ATHENS (Reuters) - The European Banking Authority (EBA) has asked Greece to adjust a recent law that allows its banks to boost their capital base by converting deferred tax assets into tax credits, Greek newspaper Kathimerini said on Thursday.
The measure, which was voted into law last month, is seen saving banks around 2.5 billion euros ($3.2 billion) in core capital over 2015-16 and comes ahead of the EBA and European Central Bank’s stress tests in October.
The paper said the EBA has asked Athens to amend the law so that in the event of a bank which calls on its tax credits as capital fails to produce profits in the future, the government owing a tax refund must provide it in cash instead of the government bonds envisaged under the law as it currently stands.
Under the legislation, banks can amortize their deferred tax credits (DTC) over 30 years via their future profits. If they fail to do so the state must issue government bonds to cover their DTCs in return for shares issued by the banks.
The EBA also wants to reduce the 30-year timespan during which banks can offset losses incurred from a sovereign debt writedown and bad loans with future profits, the paper said.
“If the government does not proceed to changes in line with the EBA’s guidance, it is possible that the EBA may not grant approval for the deferred tax to be recognized as core capital,” Kathimerini said.
Greece’s four biggest lenders suffered losses in recent years due to rising bad loans and their participation in a debt restructuring program (PSI) aimed at relieving the country’s debt burden.
National Bank (NBGr.AT), Piraeus Bank (BOPr.AT) and Alpha Bank (ACBr.AT) are majority-owned by the HFSF bank rescue fund. Together with Eurobank (EURBr.AT) they control about 90 percent of the industry and have already been recapitalized twice after two stress tests by the Greek central bank.
Kathimerini said the EU/ECB/IMF troika inspecting Greece’s bailout program has also expressed concerns on grounds that the law shifts risks from bank shareholders to taxpayers.
But Greek authorities have responded that the deferred tax law is in line with similar measures adopted by Portugal, Italy and Spain, the paper said.
Reporting by George Georgiopoulos; Editing by Greg Mahlich