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PwC: If tax on financial stock applied for 5 years, bank could recover losses in 37 years
Banks could recover their losses in 37 years if Order 114 is applied in the present form,with taxes on bank stock for 5 years, said Dorian Farkasm senior manager for Management Consulting at Pricewaterhouse Coopers (PwC).
“If we look for the causes and decrease of this financial intermediation , one of these causes is the unpredictability of the law, the order we are speaking about today being one of the laws which increase the perception of risk, both by banks and investors. In the present form og the order we calculated and showed that in case the present provisions are applied, 1.2% per year, considering the evolution of ROBOR in 2018, banks might recover their losses over a large period of time. The increase us exponential: if the tax is applied for 1 year, banks would recover the loss in 5 years, if it applied for 3 years, they would recover losses in 16 years, and so on,” Farkas said.
He added that Romania ranked last in Europe for financial intermediation, which we define as the ratio between the credit granted to the non-governmental sector and GDP. Why is financial intermediation important? Because there is an 80% correlation between financial intermediation and the welfare of the nation, measured as GDP level per capita. We realize that credit growth stimulates investments, which have multiplying effect in economy. If we consider GDP structure in the last ten years we see that the investment share within GDP dropped by 10%. In conclusion, there is acute need of investments in Romania, which companies cannot make from their own sources or from the capital market, which is not very developed in Romania. So the only viable financing source is bank credit,” the PwC representative said.
Farkas drew the attention to the fact that the law influenced operational expenses of banks.
“If we consider the margin, the difference between active and passive interest rates, we made an analysis of the way in which the margin is built, analysing the banks' financial situation for 4 years. The result shows that most of this margin is consumed by the cost of risk and operational expenses. That leaves the banks a small part of profit and another small part to deponents. Three quarters of margin is consumed by risk and operational expenses. Why? Un-performing credits have grown lately, after the crisis banks made efforts to reduce these credits, but that cost was found in their expenses. On the other hand, operational expenses are also influenced by the way in which the crediting process is operated, influenced by the legislative frame,” Farkas added.
The fiscal consulting company PwC organized on Thursday, the second edition of Tax and Coffee Shop”, a meeting where changes announced in the Fiscal Procedure Code and Emergency Order 114 were discussed.