Italian banks suffered heavy losses on the Milan stock exchange on Tuesday, even after Prime Minister Matteo Renzi vouched for their solidity in the wake of mixed results in last week's Europe-wide stress tests.

Italian lenders are weighed down by a mountain of bad loans, a legacy of a long recession and poor management decisions. The country's most troubled bank, Monte dei Paschi di Siena (MPS), came bottom in Friday's stress tests, but also unveiled a rescue plan.

The Siena lender's share price crashed by more than 16 per cent to 0.26 (0.29 dollars), wiping out modest gains made Monday, in the first day of trading since MPS said it would get rid of its most dubious loans and embark on a recapitalization bid of up to 5 billion euros.

Unicredit, Italy's largest bank by assets, also came under pressure. Its stock was down 7.15 per cent to 1.844 euros, amid expectations that after scraping through stress tests, it will need to raise fresh funds through a recapitalization or selling assets.

The price tumble was likely to add pressure on newly appointed chief executive Jean-Pierre Mustier to reassure investors about moves to shore up Unicredit's financial position during Wednesday's presentation of half-year results.

Three other Italian banks saw their stock market value fall by more than 10 per cent on Monday: Banco Popolare dell'Emilia Romagna, Banco Popolare and Banco Popolare di Milano. Milan's bourse main index, the Ftse Mib, fell by 2.8 per cent.

Earlier, Renzi told US broadcaster CNBC that he was not worried about the situation.

"My view is that Italian banks are good," he said.

"There are some problems, yes. The first is Monte dei Paschi, we know. But Monte dei Paschi is also a great brand, the most ancient bank around Europe," he said of the bank that was founded in 1472 and is considered the oldest lender in the world.

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