Tuesday, December 6

The ECB asks the Government for a “comprehensive analysis” of the banking tax due to its possible impact on credit

The European Central Bank has issued this Thursday an opinion against the tax that is being processed for banking in Spain. The supervisory body of the financial sector had to express its opinion on the regulation, since it affected its activity, although the document has a mere advisory relevance. The ECB has expressed doubts about the fact that the levy affects income and that a “thorough analysis” of its consequences for the financial sector must be carried out before its approval.

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“The ECB recommends that the legislative proposal be accompanied by an exhaustive analysis of the possible negative consequences for the banking sector, detailing, in particular, the specific impact of the temporary levy on the profitability of the credit and financial institutions affected and on the conditions of competition in the market, in such a way as to guarantee that its application does not pose risks to financial stability, the resilience of the banking sector and the granting of credits”, the document states. The letter, signed by Christine Lagarde, expresses a series of generic concerns for the organization, although it does not specify or figure the impacts for the sector.

“The ECB has stated that it would be undesirable to use tax revenues collected from credit institutions for general budget purposes if and to the extent that credit institutions would thereby be less resilient to economic shocks. and, consequently, limit their ability to grant credit, pushing them to offer less favorable conditions to customers when granting loans and other services and reducing certain activities”, the document states.

Congress began this Thursday the first of the debates on the processing of the new banking tax, which will be temporary for only two years and which plans to raise a total of 3,000 million euros. The first of the votes referred to a single amendment to the totality that Ciudadanos presented and that proposed delaying the tax on electricity companies. The objective of the Government is that this rule is fully approved before December 31, so that it can be applied to the results of financial entities this year.

“The levy must be carefully considered in terms of its impact on the profitability of the affected credit institutions and, therefore, on their internal generation of capital and on their granting of credit,” adds the European Central Bank. “The basis on which the temporary tax would be established does not take into account the entire economic cycle and does not include, among others, operating expenses or the cost of credit risk,” says the agency, which stresses that income does not It is the most appropriate magnitude to tax the sector. And this despite the fact that the supervisor recognizes that “it has been shown that net interest income (of banks) tends to increase as official interest rates increase.”

However, the ECB considers that when analyzing the effect of the rate hike on bank results, other factors that also affect profitability must be taken into account. The organization states that it can come to a brake on the demand for credit or an increase in the cost of risk due to the growth of defaults. A union of these factors would mean that the effect “could possibly be less positive, or even negative, in a prolonged time horizon.” With all this, “the amount of the temporary lien may not be proportional to the profitability of a credit institution”.

The ECB’s criticism of the tax goes further and also focuses on the intention of the law that the taxes do not affect the price for final customers. “It must be clarified what verification mechanisms the CNMC will apply to guarantee compliance with this requirement,” assures the brief document presented by the supervisory body. “ Given all the different circumstances that can lead to price increases in the current context of rising interest rates, inflation or deteriorating risk premiums, it seems difficult to differentiate whether the temporary levy would be effectively transferred to clients or not”, affects the opinion.

The ECB also enters to assess the impact on competition. Not all banks will have to pay this tax, only those whose income exceeds 800 million euros, which leaves out the smallest or medium-sized entities. “The application of the tax only to certain Spanish credit institutions could distort competition in the market and harm equal conditions both within the country and throughout the banking union,” the document defends.

The truth is that Spanish banks face this new tax with record profits. Between January and September, despite the fact that the impact of the rate hike is still incipient, the six main Spanish entities have obtained a profit of 16,000 million euros, with a growth of 33% compared to the records of a year before for the same period.

Despite the fact that the ECB’s opinion is advisory, that is, it is not mandatory, the sector was waiting for this document to try to reaffirm its outright rejection of the tax. Banks have publicly opposed it, both at the level of employers and entities, some of them even going so far as to file legal proceedings against the new tax. During the recent presentations of results, despite the growth in profits, they have once again stated their opposition. “We are not in extraordinary profits but in minor losses”, defended Gonzalo Gortázar, CEO of CaixaBank, the largest bank in Spain.