New Tax on Deposits Not Good For Banks - EDYK
A new law imposing a 0.1 percent tax on deposits over 100,000 euros will not be good for banks, but could be good for the community if the money is used correctly, said a spokesman for the banking employee union EDYK.
"Can a new tax on deposits be good for the banks?" said Prodromos Charalambous, EDYK spokesman, adding that "since the state has passed this law - good or bad - it is not up to us to approve it."
The Association of Cyprus Banks is also dubious about the new tax, with a spokesman saying that "we proposed to parliament that it is not the best time to tax the banks." In other countries, bank levies were only imposed after the banks borrowed money from the government, he said.
"In our case we have not taken government help. And because of the crisis, when taxes are suddenly imposed, this affects the bank's ability to absorb losses and to reach capital benchmarks (required by international standards)," said Michalis Kamas of the Association of Cyprus Banks.
The measure is expected to raise around 120 million euros over the next two years, 60 percent of which will be used to create a financial stability fund. But will it have a chill effect on large depositors who might decide to take their money elsewhere? According to the new law, any bank which tries to pass on the cost to its customers will be charged with a penalty of 100,000 euros, theoretically protecting large investors.
"We don't believe it will affect wealthy depositors from abroad," says Kamas.
EDYK's spokesman agrees, saying "I don't think it will prevent deposits; what are they going to do with their money, keep it at home?"
The bill was passed last night in the last parliamentary session before its dissolution prior to elections on May 22nd. Initially, Central Bank Governor Athanasios Orphanides was against the proposal, saying it would weaken the financial sector. But it appears that Finance Minister Charilaos Stavrakis managed to persuade him to accept the measure on the grounds that it would add to the stability of the banking sector. After 2012, the proceeds of the tax would go to a Central Bank stability fund.