Italy shocks banks with 40% windfall tax for 2023

Italy dealt a surprise blow to its banks and sent shockwaves across the sector in Europe by setting a one-off 40% tax on profits reaped from higher interest rates, after reprimanding lenders for failing to reward deposits.

Sharply higher official interest rates have yielded record profits for banks, as the cost of loans soared while lenders held off paying more on deposits. Countries such as Spain and Hungary have already imposed windfall taxes on the sector and others may now follow suit.

A senior banking executive said that lenders had been ready for “the chopping block, but then the axe didn’t come down”. Since then, however, bumper first-half results from banks brought the issue back into focus.

Lenders in Italy have passed on to depositors on average 12% of the rise in rates, versus 22% in the euro area, Jefferies calculated. “One has only to look at banks’ first-half profits ... to realise that we are not talking about a few millions, but ... of billions,” said Deputy Prime Minister Matteo Salvini.

Published in The Express Tribune, August 9^th, 2023.

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