Proposed levy will hit banks’ profits

Goodbody Stockbrokers has warned that the proposed imposition of a €200 million levy in tomorrow's Budget will have a "material impact" on profitability at Ireland's retail banks.

It has been speculated that the Minister of Finance will tomorrow introduce a €150-200 million levy on the banking system, which would replace the revenue stream previously generated by fees paid by banks under the state’s guarantee scheme. At its peak, the government earned some €1 billion in fees from the Eligible Liabilities Guarantee (ELG) scheme, which ended on March 28th, and it is expected to take € 430 million this year.

In a note published this morning, Goodbody warned that once imposed, a new bank levy “may prove difficult to get rid of it”.

“The speculation will be a disappointment for bank investors, particularly given recent indications that restrictions on using deferred tax losses to 50 per cent of profits in any one year would be lifted,” the broker said.

While the details of the levy remain unclear, Goodbody expects that given that both AIB and BOI represent roughly one-third of the banking system apiece, it could mean a levy of about €50-65 million each, which would have a "material impact on profits" at both banks.