Fitch: Bad Loans, Political Crisis Weigh on Italian Banking Sector

The forecast for Italian banking sector is negative as the number of the non-performing loans has not changed and political instability threatens to reduce recapitalization of local banks, Fitch Ratings agency said on Tuesday.

MOSCOW (Sputnik) – In the same release, Fitch added that "disposals of non-performing loan portfolios could lead to losses that require additional capital."

"The Negative Outlook for the Italian banking sector reflects its increased vulnerability to shocks following the asset-quality deterioration in legacy portfolios… A step-up in pressure from authorities and market participants on the sector to reduce the very high levels of impaired loans has increased urgency and risks for Italian banks," Fitch said in a press release.

The results of Sunday’s national referendum, where a majority of Italians rejected constitutional changes that would have streamlined the parliament, are likely to exacerbate the political situation and affect the government's capacity to put through economic reforms, the US credit rating agency forecast.

Italian Prime Minister Matteo Renzi announced his resignation on Monday. Interior Minister Angelino Alfano said the country could hold a snap parliamentary election as early as February 2017.