Czech PM’s request for share of bank dividends causes stir in Central Europe’s banking sector

Czech Prime Minister Andrej Babiš caused a stir in Central Europe’s banking sector when he suggested that lenders in the country should pay as much of as a fifth of their dividends into a state development fund. Such a measure would bring between 10 and 16 billion crowns into state coffers.

Photo: Ladislav Bába / Czech Radio

With slowing economic growth and bigger state expenditures in the form of higher pensions, social benefits and salaries for teachers, the prime minister has been under growing pressure from his coalition partner, the Social Democrats, to introduce a progressive bank tax in order to increase budget revenues. Mr. Babiš, who has long resisted such a tax on the argument that the end burden would fall on clients, and has criticized the amount of bank dividends flowing abroad, on Sunday unveiled a counter-proposal of his own.

He suggested that banks could pay between 10 and 20 percent of their dividends into a state development fund –which would be used to finance social programs or build roads or more kindergartens, as the need arose. Although the prime minister first suggested the plan as either voluntary or compulsory on Monday he was more inclined to favour the latter option, saying he had had preliminary talks with bank officials on the matter.

Shares in several banks fell on Monday in response to the news, but banking institutions refused to comment on the proposal, saying negotiations were in their initial stage. The newly appointed trade and industry minister Karel Havlíček, who is also serving as deputy prime minister, will now enter into the negotiations as well, at the prime minister’s request.

Meanwhile, the Social Democrats are far from happy with the proposal, arguing that it is not a revenue guaranteed by legislation. They are arguing in favour of a progressive bank tax from 0.05 percent to 0.3 percent, which would raise some 14 billion crowns a year.

The news site ihned says it is not clear how many banks the prime minister’s proposal would concern since some – like the Czech Fio Bank- do not pay out any dividends and all the profit is invested back into the bank. However ihned argues that for those it does concern both the dividend proposal and the progressive tax would have a similar impact in terms of the financial drain involved.

The largest Czech banks are all foreign-owned. ČSOB is held by Belgium’s KBC, Česka Sporitelna is part of Austria’s Erste Group, and Komerční Banka is majority-owned by France’s Societe Generale.