Will our remaining banks face higher levies?

One thing we can be certain of is plenty of lobbying ahead of the October budget

Originally introduced in 2014 by then minister for finance Michael Noonan, for three years to ensure banks made a “contribution” to a recovering economy after the sector’s multibillion-euro taxpayer bailout, the annual banking levy has since been extended to the end of this year.

But with banks still shielded from the taxman for years to come by virtue of their massive deferred tax assets – as a result of multibillion euro losses across the sector during the financial crisis – it is a foregone conclusion that the levy will be extended again in the budget in October. Especially now that the Government will be looking at every possible avenue for next year’s budget to put its finances on a more solid footing after the Covid-19 economic crisis.

AIB, Bank of Ireland and Permanent TSB (PTSB) alone have utilised almost €500 million of tax losses against their corporation tax bills between 2017 and 2019, according to Department of Finance figures. So, there is a political need to claw back some of this by way of the levy.

The problem, however, is that the last two months has seen two of the five banks signal that they’re on the way out of the market.

Ulster Bank, a unit of UK-based NatWest Group, said in February that it plans to wind down in the coming years, with PTSB and AIB in talks to buy much of its loan book, while Belgian-owned KBC Bank Ireland announced less than two weeks ago that it was in talks to sell most of its loans and deposits to Bank of Ireland.

Will this mean that the remaining three State-backed banks pick up the entire €150 million tab in future? Expect the banks and their friends in the Banking and Payment Federation Ireland to be lobbying strongly over the summer months, ahead of October's budget, to have the levy reduced.