• AIB pays the biggest portion of levy, at 60 million euros
  • Government may signal extension of banking levy beyond 2016

Ireland’s government is poised to drop a threat to increase a 150 million-euro ($170 million) annual levy on the nation’s banks, according to a person with knowledge of the matter.

In delivering the budget on Tuesday in Dublin, Finance Minister Michael Noonan is set to signal the charge will remain in force after 2016, extending its original three-year lifespan, should the ruling coalition win re-election, said the person, who asked not to be named as the final decision hasn’t been made.

National elections are due by early April. Government officials were weighing doubling the levy to fund tax cuts, the Sunday Business Post reported last month, citing unnamed people familiar with the matter. While Noonan warned in May he would introduce a “penal” charge if banks didn’t cut home-loan rates, he said last month that most lenders had done so.

Holding off raising the levy, which is based on Irish deposits, may make it easier to sell the government’s remaining stakes in the country’s banks. Allied Irish Banks Plc, which is 99.8% government owned and pays a 60 million euros a year levy, would be most hurt by an increase, said Diarmaid Sheridan, an analyst with Dublin-based securities firm Davy.

“A significant increase in the bank levy would negatively impact bank profitability and valuations and would come at a time when banks are still state owned,” said Sheridan.

Irish finance ministry officials declined to comment.

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