Banks respond to savings tax with new offers
Banks reacted swiftly last week to head off a government bill proposing a 20% tax on personal savings by setting up new long-term, non-taxable bank accounts. The move aims to bypass the tax, which was passed by the Senate last week and may become law as early as December.
Banks are advising customers to set up longer-term accounts by the end of November to be sure of avoiding the tax, which includes income from bank deposits, government debt and investments funds. Clients could then lock their savings into long-term accounts for up to 15 years.
Industry analysts said banks' new tax-free accounts will not be subject to the new regulations if they are set up before the bill becomes law, although they said the government may yet amend the bill to make the new accounts less profitable in light of the banks' moves this week.
Some analysts said retail banks, already seeing lower profits this year, were largely justified in circumventing the law. "The new law means in effect lower real interest rates," said Tadeusz Szczurek, an analyst at ING Bank in Warsaw. "The government chose to introduce this simply because it needs the money. It has no other justification, either from the EU (European Union) or standard economic theory."
The tax will hit Poles' ability to save, which could result in lower economic growth by undermining investment from domestic savings, analysts said. It could also induce people to shift their savings into dollars or other currencies. The costs of implementing new IT programs to deal with the new tax arrangements are also being questioned. "That could be very painful for some banks, in particular Poland's largest bank, Powszechna Kasa Oszczędności Bank Polski (PKO BP), which is still undecided on a new IT system," said Marek Juraś, analyst at Erste Securities in Warsaw.
On the positive side, industry watchers said lower savings could mean higher turnover on the Warsaw Stock Exchange (WSE) and increased domestic consumption - although views on this are mixed.
The government, led by Finance Minister Marek Belka, has pushed for the tax to boost budget revenue by an estimated $1 billion next year. The bill is now awaiting President Aleksander Kwaśniewski's signature. He has until the end of this month to sign it for the tax to take effect next year.
The Pengab banking climate index dropped this month largely on fears about the tax, the Pentor polling institute said last week. The Pengab fell by 6.8 points to 18.1 points - a record low since late 1993, the index's first year. Twenty-seven percent of bank managers polled said the tax created the potential for massive withdrawals of bank deposits.
Bank Zachodni WBK (BZ WBK) and Kredyt Bank (KB) were two of the first banks to come up with new offers for customers. BZ WBK set up a 10-year deposit account, Impet+, with a 9.1% interest rate. The account is designed to bypass the new law by allowing customers to set up a deposit account that will be immune from taxation for 10 years.
"Impet+ allows customers to keep their levels of deposits without losing the interest that would have been incurred had the money stayed put," said Grzegorz Adamski, a press officer at BZ WBK in Poznań. Customers have until December to set up the accounts with a minimum deposit of zł. 1,000. Adamski said it is too early to say what the level of demand for Impet+ will be.
KB has a similar offer called Lokata Już. The bank said customers could set up six-month or 12-month accounts with interest rates set at existing deposit account levels. The offer is available from Nov. 5 to the end of the year. Meanwhile, Powszechny Bank Kredytowy (PBK)-Bank Przemysłowo-Handlowy (BPH) set up a new 15-year deposit account, Va Banque, for clients. Rates are set quarterly with the guarantee that clients will not get lower rates than today.
Citibank also introduced six-month to five-year deposit accounts, Lokata Rentierska, Nov. 9, with interest paid in various currencies. MBank is offering eMAX accounts from Nov. 15. Lukas is introducing a new deposit account, Obronna, as are Bud-Bank and LG Petro Bank. Raiffeisen Bank Polska also said it would introduce a 10-year account, Megalokata. The interest on deposits will be transferred in cash or to another account every quarter at fixed deposit rates. Customers have until Nov. 30 to sign up.
BRE Bank said it would adapt its existing five and 10-year deposit account terms this week. PKO BP said it will also have a new deposit account, Progresja. Bank Ochrony Środowiska (BOŚ) and Volkswagen Bank said they would offer similar accounts.
Joe Harper
