UK budget levy will cost BoI up to €38m a year, say analysts
THE new UK budgetary decision to slap a levy on banks could set Bank of Ireland back up to €21m-€38m a year, according to analysts.
Allied Irish Banks (AIB), Irish Life & Permanent and other Irish lenders with British operations are expected to come in under the threshold of having UK liabilities in excess of £20bn (€24bn).
Nonetheless, the valuation of their UK operations could be impacted by the levy, analysts said.
The levy will be set at 0.04pc of a bank's balance sheet from next year, before rising to 0.07pc thereafter -- as the UK aims to raise over £2bn a year to protect taxpayers from future bank bailouts.
Goodbody Stockbrokers estimate that based on €54bn of total liabilities, BoI's annual pre-tax charge could be in the order of €21m to €38m -- shaving up to 3.5pc off the bank's pre-tax profits when the economy returns to normal.
However, the broker said this figure will be lowered by various allowable deductions as well as UK Chancellor of the Exchequer George Osborne's move to cut corporate tax rates from 28pc to 24pc over four years.
"So, on balance, it could still be a net cost of about 1pc-2pc of group normalised earnings," Goodbody analyst Eamonn Hughes said.
Merrion Capital estimates that BoI has up to £30bn of "relevant liabilities" in the UK that will be affected by the levy, which points to a charge of up to £21m at the higher 0.07pc rate.
"However, the bank will have options to reduce the potential charge by altering the source and nature of its funding," said Merrion analyst Sebastian Orsi. "The reduction in corporate tax rates announced in the budget could have a positive impact on the Irish banks' UK operations on return to profitability."
Mr Hughes believes it is "only a matter of time" before a similar levy is introduced in Ireland, given an agreement between the UK, France and Germany this week to hit their banks.
He said this "provides critical mass to the development of levies across Europe", even as many G20 countries remain opposed.