Latvian central bank head supports bank surplus tax

The introduction of a bank surplus tax and its link to the objective of lending is welcome, Latvian central bank (Bank of Latvia) President Mārtiņš Kazāks said in an interview on Latvian Television's "Morning Panorama" program September 4.

Last year, a 20% surcharge on corporate income tax (CIT) was introduced for banks, which Kazāks said was the right step. 

"But this year the country needs money for security, and the banking sector is one of the options where money can be taken. I would support such a tax," the President of the Bank of Latvia said.

He said, however, that the best way to support the economy and to collect taxes in the budget is to boost economic growth.

"A super-profits tax in this bare form would be a tax only for a few years, while there are super-profits, but after that there would be less money again. So it is very sensible to link this super-profits tax with the objective of lending, which is a lasting benefit for the economy because it encourages economic growth," said Kazāks.

Banks that do not meet the lending target could pay the full tax, while those that meet the target would pay less. Thus, the country would benefit both from economic growth and from banks' excess profits, Kazāks said.

Kazāks also said that the lowest point in lending is behind, the ice has melted, and the entry of a new player - Indexo Bank - into the Latvian market clearly shows this.

"Prices are already being pushed down, but the entry of a new player in the banking sector is good news. It shows that there is space in the market and that things are improving. And it shows that Latvia's economy has not just 4 banks, but already 14 - seize your opportunities, vote with your feet and your wallets! If your current bank does not provide a good service or if it is expensive, go to a competitor!" said the President of the Bank of Latvia.

Similar processes are taking place in neighboring countries, Kazāks added.

However, the problem is the availability of banks in the regions. "Banks have digitized their services much faster than the economy has kept up, which has created a gap between banks and customers," the Bank of Latvia president said. 

Therefore, the Bank of Latvia is proposing changes to the law to improve the situation. "This does not mean that new branches have to be built (...), but there are other solutions - banks can come to the premises of local governments," Kazāks added.

 

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