MBA statement with references to a windfall tax
The Malta Bankers’ Association (MBA) has been meeting regularly and keeping in constant touch with the Maltese authorities to provide its support in connection with the developing COVID-19 situation. These included Economy Minister Hon Silvio Schembri, Finance Minister Hon. Prof Edward Scicluna, Parliamentary Secretary Hon. Clayton Bartolo as well as the leadership of the Central Bank of Malta, the Malta Financial Services Authority, the Financial Intelligence Analysis Unit and the Malta Development Bank, amongst others.
The meetings, which were attended by the CEOs and senior executives of the core domestic banks, discussed both operational arrangements for the provision of essential banking services as well as support for the local economy in these challenging times. The banks expressed their unwavering commitment of assistance across all segments of Maltese society, from those sectors and industries directly impacted by the pandemic to families and personal borrowers on salaried income. Separately the banks have been communicating their own schemes, engaging with and reaching out to their customers in the process. Discussions are also at an advanced stage with the Malta Development Bank with regard to the guarantee schemes announced by Government as part of its economic relief measures.
In these exceptional and rapidly evolving circumstances, the MBA notes with great concern the calls being made for a windfall tax to be levied on the profits of banks. This would be not only a short-sighted idea but one with potentially devastating repercussions on the economy and the country’s financial stability.
First, the myth that banks make excessive profits must be addressed once and for all. Banks are amongst the most stringently, multi-regulated and supervised entities at a local, European and international level. Their very existence and continuity to operate depends on their ability to make and retain certain levels of profits. They are evaluated on the profitability of their business model, their level of capital adequacy and the observance of minimum ratios, amongst various other things. Bank profits and their financial strength are what enables them to keep lending and supporting economic activity.
Secondly, it bears reminding that on their profits the banks have paid hundreds of millions of euros in direct taxes not to mention many tens of millions more in indirect taxes. Thousands of investors also benefit from those profits through the dividends they receive. And as employers and providers for the livelihood of thousands of bank employees and their families, the banks’ contribution to the country’s social and welfare system is significant.
Thirdly, the MBA and its member banks are of one mind with Government and the authorities in helping the country navigate through these challenging times by continuing to provide their essential services, and supporting the well-being of the nation, its people and industries. This means providing the necessary lifelines, reliefs and support to their customers in this time of need despite knowing that the banks will also carry their share of the burden for this.
It should be by now a foregone conclusion that 2020 is going to be one of the most challenging years in memory for bank profitability. Talk of imposing special or windfall taxes on the banks as some kind of consequence for their strong past performance would be a dangerous step at a time when the banking system needs all the stability it can have.