Banks could be taxed individually on their excess profits, Economics Minister Viktors Valainis (Greens/Farmers) said Thursday in an interview to Latvian Television.
The minister noted that in the first five months of this year, the Latvian banks made EUR 250 million in aggregate profit, whereas lending did not growth at the desirable rate, which means that a solution is needed to stimulate lending growth.
Valainis said that the banks achieved such high profits not because of aggressive lending policy but because the European Central Bank (ECB) hiked its interest rates to curb rapidly rising inflation.
“We need the banks to invest this money in the economy,” the economics minister stressed, adding that the most effective way to stimulate lending would be through a tax on excess profits.
Valainis noted that this year, the amount of loans issued by the banks has grown by an estimated 3 percent against the same period a year ago, while the desirable growth rate would be 8-10 percent.
“We need to find better incentives. This would be a kind of agreement with the banks – we impose this tax on you, but you can also not pay it if you start financing the economy”, the minister said.
Valainis said that the tax on excess profits could also be introduced individually for each bank to avoid “collective irresponsibility, where you can say – we are already financing, but the others are not”.
According to the economy minister, the banks that comply with the requirement to increase lending would be reimbursed the excess profits tax.
The tax on the bank’s excess profits might be introduced from next year, Valainis added.
As reported, Latvian monetary financial institutions (mainly banks) reported EUR 286 million in profit for the first six months of 2024, down 14.9 percent from the same period year ago, the Bank of Latvia reported. The balance of loans issued to residents by the Latvian monetary financial institutions was EUR 13.887 billion in late June, up 3.7 percent year-on-year.
Source: BNS
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