MNI EXCLUSIVE: Italy Targets E6Bln Bank Tax Boost Over 3 Years

--Italian Budget Aims At Extra EUR4.3 Billion Revenues From Bank Taxes In 2019

--10% Tax Deduction For Losses And Bad Loans Frozen Until 2026

By Silvia Marchetti

     ROME(MNI) - Italy plans to raise more than expected from planned tax

increases on banks, hoping for roughly EUR6 billion in extra revenues over the

next three years from lenders struggling under a heavy weight of non-performing

loans, a document seen by MNI shows.

     According to a revised budget plan forwarded this week to the European

Commission, the bulk of the new measures focus on scrapping tax credits for

recapitalizations and abolishing the so-called "economic growth support" scheme,

which has so far allowed banks to convert costs for new activities and

investments into future tax credits.

     All new measures will be "immediately effective" as of 2019, when the

government hopes to raise EUR4.3 billion. The following year, it hopes to raise

EUR0.5 billion, and EUR0.8 billion in 2021.

     Previous media reports had indicated that the governing coalition between

the populist 5-Star Movement and the right-wing Lega aimed to raise EUR3.3

billion from the measures next year.

     --TAX DEDUCTION FROZEN

     The document also provided not-previously-reported details on the proposed

taxes.

     Banks will no longer be able to benefit from a 10% tax deduction for losses

and bad loans, which will be frozen until 2026.

     Additional revenues will come also from compliance with the IFSR9

accounting rule, spreading out tax deductions for expected future losses,

including those for bad and non-performing loans, over 10 years. According to

the budget document, this new rule will be applied retrospectively for potential

deductions, and 10% of the expected losses must be re-calculated starting from

January 2018, when IFSR9 was introduced.

     A state guarantee for senior tranches of bad loans sold on by banks will

also be reviewed. The scheme, launched in 2016 after a long confrontation with

the European authorities over state aid risks, has reduced the volume of bad

debt on banks' balance sheets by a fourth, and the government asked the European

Commission in July to be able to extend it for a further six months.

     The Bank of Italy recently warned that the planned measures could make bank

recapitalization needs even tougher, especially the abolition of the "economic

growth support" scheme.

     --CHANGES ROLL BACK "PRO-BANK GIFTS"

     But a 5-Star Movement source familiar with the new tax scheme was

dismissive of such concerns.

     "The 'economic growth support' rule has always been exploited by banks to

boost their capital and strengthen their financial position, rather than

actually hire new workers or open new agencies. There has been no impact in

local development," the source told MNI.

     The changes roll bank previous banking regulations adopted by the

governments of premiers Mario Monti and Matteo Renzi, which the populist

coalition has dubbed "pro-bank gifts".

     "We need to put an end to the many tricks banks have been playing to deduct

losses and delaying write-offs to the detriment of savers and deposit-holders.

Things will be different from next year," added the source.

     The biggest impact from the rule changes will hit banks next year, just as

the European Central Bank ends its bond-buying programme. Banks' share prices

have also sunk during the Italian government's standoff with the European Union

over its budget plans, as falling prices for Italian sovereign bonds held in

large quantities by lenders erode their capital.

     Italian banks also need to repay EUR250 billion to the ECB between June

2020 and March 2021 as Targetted Longer-Term Refinancing Operations loans come

due, according to Moody's Investors Service.

     A source within the Italian Banking Association declined to comment on the

new measures, telling MNI: "Much can change when parliament considers the budget

plan. We will wait and see what the final law will be."

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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