Intesa Sanpaolo, Italy’s largest retail bank by assets, will undertake a rights issue of as much as €5bn as it seeks to shore up its core tier one ratio ahead of stress tests starting this month.

Intesa Sanpaolo said its board had approved the rights issue at a cost of €0.52 per share, a heavy discount to the current price of €2.14. It would raise its core tier one ratio by 150 basis points to about 8.5 per cent, well above the minimum required under tougher Basel III capital rules.

The move follows calls by Bank of Italy Governor Mario Draghi and Giulio Tremonti, finance minister, for Italy’s banking sector, which has been one of the most weakly capitalised in Europe, to raise fresh equity.

Analysts expect UniCredit, Monte dei Paschi di Siena and Banca Popolare di Milano to move to raise capital in the coming weeks. UBI Banca, a regional lender, last week announced a €1bn rights issue.

Monte dei Paschi di Siena, which barely passed a first round of stress tests last year, could call a board meeting as early as next week in order to discuss raising €2bn in new capital, according to a person familiar with the matter.

Mr Draghi said on Tuesday that the steps being taken to strengthen the capital bases of Italian banks were “very encouraging”.

Analysts at Mediobanca, the Milan investment bank that has backed the UBI Banca rights issue, said shares in Italian banks – which are generally more conservative lenders – could benefit from “a first-mover advantage” in raising capital ahead of French and German banks.

They said: “The paradox is that the relatively safe Italian retail business model now sits on higher core capital levels than riskier, wholesale-funded and derivative-rich operations of French and German banks.”

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