Twenty percent of Italian companies are set to fail as the recession bites, Intesa Sanpaolo Chief Executive Enrico Cucchiani, told CNBC on Wednesday.
"The top 20 percent of Italian companies in the past three years have seen the top line grow between 35 and 50 percent… but on the other side, unfortunately, the bottom 20 percent has seen top line shrinking 35 to 45 percent, so it's clear that these companies won't make it," Cucchiani, the CEO of Italy's second-largest bank, said in an interview in Milan.
He said a wave of corporate collapses will impact negatively on Italy's banking sector.
(Read More: Italy's Banking Sector Is in Trouble)
"It is going to fuel non-performing loans and that makes banks very reluctant to lend to this sort of company. I don't think the problem is availability of funds, but on the issue of risk selection."
The latest gross domestic product data from Italy showed the economy contracted by 0.9 percent in the fourth quarter of 2012, quarter-on-quarter, while figures released on Wednesday suggested a sharp drop in industrial new orders at the end of the year.
Hopes the euro zone as a whole might emerge from recession soon were dealt a further blow on Thursday, as PMI (Purchasing Managers Index) surveys indicated the downturn in the region's service sector worsened in February.
Cucchiani said a destabilization in the Italian economy could pose a risk to the euro zone.
"Italy, because of its size and integration in the Europe economy is a potential risk," he said. "But the risk is currently under control and my assessment is that it will continue to be under control with the new government."
Cucchiani also called for increased financial regulation, in order to combat corruption scandals like those that have beset Italy's Monte dei Paschi bank and defense firm Finmeccanica.
"We need more stringent regulation and also most importantly, more enforcement of regulation... I think corporate integrity is essential because businesses work on trust and trust is an essential element in the global economy, so when you have scandal it is very hurtful to the overall economy," he said.
Italians will head to the polls for a general election on Sunday, the first since the installation of technocrat Prime Minister Mario Monti.
Despite market fears that extremist or protest parties might gain power, Cucchiani said the most likely election outcome was a center-left coalition. "If they were to form a coalition with the Monti group, they could secure a firm majority at the senate."
- By CNBC's Katy Barnato and Julia Chatterley