In response to comments in the public debate regarding the issue of deferred taxes by Greek banks, the Bank of Greece, within the scope of its responsibilities as a supervisory authority and with a view to ensuring financial stability, would like to clarify the following:
• Banks currently have no taxable profits because their profits are offset by losses incurred during the economic crisis. Under the European institutional framework, Greek legislation provided (in 2014 and subsequently in 2017) that deferred tax may constitute part of credit institutions’ regulatory capital, through a guarantee provided by the Greek State in exchange for a fee paid to it.
• The amount of deferred tax recognized for regulatory purposes resulted from the significant losses incurred by banks during the economic crisis, primarily from the “haircut” on Greek bonds (PSI), and from the large write-offs of non-performing loans. Under current tax legislation, these losses may be deducted from their future profits over time. The specific amount of deferred tax recognized as regulatory capital is amortized gradually each year, in accordance with the provisions of Greek law.
• Without the provision allowing deferred tax to be recognized as capital, capital requirements—and thus the burden on Greek taxpayers—during the crisis would have been much higher, with negative consequences for fiscal stability, debt sustainability, and the country’s ability to emerge from the crisis. Simply put, instead of the Greek government having to inject additional funds to recapitalize the banks, it introduced a provision allowing deferred tax assets to be recognized as capital.
• With the aim of more rapidly improving the quality of their regulatory capital, starting in 2025, the four major banks will apply accelerated amortization of deferred taxes for regulatory purposes. Specifically, they are making an additional regulatory adjustment by reducing their regulatory capital by an amount equal to 29% of the projected dividend distribution to shareholders.
• Recently, a proposal was put forward to further accelerate the amortization of deferred taxes so that banks can begin paying taxes sooner. It was noted that, starting in 2028, banks will no longer be allowed to offset their taxable profits against deferred taxes; otherwise, they will be subject to a special levy. This proposal raises serious questions regarding its implementation and the implications for the Greek banking system.
In the event of a significant acceleration in the amortization of deferred tax assets relative to the timelines set forth in the law, Greek banks would be forced to write off the corresponding unamortized balance from their balance sheets. This would result in a corresponding reduction in book 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—that is, for the protection of deposits and the ability of banks to provide loans to the economy.
• The significant deterioration in the financial metrics of Greek banks would also have a serious negative impact on their investment profile, making it even more difficult to attract investor interest to meet capital needs (due to the write-off of deferred taxes), while it would also affect the 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 climate.
• The constant return of this issue to public discourse raises serious questions. Restoring confidence in the banking system in the period after 2015 was a significant achievement by governments, supervisory authorities, and bank management. The solvency of the banking system is a cornerstone of economic and financial stability.