Banca Popolare di Sondrio (>> Banca Popolare di Sondrio) was cut to 'BBB' from 'BBB+' due to weakening capital ratios; Banca Popolare dell'Emilia Romagna (>> Banca Popolare dell'Emilia Romagna) to 'BB+' from 'BBB' because of deteriorated asset quality; and Banca Carige (>> Banca Carige SpA) to 'BB' from 'BB+' to reflect the execution risk in its capital boosting plan, Fitch said in a statement.

Fitch's outlooks for the three lenders are negative.

The Bank of Italy lowered its economic forecast for 2013 last week, saying gross domestic product (GDP) would shrink by 1.9 percent after a weak first half, but adding there were signs of stabilisation towards the end of the year.

"Fitch expects impaired loan ratios to deteriorate further throughout 2013 and does not see an improvement until signs of a domestic recovery become evident," it said in a statement.

Fitch also said it still saw the main risk for further asset quality deterioration arising from Italian mid-sized banks' exposure to small- and mid-sized companies.

It added it expected more new share issues as losses reported by most mid-sized lenders and forthcoming changes to bank supervision made the need for capital more pressing.

Operating profitability of Italian mid-sized banks will remain under pressure throughout the second half of 2013 until signs of a domestic recovery materialise, the agency said.

(Reporting by Danilo Masoni; Editing by Isla Binnie and David Holmes)