'Thanks to Interest Rate Hikes' European Banks Report Massive Profits... Controversy Over Windfall Tax Introduction Spreads

[Photo by Reuters-Yonhap News]

[Asia Economy Reporter Park Byung-hee] Major foreign media reported on the 26th (local time) that European large banks all posted substantial profits in the third quarter, increasing the likelihood of a windfall tax being imposed.

The reason European banks made large profits is that the interest rate spread between deposits and loans is widening due to central banks raising benchmark interest rates. Usually, when central banks raise benchmark interest rates, commercial banks also raise deposit and loan interest rates, but loan interest rates typically increase more than deposit rates, boosting bank profits. The Bank of England (BOE), the central bank of the UK, has raised its benchmark interest rate from 0.1% in December last year to 2.25% currently. The European Central Bank (ECB) also raised its benchmark interest rate from 0% to 0.75% at the September monetary policy meeting. Analysts expect the ECB to raise the benchmark interest rate to 2.5% next year.

Germany's largest bank, Deutsche Bank, announced that its pre-tax net profit for the third quarter more than doubled compared to the same period last year, reaching 1.6 billion euros. This is the highest quarterly net profit since 2006 and significantly exceeded analysts' expectations of 1.3 billion euros. Deutsche Bank's annual net profit this year is expected to be the highest since 2009.

As bank profits increase significantly, the possibility of becoming a government target is growing. Spain was the first Western European country to impose a windfall tax on bank profits last July, followed by Hungary introducing a windfall tax.

Jeremy Hunt, the UK Chancellor of the Exchequer, is also reportedly considering imposing taxes on bank profits. On the same day, the UK government postponed the announcement of its medium-term fiscal plan to October 17 from the originally scheduled date of September 31. Chancellor Hunt stated that he proposed the delay to Prime Minister Rishi Sunak to make the best decision under difficult circumstances.

On the 25th, as HSBC and Standard Chartered announced large third-quarter profits, opposition parties also called for the introduction of a windfall tax.

On that day, HSBC announced that its adjusted pre-tax net profit for the third quarter increased by 18% year-on-year to 6.5 billion dollars. Standard Chartered's third-quarter net profit also rose 40% year-on-year, exceeding expectations of 1.1 billion dollars by reaching 1.4 billion dollars.

Sarah Olney, spokesperson for the Liberal Democrats, said, "The general public will find it hard to accept the situation where banks' profits are soaring while their mortgage costs are rising," and argued, "The Treasury should clearly consider imposing taxes on bank profits."

HSBC CEO Noel Quinn issued a statement opposing the introduction of a windfall tax, saying, "The financial services sector is already paying more taxes than general companies." CEO Quinn added, "I hope there will be no windfall tax, but that is a matter for the Chancellor to decide." Barclays' CEO emphasized, "A predictable tax system is important for the UK as a global financial center," and said, "We will wait for the government's decision on the windfall tax issue."

Barclays, Santander, UniCredit, UBS, and others also announced quarterly net profits exceeding expectations.

Barclays' pre-tax net profit for the third quarter increased by 6% to 1.97 billion pounds, surpassing the market expectation of 1.81 billion pounds. Spain's largest bank in the Eurozone, Santander, announced a net profit of 2.42 billion euros, up 11%.

Italy's second-largest bank, UniCredit, posted a record high third-quarter net profit of 1.7 billion euros, significantly exceeding analysts' expectations of 1 billion euros. UniCredit's cumulative net profit for this year has exceeded 4.8 billion euros.

This content was produced with the assistance of AI translation services.