Moody's downgrades 13 Italian banks

New York - Ratings agency Moody's Investors Service has slashed the ratings of 13 Italian banks, citing the weakened credit profile of the Italian government.

The downgrades Monday came only four days after the ratings agency cut Italy's government bond rating to Baa2 from A3, with a negative outlook, reported Xinhua.

The ratings declined by one notch for seven of the affected institutions, and by two notches for the remaining six. The short-term ratings for three of the banks were also downgraded by one notch, triggered by the long-term ratings changes.

"Along with the increase in the risk of sovereign bond defaults, the downgrade of Italy's long-term ratings to Baa2 also indicates a similarly increased risk that the government might be unable to provide financial support to its banks in financial distress," explained the ratings agency in its statement.

"As a consequence, Italian banks with standalone ratings at or close to the Baa2, and higher debt and deposit ratings as a result of an expectation of systemic support, have seen the support uplift in their debt ratings reduced by one or two notches," it added.

Italian banks had previously been downgraded in mid May, as part of an international bank ratings review.

Moody's said that banks are normally rated no higher than a government "due to multiple channels of shared exposure and contagion".

Italian banks, it said, have substantial exposure to the domestic economy and "high direct exposure" to sovereign debt.

Analysts said the downgrades weren't exactly surprising, but could increase pressure on the already troubled lenders.