Big bank earnings once again fuel a heated discussion about the role of corporations in social and political life. Sumar, the coalition led by Minister Yolanda Díaz and aligned with Podemos, is pushing to make permanent what it calls an extraordinary revenue tax designed to benefit both political groups involved. In theory, the plan spans two years, and experts say the PSOE is backing the measure after signaling approval of its implementation.
From the perspective of the sector, the bank tax has already generated 1,119 million euros through 2022, with collections extending into 2023. The Bank of Spain projects a total payment to the sector of 1,274 million euros. The debate extends beyond the cost itself to its practical effects and whether the tax is a transfer price: banks argue, rightly or wrongly, that it is a lending cost that should be reflected in pricing.
BBVA’s chief executive, Onur Genç, criticized the tax during the bank’s results presentation, saying it undermines Spain’s ability to attract investment by creating regulatory uncertainty and has constrained lending capacity. Santander chief executive Héctor Grisi called the measure discriminatory, saying it stigmatizes the industry. Other banking insiders describe it as an additional tax, noting that companies already face an average corporate tax rate around 30 percent; for example, Santander reported direct taxes of 9.734 billion euros in 2022, with 2.892 billion euros paid in Spain.
The key to profitability
The central question is whether this year’s bank profits are truly extraordinary. Analysts stress that rate increases must be rapid, and they remind readers not to forget the conditions that preceded them — the housing crisis, ultra-low rates, and the Covid era. Some industry voices argue that current profitability is not extraordinary, but rather a normalization after a stretch of unusual monetary policy. They note that what looked extraordinary was the era of zero percent rates; today’s increases look more pronounced when compared with last year, yet profitability remains below peak levels seen around 2010 due to earlier distortions and losses that followed a market-wide crisis.
A substantial portion of the debate focuses on profitability. The Bank of Spain, in its Financial Stability Report, reports return on assets (ROA) at 0.8 percent in June, up from 0.6 percent a year earlier, while return on equity (ROE) stood at 12.1 percent in June, compared with around 10 percent a year ago. What does this tell us? Despite a rebound, the sector is far from the 15 percent ROE seen during housing-bubble years, a reality distorted by accounting practices that masked asset impairments and the eventual market collapse. Still, experts argue that it is not harmful that some voices discuss excessive profits, given earlier European concerns about low profitability in Spanish banks.
If profitability improves, solvency remains another story. The Bank of Spain notes that the common-equity tier 1 (CET1) capital ratio rose to 13.1 percent in the first half, but it still trails the levels observed in the banking systems of other major European economies such as Germany, France, Italy, and the Netherlands. This nuance matters for those following the health of Spanish credit flows and bank balance sheets.
This dimension of profitability is significant, even if not directly comparable. Analysts emphasize that the ability to lend hinges on sustaining profitability. Meanwhile, some economists warn that today’s unusual profit environment may not endure. The European Central Bank has indicated it may pause further rate hikes, while the U.S. Federal Reserve and the ECB have slowed the pace of increases. Inflationary pressures persist, yet the policy path looks less aggressive, which could tighten the sector’s core profit drivers over time.
The Bank of Spain noted that interest margins may weaken in upcoming quarters as rate changes begin to reflect more in deposit pricing. In the near term, the margin dynamics are expected to shift, with two quarters left in the current cycle of rising margins, according to experts.
Another risk on the radar is Spain’s credit cycle. The Bank’s Financial Stability Report highlights a continued decline in private-sector credit in the first half of the year, with a contraction of about 2.6 percent. Some observers worry that additional policy changes, such as a 0 percent reserve requirement on minimum reserves, could press margins further, potentially reducing annual earnings by hundreds of millions of euros in coming years.
Late payments are no problem
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In the near term, most observers do not predict a spike in corporate defaults. The Bank of Spain notes that the sector’s bad debt rate continued to fall in the first half of the year, landing at 3.4 percent, indicating a modest need for collateral and provisions. Market watchers say there is little concern about coverage levels. Official data show total provisions, including pensions, reaching over 22 billion euros by the end of the first period, which is about 7.6 percent lower than the same period in 2022.