Ukraine's Banking Sector Record Profits and Potential Tax Increases
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Loading... - Julia Gibson
- 09 Sep 2024
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Ukraine's banking sector has reported record profits, with earnings reaching nearly Hr 120 billion ($2.9 billion) in the first seven months of 2024. This 22% increase from the same period last year has led to concerns about the sector's tax contributions. The government has already increased taxes on profits from 15% to 50% for 2023, resulting in a significant increase in tax payments from banks.
Despite this, banks remain highly profitable, with state-owned banks accounting for 63% of the sector's profits. The largest bank, PrivatBank, earned Hr 37.16 billion ($906 million) in profits, an 8% increase from 2023. The top five state-owned banks collectively earned Hr 58.84 billion ($1.4 billion) and paid Hr 14.6 billion ($356 million) in taxes.
The government may consider increasing taxes on banks again to plug the budget hole, but experts argue that this may not be enough to cover the deficit. Instead, the state could take dividends from state-owned banks, which could generate a significant amount of revenue.
The banking sector's profits are largely driven by securities transactions, particularly Ukrainian sovereign bonds, which account for 55% of their income. The sector also benefits from the influx of foreign aid, which has increased liquidity and deposits.
Ukrainians still prefer state-owned banks, which are seen as reliable for depositors. Banks with foreign capital follow, contributing 23% of the sector's profits, while banks with private capital account for 14%.
The potential tax increase on banks has been met with opposition from the International Monetary Fund, the Finance Ministry, and the National Bank. However, Ukraine's budget deficit and anticipated financing problems next year may leave the government with little choice.
