Banks concerned they may miss deferred tax asset cushion

Finance Minister Gikas Hardouvelis on Thursday chaired a meeting with credit sector representatives regarding the changes requested on Wednesday by the European Bank Authority (EBA) to the recent legislation that makes it possible for banks to convert their deferred tax assets into tax credits and thus improve their capital bases.

The EBA informed Athens that it cannot accept the new law as is. The Europeans are asking that the Greek state cover the deferred tax assets with cash rather than bonds in case banks fail to show any profits in the next few years, and also to reduce the 30-year period proposed during which banks can offset losses from the PSI debt restructuring and from part of their nonperforming loans via taxes on future profits.

Sources say that possible actions to incorporate the changes requested by the European authorities were discussed at Thursday’s meeting, but due to the short notice there is a clear risk of missing the advantage of the deferred tax asset cushion in the stress tests’ calculation of banks’ capital needs.

Credit sector officials have expressed concern to Kathimerini over whether the government can complete the changes in time. The same sources say the proposed shift from bonds to cash opens a series of sensitive issues, such as the impact on the deficit and the debt, as well as other matters of a legal nature that will take time to work out.

It is therefore possible that Greek banks will not be able to benefit from the advantage of the deferred tax during the stress tests, as banks from Italy, Spain and Portugal will. The three countries completed legislation on deferred tax assets some months back, while the Greek government passed its own bill just one day before the deadline, and – as is now clear – without having conducted sufficient consultations with the EBA and its creditors to avert the risk of complications.

Banks have until November 7 to submit their plans for the coverage of their capital requirements to the European Central Bank, but without the deferred tax asset advantage they may have to resort to the painful solution of the Hellenic Financial Stability Fund (HFSF), or to seek capital from the private sector.

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