Banks are expected to raise mortgage rates to pass on the cost of the tax to customers

This is what the Canadian rating agency DBRS has stated, which believes that it will be the way to avoid the effect of the Supreme Court ruling on its profitability.

He estimates the impact on the Spanish banking system at around 700 million euros.

DBRS believes that Spanish banks will pass on the cost of paying the Stamp Duty (IAJD) to their clients through higher rates, which will avoid the potential impact on the sector's profitability.

This was stated in a report released this Wednesday, in which the agency comments on the third-quarter results and analyzes the uncertainty surrounding the mortgage tax generated in recent weeks.

According to DBRS, the Supreme Court's ruling that the customer, not the bank, should be responsible for paying the tax eliminated the uncertainty surrounding potential litigation costs for banks. "The decision theoretically eliminates the possibility that banks will have to repay the tax to the tax authority or borrowers," it notes.

Regarding the subsequent Government Royal Decree, which established exactly the opposite, DBRS estimates that the impact will incur annual costs for the Spanish banking system of around €700 million, although it expects banks to pass this additional cost on to mortgage customers through higher rates, which would allow the net impact on the sector's profitability to be neutral.

Spanish banks can face contingencies

DBRS also noted that the financial results of Spanish banks at the end of the third quarter and those obtained in the European Banking Authority (EBA) stress tests confirm that the sector is well equipped to cope with potential adverse economic and market conditions, and pointed to the recovery of credit as key to increasing its profitability.
Thus, he stated that Spanish banking continued to show solid performance with lower provisions and a positive trend in fees, while lending activity is recovering.

Specifically, he emphasized that lending to non-financial corporations and households, which has begun to recover this year, could be key to driving greater bank profitability. In this sense, increased demand could boost interest income, partially offsetting the effects of the continued low interest rate environment.

Regarding the EBA stress tests, DBRS has confirmed that the banks have a solid capital position that enables them to withstand adverse situations.