Banks are experiencing golden times. However, they only pay the bare minimum of their profits to the state.
Last year, the net profit of the six largest domestic banks increased by more than a fifth to 86.1 billion crowns. Despite this, why can't the state extract more from them than just a few tens of millions?
While domestic banks reported a net profit of 70.6 billion two years ago, last year it was already 22 percent more. For example, in the case of Česká spořitelna, it increased by 40.5 percent to a record 26.2 billion crowns, Komerční banka by 10.4 percent to 17.2 billion crowns and ČSOB by a quarter to 18.9 billion crowns, as previously reported by the Czech News Agency.
Czech Savings Bank reported a net profit of 14.2 billion just four years ago. Now it is almost double that amount. The situation is similar at Raiffeisenbank - in 2021 it was 4.69 and last year already 7.3 billion. In the case of UniCredit Bank, it meant an increase from 6.62 to 10.7 billion crowns.
"The total value of newly funded projects reached 16.65 billion crowns, which represents a year-on-year increase of 4.5 percent. We achieved significantly positive results across all key sectors,"
Eva Jiránková, Trade Director, evaluated the past twelve months of operation for the whole Société Générale Equipment group, including Komerční banka, for LP-Life.
Banks are strengthening their position
The numbers speak a clear language. The position of our banks is truly excellent. This also applies to international comparison. The reason why financial institutions have been thriving in recent months is the growing economy. Interest rates are also gradually decreasing, which is reviving bank financing. Significant strengthening, for instance, can be seen in the mortgage market.
"Last year, there was a revival of the mortgage market, which was supported by a decrease in interest rates and, in particular, by the improving situation of the Czech economy. At the same time, due to the calming of inflation, households' overall willingness to invest is improving,"
said Petra Skrbková, head of the housing section in Česká Spořitelna for LP-Life.
Hand in hand with this, the volume of paid fees is increasing. These funds are also often transferred from interest-bearing deposits to investment instruments. Expansion is also increased by relatively large investments in digitalisation and innovative products, which are intended to improve client comfort. As a result, banks pay tens of billions of crowns in dividends to their foreign head offices.
Only the bare minimum for the state
However, there is an area where our financial institutions fall behind expectations. For the tax on unexpected extraordinary profits, they are paying only a fraction.
The so-called windfall tax, which the government approved in the past as a 60 percent tax surcharge for excessive profit, is clearly failing. Last year, banks paid less than half a billion crowns in tax, according to data from the Financial Administration, found by Czech Television. Compared to the previous year, this is approximately a third less. It was expected that the state would collect over thirty billion from financial institutions. The measure targeted the six biggest banks on the market - Czech Savings Bank, ČSOB and Komerční bank, and also UniCredit Bank, Moneta and Raiffeisenbank.
The tax is calculated from the excessive profit, which is determined as the difference between the tax base in the current year and the arithmetic average of the tax bases for the years 2018 to 2021, increased by a fifth. The inspiration was measures that conservative governments in the United States and Great Britain introduced in 1981.
From the beginning, its advocates argued that it was not a traditional sector tax that would negatively affect the entire industry, but only a temporary tax surcharge on excessive profit, which was achieved without the company's own actions. Critics, on the other hand, mainly criticize the entire concept for the fact that banks have found a way to optimize these levies. And practice definitely proves them right. The tax calculation is also quite complicated, so it would supposedly be much more efficient to link the tax to the revenues of financial institutions.
Sector tax reportedly won't help
The Czech Banking Association warned against the introduction of a sector tax that would replace windfall tax in this context.
"It would create uncertainty that in the future the government could tax some other sectors of the economy and also arbitrarily tax them according to current moods. The sector tax could thus reduce foreign investors' trust in the Czech Republic and limit the inflow of investment,"
The representative of the association Radek Šalša explained to LP-Life, adding that it could have a negative impact on bank employees and supposedly on clients, probably referring to possible service price increases.
One thing is almost certain already: this year is the final one for the windfall tax on banks, despite the fact that bank profits will likely exceed last year's figures. It is most likely not expected in the future years.
Sources: author's text, own enquiries, ČTK, Czech Banking Association
