Ratings agency S&P believes the windfall tax on banks announced by the government this week will be “manageable” for entities. In this way, it cools, in a first assessment, the negative expectations of financial entities, which have rejected this new taxation because of the effect it could have on their activity. The multinational estimates that it will receive 12% of profits for the next two years.
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Little is known at this time about the fine print of this new tax. It was not possible to advance the method of calculation or what the tax base will be. However, S&P has made a projection based on the executive’s forecast to collect 1,500 million euros annually with this new tax, or 3,000 million euros in the two years it will be in force (2022 and 2023) . With this, and based on the forecasts of the economy and the results of the Spanish banks, the agency estimates the cost for the banks at 12% of the profit. “That will be great
“The immediate negative reaction of the market –banks collapsed on the stock market– This is understandable because this measure will weigh on the profits of Spanish banks, “says the S&P report published on Thursday. “However, we consider the effects of the tax to be largely manageable from a ratings perspective if our current macroeconomic assumptions hold,” the note added. “The additional tax cost of 3,000 million in 2022 and 2023 is equivalent to about 12% of the final national result that we expect for the entire banking system over the same period and could subtract 70 basis points from the return on capital —ROE— banks,” he said.
The agency recognizes that the announcement was a “surprise” because until now the debate on the taxation of “profits from the sky” had focused on the energy sector. However, he says, “this is nothing new in Europe”. S&P recalls that since the last financial crisis initiatives aimed at imposing new levies on banks have multiplied under different names in Europe. He points out, for example, that due to the pandemic, a tax on banks has already been approved in Denmark which will be fully in force next year. More recently, Hungary announced a new income-based tax and Poland one called “social contribution”. S&P stresses that even in Italy this idea is being studied.
The agency has already published a document last June in which it put forward the possibility that new taxes will be imposed on banks for profits fallen from the sky. These additional profits they will receive due to higher interest rates. In this report, S&P pointed out that the rise in interest rates means “that most European banks will benefit from an increase in their income due to the increase in interest charges”. At the same time, household, business and government finances are under pressure due to weaker economic growth and persistently rising inflation.
“Taxes and levies in the banking sector are already in force in many European countries and there are signs that they could proliferate even more”, underlines the document, assuming that announcements such as the one that Spain has subsequently made were foreseeable. “They are unlikely in themselves to lead to ratings [de deuda] lower,” he said. However, the agency concluded that if the economic conditions are finally seriously affected by the situation of high inflation, in this case it could affect the solvency of the banks. “Unless taxes are at levels that banks are struggling to pay, they are unlikely to lead to rating downgrades,” he said.
Bank bosses in Spain came out in a storm on Tuesday against this new tax in Spain. The AEB, for example, spoke of “legal improvisation” and that it “distorts the market”. The CECA, for its part, considered that the decision “does not contribute to the harmonization of tax regimes within the banking union”. Both employers questioned whether the rate hike would lead to an extraordinary increase in profits for the entities.
This Thursday, BBVA Research, the bank’s center for economic studies chaired by Carlos Torres, assured that “it makes no sense to penalize specific sectors such as the banking system” which “does not generate negative externalities in the rest of the economy. “On the contrary, it facilitates the allocation of productive resources to more dynamic and faster growing sectors,” he stressed.