WARSAW: Poland’s move to fund social spending by taxing the assets of banks risks hobbling one of Europe’s fastest-expanding economies as evidence mounts that the policy is eroding credit growth. A month after imposing a levy on lenders’ assets, loan expansion slid to the slowest pace in more than two years in March. Instead of lending into the real economy, banks opted to buy a record amount of government debt, which is exempt from the tax, in the first two months of 2016, Finance Ministry data show.
Industry profits were already reeling from some of the lowest lending rates on record and the added burden is forcing banks to compensate by ring-fencing as much of their balance sheets as possible from the tax. The central bank said on Tuesday that lenders were turning down more loan applications partly in response to the tax, while Oxford Economics predicted credit retrenchment will shave a 0.2 percentage points from 2016 growth.
“This combination of measures is negative for long-term growth,” said Mikhail Liluashvili, a London-based economist for Central and Eastern Europe at Credit Suisse Group AG. “Taxes bring distortions to economic activity and reduce incentives, in this particular case incentives to lend.”
