Bank of Greece Warns Against Profit Tax on Banks

11:08 9/4/2025 - Πηγή: Dikaiologitika

The Bank of Greece has issued a cautionary note on the potential risks of imposing a tax on bank profits, warning that such a policy could undermine both the financial sector and the broader economy.

The warning comes in the central bank’s latest annual report, presented

by Governor Yannis Stournaras, and is based on a detailed macroeconomic study tailored to Greece’s current conditions.

The study analyzes the impact of a proposed temporary 1% tax on banking profits. While Greek banks are currently well-capitalized and enjoy healthy liquidity levels, the findings suggest that taxing their profits could significantly weaken their lending capacity. Reduced profitability would limit banks’ ability to raise new equity, which in turn could shrink the volume of credit available to businesses and households. To compensate for the hit to their earnings, banks might raise interest rates on loans, further discouraging borrowing and investment.

The effects, the report warns, would not stop at the financial sector. As credit tightens and investment slows, GDP and household income could decline. The study also highlights the potential for a rise in non-performing loans, as falling asset values—particularly in real estate—erode the collateral backing many loans. This would further pressure bank balance sheets, creating a feedback loop between the financial system and the real economy.

The report notes that while redistributing the tax revenues to households could offer some relief, it would not be enough to counterbalance the overall negative impact on domestic demand and income. The net effect, the study concludes, would likely be a contraction in economic activity.

Greek banks are already facing headwinds from shifting interest rate dynamics, with expectations that the European Central Bank will begin cutting rates later this year. While this could boost loan demand, it may also compress interest margins and reduce income from lending operations.

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