Italy’s government latest amendments on windfall tax enable banks/lenders to opt out of the tax if they allocate 2.5 times the amount that would have been owed under the tax to strengthening their core tier-one capital reserves. The amendment also caps the tax at 0.26% of banks’ risk-weighted assets instead of 0.1% of total assets.
Italy is further diluting its windfall tax on banks with a new clause giving lenders an alternative to paying the levy, a concession to critics of the measure that include the European Central Bank.
Prime Minister Giorgia Meloni, who said she took full responsibility for the widely criticised tax that sent bank shares tumbling last month, had ruled out scrapping the measure but said she was open to making changes.
The amendment allows Italian banks to use gains from an increase in their net interest margins to bolster underlying reserves, rather than pay out a one-off tax, according to a draft text seen by the Financial Times.
Before the changes, the levy had been expected to raise around €3bn. The provisions are expected to be approved by the parliament this week.
The offer of an escape clause to lenders comes less than two weeks after the ECB urged Rome to reassess the windfall tax, which it warned risked making Italy’s banking sector more vulnerable to a downturn.
The tax also created tensions within Meloni’s three-party coalition, with Forza Italia, the junior coalition partner previously led by the late former prime minister Silvio Berlusconi, particularly unhappy.
Italy’s Deputy Prime Minister Matteo Salvini upset international markets in August ’23 with a casual late-night announcement that Rome was planning to impose a 40% windfall tax on profits derived from a surge in banks’ net interest margins as the ECB entered an interest rate tightening cycle. Share prices dropped by 10% within a day!
The move followed repeated complaints by the Italian government about (Italian) banks passing on the higher cost of money by raising lending rates while refusing to raise deposit rates for savers, leading to higher net interest margins and profits. Something also seen in other EU countries.
The latest amendments state that Italian lenders will be able to opt out of the tax if they allocate 2.5 times the amount that would have been owed under the tax to strengthening their core tier-one capital reserves. The amendment also caps the tax at 0.26% of banks’ risk-weighted assets instead of 0.1% of total assets.
These changes introduced by Italy’s government aim at protecting savers in Italy and calm international markets.