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

The agency also lowered its Banking Industry Country Risk Assessment for Italy to "4'' from "3.'' The so-called BICRA rating is on a 1-to-10 scale, with "1'' representing countries with the lowest-risk banking systems.

"We anticipate persistently weak profitability for Italian banks in the next few years,'' S&P said.

S&P downgraded the credit ratings of a nine countries that use the euro in January, including bumping Italy's credit rating down two notches. Debt ratings can play a significant role in determining countries' borrowing costs by forcing them to pay higher interest rates to compensate borrowers for taking on added risk.

Italy has been a focus of much of the worry over the European debt crisis, given its high debt levels and intense borrowing needs. The country passed austerity measures and is on a structural reform course that government leaders claim should bring down Italy's high bond yields.

The S&P downgrade last month did not have the immediate disastrous effect in Europe that was anticipated, due in part to growing investor confidence in those countries' economic policies and the impact of the European Central Bank's decision to loan hundreds of billions of euros to banks at very low rates.

However, Fitch Ratings followed suit in two weeks with a special warning for Italy that it could face permanently higher borrowing costs that would make it harder to keep its debt under control. It resisted stronger ratings action because of the ``strong commitment'' of the new Italian government to balance the country's budget and make Italy a better place to do business.