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Fitch cut the ratings of eight Italian mid-sized banks on Friday, citing rising funding costs for banks among downside risks as Italy faces recession, Reuters reported.

Fitch said the eight banks, including cooperative lenders such as Banca Popolare di Milano and Banca Popolare dell'Emilia Romagna, might be forced to revise their medium to long-term capital targets as they face an increase in the cost of funding and a deteriorating credit quality.

Italian bond yields soared on Friday after borrowing costs soared in a short-term debt auction, heightening questions over the sustainability of Italy's debt and raising pressure on Rome's new emergency government.

Fitch, which cut the rating of Italy's five largest banks last month, said it saw a possible consolidation trend in the medium term among those Italian small and medium-sized banks which may find it harder to compete.