There has been local speculation that the Hungarian government may introduce a new tax on banks in 2008, by eliminating the tax deductibility of provisioning. A figure of HUF10bn has been floated as the amount the government would like to raise from the new tax on the banking sector.
Our view:
Given its size and the revenue objective of the government, the potential impact of the new tax on (9 150 HUF, -0,10%) could be estimated at up to HUF3bn-HUF5bn (ie. 1.5%-2.5% of earnings). Given the low provisioning levels at mortgage-lender (2 040 HUF, -0,05%), it is expected to face a less severe impact. We understand that conceptually, the new tax would make provisions a non-tax-deductible expense (vis-a-vis actual write-offs, a timing difference). Therefore, though there would of course still be a cash impact, deferred tax accounting could shield reported earnings. The current status of the new tax is vague and there is no official news on it yet. This story is expected to develop over time and newsflow could weigh on investor sentiment. Banks are very likely to oppose any new measure and the current view is that it is unlikely to be imposed.