Moody’s: Outlook for Italy’s banking system remains negative

The outlook for Italy remains negative, and in particular for the country’s banking sector, rating agency Moody’s has warned.

In a report, the firm said the operating conditions for the banks are and will remain challenging.

Moody’s expects that the banks’ asset quality will continue to deteriorate over the outlook period, from already weak levels.

“The banks’ already modest profitability will also continue to weaken, as loan-loss provisions will increase and continue to absorb a higher portion of banks’ moderate pre-provision earnings,” Moody’s said.

In its report, Moody’s said euro area-wide pressures would continue to restrict Italian banks’ access to market funding and while the banks have strengthened their balance sheets, capital levels remained vulnerable and below those of other large European markets.

Italy’s two biggest banks Intesa Sanpaolo and UniCredit have set aside a combined €8.4bnin the first nine months of the year, against rising bad loans.
Rising non-performing loans also forced Italian banks to cut lending to businesses.

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