Daily Management Review

Italian Banks Are Shocked By A 40% Windfall Tax For 2023


After chastising bankers for failing to reward depositors, Italy surprised its banks and sent shockwaves through the European financial sector by imposing a one-time 40% tax on profits generated by higher interest rates.
Banks have made record profits as a result of sharply higher official interest rates since loan costs increased while deposit interest rates were frozen.
Others may now follow the lead of nations like Spain and Hungary, who have already slapped windfall taxes on the industry.
The plan had been introduced earlier in the year by the government of Italian Prime Minister Giorgia Meloni, but it seemed that they had changed their minds.
Lenders had been prepared for "the chopping block, but the axe didn't come down," according to a senior banking official.
Since then, though, the issue has come back into focus thanks to strong first-half results from banks, which spurred the government to take action on the eve of the summer political break.
Even some ministers were taken aback by the decision during Monday night's cabinet meeting, according to a government source. According to a second source, the government wanted "to punish banks' unfair behaviour."
Compared to 22% across the euro area, lenders in Italy have passed on an average of 12% of the rate increase to depositors, according to Jefferies.
"One has only to look at banks' first-half profits ... to realise that we are not talking about a few millions, but ... of billions," Deputy Prime Minister Matteo Salvini told a news conference in Rome late on Monday.
"If (it is true that) the burden deriving from the cost of money has ... doubled for households and businesses, what current account holders receive has certainly not doubled," Salvini said.
By 15:15 GMT on Tuesday, the Italian banking share index had fallen 7.3%, with market leader Intesa Sanpaolo down 8.6% and competitor UniCredit down 5.8%. Italian banks and a Moody's downgrading of some U.S. banks both contributed to the 3.7% decline in the European index.
Italian banks have increased by 50% in the past year, beating a 20% increase in the rest of Europe.
The government intends to use the money to assist people who are having a hard time making ends meet, such as mortgage holders.
According to Citi analysts, the levy could reduce the 2023 profitability of Italian banks by up to 12%. According to Bank of America, the government will receive between 2 and 3 billion euros in revenues.
According to sources, the Treasury predicted that the move will bring in fewer than 3 billion euros ($3.3 billion).
That would be comparable to the 2.8 billion euros raised by the energy corporations' windfall tax this year.
Only in 2023 will Italy implement the tax, with banks required to pay the amounts by June 30th, 2024. It is based on the net interest margin (NIM), which is a measurement of income resulting from the difference between lending and deposit rates.
Depending on whatever amount is greater, Italy will tax 40% of the NIM gained in 2022 or 2023. This tax is intended to target yearly increases above levels established at no less than 5% for 2022 and 10% for 2023. The criteria in an early draught were 3% and 6%.
At the end of the previous month, Intesa stated that it anticipated earning over 13.5 billion euros from its NIM alone this year.
Due to rising rates, all of the major Italian lenders announced first-half results that were significantly better than anticipated and raised their profit outlooks.
Italian banks never imposed a penalty on deposits when official rates fell below zero, in contrast to their counterparts in certain other European nations.
They have reduced current account fees since rates have risen, but they have declined to reward cash held there, claiming that money is for daily use and not for investing.