The positive impact of rising interest rates on banks’ balance sheets has caused a surge in interest income and profits, which benefits not only shareholders but also the state’s coffers.
The larger the profits of banks, and indeed any business, the more tax they pay, which in turn boosts state revenue.
An analysis of banks’ 2023 results by Phileleftheros shows a year-on-year trend of improving profits, with the banks’ announcement of over €1bn in profits in 2023 filling state coffers, alongside significantly increased VAT, other indirect tax, and income tax receipts.
Of the two systemically important banks, Bank of Cyprus and Hellenic Bank, taxation for 2023 stands at €120m, and this figure will increase once the other credit institutions announce their annual accounts.
It should be noted that from summer 2023, there was a strong discussion from certain political parties and other bodies about the taxation of unexpected profits, or ‘windfall gains’, as they have come to be known, as they stem primarily from the decisions of authorities, such as the ECB’s successive interest rate increases, or other unpredictable events.
This discussion did not progress, although the proposal was recently revived by AKEL, and the measure of extraordinary taxation was not implemented, not only in Cyprus but in several other EU countries, despite pressure for extraordinary taxation being applied in those countries too.
An examination of the figures, based on the financial statements released by the banks, shows that Bank of Cyprus has set aside €72.98m in its 2023 accounts for taxation, a multiple increase compared to 2022, when its tax bill was €31.32m.
In 2021, when interest rates were still negative, the bank’s profits were modest, and its tax payment was just €4.24m.
According to Hellenic Bank’s financial statements, its tax bill for 2023 came to €47.4m, compared to €10.2m in 2022, while income tax in 2021 was €7.32m.
Eurobank Cyprus doesn’t have its detailed 2023 financial statements posted on its website, but its recent announcement gives an indication of the bank’s tax payment.
The bank’s net profits, after tax, were €199.4m, with pre-tax profits reaching €239.2m.
Astrobank’s 2023 financial statements are also not available online, but in the first half of the year the bank’s tax bill was €2m, compared to €600,000 in the corresponding period of 2022.
There are no financial accounts for 2023, or any other period, available on the websites of Alpha Bank Cyprus or Ancoria Bank.
It’s also worth noting that banks have been paying a special 0.15% tax on their deposits since 2012, even during periods of low or negative interest rates, when banks recorded losses or meagre profits.
