Moody's Investors Service has confirmed its negative outlook for Italy's banking system in view of possible repercussions from the current economic downturn.
Moody's made it clear, however, that the confirmation of the negative outlook ''is not an indication of a possible rating downgrade''.
Moody's decided in May to change the outlook from stable to negative, making Italy the last major European country to see this happen.
At the time, Moody's observed that while the Italian banking system had initially proven to be more resilient than those of other countries - ''due to its lower exposure to toxic financial assets, investment banking and capital market funding'' - the financial crisis had spread to Italy's real economy and, as a consequence, Italian banks' asset quality and profitability indicators deteriorated in 2008.
Moody's added that it expected the situation to worsen further in 2009 and 2010.
Moody's stated in May that ''unlike other European countries, where major banks have needed emergency recapitalization by their respective governments, Italian banks are not expected to need strong state backing''.
Last month Moody's placed 21 Italian banks and financial institutions on review for a possible downgrading of their financial strength ratings (BFSRs) or long-term debt and deposit ratings.
The list included Italy's leading banks like Unicredit, Intesa SanPaolo, Monte Paschi di Siena (MPS), Banco Popolare di Milano (BPM) and Banca Nazionale del Lavoro (BNL).
At the same time Moody's said the BFSRs of another 20 Italian banks were up for review for a possible upgrade.
According to Moody's, the reviews for possible downgrades were ''prompted by its view that the operating environment faced by Italian banks has deteriorated significantly, as reflected by the change in its outlook for the Italian banking system to negative from stable in May 2009''.
However, Moody's added that ''in most cases there should be only a limited impact, with most downgrades being limited to a single notch''.
''While Moody's outlook for the Italian banking system is currently negative, we see the potential downside for the financial fundamentals and ratings of the country's banks as being significantly more limited than has been the case for some other major European banking systems'', observed Henry MacNevin, a Moody's senior vice president responsible for Italian bank ratings.
