[Shutterstock]
Behind the facade of complete normalization in the banking sector, the last major impact of the crisis remains on lenders’ balance sheets: Deferred tax credit comes to around €11.5 billion and represents a significant portion – almost 40% – of the regulatory capital of systemic groups.
Deferred tax is “lower quality” capital, not because it is not recognized by regulators, but because it is not capital created by the bank itself. This is a peculiarity that has accompanied the Greek banking system since the time of the debt haircut and the large losses sustained during the 10-year crisis, when the state allowed these losses to be converted into a future tax claim.
The DTC percentage constituted the largest part of the regulatory capital of Greek banks until two years ago – when in the rest of European countries this rate was in single digits – and was a permanent point of concern for the market and the supervisory authorities.
Greek banks agreed to start reducing it rapidly, allocating an amount equal to 29% of their dividends. The higher dividend they pay, the more funds for DTC amortization they will have to allocate. The accelerated reduction began to apply last year and leads, according to estimates, to its full amortization eight to 10 years earlier than foreseen.