Ratings agency Moody's cuts ratings on 26 Italian banks, saying the decision reflects a range of adverse conditions.

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Moody's cuts long-term debt and deposit ratings for 26 Italian banks

Ratings are now among the lowest in advanced European countries, Moody's says

Agency says bail-outs eased pressure on banks but problems persist

New York Financial Times  — 

Moody’s Investors Service on Monday cut the long-term debt and deposit ratings for 26 Italian banks by one to four notches, highlighting the tough environments in Italy and Europe.

The ratings for Italian banks are now among the lowest in advanced European countries, Moody’s said, reflecting a combination of adverse conditions, asset quality deterioration and restricted access to market funding.

Recent efforts by the government and European Central Bank to extend financial support to struggling financial institutions have helped ease some of the pressure on Italian banks, the rating agency said.

However, with the country’s economy back in recession and government austerity measures hurting demand, problem loans and loan-loss provisions are rising, said Johannes Wassenberg, Moody’s managing director for European banks.

“If this limited access to funding persists, the pressure on banks to reduce assets may increase, posing risks to their franchises and earnings,” Mr Wassenberg said.

Some of Italy’s largest financial institutions were covered in the review, including UniCredit and Intesa Sanpaolo. All of the banks affected now have a negative outlook, which may increase the likelihood of future downgrades.

UniCredit, the country’s largest bank by assets, had its long-term debt rating lowered one notch to A3. Milan-based Intesa, Italy’s second-largest lender, was downgraded to A3 from A2.

The downgrade followed a previous cut on February 13, when the agency lowered the rating of Italy and five other countries, including Spain. At that time, Italy was lowered to A3, and now stands four steps above junk. Fears over the ability of the eurozone’s firewall to shield some countries are being compounded by speculation Greece may leave the eurozone.