Romania's Bank Tax Could Lower Interests on Deposits

The so-called “greed tax” on bank assets will not necessarily affect lending so much as it might prompt the bank to cut costs by lowering interest rates on deposits, which are already below the inflation rate.

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The tax, introduced by the government in a surprise move in late December 2018, will determine banks to cut costs. Banks would have to pay a progressive tax of 0.1-0.5% of assets if money market rates exceed 2%.

The most plausible cost-cutting measure would be to lower interest rates on deposits, which are already low, at an average of just 1.76%, according to central bank statistics for November 2018.

“What I can say as a former banker is that the main impact [of the tax] will not be on loans but on deposits, where rates were already below inflation,” said Mihai Bogza, executive director of the Concordia employers' association.

Romania's inflation rate dropped to 3.4% in November from 4.3% in October.

Banks could keep interest rates on consumer loans unchanged or could raise them, to gain margin, as deposit rates are low. The average interest on household loans stood at 7.39% in November 2018, according to central bank data.

Also, the central bank on Tuesday kept the benchmark interest rate unchanged at 2.5% a year.

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