BBVA CEO slams €3B bank tax as 'bad for Spain,' warns of economic damage

Spain's proposed tax on domestic banks is unfair, uncompetitive and will harm the Spanish economy at a difficult time, according to the CEO of the country's third-largest lender.

The Spanish government on July 29 introduced a bill to parliament proposing a 4.8% tax on Spanish banks' profits from net interest and fee charges income. The tax aims to raise €1.5 billion each year from the banks' 2022 and 2023 earnings.

"This is bad for Spain," Banco Bilbao Vizcaya Argentaria SA CEO Onur Genç said during a second-quarter earnings call on July 29. "Why would [the government] impose the tax on a sector we need the most at the moment?"

The tax will inhibit banks' ability to stimulate economic growth through lending at a time when the economic outlook for Spain is deteriorating, Genç said.

The tax was first announced July 12 by Prime Minister Pedro Sánchez. It caused shares in Spanish banks to plunge, before they later recovered. Spain's ruling left-wing coalition wants to boost tax revenues from the banking and energy sectors to fund spending to tackle an emerging cost of living crisis due to surging inflation.

The International Monetary Fund revised its 2022 growth forecast for Spain down to 4% from 4.8% July 26. Inflation in Spain hit 10.2% in June, the first time it surpassed 10% in 37 years, Reuters noted.

The tax will only apply to banks that record annual net interest and fee income of more than €800 million. Banks that try to pass the charge on to customers will be penalized.

Targeting specific banks and not the whole sector will distort the market, Genç said.

"There's no doubt about it that it will affect competition, and it's unfair," said Genç. "If you create this competitive misalignment, that [is] unproductive for the whole economy and it creates bad competition dynamics."

BBVA derived more than a quarter of its operating income and pretax profits from Spain in 2021, according to S&P Global Market Intelligence data. Spain is BBVA's second-largest market after Mexico. The bank is Spain's third-largest domestic lender after CaixaBank and Santander.

BBVA recorded its best ever quarter for profits in the first three months of the year, despite an extraordinary expense of €1.99 billion for the purchase of properties that are part of its branch network. The transaction had a €200 million impact on the lender's second-quarter income statement.

The Madrid-based lender posted net attributable profit of €1.68 billion in the second quarter, up 24.9% year over year in constant euros. The bank saw a 14.6% quarter-over-quarter increase in net interest income — the difference between the revenue generated from a bank's assets and the expenses associated with paying on its interest-bearing liabilities — in the first three months of 2022, to €4.6 billion. Net fees and commissions rose 21.1% year over year to €1.4 billion.

"We are posting record results," said Genç. "South America and Mexico have [especially] outperformed, reaching very good results."