Recent actions of Italy’s populist party put Italian banks in the middle of spotlight again, since investors are concerned that years of attempts to strengthen banks’ balance sheets are wasted, Bloomberg informs.

New spending plan offered by coalition includes providing basic income to poorest population, flat tax and change in pension reform. It can cost up to 100 billion euro. Concern about higher deficit and conflicts with EU authorities resulted in Italian sovereign bonds yields growth to the highest level in three years. Italian banks that are largest holders of government bonds joined their selloff.

Growing difference between Italian and German bonds will have negative effect on Italian stocks in comparison to Stoxx 600 Index, UBS analysts say. Banks and insurance companies will suffer the most, including UniCredit SpA и Intesa Sanpaolo SpA.

Previous government is trying to get EU approval to extent state guarantees for bad loans. This measure together with others helped Italian banks’ recovery. Non-performing credits were reduced by 25% to 270 billion euro. Banks’ valuations will be under threat if new government decides not to pursue extension.

Program also plans for corporate tax at 15% and 20% rate. While it has immediate positive effect for most Italian companies, banks will suffer in short term, since it will reduce so called deferred tax assets used to boost capital.