- Italy Enacts 40% Tax on Banks’ Profits from Higher Interest Rates, Shares Plummet
- Government Aims to Assist Mortgage Holders and Reduce Taxes with Tax Levy
- Banks Express Concerns Over Negative Impact on Industry, Shares of Major Banks Drop
Shares fell as Italy imposed a 40% one-time levy on bank profits from rising interest rates.
Increased interest rates have resulted in unprecedented profits for Italian banks, prompting the government to take action.
The government says proceeds will be used to assist mortgage holders and reduce taxes.
Italian banks, however, have stated that the tax on their profits will be “substantially negative” for the industry.
The ministers of Prime Minister Giorgia Meloni approved the unexpected action at a Monday evening cabinet meeting. They pledged to invest the funds in assisting households and enterprises with high borrowing costs.
Deputy Prime Minister Matteo Salvini stated on Monday evening at a news conference in Rome, “It is clear from the first-half profits of the banks that we are not talking about a few million, but billions.”
The tax will be applied to banks’ net interest income resulting from the difference between their lending and deposit rates.
The charge is expected to produce €2 billion (£1.7 billion) to help families affected by rising loan rates.
The Italian parliament now has sixty days to approve the tax decree.
Foreign Minister Antonio Tajani told the newspaper Corriere della Sera that the tax was not against the banks. But rather a measure to safeguard families and those who are struggling to pay their mortgages.
However, some European banks have stated that the unexpected decision is bad news for the industry.
Azzurra Guelfi, an Equity Research Analyst at Citi, stated, “We view this tax as substantially negative for banks due to its impact on capital and earnings as well as the equity cost of bank shares.”
Following the announcement, shares of the country’s two largest banks, Intesa Sanpaolo and UniCredit, fell by 8% and 6.5%, respectively, on Tuesday morning.
Banco BPM, the country’s third-largest bank, saw its stock decrease by 8.2%, while Monte dei Paschi di Siena fell by 7.4%. Additional institutions, such as BPER Banca, Banca Generali, and Mediobanca, were also affected.
The aftermath has had repercussions for other banks, with Deutsche Bank and Commerzbank in Germany and BNP Paribas and Credit Agricole in France seeing their share prices decline.
Stuart Cole, the chief macroeconomist at Equity Capital, stated, “The tax that Italy has imposed on the excess profits that banks are perceived to be making has come as a surprise and has likely raised concerns that other countries may follow Italy’s example.
Other European nations, such as Hungary and Spain, have imposed comparable windfall duties on banks.
In May, Lithuanian legislators approved a temporary windfall tax on banks to fund defense expenditure. Whereas Estonia plans to increase the tax rate on banks to 18% from 14% this year.
A windfall tax is a government tax on companies that received a windfall.
