Italy hits banks with 40% windfall tax for 2023

ROME  -Italy has approved a one-off 40 percent tax on profits banks reap from higher interest rates and it plans to use proceeds to help mortgage holders, in a move that sent banking shares plunging.

Sharply higher official interest rates have yielded record profits for banks, as lenders were able to hike the cost of loans while holding off paying more on deposits.

Countries such as Spain and Hungary have already imposed windfall taxes on the sector.

Only for 2023, Italy will tax 40 percent of banks’ net interest margin, a measure of income banks derive from the gap between lending and deposit rates.

Rome expects to collect less than 3 billion euros ($3.29 billion) from the measure, sources close to the matter told Reuters.

However, some analysts’ estimates were higher.

Top Italian bank Intesa Sanpaolo at the end of last month said it expected to pocket more than 13.5 billion euros this year from its net interest margin alone.

Intesa Sanpaolo bank logo and decreasing stock graph are seen in this illustration taken March 12, 2023. REUTERS/Dado Ruvic/Illustration

Analysts at Bank of America estimated the new tax could cost banks between 2 percent-9 percent of their earnings.

Italy’s banking index plunged 6 percent by 0757 GMT.

The country’s right-wing government had repeatedly criticized banks for failing to pass on to depositors the higher cost of money, but took action only after the latest round of record earnings reported by banks at the start of August.

All main Italian lenders reported much stronger than expected results and upgraded their profit outlook thanks to the boost from higher rates.

“One has only to look at banks’ first-half profits … to realize 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, adding there was a large gap between the rates applied to loans and deposits.

($1 = 0.9112 euros)