MILAN, Italy, Nov. 20-- The year 2015 could be the turning point for the Italian banking system to tackle weaknesses related to credit risk, rating agency Dagong Europe said in a report presented here on Thursday at the Milan Foreign Press Association.

Since 2008, the Italian banking system has been affected by repeated shocks to the economy. The Italian banks, however, did not face a real estate bubble-burst or a fiscal reform program that required material structural changes as experienced by other European countries, Dagong Europe said in the report.

Since the turning point for economic growth in Italy is generally forecasted for the second half of 2015, Dagong Europe expects "banks to anticipate that growth and start to increase their lending to contribute to the pace of the economic recovery."

The key to improve the financial performance of Italian banks, focused mainly on traditional banking, is however a faster recovery of the domestic economy, Carola Saldias, senior director of financial institutions analytical team at the Milan-based rating agency, stressed.

The trend on asset quality deterioration has started slowing down, but pressure on credit quality remains significant, she noted.

Though Dagong Europe for 2015 expects Italian banks to increase their loan loss provisions, the availability of resources to allocate further provisions is correlated to the difficult economic scenario, the report highlighted.

As regards capital, Italian banks included in the European asset quality review and stress test carried out last month showed at aggregate level a below average capitalization.

Dagong Europe predicted that most Italian banks will continue increasing capitalization levels through fresh capital issues and more efficient management of risk-weighted asset base, mainly with distressed asset sale.

In terms of European Central Bank funding, of which Italian banks are historically the largest user, there will be "a smooth reduction due to increased investor appetite for securities of adequate credit quality," Saldias noted. Participation in the TLTRO (Targeted Longer-Term Refinancing Operations) will remain substantial.

Looking at overall performance, Dagong Europe said in the report that Italian banks "should see the return to positive profitability growth in 2015," though the rating agency was "cautious on potential further loan loss provisions that could continue affecting the banks' results."

Dagong Europe, the European branch of Chinese rating agency Dagong Global Credit Rating Co. Ltd, concentrates on corporate credit ratings assigned to both financial and non-financial entities, and has a team of professionals from various countries.