Romanian banks’ stocks plunge over high tax on assets

Romanian banks’ stocks plunge over high tax on assets
Banca Transilvania share price on the Bucharest Stock Exchange in the six months to January 14, 2019. The price slumped after the government announced the "tax on greed" in mid December.
By Iulian Ernst in Bucharest January 15, 2019

The shares of Romania’s largest bank Banca Transilvania plunged by nearly 10% on January 14, after the government confirmed that the tax on financial assets is going to be levied on a quarterly basis, therefore at an estimated of 1.2% for the whole year. The shares of BRD-Socgen, the other Romanian bank listed on the stock exchange, lost only 6%, possibly because it can partly avoid the tax by transferring assets to foreign entities of Societe Generale Group.

In mid-December banking and energy stocks on the Bucharest exchange were badly hit when the government announced new plans to tax banks and energy companies, aimed at boosting revenues to rein in the budget deficit. 

Banca Transilvania said in a press release that it cannot comment on the impact of new taxes as long as the methodology is not published. Decree 114/2018 is unclear on whether banks will have to pay the tax rate resulting from the average ROBOR rate levied on their financial assets each quarter, or if the calculation will be made on an annual basis and one quarter of the amount will be paid each quarter. The government's comments on January 14 suggested the former situation, which has a deeper impact on banks.

The tax on financial assets will be payable on a quarterly basis, prime ministerial advisor Darius Valcov confirmed to Ziarul Financiar daily on January 14. At the same time, reported quoting unofficial sources that the government’s projected revenues are RON4bn (€856mn) from the tax on financial assets. Levied over average financial assets of RON440bn in 2018 (the basis used for taxation during 2019), the estimated revenues indicate a tax rate of 1.2% of the assets. This indicates that the government expects the average ROBOR for the maturities of three months and six months to remain in the range of 3%-3.5%.

A tax of such magnitude is quite important for the banking system. The return on assets (ROA) ratio was 1.76% in 2017 and 1.30% in 2016, which was indeed above the 1.2% financial assets tax, but it means that most of the banking system’s profits will go to the state budget instead of going to the banks’ shareholders.