The threat of extraordinary tax returns, the government - banks in the trenches

The imposition of a special tax on banks' profits for the current fiscal year is expected, banking sources predict, following the new meeting of Finance Minister Christos Staikouras with bank managements on Wednesday.

During the minister's meeting with the heads of the systemic banks - National Bank, Alpha Bank, Eurobank and Piraeus Bank - the gap in government-bank relations was confirmed, despite the agreement reached on subsidies for vulnerable borrowers, as Mr Staikouras insisting on a more active contribution from banks to provide relief to citizens against the difficult circumstances.

According to reports, Staikouras has asked bank managements for detailed data on deposit costs in 2023, pushing for deposit rate hikes, while warning that if there are no serious interest rate hikes and cuts in the cost of commissions, the government will impose an extraordinary tax.

The threat to impose an extraordinary tax comes despite the Prime Minister's rejection of this possibility at the investment conference held in London a few weeks ago. Essentially, the government is asking credit institutions to cut their profitability in order to make moves to support their clientele.

Given that the banks are fending off government pressure for aggressive moves to cut loan rates, raise deposit rates and reduce fees, the scenario of imposing a special tax, as was done for energy companies and refineries, seems very likely. Many analysts interpret the government's aggressive stance against banks in the context of the tense political situation and the upcoming national elections. It is noted that SYRIZA President Alexis Tsipras has already called for an extraordinary tax on bank profitability.

The government-bank conflict has raised alarm at the ECB's Single Supervisory Mechanism (SSM) and, according to Business Daily, SSM technocrats have asked the managements to stay focused on their work, following banking criteria and supervisory rules, and to resist any kind of political interference.

"There are no excess profits"

Bank managements in their meeting with the Finance Minister reiterated that there are no excess profits, recalling that the 2021 financial year ended with a loss of €4.5 billion, while they said that about 30% of the profitability of the seven-year financial year is based on profits from non-recurring sources such as interbank interest rate trading, profits from bonds, as well as profits from overseas operations.

They also pointed out to the minister the recent interview (in the News) of Bank of Greece Governor Yannis Stournaras, who, when asked about high bank profits, replied, "Unfortunately, that is not the case at all. In fact, they have less profit than desired, according to the return on assets or return on capital ratio, when compared to other banks in Europe. After all, many of the banks' profits in the nine months to 2022 were one-off, i.e. non-recurring. The profitability of Greek banks may have improved significantly, but there is still some way to go."

According to Business Daily, Staikouras rebutted the CBE governor's remarks by repeating Prime Minister Kyriakos Mitsotakis' statement about the high profitability of banks.

However, as far as the imposition of a special tax is concerned, given the large contribution of the deferred tax to banks' capital, it is estimated that the ECB's approval will be required.

The unexpected conflict between the government and the banks and the threat of an extraordinary tax worsens the investment climate and postpones any plans to sell the government's stakes in banks through the HFSF. But something that would hardly have happened before the election and the formation of a new government anyway.

The government's stance has alarmed the investment community and has raised questions regarding the government's intentions and inconsistency. Bank stocks, in the aftermath of the standoff with the government, have been under pressure lately and are showing more nervousness.  

"Let us do our job"

Government-bank relations are at perhaps their worst point in decades. It is indicative of the climate and the prevailing rift that in a briefing by Staikouras to reporters after his meeting with bank executives last Thursday, he noted that for two hours "we were bickering".

Sources close to the bank managements make no secret of their annoyance at the government's attitude and its handling of a number of serious issues in terms of communication rather than substance.

They note that demands from the Ministry of Finance such as the setting of commissions or interest rate policy raise the issue of violation of competition principles, which could trigger intervention by the Competition Commission. They further recall that they are listed companies supervised by the Securities and Exchange Commission and the ECB's Single Supervisory Mechanism and such a negotiation attempted by the government is out of context, unregulatory and without precedent.

Business Daily reports that at last Thursday's meeting, after the finance minister's strong pressure on banks to reduce their profitability to support households, the banks underlined the impasse in the discussion by pointing out pointedly that "the minister cannot become a banker and banks cannot become politicians. Let us do our job".