Irish bank levy to be reviewed after further extension of one year

Budget 2023: Charge on banks raised €87m last year

The banking levy is be extended by a year to the end of 2023, but the Government will consider whether to continue imposing the charge over the longer term after the publication of an ongoing review of the Irish banking sector.

Minister for Finance Paschal Donohoe announced the extension of the levy, which raised €87 million last year, as he unveiled Budget 2023.

The levy was introduced in 2014, initially for two years, before being extended to the end of 2021 and, again, in Budget 2022.

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While the charge had generated €150 million a year until 2021, the Minister decided in the last budget to exempt Ulster Bank and KBC Bank Ireland from the levy this year, after the two overseas-owned lenders announced their plans to exit the Irish market.

An extension of the levy beyond this year will not surprise the banks and industry analysts, as the sector has been able to use multibillion-euro losses racked up during the financial crisis to reduce their tax bills.

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The moves by Ulster Bank and KBC to retreat from the Republic prompted a decision by Mr Donohoe in November last year to launch a 12-month review of the future of Irish banking.

The review is taking place as the sector grapples with high regulatory capital demands, driven by the scale of the Irish loan losses during the financial crisis, and an influx of fintechs and non-banks vying for parts of their business.

While the industry had also struggled for the past decade against the backdrop of ultra-low interest rates, the European Central Bank has hiked its main rates by 1.25 percentage points since last July and has flagged a series of further rate hikes to rein in soaring inflation.

The Government has also sought the views of the public on continuing pay restrictions across Irish banks that were bailed out during the financial crisis, as part of the review.

The UK chancellor Kwasi Kwarteng said on Friday that his government would scrap a wider cap on banker bonuses inherited from its previous membership of the EU. The EU rules, introduced in 2014, limits bonuses to twice bankers’ basic salary.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times