Czech banks, led by Komerční banka, are against the special tax on extraordinary profits. Why does this tax make no…

The windfall tax is probably one of the most talked about topics on our domestic scene this year. Its exact specifications are still unknown, we only know who it is supposed to affect. The most speculated sector, however, remains the banks, where there is often a big debate about whether the tax makes sense at all when the big banks can help us much more effectively. This is precisely the subject that will be the main focus of today's article.

Commercial Bank

By taxing the windfall profits of the energy sector, banks and refineries, the government wants to raise money to help people with their gas and electricity bills. The cabinet justifies the tax on the grounds that banks benefit from the high rates the Czech National Bank (CNB) uses to fight inflation, while banks do not offer their customers high deposit appreciation. But does this make sense? 👇

Recently, the CNB released the latest banking sector statistics for 2Q22 - here's what net profit and net interest income on average assets looks like. This chart is mainly for those who still claim that banks have extreme profits (extraordinary profits).

This is how KB CEO Jan Juchelka recently commented on the special tax:

  • For the Czech economy, the WindFall tax on banks is something to think about in the current situation and with the need for investment in the Czech energy infrastructure.
  • Banks helped households and companies during the COVID era. Spreading and deferring payments to people and companies, providing loans to companies, also loans together with guarantees.
  • There is no doubt about the current situation and the need to be solidary again.
  • There is a need to invest more heavily in infra projects and to increase the capital of the NRB to enhance its role in supporting investment in innovation and development plans of companies in the country. Banks are ready to discuss this.
  • Banks in the Czech Republic have enough capital that can be used to bridge the current crisis and support companies and households. Targeted assistance to those in need. Targeted financing for specific development projects.

See? There is no greed or reluctance to help. They want to help and accommodate us, but there are more effective methods and ways that can be applied for the good of all parties involved.

Why don't I acknowledge the WFT targeting the banks?

Banks, and the banking sector in general, can be very effective in helping the people and the country as a whole in times of crisis. Think of COVID, or just look up how the banks during covid were in solidarity, made deferrals and accommodated clients in difficult times (deferring mortgages, repayments, loans). At the same time, the money that will be taxed will be missing to finance the needs of Czech households and companies. This is not even mentioning the billions of crowns that the banks are investing in innovation.

In one of his interviews, Jan Juchelka put it this way:

Just as in the years of covid, we are ready to provide support and assistance to clients in overcoming problems that they did not cause themselves. For example, by deferring or spreading payments over time. We have offered the government to strengthen and support investment in infrastructure, affordable housing. Directly or through the National Development Bank. A combination of public and private capital can achieve positive effects orders of magnitude higher than a tax collected and then used for consumption.

TheCzech Banking Association (CBA) offers economic support as an alternative to the windfall profits tax 👇

According to the association, banks are also able to help consumers with possible financing of investments in renewable energy on more favourable terms, thus reducing clients' energy bills overall. This may include government assistance in distributing subsidies for renewable energy technologies (pumps, photovoltaics , insulation, windows).

If even this is not enough for some, let us look again at the pandemic period. Czech Savings Bank, Komerční banka and Moneta 👇

Česká spořitelna joined the mainstream banks and, like the others, offered clients the possibility of deferring mortgage and loan payments for up to three months. Here, too, it was enough to ask the bank for a deferment (up to three months) by filling in an online form and during the period of deferment the insurance was paid for the client in case of the client's inability to repay.

Like other banks,Komerční banka offered the possibility of deferring repayments for its retail clients for up to 3 months. As with its large competitors, applicants do not have to prove a reduction in income related to a coronavirus infection. The downside of the extent of the bank's assistance and support was that, unlike Česká spořitelna and other banks, it did not forgive interest on these loans during the deferment period. In addition, corporate clients can benefit from deferment of loan repayments for up to 5 months or fee forgiveness.

Moneta offered mandatory deferment of repayment of loans and mortgages for up to 3 months. To do so, it was necessary to fill in an online form. However, the bank did not forgive interest on deferred repayments for the duration of the repayment period. Moneta deferred three monthly repayments to clients and extended the loan repayment period accordingly. In total, the loan maturity will be extended by 4 months.

The other side of the coin

The war tax funds that the government plans to collect will be used to help households and businesses overcome the energy crisis. According to estimates, 39-59 billion crowns are expected to flow into the budget from this tax. However, it depends on how high the percentage of this tax will be.

In the short term, this could be an effective measure, but in the long term, it may worsen the perception of the domestic business environment. Moreover, the extraordinary tax does not address the structural deficit, which now needs to be reduced. Since last year, the National Budget Council has been pointing to the need to consolidate public finances, and the windfall tax would only do this partially, and for a limited period of time.

  • However, my final opinion remains the same. I believe that the banks can help more effectively, including by deferring repayments, as well as through various investments and the development of other projects.
  • What is your opinion on this? Does the special tax make sense to you specifically for banks?

Please note that this is not financial advice. Every investment must undergo a thorough analysis.

Read the full article for free?
Go ahead 👇

Do you have an account? Then log in . Or create a new one .

No comments yet
Timeline Tracker Overview