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A senior Italian treasury official has acknowledged this summer’s announcement by the government that it would impose a windfall tax on banks was “communicated badly”.
Giorgia Meloni’s rightwing coalition announced plans for a levy on up to 40 per cent of banks’ net interest income in August, claiming that the surge in official interest rates was leading to bumper profits for the sector.
The move dented investors’ confidence in the country’s lenders, with share prices dropping sharply — partly because of a lack of clarity on what exactly would be taxed. The government has since backtracked, diluting the tax from its original form.
Economy and finance under-secretary Federico Freni, a member of finance minister Giancarlo Giorgetti’s League party, told the Financial Times that the market turmoil reflected “a credibility issue”.
“Investors put their money in countries where they trust rules will not abruptly change,” he said.
Freni is the latest member of the government to criticise the surprise announcement of the windfall levy, highlighting differing views on financial policy within Meloni’s coalition.
Following the initial announcement, the Italian parliament offered lenders an olive branch, allowing them to set aside two-and-a-half times what they would pay as the one-off tax in reserves.
Those reserves would bolster their capital positions and cannot be distributed to shareholders under the law, which was passed earlier this month.
UniCredit on Tuesday became the first big lender to announce that it plans to set aside €1.1bn in non-distributable reserves, instead of paying a €400mn one-off levy.
“The windfall tax was not a measure that aimed to punish banks and investors,” said Freni. “The parliamentary amendments helped that measure ultimately reach its initial goal, which was probably communicated badly in August.”
Soaring European Central Bank interest rates have led to a jump in banks’ net interest income, leading lawmakers on both sides of the political spectrum calling for a tax on such profits.
Meloni said at the time she took full responsibility for the levy, which was announced by her deputy Matteo Salvini, who is also the League party leader, at a late-night press conference.
The coalition has been at odds with other aspects of financial policy.
Another sticking point involves complex proposals, tabled earlier this year by members of Meloni’s Brothers of Italy party, which would make it easier for households and small businesses who have defaulted on their debt to buy back their loans.
Under the proposals, they would have the option to repurchase non-performing loans made between 2015 and 2021, even if banks have sold them on to professional investors.
According to the proposed text, borrowers in default would have to pay a premium to buy back their loans. The premium is 20 per cent, if recovery proceedings have not started, or 40 per cent otherwise.
Industry minister Adolfo Urso, a member of Meloni’s party, said in an interview with Italian daily Corriere della Sera last month that the government wanted to help “artisans and small businesses” that risked being denied credit because of previous defaults.
However, Freni insisted the plans, which would apply to an estimated 1mn households, were unnecessary.
“I don’t see any bomb ticking on NPLs, it’s just a non-issue,” he said. “The market is healthy so there’s no reason for the government to intervene.”
He added that the treasury’s position on the plans was “absolutely clear-cut”.
At the height of Italy’s financial crisis, more than €360bn-worth of bad loans sat on banks’ balance sheets. However, lenders have since strengthened their capital positions by repacking the bad loans and selling them on to investors.
KPMG data shows that before the pandemic, banks had reduced their NPL ratio by more than 13 percentage points from 2015’s peak of 18.6 per cent to 5.3 per cent. Banca IFIS expects that ratio to further drop to 3 per cent by the end of this year.
Analysts at consultancy NPL Markets warned that the measures to buy back the loans from investors, many of which have been securitised and given state-backed guarantees on the senior tranches of the debt, would hit the market and scare away investors.
Freni argued there were less damaging ways to support Italians. “Of course our priority is to support businesses and households, but this doesn’t mean undermining the country’s financial credibility.”
“Italy’s economic sector is healthy, default rates are at their historic lows. It’s not like we’re sitting on a volcano,” said Freni, adding that he hoped investors would judge the government’s actions “as a whole”.
“We are not against markets,” he said. “Foreign investors and capital markets can give an important boost to Italy’s economic growth.”
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