Polish Financial Industry at Risk From Tax Plan, Traders Say

  • Opposition's bank tax proposals may hit jobs, stun loan growth
  • Transaction tax would drive trading abroad, ACI Polska says

The tax plans considered by Poland’s poll-leading Law & Justice party risk hurting credit growth, banking jobs and liquidity on the country’s financial markets.

Law & Justice, an opposition party which opinion surveys show winning a general election on Oct. 25, has said it wants the country’s banks to “share” more of their profits, proposing potential levies on their assets, or liabilities, or on financial transactions. Opposition as well as ruling-party politicians also want to burden lenders with costs of converting Poles’ Swiss-franc mortgages into zloty, factors which drove bank valuations to a two-year low in August.

“Any transaction tax would limit liquidity on local financial markets,” Bartlomiej Malocha, a management board member at ACI Polska, an association of financial-market professionals, said in an interview on Thursday. “It would be easy to avoid such a tax by moving trading to units registered in countries without such levies. But this would come at a cost to the entire Polish financial industry and the people employed there, while budget revenues would be much smaller than now envisaged.”

The tax on financial transactions “seems most optimal,” compared with levies on bank assets or liabilities, Law & Justice lawmaker Jerzy Zyzynski said in an interview this week. Eleven European Union nations, not including Poland, are in talks over imposing a joint levy on financial markets transactions.

Financial Hub

Such a tax would raise financing costs for the government, unless sovereign bonds were excluded from the levy, said ACI’s Malocha. Poland’s $226 billion government-bond market is the biggest in east Europe, 8 percent bigger than Turkey’s and 86 percent larger than Russia’s, according to data compiled by Bloomberg.

Zyzynski told Bloomberg that Law & Justice realize that the tax risks moving trading beyond Polish bonders and “reducing the attractiveness of Warsaw as a financial center.” The party said this month it’s analyzing a 0.14 percent tax on all financial transactions, including a 0.07 percent tax on derivatives trading, which combined could deliver 1.7 billion zloty ($450 million) in annual revenue to the budget. This compares with an estimated 5 billion zloty from a potential 0.39 percent tax on banking assets.

While additional taxes aren’t justified because Poland’s banking industry “is already strongly burdened,” a transaction levy would be preferable to one on assets, according to Deutsche Bank AG’s Polish unit.

The transaction tax should be designed to avoid raising costs for the sovereign’s financing as well as banks’ foreign-exchange and interest-rate hedging, otherwise “it could result in a significant increase in borrowing costs for companies and the society,” Sabina Salamon, a spokeswoman at Deutsche Bank Polska SA, said on Friday.

‘Hungary’s Example’

The tax on bank assets could hinder banks’ ability to extend loans, which would slow economic growth, as was the case in Hungary after it introduced similar measures in 2010, ACI’s Malocha said.

The Hungarian government imposed Europe’s highest levy on lenders and forced them to reimburse borrowers 1 trillion forint ($3.7 billion), mostly for their role in spreading mortgages denominated in foreign-currencies. It is now reducing the tax to 0.31 percent of total assets next year from 0.53 percent in 2015 and plans to lower it further between 2017 and 2019.

“Both an asset tax as well as a transaction tax would hit Poland’s banking sector,” he said. “Hungary’s example shows the negative consequences on credit extension from an asset tax. And Hungary is starting to back out from this levy.”

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