April 29, 2020 / 10:33 AM / a month ago

Slovak central bank battles tax on banks

BRATISLAVA, April 29 (Reuters) - Slovakia’s central bank stepped up calls on Wednesday for the government to change or cancel a bank tax after the country’s lenders saw profits fall by half in the first quarter as the coronavirus outbreak accelerated.

Slovakia, like most of Europe, went into lockdown in March and is only starting to ease restrictions of shops and daily life. The halt in business has pushed banks into offering up to nine-month loan payment deferrals to help those affected.

The country imposed a special tax on banks in 2012 as a buffer against future crises. It was supposed to expire at the end of 2020 although the previous government, which left office in March, had extended it and doubled the rate last November to 0.4% of banks’ liabilities, after subtracting basic capital.

“Banks would pay 300 million euros this year, which would amount to 50% of last year’s net profit,” National Bank of Slovakia Governor Peter Kazimir told an online news conference. “I would ask anyone whether they wanted to deposit money in profitable or loss-making banks.”

Kazimir, who served as finance minister from 2012 to April 2019 before taking over at the central bank, said that it was time to reconsider old mistakes and attitudes in a fast-changing situation caused by the new coronavirus outbreak.

The central bank forecast on Wednesday the economy could slide 13.5% under its worst-case scenario in 2020. A more likely drop would be around 9%.

“Before the crisis, we asked banks how they would reconsider their budgets in response to doubling the bank sector tax and they said that the outlook was catastrophic and in five years’ time only two or three banks would be able to make profits,” the central bank’s chief economist, Michal Horvath, said.

“Then the Covid crisis came and it is the question of the day, not of five years,” he said, referring to the Covid-19 illness the coronavirus causes.

The central bank decided on Tuesday to cancel an increase in the counter-cyclical capital buffer for banks to 2.0% as of August and kept it at the current 1.5% level.

It said it was ready to cut the buffer further if banks need to absorb losses or if they need capital to support lending growth.

Slovakia’s top banks include KBC Group’s CSOB KBC.BR, Erste Group Bank’s Slovenska Sporitelna ERST.VI, Raiffeisen’s Tatra Banka RBIV.VI and Intesa Sanpaolo’s VUB ISP.MI. (Reporting by Tomas Mrva, editing by Larry King)

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