Reuters) -

Banks could use part of last year's bumper profits to strengthen their capital buffers and halt a declining trend observed, in absolute terms, in recent years, the Bank of Italy governor said on Saturday.

Fabio Panetta told the Assiom-Forex financial conference that the increase in banks' capital ratios since 2020 had been driven by the decline in risk-weighted exposures.

Asked on the sidelines whether the comment applied to euro zone or Italian lenders, Panetta told Reuters the Bank of Italy's focus in analysing the data had been on domestic banks.

Capital ratios measure capital reserves in relation to risk-weighted assets (RWAs), and are a gauge of banks' ability to withstand potential losses.

With the cost of bank capital still outstripping returns, Italian lenders have been reducing RWAs, including through the use of synthetic securitisation deals for 'significant risk transfer' transactions.

Panetta, who sits on the European Central Bank council as governor of the Bank of Italy and was previously on the ECB executive board, pointed to state guarantees as a driver in the reduction of lenders' risk-weighted exposures.

Italy has provided state guarantees on more than 300 billion euros ($323 billion) in bank loans under expansionary policies Rome adopted to cushion the hit to the economy from the COVID-19 pandemic and the energy crisis.

Panetta stressed the state guarantees would expire.

"The amount of capital has decreased," Panetta said.

"The trends in capital can be reversed by drawing on last year's exceptional profits, thereby strengthening the banks' ability to absorb future losses," he added.

Banks could use their excess capital to build 'macroprudential' buffers that would allow them to support the economy in the event of external shocks to the financial system.

Panetta said the Bank of Italy would announce in the coming weeks the results of its analysis of the macroprudential policy stance in Italy. ($1 = 0.9275 euros) (Reporting by Valentina Za and Giselda Vagnoni; Editing by Keith Weir)