ECONOMY

Greek banks see tax-credit capital boost amid ECB exam

Greek lenders bracing for the results of the European Central Bank’s health check next month are set for a capital boost from proposed changes to the country’s laws on deferred tax assets, said three people familiar with the matter.

The Finance Ministry in Athens submitted a bill to parliament on Wednesday that would allow the conversion of some of the assets into tax credits, which banks can count toward the capital they’re required to have on hand. When a company overpays taxes in one period, it can book a deferred tax asset that reduces its liability in the future.

The rule change, similar to laws passed in Portugal, Spain and Italy, would have a positive impact on banks undergoing the ECB’s Comprehensive Assessment, the people said, requesting anonymity to speak about the matter. One of the people said that under the ECB’s stress test, which has a three-year horizon ending in December 2016, the benefit to Greece’s four largest banks may be as much as 5 billion euros ($6.4 billion).

“The proposed regulations will shield the country’s banking system and limit the probability of the recapitalization of financial institutions in light of the stress tests conducted by the European Central Bank,” the text of the bill states.

The rule changes are a boon to banks as they try to satisfy tougher post-crisis capital requirements and pass the balance-sheet exams conducted by the ECB and the European Banking Authority. At the same time, the credits give banks a claim on the public purse, strengthening the bank-sovereign link that fueled the euro-area debt crisis.

Greek Budget

Four Greek banks are being scrutinized by the ECB: Eurobank Ergasias SA (EUROB), the National Bank of Greece, Piraeus Bank SA (TPEIR) and Alpha Bank AE. (ALPHA)

An economic assessment attached to the bill says the Greek state may have to foot the bill from future conversions of deferred tax assets into credits after 2016, and the move is more likely to affect budgets after 2021.

Deferred tax assets “may be recognized” as core capital for the purposes of the EU stress tests insofar as they haven’t yet been phased out under the bloc’s rules, the EBA said in April. Under those rules, banks must steadily deduct some deferred tax assets from capital over a transition period that runs to 2018.

The phasing-out of deferred tax assets as core capital was cited by the Greek Finance Ministry as a primary reason for the conversion bill, which permits Greek lenders to convert the assets into tax credits when they report losses. To qualify for this option, companies must issue conversion rights that will give the state the right to become a shareholder.

[Bloomberg]