Czech Banks Avoid New Tax by Yielding to Premier's Fund Plan

Krystof Chamonikolas and Lenka Ponikelska
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Czech Banks Avoid New Tax by Yielding to Premier's Fund Plan

Czech Banks Avoid New Tax by Yielding to Premier's Fund Plan

(Bloomberg) -- Czech banks have agreed to contribute a modest portion of their profits to a national development fund to avoid a threat of special taxes that earlier afflicted their eastern European peers.

Prime Minister Andrej Babis said on Monday he wants the units of Societe Generale SA, Erste Group Bank AG, KBC Groep NV, and UniCredit SpA, to jointly pay an initial 6 billion koruna ($260 million) to the proposed fund in 2020 that would help finance public-investment projects. He wants others to join in as contributors later, after the government and the four biggest lenders work out the details.

Designed to help pay for increased public spending during a global economic slowdown, the plan means the mostly foreign-owned industry could avoid an even costlier bank-asset tax proposed by Babis’s coalition partner Social Democrats. Tomas Salomon, chief executive officer at Erste’s Ceska Sporitelna AS unit, welcomed the preliminary agreement and said Czech banks were “ready to invest billions of koruna” in the fund.

“The prime minister and I have agreed that the National Development Fund is the best solution for the future prosperity of the Czech Republic,” he wrote in an emailed statement. “We assume that other large companies that care about the prosperity of the Czech Republic will also start contributing to the fund.”

The shares of SocGen’s Komercni Banka AS rose 0.7%, compared with a 1.8% drop for the Stoxx Europe 600 Banks Index. Moneta Money Bank AS, which isn’t one of the top four lenders, climbed 0.7% in Prague.

Valuations came under pressure last month after Babis appeared to ease his earlier opposition to the Social Democrats’ plan to raise about 14 billion koruna per year through a bank-asset tax, although he later backtracked on his comments. Similar extra levies had hurt earnings and stock prices in Hungary, Poland, Slovakia, and most recently Romania.

On Monday, the Czech Banking Association said Babis’s latest proposal, which assumes contributions will be made from lenders’ net income, was “much more progressive and innovative” than any extra taxes and called for its adoption “as soon as possible.”

(Updates with Erste unit CEO Salomon from third paragraph.)

To contact the reporters on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net;Lenka Ponikelska in Prague at lponikelska1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Andras Gergely, Peter Laca

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