Despite years of recovery, Italy's bank problems are still not solved Express News

Italian banks have gone through mergers, fund-raising measures and a great deal of effort to reduce the level of their bad loans since the euro zone sovereign debt crisis of 2011.

But despite these endeavors, onlookers still see the sector as the biggest problem for Italy’s economy.

“The big picture is that they have strengthened their balance sheets over the past few years, but they remain perhaps Italy’s weakest link,” Jack Allen, a senior European economist at Capital Economics, told CNBC via email.

The Italian banking system, on average, has increased its common equity tier 1 ratio from 6.9 percent in 2008 to 14.3 percent in 2017, according to analysis from the macroeconomic research firm. This means the banks are now in a much healthier position to absorb potential losses with larger capital buffers.

This was one of the ways the region dealt with many structural issues that the debt crisis revealed. However, more recently and on top of these legacy issues, Italian lenders have had to deal with another kind of problem: politics.

A general election in March last year showed strong public support for populist parties and, after months of uncertainty and intense negotiations, an anti-establishment coalition government came to power in June.

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