Half of banks' profits to the state. What worries bankers the most about this.

Banks again they want  introduce a 50% profit tax. This initiative was put forward by the head of the Verkhovna Rada's tax committee. Danilo Hetmantsev Currently, the corporate income tax for banks is at 25%.

As a reminder, the Verkhovna Rada first introduced 50% tax on bank profits in 2023 and then they did it retroactively. It was planned that this would be a one-time measure, and starting in 2024 the base rate would decrease to 25%, but in October 2024 the deputies they raised it again to 50% retroactively, so banks had to pay taxes for the entire year of 2024.

This year, Hetmantsev promises that, unlike previous cases, the tax will not be introduced retroactively.

Although the state expects to receive additional revenue into the budget in this way, market representatives warn of negative long-term consequences for the investment climate, lending, and the development of the banking system.

What bankers and analysts think about this initiative, and how tax increases will affect Ukrainian banks and the banking system as a whole – in the text LIGA.net.

Banks will review their policies

Despite the fact that the tax is intended to be increased significantly, no serious consequences for the banking sector are expected in the coming months. Most institutions remain well-capitalized, and the main part of profits is generated by state-owned banks, which already contribute significant sums to the budget.

"There won't be a lot of money from this either, because state-owned banks have the lion's share of profits, and they already transfer more than 50% of their profits to the budget," explains Vitaliy Kravchuk, a leading research fellow at the Institute of Economic Research and Political Consulting (IED).

Banks will continue to operate as they have, but they will definitely review their investment and spending policies for 2025 and 2026. This is the opinion of the Chairman of the Board OTP Bank Volodymyr the Wise.

Representatives of the state sector share a similar view. "As a state-owned bank, we are indifferent; what's important is maintaining capital," notes the chairman of the board. Oschadbank (Savings Bank of Ukraine) Serhiy Naumov. He adds that profitability in the private sector has decreased, while in the public sector, on the contrary, it has increased.

The corporate income tax will affect the privatization of state-owned banks

Frequent and unpredictable changes to tax regulations are one of the key risks that could reduce foreign investor interest in Ukraine, according to those surveyed. LIGA.net bankers.

This is especially relevant in light of the government's plans to privatize two state-owned banks.

"The potential price and investor interest in state-owned banks will definitely decrease," believes Volodymyr Mudryi, Chairman of the Board of OTP Bank. He reminds that the Ministry of Finance recently approved the need to sell two state-owned banks. "The question arises: which investor will want to invest in a bank where tax policy is constantly changing?" – the top manager shrugs.

The selective increase in taxes specifically for banks creates an atmosphere of uncertainty, according to the chairman of the board. PUMB Serhiy Chernenko. "The state plans to privatize at least two banks, and creating an atmosphere of uncertainty and fiscal pressure directly lowers the value of these assets," he says.

The investment climate will worsen under such conditions, says Serhiy Naumov. "In my opinion, a 50% tax rate shouldn't be introduced now," he concludes.

The volume of lending may decrease.

Raising taxes directly affects the ability of banks to accumulate capital, which determines the volume of lending. In wartime, retained earnings remain the main source of capital, and it is this that could be significantly reduced.

"In order to lend to the economy, banks must have their own capital, which in wartime is formed exclusively from undistributed profits after taxes. High taxes on banks lead to the depletion of banking capital and a slowdown in the economy," – explains in his Telegram channel, the co-founder monobank Oleg Gorokhovsky.

Volodymyr Mudryi from OTP Bank also expects a decrease in lending to large businesses, as credit limits for the largest companies have already reached their maximum level relative to capital in most banks.

"If the state takes away a significant portion of resources through increased taxation, it limits the growth of bank capital, and therefore the ability to support economic development," summarizes Serhiy Chernenko.

Which banks will be hit hardest?

Small and medium-sized banks warn that the new rate creates an imbalance between sectors of the economy. Other profitable industries, including metallurgy and agribusiness, continue to operate with the standard rate of 18%, while banks will have to give away half of their profit. Therefore, increasing the corporate income tax to 50% will be a serious blow to small banks. This is the opinion of Ivan Svitek, Chairman of the Board and shareholder of Unex Bank.

"We work honestly and transparently and invest our profits in modernization: technology, cybersecurity, and digital services. If half of the profit goes to the budget, we will significantly reduce investments in these areas – and this will immediately affect the quality of services and lending opportunities," says Ivan Svitek.

He emphasizes that such selectivity undermines market confidence and makes it impossible to accumulate capital to comply with regulatory standards.

The European experience is the opposite.

Europe did things differently. In the EU, during the 2020 crisis, governments did not raise taxes for banks, but rather created support mechanisms. None of the European governments after COVID proposed a 50% tax exclusively on banks.

Banks that cannot accumulate capital due to high taxes lose the ability to safely lend to the economy. If the tax burden is applied selectively, it undermines market confidence. This is according to Ivan Svitek.

"Banks are obliged to comply with capital standards – according to the standards, banks must have at least 6% Tier 1 capital and 8% total capital. And if 50% of every hryvnia earned goes to the budget in the form of tax, we will have nothing to increase capital with," explained Ivan Svitok, Chairman of the Board and shareholder of Unex Bank.

He adds: The NBU recently noted that due to the increased corporate income tax, the capital adequacy of Ukrainian banks has fallen to almost 16%, which is very close to the regulatory minimums.

What is greater: harm or benefit?

Bankers acknowledge that the state must seek additional sources of funding during wartime, but urge a balanced policy. In their opinion, the solutions should be systemic, transparent, and uniform across all sectors.

"We are aware of the situation in the country, we are ready for a responsible approach and are already bearing an additional burden. But it is important that tax decisions are balanced, systematic and fair," says Serhiy Chernenko, Chairman of the Board of PUMB.

All of this undermines confidence and worsens the investment climate against the backdrop of plans to sell stakes in state-owned banks. It encourages banks to hide and withdraw profits, which could be negative in the event of a crisis or for expanding lending to support recovery efforts.

"All of this is not worth the relatively small amount of money that will be additionally collected in the budget," added Vitaliy Kravchuk, a leading researcher at the Institute of Economic Development.

If the state needs additional resources, tax increases should be open, general, and balanced, not selective towards a particular sector. This is the opinion of Ivan Svitok, who concludes: "Only under these conditions will banks be able to continue supporting the economy and local communities."