Ireland is the latest European nation to increase taxes on banks, targeting the higher profits that lenders made from the rising interest rate.
Dublin announced that as part of its Irish Budget, which was released on Tuesday morning, the amount raised by the banking levies would rise from £87mn up to £200mn (a higher than expected figure) in 2024. The banks who received state financial assistance would pay the levy: AIB Bank of Ireland, Permanent TSB.
Michael McGrath, the Irish finance minister, told the Irish Parliament that it was important for the banking sector to continue to contribute to the Irish economy after the help they received during financial crisis.
Ireland joins the wave of European countries that have increased taxes and levies against banks. Netherlands, Italy, and Spain have all recently made similar moves.
The rise in interest rates has boosted profits for banks, as they profit from the difference they make between what they earn on loans and the interest they pay to depositors.
Politicians have raised taxes on lenders to pay for the measures needed to help voters who are facing higher living costs.
The tax increases have been met with resistance. The banking sector in Spain has begun legal challenges. Meanwhile, Italy was forced last month to reduce it’s own windfall tax following criticism from the European Central Bank.
The Irish press reported over the weekend that the levy may rise to €175mn. However, the bank shares on Tuesday were not affected much by the announcement. AIB’s stock had risen by more than 5%, Bank of Ireland was up 3.5% and PTSB was up 4.6% as of late afternoon.
The announcement today is in line with investor expectations, and it removes a key uncertainty about the Irish banks. This could be a catalyst to re-rate the shares,” said Citi analyst Borja RAMIrez Segura.
The government has not provided details on the breakdown of the levy. However, Goodbody analyst John Cronin estimates that AIB’s contribution will increase from €37mn up to €92mn. Bank of Ireland would see its contribution rise from €25mn up to €81mn. PTSB would see their contribution go from €22mn up to €27mn.
Cronin said, “It is likely that the deposit rate has been set at a higher level than expected in the public domain to give the impression of trying to cause some pain to the sector, given the current high returns. And, possibly, to avoid any further political/media pressures in terms of the deposit price.”
In a client note, analysts at Davy in Dublin stated: “We estimate the incremental impact of the increase to be between 2% and 3% of profit prior tax for all three banks based on current forecasts of 2024.”
Post Disclaimer
The following content has been published by Stockmark.IT. All information utilised in the creation of this communication has been gathered from publicly available sources that we consider reliable. Nevertheless, we cannot guarantee the accuracy or completeness of this communication.
This communication is intended solely for informational purposes and should not be construed as an offer, recommendation, solicitation, inducement, or invitation by or on behalf of the Company or any affiliates to engage in any investment activities. The opinions and views expressed by the authors are their own and do not necessarily reflect those of the Company, its affiliates, or any other third party.
The services and products mentioned in this communication may not be suitable for all recipients, by continuing to read this website and its content you agree to the terms of this disclaimer.