The ratings agency Moody's Monday lowered the credit ratings for 26 Italian banks, including industry giants UniCredit and Intesa Sanpaolo, dpa reported.
The outlook for the banks is "negative," Moody's said, an indication that further downgrades were likely.
Moody's explained that the move reflected the poor state of Italy's economy.
"The ratings for Italian banks are now amongst the lowest within advanced European countries, reflecting these banks' susceptibility to the adverse operating environments in Italy and Europe," Moody's Investor Service said in a statement.
The country has fallen back into recession, the rating agency noted. The government's austerity programme has reduced "near-term economic demand"; at the same time problematic credit extensions are increasing while earnings for the financial institutes are dropping, Moody's said.
In addition, it has become more difficult for the banks to acquire fresh sources of money, Moody's said.
While ten larger banks were only downgraded one notch, eight banks dropped two notches, six banks dropped three notches and two banks dropped four notches.
Prime Minister Mario MOnti's government of "Experts" is trying to turn around Italy's economy, but is handicapped by the credit crunch in the limping bank system.
On an upbeat note, Moody's added that the European Central Bank has "substantial liquidity" that significantly reduces near-term default risk for Italy. In February, Moody's cut the debt ratings of Italy and five other European countries because of the eurozone debt crisis.
The lower the credit rating of a bank, the more difficult it is for it to acquire new capital infusions and the more expensive it is to borrow new money.
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