In the first quarter of this year, Latvian commercial banks, in accordance with the Solidarity Contribution Law, paid more than 30 million euros into the state budget. Swedbank paid the most and, objecting to this provision, has turned to the Constitutional Court.
Latvian banks’ annual reports show that banks tried to increase their loan portfolios already last year, when the government spent the entire year debating the Solidarity Contribution Law and finally adopted it at the end of the year. Thus, last year half of the 14 Latvian commercial banks (including branches) saw growth of more than 20% in half of their loan portfolios. For some banks these figures were impressive: the Regional Investment Bank increased its loan portfolio by 57%, Bigbank by 33.4%, and Industra bank by 28%. “We are not paying this contribution because we have large growth, but also because the base of the loan portfolio is not that large. Of course, if a bank has a loan portfolio of a billion euros, it is impossible to achieve such high growth,” points out Industra bank owner Jurijs Adamovičs.
Although the Scandinavian banks did not have such growth and some of their loan portfolios remained almost unchanged, Swedbank nevertheless managed to grow its loan portfolio by 9% last year, which, given the amount in monetary terms, is a noteworthy result. Swedbank’s loan portfolio reached 4.6 billion euros last year.
Starting this year, banks must make solidarity contributions every quarter. The formula for the amount of the contribution is so complex that few bank managers can explain it; in practice, each bank calculates it itself, applies it to itself, and declares it to the State Revenue Service. Banks can obtain a discount if their lending growth exceeds GDP growth. However, it is noteworthy that while lending growth is real, the growth rate is not calculated based on actual GDP growth, but on the Ministry of Finance (FM) forecast in current prices that was built into the 2025 budget at the time it was adopted at the end of 2024. This forecast in current prices is 5.9%.
Throughout 2024 politicians stuck to the forecast of GDP growth, but when the data were compiled, the Central Statistical Bureau (CSP) calculated that GDP had actually decreased rather than increased last year. Already at the beginning of this year, for example, the head of the Finance Industry Association (FNA) Uldis Cērps warned that the FM forecast was too optimistic. Now, with the end of the first quarter, we see that GDP growth in the first quarter in current prices was 4.5%, yet when calculating the banks’ solidarity contributions, the basis, which is then multiplied by various coefficients, must be the forecast growth of 5.9%.
This has created an absurd situation in which, when banks calculate their solidarity contributions, they do so not on the basis of actual data at the end of each quarter, but according to the FM’s previously increased forecast for the whole year. “Such a system means that banks will pay this contribution even if actual GDP is negative,” notes SEB Bank Head of Corporate Communications Lita Juberte-Krūmiņa. SEB bank paid 9.5 million euros in solidarity contributions for the first quarter of this year and expects to pay 8.1 million euros for the second quarter.
The Solidarity Contribution Law stipulates that banks, by meeting certain growth criteria, can obtain and apply discounts to this “tax”. To obtain a 100% discount, the GDP growth forecast must be multiplied by a coefficient of 2.5, while the smallest discount of 25% is obtained by multiplying it by a coefficient of 1.75. Accordingly, for a bank to obtain a 100% discount, it had to increase the volume of its loan portfolio by 14.75%, and to obtain a 25% tax discount, its loan portfolio had to grow by at least 10.33%. If the FM had built in a more realistic forecast, say 4.5%, the above figures for obtaining the discounts would have been 11.25% (for a 100% discount) and 7.8% (for a 25% discount). However, at present even 10% growth of the loan portfolio is treated as zero. Swedbank has turned to the courts specifically regarding the methodology for applying the discount. Swedbank believes that the contested provision applies equally to credit institutions that are in different situations – namely, to those that have issued loans to Latvian residents in large amounts and to those that have done so in significantly smaller amounts. The legislator has set an unfulfillable criterion for obtaining a solidarity contribution discount. Thus, the contested provision violates the principle of equality contained in the first sentence of Article 91 of the Constitution.
Among the Scandinavian banks, Luminor bank has paid less than the others, recognizing solidarity tax expenses in the amount of 800 thousand euros. Luminor bank’s Deputy Head in Latvia Gita Juršāne notes that the bank’s loan portfolio in Latvia is stable – at the end of 2024, loans to customers reached 2.8 billion euros, which was an equivalent amount to that at the end of 2023. “With the gradual decline of the Euribor rate, residents’ interest in purchasing or building their homes increased, and accordingly, mortgage lending grew and both the number and volume of transactions increased. In the last quarter of the year, the volume of new mortgage loans issued by Luminor in Latvia doubled compared to a year earlier. At the same time, there were active loan repayments in all segments, as a result of which the total loan portfolio remained unchanged,” Juršāne notes.
Meanwhile, Luminor economist Pēteris Strautiņš stresses that any previously unpredictable tax changes increase risks for investors, and therefore the introduction of such provisions reduces Latvia’s ability to attract investment in the future. “Efforts to ‘manage’ the activities of individual companies or sectors through taxes always create unpredictable consequences. That is why well-governed countries with long experience of market economies usually refrain from such measures, instead setting uniform tax rates for all sectors. Attempts to decide on behalf of companies how much they should increase or decrease their activity represent excessive state interference in the economy, also referred to as micromanagement of the economy. Such a policy is not typical of developed market economies. Such decisions are driven by political rather than economic logic. But it is easier to attract voters with the words ‘I took tens of millions from the banks’ than with ‘I implemented a tax policy that promotes faster economic growth in the longer term’.”
Meanwhile, at the FM everything is proceeding according to plan. “We must conclude that the solidarity contribution is being paid in advance in the amount planned so far. So everything is going according to plan, and there are multiple solidarity contribution payers,” says FM Deputy Director of the Communications Department Zaiga Dziļuma. Mathematically, however, it does not add up – last year, when adopting this law, politicians said that in 2025 they planned to collect 93 million euros in this way, which would be 23 million euros per quarter.
Originally published at https://inc-baltics.com/nesolidara-solidaritate1-ceturksni-latvijas-komercbankas-valsts-budzeta-iemaksajusas-virs-30-miljoniem-eiro/
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