15 May 2012

Moody's downgrades Italian banks

1:31 pm on 15 May 2012

Moody's Investors Service has downgraded the creditworthiness of 26 Italian banks, citing the country's recession and rising bad debt levels.

The banks have all been downgraded by at least one notch, and for some, by as many as four notches.

Moody's warns that all of the banks may be downgraded further.

The moves mark another blow for Italy's top five banks after they were asked to find some 15 billion euros by June to meet tougher capital requirements set by the European Banking Authority due to vast holdings of domestic government bonds.

Economic recession has worsened credit quality as banks come under pressure from the Italian government to put cheap funding from the European Central Bank to work in the real economy.

The ratings agency cited a return to recession, government austerity measures that have hurt demand, a rise in problem loans and restricted access to market funding as among the factors behind its downgrades.