Italy hits banks with 40% windfall tax for 2023

Italy has approved a unique measure to tax banks’ profits from higher interest rates by 40% and intends to use the proceeds to assist mortgage holders. This decision has caused a sharp decline in banking shares.

The increase in official interest rates has resulted in record profits for banks, as they were able to raise loan costs while avoiding paying more on deposits.

Countries like Spain and Hungary have already implemented windfall taxes on the banking sector.

For the year 2023, Italy will impose a 40% tax on banks’ net interest margin, which is the income banks generate from the difference between lending and deposit rates.

Sources close to the matter have informed Reuters that Rome expects to collect less than 3 billion euros ($3.29 billion) from this measure, although some analysts’ estimates are higher.

Intesa Sanpaolo, Italy’s top bank, recently projected earning over 13.5 billion euros this year from its net interest margin alone.

Bank of America analysts estimated that the new tax could impact banks’ earnings by 2% to 9%.

Italy’s banking index fell by 6% as of 0757 GMT.

The right-wing government of Italy has consistently criticized banks for not passing on the higher cost of money to depositors. However, it took action only after banks reported record earnings in early August.

All major Italian banks reported stronger than expected results and raised their profit outlooks due to the boost from higher interest rates.

“Looking at the first-half profits of the banks, it’s clear that we are talking about billions, not just millions,” said Deputy Prime Minister Matteo Salvini in a press conference in Rome.

“If the burden of the cost of money has doubled for households and businesses, what account holders receive has certainly not doubled,” Salvini added, highlighting the significant disparity between loan rates and deposit rates.

($1 = 0.9112 euros)