Millions will be shared with the state
The Seimas passed a special banking solidarity tax – banks will pay the state 100 million euros in profits. The millions from the solidarity tax will be used to strengthen the country’s defense. It is still unclear how much each bank will have to transfer.
“The first advance payment is scheduled for mid-August,” said Mindaugas Lingė, chairman of the Seimas Budget and Finance Committee (TS-LKD).
Bank profits are now at a record level, but the solidarity tax will be calculated over the long term, ie on lower profitability. The formula is quite complicated.
“There is a four-year period, we look at what is earned and what is earned 50% more than the four-year average, and only that part, purely speaking of net interest, is taxed at a rate of 60%,” Lingė explained.
It is clear that this year’s record profits are what the government had expected, so this year the banks should report at least 100 million euros in profits.
“More than 130 million are expected. What the published figures show is that similar amounts can be expected,” Lingė said.
The reasons for the record profits
The main reason for the record profits of banks is obvious – the increase in interest rates on loans.
“First of all, the increase in interest rates, which affected interest rates on loans faster than on deposits,” said A. Prapiestis, head of the Bank of Lithuania department.
More money has also flowed into the banks – term deposits are increasing, as the interest on them is also increasing. Money lent by banks is also increasing – there are fewer borrowers, but larger amounts are being lent.
“The increases are very strong, the main reasons can be seen as both the broadening of the credit base and the deposit base, because both more depositors and more credit,” said Algirdas Bartkus, associate professor at Vilnius University.
Banks offer people almost half of the interest they charge for loans.
“Home loan interest rates are currently around 5.5% for new home loans and around 6% for businesses. Meanwhile, in terms of interest rates on deposits, both for residents and businesses, they reach around 3-3.5%,” said A. Prapiestis.
Economists say the significant difference between interest rates on deposits and loans is another reason for the profits.
“They use the scissors quite wisely in their own way, when they raise the interest a bit more for credit than for deposits and in the end, in this case, in 2022, they could enjoy very good financial results,” said A. Bartkus.
Another reason for the profits is that the bigger banks have so many customers and money that there is no incentive to offer anything cheaper.
“We cannot hide the fact that competition in the banking sector is less, compared to other countries in the euro zone,” said A. Prapiestis.
According to the Bank of Lithuania, according to very careful calculations, Lithuanian banks will earn one billion or maybe 1.5 billion euros during all these years. These are impressive indicators. 1.5 billion euros would represent a tenth of the total annual state budget. The economist has no doubt that the Seimas will propose to tax the banks.
“I am almost certain that when the politicians of the Seimas discuss this issue, they will say that an even higher solidarity tax should be applied to them, because there, look at the fabulous results,” said A. Bartkus.
The solidarity tax will be valid this year and next year. According to the calculations of the Ministry of Finance, the banks should transfer 400 million euros during this period. The more the banks profit from interest, the higher the tax will be. The Ministry of Finance indicates that additional taxes for banks are not planned.
You can find the full report on the LNK portal:
Source: The Delfi