Ömer Tetik, CEO of Banca Transilvania, made several statements to Ziarul Financiar regarding market talk that the governing coalition is discussing an additional tax on banks’ profits, on top of the bank asset tax introduced last year.

ZF: Do you have any information about possible discussions on additional taxation of banks?

Ömer Tetik: The banking system is already overtaxed in Romania. We have no information about active discussions, in political circles, of a potential additional tax on banks — such rumours surface with every change in legislation and most of the time prove unfounded.

ZF: Still, what potential impact would any increase in banks’ taxation have on the economy?

Ömer Tetik: Any increase in banks’ taxation would immediately reduce the capacity to lend to the real economy — both companies and individuals. Banks use a significant share of their profit to increase capital; they do not distribute it to shareholders. And every one leu of capital supports five lei of lending to companies and households.

In our case, at BT — out of last year’s profit, almost 2 billion lei are going into capital, and that will broadly allow us to increase the amounts going to lending by 10 billion lei. That means we capitalised 55% of our profit precisely to increase lending.

This is a clear multiplier effect that contributes to greater prosperity, because loans create jobs, finance investment and stimulate household consumption.

Romania needs public and private financing to grow the economy, investment, jobs and wages — not to reduce them through discriminatory overtaxation.

Moreover, our country should reduce fiscal inequity and differences in taxation, meaning align the rates rather than differentiate them further, because this interferes with free-market mechanisms and makes collection harder. It would not be acceptable for certain areas to have different tax rates, as that would undermine some sectors and hurt competitiveness. Specifically, differentiated tax rates would reduce investor interest in supporting the banking sector (as they would obtain better returns in other sectors or countries) and would lead to a weaker banking sector, without the strength to support investment and the economy.

ZF: Companies complain that you are not lending. Why?

Ömer Tetik: Banks want to finance the economy and companies at the lowest possible cost and thus increase the level of financial intermediation in Romania and total banking assets. That is first and foremost in our interest and is already happening, within the limits imposed by regulation and in line with the capital companies have, so that we maintain a safe, sound banking system for all customers. In Romania, funding costs are primarily influenced by the high interest the state itself pays on government securities, a level driven by strong demand (generated by large expenditures that need financing). We want — and it is in our interest — for these funding costs to be as low as possible so households, companies and the state can finance themselves as cheaply as possible.

ZF: What will be the impact of the fiscal package on the economy and in particular on banks?

Ömer Tetik: Romania should focus on reducing waste, not increasing taxation, because our estimate is that any increase in taxation will show up as a reduction in economic growth and mean recession — a 1 percentage point increase in the tax burden will generate a 0.5 percentage point decline in GDP. In the banking sector, the impact is significantly larger — even double, by our calculations — through the lending reduction channel. In practice, an extra one leu taxed from banks can generate an economic decline of one leu. So taxing banks would have a double and devastating impact on the economy.

ZF: Banca Transilvania is the most traded stock on the stock exchange. What impact would an additional tax increase have?

Ömer Tetik: Equally important, additional taxation of banks would significantly affect the capital market — let’s not forget that one of the significant shareholders of the banking system — and certainly in the case of Banca Transilvania — is the pension system. Any increase in taxation would affect 8 million people who are indirect shareholders in BT and other listed banks. We trust that decisions are and will be based on responsible analyses of the impact.