November 28, 2019 / 5:02 PM / 18 days ago

UPDATE 1-Slovak parliament approves bill doubling and prolonging bank tax

(Adds background, central bank comment)

BRATISLAVA, Nov 28 (Reuters) - The Slovak parliament approved a bill on Thursday to double a special tax on banks and extend it indefinitely instead of ending it next year, although the central bank said that doing this could threaten financial stability.

The banking tax was adopted in 2012 to build a buffer against potential future crises in the euro zone country and had been scheduled to expire at the end of 2020.

Last month, though, the government approved a new plan to maintain and raise the tax on banks’ liabilities, after subtracting basic capital, to 0.4% as it seeks to cut fiscal deficits at a time of slowing economic growth and fund welfare handouts ahead of February general election.

In a financial stability report released on Monday, the central bank said the higher tax will cut banks’ profits by 33% based on 2018 data.

It said the higher tax should be only left in place for one year, otherwise it would likely erode the flow of credit, mostly to the corporate sector, and lead to structural changes in the banking sector, limiting their attractiveness for investors.

The tax, separate from standard corporate tax, is held in a special fund for use in future financial crises, but proceeds improve the state’s balance sheet.

Slovakia’s banks, including KBC Group’s CSOB, Erste Group Bank’s Slovenska Sporitelna, Raiffeisen’s Tatra Banka and Intesa Sanpaolo’s VUB, saw combined profit in the first nine months of 2019 drop 4.2% to 497 million euros ($548 million).

Romania this year softened a bank sector tax it had introduced at the end of 2018 after criticism from the European Central Bank and new Prime Minister Ludovic Orban has put it among measures that his government would look at changing or lifting.

Hungary has also maintained a tax on banks’ adjusted balance sheets since 2010 but has eased the rate in recent years. (Reporting by Tatiana Jancarikova Editing by Hugh Lawson and Frances Kerry)

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