S&P raises economic risk score on Italy

Standard & Poor’s has downgraded 15 Italian banks and increased its economic risk score on the country, on the basis that a longer than expected recession will likely increase Italian banks’ problem assets in 2012 and 2013.

The rating firm said it expects Italy’s gross domestic product to decline bt 2.1% in 2012 and by 0.4% in 2013.

At the same time, the banks’ coverage of problem assets has weakened in the past few years.

S&P expects Italian banks’ problem assets to rise to €218bn by the end of 2013, compared with €166bn at the end of 2011. They were € 75bn in 2008.

The agency revised its economic risk score, which is a component of its banking industry country risk assessment, up from 4 to 5. The firm now views credit risk in the Italian economy at “high risk”, from its earlier assessment of “intermediate risk.”

In January, S&P cut Italy’s rating by two notches to BBB+.

Moody’s Investors Service downgraded Italy’s government bond rating two notches to BAA2 in July.

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