OREANDA-NEWS. The Italian government's exploration of initiatives to strengthen banks' capitalisation using public funds highlights the pressure on the banking sector from weak asset quality, says Fitch Ratings. Measures that would strengthen asset quality or capital without triggering bail-in could be positive for Italian banks' Issuer Default Ratings. But the impediments under EU legislation to using public funds will make a solution difficult to achieve.

Market volatility following the UK's EU referendum result hit the Italian bank sector particularly hard because it is one of Europe's weakest. Profitability and internal capital generation is weak. Asset quality pressure is a main driver for the Negative Outlooks on several large and medium-sized Italian banks.