By Andrius Sytas
VILNIUS -Lithuania may introduce a windfall tax on banks if profits continue to soar this year on the back of rising interest rates, the country’s central bank governor and finance minister said on Monday, with proceeds likely to go toward defence spending.
“This is a critical situation. We are in an environment of high rates, so unexpected profits are appearing,” central bank Governor Gediminas Simkus told a news conference.
“If this continues in 2023, it is appropriate to look for a way to redistribute the unexpected profit through fiscal decisions,” he said.
Banks in Lithuania could earn profits of 1 billion euros ($1.08 billion) in 2023, more than three times the level of recent years, Finance Minister Gintare Skaiste said, adding that extra proceeds to the government should be spent on defence.
“The war in Ukraine and countries’ reactions to it led to the high liquidity and high rates. The invasion also leads to more defence spending, so if we tax the windfall, the income would be used for defence”, Skaiste told reporters.
The decision on whether to tax the banks would be made in next few months, she said.
The neighbour of Russia had so far budgeted 2023 defence spending at 1.8 billion euros ($1.9 billion), or 2.52% of its gross domestic product.
Two Swedish-owned groups hold over 50% of Lithuania’s banking assets: Swedbank, whose 2022 profits increased by 64% to 148 million euros, and SEB, whose profits were up 49% to 172 million euros.
British fintech firm Revolut owns the third-largest bank, with about one-fifth of total assets, serving the European Union and European Economic Area, with Lithuanian residents accounting for less than 2% of the customer base.
The Lithuanian Banking Association said it is too early to forecast 2023 banks earnings.
“In the current situation, we can see that various geopolitical and macroeconomic factors can affect specific areas of the economy in different ways”, it said in a statement, without directly addressing the windfall tax proposal.
Swedbank and SEB refused to comment.
($1 = 0.9267 euros)