The existence of deferred tax in the financial statements of a company or a bank is not related to whether the business pays income tax or not. The tax burden is determined exclusively by whether the company shows taxable profits (not accounting profits), in accordance with the applicable tax legislation. Banks today do not have taxable profits given that their profits are offset against the losses of the economic crisis, banking sources note on the occasion of the dialogue that has opened on the issue.
Within the framework of the European regulatory framework, Greek legislation provided that part of the accounting deferred tax may be recognized as an element of banks' supervisory capital, through the provision of a guarantee by the Greek State in return for a fee paid to it.
The amount of deferred tax that is recognized for supervisory purposes arose from the huge losses suffered by banks during the economic crisis, mainly from the «haircut» of Greek bonds (PSI), and from the large write-offs of non-performing loans. Based on the generally applicable tax legislation, Greek banks can deduct these losses from their future profits over time.
As the same sources note, this specific amount of deferred tax that is recognized as supervisory capital is amortized gradually each year, in accordance with the provisions of Greek legislation. The reason why the governments at the time proceeded with this specific arrangement (the Samaras-Venizelos government in 2014, but also the Tsipras government in 2017) was not the protection of the interests of the banks, which at that time belonged, to a significant extent, to the State.
The arrangement was established, on the one hand, in order to ensure that the public resources which had been provided for the recapitalization of the banks would remain available to the Greek State to cover other fiscal needs and, on the other hand, because, without the deferred tax framework, the capital needs of the banks and, by extension, the amounts required for their recapitalization would have been significantly higher, burdening the Greek State to a much greater extent.
In simple terms, instead of the Greek State paying additional capital again for the recapitalization of the banks, it introduced the arrangement recognizing deferred tax as capital.
It is worth noting that banks, unlike other businesses, are taxed at a rate of 29% (compared with 22% for other companies) and, in addition, they do not pass on to the final consumer the VAT they pay to their suppliers, as basic banking services are exempt from VAT.
Thus, VAT constitutes a real cost for them and not a neutral tax, as in all other businesses, with the result that they pay annually 350-400 million euros that directly burden their operating expenses and are paid into the state budget. Therefore, their overall tax contribution to public revenues is significant and is not limited only to income tax or other direct taxes.
Therefore, the finding that «banks do not pay taxes» is inaccurate and does not reflect the totality of their tax burden. Moreover, banks pay the State an annual fee for the deferred tax guarantee, which has been determined on market terms and approved by the European Competition Authority, they remind.
Therefore, the constant reintroduction of the issue by parties or party officials raises questions, especially when they had direct participation in the relevant decisions and legislation, they note.
For example, the proposal is made to accelerate the amortization of deferred tax. This, however, has already happened on the initiative of the banks themselves. The systemic banks approached the supervisory authorities and requested their consent in order to proceed more quickly with the amortization of the DTC.
In order to secure the green light of the European supervisory authorities for the scheme that was approved and is already being implemented, long and arduous negotiations were required, despite the fact that the banks themselves sought the acceleration. With the persistence and arguments of the systemic banks, a specific timetable was approved and the banks have already proceeded, from the 2025 financial year, to amortize the DTC by more than what the relevant law provides, with the primary purpose of improving the quality of their capital.
Specifically, beyond the amortization provided by law, the DTC is also amortized for supervisory purposes by the additional amount corresponding to 29% of the dividends paid to shareholders. The larger the dividend, the faster the amortization of the DTC. In 2025 the amortization of the DTC amounted to 1.5 billion euros instead of the approximately 700 million euros provided for by the 2017 law.
Based on the banks' business plans and the projected dividends, the full amortization of the DTC will be completed 8-10 years earlier than the original provision of the relevant law. That is, full amortization of the DTC is expected in 2032 or 2033, compared with 2042, which had been set under the law, as it had been amended in 2017 by the government at the time.
Often the proposal to accelerate the amortization of deferred tax is formulated simultaneously with a proposal to reduce dividends – something inherently contradictory, since the distribution of dividends constitutes precisely a mechanism for faster amortization of the DTC, as approved by the ECB.
The full amortization of the DTC in 2028 is also being discussed. Our estimate is that in that year, the unamortized amount of the DTC will be approximately 8 billion euros or 30% of CET1 capital. How, then, will this capital adequacy shortfall be covered?
Obviously, new capital increases will be needed, which will not even be developmental, but will have to take place because the amortization period of the DTC will change even more. That is, the Banks accelerated the amortization on their own from 2042 to 2032, which they consider a safe acceleration, and now we want to go even earlier. We understand what this means, beyond the need for a new recapitalization, for the country's credibility in its effort to attract investments.
The Banks are already returning their recovery to the economy. It is recalled that thanks to the adequacy of capital and liquidity of the banking system, based on the official data of the European Central Bank during the post-pandemic period (2022-2025), Greece had an average annual rate of credit expansion to non-financial corporations (NFCs), that is, to the real economy, of 10.9% – the 3rd highest in the Eurozone.
Also, in relation to an acute social issue, housing, it is worth pointing out that specifically the interest rates for new housing loans in Greece are lower than the European average, with a fixed interest rate for the first 5 years of 3.16% compared with 3.43% of the European average.
How will credit expansion or loan margins be affected by a sudden capital shortfall of around 8 billion euros? What does this mean for the country's credit rating, which according to all international organizations depends on the robustness of the banking system? And what will be the impact on the State's borrowing cost?
At the same time as the above regarding deferred taxation, it is stated that the average profitability of banks in the EU is close to 1% of GDP, while in Greece it is double, close to 2%. The truth is that in the banking systems of a number of southern European countries, such as Portugal, Italy, Spain, but also Austria, bank profitability is 1.7%-2.1% of the respective GDP. Likewise, the interest margin in the above countries does not differ substantially from that of Greek banks.