According to data released by the Czech National Bank, the Czech Republic’s most prominent banks saw a year-on-year decline in net profit of CZK 2.4 billion to CZK 21.12 billion in the first quarter of this year.
The six largest banks are subject to the so-called windfall tax, which the government approved as a 60% tax surcharge on excessive profits. This corresponds to the difference between the tax base and the average cost base of the tax over the past four years, which increased by 20%.
The revenue from the tax is intended to cover the extraordinary costs that the state will incur in connection with setting maximum energy prices.
The profits of the six banks in the first quarter of this year totaled CZK 14.8 billion. In the same period last year, it was CZK 15.6 billion. According to analysts, the main reason for the CZK 800 million declines in profit was the year-on-year decline in net interest income, which affected most banks. They added that introducing the tax on unexpected profits may also have contributed slightly.
“From the announced payments of the special tax, it can be concluded that the state will collect less than expected. While the state previously hoped to collect only CZK 33 billion from the banking sector, I now expect that the total payment from banks will be in the order of several billion lower,” said Tomáš Cverna, an analyst at XTB investment company. According to him, the lower-than-expected particular tax payment will be due to net interest income.
As the Czech National Bank has stopped its cycle of raising interest rates, financial houses lack growth impulses, said analyst Tomáš Pfeiler, adding that they overvalue deposits due to competitive pressures, which increases interest costs. He said that in an environment of higher interest rates, the production of new loans is also weakening. Some financial institutions have been able to respond to cuts in operating costs, which has reduced net interest income and affected profits, he added.