Profit at Italian banks may rise if a government proposal was approved to ease the tax treatment of lenders’ loan-loss provisions, brokerage firms Mediobanca Securities and Banca IMI SpA said.
Italy’s cabinet on Tuesday reviewed a measure to allow banks greater deductions for loan losses against their regional tax bills, known as IRAP, according a draft of the country’s 2014 budget law. The final text approved by Prime Minister Enrico Letta’s cabinet hasn’t been released. The law must be passed by the Italian Parliament by the end of the year.
“If finally confirmed, the deductibility of loan-loss provisions from the IRAP taxable income would have a significant positive impact on the P&L of Italian banks,” Manuela Meroni, an analyst at Banca IMI, wrote in a note today. Banca Monte dei Paschi di Siena SpA, Unione di Banche Italiane SCPA (UBI) and Banco Popolare SC (BP) would be “the most positively impacted,” she said.
Under current law, loan losses are included in the taxable income to calculate the regional tax, which on average reduces banks’ revenue, net of amortization and administrative expenses, by about 5 percent.
Last year, Italian lenders set aside about 24 billion euros ($33 billion) for bad loans, according to Bologna, Italy-based research firm Prometeia, an amount that would lower regional tax payments by more than 1 billion euros under the proposed rules. In 2012, Unione di Banche Italiane SCPA, Italy’s fourth-largest bank, paid more than 47 million euros in regional taxes on its loan-loss provisions, according to its annual report.
“We calculate the earnings impact of the newly proposed IRAP regime could on average” boost 2014 earnings by 7 percent for the Italian banks Mediobanca covers, Riccardo Rovere, an analyst at the firm, wrote in a note today. The tax may lift profit by 5 percent, according to Matteo Ghilotti, an analyst at Equita Sim.
In 2015, the potential positive impact on banks’ net income would be 11 percent, Banca IMI’s Meroni wrote. Rovere put it at 5 percent.
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