Hungary banks want special tax ended soon

Banking

Hungary's special bank tax, passed into law in parliament on Thursday, could drive 8-10 banks into the red this year so it must be phased out by 2012, the country's top banker said after the vote.

The tax is levied on most financial institutions. It requires banks to pay 0.5% on most of their balance sheets, or a sector total of HUF 120 billion, in 2010. A sum of HUF 36 billion will fall on insurers and HUF 30 billion on the rest of the financial sector.

"There is nothing we can do in 2010 but accept the tax," Erdei said. "But in 2011, the tax must shrink substantially, and by 2012, it must be reduced to the European levels. There, the tax is 0.04% or 0.05% of balance sheet total."

The government earmarked revenues of HUF 200 billion from the tax for 2011 as well.

"Of course we're not in a bazaar in Istanbul to bargain," Erdei said. "The government must understand that this burden, if sustained too long, will conserve a very restrictive bank behavior."

He said reduced profitability and slower lending will ultimately lower the price tag of Hungarian banks, exposing them to takeovers.

"The effects of the bank tax are clearly negative and we absolutely do expect a market reshuffle in Central Europe within the next year or two." (Reuters)

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