Italy dealt a surprise blow to its banks and sent shockwaves across the sector in Europe by imposing a flat 40% tax on profits earned from higher interest rates, after scolding creditors for failing to reward deposits.
Sharply higher official interest rates yielded record profits for banks as the cost of borrowing soared as lenders avoided paying more on deposits.
Countries like Spain and Hungary have already imposed taxes on the sector and others may now follow suit.
The government of Italian Prime Minister Giorgia Meloni floated the idea earlier this year, but it appeared to have cooled down on the plan.
A senior banking executive said creditors were ready for “the chopping block, but the ax did not fall”.
Since then, however, the banks’ excellent first-half results have brought the issue back into focus and prompted the government to act on the eve of the summer’s political shutdown.
A government source said the move came as a surprise even to some ministers at Monday night’s cabinet meeting. A second source made it clear that the government intends to “punish the banks’ unfair behavior”.
“One only needs to look at the banks’ profits in the first half… to realize that we are not talking about a few million, but… billions,” Deputy Prime Minister Matteo Salvini told a news conference in Rome on Monday night.
“If [it is true] the burden arising from the cost of money… has doubled for families and businesses, what account holders receive certainly has not doubled,” Salvini said.
European bank shares fell on Tuesday on the news, the biggest daily drop since the banking sector turmoil in March when Credit Suisse collapsed.
Italy’s banks led the way. The country’s two biggest lenders, Intesa Sanpaolo and UniCredit, fell 8.2 percent and 7.2 percent respectively. BPER Banca fell 10.5 percent and FinecoBank fell 8.8 percent.
“These government interventions in Europe do not help provide the stability needed to reduce the risk premium associated with the eurozone. This isn’t just an Italian thing. Spain did the same last year,” said Gilles Guibout, head of equity strategies at Axa Investment Managers in Paris.
Citi analysts calculated that the tax could cut Italian banks’ earnings by up to 12% in 2023. Bank of America estimated revenues of between €2 billion and €3 billion ($2.2 billion to $3.3 billion) to the government.
Sources said the Treasury expects to raise less than 3 billion euros ($3.3 billion) from the measure. That would be similar to the 2.8 billion euros ($3.1 billion) raised by this year’s windfall tax on energy companies.
Italy will only apply the tax in 2023, with banks paying the amounts until June 30, 2024. The measure applies to the net interest margin (NIM), a measure of income derived from the difference between lending and deposit rates.
Refusal of cash reward
Italy will tax 40% of the NIM earned in 2022 or 2023 – depending on which sum is greater – and will target annual increase above established thresholds of no less than 5% for 2022 and 10% for 2023. one hundred and six percent.
Late last month, Intesa said it expected to pocket more than 13.5 billion euros ($14.8 billion) this year from its NIM alone.
All major Italian lenders reported much stronger than expected results in the first six months and improved profit prospects thanks to higher rates.
Unlike their peers in some other European countries, Italian banks never charged for deposits when official rates fell below zero.
Since the rates went up, they have cut the costs of the checking account but have refused to reward the money kept there, saying the money is for everyday use and not investment.
THE NAIS IS OFFICIAL EDITOR ON NAIS NEWS