Bank of Greece warns against accelerated deferred tax reduction in banks

As noted by the Bank of Greece, “recently, a proposal was put forward for a further acceleration of the amortisation of deferred tax assets, so that banks would begin paying tax sooner. It was stated that, from 2028, banks should no longer be allowed to offset their taxable profits with deferred tax, otherwise an extraordinary levy would be imposed. This proposal raises serious questions regarding its implementation and its impact on the Greek banking system. In the event of a significant acceleration in the amortisation of deferred tax compared with the timeframes set out in law, Greek banks would be required to write off the corresponding unamortised balance from their balance sheets. This would lead to a corresponding reduction in accounting equity and, consequently, significant regulatory capital shortfalls, as they would no longer meet the required capital ratios. This would have serious implications for financial stability, namely for the protection of deposits and the ability of banks to provide loans to the economy.”

From 2025, the four major banks, for supervisory purposes, apply an accelerated amortisation of deferred tax. In particular, they carry out an additional prudential adjustment, reducing their regulatory capital by an amount equal to 29% of the dividend distribution forecast to shareholders.

Furthermore, the Bank of Greece warns that a significant deterioration in the financial indicators of Greek banks would have a serious negative impact on their investment profile, making it more difficult to attract investor interest to cover capital needs (due to the write-off of deferred tax), while also affecting their ability to finance the economy, as they would be unable to continue credit expansion due to capital shortfalls. The negative impact would extend beyond credit institutions, as it would affect legal certainty and the country’s investment image.

The Bank of Greece considers that the repeated public discussion of this issue raises serious concerns. “The restoration of confidence in the banking system in the post-2015 period was an important achievement of governments, supervisory authorities, and bank managements. The credibility of the banking system is a cornerstone of economic and financial stability,” the Bank of Greece concludes in its statement.

It is recalled that deferred tax arose from the large losses suffered by banks during the financial crisis, mainly from the haircut on Greek government bonds (PSI), and from major write-offs of non-performing loans. These losses may, under the current tax legislation, be offset against future profits over time. The portion of deferred tax recognised as regulatory capital is gradually amortised each year, in accordance with the provisions of Greek law.