S&P Downgrades 34 Italian Banks Due to Increased Financing Risks

Standard & Poor's downgraded the credit ratings of 34 Italian banks after lowering the country's credit just a month earlier.

Italy's two largest banks, UniCredit and Intesa Sanpaolo, had their credit ratings downgraded to BBB+ from A, S&P. said Friday. The country's third largest bank, Banca Monte dei Paschi di Siena, was downgraded to BBB from BBB+.

S&P said Italy's banking system was moved from "Group 4" to "Group 3" based on its Banking Industry Country Risk Assessment. There are 10 groups, with a lower group corresponding with higher credit risk.

"In our view, Italy's vulnerability to external financing risks has increased, given its high external public debt, resulting in Italian banks' significant ability to roll over their wholesale debt," S&P said in a statement.

The firm said it expects "weak profitability" for Italian banks over the next several years. The returns for the banks "may not be sufficient for banks to meet their cost of capital."

S&P, a division of McGraw Hill, downgraded Italy in January to A from A+ based on "tightening financial conditions and the government's fiscal austerity program."

"We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve," S&P said in a statement said following Italy's downgrade.