Nordic Lenders at Risk From Eastern Europe’s Latest Tax on Banks

(Bloomberg) -- Nordic lenders are facing headwinds in the Baltic region they dominate as yet another eastern European nation weighs introducing a tax on banks.

This time it’s Lithuania, a European Union and euro area member, looking to follow Hungary, Poland and Romania in imposing a levy. The tax on assets of as much as 0.4%, to help fund social spending, could take force as early as next year, according to Prime Minister Saulius Skvernelis.

That would threaten Swedbank AB, SEB AB and Luminor Bank AS, which make up 90% of the market. The Lithuanian Banking Association warns the move would raise mortgage costs and curb economic growth. The lenders themselves declined to comment, saying communication is at this stage being carried out via the banking association.

The government isn’t budging. Skvernelis has accused commercial banks of “blackmail” for saying the levy would increase consumers’ costs. He’s previously railed against the financial industry -- attempting to probe supervision during the 2008 financial crisis.

“These are fair taxes enabling governments to solve social problems in all EU states,” said Ramunas Karbauskis, head of the ruling Farmers and Greens Union. “If we don’t take this decision, we’ll never improve our lives.”

The levies haven’t always gone down well in other countries. Poland and Hungary have faced calls to reconsider theirs in a bid to boost the supply of credit. Romania was forced to water down its “greed tax” after a stock-market rout and threats to the nation’s credit rating.

In Sweden, the government is planning a fresh attempt at a bank tax, this time to finance increased defense spending. Previous efforts were thwarted on concern a levy would distort competition and breach EU rules.

So far, Lithuania’s plan remains at the proposal stage, having not yet been submitted to parliament. Skvernelis is adamant they’ll go ahead, with the precise parameters to be provided later.

The central bank, meanwhile, is demanding it’s consulted on such important issues. While it can’t carry out a comprehensive impact assessment without the specifics, it says a tax on assets rather than performance could hurt financial stability in an economic downturn.

“Rash decisions shouldn’t be taking place,” Governor Vitas Vasiliauskas said in televised remarks. “All the pros and cons must be weighed.”

--With assistance from Niklas Magnusson.

To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Andrew Langley

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