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In a surprising move, Italy slapped a 40% tax on banks on profits accrued by the sector from higher interest rates and failure to reward depositors, reported CNN.
High interest rates have led to record profits for banks, as the cost of loans soared but lenders held off paying more on deposits.
The Italian government’s decision impacted the European bank shares on Tuesday. A gauge of euro zone banks fell 4.5%, and will see its largest daily drop since the the banking sector was hit by a turmoil in March, when Credit Suisse collapsed.
As per CNN, Italian Prime Minister Giorgia Meloni’s government had suggested the tax earlier this year, but it seemed they had dropped the idea. But the bumper first-half results of banks brought the issue back into the centre stage and prompted the government to take action on the eve of the summer political shutdown.
The media outlet reported that all main Italian banks reported stronger results for the first six months and upgraded their profit outlook due to higher rates.
Financial Services Company Jefferies believes that banks in Italy have passed on to depositors an average 12% of the rise in rates, compared to the 22% in the euro area.
“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.
As per CNN, Italy’s banking share index went down 7.7% on Tuesday, with sector leader Intesa Sanpaolo (IITSF) declining 8.4% and rival UniCredit (UNCFF) plunged 7%
“These government interventions in Europe do not help provide the necessary stability to lower the risk premium attached to the eurozone. This is not just an Italian thing, Spain had done the same last year,” said Gilles Guibout, head of equity strategies at Axa Investment Managers in Paris, was quoted by CNN.
The media outlet citing Bank of America estimates stated that tax could cost Italian banks between 2% and 9% of their profits.
Italy’s deputy prime minister said that the windfall tax will be used to help mortgage holders and cut taxes.
However, Italy is not the only country that has slapped windfall taxes or bank-specific duties in Europe. In December of last year, Spain approved a temporary bank levy to raise 3 billion euros by 2024, in a bid to ease cost of living pressures.
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