The European Central Bank (ECB) was reported Friday to be concerned that the ongoing currency crisis in Turkey could result in problems for the continent's banks.

However, the real problem for Europe's banking industry is Italy and what happens in that country in the coming months, an analyst said Tuesday.

"The issues in Italy… in the next three months are going to dictate the whole European banking narrative for the next three to five years," Tom Kinmonth, fixed income strategist at ABN Amro, told CNBC's "Squawk Box Europe."

Italy's economy is the third largest in the European Union and the country's new coalition government is currently working on next year's budget. Its financial plan will be closely scrutinized by European authorities and, more importantly, by market players, following promises to increase public spending.