ECONOMY

Bills will limit compound interest, settle tax cases

The government intends to submit two bills to Parliament next week, one putting a cap on the amount of compound interest rates banks can charge on defaulting loan-takers and the other allowing professionals and small companies to settle tax cases pending from the period 1992-2002. The submission of these bills was confirmed yesterday at a meeting between Prime Minister Costas Karamanlis and Economy and Finance Minister Giorgos Alogoskoufis. Specifically, the bill on compound interest will limit the amount loan-takers will be obliged to pay back to no more than three times the amount of the principal. This measure will affect all loans with a principal of 750 million drachmas (2.2 million euros) or less and, according to sources, will extend to all loans and not just those taken out since 1990, which was the government’s original proposal. Banks initially opposed any attempt at capping interest and compound interest charges. It appears, however, that the government and the Hellenic Banks’ Association (HBA) have found a middle ground: According to sources, an agreement will be reached next week. Having ceded ground on the principle of capping, banks have focused on how the lost income will enter the account books. Some banks have tried to link the issue to demands for lower taxes. There was also a discussion about simultaneously tackling the issue of bank provisions for employees’ social security benefits. Under international accounting standards (IAS), soon to be made obligatory for firms, banks will have to include in their statements provisions for future employee pensions and retirement benefits. Leading bank managers, however, said that trying to tackle the two issues simultaneously would be «unrealistic.» According to sources, there are two options under examination: either the banks will include immediately any income lost due to the capping and reduce their net position accordingly, without affecting their results, or they will amortize the loss over a 10-year period. This latter solution is not compatible with IAS specifications, but bankers say it can be argued that it is a transitional measure. The second bill concerns professionals and companies with an annual turnover of up to 8.8 million euros. Those with pending tax cases will be called on to pay an amount and settle their case or submit to auditing for the entire 1992-2002 period. They may pay in up to 60 monthly installments.