Spanish banks' 2023 tax bill forecast to climb almost a quarter to €12B

Spain's largest lenders will pay almost a quarter more into state coffers for 2023 as the country's recently introduced bank tax and higher revenues boost government takings.

The country's six largest lenders — Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, Caixabank SA, Banco de Sabadell SA, Bankinter SA and Unicaja Banco SA — are expected to pay more than €12 billion in aggregate tax for 2023, an increase of 22.9% from 2022, S&P Capital IQ mean consensus estimates show. The data constitutes projected universal income tax provision for the period, which includes immediately payable taxes as well as additions to deferred taxes.

The Spanish government in 2022 introduced a temporary tax on the country's largest banks, to be applied to lenders' earnings over the next two years. The country's Socialist-led coalition government announced in December 2023 that the tax would be extended for another year into 2025.

Bankinter on Jan. 25 reported a 71% increase in tax to €384 million, slightly below the S&P Capital IQ consensus estimate of 79%. BBVA will be the next Spanish lender to report full year 2023 results on Jan. 30.

Home is where the hurt is

Tax provisions at Spain's domestic-focused lenders — CaixaBank, Sabadell, Bankinter and Unicaja — are forecast to rise more than 70% on average. The blow will be less severe for Santander and BBVA, which generate most of their revenue in other markets and are estimated to report an aggregate 11.6% increase.

A surge in banks' net interest income (NII) due to higher interest rates is partly driving the increased tax bills. Spain's six largest lenders are forecast to record 20% growth in aggregate NII for 2023 to €85.28 billion, CapIQ data shows.

CaixaBank and Bankinter, which are forecast to post the largest increases in tax provisions among the banks, are also projected to record the largest NII increases for 2023, at roughly 46% and 44%, respectively.

Analysts have raised concerns about the impact of European bank taxes on investor sentiment. European banks' share price to tangible book values traded significantly below that of their US peers even before the taxes were introduced.

The share prices of Spain's domestic-focused banks have performed worse on average than their multinational peers since the Spanish government announced plans for the tax in July 2022. The share prices of CaixaBank, Sabadell, Bankinter and Unicaja rose an average of 32.4% since the announcement, compared to the 34% increase in the S&P Europe BMI Banks Index during the same period. Santander and BBVA's share prices are up two-thirds on average in the period.

– View aggregate financial data for Spanish banks on CapIQ Pro. – Access economic and demographic data for Spain on CapIQ Pro. – Compare bank performance using the Peer Analysis template.

Permanent worries

The Spanish bank tax is a levy of 4.8% on revenues from interest and fees at Spain's largest banks. Several other European countries, including Italy, the Netherlands and Belgium, have introduced similar measures in the last 18 months.

Spain's government introduced the levy to help tackle a cost of living crisis, sparked by a surge in inflation. The government justified the tax on the basis that a sharp rise in interest rates, designed to tame the spike in inflation, was set to boost banks' profits significantly.

Some analysts fear that the tax could be extended further beyond 2025. "We think that it's a high priority [for the Spanish government] to make this tax permanent," Nuria Álvarez, financial analyst at Madrid-based financial services company Renta4 said in an interview. "We are taking account of this in our valuations."

Spain's largest lenders are challenging the tax in the Spanish courts. The banks argue that the tax both contravenes European Union law and is contrary to the Spanish constitution, according to Pablo Ulecia, EMEIA banking and capital markets tax and law leader at EY.

The European Central Bank also expressed disquiet about the tax based on its potential impact on banks' resilience to economic shocks.

"For the ECB as supervisor, it would be better if the banks use their revenues to strengthen their capital base and to stay as strong as they are at the moment in case there are any difficulties ahead," said Francisco Uria, global head of banking and capital markets at KPMG.