By Giuseppe Fonte and Valentina Za
ROME (Reuters) - Italy risks collecting minimal proceeds from a windfall tax on banks after it gave lenders the option to set aside money instead of paying the levy, three sources close to the matter said.
With no provisions in the law over capital levels and distribution policies, it would be hard for banks to justify that shareholders pay the tax when they could, instead, boost capital and keep the cash on their balance sheet, two of the sources said.
The government last week revisited a 40% tax on banks' net interest margin (NIM) that it had introduced in a shock move in August. Lenders now have the option to boost reserves by an amount equivalent to 2.5 times the tax.
Economy Minister Giancarlo Giorgetti said on Sept. 27 the final outcome of the process would be "a great bank policy measure" that makes Italy's banks the strongest in Europe.
The law requires banks that forego the tax to set aside money under ad hoc reserves in their accounts.
This has no bearing for dividends which are normally paid out of profits.
However, European banks have also been using their excess capital to buy back their own shares and cancel them, in this way boosting dividends and earnings per share on what remains.
If forced to boost capital through the ad hoc reserves, banks can use larger buybacks over time to compensate shareholders, one of the sources said.
Banks could, in theory, eventually distribute an amount equivalent to the entire tax-related reserves they booked, but this appears unlikely as over-aggressive distribution policies would draw supervisory scrutiny, another source said.
The European Central Bank gives approval for buybacks.
With the tax due only in June next year, Italy's main banks have months before their boards are called to make an official decision on the matter.
So far, only the chief executives of Monte dei Paschi di Siena (MPS) and UniCredit have commented on the law.
MPS CEO Luigi Lovaglio said last week that the option of boosting reserves "made sense", adding the choice would lie with the board.
UniCredit CEO Andrea Orcel, who spoke before the latest changes were introduced, said the impact of the tax was "not meaningful" and that plans remained to distribute more than 6.5 billion euros in dividends and share buybacks for 2023.
While cooperative banks have been expected from the start to opt out of the tax as they normally put aside a large chunk of profits as reserves, analysts have forecast large banks would pay the tax.
The Treasury has never provided an official estimate of the expected tax take, although Prime Minister Giorgia Meloni has indicated she aimed for proceeds of "just under" 3 billion euros($3 billion) from the levy.
However, Giorgetti has said no spending measure was planned to be funded through the banks' levy at present, suggesting that low revenues would not impact Italy's creaking public finances.
The tax is due to receive final approval of Italy's parliament this week.
($1 = 0.9542 euros)
(Editing by Bernadette Baum)