Fitch downgraded Banca Carige from BB+ to BB on Friday and placed Banca Popolare di Milano, rated BBB-, on Rating Watch Negative following a periodic review of eight Italian mid-sized banking groups.

The rating agency said that it considers Italian mid-sized banks to still be vulnerable to a further deterioration of the domestic economy, but that they have stabilised their funding and liquidity and some progress is being made on strengthening capitalisation.

Fitch downgraded Carige to reflect execution risk in the bank’s plan to restore its tight capitalisation to more acceptable levels. It said that Carige needs to raise Eu800m of capital through a combination of asset disposals and a new share issue, whose implementation remains uncertain under prevailing market conditions.

“Carige’s Issuer Default Ratings and Viability Ratings reflect its weak profitability, deteriorated asset quality, and some reliance on ECB funding,” said Fitch.

Banca Popolare di Milano’s rating was placed on Rating Watch Negative (RWN) because Fitch considers that it would come under pressure if the bank is unable to complete its reorganisation by strengthening corporate governance.

Fitch also downgraded Banca Popolare dell’ Emilia Romagna, which has outstanding covered bonds although none of these were publicly placed obbligazioni bancarie garantite (OBG) benchmarks. The rating agency affirmed benchmark OBG issuer Credito Emiliano at BBB+.