Banks set to petition for levy abolition

AIB has slightly less at 20 per cent, which could cost the bank €20 million a year, which is equal to 1.7 per cent of its earnings, writes Siobhán Creaton, Finance Correspondent.

The Irish Bankers Federation (IBF) will meet officials of the Department of Finance next week to make a last-ditch plea to have the proposed levy on financial institutions abolished.

The institutions have been trying to determine the financial impact of the levy on their business, with some warning that the move has undermined the confidence of international investors in Irish bank stocks.

Financial stocks traded in Dublin were weaker yesterday as investors absorbed the implications of the €100 million levy over each of the next three years on companies such as AIB, Bank of Ireland, Anglo Irish Bank, First Active and Irish Life & Permanent.

Analysts have suggested the levy will affect First Active to a greater extent than its publicly quoted rivals because all of its profits are generated in the Republic.

The €300 million payment being demanded by the Government from the financial institutions over the next three years is expected to reduce their earnings by 2 to 5 per cent annually.

The Minister for Finance, Mr McCreevy, has said the payment would be equal to 50 per cent of the Deposit Interest Retention Tax the banks pay to the Revenue Commissioners every year.

First Active, which has 3 per cent of the retail deposit market, is expected to have to pay €3 million a year to the Government, reducing its earnings by 5.6 per cent next year and 5.1 per cent in each of the following two years, according to NCB analyst Mr John Kelly.

Irish Life & Permanent has 11 per cent of retail deposit accounts and could be facing a yearly bill of €11 million, shaving more than 3 per cent off its earnings.

The levy is expected to cost Anglo Irish Bank €5 million a year, a reduction of more than 2 per cent of its earnings.

Bank of Ireland and AIB will pay the bulk of the €300 million because of their size. Bank of Ireland has up to 25 per cent of the retail deposit market and could end up paying an additional €22 million a year to the Government or more than 2 per cent of its earnings.

Between them, the publicly quoted financial institutions are expected to pay 60 per cent of the €300 million.

The rest is expected to come from building societies, An Post and credit unions.

These costs are based on the financial institutions not clawing back some of this levy from its customers - any changes in bank charges must be approved by the Director of Consumer Affairs. However, the banks might opt not to pass on the full benefit of yesterday's cut in interest rates.

Customers will be watching to see whether that is the approach taken by the banks to recoup part of the cost of the levy.

Some of the financial institutions believe that international investors can no longer be confident that the Government would not seek to impose other costs on the banks in the future and may reduce their holdings of Irish financial stocks.