Friday, September 22

Banks are jolted by Italy’s windfall tax of 40% for 2023.

What is a summary?

Income from lending and deposit gaps will be taxed by companies.

Lenders’ low deposit rates were criticized by the government.

The profits of banks have hit an all-time high in recent quarters.

The introduction of a 40% tax on profits earned from higher interest rates by Italy, which had previously criticized lenders for not rewarding deposits, caused shockwaves in the European banking industry and sent shock waves through ROME.

Banks have been able to earn record profits due to sharply elevated official interest rates, as loans rose further and lenders delayed paying more on deposits.

The sector has already been subject to windfall taxes in Spain and Hungary, and other nations may soon do the same.

The government of Italian Prime Minister Giorgia Meloni had proposed the idea earlier in the year, but seemed to have withdrawn.

According to a high-ranking banking official, lenders were prepared for the opposition, but the decision was not reacted to.

Despite the bank’s strong first-half results, the issue was once again brought to the forefront by this event, prompting the government to take action before the summer political shutdown.

The decision was unexpected, according to a government source who spoke at the cabinet meeting on Monday night. Another source revealed that the government plans to punish banks for their unjust behavior.

The average percentage of depositors who transferred their money to lenders in Italy is 12%, as per Jefferies’ calculations, while the rise in rates is only 22% in the euro area.

At a news conference in Rome on Monday night, Deputy Prime Minister Matteo Salvini explained that banks’ first-half profits indicate the presence of billions rather than mere millions.

Salvini pointed out that the burden resulting from the cost of money has increased by twofold for households and businesses, but not so much for current account holders.

The banking share index for Italy had fallen by 7.3% by 1515 GMT on Tuesday, with Intesa Sanpaolo (ISP.MI) falling by 8.6% and UniCredit (CRDI. MI) down 5.8%. Italian banks saw a 3.7% decline in the European index (.SX7E), as well as some U. S. banks being downgraded by Moody’s.

The number of Italian banks has risen by 50% in the last year, while the European sector has seen a 20% rise.

The illustration taken on March 12, 2023, shows the bank logo of Intesa Sanpaolo and a stock chart that indicates the amount of decrease in stocks.

The government intends to allocate the funds to assist those facing difficulties with their daily expenses, such as those with mortgages.

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Analysts at Citi estimated that the tax could erase as much as 12% of Italian banks’ earnings by 2023, while Bank of America projected the government’s revenue to be between 2-3 billion euros.

The Treasury was expected to receive less than 3 billion euros ($3.3 billion) from the initiative, according to sources.

The 2.8 billion euros that energy companies have been taxed this year as windfall would be similar to that.

Italy’s tax will only be enforced in 2023, and banks must pay the amounts by 30 June 2024. The tax affects the NIM, which is a measure of income generated by the difference between lending and deposit rates.

Italy will tax 40% of the NIM earned in 2022 or 2023, depending on the size of this figure. The tax increase for each year is expected to be below 5% and 10% for 2021 and 20% for 2020, respectively. An early draft established lower tax thresholds of 3% and 6%.

Intesa predicted that its NIM would generate more than 13.5 billion euros this year, as reported last month.

The primary Italian lenders achieved stronger than anticipated results in the first six months and raised their profit expectations by leveraging higher rates.

Italian banks were unable to charge deposits when official rates fell below zero, unlike their counterparts in other European nations.

They have reduced the costs of current accounts after the increase in rates, but they have declined to reward cash held in them, stating that it is for everyday use and not an investment.

($1 is equivalent to 0.9112 euros)

Federico Maccioni and Danilo Masoni were responsible for additional reporting, while Keith Weir, Susan Fenton, and Mark Potter were the editors.

The Thomson Reuters Trust Principles are the basis for our standards.

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